Document:

<PAGE>

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.
                                                                    EXHIBIT 10.8
                            LLC OPERATING AGREEMENT
                            -----------------------

                                 GENOPTERA LLC
                                 -------------

     This Operating Agreement (the "Agreement"), is entered into as of December
                                    ---------
__, 15, 1999 (the "Effective Date"), by and among Bayer Corporation, an Indiana
                   --------------
corporation ("Bayer") and Exelixis Pharmaceuticals, Inc., a Delaware corporation
              -----
("Exelixis"), as the initial members (the "Members") of OpteraGenOptera LLC, a
  --------                                 -------
Delaware limited liability company (the "LLC") to be formed by Bayer and
                                         ---
Exelixis on or before January 1, 2000; immediately upon its formation, the LLC
will execute and deliver a counterpart copy hereof and thereupon will become a
party hereto.  Terms not otherwise defined in this Agreement will have the
meanings set forth for such terms in Article I hereof.

                                   RECITALS
                                   --------

     WHEREAS, the Members will have formed the LLC, on or before January 1,
2000, as provided in Section 2.1 hereof, to identify and validate biochemical
targets useful within the Field of Use, and to format high throughput screening
assays based upon such targets, in each case within the Field of Use, and in
each case based initially upon certain technology of Exelixis and Bayer AG which
was used in connection with, and certain technology developed under, the
Original Collaboration Agreement, and such other matters as the Members may
agree in writing with each other from time to time, as an amendment hereto; and

     WHEREAS, simultaneously with their execution and delivery hereof, Bayer and
Exelixis also have executed and delivered the LLC Collaboration Agreement, which
also will be effective as of January 1, 2000; and

     WHEREAS, the Members and the LLC desire to enter into this Agreement, to
set forth the respective ownership interests of the Members in the LLC and the
principles by which the LLC will be operated and governed;

     NOW, THEREFORE, in consideration of mutual covenants and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:

                                   ARTICLE I
                                  DEFINITIONS

     The following terms will have the meanings set forth below for purposes of
this Agreement:

     1.1  Accounting Period" means, for each Fiscal Year, the period beginning
          -----------------
on January 1 and ending on December 31, provided that (a) the first Accounting
Period will commence on the date of formation of the LLC and if the LLC is
formed in 1999 will end on December 31,
<PAGE>

1999, and if the LLC is formed in 2000 will end on December 31, 2000, and (b) a
new Accounting Period will commence on any date on which a Substitute Member is
admitted to the LLC.

     1.2  "Act" means the Delaware Limited Liability Company Act.
           ---

     1.3  "Adjusted Capital Account" means, with respect to any Member, the
           ------------------------
balance in the capital account of such Member, increased by the amount of such
Member's share, determined in accordance with Treasury Regulations Section
1.704-2(g), of "partnership minimum gain," within the meaning of Treasury
Regulations Section 1.704-2(d), and such Member's share, determined in
accordance with Treasury Regulations Section 1.704-2(i), of "partner nonrecourse
debt minimum gain," within the meaning of Treasury Regulations Section 1.704-
2(i).

     1.4  "Affiliate" means a Person who controls, is controlled by or is under
           ---------
common control with (a) the referenced Member or (b) another Person.  For
purposes of this definition (1) the word "control" (including, with correlative
meaning, the terms "controlled by" or "is under common control with") means the
power to direct or cause the direction of the management and policies of the
relevant Person, or the ownership of at least fifty percent (50%) of the
aggregate stock or voting power of all classes of stock and/or other voting
securities of such Person if it is a legal entity, and (2) Bayer and Bayer AG
are Affiliates of each other, and (3) for purposes of this Agreement, the LLC is
not an Affiliate of Bayer or of Exelixis, nor is either of Bayer or Exelixis an
Affiliate of the LLC, and (4) Bayer and Bayer AG, on the one hand, and Exelixis,
on the other hand, are not, merely by virtue of this Agreement or the LLC
Collaboration Agreement, deemed to be Affiliates of each other.

     1.5   "Agreement" means this Operating Agreement as it may be amended from
            ---------
time to time.

     1.6  "Appraiser" means an independent investment bank, accounting firm or
           ---------
other entity which has no material relationship with either Member or any of
their Affiliates or the LLC, and who is experienced in appraising and
determining the fair market value of agriculture-based, genetic screening-based
or other technology-based companies.  For purposes of this Agreement, a
"material relationship" is defined as any relationship, including holding more
than one percent (1%) of the stock of the relevant Person, or having a senior
executive (any LLC officer or similar position) of such bank, firm or other
entity, who is also serving or has served, during the two (2) years immediately
preceding such Appraiser's selection, as an employee, LLC officer or Director,
or similar position, of such relevant Person, or which bank, firm, entity or
senior executive is consulting with or for such relevant Person on any ongoing
retained basis, or in a non-ongoing retention or engagement during the two (2)
years immediately preceding such Appraiser's selection.

     1.7  "Auction" and "Auctioneer" will have the meanings set forth for such
           -------       ----------
terms in Section 13.5 hereof.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -2-
<PAGE>

     1.8  "Bayer AG" means a corporation organized under the laws of Germany,
           --------
which is the parent corporation of Bayer.

     1.9  "Bankruptcy" means, with respect to any Person, that a petition has
           ----------
been filed by or against such Person as a "debtor" and the adjudication of such
Person as a bankrupt under the provisions of the bankruptcy laws of the United
States have commenced, or that such Person has made an assignment for the
benefit of its creditors generally or a receiver has been appointed for
substantially all of the property and assets of such Person, unless the same has
been vacated, set aside or stayed within sixty (60) days after such filing.

     1.10 "Buyout" means the purchase by one Member of all of the Membership
           ------
Interest of the other Member pursuant to the provisions of Article XIII hereof.

     1.11 "Capital Account" means, for each Member, a separate account
           ---------------
maintained by the LLC in accordance with the following provisions:

          (a) Increases.  The Capital Account of each Member will be increased
              ---------
by:
              (i)    Money and Property Contributed. The amount of money and the
                     ------------------------------
agreed fair market value of any property contributed to the LLC by such Member,
or paid by such Member for the benefit of the LLC pursuant to this Agreement
(net of any liabilities secured by such property that the LLC is considered to
assume or hold subject to for purposes of Section 752 of the Code), in each case
as a Capital Contribution by such Member,

              (ii)    Share of Net Income, Etc.  Such Member's share of Net
                      ------------------------
Income (or items thereof) and other items of LLC income and gain allocated to it
pursuant to this Agreement, and

              (iii)   Certain Assumption of Liabilities.  The amount of
                      ---------------------------------
liabilities of the LLC assumed by such Member, to the extent not taken into
account under Section 1.11(a)(i) hereof, and any other amounts required by
Treasury Regulations Section 1.704-1(b), if the Management Committee determines
that such increase is consistent with the economic arrangement among such
Members as expressed in this Agreement; and

          (b) Decreases.  The Capital Account of each Member will be decreased
              ---------
by:

              (i)     Money And Property Distributed. The amount of money and
                      ------------------------------
the agreed fair market value of any property distributed by the LLC to such
Member pursuant to the provisions of this Agreement (net of any liabilities
secured by such property that such Member is considered to assume or hold
subject to for purposes of Section 752 of the Code),

              (ii)    Share of Net Loss, Etc. Such Member's share of Net Loss
                      ----------------------
(or items thereof) and other items of LLC loss and deduction allocated to it
pursuant to this Agreement, and

              (iii)   Certain Assumption of Liabilities.  The amount of
                      ---------------------------------
liabilities of such Member assumed by the LLC (to the extent not taken into
account under Section 1.11(a)(i)

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -3-
<PAGE>

hereof) and any other amounts required by Treasury Regulations Section 1.704-
1(b), if the Management Committee determines that such decrease is consistent
with the economic arrangement among such Members as expressed in this Agreement.

     1.12 "Capital Contribution" of a Member means the contribution by such
           --------------------
Member to the LLC pursuant to Article IV hereof.

     1.13 "Carrying Value" means, with respect to any LLC asset, such asset's
           --------------
adjusted basis for federal income tax purposes, except as follows:

          (a) Initial Carrying Value of Contributed Asset.  The initial Carrying
              -------------------------------------------
Value of any asset contributed by a Member to the LLC will be the fair market
value of the asset upon contribution, as agreed upon in writing by the
contributing Member and the LLC.

          (b) Adjustments Upon Certain Acquisitions And Distributions.  In the
              -------------------------------------------------------
discretion of the Management Committee, or upon the written request of either
Member to the Management Committee, with a copy to the other Member, the
Carrying Values of all LLC assets may be adjusted to equal their respective fair
market values, as determined by the Management Committee, and the resulting
unrecognized gain or loss allocated to the Capital Accounts of the Members as
though such assets had been sold for their respective fair market values as of
the following times: (i) the acquisition of an additional interest in the LLC by
any Member in exchange for more than a de minimis Capital Contribution; and (ii)
                                       -- -------
the distribution by the LLC to a Member of more than a de minimis amount of LLC
                                                       -- -------
assets, unless all Members receive simultaneous distributions of either
undivided interests in the distributed property or identical LLC assets in
proportion to their interests in the LLC.

          (c) Certain Adjustments to Equal Fair Market Value On Liquidation or
              ----------------------------------------------------------------
Termination of LLC.  The Carrying Values of all LLC assets will be adjusted to
------------------
equal their respective fair market values, as determined by the Management
Committee, and the resulting unrecognized gain or loss allocated to the Capital
Accounts of such Members as though such assets had been sold for their
respective fair market values as of the following times: (i) the date the LLC is
liquidated within the meaning of Treasury Regulations Section 1.704-1
(b)(2)(ii)(g); and (ii) the termination of the LLC pursuant to the provisions of
this Agreement.

          (d) Certain Increases or Decreases.  The Carrying Values of LLC assets
              ------------------------------
will be increased or decreased to the extent required under Treasury Regulations
Section 1.704-1(b)(2)(iv)(m) if the adjusted tax basis of such LLC assets is
adjusted pursuant to Code Sections 732, 734 or 743.

          (e) Adjustment To Equal Fair Market Value On Distribution.  The
              -----------------------------------------------------
Carrying Value of an LLC asset that is distributed (whether in liquidation of
the LLC or otherwise) to one or more Members will be adjusted to equal its fair
market value, as determined by the Management Committee, and the resulting
unrecognized gain or loss allocated to the Capital Accounts of such Members as
though such asset had been sold for such fair market value.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -4-
<PAGE>

          (f) Adjustment For Depreciation, Etc.  The Carrying Value of an LLC
              --------------------------------
asset will be adjusted by the depreciation, amortization or other cost recovery
deductions, if any, taken into account by the LLC with respect to such asset in
computing Net Profit or Net Loss.

     1.14 "Certificate of Formation" means the Certificate of formation of the
           ------------------------
LLC.

     1.15 "Changed Circumstance" means any of the following:
           --------------------

          (a) Continuing Force Majeure Event.  A Continuing Force Majeure Event
              ------------------------------
occurs with respect to a Member.

          (b) Exelixis-Specific Matters.  Any or all of the following will be a
              -------------------------
Changed Circumstance with respect only to Exelixis:

              (i)   Certain Sales of Assets.  Subject to the last sentence of
                    -----------------------
this Section 1.15(b)(i), the sale, lease, conveyance or other disposition of [ *
] or more of the net value, as determined using United States generally accepted
accounting principles, of the assets of Exelixis, as an entirety or
substantially as an entirety, to any other Person or to any "group," within the
meaning of Section 10(d)(3) of the Exchange Act, that includes such Person, and
in each case other than Bayer or Bayer AG, in one or a series of transactions.
For purposes of this Section 1.15(b)(i), any transaction as a result of which
the holders of all classes of stock and/or other voting securities of Exelixis
immediately prior to such transaction own, directly or indirectly, at least [ *
] of the aggregate voting stock or voting power of all classes of stock and/or
other voting securities of the transferee Person immediately after such
transaction, will not constitute a Changed Circumstance as to Exelixis, unless,
and until the date upon which, Bayer gives Exelixis written notice, which notice
Bayer must give within [ * ] after Bayer has received from Exelixis, under
Section 13.2(a)(i) hereof, a Proposed Changed Circumstances Notice of such
event, or has received from Exelixis, under Section 13.2(a)(ii) hereof, a Final
Notice of such proposed event, that one or more of the transferee or proposed
transferee Person(s) and/or the Affiliate(s) of such Person(s), as relevant, is
(or are), [ * ].

              (ii)  Certain Changes of Control.  Subject to the provisions of
                    --------------------------
Section 1.15(b)(ii)(A) and (B) hereof, any transaction or series of transactions
(as a result of a tender offer, merger, consolidation or otherwise) that
involves a transfer of securities of Exelixis, if as a result of such transfer
any Person, including a "group," within the meaning of Section 10(d)(3) of the
Exchange Act, that includes such Person, and in each case other than Bayer or
Bayer AG, acquires "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) of [ * ] or more of the aggregate stock and/or other voting
securities of Exelixis, and such Person or "group" did not, immediately before
such transaction, hold directly or indirectly, [ * ] or more of the aggregate
stock or voting power of all classes of stock and/or other voting securities of
Exelixis. For purposes of this Section 1.15(b)(ii):

                    (A) Requirement Of Certain Notice By Bayer.  Such event will
                        --------------------------------------
not constitute a Changed Circumstance as to Exelixis unless, and until the date
upon which, Bayer gives written notice to the Management Committee and to
Exelixis, which notice Bayer must give within [ * ] after Bayer has received
from Exelixis, under Section 13.2(a)(i) hereof, a

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -5-
<PAGE>

Proposed Changed Circumstances Notice of such event, or has received from
Exelixis, under Section 13.2(a)(ii) hereof, a Final Notice of such proposed
event, that, in the good faith judgment of Bayer, such event does or would
materially adversely impact the business, operations and/or financial potential
of the LLC, and/or that one or more of the Persons, including their Affiliates,
as relevant, to whom such equity is transferred, or to whom such equity is
proposed to be transferred, is (or are), [ * ]; and

                    (B) Certain Equity Financings By Exelixis.  The closing of
                        -------------------------------------
any equity financing of Exelixis after the Effective Date, by the issuance by
Exelixis of its own securities (including without limitation stock of Exelixis
and/or securities, such as options, warrants or convertible promissory notes,
exercisable for or convertible by their terms into stock of Exelixis), will not
constitute a Changed Circumstance as to Exelixis unless, and until the date upon
which, Bayer gives Exelixis written notice, which notice Bayer must give within
[ * ] after Bayer has received from Exelixis, under Section 13.2(a)(i) hereof, a
Proposed Changed Circumstances Notice of such event, or has received from
Exelixis, under Section 13.2(a)(ii) hereof, a Final Notice of such proposed
event, that the Person(s), including a "group," within the meaning of Section
10(d)(3) of the Exchange Act, that includes such Person(s), and in each case
other than Bayer or Bayer AG, , to whom such equity is issued is (or are),
[ * ].

              (iii) Certain Resignations or Terminations, Etc.  Subject to the
                    -----------------------------------------
provisions of Section 1.15(b)(iii)(D) hereof, the resignation, termination,
demotion, death or disability of, cumulatively, [ * ] or more Key Exelixis
Individuals, as follows:

                    (A) Resignation.  The resignation, at any time prior to
                        -----------
[ * ], by a Key Exelixis Individual from all employment and consultancy
relationships with Exelixis and all of its Affiliates. For purposes of this
Agreement, a Key Exelixis Individual will be deemed to have resigned from all
employment and consultancy relationships with Exelixis and all of its Affiliates
on the date after which such individual is neither an employee nor serving as a
consultant under a written agreement with Exelixis or such Affiliate which
requires that such individual render services actively, and not merely be
available on a standby-by or retained on-call basis, for at least one-half of
such individual's full working time.

                    (B) Termination.  The termination, with or without cause, at
                        -----------
any time prior to [ * ], by a Key Exelixis Individual, from all employment and
consultancy relationships with Exelixis and all of its Affiliates, whether by
death, disability or otherwise.

                    (C) Disability or Demotion Without Resignation or
                        ---------------------------------------------
Termination. At any time prior to [ * ], the disability of a Key Exelixis
-----------
Individual (if there is no termination or resignation by such individual nor by
Exelixis as a result of such disability), to the extent that, or any demotion of
such Key Exelixis Individual to a position of authority and/or title with
Exelixis and/or its Affiliates that, in either case, in the good faith judgment
of Bayer after consultation with Exelixis, and as so notified in writing by
Bayer to the Management Committee, does or would materially adversely impact the
business, operations and/or financial potential of the LLC.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -6-
<PAGE>

                    (D) Exclusions; Consultation With Bayer, Bayer Approval of
                        ------------------------------------------------------
Certain Replacements. This Section 1.15(b)(iii) will not apply as to any Key
--------------------
Exelixis Individual who, immediately upon such termination or resignation with
Exelixis and all of its Affiliates, commences full-time employment or full-time
consultancy with Bayer, or Bayer AG, or with the LLC with Bayer's prior written
consent thereto. This Section 1.15(b)(iii) also will not apply with respect to
the termination, resignation, death, disability or demotion of any Key Exelixis
Individual, whether or not an FTE, until the [ * ] anniversary of the date of
such event, if the position held by such individual is filled by Exelixis within
such [ * ] period, provided that:

                        (1) Consultation With Bayer.  Exelixis will consult in
                            -----------------------
good faith with Bayer as to the replacement for such individual.

                        (2) Bayer Approval of Certain Replacements. Bayer's
                            --------------------------------------
approval, which approval Bayer will not unreasonably or untimely withhold, will
in each case be required for the individual replacement selected by Exelixis for
each of the positions of [ * ] (or equivalent position) of Exelixis (occupied by
[ * ] at the Effective Date), and [ * ] (or equivalent position) of Exelixis
(occupied by [ * ] at the Effective Date). Furthermore, if any [ * ] of the
following positions becomes vacant within [ * ] of each other by the
termination, resignation, death, disability or demotion of any Key Exelixis
Individual, Bayer's approval, which approval Bayer will not unreasonably or
untimely withhold, will be required for the individual replacement selected by
Exelixis for each of such [ * ] positions: (a) [ * ] of Exelixis (or [ * ] if
there is then no [ * ] (occupied by [ * ] at the Effective Date), (b) [ * ] (or
equivalent position) of Exelixis (occupied by [ * ] at the Effective Date), (c)
[ * ] (or equivalent position) of Exelixis, and (d) [ * ] (or equivalent
position) of Exelixis. The [ * ] period referred to in this Section
1.15(b)(iii)(D)(2) will commence on the date of, as relevant, the termination,
resignation, death, disability or demotion of the first of the [ * ] Key
Exelixis Individuals in question.

          (c) Bayer Specific Matters.  Either or both of the following will be a
              ----------------------
Changed Circumstance with respect only to Bayer, provided that, for purposes of
this Section 1.15(c), the term "insecticide" means [ * ]:
                                -----------

              (i)   Certain Sales Of Assets.  Subject to the last sentence of
                    -----------------------
this Section 1.15(c)(i), the sale, lease, conveyance or other disposition, in
one or a series of transactions to any other Person or "group," within the
meaning of Section 10(d)(3) of the Exchange Act, that includes such Person, and
in each case other than Exelixis or Bayer AG, of [ * ] or more of the net value,
as determined under United States generally accepted accounting principles, of
those assets of Bayer constituting at the time in question Bayer's insecticide
business (as the term "insecticide" is defined in the first paragraph of Section
1.15(c) hereof), or of [ * ] or more of the net value, as determined under
United States generally accepted accounting principles, of the overall assets of
Bayer if Bayer has not previously sold, leased, conveyed or otherwise disposed
of [ * ] or more of the net value of its insecticide business. For purposes of
this Section 1.15(c)(i), any transaction as a result of which the holders of all
classes of stock and/or other voting securities of Bayer immediately prior to
such transaction own, directly or indirectly, at least [ * ] of the aggregate
voting stock or voting power of all classes of stock and/or other voting
securities of the transferee Person immediately after such transaction, will not
constitute a Changed Circumstance as to Bayer.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -7-
<PAGE>

              (ii)  Certain Changes Of Control.  Subject to the provisions of
                    --------------------------
Section 1.15(c)(ii)(A) and (B) hereof, any transaction or series of transactions
(as a result of a tender offer, merger, consolidation or otherwise) that
involves a transfer of securities of Bayer (or, if Bayer's insecticide business
then is being conducted in a separate legal entity that is at the time an
Affiliate of Bayer, then involving a transfer of securities of such entity), if
as a result of such transfer any Person, including a "group," within the meaning
of Section 10(d)(3) of the Exchange Act, that includes such Person, and in each
case other than Exelixis or Bayer AG, acquires "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act) of [ * ] or more of the aggregate
stock and/or other voting securities of Bayer or of such separate legal entity,
and such Person or "group" did not, immediately before such transaction, hold
directly or indirectly, [ * ] or more of the aggregate stock or voting power of
all classes of stock and/or other voting securities of Bayer or of such separate
legal entity, as relevant. For purposes of this Section 1.15(b)(ii):

                    (A) Requirement Of Certain Notice By Exelixis. Such event
                        -----------------------------------------
will not constitute a Changed Circumstance as to Bayer unless, and until the
date upon which, Exelixis gives written notice to the Management Committee and
to Bayer that, in the good faith judgment of Exelixis, such event does or would
materially adversely impact the business, operations and/or financial potential
of the LLC, which notice Exelixis must give within [ * ] after Exelixis has
received from Bayer, under Section 13.2(a)(i) hereof, a Proposed Changed
Circumstances Notice of such event, or has received from Bayer, under Section
13.2(a)(ii) hereof, a Final Notice of such proposed event.

                    (B) Certain Conditions.  Such event will constitute a
                        ------------------
Changed Circumstance as to Bayer only (1) if at the time in question Bayer's
insecticide business is being conducted in whole or in material part by or
within a separate legal entity other than Bayer or Bayer AG, and at least [ * ]
of the aggregate stock or voting power of all classes of stock and/or other
voting securities of such entity is held by Bayer or by Bayer AG immediately
before the consummation of such transaction, or (2) if at the time Bayer's
insecticide business is being conducted by Bayer, and if Bayer AG, immediately
before the consummation of such transaction (a) does not own, directly or
indirectly, at least [ * ] of the aggregate voting stock or voting power of all
classes of stock and/or other voting securities of Bayer and (b) does not
otherwise have the power to direct or cause the direction of the management and
policies of the insecticide business of Bayer.

          (d) LLC Lack Of Freedom To Operate.  Subject to the last sentence of
              ------------------------------
this Section 1.15(d), the [ * ] anniversary of the delivery by Bayer to Exelixis
of a "Lack Of Freedom To Operate Notice".  A "Lack Of Freedom To Operate Notice"
      ---------------------------------
means Bayer's written notice that, in the good faith judgment of Bayer, after
Bayer has consulted with Bayer's patent counsel and with Exelixis, and after
Bayer's patent counsel has consulted with Exelixis' patent counsel, with respect
thereto, there exist sufficient dominant patents, or other intellectual property
rights, of any third party (other than an Affiliate of Bayer or an Affiliate of
Exelixis), with respect to the subject and focus of the LLC Collaboration
Agreement, and/or of the LLC, as to create a material risk of exposure of the
LLC and/or of Bayer or its Affiliates to an action for infringement by such
third party by reason of any intellectual property licensed to the LLC by
Exelixis and/or by any intellectual property belonging to the LLC (apart from
any such

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -8-
<PAGE>

intellectual property licensed to the LLC by Bayer or by any Bayer Affiliate),
and to create a failure of the essential purpose of the LLC and of the LLC
Collaboration Agreement if the LLC and the LLC Collaboration Agreement were to
continue. Such event will not constitute a Changed Circumstance if, prior to
such [ * ] anniversary, Exelixis and/or the LLC have executed with such third
party a license, or an agreement not to bring an action for infringement as to
the relevant intellectual property, in either case in favor of the LLC, and in
favor of Bayer and Exelixis and their respective Affiliates, with respect to the
intellectual property rights or alleged intellectual property rights of such
third party in question, meeting the criteria set forth in the next sentence.
Such license (i) must be approved by the Management Committee, and by Exelixis
if Exelixis is to be a party to the license, or is to be responsible for any
payments thereunder, as is described in clause (ii) of this Section 1.15(d)
immediately following, and (ii) may contain provision for the payment to the
licensor of commercially reasonable license commitment or upfront fees,
royalties or premium fees, provided that (A) if the potential infringement of
such third party's right is determined by Bayer, after the consultation
described in the first sentence of this Section 1.15(d), to derive primarily
from intellectual property rights of Exelixis licensed to the LLC, then [ * ]
will be responsible for payment of any such license or commitment fees,
royalties or premium fees thereunder, and (B) if the potential infringement of
such third party's right is determined by Bayer, after the consultation
described in the first sentence hereof, to derive primarily from intellectual
property rights of the LLC licensed in to the LLC, then [ * ] will be
responsible for payment of any such license or commitment fees, royalties or
premium fees thereunder.

     1.16 "Code" means the Internal Revenue Code of 1986, as amended.
           ----

     1.17 "Collateral Agreements" means any license or other agreement to which
           ---------------------
the LLC is a party or by which it is bound, and any license or other agreement
to which either or both Members are a party or by which either or both Members
are bound and that relate to the LLC, other than (a) the LLC Collaboration
Agreement, (b) this Agreement, and (c) any agreements between Bayer and Bayer
AG.

     1.18 "Commencement Date" means January 1, 2000, or such other date as the
           -----------------
Members agree in writing as an amendment hereto

     1.19 "Confidential Information" means, with respect to a party hereto,
           ------------------------
information that is owned or controlled by such party, its Affiliates or
sublicensees, including information of third parties known to such party by
reason of any collaboration with such third party or under any confidentiality
agreement with such third party, that is disclosed by such party hereto, to one
or both of the other parties hereto pursuant to this Agreement, and that is
identified by the disclosing party in writing, or is acknowledged by the
receiving party in writing, to be confidential to the disclosing party or to a
third party at the time of disclosure to the receiving party if disclosed in
tangible form, or is confirmed by the disclosing party to the receiving party as
confidential within thirty (30) days after disclosure if initially disclosed
orally by the disclosing party.  Confidential Information will not include any
information which:

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -9-
<PAGE>

          (a) Already Known Without Breach.  Was already known to the receiving
              ----------------------------
party, without breach of any obligation of confidentiality by any party, at the
time of disclosure by the disclosing party;

          (b) Generally Available Or In Public Domain Without Breach.  Was
              ------------------------------------------------------
generally available to the public or otherwise part of the public domain at the
time of its disclosure to the receiving party by the disclosing party, or became
generally available to the public or otherwise part of the public domain after
its disclosure to the receiving party by the disclosing party, in each case
without breach of any obligation of confidentiality by the receiving party;

          (c) Freely Disclosed By Certain Third Parties.  Was disclosed to the
              -----------------------------------------
receiving party, other than under an obligation of confidentiality, by a third
party who had no obligation to the disclosing party not to disclose such
information to others;

          (d) Freely Disclosed By Disclosing Party To Others.  Is disclosed by
              ----------------------------------------------
the disclosing party to others without an obligation of confidentiality;

          (e) Required To Be Disclosed.  Is required to be disclosed pursuant to
              ------------------------
law, subject, except for disclosure of financial information to the extent
required by securities laws to be disclosed, to the protective provisions set
forth in Section 18.6 hereof; or

          (f) Independently Developed.  The receiving party can document was
              -----------------------
subsequently and independently developed by employees or others on behalf of the
receiving party without use of any Confidential Information disclosed to the
receiving party or such others by the disclosing party.

     1.20 "Continuing Force Majeure Event" means a Force Majeure Event as to the
           ------------------------------
Affected Member, which continues for at least [ * ], on a [ * ] anniversary
calculation, after delivery of written notice to the Affected Member by the Non-
Affected Member, with a copy to the Management Committee, reciting facts therein
in reasonable detail regarding (a) the date upon which, in the good faith
judgment and knowledge of the Non-Affected Member, such Force Majeure Event
commenced for the Affected Member, (b) the general nature of such Force Majeure
Event, and (c) that the Force Majeure Event (i) is having or would have, in the
good faith judgment of the Non-Affected Member, a material adverse effect upon
the Affected Member's ability to perform such Affected Member's obligations
under this Agreement, the LLC Agreement, and/or the relevant Collateral
Agreements, and (ii) does have or would have, in the good faith judgment of the
Non-Affected Member, a material adverse effect on the business or operations of
the LLC.

     1.21 "Damages" means, subject to the provisions of Article XI hereof, all
           -------
costs, liabilities, obligations, damages, fines, penalties, deficiencies, losses
and judgments, including reasonable fees and costs of attorneys, accountants,
and other customary and commercially reasonable advisors, in each case after the
application of any amounts recoverable under insurance contracts or similar
arrangements and from other third parties, by the Person claiming indemnity
under this Agreement.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -10-
<PAGE>

     1.22 "Deadlock" means the inability of the Members to resolve a dispute in
           --------
accordance with the provisions of Section 17.1 hereof before arbitration under
Section 17.2 hereof, including without limitation the failure of the Management
Committee to timely agree on a budget and/or Strategic Plan for the LLC as
provided in Section 8.8 hereof.

     1.23 "Dissociated Member" means a Member who has suffered a Bankruptcy or
           ------------------
Dissolution.

     1.24 "Dissolution" of a Member means that such Member has terminated its
           -----------
existence, whether partnership or corporate, wound up its affairs and dissolved,
provided that a change in the membership constitution of any Member that is a
general partnership will not constitute "Dissolution" hereunder, whether or not
such Member is deemed technically dissolved for partnership law purposes, for so
long as the business of such Member is continued.

     1.25 "Dissolution Event" as to a Member means:
           -----------------

          (a) Attachment, Etc.  Attachment, execution or other judicial seizure
              ---------------
of all or any substantial part of a Member's assets, or of a Member's interest
in the LLC, or any part thereof, and in each case remaining undismissed or
undischarged for a period of [ * ] after the levy thereof, if the occurrence of
such attachment, execution or other judicial seizure has, in the good faith
judgment of the Non-Affected Member, communicated in writing by the Non-Affected
Member to the Affected Member and to the Management Committee, a materially
adverse effect upon the performance by such Affected Member of its obligations
under this Agreement, the LLC Collaboration Agreement, and/or the relevant
Collateral Agreements, provided that such attachment, execution or seizure will
not constitute a Dissolution Event if the Affected Member posts a bond
sufficient to fully satisfy the amount of such claim or judgment within [ * ]
after the levy thereof and the LLC's assets, and/or, as relevant, such Affected
Member's interest in the LLC, are thereby released from the lien of such
attachment; and/or

          (b) Bankruptcy or Dissolution Of A Member.  The Bankruptcy or
              -------------------------------------
Dissolution of a Member.

     1.26 "Event of Default" and "Affected Member" and "Non-Affected Member" and
           ----------------       ---------------       -------------------
"Default Notice" will have the meanings set forth for such terms in Article XIV
 --------------
hereof.

     1.27 "Excess Negative Balance" for purposes of Section 9.2 hereof, means
           -----------------------
the excess of the negative balance in a Member's Adjusted Capital Account
(computed with any adjustments which are required by Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)) over the amount such Member is obligated to
restore to the LLC, computed under the principles of Treasury Regulations
Section 1.704-1(b)(2)(ii)(c), inclusive of any addition to such restoration
obligation pursuant to application of the provisions of Treasury Regulations
Section 1.704-2.

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

     1.29 "Fair Market Value" means the fair market value of a Membership
           -----------------
Interest as determined under Section 13.1 hereof.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -11-
<PAGE>

     1.30 "Field of Use" will have the same meaning, at the time in question
           ------------
under this Agreement, as is given for such term at the time in question under
the LLC Collaboration Agreement.

     1.31 "Fiscal Year" means the period from January 1 to December 31 of each
           -----------
year, or as otherwise required by law or as otherwise determined by the
Management Committee.

