10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
R	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Fiscal Year Ended December 31, 2013

or

£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Transition Period from _____________ to _____________

Commission File Number:  000-30111

Lexicon Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	76-0474169
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

8800 Technology Forest Place The Woodlands, Texas 77381 (Address of Principal Executive Offices and Zip Code) (281) 863-3000 (Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on which Registered
Common Stock, par value $0.001 per share	Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.  Yes o  No R

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.   Yes o  No R

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes R No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes R No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  R

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.  (check one):  Large accelerated filer o   Accelerated filer  R Non-accelerated filer o   Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).   Yes o No R

The aggregate market value of voting stock held by non-affiliates of the registrant as of the last day of the registrant’s most recently completed second quarter was approximately $493.4 million, based on the closing price of the common stock on the Nasdaq Global Select Market on June 28, 2013 of $2.17 per share.  For purposes of the preceding sentence only, our directors, executive officers and controlling stockholders are assumed to be affiliates.  As of February 27, 2014, 513,790,361 shares of common stock were outstanding.

Documents Incorporated by Reference

Certain sections of the registrant’s definitive proxy statement relating to the registrant’s 2014 annual meeting of stockholders, which proxy statement will be filed under the Securities Exchange Act of 1934 within 120 days of the end of the registrant’s fiscal year ended December 31, 2013, are incorporated by reference into Part III of this annual report on Form 10-K.

Lexicon Pharmaceuticals, Inc.

Table of Contents

Item
PART I
1	Business	1
1A.	Risk Factors	11
1B.	Unresolved Staff Comments	23
2	Properties	23
3	Legal Proceedings	23
4	Mine Safety Disclosures	23
PART II
5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
6	Selected Financial Data	26
7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
7A.	Quantitative and Qualitative Disclosures About Market Risk	36
8	Financial Statements and Supplementary Data	36
9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	36
9A.	Controls and Procedures	36
9B.	Other Information	37
PART III
10	Directors, Executive Officers and Corporate Governance	38
11	Executive Compensation	38
12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	38
13	Certain Relationships and Related Transactions, and Director Independence	38
14	Principal Accounting Fees and Services	38
PART IV
15	Exhibits and Financial Statement Schedules	39
Signatures		42

The Lexicon name and logo are registered trademarks and Genome5000^™ is a trademark of Lexicon Pharmaceuticals, Inc.

 _____________________________________________________

In this annual report on Form 10-K, “Lexicon Pharmaceuticals,” “Lexicon,” “we,” “us” and “our” refer to Lexicon Pharmaceuticals, Inc. and its subsidiaries.

  _____________________________________________________

This annual report on Form 10-K contains forward-looking statements.  These statements relate to future events or our future financial performance.  We have attempted to identify forward-looking statements by terminology including “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Item 1A.  Risk Factors,” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are not under any duty to update any of the forward-looking statements after the date of this annual report on Form 10-K to conform these statements to actual results, unless required by law.

PART I

Item 1. Business

Overview

Lexicon Pharmaceuticals is a biopharmaceutical company focused on the development of breakthrough treatments for human disease.  We have advanced multiple drug candidates into clinical development. We are presently devoting most of our resources to the development of our two most advanced drug candidates.

• We are developing LX4211, an orally-delivered small molecule drug candidate, as a treatment for type 1 and type 2 diabetes. We have completed two Phase 2 clinical trials of LX4211 in type 2 diabetes patients and an additional clinical trial of LX4211 in type 2 diabetes patients with renal impairment. We are presently preparing for the initiation of pivotal Phase 3 clinical trials of LX4211 in type 2 diabetes patients. We are also presently completing a Phase 2 clinical trial of LX4211 in type 1 diabetes patients.

• We are developing telotristat etiprate, or LX1032, an orally-delivered small molecule drug candidate, as a treatment for carcinoid syndrome. We have completed two Phase 2 clinical trials and are presently conducting a pivotal Phase 3 clinical trial of telotristat etiprate in carcinoid syndrome patients.

Our most advanced drug candidates, as well as compounds from a number of additional drug discovery and development programs that we have advanced into various stages of clinical and preclinical development, originated from our own internal drug discovery efforts. These efforts were driven by a systematic, target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets. We identified and validated in living animals, or in vivo, more than 100 targets with promising profiles for drug discovery.