     1.32 "Force Majeure Event" means, as to a Member, an event or condition
           -------------------
having a material adverse effect upon such Member due to circumstances beyond
such Member's reasonable control and that by the exercise of commercially
reasonable due diligence it is unable to prevent.  Circumstances beyond the
reasonable control of a Member include, but are not limited to, fire, strikes,
insurrections, riots, embargoes, shortages, war-time rationing or preferences,
delays in transportation, inability to obtain supplies of raw materials or
requirements or regulations of any government or any other civil or military
authority in the relevant jurisdiction.

     1.33 "FTE" means a full-time equivalent employee or consultant, as the case
           ---
may be.

     1.34 "FTE Amount" means the amount required to be paid by the LLC to
           ----------
Exelixis under the LLC Collaboration Agreement for the FTE's.

     1.35 "JSC" means the Joint Scientific Committee, or its successor
           ---
committee, established by the Members as provided in the Section 6.13(a) of this
Agreement.

     1.36 "Key Exelixis Individual" means, as relevant, the individual who at
           -----------------------
the time in question is filling the position of [ * ] (or [ * ], if there is no
[ * ]) of Exelixis (occupied by [ * ] at the Effective Date), or of [ * ] (or
equivalent position) of Exelixis (occupied by [ * ] at the Effective Date), or
of [ * ] (or equivalent position) of Exelixis (occupied by [ * ] at the
Effective Date), or of [ * ] (or equivalent position) of Exelixis (occupied by
[ * ] at the Effective Date).

     1.37 "LLC Collaboration Agreement" means that certain LLC Collaboration
           ---------------------------
Agreement of even date herewith among Bayer, Exelixis and the LLC, as it may be
amended after the Effective Date in accordance with its terms.

     1.38 "LLC Operating Expense Amounts" means (a) professionals' fees and
           -----------------------------
costs incurred by the LLC (or, as to patent matters referred to in clause (i)
immediately following, if so requested by the Management Committee in writing of
Bayer, then professionals' fees and costs incurred by Bayer on behalf of the
LLC) in the conduct of its business for (i) preparing, applying for, maintaining
and defending and prosecuting alleged infringement of, LLC patents throughout
the world as determined by the Management Committee, including FTE expenses
(other than the FTE Amount) and out of pocket costs incurred by Exelixis in
connection with such activities that in each case have been mutually agreed to
by the LLC and Exelixis in writing, and (ii) the salary and benefits of any LLC
officer or LLC employee (FTE's not being employees of the LLC)to the extent not
paid directly by Bayer or by Exelixis, as relevant, to such individual, and
(iii) amounts that are paid by Bayer pursuant to Section 2.10 hereof for
insurance; and (b) amounts determined by the Management Committee as needed for
the operations of the LLC, which have been (i) identified in any annual budget
for the LLC, as it may have been amended, which has been

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -12-
<PAGE>

approved by the Management Committee as provided herein, or (ii) otherwise
approved by the Management Committee as being required for the operations of the
LLC, which will include all amounts, if any, determined by the Management
Committee to be needed by the LLC for Research (as defined in the LLC
Collaboration Agreement) funding beyond the minimum [ * ] (or such then-current
amount as may be provided in any amendment hereto) per calendar year required to
be paid by the LLC to Exelixis under the LLC Collaboration Agreement for
Research funding, to the extent that sufficient third-party funds described in
Section 4.3(a) hereof (excluding premium fees from the Members and milestone
payments from Bayer under the LLC Collaboration Agreement) are not available for
such Research funding. In each case, LLC Operating Expense Amounts will not
include (1) the minimum [ * ] (or such then-current amount as may be provided in
any amendment hereto), in the calendar year in question, of the additional
Capital Contributions of Bayer called for under Section 4.2 hereof to be
expended by the LLC under the LLC Collaboration Agreement to fund Research
funding , nor (2) any premium fee payments to the LLC by Bayer or by Exelixis,
nor (3) any milestone payments by Bayer to the LLC under the LLC Collaboration
Agreement.

     1.39 "Management Committee" means the Management Committee of the LLC.
           --------------------

     1.40 "Member" means Bayer, or Exelixis, or any other Person who holds a
           ------
Membership Interest in the LLC and who is admitted to the LLC as a Member in
accordance with the provisions of this Agreement.

     1.41 "Members" means both Members, or, when there are more than two, all
           -------
Members.

     1.42 "Member Representative" means each employee of or consultant to Bayer
           ---------------------
and each employee of or consultant to Exelixis selected to serve on the
Management Committee as provided herein.

     1.43 "Membership Interest" means the interest of a Member in the LLC.
           -------------------

     1.44 "Net Income" or "Net Loss" means, respectively, the net book income or
           ----------      --------
loss of the LLC for any relevant period.  The net book income or loss of the LLC
will be computed in accordance with federal income tax principles under the
method of accounting elected by the LLC for federal income tax purposes,
adjusted by:

          (a) Tax-Exempt Income, Etc.  Including as income or deductions, as
              ----------------------
appropriate, any tax-exempt income and related expenses that are neither
properly included in the computation of taxable income nor capitalized for
federal income tax purposes;

          (b) LLC Organizational Expenses.  Including as a deduction when paid
              ---------------------------
or incurred (depending on the LLC's method of accounting) any amounts paid to
organize the LLC except that amounts for which an election is properly made by
the LLC under Code Section 709(b) will be accounted for as provided therein;

          (c) Certain Losses On Sale Or Exchange Of Property.  Including as a
              ----------------------------------------------
deduction any losses incurred by the LLC in connection with the sale or exchange
of property

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -13-
<PAGE>

notwithstanding that such losses may be disallowed to the LLC for federal income
tax purposes under the related party rules of the Code, including Code Sections
267(a)(1) or 707(b);

          (d) Certain Gain Or Loss On Certain Dispositions.  Calculating the
              --------------------------------------------
gain or loss on disposition of LLC assets and the depreciation, amortization or
other cost- recovery deductions, if any, with respect to LLC assets by reference
to their Carrying Value rather than their adjusted tax basis; and

          (e) Certain Exclusions.  Excluding as an item of income, gain, loss or
              ------------------
deduction any items allocated pursuant to Section 9.2 hereof or any gross income
allocated under Section 9.1(b) hereof.

     1.45 "Percentage Interest" means, as to the relevant Member, the interest
           -------------------
of such Member in the LLC, which initially will be sixty percent (60%) for Bayer
and forty percent (40%) for Exelixis, as such Percentage Interest may be
automatically adjusted by application of Article XVI hereof.

     1.46 "Person" means a natural person, corporation, partnership (whether
           ------
general or limited), a limited liability company, or any trust, estate,
association, custodian, nominee or any other individual or entity in its own or
representative capacity, and in each case, as to a legal entity, whether formed
under the laws of the United States or of any state thereof or of any non-United
States jurisdiction.

     1.47 "Original Collaboration Agreement" means that certain Collaboration
           --------------------------------
Agreement dated as of May 1, 1998, as amended, by and between Exelixis and Bayer
AG.

     1.48 "Pro Rata Share" as to a Member's right of first offer under Article
           --------------
XVI hereof, means the Percentage Interest of such Member in the LLC, calculated
without giving effect to the relevant offer by the LLC, multiplied times the
percentage of interest, or units, or other securities, offered by the LLC.

     1.49 "Regulatory Allocations" will have the meaning set forth for such term
           ----------------------
in Section 9.2(h) hereof.

     1.50 "Research Field" will have the same meaning, at the time in question
           --------------
under this Agreement, as is given for such term at the time in question under
the LLC Collaboration Agreement.

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

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

     1.53 "Subscribing Members" will have the meaning for such term set forth in
           -------------------
Section 16.1 hereof.

     1.54 "Substantial Disagreement" means the failure of the Management
           ------------------------
Committee, and/or of the Members, if the Members' approval is required under
this Agreement in addition to

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -14-
<PAGE>

Management Committee approval, to reach agreement, within the relevant time
period required under this Agreement, on the operations of the LLC, including
(a) the budget for the LLC, and/or the Strategic Plan for the LLC, and any
respective amendment thereto, and/or (b) any other issue which has, or is likely
to have, in either case in the good faith view of either Member as so
communicated in writing to the Management Committee and to the other Member, a
material adverse impact on the business or operations or financial potential of
the LLC or of the notifying Member, including without limitation selection and
commercialization of assays, targets, or the like, in each case involving, and
only with respect to, the LLC. Any failure of the Management Committee or the
Members to (1) approve a proposed modification of the Research Field or Field of
Use, or (2) agree upon raising additional capital for the LLC, or (3) agree as
to issuance of additional Membership Interests, or (4) agree as to admitting
Substitute Members will not be a "Substantial Disagreement" nor subject to the
provisions of Section 17.1 or 17.2 hereof. For purposes of Section 13.5 hereof,
any dispute over the existence of a Force Majeure Event, or with respect to any
written agreement to which the LLC is a party or by which it is bound, will not
be a "Substantial Disagreement," the resolution of such disputes being governed
solely by Sections 17.1 and 17.2 hereof.

     1.55 "Substitute Member" means a Person who has, pursuant to this
           -----------------
Agreement, been admitted to all the rights of membership in the LLC as a Member.

     1.56 "Treasury Regulations" means regulations issued pursuant to the Code.
           --------------------

     1.57 "Tax Matters Member" means Bayer.
           ------------------

     1.58 "Unadjusted Excess Negative Balance," for purposes of Section 9.2
           ----------------------------------
hereof, will have the same meaning as Excess Negative Balance, except that the
Unadjusted Excess Negative Balance of a Member will be computed without
effecting the reductions to such Member's Capital Account that are described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(d).

                                  ARTICLE II
                   FORMATION OF THE LLC AND RELATED MATTERS

     2.1  Formation Of The LLC.  The Members will have formed the LLC pursuant
          --------------------
to the Act on or before January 1, 2000, to be in legal existence on January 1,
2000,  by causing the Certificate of Formation to be filed in the Office of the
Secretary of the LLC of State of Delaware, and by this Agreement intend to
establish rules and regulations governing the LLC's ownership and control upon
and after its creation.  The LLC will not commence business prior to January 1,
2000 without the prior written consent of both Bayer and Exelixis.

     2.2  Name And Principal Place Of Business Of The LLC.  Unless and until
          -----------------------------------------------
amended in accordance with this Agreement and the Act, the name of the LLC will
be OpteraGenOptera LLC.  The principal place of business of the LLC will be
located at the premises of Exelixis, at 260 Littlefield Avenue, South San
Francisco, CA 94080, or such other place as the Management Committee from time
to time determines.

     2.3  Delaware Registered Office And Agent For Services Of Process.  The LLC
          ------------------------------------------------------------
will maintain a Delaware registered office and agent for service of process as
required by Section 104

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -15-
<PAGE>

of the Act. The Delaware registered office and agent for service of process will
be The Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite L100,
Dover, Delaware 19904, or such other place and person as the Management
Committee may designate.

     2.4  Purpose.  The purpose of the LLC is to engage, subject to the other
          -------
provisions of this Agreement, in any lawful act or activity for which a limited
liability company may be organized under the Act, including without limitation,
and to the extent permitted hereunder and thereunder, the entry by the LLC into
and performance of its obligations under the LLC Collaboration Agreement and
agreements with third parties and other documents and instruments, including
without limitation those connected with collaborative and/or licensing
relationships, for research and development within or outside of the Research
Field, and/or commercialization, within or outside of the Field of Use, of
intellectual property licensed to or to which the LLC otherwise has relevant
rights, in each case relevant to the purpose, from time to time during the term
hereof, of the LLC.

     2.5  Term.  The term of the LLC will commence upon the later to occur of
          ----
(a) the filing of a Certificate of Formation for the LLC in the office of the
Secretary of State of Delaware or (b) the execution of this Agreement by the two
initial Members, and will continue in perpetuity unless terminated earlier as
provided herein.

     2.6  Review At End Of Research Term.  The Members will meet to discuss in
          ------------------------------
good faith the future of the LLC and their involvement therein no later than [ *
] prior to the end of the Research Term, as defined in and as determined under
the LLC Collaboration Agreement.

     2.7  Approval And Ratification Of LLC Collaboration Agreement and
          ------------------------------------------------------------
Collateral Agreements; Commitment To Perform Obligations.  Bayer and Exelixis,
--------------------------------------------------------
as the intended initial Members, hereby approve and ratify, on behalf of the
LLC, prospectively as of the Commencement Date, the execution and delivery by
the Chief Executive Officer of the LLC, on behalf of the LLC, of, and the LLC's
performance of its obligations under, the LLC Collaboration Agreement and such
Collateral Agreements as are listed on Exhibit A attached hereto as existing at
                                       ---------
the Commencement Date, and as they may exist from time to time during the term
of the LLC.  The Members and the LLC hereby agree and commit to performing their
respective obligations under those of the LLC Collaboration Agreement and such
Collateral Agreements as they may exist at the Effective Date, or the
Commencement Date, or may thereafter exist, in each case to which the Member(s)
and/or the LLC is a party or by which it is or they are bound.

     2.8  Management To Budget And Strategic Plan.  Upon approval by the
          ---------------------------------------
Management Committee of each of the LLC's annual budgets and Strategic Plans as
provided in Section 8.8 hereof, the LLC will implement and will conduct its
affairs in accordance with such relevant budget and Strategic Plan.

     2.9  Bank Accounts.  The LLC will, subject to the provisions of Section 4.5
          -------------
hereof, maintain bank accounts in such banks as the Management Committee may
designate exclusively for the deposit and disbursement of funds of the LLC.  All
funds received by the LLC will, subject to the provisions of Section 4.5 hereof,
be promptly deposited in such accounts.  The

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -16-
<PAGE>

signatories on such account(s) will be determined from time to time by the
Management Committee.

     2.10 Insurance.  The LLC will be insured on its own behalf with insurers
          ---------
who maintain an A.M. Best rating of "A" or better for all property, liability
and workers' compensation insurance and such other insurance as is required
under applicable mortgages, leases, agreements and other instruments and
statutes, or as determined by the Management Committee and, as provided under
Section 11.1(e) hereof, such insurance covering the Member Representatives,
officers, employees, consultants and agents of the LLC, as the Management
Committee determines to be appropriate or necessary.  Bayer will use its good
faith efforts to include the LLC, the Member Representatives, the members of the
JSC, the officers of the LLC, and the employees of the LLC (if any), under
Bayer's insurance programs if the coverage thereunder and premiums therefor
would be less expensive than if the LLC obtained such insurance on its own,
provided that if such inclusion results in any additional cost for premiums to
Bayer from its insurers, the LLC will reimburse such excess as an expenses to
Bayer as LLC Operating Expense Amounts pursuant to Section 10.1(b)(ii) hereof.

                                  ARTICLE III
                                  MEMBERSHIP

     3.1  Members.  The initial Members of the LLC will be Bayer and Exelixis.
          -------
Additional Persons may be admitted to the LLC as a Member only upon the prior
written consent of both Members and upon such terms and conditions as both of
(or all of, if there are then more than two Members) Members and the LLC agree
in writing with such additional Person as an amendment hereto.

     3.2  Representations And Warranties.  Each Member hereby severally
          ------------------------------
represents and warrants to the LLC (with future Members so representing as of
the date upon which they become a Member by execution and delivery of a
counterpart copy hereof) and to the other Member (or other Members, if then more
than two), as follows:

          (a) Authorization.  Such Member is a corporation, duly organized,
              -------------
validly existing, and in good standing under the law of its state of
organization, and it has full power and authority to execute and enter into this
Agreement and to perform its obligations hereunder, and all actions necessary
for the due authorization, execution, delivery and performance by such Member of
this Agreement have been duly taken;

          (b) Compliance With Other Instruments.  Such Member's authorization,
              ---------------------------------
execution, delivery, and performance of this Agreement do not conflict with any
other agreement or arrangement to which such Member is a party or by which it is
bound;

          (c) Purchase Entirely For Own Account.  Such Member is acquiring its
              ---------------------------------
Membership Interest in the LLC for such Member's own account for investment
purposes only and not with a view to or for the resale, distribution,
subdivision or fractionalization thereof and has no contract understanding,
undertaking, agreement or arrangement of any kind with any

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -17-
<PAGE>

Person to sell, transfer or pledge to any Person such Membership Interest or any
part thereof nor does such Member have any plans to enter into any such
agreement;

          (d) Investment Experience.  By reason of its business or financial
              ---------------------
experience, such Member has the capacity to protect its own interests in
connection with the transactions contemplated hereunder, is able to bear the
risks of an investment in the LLC, and at the present time could afford a
complete loss of such investment;

          (e) Disclosure Of Information.  Such Member is aware of the LLC's
              -------------------------
business affairs and financial condition and has acquired sufficient information
about the LLC to reach an informed and knowledgeable decision to acquire an
interest in the LLC;

          (f) Federal And State Securities Laws.  If federal and state
              ---------------------------------
securities laws apply to the Membership Interests, such Member acknowledges that
the Membership Interests have not been registered under the Securities Act or
any state securities laws, inasmuch as they are being acquired in a transaction
not involving a public offering, and under such laws, may not be resold or
transferred by such Member without appropriate registration or the availability
of an exemption from such requirements.  In this connection, such Member
represents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.

     3.3  Resignation Or Withdrawal Of A Member.  Except as specifically
          -------------------------------------
provided herein, neither Member may withdraw from membership in the LLC or
withdraw such Member's interest in the capital of the LLC.  A Dissociated Member
or its legal representative will be entitled to participate in the winding up of
the LLC to the same extent as the other Member.

     3.4  Transfer Or Assignment Of Membership Interest; Admission Of Substitute
          ----------------------------------------------------------------------
Members.  Neither Member may transfer, sell, encumber, mortgage, assign or
-------
otherwise dispose of any portion of its Membership Interest except on such
terms, including any amendment hereto, as the other Member may agree in writing.
Any purported transfer, sale, encumbrance, mortgage, assignment, or disposition
of a Membership Interest in contravention of this Section 3.4 will be void and
of no effect to, on or against the LLC, any Member, any creditor of the LLC or
any claimant against the LLC.  Notwithstanding any other provision of this
Agreement, no Person will be admitted as a Substitute Member and admitted to all
the rights of the Member that assigned its respective Membership Interest,
without the prior written approval of both Members.  If so admitted, the
Substitute Member will have all the rights and powers of, and will be subject to
all the restrictions and liabilities of, such Member who originally assigned the
Membership Interest.  The admission of a Substitute Member will not release
either Member who previously assigned its Membership Interest from any liability
of such assigning Member to the LLC that may have existed before such
substitution.  Consents required hereunder may be given in advance of any
transfer by any writing signed by a Member.  A Substitute Member, upon admission
to the LLC, will be, and be deemed referred to herein as, a Member for all
purposes thereafter.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -18-
<PAGE>

                                  ARTICLE IV
                           CONTRIBUTIONS TO CAPITAL;
                     OUTSOURCED TREASURY OPERATIONS OF LLC

     4.1  Initial Cash Contribution By Bayer.  On the Commencement Date, Bayer
          ----------------------------------
will contribute to the LLC, as Bayer's initial Capital Contribution to the LLC
to its Capital Account, a total of ten million dollars ($10,000,000.00) in cash
on the Commencement Date.

     4.2  Additional Cash Contributions.
          -----------------------------

          (a) First Anniversary Cash Contribution By Bayer.  If at the first
              --------------------------------------------
anniversary of the Commencement Date (i) the LLC is still in existence, and (ii)
neither Bayer nor Exelixis has terminated its participation as a Member in the
LLC, then, on the first anniversary of the Commencement Date, Bayer will
contribute an additional ten million dollars ($10,000,000.00) in cash to the
LLC, as an additional Capital Contribution by Bayer to its Capital Account.

          (b) FTE Amount Contribution By Bayer.  Bayer will contribute to the
              --------------------------------
LLC, in cash, in each case as a Capital Contribution by Bayer to its Capital
Account additional to Bayer's Capital Contributions under Sections 4.1 and
4.2(a) hereof, at the times and in the amounts specified in the LLC
Collaboration Agreement as in effect at the time in question, the FTE Amount, up
to a maximum FTE Amount of [ * ], (or such other amount as may then be required
under this Agreement if amended after the Effective Date to so provide), for
each successive twelve (12) month period from and after the Commencement Date.

          (c) LLC Operating Expense Amounts.  In addition, subject to the
              -----------------------------
limitations set forth in Section 4.3 hereof, Bayer will pay in cash to the LLC,
or to such third parties as the Chief Executive Officer of the LLC and/or Chief
Financial Officer of the LLC of the LLC directs Bayer in writing, with each such
payment by Bayer to the LLC or to such third party being a Capital Contribution
by Bayer to its Capital Account under Sections 4.1 and 4.2(a) and (b) hereof,
(i) upon at least ten (10) days' prior written notice by the Chief Executive
Officer of the LLC and/or Chief Financial Officer of the LLC of the LLC to
Bayer, with a copy to the Management Committee, [ * ] LLC Operating Expense
Amounts set forth in the LLC's then-approved budget for such quarter, and (ii)
upon at least thirty (30) days' prior written notice from the Chief Executive
Officer of the LLC and/or Chief Financial Officer of the LLC of the LLC to
Bayer, with a copy to the Management Committee, such other LLC Operating Expense
Amounts as the Management Committee has determined are necessary to the
operations of the LLC beyond such budget, either by amendment to a previously-
approved budget as provided herein, or on an urgent need basis, as will be set
forth in the relevant notice to Bayer. Any payments by Bayer directly of the
salary or consulting fees, bonus (as provided within the LLC budget), expenses
and benefits for any individual furnished by Bayer and serving as an LLC officer
or other employee of the LLC, as provided under Section 7.4 hereof, whether paid
directly by Bayer to such individual or paid by Bayer to the LLC as part of LLC
Operating Expenses, will be considered as an additional Capital Contribution in
cash by Bayer to its Capital Account, as part of the LLC Operating Expenses for
purposes of distributions under Section 10.1(b)(iv)(A) hereof. Any payments by
Exelixis directly (as provided within the LLC budget or otherwise as provided
for in Section 7.4 hereof) of the salary or consulting fees,

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -19-
<PAGE>

bonus, expenses and benefits for any individual furnished by Exelixis and
serving as an LLC officer or other employee of the LLC, will be considered as a
Capital Contribution in cash by Exelixis to its Capital Account, as will be
considered as part of the LLC Operating Expenses for purposes of distributions
under Section 10.1(b)(iv)(B) hereof.

     4.3  Use Of Certain Funds For LLC Operating Expenses; Limitations On
          ---------------------------------------------------------------
Bayer's Obligation To Make Capital Contributions To The LLC; Limitation On
--------------------------------------------------------------------------
Capital Contributions By Exelixis.  Notwithstanding the provisions of Section
---------------------------------
4.2 hereof:

          (a) Use Of Certain Funds For Operating Expenses.  Except as may be
              -------------------------------------------
otherwise determined from time to time by the Management Committee, the LLC may
use, for payment of LLC Operating Expenses, prior to the LLC demanding funds
from Bayer for LLC Operating Expenses under the provisions of Section 4.2(c)
hereof, all amounts received by the LLC from third parties, including without
limitation interest, license fees or other payments, that are not required, by
their terms as received by the LLC from such third party or by law, to be held
in escrow, as a creditable or refundable deposit, or otherwise required to be
held against a future event.  To the extent that such funds are so used, then
the demand by the LLC to Bayer for LLC Operating Expense amounts occurring next
after such use will be only for the amount then needed for LLC Operating
Expenses after taking into account such use of such other funds.

          (b) Limitations As To Bayer Payment To LLC Of LLC Operating Expense
              ---------------------------------------------------------------
Amounts Arising From Existence Of Sufficient Other LLC Operating Funds.  Bayer's
----------------------------------------------------------------------
obligation to pay any LLC Operating Expense Amounts to the LLC, as a Capital
Contribution or otherwise, will be, at Bayer's sole election communicated in
writing to Exelixis and to the Management Committee, suspended for so long as,
and to the extent that, the FTE Amount equals or exceeds [ * ] (or equals or
exceeds such other minimum payment of the FTE Amount as is provided hereunder if
this Agreement is amended to provide for such other minimum amount), and the LLC
has, in the view of the Management Committee, sufficient cash, net of
distributions required by this Agreement to be made, from third-party funds
described in Section 4.3(a) hereof, to fund LLC Operating Expense Amounts.  The
Management Committee will review such funds-available issue on a regular basis
at its meetings.  The Management Committee will promptly communicate in writing
to both Members the Management Committee's sufficient-funds conclusion, and the
amounts expected to be needed from Bayer, if any, beyond such funds, for LLC
Operating Expenses, during the [ * ] period following such determination by the
Management Committee.

          (c) Certain Suspension Or Termination Of Bayer's Obligation To Pay LLC
              ------------------------------------------------------------------
Operating Expense Amounts And FTE Amount To The LLC.  Bayer's obligation to pay
---------------------------------------------------
to the LLC any LLC Operating Expense Amounts and any FTE Amount will be, at
Bayer's sole election communicated in writing to the Management Committee and to
Exelixis, suspended for so long as Exelixis is a Affected Member hereunder,
and/or if Exelixis has suffered a Dissolution Event, and/or for so long as there
exists with respect to Exelixis a Continuing Force Majeure Event.  Bayer's
obligation to pay to the LLC any LLC Operating Expense Amounts and any FTE
Amount will automatically terminate  effective upon (i) the end of the Research
Term under the LLC Collaboration Agreement if the Research Term is not renewed
or otherwise extended by a

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -20-
<PAGE>

writing signed by the LLC and Exelixis, or (ii) any termination, for whatever
reason, of the LLC Collaboration Agreement.

          (d) Limitations On Capital Contributions By Exelixis.  Exelixis will
              ------------------------------------------------
not be required to make any cash or other Capital Contributions to the LLC,
including without limitation any LLC Operating Expenses, without the prior
written approval of both Members, provided that any payments by Exelixis of the
salary or consulting fees, expenses, bonus and benefits for any individual
furnished by Exelixis and serving as an LLC officer or other employee of the
LLC, as provided under Section 7.4 hereof, whether paid directly by Exelixis to
such individual or contributed by Exelixis to the LLC, will be considered as a
Capital Contribution by Exelixis in cash to its Capital Account.

     4.4  Nature Of Licenses, Milestone Payments And Premium Fees, And Of
          ---------------------------------------------------------------
Certain Other Assets Assigned To The LLC.  Licenses granted by Bayer and
----------------------------------------
Exelixis to the LLC under the LLC Collaboration Agreement or otherwise are
licenses only and are not, and are not intended by the parties to be, Capital
Contributions by the licensor to the LLC.  Milestone payments and premium fee
payments made to the LLC pursuant to the LLC Collaboration Agreement will be
income to the LLC and will not be, and are not intended by the paying party to
be, Capital Contributions to the LLC by the paying party.  The following are not
intended to be and will not be, when so assigned, a Capital Contribution to the
LLC by the assigning Member: (a) the rights of each Member in and to the EST
Library and EST Database as defined in the LLC Collaboration Agreement, which
have been generated under the Original Agreement and which are jointly owned by
Bayer AG and Exelixis at the Effective Date (the interest of Bayer AG to be
licensed or assigned to Bayer upon the Commencement Date), which rights
automatically, and without further action by any party hereto, will be assigned
to the LLC upon the Commencement Date (Bayer assigning its license interest
received from Bayer AG), simultaneously upon termination of the Original
Collaboration Agreement, pursuant to a certain Termination Agreement between
Exelixis and Bayer AG, and (b) all intellectual property assigned by Bayer to
the LLC under Section 10.1(g) of the LLC Collaboration Agreement relating to or
arising from work performed on A List Reserved Targets, as specified in such
Section 10.1(g).

     4.5  Outsourced Treasury Operations Of LLC.  Subject to the last sentence
          -------------------------------------
of this Section 4.5, financial management treasury functions of the LLC will be
provided to the LLC by Bayer [ * ].  Cash of the LLC determined by the Chief
Financial Officer of the LLC of the LLC not to be needed on a daily basis can be
loaned by the LLC to Bayer as the Chief Financial Officer of the LLC believes
appropriate, subject to such further direction, procedures or limitations upon
the Chief Financial Officer of the LLC's powers and discretion as the Management
Committee may communicate to the Chief Financial Officer of the LLC in writing
from time to time.  Bayer will pay interest to the LLC on all such amounts
loaned to Bayer, on a daily basis at a rate equal to [ * ].  Monthly financial
statements of the LLC as to such financial management functions will be prepared
and distributed by Bayer, for and on behalf of the LLC, to the Management
Committee, within fifteen (15) days after the end of each calendar month during
the time Bayer is providing such operations to the LLC.  Such financial
statements and the records of such accounts, insofar as they relate to cash of
the LLC so loaned to Bayer, will be subject to inspection and audit by the LLC,
at its expense, or by Exelixis, at its expense, subject to such customary
confidentiality agreements as Bayer may in good faith request of the

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -21-
<PAGE>

inspecting Person. Bayer may withdraw from performing such financial management
functions at any time upon at least [ * ] prior written notice to the Management
Committee, with a copy of such notice to Exelixis.

                                   ARTICLE V
                               ACTION BY MEMBERS

     5.1  Meetings Of Members.  All meetings of Members for the election of the
          -------------------
Management Committee will be held at such place as may be fixed from time to
time in writing by the Management Committee in the notice to the Members of such
meeting.  Meetings of Members for any other purpose may be held at such time and
place, within or without the State of California, as will be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.  Members
may participate in a meeting of Members by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting will
constitute presence in person at the meeting.  The

     5.2  Annual Meetings.
          ---------------

          (a) Date And Time.  Annual meetings of Members, commencing with the
              -------------
year 1999, will be held on such date and at such time as will be designated from
time to time by the Management Committee and stated in the notice of the
meeting, at which the Members will elect the Management Committee, and transact
such other business as may properly be brought before the meeting.

          (b) Notice Of Annual Meetings.  Written notice of the annual meeting
              -------------------------
stating the place, date and hour of the meeting will be given to each Member at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.

     5.3  Special Meetings.
          ----------------

          (a) Call Of Special Meetings.  Special meetings of the Members, for
              ------------------------
any purpose, may be called by the Chief Executive Officer of the LLC, and will
be called by the Chief Executive Officer of the LLC or Secretary of the LLC of
the LLC at the request in writing of at least a majority of the then-authorized
number of members of the Management Committee, or at the request in writing of
either Member, and in each case a copy of such request will be given to the
other Member.  A request for a meeting of the Management Committee initiated by
such majority of the Management Committee or by either Member will state the
purpose of the proposed meeting.  A special meeting of the Members for the
election of a new Management Committee may be called by either Member, upon at
least ninety (90) days prior written notice to the other Member and to the
Management Committee.

          (b) Notice Of Special Meetings.  Written notice of a special meeting
              --------------------------
stating the place, date and hour of the meeting, and the purpose for which the
meeting is called, will be given to each Member not less than ten (10) nor more
than sixty (60) days before the date of the meeting.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -22-
<PAGE>

          (c) Business To Be Conducted At Special Meeting.  Business transacted
          --- -------------------------------------------
at any special meeting of Members will be limited to the purposes stated in the
notice of such meeting.

     5.4  Member List.  At the written request of either Member, the Secretary
          -----------
of the LLC will prepare and make, at least ten (10) days before each meeting of
Members, a complete list of such Members at the meeting, showing the address of
each Member and the Membership Interest registered in the name of each Member.
The list may be examined by either Member, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
before the meeting.  The list will also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
Member who is present.

     5.5  Quorum.
          ------

          (a) Quorum.  The presence of a majority of all of the Members, if
              ------
there are more than two Members at the time in question, or the presence of both
Members if there are only two Members at the time in question, or the presence
of their proxies, as relevant, at a meeting of the Members, will constitute a
quorum at all meetings of Members for the transaction of business except as
otherwise provided by the Act.

          (b) Lack Of Quorum; Adjournment.  If a quorum is not present or
              ---------------------------
represented at any meeting of Members, the Member present in person, or
represented by proxy, may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented.  Upon resumption of an adjourned meeting, any business may be
transacted that might have been transacted before the meeting was adjourned.  If
the adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, written notice of the
adjourned meeting will be given to each Member.

     5.6  Validity Of Proxies.  No proxy will be voted after [ * ] after its
          -------------------
date, unless such proxy expressly provides for a longer period.  Except to the
extent otherwise required by the Act, Members will vote as a single class.

     5.7  Action Without Meeting.  Except to the extent otherwise required by
          ----------------------
the Act, any action which may be taken by the Members at a meeting may be taken
by unanimous written consent signed by both Members.

     5.8  Member Vote Required.  Except to the extent otherwise required by the
          --------------------
Act or as otherwise set forth in this Agreement, any action or item requiring
the approval of such Members, the consent of such Members, the affirmative vote
of the Members or the like, will require the unanimous approval, consent, vote
or the like of both Members.

                                   ARTICLE VI
                          MANAGEMENT COMMITTEE AND JSC

     6.1  Management By Management Committee.  Except for matters for which the
          ----------------------------------
approval of the Members is required by the Act or this Agreement, and except to
the extent

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -23-
<PAGE>

managed by the officers of the LLC under the supervision of the Management
Committee, the LLC will be managed and controlled by the Management Committee in
accordance with the Act and with the terms of this Agreement. The Management
Committee may exercise all powers of the LLC and may do all such lawful acts and
things as are not by the Act, the Certificate of Formation, or this Agreement,
directed or required to be exercised or done by the Members themselves. It is
intended by the parties hereto that the powers and authority of the Management
Committee will be substantially the same as the powers and authority of a Board
of Directors of a corporation formed under the laws of the State of Delaware,
provided that approval of the Management Committee or any committee thereof is
subject to the sole discretion and judgment of the Member Representatives,
acting in the interests of their respective appointing Members and not as
fiduciaries of the LLC or of any Member.

     6.2  Management Committee Number, Nominees, Vacancies.
          ------------------------------------------------

          (a) Number And Composition Of Management Committee.  Unless otherwise
              ----------------------------------------------
agreed in writing by the Members as an amendment hereto, (a) the Management
Committee will consist of five (5) Member Representatives, and (b) Bayer will
appoint three (3) Member Representatives, one of whom, if Bayer so desires, may
be the Chief Executive Officer of the LLC of the LLC, and Exelixis will appoint
two (2) Member Representatives, one of whom initially, and for so long as the
relevant individual is employed by or is a consultant to, Exelixis or its
Affiliates ,will be [ * ].  Each Member Representative will be a senior LLC
officer or senior representative of the relevant Member authorized to make
decisions with respect to matters within the scope of the Management Committee's
authority.  The initial Member Representatives each will be selected and
notified to the other Member in writing within thirty (30) days after the
Commencement Date, as the initial Management Committee.

          (b) Appointment, Removal And Replacement Of Member Representatives.
              --------------------------------------------------------------
Each Member will appoint, may remove (with or without cause), and may replace
its Member Representatives during the existence of the LLC, at such Member's
sole discretion, and any such appointments, removals and replacements will be
notified in writing by the appointing, or removing or replacing, Member, to the
other Member and to the Management Committee.  No Member will have any authority
to appoint, remove or replace Member Representatives for the other Member.  If a
Member Representative for any reason no longer is serving as any of an employee,
LLC officer or Director or correlative position (as applicable) of, nor as a
consultant to, the relevant Member or at least one of its Affiliates (the LLC
not being deemed to be an Affiliate of either Member for this purpose) the
relevant Member will promptly notify the other Member in writing, and such
individual will be deemed to have resigned as a Member Representative as of the
date of such complete cessation, and the relevant Member will as soon thereafter
as possible appoint a new Member Representative to replace such departing
individual.

          (c) Alternates; Service Term.  An alternate Member Representative,
              ------------------------
designated by a Member in writing to the other Member, may serve temporarily,
for no longer than [ * ] from the date of appointment by such Member, in the
absence of a permanent Member Representative previously designated by such
Member.  Individuals serving on the Management Committee will hold office until
the next meeting, whether annual or special, of Members, at which the Management
Committee is elected and such duly elected Member Representatives are

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -24-
<PAGE>

qualified. Any Member Representative may resign at any time by giving written
notice thereof to each Member and to the remaining Member Representatives.

     6.3  Meetings Of The Management Committee; Quorum And Vote Required For
          ------------------------------------------------------------------
Decisions; Observer Rights.
--------------------------

          (a) Meetings of The Management Committee.
              ------------------------------------

              (i)   Location.  The Management Committee may hold meetings, both
                    --------
regular and special, either within or without the State of California.

              (ii)  Regular Meetings. Regular meetings of the Management
                    ----------------
Committee will be held upon at least thirty (30) days' written notice at times
and places determined by the Management Committee, provided that the Management
Committee will meet at least every six (6) months during the existence of the
LLC, with at least one (1) of such meetings during the relevant twelve (12)
month period being held in the San Francisco, California Bay Area for so long as
(i) Exelixis is a Member and (ii) Exelixis' principal offices are located in the
San Francisco, California Bay Area.

              (iii) Special Meetings.  Special meetings of the Management
                    ----------------
Committee may be called by the Chief Executive Officer of the LLC on at least
four (4) days' prior written notice to each Member Representative by mail or at
least forty-eight (48) hours' prior notice to each Member Representative,
delivered either personally or by facsimile transmission.  Special meetings of
the Management Committee will be called by the Chief Executive Officer of the
LLC if so requested in writing by either Member, which requesting Member will
send a copy thereof to the other Member and to the Management Committee.

              (iv) Waiver Of Or Consent To Notice.  Notice of any meeting of the
                   ------------------------------
Management Committee or of any committee thereof need not be given to any Member
Representative who, before or after the relevant meeting, signs a waiver of such
notice or consents in writing to the holding of such meeting, or who attends
such meeting without protest, prior to the commencement of such meeting, of lack
of such notice.

          (b) Quorum and Vote Required For Decisions.
              --------------------------------------

              (i)   Quorum. At all meetings of the Management Committee, three
                    ------
(3) Member Representatives, one of whom must be a Member Representative
appointed by Exelixis, will constitute a quorum for the transaction of business
by the Management Committee. If a quorum is not present at any meeting of the
Management Committee, the members of the Management Committee present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present.

              (ii)  Vote Required.  Except as the Members may otherwise agree in
                    -------------
writing as an amendment hereto, and except as may be otherwise required by law,
all decisions required by law to be made, or chosen to be made, by the
Management Committee will require the consent, whether at a duly called and held
meeting or in writing, of at least a majority of the Member

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -25-
<PAGE>

Representatives, or, if only a quorum is present, then of all such Member
Representatives present; provided, however, that the consent, whether at a duly
called and held meeting or in writing, of four (4) Member Representatives, or,
if only a quorum is present, then of all such Member Representatives present,
one (1) of whom in each case must be a Member Representative appointed by
Exelixis, will be required for any decision under any of Sections 6.7(a)-(d),
(f)-(l), (p), and (r) hereof.

          (c) Observer Rights; Guests.  Each Member may have one or more
              -----------------------
observers present as guests at any meeting of the Management Committee or
committee thereof.  Guests may be present, by invitation of the Management
Committee, during all or any portion of any meeting of the Management Committee.
The number of such observers and/or guests at a given meeting for a given Member
will be determined in good faith by the Chief Executive Officer of the LLC.  The
Management Committee or the Chief Executive Officer of the LLC may require, as a
condition of such observer's or guest's attendance at such meeting, the
execution and delivery by such observer or guest of a customary confidentiality
agreement with and in favor of the LLC.  The Management Committee may exclude
any observer or guest from any portion of the meeting deemed, by a majority of
the Member Representatives present at the meeting, to be privileged, or
otherwise inappropriate for discussion with such observer or guest present.  The
LLC's obligations under this Section 6.3(c) will terminate upon the earliest of
the date of termination of the LLC or the date upon which there is only one (1)
Member.

     6.4  Committees Of The Management Committee.
          --------------------------------------

          (a) Creation Of And Membership On Committees. The Management Committee
              ----------------------------------------
may designate one or more committees, which will have such name(s) as may be
determined from time to time by the Management Committee.  Each such committee
will keep regular minutes of its meetings.  Each such committees will have at
least one (1) Member Representative of Bayer approved by Bayer and at least one
(1) Member Representative of Exelixis approved by Exelixis except as the Members
may otherwise agree in writing with each other as an amendment hereto.  Subject
to the representation of Bayer and Exelixis on any such committee as provided in
the immediately preceding sentence, the Management Committee may designate
members of the Management Committee as alternate members of any committee, who
may replace any absent or disqualified members of the Committee at any meeting
of such committee.  Upon disqualification for any reason, removal, or
resignation of a member of a committee, the Member whose Member Representative
was so disqualified, removed, or who resigned, will promptly appoint another
Member Representative to such committee as a replacement.

          (b) Powers Of Committees; Decisions Of Committees.  Any such
              ---------------------------------------------
committee, to the extent provided in the relevant resolution of the Management
Committee, will have and may exercise all the powers and authority of the
Management Committee in the management of the business and affairs of the LLC,
provided that (i) all decisions of such committee will require the vote of at
least a majority of the authorized number of Member Representatives on such
committee, or, if Member Representatives appointed by Exelixis are not a
majority of such Committee, then such greater number of committee member as will
require the vote of at least one (1) Member Representative serving thereon who
was appointed by Exelixis, in order for approval to be valid, and (ii) no such
committee will have the power or authority to amend the

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -26-
<PAGE>

Certificate of Formation, adopt an agreement of merger or consolidation, or of
the sale, lease or exchange of all or substantially all of the LLC's property
and assets, dissolve the LLC or revoke a dissolution previously approved as
provided in this Agreement, or amend this Agreement; and (iii) with respect to
matters other than those described in clause (ii) of this Section 6.4(b), unless
the relevant resolution of the Management Committee expressly so provides, such
committee will not have the power or authority to do any other act which
requires the consent of the Management Committee hereunder or by law.

     6.5  Action Without Meeting; Conference Call Participation.  Any action
          -----------------------------------------------------
required or permitted to be taken at any meeting of the Management Committee or
of any committee thereof may be taken without a meeting, if the number of Member
Representatives required under hereunder for action by the Management Committee
or by such committee, as the case may be, consent thereto in writing, and such
writing is filed with the minutes of proceedings of the Management Committee or
of such committee.  Member Representatives serving on the Management Committee,
or on any committee designated by the Management Committee, may participate in a
meeting of the Management Committee or any such committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting will constitute presence in person at the meeting.

     6.6  Meeting Materials And Minutes.  Materials to be considered at any
          -----------------------------
meeting of the Management Committee or committee thereof will be distributed to
the relevant Member Representatives at least five (5) days prior to the meeting,
and draft minutes of each such meeting, and any written consents as to action by
the Management Committee, will be distributed to the Members and to all Member
Representatives within thirty (30) days after the date of the relevant meeting
or the date of obtaining the required signatures on such consent, as applicable.

     6.7  Matters Requiring Management Committee Approval.  In addition to any
          -----------------------------------------------
approval that may be required by the Act or otherwise by law, and in addition to
any approval thereof by the Members or the Chief Executive Officer of the LLC,
the following will require approval by the Management Committee, subject to the
voting requirements provided in Section 6.3(b) hereof as to Management Committee
decisions:

          (a) Amendment.  Any amendment of the Certificate of Formation of the
              ---------
LLC or of this Agreement;

          (b) Admission.  Admission of an additional Member or a Substitute
              ---------
Member;

          (c) Raising Additional Capital; Issuances Of Additional Membership
              --------------------------------------------------------------
Interests.  Raising by the LLC of capital additional to that provided for under
---------
Article IV hereof, or the issuance by the LLC of additional Membership
Interests;

          (d) Certain Approvals As To Budget, Strategic Plan, Alteration of
              -------------------------------------------------------------
Primary Purpose Or Business Of the LLC Or Definition Of Field Of Use.  Approval
--------------------------------------------------------------------
of (i) the LLC's budget on an annual basis, including without limitation, as
will be set forth in such budget, the

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -27-
<PAGE>

salaries or consulting fees, as relevant, bonus criteria and limits, if any,
expenses policy, and benefits to be paid by the LLC (or by the relevant Member
directly to its relevant then-serving personnel) to LLC officers and to any LLC
employees (FTE's not being considered, for purposes of this Agreement or
otherwise, LLC employees), and any material modification to such budget (any
change in such relevant salary or consulting fees, bonus criteria and limits,
expenses policy and/or benefits being considered to be a material modification),
and (ii) the LLC's Strategic Plan and any material modification thereto, and
(iii) any alteration of the primary purpose or business of the LLC, and (iv) any
amendment to the LLC Collaboration Agreement, including without limitation any
change therein of the definition of the Research Field or of the Field of Use,
or (v) any amendment to any Collateral Agreement to which the LLC is a party;
and which initially was required to be approved under this Section 6.7. The
approval by the Management Committee of the Strategic Plan and/or or any budget
or modification thereto will not be deemed to include therein an approval of any
other matter, such as raising additional capital or the issuance of additional
Membership Interests, which requires Management Committee approval under this
Section 6.7, unless such matter is specifically and separately approved by the
Management Committee as provided in this Section 6.7(d) and is subject to
further approval by the Members as required under this Agreement.

          (e) Appointment Of The Chief Executive Officer of the LLC, Chief
              ------------------------------------------------------------
Financial Officer of the LLC, Secretary of the LLC And Other Officers Of The
----------------------------------------------------------------------------
LLC; Approval of Certain Salary And Related Matters.  Appointment of the Chief
---------------------------------------------------
Executive Officer of the LLC and Chief Financial Officer of the LLC, Secretary
of the LLC, and of any other officers of the LLC desired by the Management
Committee, and their respective replacements from time to time, and confirmation
of the salaries or consulting fees, bonus limits and bonus amounts payable
within such limits, expenses policy and benefits, in each case as represented in
the then current-budget, for LLC officers and any LLC employees, to the extent
not set by the Chief Executive Officer of the LLC, as provided under Section 7.4
hereof, under such budget.

          (f) Certain Agreements.  Any agreement committing the LLC to an
              ------------------
obligation in excess of, or any single expenditure or related expenditures by
the LLC in excess of, in each case, [ * ], or any group of unrelated
expenditures in excess, in the aggregate, of [ * ], in each case that is not
already identified in reasonable detail in an LLC budget as approved by the
Management Committee, and any license from a third party described in Section
1.15(d) hereof.

          (g) Certain Liens And Encumbrances.  Creation of any lien or
              ------------------------------
encumbrance on the assets of the LLC which lien or encumbrance is not specified
in or referred to in reasonable detail in an approved LLC budget or approved
amendment thereto.

          (h) Dissolution Vote.  A vote to dissolve the LLC.
              ----------------

          (i) Sale of LLC Assets.  The transfer, sale, exchange or other
              ------------------
disposition of all, or substantially all, of the LLC's assets as part of a
single transaction or plan.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -28-
<PAGE>

          (j) Merger.  The merger of the LLC with any other Person or any
              ------
recapitalization of the LLC, including any reincorporation of the LLC into a
jurisdiction other than Delaware.

          (k) Certain Transactions.  A transaction between the LLC and either
              --------------------
Member, or with any Affiliate of either Member, including the execution or
delivery of any binding agreement (i) between the LLC and either Member or any
Affiliate of either Member for the provision of goods or services to the LLC, or
(ii) between the LLC and any third party, including either Member or any
Affiliate of either Member, with respect to research and/or development and/or
commercialization, including any sales or marketing arrangements, relating to
any intellectual property and/or technology of the LLC outside of the Research
Field, including without limitation any license to or other grant of rights to,
and any license or other grant of rights by, the LLC, other than under the LLC
Collaboration Agreement.

          (l) Certain Research And Development By LLC Outside Of The Research
              ---------------------------------------------------------------
Field.  Any research and/or development outside of the Research Field by the
-----
LLC, whether within the LLC or by a third party, other than Exelixis, for the
benefit of the LLC, other than under the LLC Collaboration Agreement.

          (m) Withholding Of Cash Available For Distribution.  The withholding
              ----------------------------------------------
by the LLC of any cash that is available for distribution as such availability
is determined by the Management Committee pursuant to Section 10.1(b) hereof,
provided that such withholding will be subject to the provisions of Section
10.1(b) as to distributions that must be made by the LLC under certain
circumstances.

          (n) Compromise Or Return.  A decision by the Management Committee to
              --------------------
compromise the obligation of a Member to return money or property paid or
distributed unlawfully from the LLC, or to compromise the obligation of a Member
with respect to a Capital Contribution to the LLC as otherwise provided herein.

          (o) Appointment of Independent Auditors.  Appointment of a nationally-
              -----------------------------------
recognized firm of certified public accountants to serve as the LLC's
independent auditors.

          (p) Changes In The Duties Of LLC Officers.  Any changes in the duties
              -------------------------------------
of any LLC officer other than any such change required by law as the LLC is so
advised by its legal counsel.

          (q) Research Plan.  Approval of the Research Plan under the LLC
              -------------
Collaboration Agreement, and of any changes thereto in accordance with the
provisions of the LLC Collaboration Agreement.

          (r) Core Improvements and Exelixis Core Technology.  Determinations by
              ----------------------------------------------
the LLC with respect to Core Improvements and Exelixis Core Technology pursuant
to the LLC Collaboration Agreement, including Sections 1.20 and 1.28 thereof.

          6.8  Delivery And Approval Of Annual Operating Plan And Budget And
               -------------------------------------------------------------
Three Year Strategic Plan. The Management Committee will prepare and deliver to
-------------------------
each Member as

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -29-
<PAGE>

soon as practicable after its preparation, and in any event no later than [ * ]
before the close of each Fiscal Year of the LLC: (a) an annual operating plan,
including a Research Plan, and budget for the LLC, prepared on a monthly basis,
for the next Fiscal Year, and (b) a three (3) year strategic plan (the
"Strategic Plan") for the LLC for next [ * ] Fiscal Years of the LLC, provided
 --------------
that the LLC's initial budget and Strategic Plan will be approved by the
Management Committee and delivered to the Members no later than [ * ] after the
Commencement Date. The Management Committee will also promptly furnish to each
Member all amendments to the annual operating plan and budget and Strategic
Plan, if any. Except for the initial operating plan and budget and Strategic
Plan, to be delivered as provided in the first sentence of this Section 6.8, the
Management Committee and the Members will agree upon each prospective operating
plan and budget and Strategic Plan no later than [ * ] before the end of the
relevant Fiscal Year in which they are delivered to the Members. Failure to so
timely agree will be considered to be a "Substantial Disagreement" to be
resolved as provided under Article XVII hereof, provided that approval of
raising additional capital or issuing additional Membership Interests will be
subject to the approval of the Members pursuant to Article III hereof.

     6.9  Compensation And Reimbursement Of Member Representatives And Members
          --------------------------------------------------------------------
Of The JSC.  Each Member will pay all salary, and all consulting fees (as
----------
applicable), and all expenses, of its Member Representatives and of its members
of the JSC, which payments will not, except as the Members may agree with each
other in writing, be deemed to be a Capital Contribution to the LLC by the
relevant Member.

     6.10 No Exclusive Duty To LLC; No Rights To Participation Or Income.
          --------------------------------------------------------------
Neither the Management Committee nor any Member Representative, nor any LLC
officer, will be required to manage the LLC as such individual's sole and
exclusive function, and such individual, and either Member, may have other
business interests and may engage in other activities in addition to those
relating to the LLC, subject to the confidentiality obligations hereof, and not
in violation of the obligations of the Members to each other under the LLC
Collaboration Agreement and under applicable Collateral Agreements as they may
then exist.  Neither the LLC, nor the Management Committee, nor any Member
Representative, nor any LLC officer, employee or agent of, or consultant to, the
LLC, will have any right, by virtue of this Agreement, to share or participate
in investments or activities of the LLC or of any Member or to any income or
proceeds derived therefrom.

     6.11 Amendment Of Certificate of Formation Or Agreement.  The Management
          --------------------------------------------------
Committee will have the duty and authority to amend the Certificate of Formation
or this Agreement as and to the extent necessary to reflect any and all changes
or corrections necessary or appropriate as a result of any action taken in
accordance with the terms of this Agreement by the Members or by the Management
Committee.

     6.12 Member Assistance To the Management Committee And Officers.  Each
          ----------------------------------------------------------
Member will cooperate to a commercially reasonable extent with the Management
Committee, and its committees, and the Management Committee's and such
committees' authorized representatives, including without limitation the
officers of the LLC, during regular business hours of the relevant Member, or
such committee thereof, with respect to performance of the Management
Committee's or such committees' or such LLC officer's obligations hereunder,
subject to the

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -30-
<PAGE>

confidentiality provisions of Article XVIII hereof, and to such other customary
confidentiality agreements as the relevant Member may request.

     6.13 Matters Involving The JSC.
          -------------------------

          (a)  Composition Of The JSC.
               ----------------------

               (i)   Number Of Member And Composition Of The JSC. The JSC will
                     -------------------------------------------
consist of six (6) members, three (3) appointed by Exelixis and three (3)
appointed by Bayer. Each member of the JSC will be a senior LLC officer or
senior representative of the relevant Member or one of its Affiliates,
authorized to review and make recommendations to the Chief Executive LLC officer
and to the Management Committee with respect to matters within the scope of the
JSC's authority. The initial members of the JSC each will be selected and
notified by each Member to the Management Committee, within thirty (30) days
after the Commencement Date, as the initial JSC.

               (ii)  Appointment, Removal And Replacement Of Members Of The JSC.
                     ----------------------------------------------------------
Each Member will appoint, may remove (with or without cause), and may replace
its members of the JSC during the existence of the JSC, at such Member's sole
discretion, and any such appointments, removals and replacements will be
notified in writing by the appointing, or removing or replacing, Member, to the
other members of the JSC and to the Management Committee. No Member will have
any authority to appoint, remove or replace JSC members for the other Member. If
a member of the JSC for any reason no longer is serving as any of an employee,
LLC officer or Director or correlative position (as applicable) of, nor as a
consultant to, the relevant Member or at least one of its Affiliates (the LLC
not being deemed to be an Affiliate of either Member for this purpose), the
relevant Member will promptly notify the other members of the JSC and the
Management Committee in writing, and such individual will be deemed to have
resigned as a member of the JSC as of the date of such complete cessation, and
the relevant Member will as soon thereafter as possible appoint a new JSC member
to replace such departing individual.

               (iii) Alternates; Service Term.  An alternate member of the JSC,
                     ------------------------
designated by a Member in writing to the other members of the JSC and the
Management Committee, may serve temporarily in the absence of a permanent member
of the JSC previously designated by such Member.  Individuals serving on the JSC
will hold such position until the earliest of the date of their resignation or
removal from the JSC, or their death.  Any member of the JSC may resign at any
time by giving written notice thereof to the Management Committee and to the
remaining members of the JSC.

          (b)  Function Of The JSC; Meetings.  The JSC will have solely an
               -----------------------------
advisory role to the Chief Executive Officer of the LLC and to the Management
Committee, and will provide such guidance as to scientific and technical matters
involving the business of the LLC, including without limitation the Research
Plan as defined under the LLC Collaboration Agreement, as the Chief Executive
Officer of the LLC and/or the Management Committee may in good faith request
orally or in writing, in reasonable detail, and upon reasonable notice.  Neither
the JSC nor any member thereof, acting as a member of the JSC, will have any
authority

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -31-
<PAGE>

on behalf of the LLC or either Member to execute any document or instrument, or
take any other action, that would bind the LLC or either Member. The JSC will
report to the Chief Executive Officer of the LLC and to the Management
Committee, but will have no duty to report to, or to provide guidance or
information to, either Member. The JSC will meet at such times and places, in
person and/or by conference telephone call, as the members of the JSC agree,
provided that the JSC will meet at least once during each calendar quarter
during the Research Term, as defined in and as determined under the LLC
Collaboration Agreement.

          (c) Compensation And Reimbursement Of Members Of JSC.  Each Member
              ------------------------------------------------
will pay all salary and all consulting fees (as applicable), expenses and
benefits, of its members of the JSC.

          (d) No Exclusive Duty To LLC; No Rights To Participation Or Income.
              --------------------------------------------------------------
No member of the JSC will be required to serve in such capacity as such
individual's sole and exclusive function, and such individual may have other
business interests and may engage in other activities in addition to those
relating to the LLC, subject to the confidentiality obligations hereof, and
under any separate written customary confidentiality agreements which the Chief
Executive Officer of the LLC believes necessary or appropriate for such JSC
member to sign.  No member of the JSC will have any right, by virtue of this
Agreement, to share or participate in investments or activities of the LLC or of
any Member or to any income or proceeds derived therefrom.

          (e) Changes in Size, Function And Powers; Termination, Of The JSC.
              -------------------------------------------------------------
Upon mutual written agreement of the Members from time to time during the
existence of the JSC, the number of members of the JSC can be increased or
decreased, the function and powers of the JSC may be amended, and the JSC may be
terminated in its entirety.  The JSC will terminate automatically (i) when the
Research Term (as defined in the LLC Collaboration Agreement) ends unless the
Members agree in writing to extend the existence of the JSC, or (ii) if Exelixis
ceases to be a Member or its Membership Interest is purchased by Bayer as
provided herein, unless Bayer and Exelixis then otherwise agree in writing.

                                  ARTICLE VII
                    LLC OFFICERS, EMPLOYEES AND CONSULTANTS

     7.1  Election Of Officers; Required Officers; Initial Officers.  The
          ---------------------------------------------------------
officers of the LLC will be elected by the Management Committee and will include
a Chief Executive Officer of the LLC and a Chief Financial Officer of the LLC
(each of whom will be an individual nominated by Bayer and approved by the
Management Committee), and a Secretary of the LLC. The Management Committee may
create such other offices and elect such other officers therefor as they deem
appropriate.  Any number of offices may be held by one person, except that the
Chief Executive Officer of the LLC and Chief Financial Officer of the LLC
positions must be held by two separate individuals.  Each individual who will
serve as the initial Chief Executive Officer of the LLC, Chief Financial Officer
of the LLC and Secretary of the LLC will be designated and appointed to serve as
such no later than the Commencement Date, in writing by the Members to each
other and to the Management Committee.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -32-
<PAGE>

     7.2  Term Of Office; Duties.  Each LLC officer will hold office for such
          ----------------------
term as will be determined from time to time by the Management Committee.  The
duties of any LLC officers other than the Chief Executive Officer of the LLC,
Chief Financial Officer of the LLC and Secretary of the LLC, which are set forth
herein, and any lawful duties of such three (3) officers beyond those specified
herein, will be established from time to time by the Management Committee, or as
to such officers, other than the Chief Executive Officer of the LLC, by the
Chief Executive Officer of the LLC acting under specific authority granted by
the Management Committee.

     7.3  Reporting; Employee And Consultant Invention Assignment And
          -----------------------------------------------------------
Confidentiality Agreements.
--------------------------

          (a) Reporting.  The Chief Executive Officer of the LLC will report to
              ---------
the Management Committee.  All other officers and employees of the LLC will
report to the Chief Executive Officer of the LLC and to the Management
Committee.

          (b) Employee And Consultant Invention Assignment And Confidentiality
              ----------------------------------------------------------------
Agreements.  Each LLC officer and each LLC employee will, upon assuming office
----------
or beginning employment (whether full-time or part-time) with the LLC, execute
and deliver a customary invention assignment and confidentiality agreement with
the LLC, with provisions substantially similar to those contained in Article
XVIII hereof, which agreements in each case will name Bayer and Exelixis and
their respective Affiliates as intended third party beneficiaries thereof.  Each
consultant retained by the LLC (including any officer of the LLC who serves in
such capacity as a consultant) also will execute and deliver to the LLC such
customary consulting agreement as the Chief Executive Officer of the LLC (or the
Management Committee, with respect to any service of the Chief Executive Officer
of the LLC as a consultant to the LLC) requests, containing provisions
substantially similar to those contained in Article XVIII hereof, which
agreements in each case will name Bayer and Exelixis and their respective
Affiliates as intended third party beneficiaries thereof.  The confidentiality
provisions of each such agreement between the LLC and any LLC officer, LLC
employee or LLC consultant, also will provide that any Confidential Information
of Exelixis or of any third-party collaborator with, or potential collaborator
with, Exelixis, that is not specific to and intended by Exelixis to be used,
lawfully, in the Research (as defined under the LLC Collaboration Agreement) or
in the performance by Exelixis of its obligations under the LLC Collaboration
Agreement, and that becomes known to such individual in the course of such
individual's involvement with the LLC, will be subject to such confidentiality
provisions of such agreement with the LLC and further will provide that such
Confidential Information will not be disclosed by such individual to either
Bayer or the LLC without the express prior written permission of the relevant
third party.

     7.4  Compensation Of LLC Officers And LLC Employees; Reimbursement.  The
          -------------------------------------------------------------
salaries, bonuses and benefits, if any, and reimbursement of all LLC officers
and agents of the LLC employees will be fixed by the Management Committee, or by
the Chief Executive Officer of the LLC, if so authorized by the Management
Committee, as to officers other than himself or herself, and will be as
reflected in the LLC's then-current approved budget.  The LLC will pay the
salary or consulting fees of, and will furnish itself or through a third party
or parties all benefits for, those

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -33-
<PAGE>

officers of the LLC who are employees of or consultants to the LLC while they
are so employed by the LLC, and of all other employees of and consultants to the
LLC, who are not in each case otherwise furnished by Bayer or Exelixis. Each of
Bayer and/or Exelixis, as the case may be, will pay the salary or consulting fee
of, and any bonus amounts determined by the Management Committee to be payable
to, and will reimburse the expense of, and will furnish itself or through a
third party or parties all relevant benefits for, any employee of or consultant
to such Member if and so long as such employee is so employed by, or serving as
a consultant to, such Member and also then is serving as an LLC officer or
otherwise as an employee of or consultant to the LLC, provided that all such
salary or consulting fees, bonus amounts, expenses and benefits so paid by the
relevant Member will be not greater than the relevant amounts therefor as
reflected in the LLC budget as in effect most recently before such payment is
made by the relevant Member.

     7.5  Duties Of The Chief Executive Officer of the LLC.  Unless the
          ------------------------------------------------
Management Committee determines otherwise, and so communicates in writing to the
Chief Executive Officer of the LLC, the Chief Executive Officer of the LLC will
be the principal officer of the LLC, and will preside as Chairperson at all
meetings of the Members, and will be responsible for the following:

          (a) Hiring And Termination Of Employees Of And Consultants To The LLC.
              -----------------------------------------------------------------
The hiring and termination by the LLC of any employees of or consultants to the
LLC (which will not include any FTE unless and until such FTE becomes an
employee of or consultant to the LLC as provided in this Agreement), and the
establishment of salaries and benefits therefor pursuant to an approved LLC
budget.

          (b) Oversight And Supervision Of LLC Collaboration Agreement,
              ---------------------------------------------------------
Implementation of Research Plan, And Approval Of Certain Changes In the Research
--------------------------------------------------------------------------------
Plan.  General oversight and supervision of the LLC Collaboration Agreement, and
----
implementation of the Research Plan (as defined in the LLC Collaboration
Agreement), and approval of certain changes to the Research Plan that do not
change or extend beyond the Research Field and do not materially adversely
impact the budget for or progress of any Research Plan.  Each such change when
approved by the Chief Executive Officer of the LLC will be promptly communicated
by the Chief Executive Officer of the LLC in writing to the JSC and to the
Management Committee.  Any increases in overall expenditures remaining under
such Research Plan must be approved in accordance with Article VI hereof.

          (c) Execution And Delivery Of Agreements, Etc.  Execution and delivery
              -----------------------------------------
of documents for, contracting for, negotiating on behalf of and binding, and
otherwise representing, the interests of the LLC as authorized by the Management
Committee in any job description created by, or any resolution passed by, the
Management Committee, except where required or permitted by this Agreement or by
law to be otherwise signed and executed by other or additional parties, and
except where the signing and execution thereof has been expressly delegated by
the Management Committee to some other LLC officer or agent of the LLC.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -34-
<PAGE>

          (d) Other Specific Matters.  Such other matters and actions as are
              ----------------------
specifically authorized in writing by the Management Committee prior to the
taking of such action or as ratified by the Management Committee after the
taking of such action.