We are working both independently and through strategic collaborations and alliances with third parties to capitalize on our drug target discoveries, and we intend to pursue the same strategy for our drug candidates in clinical development.  Consistent with this approach, we seek to retain exclusive rights to the benefits of certain drug discovery and development programs by developing and commercializing drug candidates from those programs internally and to collaborate with other pharmaceutical and biotechnology companies with respect to the development and commercialization of drug candidates from other programs, particularly when the collaboration may provide us with access to expertise and resources that we do not possess internally or are complementary to our own. We also seek to collaborate with other pharmaceutical and biotechnology companies, research institutes and academic institutions to capitalize on our drug target discoveries.

Lexicon Pharmaceuticals was incorporated in Delaware in July 1995, and commenced operations in September 1995.  Our corporate headquarters are located at 8800 Technology Forest Place, The Woodlands, Texas 77381, and our telephone number is (281) 863-3000.

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are made available free of charge on our corporate website located at www.lexpharma.com as soon as reasonably practicable after the filing of those reports with the Securities and Exchange Commission.  Information found on our website should not be considered part of this annual report on Form 10-K.

Our Drug Development Programs

We have advanced multiple drug candidates into clinical development. We are presently devoting most of our resources to the development of our two most advanced drug candidates, LX4211 for type 1 and type 2 diabetes and telotristat etiprate for carcinoid syndrome. We have also advanced a number of additional compounds into various stages of clinical and preclinical development.

LX4211

LX4211 is an orally-delivered small molecule compound that we are developing for the treatment of type 1 and type 2 diabetes mellitus. LX4211 was internally generated by our medicinal chemists and inhibits both sodium-glucose cotransporter

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type 2, or SGLT2, a transporter responsible for most of the glucose reabsorption performed by the kidney, and sodium-glucose cotransporter type 1, or SGLT1, a transporter responsible for glucose and galactose absorption in the gastrointestinal tract, and to a lesser extent than SGLT2, glucose reabsorption in the kidney. Our scientists identified mice lacking SGLT1, SGLT2 or both as having potent anti-diabetic phenotypes across multiple measures of glucose control and metabolism, and found that compounds inhibiting both targets had a favorable preclinical profile relative to compounds selective for SGLT2.

Type 2 Diabetes. We reported top-line data in June 2012 from a Phase 2b clinical trial evaluating the safety and tolerability of LX4211 and its effects on glycemic parameters associated with type 2 diabetes. The Phase 2b trial enrolled 299 patients with type 2 diabetes who were not adequately controlled on metformin monotherapy in a double-blind, randomized, placebo-controlled study of 75mg once daily, 200mg once daily, 200mg twice daily and 400mg once daily doses of LX4211, each administered in combination with standard metformin therapy over a 12‑week treatment period. The primary efficacy endpoint under evaluation in the trial was the change in hemoglobin A1c, or HbA1c, from baseline to week 12. Secondary efficacy endpoints included percentage of patients achieving HbA1c levels of less than 7%, as well as changes in fasting plasma glucose levels, weight, blood pressure and triglyceride levels. Top-line data from the study showed that treatment with LX4211 demonstrated statistically significant benefits in the primary and multiple secondary endpoints. Patients in each of the 75mg once daily, 200mg once daily, 200mg twice daily and 400mg once daily LX4211 treatment arms had mean HbA1c reductions from baseline of 0.43, 0.52, 0.79 and 0.95 percent, respectively (p<0.001 for all treatment arms), while in patients randomized to placebo, HbA1C decreased by 0.09 percent. We also observed that patients treated with LX4211 showed significant reductions in body weight and blood pressure. LX4211 was well tolerated and adverse events were generally mild to moderate, with the overall incidence of adverse events with LX4211 being similar to placebo.

We reported top-line data in October 2013 from a clinical trial evaluating the safety and tolerability of LX4211 and its effects on glycemic parameters associated with type 2 diabetes in patients with moderate renal impairment. The clinical trial enrolled 30 patients with type 2 diabetes and moderate to severe renal impairment in a randomized, double-blind, placebo-controlled study of a 400mg once daily dose of LX4211 over a seven-day treatment period. The primary efficacy endpoint under evaluation in the trial was the change in postprandial glucose from baseline to day seven, with secondary endpoints including a variety of glycemic control parameters. Top-line data from the study showed that treatment with LX4211 provided clinically meaningful and statistically significant reductions (p<0.05) in post-prandial glucose and produced significant elevations in GLP-1, a hormone involved in control of glucose and appetite. LX4211 was well tolerated and adverse events were generally mild to moderate, with the overall incidence of adverse events with LX4211 being similar to placebo.