     7.6  Duties Of The Secretary of the LLC.  The Secretary of the LLC will
          ----------------------------------
attend all meetings of the Members and will record all the proceedings of the
meetings of such Members in a book to be kept for that purpose.  The Secretary
of the LLC will give, or cause to be given, on behalf of the LLC, written notice
of all meetings of the Members and of the Management Committee and of committees
thereof, and will perform such other duties as may be prescribed by the
Management Committee or Chief Executive Officer of the LLC.

     7.7  Duties Of The Chief Financial Officer of the LLC.  The Chief Financial
          ------------------------------------------------
Officer of the LLC will perform or will supervise such functions with respect to
financial and cash management for the LLC as are customary and as may be
specified by the Chief Executive Officer of the LLC or the Management Committee
to the Chief Financial Officer of the LLC.

     7.8  Certain Standards Of Care.  In discharging their respective duties,
          -------------------------
the Management Committee and each LLC officer will be fully protected in relying
in good faith upon any such records and upon such information, opinions, reports
or statements by any other person, as to matters the Management Committee or LLC
officer reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the LLC, including information, opinions, reports or statements as to the
value and amount of the assets, liabilities, profits or losses of the LLC or any
other facts pertinent to the existence and amount of assets from which
distributions to Members might properly be paid.  Neither a Member, nor any
Member Representative, nor any LLC officer, will be liable or obligated to the
Members for any act or omission performed or omitted to be performed by such
Member or such individual in good faith pursuant to authority granted to such
Member or individual by this Agreement or the Act, which causes or results in
any loss or damage to the LLC or the Members.  Neither the Management Committee
nor any LLC officer, in any way guarantee the return of a Member's capital or a
profit for either Member from the operations of the LLC.

     7.9  Resignation Of Officers; Removal.  Any LLC officer may resign at any
          --------------------------------
time by giving written notice thereof to each Member and to the Management
Committee.  Any LLC officer other than the Chief Executive Officer of the LLC
may be removed and replaced, with or without cause, upon the decision of the
Chief Executive Officer of the LLC or of at least a majority of the Member
Representatives, provided that, so long as Bayer is providing financial
management and treasury functions to the LLC under Section 4.5 hereof, the Chief
Executive Officer of the LLC, and the Chief Financial Officer of the LLC, may
only be removed or replaced by the Management Committee with Bayer's prior
written approval.

     7.10 Employees And Consultants; Certain Matters Relating To FTE'S.
          ------------------------------------------------------------

          (a) Employees And Consultants of LLC.  The LLC may employ such
              --------------------------------
employees and consultants as the Management Committee or the Chief Executive
Officer of the LLC believes are necessary or appropriate in order for the LLC to
conduct its business.  Any

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -35-
<PAGE>

employees of or consultants to the LLC will be paid directly by the LLC and
furnished such benefits and other terms of employment or consultancy as the LLC,
by the Chief Executive Officer of the LLC and Management Committee, believe
necessary and appropriate as in the best interests of the LLC and the Members'
interests therein.

          (b) Certain Matters As To FTE's And Other Personnel.  Any FTE's
              -----------------------------------------------
seconded full-time to the LLC by Exelixis (referred to in the LLC Collaboration
Agreement as "Dedicated FTE's"), and any FTE's within Exelixis working part-time
on behalf of the LLC (referred to in the LLC Collaboration Agreement as "Shared
FTE's"), will, during the term of the LLC Collaboration Agreement, be and remain
employees of Exelixis, and Exelixis will remain liable for salaries, benefits,
including without limitation stock options and other equity awards as determined
by Exelixis, and other matters and liabilities with respect thereto, and for
termination or alteration of the terms of, their employment by Exelixis,
provided that:

              (i)   Hiring Upon Certain Termination of LLC Collaboration
                    ----------------------------------------------------
Agreement or Buyout By Bayer of Exelixis' Membership Interest. If the LLC
-------------------------------------------------------------
Collaboration Agreement is terminated by Bayer or by Exelixis, or if Bayer buys
out the Membership Interest of Exelixis pursuant to the provisions of Article
XIII of this Agreement, then the LLC and/or Bayer, as Bayer deems appropriate in
its sole discretion, may offer employment or consultancy to, and may hire, any
Dedicated FTE directly as an employees of or as a consultant to the LLC and/or
Bayer, and

              (ii)  Hiring Of Non-Solicited Individuals Who Leave Exelixis.
                    ------------------------------------------------------
Subject to the provisions of Section 7.10(c) hereof, and to any lawful
restraints, including those by contract, against such hiring, and to
confidentiality obligations of the relevant individual, the LLC or Bayer may,
during the term of this Agreement or thereafter, make offers to and hire as an
employee or consultant, to work on Bayer or LLC matters, or both, any person who
has voluntarily terminated such person's employment or consultancy with
Exelixis, or whose employment has been terminated by Exelixis, and

              (iii) Exelixis Rights To Hire.  Subject to the provisions of
                    -----------------------
Section 7.10(c) hereof, and to any lawful restraints, including those by
contract, against such hiring, and to confidentiality obligations of the
relevant individual, Exelixis may, during the term of this Agreement or
thereafter, make offers to and hire as an employee or consultant, to work on
Exelixis or LLC matters or both, any person who has voluntarily terminated such
person's employment or consultancy with the LLC or Bayer or whose employment has
been terminated by the LLC or Bayer.

              (iv)  Certain Information About FTE's; Bayer Right To Request
                    -------------------------------------------------------
Replacement of FTE's.
--------------------

                    (A)  Certain Information About FTE's. During the term of the
                         -------------------------------
LLC Collaboration Agreement, Exelixis will provide the LLC and Bayer in writing:
(1) within fifteen (15) days after the end of each calendar quarter, (a) the
names of the then-current FTE's as at the end of such quarter, broken out by
Dedicated FTE's and Shared FTE's, and (b) a detailed statement of account that
shows the time spent by the Shared FTE's and LLC project on

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -36-
<PAGE>

which such time was spent during such preceding quarter, and (2) within five (5)
days after cessation, for any reason, by any individual of such individual's
service to the LLC as an a Dedicated FTE, notice of such cessation and a general
description of the reason therefor. Exelixis will consult with the LLC and Bayer
prior to Exelixis terminating an a Dedicated FTE as an employee of or consultant
to Exelixis, as to reassigning an a Dedicated FTE to tasks other than under the
LLC Collaboration Agreement, and as to hiring a replacement for a Dedicated
FTE.

                     (B) Bayer Right To Request Replacement of FTE's. Bayer may,
                         -------------------------------------------
a reasonable number of times during the term of the LLC Collaboration Agreement,
request in writing to Exelixis that Exelixis replace a Dedicated FTE, or a
Shared FTE (but not request that Exelixis terminate the employment by Exelixis
of any Dedicated FTE or Shared FTE), if in the good faith judgment of Bayer, as
so stated in such request, the continued involvement of such Dedicated FTE or
Shared FTE the LLC or with work under the LLC Collaboration Agreement, is or
would be detrimental to the best interests of the LLC or of Bayer. Upon such
request, Exelixis will promptly take such corrective measures as Exelixis deems
appropriate in its good faith judgment. If, after such corrective measures have
been completed, Bayer still desires replacement of such individual, Bayer may
repeat its request. Upon such repeated request, Exelixis will promptly replace
such individual as an FTE with another person as a Dedicated FTE or Shared FTE,
as the case may be, provided that Exelixis will determine, after consultation
with Bayer and giving due regard to the business of the LLC, who the replacement
will be. Exelixis will promptly hire a qualified new employee or retain a
qualified new consultant to fulfill such replacement obligation if Exelixis
cannot supply a suitable replacement from Exelixis' then-existing employees or
consultants.

                 (v) Certain Information About Technical Personnel FTE's.
                     -------------------------
Exelixis will provide the LLC and Bayer in writing, within fifteen (15) days
after the close of each calendar quarter during the term hereof, with the total
number of FTE's serving as employees of or as consultants to Exelixis during
such preceding quarter, who have technical qualifications at least to the level
of a Shared FTE ("Technical Personnel FTE's"), but excluding all Dedicated FTE's
                  -------------------------
and excluding the portion, out of total time spent by Shared FTE's during such
quarter, that was spent on LLC matters during such quarter by Shared FTE's then
working with the LLC.

             (c) Nonsolicitation. During the term hereof and for a period of
                 ---------------
[ * ] thereafter, neither the LLC, nor any of its officers, nor either of the
Members, nor any Member Representative or member of the JSC appointed by such
Member, will solicit any employee of or consultant to either of the other
parties hereto to terminate such employee's or consultant's relationship with
such other party.

                                  ARTICLE VIII
                             ACCOUNTING AND RECORDS

        8.1  Financial And Tax Reporting.  The LLC will prepare its financial
             ---------------------------
statements in accordance with United States generally accepted accounting
principles as from time to time in effect and will prepare its income tax
information returns using such methods of accounting and

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -37-
<PAGE>

tax year as the Tax Matters Member deems necessary or appropriate under the Code
and Treasury Regulations.

     8.2  Supervision; Inspection Of Books And Records.  Proper and complete
          --------------------------------------------
books of account and records of the business of the LLC (including those books
and records identified in Section 18-305 of the Act) will be kept under the
supervision of the Management Committee at the LLC's principal office and at
such other place as designated by the Management Committee.  The Management
Committee will give written notice to each Member of any change in the location
of the books and records.  The books and records of the LLC will be open to
inspection, audit and copying by any Member or its authorized representative,
upon reasonable or prior written notice at any time during business hours for
any purpose reasonably related to such Member's interest in the LLC.  Any
information so obtained or copied will be Confidential Information.  Any such
inspection and copying will be at the expense of the inspecting Member.

     8.3  Reliance On Records And Books Of Account.  Any Member or Member
          ----------------------------------------
Representative or LLC officer, to the extent such LLC officer was acting in good
faith in preparation thereof, will be fully protected in relying in good faith
upon the records and books of account of the LLC and upon such information,
opinions, reports or statements presented to the LLC by its Tax Matters Member,
any of its Members, officers, employees or committees, or by any other person,
as to matters the Tax Matters Member or other Member reasonably believes are
within such other person's professional or expert competence and who has been
selected with reasonable care by or on behalf of the LLC, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits or losses of the LLC or any other facts pertinent to the
existence and amount of assets from which distributions to either or both
Members from the LLC might properly be paid.

     8.4  Tax Matters Member.  Bayer will serve as the Tax Matters Member, which
          ------------------
will be the "tax matters partner" within the meaning of Code Section 6231.  The
Tax Matters Member (or the other Member if it receives such notification) will
provide notice to the other Member, as provided in Code Section 6223(g), of any
administrative or judicial proceeding for the adjustment of LLC items and will
keep the other Member reasonably and timely informed as to all material facts
and developments about tax matters involving the LLC.  The Tax Matters Member
will ensure that the other Member is a notice partner as provided in Code
Section 6223(b).  The Tax Matters Member may hire tax counsel and accountants,
at the expense of the LLC, in connection with any representation of the LLC.

     8.5  Tax Returns.
          -----------

          (a) Filing.  The Tax Matters Member will, as soon as practicable, but
              ------
in no event later than seventy-five (75) days after the end of each Fiscal Year,
cause the LLC to file a federal income tax information return and to transmit to
each Member a schedule showing such Member's distributive share of the LLC's
income, deductions and credits, and all other information necessary for such
Members to timely file their federal income tax returns.  The Tax Matters Member
similarly will cause the LLC to file, and to provide information to such Members
regarding, all appropriate state and local income tax returns.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -38-
<PAGE>

          (b) Drafts And Certain Disputes.  The Tax Matters Member will prepare
              ---------------------------
or cause to be prepared, and will submit to the Members and to the Chief
Executive Officer of the LLC, drafts of all LLC tax returns as soon as
reasonably practical, and in any event no later than forty-five ( 45) days, in
advance of the filing due date thereof to permit review by the Members and the
LLC prior to filing.  If either of the Members or the LLC disagrees with the
proposed treatment of an item on the return prepared by or for the Tax Matters
Member, the dispute will be resolved as provided in Section 17.3 hereof.  If the
dispute has not been resolved by the due date of the particular return, the Tax
Matters Member will timely file the particular return and the content of the
return as filed will be determined by the Tax Matters Member in its sole
discretion.  Upon resolution of the relevant dispute between the Members and the
LLC, if such resolution provides for the reporting of any item which is
inconsistent with the manner in which such item was reported on the return as
filed by the Tax Matters Member, the Tax Matters Member will prepare and file an
amended return using the agreed basis of reporting.  The Tax Matters Member may
file such requests for extensions of time to file any returns as it deems
appropriate.

          (c) Cooperation.  Each Member and the LLC will maintain and provide to
              -----------
the Tax Matters Member all information necessary for the preparation and support
of all LLC tax returns.  Such information will be provided to the Tax Matters
Member within a reasonable time after it is requested by the Tax Matters
Partner, and in a commercially reasonable manner, by each Member and the LLC at
their respective expense.

     8.6  Annual Reports.  The LLC will deliver to each Person (or such Person's
          --------------
legal representative) who was a Member during any part of the Fiscal Year in
question, within ninety (90) days after the end of each Fiscal Year of the LLC:
(a) a balance sheet for the LLC as of the close of the Fiscal Year and a profit
and loss statement for the Fiscal Year then ended, all in reasonable detail, and
(b) a report setting forth the Capital Accounts of each Member and a description
of the manner of their calculation.  The annual financial statements of the LLC
will be audited and reported on as of the end of each Fiscal Year by a firm of
independent certified public accountants selected by the Management Committee.
The Chief Executive Officer of the LLC will be responsible for preparing or
having prepared such reports, at the expense of the LLC, as may be reasonably
requested by either Member.

     8.7  Other Financial And Accounting Reports.  In addition to the annual
          --------------------------------------
report described in Section 8.6 hereof, the LLC will prepare or cause to be
prepared and delivered to the Members such other financial and accounting
reports, within [ * ] after the end of each calendar quarter during the
existence of the LLC, as the Management Committee deems appropriate or
necessary, or as either Member requests in good faith in writing to the
Management Committee, with a copy to the other Members.

     8.8  Confidentiality.  All information received pursuant to this Section 8
          ---------------
will be Confidential Information, subject to the exceptions therefor set forth
in Section 1.20 hereof.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -39-
<PAGE>

                                  ARTICLE IX
                                  ALLOCATIONS

     9.1  Allocation Of Net Income And Net Loss.  For each Accounting Period:
          -------------------------------------

          (a) Deductions.  All deductions of the LLC will be allocated to Bayer
              ----------
until the earlier of the time at which (x) Bayer has been allocated deductions
and Net Loss equal to Bayer's cumulative Capital Contributions through the date
of allocation or (y) taking into account planned distributions following the
relevant year-end, the balances in Bayer's Capital Account and Exelixis' Capital
Account are in proportion to their Percentage Interests.

          (b) Allocations Of Net Income And Net Loss.  Following the allocations
              --------------------------------------
provided in Section 9.1(a) hereof, Net Income and Net Loss will be allocated
between Bayer and Exelixis in proportion to their Percentage Interests, except
that the Members will first be allocated gross income until cumulative
allocations of gross income equal cumulative periodic distributions made or
planned to be made to them following the relevant year-end pursuant to Section
10(b)(i) hereof.

          (c) Certain Allocations.  It is agreed between the Members that Bayer
              -------------------
is funding, to the extent of Bayer's Capital Contributions under Section 4.2
hereof and to the extent of its milestone payments under the LLC Collaboration
Agreement, all expenditures for research and experimentation of the LLC, whether
directly or as paid by the LLC to Exelixis under the LLC Collaboration
Agreement, and that Bayer will be allocated all deductions for expenditures
under Code Section 174 (and all associated credits under Section 41 of the Code)
to the extent of the deductions funded through such Capital Contributions and
milestone payments.  All other expenditures under Code Section 174 (and
associated credits) will be allocated in proportion to Percentage Interests of
the Members.

     9.2  Other Allocations; Qualified Income Offset; Minimum Gain Chargeback.
          -------------------------------------------------------------------
Notwithstanding the provisions of Section 9.1 hereof, the following special
allocations will be made in the order set forth herein.  Terms appearing in
quotation marks in this Section 9.2 have the meanings set forth in Treasury
Regulations Section 1.704-2, and this Section 9.2 is intended to comply with
such Treasury Regulations.

          (a) Nonrecourse Deductions.  All "nonrecourse deductions" will be
              ----------------------
allocated in proportion to the Member Percentage Interests from time to time.

          (b) Partner Nonrecourse Deductions.  All "partner nonrecourse
              ------------------------------
deductions" will be specially allocated to those Members who bear the economic
risk of loss with respect to the "partner nonrecourse debt" to which such
"partner nonrecourse deductions" are attributable.

          (c) Partnership Minimum Gain.  Except as otherwise provided in
              ------------------------
Treasury Regulations Section 1.704-2(f), if there is a net decrease in
"partnership minimum gain" during any Fiscal Year, each Member will be specially
allocated items of LLC net income and net loss for such Fiscal Year (and, if
necessary, future Fiscal Years) in an amount equal to such Member's share of the
net decrease.  This Section 9.2(c) is intended to comply with the

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -40-
<PAGE>

"minimum gain chargeback" requirement in Treasury Regulations Section 1.704-2
and will be interpreted accordingly.

          (d) Partner Nonrecourse Debt Minimum Gain.  Except as otherwise
              -------------------------------------
provided in Treasury Regulations Section 1.704-2(i)(4), if there is a net
decrease in "partner nonrecourse debt minimum gain" attributable to a "partner
nonrecourse debt" during any Fiscal Year, each Member who has a share of such
"partner nonrecourse debt minimum gain" will be specially allocated items of
income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal
Years) in an amount equal to that share.  This Section 9.2(d) is intended to
comply with the "minimum gain chargeback" requirements of Treasury Regulations
Section 1.704-2 and will be interpreted accordingly.

          (e) Certain Reallocations.  If a Member's Adjusted Capital Account has
              ---------------------
an Unadjusted Excess Negative Balance at the end of any Fiscal Year, such Member
will be reallocated items of income and gain for such Fiscal Year (and, if
necessary, future Fiscal Years) in the amount necessary to eliminate such
Unadjusted Excess Negative Balance as quickly as possible.

          (f) Qualified Income Offset.  If a Member unexpectedly receives any
              -----------------------
adjustments, allocations or distributions described in Treasury Regulations
Sections 1.704-1(b)(2)(ii)(d)(4) through (d)(6), items of LLC income and gain
will be specially allocated to such Member any Excess Negative Balance in such
Member's Capital Account created thereby as quickly as possible.  This Section
9.2(f) is intended to constitute a "qualified income offset" within the meaning
of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and will be interpreted
accordingly.

          (g) Certain Limitations.  A Member will not be allocated any item of
              -------------------
LLC loss or deduction to the extent such allocation would cause such Member's
Adjusted Capital Account to have an Excess Negative Balance.

          (h) Certain Powers Of Tax Matters Partner.  The allocations set forth
              -------------------------------------
in the preceding provisions of this Section 9.2 (the "Regulatory Allocations")
                                                      ----------------------
are intended to comply with certain requirements of the Treasury Regulations.
It is the intent of the Members that, to the extent possible, all Regulatory
Allocations will be offset with other Regulatory Allocations or with special
allocations of other items of income, gain, loss or deduction pursuant to this
Section 9.2(h). Therefore, notwithstanding any other provision of this Agreement
(other than the provisions governing the Regulatory Allocations) the Tax Matters
Member will make such offsetting special allocations of LLC income, gain, loss
or deduction in whatever manner it determines appropriate, to the end that each
Member's Adjusted Capital Account balance should equal the balance such Member
would have had if the Regulatory Allocations were not part of this Agreement and
all LLC items were allocated pursuant to Section 9.1 hereof.  In exercising its
discretion under this Section 9.2(h), the Tax Matters Member will take into
account future Regulatory Allocations under Sections 9.2(c) and (d) hereof that,
although not yet made, are likely to offset other Regulatory Allocations
previously made under Sections 9.2(a) and (b) hereof.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -41-
<PAGE>

     9.3  Special Tax Provisions.
          ----------------------

          (a) Membership Status.  The Members intend that the LLC will be
              -----------------
treated as a partnership for all federal income tax purposes and each Member
agrees that it will not, on any federal, state, local or other tax return, take
a position inconsistent with such intent.

          (b) Tax Allocations.  Except as otherwise provided in this Article
              ---------------
VIII or required by the Code and Treasury Regulations, items of income, gain,
loss or deduction recognized for income tax purposes will be allocated in the
same manner that the corresponding items entering into the calculation of Net
Income and Net Loss are allocated pursuant to this Agreement.

          (c) Section 704(c) Adjustments.  In accordance with Code Section
              --------------------------
704(c) and the Treasury Regulations thereunder, items of income, gain, loss and
deduction with respect to an asset, if any, contributed to the capital of the
LLC will, solely for tax purposes, be allocated between the Members so as to
take account of any variation between the adjusted basis of such property to the
LLC for federal income tax purposes and its fair market value upon contribution
to the LLC, in the manner determined by the Tax Matters Member.  If the Carrying
Value of any asset is adjusted pursuant to the terms of this Agreement,
subsequent allocations of income, gain, loss and deduction with respect to such
asset will take account of any variation between the adjusted basis of such
asset to the LLC for federal income tax purposes and its Carrying Value in the
same manner as under Code Section 704(c) and the Treasury Regulations
thereunder, in the manner determined by the Tax Matters Member.

          (d) Section 754 Election.  An election under Code Section 754 election
              --------------------
may be made for the LLC at the written request of either Member, a copy of which
the requesting Member will deliver to the Management Committee.  In the event of
an adjustment to the adjusted tax basis of any LLC asset under Code Section
734(b) or Code Section 743(b) pursuant to a Section 754 election, subsequent
allocations of tax items will reflect such adjustment consistent with the
Treasury Regulations promulgated under Code Sections 704, 734 and 743.

          (e) Allocations Upon Transfers Of LLC Interests.  If during an
              -------------------------------------------
Accounting Period, a Member assigns or transfers its Membership Interest to
another Person properly in accordance with the provisions of Section 3.4 hereof,
items of Net Income and Net Loss, together with corresponding tax items, that
otherwise would have been allocated to the transferring or assigning member with
regard to such Accounting Period will be allocated between the transferring or
assigning member and the transferee in accordance with their respective
Membership Interest during the Accounting Period using any method permitted by
Code Section 706 and selected by the Tax Matters Member.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -42-
<PAGE>

                                   ARTICLE X
                        DISTRIBUTIONS; WITHHOLDING TAXES

     10.1 Distributions To Members.
          ------------------------

          (a) General.  Except as otherwise provided in this Article X, Members
              -------
will share ratably all nonliquidating distributions from the LLC in proportion
to their Percentage Interests

          (b) Management Of LLC On Budget; Specific Required Distributions.  The
              ------------------------------------------------------------
Management Committee will operate the LLC on a budget that will permit
distribution in full of all premium fees the LLC receives from the Members and
of the milestone payments received by the LLC from Bayer.  Subject to the
provisions set forth in Sections 10.1(b)(i) and 10.2 hereof, cash of the LLC
will be distributed in the manner and order set forth below, within [ * ] after
the end of the preceding fiscal year of the LLC, or promptly after the delivery
to the LLC by its independent accounts of audited LLC financial statements for
such immediately preceding year if such audited statements are delivered to the
LLC by such accountants after such sixty day period has expired:

              (i)   Distributions To Members Of Premium Fee Income And Milestone
                    ------------------------------------------------------------
Payment Income Of The LLC; Reserve.  Nonliquidating distributions will first be
----------------------------------
made in cash promptly, and in any event within thirty (30) days, after the close
of each calendar quarter during the term of the LLC: (A) to the Members, in
accordance with their Percentage Interests, of all income of the LLC from
premium fees received by the LLC during such preceding quarter from either
Member under the LLC Collaboration Agreement or under any Collateral Agreements
as they may then exist, provided that, if Exelixis does not, at the time of such
distribution, hold exactly forty percent (40%) of the total Percentage Interests
of the LLC then outstanding, Exelixis nevertheless will have distributed to it
under this Section 10.1(b)(i), provided it still is a Member at the time of such
distribution, an amount of such premium fee income of the LLC equal to that
which would have been distributed to Exelixis had it held, at the time of such
distribution, forty percent (40%) of the total Percentage Interests of the LLC
then outstanding, and then (B) to Exelixis only, provided it still is a Member
at the time of such distribution, all income received by the LLC during such
preceding quarter as milestone payments from Bayer under the LLC Collaboration
Agreement.   The LLC will, after making such distribution of premium fee
payments from the Members and of milestone payments from Bayer, make an adequate
reserve for the anticipated payment by the LLC of the full FTE Amounts, and of
other budgeted, and other then-anticipated but not budgeted, operating expenses
and payments expected by the Management Committee to be required to be made by
the LLC during the then-prospective [ * ] period (the "Reserve").

              (ii)  Certain Distributions To Bayer For Patent And Insurance
                    -------------------------------------------------------
Expenses. Commencing as to, and after the close of, the first fiscal year of the
--------
LLC (or as to fiscal year 2000, ending on December 31, 2000, if the LLC is
created prior to January 1, 2000), to the extent that after making the
distributions required to be made under Section 10.1(b)(i) hereof to the Members
during the immediately preceding fiscal year, and if there is then still cash of
the LLC available for distribution to the Members after making the Reserve
required to

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -43-
<PAGE>

be made under Section 10.1(b)(i) hereof, there will next be distributed to Bayer
in cash, to the extent not then already distributed by the LLC to Bayer, an
amount equal to all LLC Operating Expense Amounts actually paid by Bayer to or
on behalf of the LLC during such immediately preceding fiscal year, as an
additional Capital Contribution by Bayer, for expenditure by the LLC for patent
prosecution, insurance and related matters for the LLC, provided that no
distribution will be made to Bayer under this Section 10(b)(ii) with respect to
such fiscal year unless the total amount of Capital Contribution to the LLC by
Bayer during such fiscal year equaled or exceeded [ * ] (or such then-current
amount as may be provided in any amendment hereto). The distribution to Bayer
provided for under this Section 10(b)(ii) will be made within [ * ] after the
end of each fiscal year of the LLC (commencing after the close of the relevant
first fiscal year of the LLC as provided above in this Section 10(b)(i)), or
promptly after the delivery to the LLC by its independent accounts of audited
LLC financial statements for such fiscal year if such audited statements are
delivered to the LLC by such accountants after such [ * ] period has expired.

              (iii)  Distributions To Members For Taxes. At the same time as the
                     ----------------------------------
distribution to Bayer, if any, is made pursuant to Section 10.1(b)(ii) hereof,
then to the extent that there is then still cash of the LLC available for
distribution to the Members, after making the distributions described in
Sections 10.1(b)(i) and (ii) hereof, and after making the Reserve required to be
made under Section 10.1(b)(i) hereof, there will next be distributed to the
Members in cash, if requested in writing by either Member, an amount, to each
Member in proportion to its Percentage Interest, as is necessary, as determined
by the Management Committee in good faith after consultation with each Member,
to pay taxes owed by such Member on income (but not sales, VAT or ad valorem
                                                                  ----------
taxes) required to be paid by the Members solely by reason of being a Member of
the LLC, to the extent that the amount of taxes owed by either Member is greater
than the amount of cash already distributed to such Member by the LLC with
respect to the period for which such tax is due.

              (iv)   Certain Distributions To Member(s) For Salary, Expenses,
                     -------------------------------------------------------
Bonuses And Benefits Of LLC Officers And LLC Employees. At the same time as the
------------------------------------------------------
distributions, if any, are made to the Members pursuant to Sections 10.1(b)(ii)
and (iii) hereof, then to the extent that there is still cash of the LLC
available for distribution to the Members, after making such distributions, and
after making the Reserve required to be made under Section 10.1(b)(i) hereof,
then there will next be distributed in cash to Bayer (and to Exelixis on an
equal ranking basis with Bayer, prorated between Bayer and Exelixis as to the
respective amounts of salary or consulting fee amounts and expenses paid and
reimbursed, and benefits paid, if during the fiscal year immediately preceding
such distribution any employee of or consultant to Exelixis was serving as an
LLC officer), provided that no distribution will be made to Bayer under this
Section 10(b)(iii) with respect to any year unless the total amount of Capital
Contribution to the LLC by Bayer during such fiscal year equaled or exceeded
[ * ] (or such then-current amount as may be provided in any amendment hereto):

                     (A) LLC Employee Salary And Consulting Fees And Related
                         ---------------------------------------------------
Amounts Paid By Bayer. All amounts of salary or consulting fee, as applicable,
---------------------
bonuses paid from the LLC (if any, and in each case as determined by the
Management Committee pursuant to the then-current LLC budget), expenses and
benefits, as applicable, actually paid by Bayer

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -44-
<PAGE>

directly to those of its employees and consultants serving as officers or
employees of or as consultants to the LLC, or paid by Bayer to the LLC during
the immediately preceding year as an additional Capital Contribution, as part of
the LLC Operating Expense Amounts for expenditure by the LLC for such payments
of salary or consulting fee and benefits to such employees and consultants,
prorated according to the amount of time, out of total work time, such
individual spent during such year in service as LLC officer or employee of or
consultant to the LLC, and

                     (B) LLC Employee Salary And Consulting Fees And Related
                         ---------------------------------------------------
Amounts Paid By Exelixis. As to Exelixis as relevant, the amounts actually paid
------------------------
by Exelixis during the immediately preceding year directly to such of its
employees and consultants serving as officers of or employees of or consultants
to the LLCLLC officer(s), of salary or consulting fee, as applicable, bonuses
paid from the LLC (if any, and in each case as determined by the Management
Committee pursuant to the then-current LLC budget), expenses, and benefits for
such individual, prorated according to the amount of time, out of total work
time, such individual spent during such year in service as LLC officer or
employee of or consultant to the LLC.

                 (v) Distributions To Both Members.  At the same time as the
                     -----------------------------
distributions, if any, are made to the Members pursuant to Sections 10.1(b)(ii)-
(iv) hereof, then to the extent that there is still cash of the LLC available
for distribution to the Members, after making such distributions, and after
making the Reserve required to be made under Section 10.1(b)(i) hereof, then
such cash will be distributed to the Members in accordance with their Percentage
Interests.

     10.2   Restriction On Distributions And Withdrawals.
            --------------------------------------------

            (a)  Limitations. The LLC will not make any distribution, other than
                 -----------
of premium payment and milestone payment amounts as provided under Section
10.1(b)(i) hereof, unless immediately after giving effect to the distribution,
all liabilities of the LLC, other than liabilities to Members on account of
their interest in the LLC and liabilities as to which recourse of creditors is
limited to specified property of the LLC, do not exceed the fair value of the
LLC's assets; provided that (i) the fair value of any property that is subject
to a liability as to which recourse of creditors is so limited will be included
in the LLC assets only to the extent that the fair value of the property exceeds
such liability, and (ii) if after making the distribution of premium payment and
milestone payment amounts as provided under Section 10.1(b)(i) hereof, the
amount of cash remaining in the LLC does not equal or exceed the required
Reserve as determined by the Management Committee under Section 10.1(b)(i)
hereof, then upon the written request of the Management Committee, Bayer will
promptly make an additional Capital Contribution to the LLC in cash of an
amount, as an LLC Operating Expense, that is so requested by the Management
Committee, which amount will not be greater than the difference between the
amount of cash then in the LLC and the amount of the Reserve.

            (b)  Liability For Certain Distributions. Except as otherwise
                 -----------------------------------
required by law, no Member will be liable to the LLC for the amount of a
distribution received provided that, at the time of the distribution, such
Member did not know that the distribution was in violation of Section 10.2(a)
hereof. A Member who receives a distribution in violation of Section 10.2(a)

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -45-
<PAGE>

hereof, and who knows at the time of the distribution that the distribution
violated such condition, will be liable to the LLC for the amount of such
distribution.

     10.3 Withholding Taxes.  The LLC will at all times be entitled to make
          -----------------
payments with respect to any Member in amounts required to discharge any
obligation of the LLC to withhold or make payments to any governmental authority
with respect to any federal, state, local or other jurisdictional tax liability
of such Member arising as a result of such Member's Membership Interest in the
LLC.  To the extent each such payment satisfies an obligation of the LLC to
withhold with respect to any distribution to a Member on which the LLC did not
withhold or with respect to any Member's allocable share of the income of the
LLC, each such payment will be deemed to be a loan by the LLC to such Member
(which loan will be deemed to be immediately due and payable) and will not be
deemed a distribution to such Member.  The amount of such payments made with
respect to such Member, plus interest, on each such amount from the date of each
such payment until such amount is repaid to the LLC at an interest rate per
annum equal to [ * ], will be repaid to the LLC by (a) deduction from any cash
distributions made to such Member pursuant to this Agreement; (b) deduction from
any non-cash distributions made to such Member or (c) earlier payment by such
Member to the LLC, in each case as determined by the Management Committee in its
sole discretion.  The Management Committee may, in its sole discretion, defer
making distributions to any Member owing amounts to the LLC pursuant to this
Section 10.3 until such amounts are paid to the LLC and the LLC may in addition
exercise against such Member any other rights of a creditor with respect to such
amounts due.

                                   ARTICLE XI
                  INDEMNIFICATION AND LIMITATION OF LIABILITY

     11.1 Indemnification.
          ---------------

          (a) Indemnification By LLC Of Certain Indemnitees.  To the fullest
              ---------------------------------------------
extent permitted by the Act and by law, the LLC, in accordance with this Section
11.1, will indemnify and hold harmless the Management Committee, the Member
Representatives, each LLC officer, employee, consultant or agent of the LLC, and
each Member and its Affiliates, and the partners, members, stockholders, as
relevant, of each Member and its Affiliates, and the controlling persons,
officers, Directors or equivalents, and employees and agents of each Member or
Affiliate, as applicable, (collectively, the "Indemnitees"), any and all Damages
                                              -----------
arising from any and all claims, demands, actions, suits or proceedings (civil,
criminal, administrative or investigative) in which the Indemnitee may be
involved, as a party or otherwise, by reason of the Indemnitee's management of,
or involvement in, the affairs of the LLC, or rendering of advice or
consultation with respect thereto, or which otherwise relate to the LLC, its
properties, business or affairs, if such Indemnitee acted in good faith and in a
manner such Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the LLC, and, with respect to any criminal proceeding, had no
reasonable cause to believe the conduct of such Indemnitee was unlawful.  The
termination of a proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere, or its equivalent, will not, of itself, create a
        ---- ----------
presumption that such Indemnitee did not act in good faith and in a manner which
such Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the LLC or that such Indemnitee had

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -46-
<PAGE>

reasonable cause to believe that such Indemnitee's conduct was unlawful (unless
there has been a final adjudication in the proceeding that such Indemnitee did
not act in good faith and in a manner which such Indemnitee reasonably believed
to be in or not opposed to the best interests of the LLC; or that such
Indemnitee did have reasonable cause to believe that such Indemnitee's conduct
was unlawful).

          (b) Certain Other Indemnification By LLC.  The LLC may also indemnify
              ------------------------------------
and hold harmless, as an Indemnitee hereunder, any individual who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action by or in the right of the LLC to procure a judgment in its
favor by reason of the fact that such individual is or was a Member
Representative, or an LLC officer, employee, consultant or agent of the LLC,
against expenses actually or reasonably incurred by such individual in
connection with the defense or settlement of such action, if such individual
acted in good faith and in a manner such individual reasonably believed to be
in, or not opposed to, the best interests of the LLC, except that
indemnification will be made in respect of any claim, issue or matter as to
which such individual will have been adjudged to be liable for misconduct in the
performance of the Individual's duty to the LLC only to the extent that the
court in which such action or suit was brought, or another court of appropriate
jurisdiction, determines upon application that, despite the adjudication of
liability, but in view of all circumstance of the case, such individual is
fairly and reasonably entitled to indemnity for such expenses which such court
will deem proper.  To the extent that such individual has been successful on the
merits or otherwise in defense of any proceedings referred to herein, or in
defense of any claim, issue or matter therein, such individual will be
indemnified by the LLC against expenses actually and reasonably incurred by such
individual in connection therewith.  Notwithstanding the foregoing, no
individual will be entitled to indemnification hereunder for any conduct arising
from the gross negligence or willful misconduct of such individual or reckless
disregard in the performance by such individual of such individual's duties
under this Agreement.

          (c) Payment Or Advancement Of Certain Expenses.  Expenses (including
              ------------------------------------------
reasonable fees and costs of attorneys) incurred in defending any proceeding
under Sections 11.1(a) or (b) hereof may be paid by the LLC in advance of the
final disposition of such proceeding upon receipt of an undertaking by or on
behalf of the Indemnitee or Person to repay such amount if it will ultimately be
determined that the Indemnitee or Person is not entitled to be indemnified by
the LLC as authorized hereunder.

          (d) No Exclusivity.  The indemnification provided by this Section 11.1
              --------------
will not be deemed to be exclusive of any other rights to which any Person may
be entitled under any agreement, or as a matter of law, or otherwise, both as to
action in a Person's official capacity and to action in any other capacity.

          (e) Certain Insurance.  Subject to the provisions of Section 2.10
              -----------------
hereof, the Management Committee will have power to purchase and maintain
insurance on behalf of the LLC and at the expense of the LLC, against any
liability asserted against or incurred by any Person entitled under this Section
11.1 to be indemnified in any such capacity whether or not the LLC would have
the power to indemnify such Person against such liability under the provisions
of this Agreement.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -47-
<PAGE>

     11.2 Liability For Finder's Or Broker's Fees.  Each Member will be
          ---------------------------------------
responsible for paying any finder's or broker's fee and any other Damages owed
any third party that such Member incurs or which is claimed by such third party
against the other Member and/or LLC, based directly or indirectly on the
negotiation of, or the entry by the parties hereto into, this Agreement, and
will indemnify the LLC and the other Member, and the other Indemnitees, against
any obligation to pay any such fee.

     11.3 Liability In Event Of Default.  The Affected Member will be liable to
          -----------------------------
the LLC and to the Non-Affected Member, and to such other Indemnitees as are
relevant, for any and all Damages suffered or incurred by the LLC or the Non-
Affected Member or such other Indemnitee(s) as a result of such Event of
Default.

     11.4 Limitation Of Liability.  Each Member's liability under this Article
          -----------------------
XI will be limited as set forth in the Act and other applicable law.
Notwithstanding anything to the contrary herein contained (a) the debts,
obligations and liabilities of the LLC will be solely the debts, obligations and
liabilities of the LLC; and no Member or Member Representative or LLC officer or
any other Indemnitee will be obligated personally for any such debt, obligation
or liability of the LLC solely by reason of such Person, or such Person's
related Indemnitee, being a Member or Member Representative or LLC officer, and
the LLC will hold such Person, or such Person's related Indemnitee, harmless
from any such debt, obligation or liability, and (b) as to any Member who has
made a Capital Contribution to the LLC, such Member will not be liable, absent
fraud, for any debts or losses of the LLC beyond the total amount of such
Member's Capital Contribution.

                                  ARTICLE XII
                                  TERMINATION

     12.1 Termination.
          -----------

          (a) Certain Events Not Leading To Termination.  Except as provided
              -----------------------------------------
under Section 14.3 of the LLC Collaboration Agreement, the LLC will not
terminate solely due to any termination or expiration of the LLC Collaboration
Agreement or of any Collateral Agreements unless both Members otherwise agree in
writing.

          (b) Termination By Mutual Agreement Or Ordered Dissolution Of LLC.
              -------------------------------------------------------------
The LLC will be terminated and dissolved, its assets disposed of and its affairs
wound up upon the first to occur of the following:

              (i)  Affirmative Vote Of Members.  The affirmative vote in writing
                   ---------------------------
of both Members to terminate and dissolve the LLC; or

              (ii) Dissolution Of LLC By Court Order Or Authority. Any
                   ----------------------------------------------
dissolution of the LLC ordered by a final binding judgment or order by a court
of competent jurisdiction or by a regulatory authority, when such judgment or
order is not voluntarily initiated by either Member (other than a voluntary
initiation by such Member acting upon the advice of its outside legal counsel
that the continuation of the LLC, or of such Member as a member of the LLC,
would be unlawful), if there is no Buyout as provided in Section 13.5 hereof.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -48-
<PAGE>

          (c) Termination of LLC By Notice From Non-Affected Member For
              ---------------------------------------------------------
Dissolution Event, Changed Circumstance, And/Or Event Of Default Affecting Other
--------------------------------------------------------------------------------
Member.
------

              (i)   Notice by the Affected Member of Certain Events. If any of
                    -----------------------------------------------
the following events occurs as to a Member, the Affected Member will give
written notice thereof to the Non-Affected Member, with a copy to the Management
Committee, as promptly as possible after the coming into being of such event,
specifying therein in reasonable detail the nature of such event and the date of
its commencement; the Affected Member also will give written notice to the Non-
Affected Member, with a copy to the Management Committee, as promptly as
possible after the cure or cessation of such event, specifying the date upon
which such cure or cessation occurred, the provisions of Section 13.2 hereof
being applicable in the event of a notice by the Non-Affected Member as to a
sale of assets of change of control Changed Circumstance:

                    (A) Dissolution Event.  The occurrence of a Dissolution
                        -----------------
Event as to the Affected Member; or

                    (B) Event of Default. The existence of any uncured Event of
                        ----------------
Default by the Affected Member; or

                    (C) Changed Circumstance. The existence of a Changed
                        --------------------
Circumstance for such Affected Member.

              (ii)  Termination.  Unless the Non-Affected Member has elected,
                    -----------
pursuant to the provisions of Section 13.2(b) hereof to exercise its Buyout
right, The the LLC will be terminated and dissolved if after receiving notice of
an event under Section 12.1(c)(i) hereof from the Affected Member, the Non-
Affected Member gives written notice of its election, based upon the occurrence
or existence of such event, to terminate and dissolve the LLC (the Non-Affected
Member's "Termination Notice").  Such Termination Notice (A) must be given no
          ------------------
later than [ * ] after the date the Non-Affected Member receives the initial
written notice from the Affected Member (or its trustee or relevant similar
party) as to the occurrence of the relevant event if it is a Dissolution Event
or an Event of Default or a Changed Circumstance other than a sale of assets or
change of control Changed Circumstance (for which reference is made to Section
13.2 hereof), or, as applicable, (2) within the time period specified in Section
13.2(b) hereof if it is a sale of assets of change of control Changed
Circumstance), and (or within such shorter period as set forth in Section
13.2(a)(2) hereof), (B) must be given to the Affected Member (and/or such
Affected Member's trustee or similar third party in the event of Dissolution or
Bankruptcy of the Affected Member), with a copy to the Management Committee, and
(C) if such event is a Continuing Force Majeure Event, such notice must so state
and must contain the other statements required under Section 1.20 hereof, and
the [ * ] period provided in clause (A) of this Section 12.1(c)(ii) will
commence after expiration of the [ * ] period set forth in Section 1.19 hereof,
and. (D)Such Termination Notice must have been given by the Non-Affected Member
to the Affected Member and the Management Committee before the Affected Member
has delivered any written notice to the Non-Affected Member and the Management
Committee that the relevant event has ceased to exist or has been fully cured.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -49-
<PAGE>

          (d) Nature Of Rights Of Non-Affected Member.  The right of the
              ---------------------------------------

Non-Affected Member under this Section 12.1 to give notice of its election to
terminate and dissolve the LLC is independent of such Non-Affected Member's
right to, in lieu of such election, exercise its Buyout rights under Article
XIII hereof with respect to the Membership Interest of the Affected Member.

     12.2 Authority To Wind Up.  The Management Committee will have all
          --------------------
necessary power and authority required to marshal the assets of the LLC, to pay
its creditors, to distribute assets and otherwise wind up the business and
affairs of the LLC, including without limitation the authority to continue to
conduct the business and affairs of the LLC insofar as such continued operation
remains consistent, in the judgment of the Management Committee, with the
orderly winding up of the LLC.

     12.3 Winding Up And Certificate Of Cancellation.  The winding up of the LLC
          ------------------------------------------
will be completed when all debts, liabilities and obligations of the LLC have
been paid and discharged or reasonably adequate provision therefor has been
made, and all of the remaining property and assets of the LLC have been
distributed to such Members.  Upon the completion of winding up of the LLC, a
Certificate of Cancellation will be filed by the Chief Executive Officer of the
LLC with the Secretary of State of Delaware.

     12.4 Refund Of Certain Amounts To Bayer; Distribution Of Assets.
          ----------------------------------------------------------

          (a) Refund Of Certain Amounts To Bayer.  Upon dissolution and winding
              ----------------------------------
up of the LLC, after all debts, liabilities and obligations of the LLC have been
paid and discharged or reasonably adequate provision therefor has been made, any
amounts of unexpended funds received by the LLC from Bayer as a Capital
Contribution of Bayer that then remain as an asset of the LLC will be refunded
to Bayer by the LLC prior to any distribution of assets of the LLC to either
Member.  Such refund will not be deemed to be a distribution to Bayer by the
LLC, but upon such refund, Bayer's Capital Account will be reduced by the amount
so refunded.

          (b)  Distribution Of Assets.
               ----------------------

               (i) General.  Upon dissolution and winding up of the LLC, the
                   -------
affairs of the LLC will be wound up by the Chief Executive Officer of the LLC
and the LLC will be liquidated by the Management Committee. Unless the Members
consent in writing to a distribution in kind of the assets of the LLC, and
except as provided in Section 12.5 hereof, the assets of the LLC will be sold
pursuant to such liquidation.. If both Members do not consent in writing to a
distribution of LLC assets in kind, but the Management Committee determines that
an immediate sale of all or certain of the LLC assets would be financially
inadvisable for the LLC and the Members, the Management Committee may defer sale
of the relevant LLC assets for a reasonable time; provided that the liquidation
of the LLC will be completed within the time required by Treasury Regulations
Section 1.704-1(b)(ii)(b)(2). Subject to the provisions of Section 12.5 hereof,
(A) if any LLC assets are distributed in kind, they will be distributed on the
basis of the fair market value thereof as determined by appraisal, as may be
ordered by the Management Committee, the costs of which appraisal will be paid
by the LLC, and will be deemed to have been sold at such fair market value for
purposes of the allocations under Article

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -50-
<PAGE>

IX hereof, and (B) unless both Members otherwise agree in writing, if any LLC
assets are to be distributed in kind, they will be distributed to such Members,
as joint tenants, in undivided interests in proportion to distributions to which
such Members are entitled under this Section 12.4. The LLC will terminate when
all of its assets have been sold and/or distributed and all of its affairs have
been wound up.

          (ii) Order Of Distribution.  Subject to the provisions of Section 12.5
               ---------------------
hereof, the assets of the LLC, whether cash or in kind, will be distributed in
accordance with the Act, A) first, in the amount of premium payments and
milestone payments received by the LLC, but not previously distributed to the
Members, to the Members, provided that the provisions of Section 10.1(b)(i)
hereof with respect to calculation of the amount to be distributed to Exelixis
will apply pursuant to the provisions of Section 12.5 hereof, (B) then to the
creditors of the LLC in the order of priority provided by law, (C) then to the
Members in accordance with the provisions of Section 12.5 hereof in the amount
of third party revenue of the LLC not previously distributed to the Members by
the LLC, and then (D) (A) first to creditors of the LLC in the order of priority
provided by law, then (B) premium payments, milestone payments and third party
revenue of the LLC not previously distributed to the Members will be distributed
to the Members provided that the provisions of Section 10.1(b)(i) hereof with
respect to calculation of the amount to be distributed to Exelixis will apply
pursuant to the provisions of Section 12.5 hereof, and then (C) to the Members
in proportion to their remaining Capital Accounts.  Except as specifically
provided otherwise herein, no Member will have any obligation at any time to
repay or restore to the LLC all or any part of any distribution made to such
Member from the LLC in accordance with this Section 12.4, nor to make any
additional contribution of capital to the LLC.

     12.5 Certain Matters With Respect To Intellectual Property Rights Of the
          -------------------------------------------------------------------
LLC.
---

          (a) Distribution In Kind To Members As Joint Owners.  Except as may be
              -----------------------------------------------
otherwise provided in the LLC Collaboration Agreement or any Collateral
Agreements as they may then exist, the intellectual property rights of the LLC
(exclusive of intellectual property rights of any other Person licensed to the
LLC and not assignable without the consent of such Person) developed or obtained
by the LLC and existing on the date of termination of the LLC, will not be
liquidated (other than the LLC's trade names, trademarks, service marks,
emblems, logos, symbols and insignia and rights with respect thereto, including
registrations and registration rights, all of which will be liquidated) but will
instead be distributed in kind to the Members as joint owners who will each own
an undivided joint interest therein with the rights described in Section 12.5(b)
hereof.

          (b) Respective Rights of Members In LLC Assets Distributed In Kind.
              --------------------------------------------------------------
Upon and after such distribution in kind, unless the Members agree otherwise in
writing, or until one Member, if ever, upon or after such distribution purchases
all of the other Member's jointly-owned rights therein, each Member, as a joint
owner of such distributed intellectual property rights in accordance with
Section 12.5(a) hereof, will have such rights with respect thereto as such
Member had under the LLC Collaboration Agreement as in effect most recently
before the date of such distribution in kind, and the right to grant licenses to
third parties and to use and practice such rights without accounting to the
other Member, subject in all cases to the first-referenced Member's compliance
with the terms thereof.

          (c) Adjustment Of Capital Accounts.  The Capital Accounts of the
              ------------------------------
Members will be adjusted in the manner required by Section 1.704-
1(b)(2)(iv)(e)(1) of the Treasury Regulations to reflect the unrealized income,
gain, loss and deduction inherent in such

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -51-
<PAGE>

distributed intellectual property rights. After such adjustment to the Capital
Accounts of the Members have been made, all future distributions on liquidation
of the LLC will take into account such distribution-in-kind of intellectual
property to the Members.

          (d) Payment Of Premium Fee Or Royalty Obligations, Or Milestone
              -----------------------------------------------------------
Payment Obligations.  Except as may be otherwise provided under the LLC
-------------------
Collaboration Agreement or as otherwise agreed in writing by the Members, any
premium fee or royalty obligations, and any milestone payment obligations, by
either Member to the LLC will be paid thereafter directly by such Member to the
other Member to the extent permitted by law.  No distribution of intellectual
property rights of the LLC as provided in this Section 12.5 will relieve either
Member from its obligations hereunder, or under any other binding agreement to
which such Member is a party or to which it is subject, to continue to pay
premium fees, royalty payments, milestone payments or other running or periodic
amounts, however denominated, thereunder according to the relevant terms of this
Agreement or of such other agreements.

          (e) Certain Assistance.  If one Member seeks to sell or assign all or
              ------------------
part of its jointly-owned interest in such distributed intellectual property to
a third party or parties, in a jurisdiction in which such sale or assignment
requires by law, as advised by the requesting Member's intellectual property
counsel the consent or acknowledgment of the other Member as joint owner of such
intellectual property, such other Member will execute and delivery such
customary documents, at its own expense, to assist the selling or assigning
Member to complete such sale or assignment, as the selling or assigning Member
requests in good faith of such other Member.

          (f) Effect On Licenses To Bayer Patents And Bayer Know-How, And On
              --------------------------------------------------------------
Exelixis Patents And Exelixis Know-How, In The Event Of Termination.  In the
-------------------------------------------------------------------
event of termination pursuant to this Article XII, if the LLC Collaboration
Agreement then is still in effect, the conditions, if any, relevant to such
termination as may be specified in the LLC Collaboration Agreement, including
Article XIV thereof, will apply.

                                 ARTICLE XIII
                           BUYOUT BY A MEMBER OF THE
                    MEMBERSHIP INTEREST OF THE OTHER MEMBER

     13.1 Determination Of Fair Market Value.  For purposes of this Agreement
          ----------------------------------
the "Affected Member" is the Member who suffers, or proposes to suffer (with
     ---------------
respect to a Proposed Changed Circumstance Notice, as defined in Section
13.2(a)(i) hereof), a Changed Circumstance, or who suffers an Event of Default
or Dissolution or Bankruptcy, as applicable, and the other Member is the "Non-
                                                                          ---
Affected Member".  For purposes of this Article XIII, Fair Market Value will be
---------------
whatever it is agreed to be in writing between the Members no later than the
earlier of (a) [ * ] after the date the Proposed Changed Circumstance Notice is
given under Section 13.2(a)(i) hereof by the Affected Member to the Non-Affected
Member, if such Proposed Changed Circumstance Notice contains the names of the
relevant Person(s) therein which cause it to be deemed, under the provisions of
Section 13.2(a)(i) hereof, to be a Final Notice or (b) [ * ] after the date the
Final Notice is given, as required under Section 13.2(a)(ii) hereof, by the
Affected Member to the Non-Affected Member as to the event relevant to such
Affected Member.;

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -52-
<PAGE>

provided that if the Members independently cannot agree on the Fair Market Value
of the Affected Member's Membership Interest within such relevant [ * ] period,
then the procedures set forth in Sections 13.1(a)-(h) hereof will apply to
determine such Fair Market Value:

          (a) Member Statements Of Fair Market Value.  Each of the Affected
              --------------------------------------
Member and the Non-Affected Member will deliver to the other in writing, within
[ * ] after the close of such initial [ * ] period, the delivering Member's
statement as to the Fair Market Value of the Affected Member's Membership
Interest.

          (b) Procedure If Both Statements Are The Same.  If the Fair Market
              -----------------------------------------
Value stated in both Members' statements is the same, then such amount will be
the Fair Market Value of the Affected Member's Membership Interest.

          (c) Procedure If Statements Within [ * ] Range. If the Fair Market
              ------------------------------------------
Value stated in one Member's written statement is higher than the Fair Market
Value stated in the other Member's written statement, but is not greater than
[ * ] of the lower statement, then Fair Market Value will be the average of the
two statements.

          (d) Procedure If Statements Outside Of [ * ] Range.  If the Fair
              ----------------------------------------------
Market Value stated in one Member's written statement is  greater than [ * ] of
the Fair Market Value stated in the other Member's written statement, then Fair
Market Value will be determined by an Appraiser selected by the mutual written
agreement of the Members within [ * ] after the delivery by each Member to the
other of their statements, provided that if the Members cannot agree on an
Appraiser within such [ * ] period, then:

              (i)   Selection Of An Appraiser By Each Member.  Each Member will,
                    ----------------------------------------
within [ * ] after the earlier of the date upon which the Members agree in
writing that they cannot agree on such Appraiser, or such initial thirty days
have expired, select an Appraiser;

              (ii)  Selection By Two Appraisers Of Third Appraiser.  The
                    ----------------------------------------------
Appraisers selected pursuant to Section 13.1(d)(i) hereof mutually will select a
third Appraiser within [ * ] after their selection; and

              (iii) Determination By Single Appraiser Of Fair Market Value.  The
                    ------------------------------------------------------
third Appraiser so chosen will singly determine Fair Market Value by delivering
his or her determination of Fair Market Value in writing to each Member as soon
as possible after his or her selection, setting forth in such writing such bases
and conclusions as such Appraiser deems appropriate and customary therefor.  If
the Fair Market Value as determined by such Appraiser is the average of the two
Members' statements, then such average will be Fair Market Value.  If the Fair
Market Value as determined by such Appraiser is above the average of the two
Members' statements, but not greater than the higher of the two Members'
statements, then Fair Market value will be the average between such Appraiser's
determination and such higher Member statement.  If the Fair Market Value as
determined by such Appraiser is below the average of the two Members'
statements, but not less than the lower of the two Members' statements, then
Fair Market value will be the average between such Appraiser's determination and
such lower Member statement.  If the Fair Market Value as determined by such
Appraiser is

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -53-
<PAGE>

greater than the higher of the two Members' statements, then Fair Market value
will be such higher Member statement. If the Fair Market Value as determined by
such Appraiser is lower than the lower of the two Members' statements, then Fair
Market value will be such lower Member statement.

          (e) Appraiser's Determination Binding Absent Demonstrable Factual Or
              ----------------------------------------------------------------
Mathematical Error Or Fraud.  Any determination by an Appraiser of Fair Market
---------------------------
value as provided herein will be binding upon the Members and the LLC absent
demonstrable mathematical or factual error, or fraud .

          (f) Certain Governing Principles For Determination of Fair Market
              -------------------------------------------------------------
Value.  Any determination of Fair Market Value pursuant to this Section 13.1
-----
will take into consideration all relevant factors, including the conditions
referred to in Section 13.6 hereof and any Event of Default if such purchase is
being made by the Non-Affected Member under Section 13.3 hereof, and any
Bankruptcy of a Member if such purchase is being made by the other Member under
Section 13.4 hereof, but only in each case to the extent that such Event of
Default or Bankruptcy reduces the value of the relevant Membership Interest, and
will be calculated by multiplying (x) the price that a willing buyer will pay
and a willing seller will accept for the purchase of all of the assets and
business of the LLC as a going concern immediately prior to the transaction
giving rise to the determination of Fair Market Value and without any discount
for lack of liquidity or control and assuming that all agreements between the
LLC and the Members that were in effect prior to such transaction would have
continued in effect by (y) the Percentage Interest in the LLC being acquired.

          (g) Fees And Costs Of Appraisers.  Each Member will bear the fees and
              ----------------------------
costs of any Appraiser that such Member selects as one of the two Appraisers
selected to determine the third.  The fees and costs of any third Appraiser
selected pursuant to Section 13.1(d)(i)(B) hereof, will be borne one-half (1/2)
by each Member.  Each Member will bear its respective internal costs connected
with any such appraisal, including those associated of its own determination for
its statement of Fair Market Value.

          (h) Cooperation.  Each Member will cooperate in all commercially
              -----------
reasonable respects and in good faith in the appraisal process, including
without limitation providing such information as is reasonably requested by the
Appraiser(s), but provided that the furnishing of such information may, in the
good faith judgment of the furnishing Member, be conditioned on such
Appraiser(s) executing and delivering a customary confidentiality agreement with
the furnishing Member with respect thereto.

     13.2 Changed Circumstance Buyout And Notices With Respect Thereto.
          ------------------------------------------------------------

          (a) Proposed Changed Circumstances Notice By Affected Member; Final
              ---------------------------------------------------------------
Notice By Affected Member Of Changed Circumstance; Non-Affected Member's Notice
-------------------------------------------------------------------------------
of Intention As To Buyout Rights And Termination Rights; Waiver.
---------------------------------------------------------------

              (i)   Proposed Changed Circumstances Notice By Affected Member.
                    --------------------------------------------------------
If either Exelixis or Bayer proposes to enter into a transaction that would, if
consummated, be a

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -54-
<PAGE>

sale of assets or proposed change of control as described in Section 1.15(b)(i)
or (ii) hereof as to Exelixis, or Section 1.15(c) hereof as to Bayer, then,
within [ * ] after such Affected Member [ * ] with respect to such proposed
event with any Person other than Bayer or its Affiliates, or the LLC, as to
Exelixis, and other than Exelixis, or the LLC, or each other, with respect to
Bayer and Bayer AG, the Affected Member will give the Non-Affected Member
written notice (a "Proposed Changed Circumstances Notice") as to the general
                   -------------------------------------
nature of the proposed event. The fact of the giving of which Proposed Changed
Circumstances Notice and the contents thereof will be Confidential Information
of the Affected Member. Such Proposed Changed Circumstances Notice need not
specify the name of the other party or parties to such proposed transaction,
and/or certain details related thereto, if such information is prohibited from
disclosure under an executed written nondisclosure agreement between the
Affected Member and such other party or parties. In addition, with respect to
any matter relating to a Changed Circumstance described in, respectively,
Sections 1.15(b)(i) or (ii) hereof, as to Exelixis, or Sections 1.15(c) hereof,
as to Bayer, the Affected Member will promptly give written notice (which will
be considered to be an amendment to the initially-given Proposed Changed
Circumstances Notice) to the Non-Affected Member, with a copy to the Management
Committee, of any material change, adverse or beneficial, with respect to such
proposed Changed Circumstance, including without limitation (if terms were
disclosed in a previously-delivered Proposed Changed Circumstances Notice) any
change in the terms proposed with respect to such Changed Circumstance, and/or
(if the names of other party or parties to the relevant proposed Changed
Circumstance were disclosed in a previously-delivered Proposed Changed
Circumstances Notice), any change in the name(s) of the other party or parties
to such proposed Changed Circumstance. Such Proposed Changed Circumstances
Notice will be deemed to be the Final Notice given for purposes of Section 13.1
hereof, and Section 13.2(a)(ii), (iii) or (iv) hereof, only if, (1) it is given
with respect to the signing by the Affected Party of a binding agreement,
including without limitation a letter of intent or heads of agreement which
contains any binding provision apart from a binding obligation of
confidentiality, and when,(2) it contains the name(s) of the other party or
parties to such proposed transaction.

          (ii) Final Notice By Affected Member Of Changed Circumstance.  In
               -------------------------------------------------------
addition to giving the Non-Affected Member a Proposed Changed Circumstances
Notice , at any time, but no later than [ * ] after the occurrence or
consummation of the relevant Changed Circumstance  as to the Affected Member,
such Affected Member will give written notice of such occurrence or consummation
to the Non-Affected Member and the Management Committee, specifying in
reasonable detail the nature of such Changed Circumstance (a "Final Notice"),
                                                              ------------
and will specify therein the name(s) of the other party or parties to such
proposed Changed Circumstance if such Changed Circumstance is a sale of assets
or proposed change of control as described in Section 1.15(b)(i) or (ii) hereof
as to Exelixis, or Section 1.15(c) hereof as to Bayer.  In addition, the
Affected Member will promptly give written notice (which will be considered to
be an amendment to the initially-given Final Notice) to the Non-Affected Member,
with a copy to the Management Committee, of any material change, adverse or
beneficial, in such Changed Circumstance, including without limitation any
change in the terms proposed for, and/or in the name(s) of the other party or
parties to such proposed transaction, as to any matter relating to a Changed
Circumstance described in, respectively, Sections 1.15(b)(i) or (ii) hereof, as
to Exelixis, or Sections 1.15(c) hereof, as to Bayer.  The giving of such Final

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -55-
<PAGE>

Notice (including any updates as to subsequent developments), and the contents
thereof, or portions thereof, will be Confidential Information of such Affected
Member hereunder if the Affected Member so declares in such Final Notice, and/or
may be subject to such confidentiality as to certain details thereof as may be
required under any confidentiality agreement, with any other Person, other than
Bayer or Bayer's Affiliates or the LLC, to which such Affected Member is a party
or by which it is bound, or as otherwise may be required by law.

          (iii)   Non-Affected Member's Notice of Intention As To Buyout Rights
                  -------------------------------------------------------------
And Termination Rights. Within [ * ] after the Non-Affected Member's receipt of
----------------------
a Proposed Changed Circumstances Notice from the Affected Member given under
Section 13.2(a)(i) hereof which states the name(s) of the other party or parties
to such proposed transaction as relevant (thus causing such Proposed Changed
Circumstances Notice to be deemed to be a Final Notice), or, as relevant, within
[ * ] after the Non-Affected Member's receipt of the Final Notice in the event
of the consummation of the relevant sale of assets or change of control
constituting the Changed Circumstance, the Non-Affected Member may, but is not
required to, give written notice to the Affected Member, with a copy to the
Management Committee, (a "Non-Affected Member's Notice of Intention") of such
                          -----------------------------------------
Non-Affected Member's intention to (A) exercise or to waive (specifying which it
elects) such Non-Affected Member's Buyout rights under Section 13.2(b) hereof,
or to (B) exercise or to waive (specifying which it elects) its termination
rights under Section 12.1(c) hereof (in which case such Non-Affected Member's
Notice of Intention will constitute its written notice of termination election
under Section 12.1(c) hereof if the Non-Affected Member states therein its
election to so terminate). Any such Non-Affected Member's Notice of Intention,
if given, may be, by its terms, made contingent upon the actual consummation of
the relevant Changed Circumstance, such that if such consummation does not
occur, then such Non-Affected Member's Notice of Intention may be withdrawn and
rescinded by the Non-Affected Member, without penalty, by written notice to the
Affected Member, with a copy to the Management Committee, of such withdrawal and
rescission. Such notice of withdrawal and rescission may be given at any time
after the proposed consummation date if by the date of giving of such notice of
withdrawal and rescission the Non-Affected Member has not consummated its Buyout
rights or if by such date the LLC has not commenced liquidation and dissolution
by reason of such termination election. The fact of the giving of any Non-
Affected Member's Notice of Intention, and the contents thereof, will be
Confidential Information of the Non-Affected Member.

          (iv)    Waiver By Affected Member Of Buyout Or Termination Right As To
                  --------------------------------------------------------------
Certain Changed Circumstances.  Subject to the last sentence of this Section
-----------------------------
13.2(a)(iv), the right of the Non-Affected Member to exercise its Buyout rights
under Section 13.2(b) hereof, or to terminate the LLC under Section 12.1(c)
hereof, will be deemed to be irrevocably waived by the Non-Affected Member as to
the matter(s) described in the relevant Final Notice under Section 13.2(a)(ii)
hereof (or deemed Final Notice under Section 13.2(a)(i) hereof) from the
Affected Member as to the relevant Changed Circumstance if, the Non-Affected
Member either (A) affirmatively and specifically waives its Buyout or
termination right hereunder, in writing to the Affected Member, with a copy to
the Management Committee, or (B) fails, within the relevant [ * ] period
specified under Section 13.2(a)(i) or (ii) hereof, to give written notice to the
Affected Member, with a copy to the Management Committee, as to such Non-
Affected Member's intention to exercise its Buyout or termination rights
hereunder.  The Non-Affected

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -56-
<PAGE>

Member will not be deemed to have waived its Buyout rights or termination rights
hereunder if with the [ * ] period provided for giving by such Non-Affected
Member of its Non-Affected Member's Notice of Intention under Section
13.2(a)(iii) hereof, or within twenty (20) days after it has given any such Non-
Affected Member's Notice of Intention, the Affected Member, as required by
Section 13.2(a)(i) or (ii) hereof, as relevant, gives the Non-Affected Member
written notice of any material change in a Changed Circumstance, (in which case
the notice election and waiver provisions of this Article XIII applicable to the
Non-Affected Member will again apply, and will run from the date of such written
notice by the Affected Member of such material change in the relevant Changed
Circumstance).

          (b) Purchase Right Of Non-Affected Member.  Upon the occurrence of a
              -------------------------------------
Changed Circumstance, provided the Non-Affected Member receiving the Proposed
Changed Circumstance Notice or Final Notice, as the case may be, relating
thereto has not previously given the Affected Member a Non-Affected Member's
Notice of Intention demanding dissolution of the LLC or has not waived or been
deemed to waive, under Section 13.2(a)(iv) hereof, such Changed Circumstance,
the Non-Affected Member may, as hereinafter provided, purchase all but not
less than all of the Membership Interest of the Affected Member for Fair
Market Value. Within [ * ] after the determination of Fair Market Value
pursuant to Section 13.1 hereof, the Non-Affected Member will either submit an
irrevocable written offer to the Affected Member with a copy to the Management
Committee, to purchase such Affected Member's Membership Interest for Fair
Market Value for cash or such other consideration as the Members agree in
writing, or will notify the Affected Member in writing, with a copy to the
Management Committee, that no offer will be made. If an offer is made, the
closing of the transaction will occur within [ * ] after the date of such
written offer, but such period will automatically be extended as necessary to
give effect to any delay days caused by obtaining any required regulatory
approvals. The purchase price for such Affected Member's Membership Interest
will be paid by the Affected Member in cash or such other consideration as the
selling Member and the purchasing Member may agree in writing. If no offer is
timely made by the Non-Affected Member under this Section 13.2(b), then the
provisions of this Agreement, including those of Articles XII and XV hereof,
will apply.

          (c) Effect On Licenses In The Event Of Changed Circumstances Buyout.
              ---------------------------------------------------------------
In the event of a Changed Circumstances Buyout pursuant to Section 12.2(b)
hereof, the conditions, if any, relevant thereto as may be specified in the LLC
Collaboration Agreement, will apply, and are incorporated herein by reference
only to the extent necessary for each application.

     13.3 Default Buyout.  In the event of an uncured Event of Default, provided
          --------------
the Non-Affected Member has not previously given to the Affected Member written
notice demanding dissolution of the LLC, the Non-Affected Member may, as
hereinafter provided, purchase all but not less than all of the Affected
Member's Membership Interest for Fair Market Value.  Within [ * ] after the
determination of Fair Market Value, the Non-Affected Member will either submit
an irrevocable written offer to the Affected Member, with a copy to the
Management Committee, or will notify the Affected Member in writing, with a copy
to the Management Committee, that no offer will be made.  If an offer is made,
the closing of the transaction will occur within [ * ] after the date of such
written offer, but giving effect to any delay days caused by obtaining
appropriate

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -57-
<PAGE>

regulatory approvals. The purchase price for such Membership Interest will be
paid in cash or such other consideration as the selling Member and the
purchasing Member may agree in writing. If no offer is timely made by the Non-
Affected Member under this Section 13.3, then the provisions of this Agreement,
including those of Articles XII and XV hereof, will apply.

     13.4 Buyout Upon Bankruptcy Or Dissolution Of A Member.  Upon obtaining
          -------------------------------------------------
actual knowledge of the Bankruptcy or Dissolution of a Member, the other Member
will have the right, by giving written notice thereof to the bankrupt Member, or
trustee therefor , and to the Management Committee, to purchase or cause its
designee to purchase the Membership Interest of such Affected Member for Fair
Market Value.  Within [ * ] after the determination of Fair Market Value, the
Non-Affected Member will either submit an irrevocable written offer to the
Affected Member, or such Affected Member's trustee, with a copy to the
Management Committee, to purchase such Affected Member's Membership Interest for
Fair Market Value, or will notify the Affected Member in writing, with a copy to
the Management Committee, that no offer will be made.  If an offer is made, the
closing of the transaction will occur within [ * ] after the date of such
written offer, but giving effect to any delay days caused by obtaining
appropriate regulatory approvals.  The purchase price for such Membership
Interest will be paid in cash or such other consideration as the selling Member
(or the trustee of the selling Member) and the purchasing Member may agree in
writing.  If no offer is timely made by the Non-Affected Member under this
Section 13.4 then the provisions of this Agreement, including those under
Articles XII and XV hereof, will apply.

     13.5 Auction Buyout Upon Deadlock On Substantial Disagreement After Fourth
          ---------------------------------------------------------------------
Anniversary Of Commencement Date, Or Upon Dissolution Of LLC Due To Judicial Or
-------------------------------------------------------------------------------
Regulatory Decision, Or Upon Delivery Of Lack Of Freedom To Operate Notice.  If
--------------------------------------------------------------------------
(1) the Members reach Deadlock on a Substantial Disagreement (but not as to
Deadlock as to any other dispute), at any time after the [ * ] anniversary of
the Commencement Date, or (2) dissolution of the LLC is ordered by a final
judgment by a court of competent jurisdiction or by the nonappealable order or
decision of a regulatory authority, which dissolution does not arise by reason
of action taken by either Member, or (3) on the [ * ] anniversary of the
delivery by Bayer to Exelixis of a Lack Of Freedom To Operate Notice under
Section 1.15(d) hereof, the license(s) described in Section 1.15(d) hereof have
not the come into being and if Bayer and Exelixis have not agreed otherwise in
writing that such state of matters does not constitute a Changed Circumstance as
described in such Section 1.15(d) hereof, or (4) if Exelixis does not increase
the number of its Technical Personnel FTE's within the time period set forth in
Section 1.15(e) hereof, and if both Members wish to purchase the Membership
Interest of the other Member, then either Member may purchase the Membership
Interest from the other, in either case in accordance with the following
procedures:

          (a) Appraisal Of Fair Market Value.  The Fair Market Value of each
              ------------------------------
Member's Membership Interest (which together will constitute one hundred percent
(100%) of the Fair Market Value of the LLC) will be determined and reported to
the Members in writing by an Appraiser selected using the procedure set forth in
Section 13.1(d) hereof, and provided that the provisions of Sections 13.1(e)-(g)
hereof also will apply to the actions and results of such Appraiser's
determination.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -58-
<PAGE>

          (b) Purchase By One Member Or The Other's Membership Interest
              ---------------------------------------------------------
Voluntarily If Fair Market Value Is Agreed.  If, upon receiving the Appraiser's
------------------------------------------
determination of the Fair Market Value of each other's Membership Interest, one
Member wishes to sell and the other to buy at such Fair Market Value, such
Member will so notify the other Member in writing and within [ * ] after its
receipt of such determination, and they will consummate such transaction as soon
as possible on such terms as they agree in writing.

          (c) Auctioneer.  If the Members do not agree on the Fair Market Value
              ----------
of each other's Membership Interest within such [ * ] period, then the
"Auctioneer" will be the Appraiser selected pursuant to Section 13.1 hereof,
whether by mutual written agreement of the Members or as selected by their two
independent third party Appraisers.

          (d) Fees And Expenses Of Auctioneer.  The fees and expenses of the
              -------------------------------
Auctioneer, for acting as such, will be paid one-half (1/2) each by the Members.

          (e) Auction and Auction Process; Conduct of Auction; Closing of
              -----------------------------------------------------------
Purchase Of Relevant Membership Interest.
----------------------------------------

              (i)  Auction And Auction Process.  The Auctioneer will conduct an
                   ---------------------------
auction (the "Auction"), under the procedure as hereinafter provided, commencing
              -------
on the [ * ] day following the date of the Auctioneer's selection, to determine,
as hereinafter provided, which Member will, as will be determined by the
Auctioneer as provided herein, purchase the other Member's Membership Interest.
The Auction will be conducted by the Auctioneer in an even-handed, equitable and
impartial manner in accordance with the provisions of this Section 13.5 and in
accordance with any further provisions specified in writing to the Members by
the Auctioneer (subject to the last clause of this sentence as to agreement by
the Members), which in each case which are consistent with and do not contravene
the provisions of this Section 13.5, provided that the Members may mutually
agree in writing to any lawful procedures with respect to the Auction, which
writing will be binding on the Auctioneer and the Members, will constitute an
amendment hereto, and will be controlling over any procedures specified by the
Auctioneer.

              (ii) Bid Process; Bids Based Upon Percentage Interest To Which Bid
                   -------------------------------------------------------------
Relates; Non-Accepted Bids; Determination of Winning Bid; Purchase and Closing.
------------------------------------------------------------------------------

                   (A) Bid Process.  Bayer will make the first bid in the
                       -----------
Auction by submitting its bid for Exelixis' Membership Interest in writing to
the Auctioneer, which first bid must be made within [ * ] after the Auctioneer's
selection, and must be at least equal to the Fair Market Value of Exelixis'
Membership Interest as determined by the Appraiser, after which the Members will
alternate in submitting bids in writing to the Auctioneer for each other's
Membership Interest. The Auctioneer will promptly notify each Member in writing
of the Auctioneer's receipt of a bid and the amount of such bid, after which the
Member who had not made the previous bid will have [ * ] to submit its bid to
the Auctioneer.

                   (B) Bids Based Upon Percentage Interest To Which Bid Relates.
                       --------------------------------------------------------
Each bid by the relevant Member will be based upon the relative Percentage
Interest

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -59-
<PAGE>

that is held by the other Member, such that, if the Percentage Interests of
Bayer and Exelixis were the same at the time of the Auction as they are at the
Commencement Date, then any bid by Bayer for Exelixis' interest will be based
upon Exelixis' forty percent (40%) interest in the LLC, and any bid by Exelixis
will be based upon Bayer's sixty percent (60%) interest in the LLC.

                   (C) Non-Accepted (Invalid) Bids.  Any bid submitted to the
                       ---------------------------
Auctioneer (other than with respect to the first bid by Bayer in the Auction
process) that does not exceed the immediately preceding bid of the same bidding
Member by at least [ * ] of such bidder's last bid for the other Member's
Membership Interest will be considered an invalid bid and will not be accepted
by the Auctioneer.

                   (D) Determination By Auctioneer of Winning Bid; Notification.
                       --------------------------------------------------------
If a Member does not submit a bid (or an invalid bid is submitted as specified
in Section 13.5(c)(ii)(C) hereof, and no subsequent valid bid is submitted) in
such [ * ] period or at such time as a Member states in writing to the
Auctioneer that such Member is unwilling to submit any further bids, the
Auctioneer will declare the Auction completed and will notify the Members and
the Management Committee promptly in writing that it is completed. Upon such
completion of the Auction process, the Auctioneer will determine, in such
Auctioneer's sole good faith discretion, which determination will be binding
upon the Members absent demonstrable mathematical or factual error, or fraud,
which Member's final bid in the Auction process is more fair to the other
Member, taking into account the relative Percentage Interests of the Members,
than the other Member's bid. The Auctioneer will notify the Members in writing
as to the Auctioneer's decision, within [ * ] after the Auctioneer's decision,
specifying the winning bidder Member and the amount of the winning bid as so
determined by the Auctioneer.

          (iii)    Purchase By Winning Bidding Member Of Other Member's
                   ----------------------------------------------------
Membership Interest.  The winning bidding Member will purchase the other
-------------------
Member's Membership Interest at the price submitted by such winning bidding
Member in its winning bid.

          (iv)     Closing.  The purchase by the winning bid Member from the
                   -------
other Member, at the price specified in such high bid, and for cash or such
other consideration as the Members agree in writing, will occur within [ * ]
after the date the winning bid is declared by the Auctioneer, but giving effect
to any delay days caused by obtaining appropriate regulatory approvals.

     13.6 Arbitration Upon Deadlock On Substantial Disagreement Prior To Fourth
          ---------------------------------------------------------------------
Anniversary Of Commencement Date.  If there exists Deadlock on a Substantial
--------------
Disagreement prior to the [ * ] anniversary of the Commencement Date, the
Deadlock will be resolved by arbitration pursuant to the provisions of Section
17.2 hereof, and neither Member will have the right under this Article XIII to
buy out the other Member's Membership Interest solely by reason of such Deadlock
on Substantial Disagreement.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -60-
<PAGE>

                                  ARTICLE XIV
                                    DEFAULT

     14.1 Events Of Default.  An "Event of Default" will be considered to have
          -----------------       ----------------
occurred with respect to a Member (which Member will be considered for purposes
of this Agreement as the Affected Member with respect to such Event of Default)
if:

          (a) Failure To Make Capital Contribution.  Such Affected Member fails
              ------------------------------------
to make a Capital Contribution required of it pursuant to Article IV hereof and
such failure continues for [ * ] after such Affected Member has been given
written notice thereof by the Non-Affected Member or by the Management
Committee; and/or

          (b) Insufficient Technical Personnel FTE's Of Exelixis.  If at the
              --------------------------------------------------
close of any calendar quarter during the term hereof, (i) Exelixis had serving
as full-time employees or as full-time consultants to Exelixis during such
quarter a total of less than [ * ] Technical Personnel FTE's (as defined in
Section 7.10(b)(v) hereof), and (ii) if within [ * ] after delivery to Bayer by
the LLC of the report as to Technical Personnel FTE's for such quarter required
under Section 7.10(b)(v) hereof, Bayer gives written notice to Exelixis that, in
the good faith judgment of Bayer, Exelixis has insufficient Technical Personnel
FTE's to warrant continuing the LLC, and (iii) Exelixis does not increase the
number of Technical Personnel FTE's to at least [ * ] within [ * ] after
delivery of such notice by Bayer; and/or

          (c) Certain Other Failures.  Such Affected Member fails to perform or
              ----------------------
violates any other material term or condition of this Agreement and such failure
or violation continues for [ * ] or more days after such Affected Member has
been given written notice thereof by the Non-Affected Member or by the
Management Committee; provided that nothing herein will limit the Affected
Member's obligation to pay damages for such breach during such cure period;
and/or

          (d) Certain Actions.  Such Affected Member otherwise causes the
              ---------------
dissolution of the LLC in contravention of the terms of this Agreement; and/or

          (e) Material Breach of Collaboration Agreement.  Such Affected Member
              ------------------------------------------
fails to cure a breach of the LLC Collaboration Agreement (as defined in Section
14.3 thereof) and the Non-Affected Member exercises its rights pursuant to
Section 14.2(c) or (d) of this Agreement; and

          (f) Notice By Non-Affected Member.  Written notice
              -----------------------------
has been given to the Affected Member by the Non-Affected Member, with a copy of
the Management Committee, reciting facts therein in reasonable detail regarding
(i) the date upon which, in the good faith judgment and knowledge of the Non-
Affected Member, such Event of Default occurred for the Affected Member, (ii)
the general nature of such Event of Default and (iii) that the Event of Default
(A) is having or would have, in the good faith judgment of the Non-Affected
Member, a material adverse effect upon the Affected Member's ability to perform
such Affected Member's obligations under this Agreement, the LLC Collaboration
Agreement, and/or the relevant

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -61-
<PAGE>

Collateral Agreements, and (B) which does have or would have, in the good faith
judgment of the Non-Affected Member, a material adverse effect on the business
or operations of the LLC.

     14.2 Remedies of Default.  Except as limited by Section 14.1(c) of this
          -------------------
Agreement and by Section 14.3(b) of the LLC Collaboration Agreement, upon the
occurrence of, and during the continuance of, an Event of Default, the Non-
Affected Member may elect any or all of the following remedies:

          (a) Injunctive Relief.  The Non-Affected Member may seek to enjoin
              -----------------
such default or to obtain specific performance of the Affected Member's
obligations; or

          (b) Withhold Payments To The LLC.  The Non-Affected Member then may
              ----------------------------
withhold payments otherwise required hereunder to be made to the LLC; or

          (c) Termination And Dissolution Of LLC.  The Non-Affected Member may
              ----------------------------------
elect to terminate and dissolve the LLC as provided in Section 12.1(b)(iii)(C)
hereof, in which event the affairs of the LLC will be wound up as provided in
Article XII hereof; or

          (d) Purchase Of Membership Interest.  The Non-Affected Member may
              -------------------------------
elect to purchase the Affected Member's entire Membership Interest pursuant to
Section 13.3 hereof.

     14.3 Election Of Remedies.  The election of a remedy specified under
          --------------------
Section 14.2(a) hereof by the Non-Affected Member will be made by giving written
notice (a "Default Notice") to the Affected Member, with a copy to the
           --------------
Management Committee, at any time that the Event of Default has occurred and is
continuing.  If an election by the Non-Affected Member is made pursuant to
Section 14.2(a) hereof to seek an injunction, specific performance or other
equitable relief, and a final judgment in such action is rendered denying such
equitable remedy, then the Non-Affected Member may elect to pursue the remedy
specified in Section 14.2(a) hereof to the extent such remedy is available
unless, prior to the giving of such notice, the Affected Member has cured the
relevant Event of Default in full or the final judgment denying equitable relief
specifically held that there was no Event of Default by the Affected Member.
The election of any remedy by the Non-Affected Member pursuant to Section 14.2
hereof and to this Section 14.3 will not for any purpose be deemed to be a
waiver by the Non-Affected Member of any other remedy available to the Non-
Affected Member under applicable law.

                                  ARTICLE XV
                           EFFECT OF CERTAIN EVENTS

     15.1 Certain Changed Circumstance Applicable To Either Member.  If a
          --------------------------------------------------------
Changed Circumstance occurs with respect to either Member during the term of the
LLC, then unless otherwise agreed in writing by the Members, LLC Collaboration
Agreement and the Collateral Agreements as they may then exist will, unless and
to the extent that they otherwise so provide, remain in full force and effect.

     15.2 Certain Changed Circumstance Applicable To Exelixis.  If a Changed
          ---------------------------------------------------
Circumstance occurs with respect to Exelixis, and if Bayer, in its sole
discretion, does not timely elect to terminate the LLC under Section 12.1
hereof, then:

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -62-
<PAGE>

          (a) Continuation Of LLC.  The LLC will continue in existence; and
              -------------------

          (b) Continuation Of Certain Agreements.  The LLC Collaboration
              ----------------------------------
Agreement and the Collateral Agreements as they may then exist will, to the
extent they so provide, remain in full force and effect; and

          (c) Continuation Of Assay Development Within LLC.  Assay development
              --------------------------------------------
within the LLC will continue until the end of the Research Term, as defined in
the LLC Collaboration Agreement; and

          (d) Updates Of HelioTag.  Bayer and the LLC will continue to get
              -------------------
updates of HelioTag (as it may be renamed after the Commencement Date) from
Exelixis in the manner delivered prior to such event; and

          (e) Continuation Of LLC And Of Percentage Interests.  If Bayer does
              -----------------------------------------------
not purchase Exelixis' Membership Interest as provided under Article XIII
hereof, the Members will retain their respective Membership Interests and
Percentage Interests; and

          (f) Certain Conditions Applicable To Exelixis During Interim Period.
              ---------------------------------------------------------------
If pursuant to Section 13.2(a)(iii) hereof Bayer not has waived, or been deemed
to have waived, its Buyout right, then for the period between the date of such
notice from Exelixis to Bayer as to such Changed Circumstance and the earliest
of (1) the date of the Buyout by Bayer of Exelixis' Membership Interest, (2) the
termination of the LLC pursuant to the terms hereof, or (3) the closing of the
transaction involving Exelixis which gave rise to the Changed Circumstance, as
relevant:

              (i)   Independent Member Representatives And Members Of The JSC.
                    ---------------------------------------------------------
Exelixis must immediately appoint and have serving during such period as its
Member Representatives and as its members of the JSC individuals who are
independent of Exelixis, and

              (ii)   Exelixis Access To Certain Information.  Exelixis will have
                     --------------------------------------
access to data and intellectual property that is generated by the LLC with
respect to research and development upon such terms as the Management Committee
determines in good faith, but will continue to get such financial information as
is provided under Section 8.6 hereof.

              (iii) Certain Resumption Of Rights Of Exelixis.  If pursuant to
                    ----------------------------------------
Section 13.2(a)(iii) hereof Bayer does not waive, or is not deemed thereunder to
waive, its Buyout right, but does not thereafter timely exercise its Buyout
right, or if before Bayer exercises such Buyout right such Changed Circumstance
ceases to exist, the cessation of which Exelixis will immediately notify Bayer
in writing, with a copy to the Management Committee, then Exelixis' rights as to
whom it may appoint as Member Representatives and members of the JSC, and its
other rights hereunder, including its rights to any information of the LLC, will
resume as in effect immediately prior to such Changed Circumstance coming into
being.

     15.3 Certain Changed Circumstance Applicable To Bayer.  If a Changed
          ------------------------------------------------
Circumstance occurs with respect to Bayer, and if Exelixis, in its sole
discretion, does not timely elect to terminate the LLC as provided in Section
12.1 hereof, then:

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -63-
<PAGE>

          (a) Continuation Of LLC.  The LLC will continue in existence; and
              -------------------

          (b) Continuation Of Certain Agreements.  The LLC Collaboration
              ----------------------------------
Agreement and the Collateral Agreements as they may then exist will, to the
extent they so provide, remain in full force and effect; and

          (c) Continuation Of Assay Development Within LLC.  Assay development
              --------------------------------------------
within the LLC will continue until the end of the Research Term, as defined in
the LLC Collaboration Agreement; and

          (d) Updates Of HelioTag.  The LLC will continue to get updates of
              -------------------
HelioTag (as it may be renamed after the Commencement Date) from Exelixis in the
manner delivered prior to such event; and

          (e) Continuation Of LLC And Of Percentage Interests.  If Exelixis does
              -----------------------------------------------
not purchase Bayer's Membership Interest as provided under Article XIII hereof,
the Members will retain their respective Membership Interests and Percentage
Interests; and

          (f) Certain Conditions Applicable To Bayer During Interim Period.  If
              ------------------------------------------------------------
pursuant to Section 13.2(a)(iii) hereof Exelixis not has waived, or been deemed
to have waived, its Buyout right, then for the period between the date of such
notice from Bayer to Exelixis as to such Changed Circumstance and the earliest
of (1) the date of the Buyout by Exelixis of Bayer's Membership Interest, or (2)
the termination of the LLC pursuant to the terms hereof, or (3) the closing of
the transaction involving Bayer which gave rise to the Changed Circumstance, as
relevant:

              (i)   Independent Member Representatives And Members Of The JSC.
                    ---------------------------------------------------------
Bayer must immediately appoint and have serving during such period as its Member
Representatives and as its members of the JSC individuals who are independent of
Bayer, and

              (ii)  Bayer Access To Certain Information.  Bayer will have
                    -----------------------------------
access to data and intellectual property that is generated by the LLC with
respect to research and development upon such terms as the Management Committee
determines in good faith, but will continue to get such financial information as
is provided under Section 8.6 hereof.

              (iii) Certain Resumption Of Rights Of Bayer.  If pursuant to
                    -------------------------------------
Section 13.2(a)(iii) hereof Exelixis does not waive, or is not deemed thereunder
to waive, its Buyout right, but does not thereafter timely exercise its Buyout
right, or if before Exelixis exercises such Buyout right such Changed
Circumstance ceases to exist, the cessation of which Bayer will immediately
notify Exelixis in writing, with a copy to the Management Committee, then
Bayer's rights as to whom it may appoint as Member Representatives and members
of the JSC, and its other rights hereunder, including its rights to any
information of the LLC, will resume as in effect immediately prior to such
Changed Circumstance coming into being.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -64-
<PAGE>

                                  ARTICLE XVI
                             RIGHT OF FIRST OFFER

     16.1 Exercise Of Rights; Adjustment Of Percentage Interests.
          ------------------------------------------------------

          (a) Notice Of Proposed Issuance of Additional Membership Interests Or
              -----------------------------------------------------------------
Other Interests.  If the LLC proposes to issue any additional Membership
---------------
Interests or any other interests in the LLC, including without limitation any
equity security of the LLC, and including therein without limitation convertible
promissory notes, warrants or options to purchase an interest in the LLC, and
such proposal has been approved by the Management Committee, the LLC will give
each Member prior written notice of the LLC's intention, describing the
additional Membership Interests or other interests in the LLC, the price and the
general terms and conditions upon which the LLC proposes to issue such
additional Membership Interests or other interests in the LLC and the
anticipated effect on such Member's Percentage Interest.

          (b) Exercise Of Right By Members.  Each Member will have [ * ] after
              ----------------------------
the giving of such notice, and [ * ] after the giving of any notice of a
material change in such offering (which change notice the LLC promptly will
deliver to each Member), to elect by giving written notice thereof to the
Management Committee, to purchase, for the price and upon the terms and
conditions specified in the LLC's notice, up to the total of additional
Membership Interests or other interests in the LLC offered, in each case with a
right of oversubscription for each Member, the amount of which oversubscription
to be specified in such written notice to the LLC.

          (c) Procedure In The Event Of Oversubscription By Members.  If both
              -----------------------------------------------------
Members subscribe (the "Subscribing Members") for more than the total of
                        -------------------
additional Membership Interests or other interests in the LLC Offered (whether
such total is all of such additional Membership Interests or other interests in
the LLC, then the Subscribing Members, together, will be entitled to purchase
only their respective Pro Rata Share, up to the total of additional Membership
Interests or other interests in the LLC offered.

          (d) Automatic Adjustment Of Percentage Interests.  The Percentage
              --------------------------------------------
Interests of the Members will automatically, without any executed amendment
hereto being requested, be adjusted, from and after the issuance of such
additional Membership Interests, to reflect the result of such issuance.

     16.2 Issuance Of New Securities To Other Persons.  If the Members do not
          -------------------------------------------
together or singly purchase all of the Membership Interests or other interests
in the LLC so offered, then the LLC will, if both Members have so agreed in
writing, have [ * ] following exercise by the Members of their rights of first
offer hereunder to sell to other Persons the additional Membership Interests or
other interests in the LLC in respect of which the rights of purchase of the
Members were not exercised, at a price and upon general terms and conditions no
more favorable to the purchasers thereof than specified in the LLC's notice to
the Members pursuant to Section 16.1 hereof.  If the LLC has not sold the
additional Membership Interests or other interests in the LLC within such [ * ],
the LLC will not thereafter issue or sell any additional

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -65-
<PAGE>

Membership Interests or other interests in the LLC without first offering such
securities to the Members, in the manner provided in this Section 16.2.

     16.3 Termination Of Rights Of First Offer.  The rights of first offer
          ------------------------------------
established by this Section 16 will terminate as to all Members upon the
termination of the LLC.

                                 ARTICLE XVII
                              DISPUTE RESOLUTION

     17.1 Procedure Before Arbitration.  Any dispute between the Members other
          ----------------------------
than a dispute over a tax reporting matter, which will be resolved as provided
in Section 17.3 hereof, and other than a dispute involving intellectual property
of either Member or of the LLC, for which judicial resolution will be available
to any party, but otherwise including without limitation a Substantial
Disagreement and in each case involving, and only with respect to, the LLC, will
be attempted to be resolved by the Members in accordance with the following
procedure before the provisions of Section 17.2 hereof will apply:

          (a) Notice.  One Member will notify the other Member in writing of the
              ------
nature of the dispute in reasonable detail, with a copy to the Management
Committee.  If the Members cannot resolve such dispute within [ * ] after such
notice is given, they will, by the end of such [ * ], agree on the issues giving
rise to the dispute and will submit the matter, and such agreed issues, in
writing to their respective Chief Executive Officer or equivalent.

          (b) Appointment Of Senior Executives.  Within [ * ] after their
              --------------------------------
receipt of such notice of the dispute, the respective Chief Executive Officer of
each Member (or a senior executive of the relevant Member (or, as to Bayer, at
its election, a senior executive of Bayer AG) notified as such in writing
promptly by such Member to the other Member), each will appoint a single
delegate from among their respective senior executives who will have full power
and authority to resolve the dispute.  The respective delegates will then have a
period of an additional [ * ] after the expiration of such initial [ * ] period
within which to meet and attempt to resolve the dispute.  If the senior
executives cannot resolve the dispute within such time period, then the Chief
Executive Officers of the Members (or their respective pre-specified senior
executives, as relevant), will meet to attempt to resolve the dispute.

          (c) Deadlock.  If the dispute has not been resolved within [ * ] after
              --------
the date of the original notice from one Member to the other of the dispute
given as provided in Section 17.1(a) hereof, then either Member may certify to
the other in writing, with a copy to the Management Committee, at any time
within [ * ] after the expiration of such [ * ] period that the Members have
reached Deadlock.

          (d) Purchase Of Membership Interest Upon Deadlock After Fourth
              ----------------------------------------------------------
Anniversary Of Commencement Date.  If either Member certifies to the other in
--------------
writing that Deadlock has been reached with respect to a Substantial
Disagreement after the fourth anniversary of the Commencement Date, then the LLC
Collaboration Agreement will continue, but either Member may then offer to
purchase the Membership Interest of the other in accordance with the provisions
of Section 13.5 hereof.  If the relevant Member declines in

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -66-
<PAGE>

writing to, or does not timely, pursue such purchase process, then the matter
will be resolved by arbitration as provided in Section 17.2 hereof.

          (e) Procedure For Resolution If Deadlock For Other Than Substantial
              ---------------------------------------------------------------
Disagreement, Or Deadlock On Substantial Disagreement Prior To [ * ]
--------------------------------------------------------------------
Anniversary.  If either Member certifies to the other in writing that Deadlock
-----------
has been reached with respect to a dispute other than one involving a
Substantial Disagreement, or that Deadlock has been reached, prior to the [ * ]
anniversary of the Commencement Date, with respect to a Substantial Disagreement
then the parties agree that the LLC Collaboration Agreement will continue, but
the matter will be resolved by arbitration as provided in Section 17.2 hereof.

     17.2 Resolution By Arbitration.
          -------------------------

          (a) General.  Except with respect to any dispute involving the
              -------
Confidential Information or intellectual property of either party, for which the
parties hereto may seek judicial relief, any dispute between or among any of the
parties to this Agreement that arises out of or relates to this Agreement,
including a Substantial Disagreement, will, after the procedures described in
Section 17.1 have been followed to their conclusion, be finally settled by
binding arbitration in accordance with the Rules of the International Chamber of
Commerce (the "ICC").  Any disputes between the parties with respect to
               ---
arbitration procedures will be resolved by arbitration under this Section 17.2.
The arbitration will take place in New York, New York.  The parties will, before
the hearing of any dispute by such arbitrators, make discovery and disclosure of
all materials relevant to the subject matter of such dispute, including the
taking of depositions at times and places mutually agreeable to the parties,
subject to such reasonable and customary further nondisclosure agreements or
agreements relating to attorney-client privilege as either party may reasonably
and in good faith request of the other in connection with such discovery and
disclosure. Subject to such protective measures, the parties will make available
to the arbitrators and to each other and their relevant professional advisors,
access to materials in written, electronically stored, or other form, including
access by computer over secured links, as the requesting arbitrator or party
reasonably and in good faith requests.  Neither party will be required to
furnish such access in any medium other than that in which the relevant material
is stored at the time of such request.  The parties hereby agree to exclude any
application or appeal to the courts in connection with any question of law
arising in the course of the referral to arbitration or out of the award.  Each
of the parties will appoint one arbitrator and the two so nominated will, in
turn, choose a third arbitrator. if the arbitrators chosen by the parties cannot
agree on the choice of the third arbitrator within a period of thirty (30) days
after their nomination, then the third arbitrator will be appointed by the ICC.
The language of the arbitration will be English.

          (b) Applicable Law.  The law of the State of California, excluding
              --------------
that body of law known as conflict of laws, will be the applicable substantive
law for all matters except those governed by the Act and by federal law, which
will apply to such other matters.  The applicable procedural law will be the law
of the place of arbitration.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -67-
<PAGE>

          (c) Arbitrator Decisions.  The arbitrators will decide in accordance
              --------------------
with the terms of this Agreement and will take into account any appropriate
trade usages applicable to the transaction.  The arbitrators will state in
writing the reasons upon which the award is based.

          (d) Award Of Arbitrators.  The award of the arbitrators will be final
              --------------------
and binding upon the parties, and may, at the arbitrators' discretion, include
costs of the arbitration, reasonable fees and costs of attorneys, experts and
other witnesses.  Judgment upon the award may be entered in any court having
jurisdiction.  An application may be made to any such court for judicial
acceptance of the award and an order of enforcement.

     17.3 Resolution Of Certain Disputes Over Tax Matters.  If either of the
          -----------------------------------------------
Members or the LLC disagrees with the proposed treatment of an item on the
return prepared by or for the Tax Matters Member, the Members and the LLC will
promptly seek to resolve the disagreement through good faith discussions.  If
the dispute cannot be so resolved, the Members and the LLC will engage the
services of a mutually agreed nationally recognized law firm or accounting firm
(which may be any law firm or accounting firm then retained by the LLC, or by
either Member, otherwise for general or specific matters) to resolve the matter.
The decision of such law firm or accounting firm on such matter, absent
demonstrable factual error or mathematical error, or fraud, will be binding on
the Members and the LLC.  Such firm's fees and costs will be borne one-third by
each Member and one-third by the LLC.

                                 ARTICLE XVIII
                                CONFIDENTIALITY

     18.1 Obligations Of Confidentiality.  The provisions of this Article XVIII
          ------------------------------
will apply to all Confidential Information disclosed by one party hereto to one
or more of the other parties hereto, whether prior to or after the Commencement
Date, and which is not otherwise the subject of a written nondisclosure
agreement between the relevant parties.  Each party hereto (a) will hold the
other parties' Confidential Information in strict confidence, (b) will not
disclose such Confidential Information to any third parties and will take all
reasonable steps to prevent such disclosure, which steps will include at least
those taken by such relevant other party to protect such other party's own
confidential information of like kind, and (c) will not use any Confidential
Information of the other party for any purpose except for the business of the
LLC or as specifically permitted by the LLC Collaboration Agreement.  Each
receiving party may disclose the disclosing party's Confidential Information to
the receiving party's responsible employees and consultants who have a bona fide
need to know, but only to the extent necessary to carry out the purposes of the
LLC.  Each receiving party will instruct all such employees and consultants not
to disclose such Confidential Information to third parties, including other
consultants, without the prior written permission of the disclosing party.

     18.2 Certain Confidential Information.  The existence of this Agreement and
          --------------------------------
its terms, and the existence and terms of the LLC Collaboration Agreement and
the Collateral Agreements as they may then exist are Confidential Information of
each party hereto.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -68-
<PAGE>

     18.3 Return Of Confidential Information.  Upon the disclosing party's
          ----------------------------------
request, the receiving party will promptly return to the disclosing party all
tangible items containing or consisting of the disclosing party's Confidential
Information and all copies thereof

     18.4 No Other Rights.  Nothing contained in this Agreement will be
          ---------------
construed as granting any rights to the receiving party, by license or
otherwise, to any of the disclosing party's Confidential Information except as
specified in this Agreement

     18.5 Acknowledgment.  Each Member and the LLC acknowledge that the
          --------------
unauthorized disclosure or use of the disclosing party's Confidential
Information would cause irreparable harm and significant injury to the
disclosing party, the degree of which may be difficult to ascertain.
Accordingly, each Member agrees that the disclosing party will have the right to
seek an immediate injunction enjoining any breach of this Agreement by the
receiving party or its employees or consultants, as well as the right to pursue
any and all other rights and remedies available at law or in equity for such
breach.

     18.6 Disclosure Required By Law.  If the receiving party (or its
          --------------------------
Affiliates) is required, whether by oral questions, interrogatories, requests
for information or documents, subpoena, civil investigative demand or similar
process, by any competent government authority, including pursuant to any
applicable rule of any stock exchange, self-regulatory organization or other
government agency, including without limitation such disclosure in connection
with any public offering of securities by either Member or their relevant
Affiliates, to disclose any Confidential Information of the disclosing party,
the receiving party will promptly notify the disclosing party in writing, in
reasonable detail, of such request or requirement and will cooperate with the
disclosing party in seeking appropriate protective arrangements requested by the
disclosing party.  If, in the absence of a protective order or the receipt of a
waiver in writing by the disclosing party of such protective order, the
receiving party (or any of its Affiliates) is in the written opinion of the
receiving party's counsel compelled to disclose the Confidential Information,
the receiving party (or its Affiliates) may disclose only so much of the
Confidential Information to the party compelling disclosure as is required by
law.  The receiving party will exercise (and will cause its Affiliates to
exercise) commercially reasonable best efforts to obtain appropriate protective
arrangements or other reliable assurance that confidential treatment will be
accorded to Confidential Information of the disclosing party in the event of
such required disclosure.

     18.7 Public Announcements.  During the term of this Agreement, neither the
          --------------------
LLC nor either Member will (except as may otherwise be required by law as
described in, and subject to the provisions of, Section 18.6 hereof) issue any
press release or other public announcement or disclosure, with respect to this
Agreement or any of the Collateral Agreements as they may then exist, or any of
the transactions contemplated hereby or thereby, nor any material development
relating to any of the foregoing, without the prior written consent of both
Members.

     18.8 Survival Of Confidentiality Obligations.  The provisions set forth in
          ---------------------------------------
this Article XVIII will survive any expiration or termination of this Agreement,
for a period of [ * ] after the effective date of such expiration or
termination.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -69-
<PAGE>

                                  ARTICLE XIX
                                 MISCELLANEOUS

     19.1 Further Assurances.  The parties hereto will execute and deliver any
          ------------------
further instruments or documents and perform any additional acts that are or may
become necessary to effectuate and carry on the LLC created by this Agreement
and to carry out the purposes and intent of this Agreement.

     19.2 Binding Effect.  Subject to the restrictions on transfer set forth in
          --------------
Section 3.4 hereof, this Agreement will be binding on and inures to the benefit
of the Members and their respective transferees, successors, assigns and legal
representatives.

     19.3 Entire Agreement; Amendment; Incorporation Of Exhibits By Reference.
          -------------------------------------------------------------------
This Agreement sets forth the agreement between the Members (or among the
Members if there are more than two (2) Members) with respect to the specific
subject matter hereof, and, except as otherwise set forth herein, supersedes and
terminates all prior representations, agreements and understandings between the
Members (or among the Members if there are more than two (2) Members) regarding
the subject matter hereof.  No alteration, amendment, change or addition to this
Agreement will be binding upon the Members or the LLC unless in writing and
signed by an authorized signatory of each Member, in which case such amendment
also will be binding upon the LLC.  Each Exhibit hereto is incorporated herein
by reference.

     19.4 Assignment.  Neither Member (nor any Member if there are more than two
          ----------
(2) Members) may assign or transfer this Agreement or any of such Member's
rights or obligations hereunder without the prior written consent of the other
Member.

     19.5 Notices.  All notices, requests, consents and other communications
          -------
hereunder to any party will be deemed to be sufficient if contained in a written
instrument delivered in person, including delivery by recognized express
courier, fees prepaid, or sent by facsimile transmission or duly sent by first
class registered or certified mail, return receipt requested, postage prepaid,
in each case addressed as set forth below, or to such other address as may
hereinafter be designated in writing by the recipient to the sender pursuant to
this Section 19.5.  All such notices, requests, consents and other
communications will be deemed to have been received in the case of personal
delivery, including delivery by express courier, on the date of such delivery;
in the case of facsimile transmission, on the date of transmission; and in the
case of mailing, on the third day after deposit in the U.S. mail, proper postage
prepaid.  All notices to the Management Committee will be given to each Member
Representative then serving, at such address for such Member Representative as
is shown at the relevant time in the records of the LLC.

If to Exelixis:  Exelixis Pharmaceuticals, Inc.
                 Attention:  Chief Executive Officer
                 260 Littlefield Avenue
                 South San Francisco, CA 94080
                 Facsimile: 650-825-2205

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -70-
<PAGE>

With a copy to:     Cooley Godward LLP
                    Five Palo Alto Square
                    3000 El Camino Real
                    Palo Alto, CA 94306
                    Attention: Robert L. Jones
                    Facsimile: 650-857-0663

If to Bayer:        Bayer Corporation
                    Attention: William G. Ferguson, Vice President and
                    Assistant General Counsel
                    8400 Hawthorne Road
                    Kansas City, MO 64120-0013 l
                    Facsimile: 816-242-2739

With a copy to:     Heller Ehrman White & McAuliffe
                    Attention: Bruce W. Jenett
                    525 University Avenue
                    Palo Alto, CA 94301
                    Facsimile: 650-324-0638

If to the LLC:      GenOptera LLC
                    Attention:  Chief Executive Officer
                    c/o Exelixis Pharmaceuticals, Inc.
                    260 Littlefield Avenue
                    South San Francisco, CA 94080
                    Facsimile:  650-825-2205

     19.6 Electronic Data Interchange.  If both Members and/or the LLC elect to
          ---------------------------
facilitate their activities hereunder by electronically sending and receiving
data in agreed formats (also referred to in general usage as Electronic Data
Interchange or EDI) in substitution for conventional paper-based documents, the
terms and conditions of this Agreement will apply to such EDI activities and
communications as if such EDI communication , and as if such communication were
sent by facsimile.

     19.7 Severability.  If one or more provisions of this Agreement are held to
          ------------
be unenforceable under applicable law, then such provisions will be enforced to
the maximum extent possible under applicable law and the remainder of such
provisions) will be excluded from this Agreement, and the balance of this
Agreement will be interpreted as if such provisions) or portion(s) thereof were
so excluded and will continue to be enforceable in accordance with its terms.

     19.8 Counting Of Time.  Whenever days are to be counted under this
          ----------------
Agreement, the first day will not be counted and the day will be counted, such
that if a notice is delivered on a Monday to one Member, for example, with a
five (5) day reply period hereunder, the reply must

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -71-
<PAGE>

be given to the sending Member (not received by such sending Member) by such
recipient member no later than 11:59 a.m. local time for the sender, on the
Saturday next following such Monday.

     19.9  Force Majeure Events.  Except as otherwise provided herein, no Member
           --------------------
will be in breach of this Agreement, or liable to the other Member, or to the
LLC, for any loss, damage, detention, delay or failure of performance to the
extent such loss, damage, detention, delay or failure is caused by a Force
Majeure Event provided that the party claiming excuse uses its commercially
reasonable efforts to overcome the same.  In the event of a Force Majeure Event,
the obligations of the Affected Member will be suspended as long as such Force
Majeure Event continues, but such suspension will have no effect upon the rights
of the Members to terminate the LLC, as provided in Section 12.1(c)(iii) hereof,
or of one Member to purchase the Membership Interest of the other Member as
provided in Section 13.2 hereof, in the event of a Continuing Force Majeure
Event.

     19.10  Hardship  If, during the period of this Agreement, performance of
            --------
this Agreement should lead to unreasonable hardship for one or other Member
taking the interests of both Members into account, both Members will endeavor to
agree in good faith to amend this Agreement in view of such circumstance.

     19.11  Non-Waiver.  The failure of a Member in any one or more instances to
            ----------
insist upon strict performance of any of the terms and conditions of this
Agreement will not be construed as a waiver or relinquishment, to any extent, of
the right to assert or rely upon any such terms or conditions on any future
occasion.

     19.12  Disclaimer Of Agency; No Right Of Members To Commit Or Bind LLC.
            ---------------------------------------------------------------
This Agreement will not render either Member the legal representative or agent
of another, nor will either Member have the right or authority to assume,
create, or incur any third party liability or obligation of any kind, express or
implied, against or in the name of or on behalf of another except as expressly
set forth in this Agreement or except as may be expressly agreed in advance in
writing by the Member to be bound.  Except as expressly provided herein, or
except as expressly consented to in writing by the other Member in advance of
such commitment, no Member will have the right to commit or bind the LLC.

     19.13  Certain Third Parties.  Except with respect to the rights of certain
            ---------------------
Persons to be indemnified pursuant to Article XI of this Agreement, which
Persons are intended as third party beneficiaries of their respective rights be
indemnified as set forth therein, able to enforce their respective rights to
such indemnification as if they were a party hereto, nothing in this Agreement,
express or implied, is intended to confer upon any person, other than the
parties hereto and their successors and assigns, any rights or remedies under or
by reason of this Agreement.

     19.14  No Grant Of Rights.  Except as specifically stated herein, neither
            ------------------
Member, nor the LLC, grants to any other party hereto and rights or license to
any intellectual property rights or other rights of the first party.

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -72-
<PAGE>

     19.15  Expenses.  Except as otherwise provided in this Agreement (a) all
            --------
expenses incurred by a Member in connection with its obligations under this
Agreement will be borne solely by such Member, and (b) each Member will be
responsible for appointing its own employees, agents and representatives, who
will be compensated by such Member.

     19.16  Captions.  The captions to Sections of this Agreement have been
            --------
inserted for identification and reference purposes only and will not be used to
construe or interpret this Agreement.

     19.17  Costs And Attorneys' Fees.  Except as otherwise provided in Article
            -------------------------
XI hereof, including therein the definition of "Damages" under Section 1.21
hereof, if any action, suit or other proceeding is instituted concerning or
arising out of this Agreement or any transaction contemplated hereunder, the
prevailing party will recover all of such party's reasonable fees and costs of
attorneys incurred in each such action, suit or other proceeding, including any
and all appeals or petitions therefrom.

     19.18  Governing Law.  The law of the State of California, excluding that
            -------------
body of law known as conflict of laws, will be the applicable substantive law
for all matters involving this Agreement, except those governed by the Act and
by federal law, which will apply to such other matters.

     19.19  Waiver Of Action For Partition.  Each Member hereby irrevocably
            ------------------------------
waives during the term of the LLC any right that such Member may have to
maintain any action for partition with respect to the property of the LLC.

     19.20  Counterparts.  This Agreement may be executed in one or more
            ------------
counterparts, each of which will be an original and both of which will
constitute together the same document.

     19.21  Official Language.  The official text of this Agreement and any
            -----------------
appendices, Exhibits and Schedules hereto, will be made, written and interpreted
in English.  Any notices, accounts, reports, documents, disclosures of
information or statements required by or made under this Agreement, whether
during its term or upon expiration or termination thereof, will be in English.
In the event of any dispute concerning the construction or meaning of this
Agreement, reference will be made only to this Agreement as written in English
and not to any other translation into any other language.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.

BAYER CORPORATION                       EXELIXIS PHARMACEUTICALS, INC.

By: /s/ Emil E. Lansu                   By: /s/ George Scangos
    ----------------------------              -----------------------------
Name: Emil E. Lansu                     Name: George Scangos
     ---------------------------                ---------------------------
Title: Executive Vice President         Title: President & CEO
       -------------------------                 --------------------------
Date signed: December 16, 1999          Date signed: December 16, 1999
             -------------------                     ----------------------

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -73-
<PAGE>

GENOPTERA LLC
By: /s/ Frank F. Reuscher
    ----------------------------
Name: Frank F. Reuscher
Title:  Chief Executive Officer
Date signed: December 15, 1999

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -74-
<PAGE>

                                   EXHIBIT A
                                   ---------
                         LIST OF COLLATERAL AGREEMENTS
                         -----------------------------

                          [NONE AT THE EFFECTIVE DATE]

[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      -i-<PAGE>

                                                                    EXHIBIT 10.9

                              COOPERATION AGREEMENT

     This COOPERATION AGREEMENT (the "Agreement") is made as of September 15,
1998, by and between EXELIXIS PHARMACEUTICALS, INC., a Delaware corporation
("Exelixis"), and ARTEMIS PHARMACEUTICALS GMBH, a corporation organized under
the laws of the Federal Republic of Germany ("Artemis").

                                    RECITALS

     WHEREAS, Exelixis is engaged in the development of model genetic screening
systems using the fruit fly Drosophila melanogaster and the nematode worm C.
elegans and Artemis is engaged in the development of model genetic screening
systems using zebrafish and mouse genetic technology;

     WHEREAS, Exelixis and Artemis desire to work together using each other's
technology and expertise to identify and validate drug screening targets;

     WHEREAS, the Chief Executive Officer of Exelixis (the "Exelixis CEO") and
the Geschaftsfuhrer of Artemis (the "Artemis Geschaftsfuhrer") will meet from to
time as necessary to discuss opportunities available to either of the companies
to commercialize the technology being developed by the companies and products
developed therefrom;

     WHEREAS, Exelixis has established a committee (the "Exelixis Committee")
pursuant to resolutions of the Board of Directors of Exelixis adopted on July 8,
1998, a copy of which are attached hereto as Annex A (the "Exelixis Board
Resolutions"), comprised of representatives of Exelixis and representatives of
the shareholders of Artemis, with the powers, authority, duties and
responsibilities set forth in such resolutions;

     WHEREAS, Exelixis, Artemis and the other parties signatory thereto have
entered into a Shareholders' Agreement dated as of September 15, 1998, a copy of
which is attached hereto as Annex B (the "Artemis Shareholders Agreement"),
pursuant to which the shareholders of Artemis have established a committee (the
"Artemis Committee") comprised of representatives of Exelixis and
representatives of the other shareholders of Artemis with the powers, authority,
duties and responsibilities set forth in the Artemis Shareholders Agreement; and

     WHEREAS, the Exelixis Committee shall have two primary functions: (i) to
approve all arrangements to be entered into by Exelixis with any third party
regarding the development, marketing, sales, promotion, manufacturing or other
commercialization of Exelixis' technology or any products developed therefrom
and (ii) to make recommendations to the Board regarding certain significant
transactions involving Exelixis; the functions of the Artemis Committee shall be
substantially similar to the functions of the Exelixis Committee with respect to
commercialization arrangements and certain significant transactions involving
Artemis.

     NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Exelixis and Artemis hereby agree as follows:

                                       1
<PAGE>

SECTION 1. COMMERCIALIZATION OPPORTUNITIES.

     1.1 Exelixis Commercialization Opportunities. Exelixis hereby agrees that
in the event that an opportunity arises regarding an agreement with a third
party for the development of Exelixis' technology and the marketing, sales,
co-promotion, manufacturing or other commercialization arrangements with respect
to Exelixis' technology or any products developed therefrom (an "Exelixis
Commercialization Arrangement"), the Exelixis CEO will notify the Artemis
Geschaftsfuhrer and the two will meet to discuss the proposal and to negotiate
the terms of any Exelixis Commercialization Arrangement, including, but not
limited to, any necessary allocation of responsibilities between Exelixis and
Artemis, the amount and structure of royalty payments, milestone payments and
any other fees and the allocation of such payments between Exelixis and Artemis,
the payment of commercialization expenses and the terms of any license agreement
between the two parties.

     1.2 Artemis; Commercialization Opportunities. Artemis hereby agrees that in
the event that an opportunity arises regarding an agreement with a third party
for the development of Artemis' technology and the marketing, sales,
co-promotion, manufacturing or other commercialization arrangements with respect
to Artemis' technology or any products developed therefrom (an "Artemis
Commercialization Arrangement"), the Artemis Geschaftsfuhrer will notify the
Exelixis CEO and the two will meet to discuss the proposal and to negotiate the
terms of any Artemis Commercialization Arrangement, including, but not limited
to, any necessary allocation of responsibilities between Exelixis and Artemis,
the amount and structure of royalty payments, milestone payments and any other
fees and the allocation of such payments between Exelixis and Artemis, the
payment of commercialization expenses and the terms of any license agreement
between the two parties.

SECTION 2. COMMITTEE APPROVAL.

     2.1 Exelixis Committee Approval. Exelixis hereby agrees that prior to
executing a definitive agreement with respect to an Exelixis Commercialization
Arrangement, the Exelixis CEO will present such agreement to the Exelixis
Committee for its approval, and such agreement will be subject to the
affirmative vote or a majority of the Exelixis Committee members.

     2.2 Artemis Committee Approval. Artemis hereby agrees that prior to
executing a definitive agreement with respect to an Artemis Commercialization
Arrangement, the Artemis Geschaftsfuhrer will present such agreement to the
Artemis Committee for its approval, and such agreement will be subject to the
affirmative vote of a majority of the Artemis Committee members.

SECTION 3. TERM.

     This Agreement shall be effective for a period of five years, commencing as
of the date of this Agreement, or for such other period as shall be agreed to by
Exelixis and Artemis. This Agreement shall terminate in the event that the
members of the Exelixis Committee and the Artemis Committee are not identical or
the functions of the Exelixis Committee and the Artemis are not substantially
similar.

                                       2
<PAGE>

SECTION 4. MISCELLANEOUS.

     4.1 Relationship of the Parties. Nothing contained in this Agreement is
intended or is to be construed to constitute Exelixis and Artemis as partners or
joint venturers or one party as an employee of any other party. Except as
expressly provided herein, neither Exelixis nor Artemis shall have any express
or implied right or authority to assume or create any obligations on behalf of
or in the name of the other or to bind each other to any contract, agreement or
undertaking with any third party.

     4.2 Further Assurances. Each of Exelixis and Artemis hereby agree to duly
execute and deliver, or cause to be duly executed and delivered, such further
instruments and do and cause to be done such further acts and things, including,
without limitation, the filing of such' additional assignments, agreements,
documents and instruments, that may be necessary or as the other party hereto
may at any time and from time to time reasonably request in connection with this
Agreement or to carry out more effectively the provisions and purposes of this
Agreement.

     4.3 Successors and Assigns. The terms and provisions of this Agreement
shall inure to the benefit of, and be binding upon, Exelixis, Artemis, and their
respective successors and assigns; provided, however, that Exelixis and Artemis
may not assign or otherwise transfer any of their respective rights and
interests, nor delegate any of their respective obligations, hereunder,
including, without limitation, pursuant to a merger or consolidation, without
the prior written consent of the other party hereto. Subject to the foregoing,
any reference to Exelixis or Artemis hereunder shall be deemed to include the
successors thereto and .assigns thereof.

     4.4 Amendments. No amendment, modification, waiver, termination or
discharge of any provision of this Agreement, nor consent by either party to any
departure therefrom, shall in any event be effective unless the same shall be in
writing signed by Exelixis and Artemis, and each amendment, modification,
waiver, termination or discharge shall be effective only in the specific
instance and for the specific purpose for which given.

     4.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, as applied to contracts made
and performed entirely within the State of New York. Except as otherwise
provided herein, any claim or controversy arising out of or related to this
contract or any breach hereof shall be submitted to a court of competent
jurisdiction in the State of New York, and each of Exelixis and Artemis hereby
consent to the jurisdiction and venue of such court.

     4.6 Severability. If any provision hereof should be held invalid, illegal
or unenforceable in any respect in any jurisdiction, then, to the fullest extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intentions of the parties hereto as nearly as may be possible and(b)
such invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction. To the
extent permitted by applicable law, Exelixis and Artemis hereby waive any
provision of law that would render any provision hereof prohibited or
unenforceable in any respect.

     4.7 Headings. The headings of the Sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed a part of this Agreement.

                                      3
<PAGE>

     4.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, taken together,
shall constitute one and the same instrument.

     4.9 Entire Agreement. This Agreement, together with any agreements
referenced herein, constitute, on and as of the date hereof, the entire
agreement of Exelixis and Artemis with respect to the subject matter hereof, and
all prior or contemporaneous understandings or agreements, whether written or
oral between Exelixis and Artemis with respect to such subject matter are hereby
superseded in their entirety.

                                       4
<PAGE>

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

                                            EXELIXIS PHARMACEUTICALS, INC.

                                            /s/ George Scangos
                                            ___________________________________
                                            By:
                                            Name: George Scangos
                                            Title: President and CEO

                                            ARTEMUS PHARMACEUTICALS GMBH

                                            /s/ Peter Stadler
                                            ___________________________________
                                            By:
                                            Name: Peter Stadler
                                            Title: CEO

                                       5
<PAGE>

                                                                         ANNEX A
                RESOLUTIONS OF THE BOARD OF DIRECTORS OF EXELIXIS

A.   Formation and Conduct of the Exelixis Committee

     WHEREAS, in connection with the Cooperation Agreement, the Board desires to
establish a committee (the "Exelixis Committee") comprised of representatives of
Exelixis and Artemis; the Exelixis Committee shall have two primary functions:
(i) to approve all arrangements to be entered into by the Corporation with any
third party regarding the development, marketing, sales, promotion,
manufacturing or other commercialization of the Corporation's technology or any
products developed therefrom and certain other material agreements and (ii) to
make recommendations to the Board regarding certain significant transactions
involving, the Corporation; and WHEREAS, the shareholders of Artemis will
establish a similar committee (the "Artemis Committee") pursuant to the terms of
the Shareholders Agreement and Artemis' Articles of Association; the members of
the Artemis Committee shall be identical to the members of the Exelixis
Committee and the functions of the Artemis Committee shall be substantially
similar to the Exelixis Committee with respect to commercialization arrangements
and certain significant transactions involving Artemis.

     RESOLVED, that the Exelixis Committee shall have five members, three of
which shall be appointed by the Board (the "Exelixis-Committee Members") and two
of which shall be appointed by Artemis as representatives of the other
shareholders of Artemis (the "Artemis Committee Members");

     RESOLVED, that the Exelixis Committee shall be comprised of the following
persons: George A. Scangos, Stelios Papadopoulos and Jean-Francois Formela, as
the Exelixis designees, and Peter Stadler and Jurgen Drews, as the Artemis
designees;

     RESOLVED, that each Exelixis Committee Member designated by the Corporation
shall serve for a five-year term and until such time as his successor has been
appointed by the Board or until his earlier resignation or removal and each
Exelixis Committee Member designated by Artemis shall serve for a five-year term
or until such time as Artemis shall notify the Committee of his resignation or
removal; Members of the Exelixis Committee may resign at any time; the Exelixis
Committee Members may only be removed by this Board and the Artemis Committee
Members may only be removed by Artemis; vacancies on the Exelixis Committee
resulting from resignation, removal or other cause may only be filled, in the
case of an Exelixis Committee Member, by the Board and, in the case of an
Artemis Committee Member, by Artemis; RESOLVED, that the Exelixis Committee
shall remain in effect until the earlier of five years from the date of
Cooperation Agreement or the termination of the Cooperation Agreement, provided,
however, in the event that the term of the Cooperation Agreement is extended,
the Exelixis Committee shall remain in effect for such extended period;

     RESOLVED, that 80% of the members of the Exelixis Committee shall
constitute a quorum for the transaction of business at any meeting of the
Exelixis Committee, provided that in the event that a quorum is not present at
two consecutive meetings, a third meeting will be convened within one week of
the last scheduled meeting at which a quorum was not present and for purposes of
such meeting, a majority of the members of the Exelixis Committee will
constitute a quorum; meetings of the Exelixis Committee may be convened upon 15
days notice;

                                       6
<PAGE>

     RESOLVED, that, except as provided in paragraph B(3) below, the affirmative
vote of a majority of the members of the Exelixis Committee present at a meeting
at which a quorum is present shall be the act of the Exelixis Committee; and

     RESOLVED, that the expenses of each Exelixis Committee Member shall be paid
by Exelixis and the expenses of each Artemis Committee Member shall be paid by
Artemis.

B.   Exelixis Committee Functions

     RESOLVED, that upon the approval of a majority of the members of the
Exelixis Committee present at a meeting at which a quorum is present, the proper
officers of the Corporation be, and each of them hereby is authorized to enter
into agreements on behalf of the Corporation in connection with the following
transactions:

          (i) Third-party Commercialization Arrangements. All arrangements to be
     entered into by the Corporation with any third party regarding the
     development, marketing, sales, promotion, manufacturing or other
     commercialization of Exelixis' technology, expertise or any products
     developed therefrom;

          (ii) Material Agreements. Any material agreement to be entered into by
     the Corporation with any third party, other than material agreements to be
     entered into in connection with the transactions described in paragraphs
     (I)-(6) below; and

          (iii) Incurrence of Indebtedness. Borrowing funds or incurring any
     indebtedness in excess of US$500,000.

     RESOLVED, that in connection with the Board's consideration of any of the
following transactions, it shall consider the recommendation of the Exelixis
Committee, which recommendation, except as otherwise provided in paragraph (3)
below, shall require the approval of a majority of the members of the Exelixis
Committee present at a meeting at which a quorum is present:

          (1) Capital Transactions. Increasing or reducing the Corporation's
     authorized capital or creating any additional class of capital stock of the
     Corporation, or selling or issuing shares of capital stock (or securities
     convertible into or exchangeable for capital stock or warrants, options or
     rights to acquire shares of capital stock or to acquire securities
     convertible into or exchangeable for capital stock) of the Corporation,
     except for (A) shares of the Company's Common Stock, par value $.001 per
     share (the "Common Stock") issuable upon conversion of the Corporation's
     outstanding Series A Convertible Preferred Stock, par value $.001 per
     share, Series B Convertible Preferred Stock, par value $.001 per share, and
     Series C Convertible Preferred Stock; (B) shares issuable upon exercise of
     any warrants, options or rights to acquire shares of capital stock of the
     Company outstanding on the date of the Cooperation Agreement; and (C)
     options granted pursuant to the terms of any stock option or other employee
     benefit plan existing on the date of the Cooperation Agreement;

                                       7
<PAGE>

          (2) Asset Sales. Selling, leasing, exchanging, transferring or
     otherwise disposing of, directly or indirectly, in a single transaction or
     series of related transactions, all or substantially all of the
     Corporation's property and assets;

          (3) Business Combinations. (A) Entering into any business combination
     between the Corporation and Artemis whether by merger, consolidation,
     transfer of assets or otherwise (a "Business Combination") during the
     period commencing 18 months from the date of the Cooperation Agreement and
     terminating on the fifth anniversary of such date (the "Initial Period"),
     provided, however, any Business Combination to be entered into prior to, or
     in the event that the term of the Cooperation Agreement is extended, after,
     the Initial Period shall require the unanimous vote of the members of the
     Exelixis Committee or (B) entering into any Business Combination with a
     third party other than Artemis;

          (4) Dissolution of the Corporation. (A) Seeking the liquidation,
     reorganization, dissolution or winding-up of the Corporation, (B) applying
     for or consenting to the appointment of, or the taking possession by, a
     receiver, custodian, trustee or liquidator for itself or of all or a
     substantial part of the Corporation's assets, (C) make a general assignment
     for the benefit of the Corporation's creditors, (D) commencing a voluntary
     case under the United States' Bankruptcy Code;

          (5) Declaring or paying any dividends on the Common Stock; or
     (6) Repurchasing or redeeming any capital stock or other securities or
     capital stock of the Corporation.

C.   Appointment of Exelixis Members to the Artemis Committee

     RESOLVED, that George A. Scangos, Stelios Papadopoulos and Jean-Francois
Formela, be and each of them hereby is, appointed as a member of the Artemis
Committee, to serve for a five-year term and until such time as his successor
has been appointed by this Board or until his earlier resignation or removal.

                                       8
<PAGE>

                                                                        ANNEX B

                         ARTEMIS SHAREHOLDERS' AGREEMENT

                                       9
<PAGE>

                                                            Courtesy Translation

                             SHAREHOLDERS' AGREEMENT

between and among the shareholders of Artemis Pharmaceuticals GmbH:

          1.   Prof. Dr. Peter Stadler,

          2.   Prof. Dr. Christiane Nusslein-Volhard,

          3.   Prof. Dr. Klaus Rajewsky,

          4.   EXELIXIS Pharmaceuticals, Inc.,

          5.   FEI Biomedicine Private Equity Holding AG, Basel

          6.   (a) Atlas Venture Fund II, L.P.

               (b)  Atlas Venture Germany B.V., Netherlands

               (c)  Oxford Ventures

               (d)  Global Life Science Holding V GmbH

               (e)  Advent International Corporation

               (f)  Stelios Papadopoulos

               (g)  Charles Cohen

               (h)  Forward Ventures

 . (the parties in 5. - 6. are also referred to as the "Investors") -and

          7.   Max-Planck-Geseilschaft, Munich ("MPG").

     (hereinafter together referred to as the "Shareholders")

                                       10
<PAGE>

                                    PREAMBLE

     Artemis Pharmaceuticals GmbH (hereinafter referred to as the
"Corporation"), a corporation organized under German Law, is engaged in the
development and/or utilization of biological/genetical model systems for
identifying new research methods and/or effective molecules for the
identification of effective therapies and/or medications for the treatment of
various diseases. Zebrafish Danio Rerio and mice play an important role as model
organisms in this respect. The Corporation intends to further its development
and the development of its products by concluding cooperation agreements and
creating strategic alliances with pharmaceutical companies.

     In order to achieve its goals more effectively, the Corporation has agreed
on a strategically oriented cooperation with EXELIXIS Pharmaceuticals, Inc.,
South San Francisco, a corporation organized under the law of the State of
Delaware, USA (hereinafter "EXELIXIS"). EXELIXIS is also utilizing
biological/genetical model systems (fruit flies and nematode worms) for purposes
of active substance research and development.

     Through the Corporation, the Shareholders plan to jointly employ their
technologies, their expertise and their capital for reaching the goals of the
Corporation. In this context, wherever advantageous and possible for the
Corporation and EXELIXIS, research activities and the activities for marketing
the products and technologies of both companies shall be coordinated and
adjusted to each other.

     The Shareholders will work towards the Corporation and EXELIXIS consulting
each other in the cooperative spirit of trust with respect to reaching the
aforementioned objectives. Furthermore they shall both contribute to create a
framework which is' advantageous for a later merger of both companies to be
mutually agreed upon.

                                   ARTICLE 1

                             ARTICLE OF ASSOCIATION

     The parties will [on the day this contract is signed] agree to the Articles
of Association set forth in Exhibit 1. The Articles of Association can only be
amended by a majority vote of 75% of the parties to this Agreement. Thereby the
voting ratios of the contractual parties shall correspond to the amount of their
respective quota in the registered capital.

                                   ARTICLE 2

                                 CAPITALIZATION

     On 08.10.1998 the parties agreed to a capital increase in accordance with
Exhibit 2a and on 08.. i 998 to a capital increase in accordance with Exhibit 2b
and subscribe to the capital contributions to the registered capital
correspondingly.

                                       11
<PAGE>

                                   ARTICLE 3

                               MANAGING DIRECTORS

     The parties agree that, for the duration of this Agreement, Prof. Dr. Peter
Stadler will be named as the sole managing director of the business. Prof. Dr.
Stadler will not be bound by the limitations of (S).181 BGB (German Civil Code).

                                   ARTICLE 4

                           SHAREHOLDER ADVISORY BOARD

     1. The five members of the Shareholder Advisory Board pursuant to (S).I 1
of the Articles of Association shall be constituted as follows: three members
will be appointed by EXELIXIS, one member will be appointed jointly by Prof. Dr.
Stadler, Prof. Dr. Niisslein-Volhard, Prof. Dr. Rajewsky and MPG, and one member
will be appointed by the Investors. As a result of this provision, initially
George A. Scangos, Ph.D., Stelios Papadopoulos, Ph.D., and Dr. med. Jean-
Francois Formela are appointed by EXELIXIS, Prof. Dr. Peter Stadler is appointed
by Prof. Dr. Stadler, Prof. Dr. Niisslein-Volhard, Prof. Dr. Rajewsky and MPG,
and Prof. Dr. Jiirgen Drews is appointed by the Investors as members of the
Shareholder Advisory Board. The parties agree that these members of the
Shareholder Advisory Board shall only be replaced for important reasons by the
parties entitled to appoint the member being replaced.

     2. The parties agree that the measures of the managing director listed in
Exhibit 3 require the approval of the Shareholder Advisory Board.

     3. The parties assume the obligation to vote for the resolutions and
measures listed in Exhibit 4 during shareholders' meetings, if the Shareholder
Advisory Board has decided % on such measures.

                                   ARTICLE 5

                            DURATION OF THE AGREEMENT

     This Agreement is effective for a period of five years. It is established
on the basis that EXELIXIS will establish a committee (the "Committee") the five
members of which must be identical with the members of the Shareholder Advisory
Board set forth in (S). 4 Para. I in its respective composition, and that the
Board of Directors of EXELIXIS requires the approval of the Committee with
regard to the measures listed in Exhibits 3 and 4. If anything regarding the
composition of the Committee existing at EXEL1XIS, or regarding the matters
requiring approval by the Committee is changed, the provisions of this
Shareholders Agreement shall immediately become ineffective without replacement,
unless the parties agree to a conforming provision that is appropriate for the
new -4- situation. The same applies if thc voting quorum for the Committee does
not require at least the presence of 80% of its members or if thc passing of a
resolution by the Committee docs not take place with a majority of thc members
present. In case the Committee quorum was not present at two consecutive
meetings, a lesser quorum is permissible at the following meeting.

                                       12
<PAGE>

                                   ARTICLE 6

                          EXCLUSIVE ADVISORY CONTRACTS

     Prof. Dr. Nusslein-Voihard and Prof. Dr. Rajewsky will place their know-how
exclusively at the disposal of the Company and EXELIXIS with regards to
commercial application and based on advisory contracts still to be negotiated.

                                   ARTICLE 7

                                STOCK-OPTION PLAN

     1. Managing employees shall participate directly in the success of the
Company by means of a stock-option plan. The required' quotas will be sold by
Prof. Dr. Stadler, Prof. Dr. Christiane Nusslein-Volhard and Prof. Dr. Klaus
Rajewsky at nominal value to the beneficiaries of this plan, either directly or
indirectly through a third party. Prof. Dr. Stadler will make up to 7,38 % of
his quota, Prof. Dr. Christiane Nusslein-Volhard will make up to 7,72 % of her
quota and Prof. Dr. Klaus Rajewsky will make up to 7,72 % of his quota available
for this purpose.

     2. In the event of a later merger with Exelixis employees of the Company
shall be treated equally to their respective Exelixis counterparts. He who has
worked for a comparable period of time with a comparable scientific background
in a comparable position, shall receive the same equity interest in the new
company as his Exelixis counterpart.

                                   ARTICLE 8

                               JOINTLY HELD QUOTA

     If a quota is held jointly by several persons, they are obliged to appoint
a joint representative who will exercise their rights from. the quota. As long
as a joint representative has not been appointed, the rights from the quota
shall rest.

                                   ARTICLE 9

                          CHOICE OF LAW / JURISDICTION

     This Agreement is governed by German law.

                                   ARTICLE 10

                            WRITTEN FORM REQUIREMENT

     Changes and supplements to this Agreement require the written form.

                                       13
<PAGE>

                                   ARTICLE 11

                                   ARBITRATION

     For all differences of opinion that arise between the parties with regard
to the effectiveness, interpretation, application and implementation of this
Agreement and of the relevant arbitration agreement, the agreement pursuant to
Exhibit 5 shall apply.

                                   ARTICLE 12

                                  SEVERABILITY

     If provisions of this Agreement or a provision thereof included at some
later time be entirely or partially legally ineffective or unenforceable or
should provisions later lose their legal effectiveness or enforceability, the
validity of the remaining provisions of this Agreement shall not be affected as
a result. The same applies if it becomes apparent that the Agreement contains an
omission. In place of the ineffective or unenforceable provision, or, to fill
such omission, a reasonable provision shall apply which to the extent legally
possible comes as close as possible to what the parties wanted or to the sense
and purpose of the Agreement, if the parties had considered the issue at the
time of conclusion of this Agreement or at a later inclusion of a provision.
This shall also apply if the ineffectiveness of a provision is due to an
explicit measure of performance or time (deadline or appointed time) listed in
the Agreement; in this case a legally permitted measure of performance or time
(deadline or appointed time) that approximates the intent as closely as possible
shall be deemed agreed upon.

                                       14
<PAGE>

                                                            Courtesy Translation

                             ARTICLES OF ASSOCIATION

I.   GENERAL PROVISIONS

     Section 1. Firm, Registered Office and Fiscal Year

          1.   The name of the Corporation shall be Artemis Pharmaceuticals
               GmbH

          2.   The Corporation shall have its registered office in Koln.

          3.   The fiscal year of the Corporation shall be the calendar year.

     Section 2. Purpose of the Corporation

         1. The purpose of the Corporation is the research and development of
new therapies, diagnostic methods, and pharmaceutical products to treat diverse
illnesses through the use of genetic, biochemical and biological means. The
production of pharmaceutical products in each case follows through licensed
pharmaceutical producers. The pharmaceutical products will be stored with the
manufacturer. Distribution shall take place exclusively through the wholesale
pharmaceutical business.

         2. Moreover, the Corporation may be involved in any business suitable
to promote its above purpose. The Corporation may establish other companies and
branch offices and participate in other companies.

     Section 3. Notifications

     Any notifications by the Corporation shall be published in the
Bundesanzeiger exclusively, to the extent that public notifications are required
by law.

II.  REGISTERED CAPITAL AND QUOTAS

     Section 4. Registered Capital

         1. The Corporation's registered capital shall amount to DM 347.500,-
(Deutsche Mark three-hundred-forty-seven-thousand-five-hundred) unless paragraph
2 provides for a different amount.

         2. The registered capital has been increased by resolution as of
27.08.1998 by DM 152,500,- maximum (Deutsche Mark one-hundred-fifty
two-thousand-five-hundred). The final amount of the capital increase will result
from the aggregate amount of the shares subscribed by 01.11.1998.

     Section 5. Jointly held Quotas

     If a quota is held jointly by several persons, they are obliged to appoint
a joint representative who will exercise their rights with respect to the quota.
As long as a joint representative has not been appointed, the rights from the
quota shall rest.

                                       15
<PAGE>

     Section 6. Redeeming Quotas

         1. The redemption of a quota requires a resolution of the shareholders'
meeting and is only permissible with the approval of the affected shareholder.
The approval of the affected shareholder is not required when

             a. bankruptcy or composition proceedings have legally commenced
concerning his assets or when the commencement of bankruptcy proceedings has
been refused due to insufficient assets;

             b. foreclosure has taken place into the quota and the levy of
execution has not been stayed within one month or when the creditor pursues its
realization;

             c. a shareholder raises a legal claim for judicial dissolution or
when a shareholder declares his notice of withdrawal from the Corporation or

             d. another important reason exists.

         2. The redemption shall take place against payment. The payment amount
is determined by the ordinary value of the quota, which shall be determined
according to the fiscal regulations in their respective valid form for the
valuation of quotas, the value of which cannot be derived from sale. The
situation on the last balance sheet date of the Corporation shall be decisive,
however, each of the shareholders may request, at his own cost, an adjustment of
the valuation to and as of the redemption effective date. In case of dispute
upon the request of any shareholder, the value of the quota shall be determined
in a legally binding way by an arbitrator, who must be an auditor, named by the
Chamber of Industry and Commerce in Dusseldorf. Real property and buildings; if
any, shall be valued at their expertly appraised fair market value.

     Section 7. Disposals of Quotas

         1. The transfer of a quota, in whole or in part, and all other
assignments with respect to a quota in the Corporation require the approval of
the Shareholder Advisory Board to be effective. Any transfer of a quota in
contravention of this provision shall be ineffective.

         2. Every shareholder has the right to transfer his quota in its
entirety to an acquiring party who is not a shareholder, insofar as the transfer
proceeds in accordance with the following provisions:

             a. The shareholder who wishes to transfer a quota must first offer
it to the other shareholders by sending written notice via registered mail and
with written notice to the Corporation. The notice must state the price and
other conditions of the transfer. Every shareholder has the right to acquire the
quota in accordance with the stated conditions if he declares his willingness to
acquire within two months of the receipt of the written offer by sending written
notice via registered mail and with written notice to the Corporation.

             b. The right to acquire can only be exercised with respect to the
entire quota offered. If several shareholders exercise the right to acquire, in
the absence of a different understanding between them, the right to acquire
shall be deemed exercised by the shareholders

                                       16
<PAGE>

in the ratio of their quota hitherto, whereby an indivisible maximum amount
falls to the shareholder with the lowest quota. The sale and assignment of the
quota must occur in notarial form within four weeks of the exercise of the right
to acquire.

             c. In case the right to acquire is not exercised or the authorized
transferee fails to contribute to the sale and assignment within the set period,
then the Corporation -4-or a third party named by the Corporation is entitled
to acquire the quota, if the willingness to acquire is declared within one
month. The exercise of the right to acquire or the naming of a third party
requires the approval of the Shareholder Advisory Board.

             d. Should a quota fail to transfer in accordance with !et. (a)
through (c), then the shareholder may within a period of six months transfer the
offered quota to one or more third parties for the given, or for the acquirer
less favorable, conditions. The Shareholder Advisory Board is obligated to
dispense its approval in accordance with para. 1.

III. MANAGING DIRECTORS

     Section 8. Management and Representation

         1. The Corporation shall have one or several managing directors. If
only one managing director has been nominated, he shall be the sole
representative of the Corporation. If several managing directors have been
nominated, the Corporation shall be represented jointly by two managing
directors or by one managing director together with a person granted power of
attorney according to the Commercial Code [Prokurist].

         2. By means of a shareholder resolution,

             a. if there are several managing directors, individuals among them
may be granted , the power of sole representation;

             b. it may be resolved that a managing director may only be
dismissed for important reason;

             c. a managing director may be freed from the provisions of (S).181
BGB (German Civil Code).

         3. The managing directors are only allowed to take part in certain
transactions, as determined by the Shareholder Advisory Board, with the approval
of the Shareholder Advisory Board.

IV. SHAREHOLDERS

     Section 9. Shareholder Resolutions

         1. Shareholder resolutions are passed during shareholders' meeting.
They may also be passed in writing, by telex, by telegram, by telecopy, by
telephone or by video conference if all shareholders agree. Resolutions passed
without a meeting must be documented in writing by the managing directors and
distributed in writing to all shareholders.

                                       17
<PAGE>

         2. Shareholder resolutions are passed with a majority of the votes
cast, unless the law or the Articles of Association require more than a majority
vote.

     Section 10. Shareholders' Meeting

         1. The shareholders' meeting shall be held at the registered office or
another location, as determined by the shareholders.

         2. The managing director shall call the shareholder meeting, announcing
the agenda by registered letter at least two weeks prior notice, not including
the day of dispatch of the invitation and the date of the meeting. In urgent
cases, the managing director may shorten this period.

         3. The shareholders' meeting will elect a chairman from its members.

         4. The shareholders' meeting is capable of rendering resolutions if at
least 75% of the share capital is present. An absent shareholder may be
represented by another shareholder. If a shareholders' meeting does not
constitute a quorum, a second meeting with the same agenda must be convened
within one week, which meeting shall be capable of rendering resolutions
regardless of the amount of registered capital represented; such circumstance
must be pointed out in the invitation.

         5. The regular shareholders' meeting will convene within the first
seven months of the fiscal year. It will pass resolutions regarding the
determination of annual financial statements and the use of profits, formal
approval of the managing directors, as well as the choice of an auditor.

         6. Any resolutions passed during a shareholders' meeting shall be
recorded in the minutes of the meeting. Such minutes shall be signed by the
chairman and sent to the shareholders without delay. Should a resolution be
passed in writing, by telex, by telegram, by telecopy, by telephone or by
video-conference, the chairman or the managing directors shall notify all
shareholders in writing of such resolution.

     Section 11. Shareholder Advisory Board

         1. The Corporation shall have an advisory board ("Shareholder Advisory
Board") comprised of five members.

         2. The members of the Shareholder Advisory Board will be nominated at
the shareholders' meeting for a period of 5 years. Renomination is permitted.
However, their respective terms shall not terminate prior to a new nomination or
renomination.

         3. The Shareholder Advisory Board elects from among its members a
chairman and his representative and may create its own rules of procedure.

         4. The Shareholder Advisory Board passes its resolutions at sessions
that are convened by the chairman upon notice of the agenda, as well as the
inclusion of any relevant written documents, in compliance with a notice period
of 15 days.

                                       18
<PAGE>

         5. The Shareholder Advisory Board is capable of passing resolutions if
all members have been properly invited and 80 % of the members of the
Shareholder Advisory Board are present. An absent member of the Shareholder
Advisory Board may appoint in writing another member of the Shareholder Advisory
Board as a representative. If the Board does not constitute a quorum in two
consecutive meetings, a third meeting with the same agenda must be convened
within one week, which meeting shall be capable of rendering resolutions
regardless of the number of members present; such circumstance must be pointed
out in the notice."

         6. The Shareholder Advisory Board passes resolutions by a majority
vote. If one share- holder has appointed more than one Shareholder Advisory
Board member, then these Shareholder Advisory Board members can only exercise
their votes jointly or abstain from casting their votes jointly. Abstentions
count as votes not cast.

         7. If no member of the Shareholder Advisory Board objects, then a
resolution may be passed in writing, by telex, by telegram, by telecopy, by
telephone or by video-conference.

         8. The Shareholder Advisory Board acts through its chairman or, if he
is prevented from doing so, through a representative.

         9. The provisions of the German Stock Corporation Act (Aktiengesetz)
(hereinafter "AktG") are not applicable with respect to the Shareholder Advisory
Board.

         10. The Shareholder Advisory Board encompasses the following tasks and
authorities:

             a. advising the managing directors;

             b. nominating and dismissing the managing directors as well as
discharging them from their responsibilities;

             c. conclusion, modification, revocation, or termination of
employment contracts with the managing directors;

             d. determining and deciding on transactions which require approval
in accordance with (S).8 para. 3.

V. ANNUAL FINANCIAL STATEMENTS AND USE OF PROFITS

     Section 12. Annual Financial Statements

         1. The managing directors shall prepare the annual financial statements
and the status report for the preceding fiscal year in the first three months of
a fiscal year and submit these for examination to the auditor, insofar as an
examination is legally required or is provided for by means of a Shareholder
Advisory Board resolution.

                                       19
<PAGE>

         2. The managing directors have the obligation to present expediently to
the shareholders the annual financial statements, the status report and any
audit report of the auditor upon their completion, together with their proposal
for a use of the profits.

         3. The shareholders' meeting will decide upon the use of profits with a
majority vote of 75%.

     Section 13. Exchanges of Goods/Services with Shareholders

     Other than pursuant to resolutions regarding the use of profits, the
Corporation may not direct a pecuniary benefit to a shareholder or an enterprise
affiliated with the shareholder in accordance with (S). 15 AktG which has its
origin in the shareholder relationship. The provisions of (S)(S). 57, 62 AktG
shall apply correspondingly.

VI. FINAL PROVISIONS

     Section 14. Arbitration

         1. For all differences of opinion that arise between the parties or
between shareholders and the Corporation with regard to the effectiveness,
interpretation, application and implementation of these Articles of Association
and of this arbitration clause, an arbitration tribunal shall render a decision,
insofar as is legally permitted, without recourse to litigation.

         2. The arbitration `tribunal is comprised of two associate judges and
one chairman. The party that wishes to go to the arbitration tribunal must so
notify the other party, including the concurrent naming of an arbitrator,
through registered mail, and request the other party for their part to name an
arbitrator within a set period of two weeks after receipt of the letter. The two
named arbitrators elect the chairman of the arbitration tribunal, who must be
qualified to be a judge. If the other party does not meet the request deadline
for naming an arbitrator or if the two named arbitrators are unable to agree on
the person who will serve as chairman within two weeks of the naming of the
second arbitrator, then the second arbitrator or the chairman will be elected
upon the request of a party by the president of the Upper State Court
(Oberlandesgerichts) at Dusseldorf.

         3. If for any reason an arbitrator resigns after the formation of the
arbitration tribunal, another arbitrator must be elected in his place; the
corresponding provisions of para. 2 are applicable to the election.

         4. If the side of either the plaintiff or the defendant involves two or
more persons, these persons operate as one party in the sense of the foregoing
provision. They shall decide upon the person to be named as arbitrator by the
party among themselves by means of a simple majority of heads.

         5. As for the remaining procedures of the arbitration tribunal, the
provisions of the 10th book of the German Code of Civil Procedure
(ZivilprozeBordnung) shall be applicable. The arbitration award will only be
documented in writing upon the request of a party. Insofar as the participation
of a regular court is required, the respective Regional Court

                                       20
<PAGE>

(Landgericht) competent for the registered office of the Corporation shall have
exclusively jurisdiction.

         6. In case the arbitration award is repealed by a regular court, the
arbitration agreement is not used up. The parties shall in this case renew their
efforts and convene/another arbitration tribunal put together in accordance with
the above provisions. Those arbitrators who participated in the earlier
procedure are excluded from participating in the new proceeding.

     Section 15. Severability

     If provisions of these Articles of Association or a provision thereof
included at some later time be entirely or partially legally ineffective or
unenforceable or should provisions later lose their legal effectiveness or
enforceability, the validity of the remaining provisions of these Articles of
Association shall not be affected as a result. The same applies if it becomes
apparent that the Articles of Association contain an omission. In place of the
ineffective or unenforceable pro-vision, or, to fill such omission, a reasonable
provision shall apply which to the extent legally possible comes as close as
possible to what-the parties wanted or to the sense and purpose of the Articles
of Association, if the parties had considered the issue at the time of
conclusion of these Articles of Association or at a later inclusion of a
provision. This shall also apply if the in-effectiveness of a provision is due
to an explicit measure of performance or time (deadline or appointed :time)
listed in the Articles of Association; in this case a legally permitted measure
of performance or time (deadline or appointed time) that approximates the intent
as closely as possible shall be deemed agreed upon.

                                       21
<PAGE>

                                                           Courtesy Translation

                             SHAREHOLDERS' AGREEMENT

     between and among the shareholders of Artemis Pharmaceuticals GmbH:

          1.   Prof. Dr. Peter Stadler,

          2.   Prof. Dr. Christiane Nusslein-Volhard,

          3.   Prof. Dr. Klaus Rajewsky,

          4.   EXELIXIS Pharmaceuticals, Inc.,

          5.   FEI Biomedicine Private Equity. Holding AG, Basel

          6.   (a) Atlas Venture Fund II, L.P.

               (b)  Atlas Venture Germany B.V., Netherlands

               (c)  Oxford Bioscience Partners (Bermuda) Limited Partnership,

               (d)  Oxford Bioscience Partners L.P.,

               (e)  Global Life Science Holding V GmbH

               (f)  Adwest Limited Partnership,

               (g)  Advent Partners Limited Partnership,

               (h)  Advent Performance Materials Limited Partnership

               (i)  Rodent II Limited Partnership,

               (j)  Stelios Papadopoulos

               (k)  Biotechvest L.P.,

 . (the parties in 5. - 6. are also referred to as the "Investors") -, and

          7.   Max Planck-Gesellschaft zur Forderung der Wissenschaften, Berlin
               ("MPG").

          (hereinafter jointly referred to as the "Shareholders")

                                       22
<PAGE>

                                    PREAMBLE

     Artemis Pharmaceuticals GmbH (hereinafter referred to as the
"Corporation"), a corporation organized under German Law, is engaged in the
development and/or utilization of biological/genetic, al model systems for
identifying new research methods and/or effective molecules for the
identification of effective therapies and/or medications for the treatment of
various diseases. Zebrafish Danio Rerio and mice play an important role as model
organisms in this respect. The Corporation intends to further its development
and the development of its products by concluding cooperation agreements and
creating strategic alliances with pharmaceutical companies.

     In order to achieve its goals more effectively, the Corporation has agreed
on a strategically oriented cooperation with EXELIXIS Pharmaceuticals, Inc.,
South San Francisco, a corporation organized under the law of the State of
Delaware, USA (hereinafter "EXELIXIS"). EXELIXIS is also utilizing
biological/genetical model systems (fruit flies and nematode worms) for purposes
of active substance research and development.

     Through the Corporation, the Shareholders plan to jointly employ their
technologies, their expertise and their capital for reaching the goals of the
Corporation. In this context, wherever advantageous and possible for the
Corporation and EXELIXIS, research activities and the activities for marketing
the products and technologies of both companies shall be coordinated and
adjusted to each other.

     The Shareholders will work towards the Corporation and EXELIXIS consulting
each other in the cooperative spirit of trust with respect to reaching the
aforementioned objectives. Furthermore they shall both contribute to create a
framework which is advantageous for a later merger of both companies to be
mutually agreed upon.

                                   ARTICLE 1

                             ARTICLES OF ASSOCIATION

     The parties will [on the day this contract is signed] agree to the Articles
of Association set forth in Exhibit 1. The Articles of Association can only be
amended by a majority vote of 75 % of the parties to this Agreement. Thereby the
voting ratios of the contractual parties shall correspond to the amount of their
respective quota in the registered capital.

                                   ARTICLE 2

                                 CAPITALIZATION

     On 08.10.1998 the parties agreed to a capital increase in accordance with
Exhibit 2 a and on 08.27.1998 to a capital increase in accordance with Exhibit 2
b and subscribe to the capital contributions to the registered capital
correspondingly.

                                       23
<PAGE>

                                   ARTICLE 3

                               MANAGING DIRECTORS

     The parties agree that, for the duration of this Agreement, Prof. Dr. Peter
Stadler will be named as the sole managing director of the business. Prof. Dr.
Stadler will not be bound by the limitations ofss.181 BGB (German Civil Code).'

                                   ARTICLE 4

                           SHAREHOLDER ADVISORY BOARD

     1. The five members of the Shareholder Advisory Board pursuant toss.11 of
the Articles of Association shall be constituted as follows: three members will
be appointed by EXELIXIS, one member will be appointed jointly by Prof. Dr.
Stadler, Prof. Dr. Nusslein- Volhard, Prof. Dr. Rajewsky and MPG, and one member
will be appointed by the Investors. As a result of this provision, initially
George A. Scangos, Ph.D., Stelios Papadopoulos, Ph.D., and Dr. med.
Jean-Francois Formela are appointed by EXELIXIS, P/of. Dr. Peter Stadler is
appointed by Prof. Dr. Stadler, Prof. Dr. Nusslein-Volhard, Prof. Dr. Rajewsky
and MPG, and Prof. Dr. Jurgen Drews is appointed by the Investors as members of
the Shareholder Advisory Board. The parties agree that these members of the
Shareholder Advisory Board shall only be replaced for important reasons by the
parties entitled to appoint the member being replaced.

     2. The parties agree that the measures of the managing director listed in
Exhibit 3 require the approval of the Shareholder Advisory Board.

     3. The parties assume the obligation to vote for the resolutions and
measures listed in Exhibit 4 during shareholders' meetings, if the Shareholder
Advisory Board has decided on such measures.

                                   ARTICLE 5

                            DURATION OF THE AGREEMENT

     This Agreement is effective for a period of five years. It is established
on the basis that EXELIXIS will establish a committee (the "Committee") the five
members of which must be identical with the members of the Shareholder Advisory
Board set forth in ss. 4 Para. ! in its respective composition, and that the
Board of Directors of EXELIXIS requires the approval of the Committee with
regard to the measures listed in Exhibits3 and 4. If anything regarding the
composition of the Committee existing at EXELIXIS, or regarding the matters
requiring approval by the Committee is changed, the provisions of this
Shareholders Agreement shall immediately become ineffective without replacement,
unless the parties agree to a conforming provision that is appropriate for the
new situation. The same applies if the voting quorum for the Committee does not
require at least the presence of 80 % of its members or if the passing of a
resolution by the Committee does not take place with a majority of the members
present. In case the Committee quorum was not present at two consecutive
meetings, a lesser quorum is permissible at the following meeting.

                                       24
<PAGE>

                                   ARTICLE 6

                          EXCLUSIVE ADVISORY CONTRACTS

     Prof. Dr. Nusslein-Volhard and Prof. Dr. Rajewsky will place their know-how
exclusively at the disposal of the Company and EXELIXIS with regards to
commercial application and based on advisory contracts still to be negotiated."

                                   ARTICLE 7

                                STOCK-OPTION PLAN

     1. Managing employees shall participate directly in the success of the
Company by means of a stock-option plan. The required quotas will be sold by
Prof. Dr. Stadler, Prof. Dr. Christiane Nusslein-Volhard and Prof. Dr. Klans
Rajewsky at nominal value to the beneficiaries of this plan, either directly or
indirectly through a third party. Prof. Dr. Stadler will make up to 7,38 % of
his quota, Prof. Dr. Christiane Nusslein-Volhard will make up to 7,72 % of her
quota and Prof. Dr. Klaus Rajewsky will make up to 7,72 % of his quota available
for this purpose.

     2. In the event of a later merger with Exelixis employees of the Company
shall be treated equally to their respective Exelixis counterparts. He who has
worked for a comparable period of time with a comparable scientific background
in a comparable position, shall receive the same equity interest in the new
company as his Exelixis counterpart.

                                   ARTICLE 8

                               JOINTLY HELD QUOTA

     If a quota is held jointly by several persons, they are obliged to appoint
a joint representative who will exercise their rights from the quota. As long as
a joint representative has not been appointed, the rights from the quota shall
rest.

                                   ARTICLE 9

                          CHOICE OF LAW / JURISDICTION

     This Agreement is governed by German law.

                                   ARTICLE 10

                            WRITTEN FORM REQUIREMENT

     Changes and supplements to this Agreement require the written form.

                                       25
<PAGE>

                                   ARTICLE 11

                                   ARBITRATION

     For all differences of opinion that arise between the parties with regard
to the effectiveness, interpretation, application and implementation of this
Agreement and of the relevant arbitration agreement, the agreement pursuant to
Exhibit S shall apply.

                                   ARTICLE 12

                                  SEVERABILITY

     If provisions of this Agreement or a provision thereof included at some
later time be entirely or partially legally ineffective or unenforceable or
should provisions later lose their legal effectiveness or enforceability, the
validity of the remaining provisions of this Agreement shall not be affected as
a result. The same applies if it becomes apparent that the Agreement contains an
omission. In place of the ineffective or unenforceable provision, or, to fill
such omission, a reasonable provision shall apply which to the extent legally
possible comes as close as possible to what the parties wanted or to the sense
and purpose of the Agreement, if the parties had considered the issue at the
time of conclusion of this Agreement or at a later inclusion of a provision.
This shall also apply if the ineffectiveness or a provision is due to an
explicit measure of performance or time (deadline or appointed time) listed in
the Agreement; in this case a legally permitted measure of performance or time
(deadline or appointed time) that approximates the intent as closely as possible
shall be deemed agreed upon.

                                       26
<PAGE>

                             SIGNATURE PAGE FOR
                        ARTEMIS PHARMACEUTICALS GmbH
                           SHAREHOLDERS' AGREEMENT

     The undersigned, subject to acceptance by the Company, hereby agrees to all
of the terms of said agreement and agrees to be bound by the terms and
provisions thereof.

Date:______________
                                       (Individual Signature)

                                       ---------------------------------------
                                       Printed Name (First, Middle, Last)

                                       ---------------------------------------
                                       (Signature)

                                       (Corporation or Other Entity Signature)

                                       ---------------------------------------
                                       Name of Entity (Print)

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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00001-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00001-of-00352.parquet"}]]