We previously completed a Phase 2a clinical trial in type 2 diabetes patients, in which LX4211 provided improvements in glycemic control, demonstrated statistically significant benefits in the primary and multiple secondary efficacy endpoints and demonstrated a favorable safety profile.

We are presently preparing for the initiation of pivotal Phase 3 clinical trials of LX4211 in type 2 diabetes patients and intend to seek a collaboration partner for such development activities.

Type 1 Diabetes. We completed enrollment of a Phase 2 clinical trial in December 2013 to evaluate the safety and tolerability of LX4211 and its effects on glycemic parameters associated with type 1 diabetes. The clinical trial enrolled 36 patients with type 1 diabetes in a randomized, double-blind, placebo-controlled study of a 400mg once daily dose of LX4211 over a four-week treatment period. The primary efficacy endpoint under evaluation in the trial is reduction in meal-time, or bolus, insulin use, with secondary endpoints including basal and total insulin use and a variety of glycemic control parameters.

Telotristat etiprate (LX1032)

Telotristat etiprate, or LX1032, is an orally-delivered small molecule compound that we are developing for the treatment of carcinoid syndrome. Telotristat etiprate was internally generated by our medicinal chemists and inhibits tryptophan hydroxylase, or TPH, the rate-limiting enzyme for serotonin production found primarily in enterochromaffin, or EC, cells of the gastrointestinal tract. Our scientists found that mice lacking the non-neuronal form of this enzyme, TPH1, have virtually no serotonin in the gastrointestinal tract, but maintain normal levels of serotonin in the brain. Telotristat etiprate was specifically designed to achieve enhanced systemic exposure to address disorders such as carcinoid syndrome that require regulation of serotonin levels beyond the EC cells in the gastrointestinal tract without impacting brain serotonin production.

Carcinoid Syndrome. We initiated a single, pivotal Phase 3 clinical trial of telotritat etiprate in October 2012 evaluating the safety and tolerability of telotristat etiprate and its effect on symptoms associated with carcinoid syndrome. The trial is expected to enroll approximately 120 patients with inadequately controlled carcinoid syndrome on background somatostatin analog therapy (including at least 105 patients on octreotide therapy) in a randomized, double-blind, placebo-controlled study of 250mg three times daily and 500mg three times daily doses of telotristat etiprate over a 12-week treatment

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period, followed by a 36-week, open-label extension where all patients will receive 500mg three times daily doses of telotristat etiprate. The primary efficacy endpoint under evaluation in the trial is the number of daily bowel movements, with secondary efficacy endpoints including stool form, a global assessment of symptoms associated with carcinoid syndrome and other factors. The Phase 3 program of telotristat etiprate also includes an additional companion study in carcinoid syndrome patients who do not meet certain of the inclusion criteria for the pivotal Phase 3 clinical trial.

We reported top-line data in October 2012 from an open-label Phase 2 clinical trial evaluating the safety and tolerability of telotristat etiprate and its effects on symptoms associated with carcinoid syndrome. The trial enrolled 15 patients with metastatic carcinoid syndrome who were refractory to or could not tolerate somatostatin analog therapy in an open-label study of ascending doses of 150mg, 250mg, 350mg and 500mg of telotristat etiprate, administered three times daily, for 14 days on each dose until reaching the maximal dose, which was then continued until the completion of 12 weeks of therapy. The primary efficacy endpoint under evaluation in the trial was the reduction of bowel movements from baseline to week 12, with secondary endpoints including relief of symptoms and reduction in serotonin synthesis. Top-line data from the study showed that patients experienced a 46.4% median reduction from baseline at week 12, with the number of daily bowel movements steadily decreasing over time. All observed changes from baseline were statistically significant at p<0.001. This change corresponded with an increased proportion of patients reporting adequate relief of their carcinoid symptoms, a global assessment which also improved over time, with 75% of the patients with data at week 12 reporting improvement. Clinically relevant decreases from baseline were likewise seen for a number of key secondary endpoints, including statistically significant improvements in stool consistency (p<0.001) and trends of reductions which did not achieve statistical significance in abdominal pain and the number of cutaneous flushing episodes. The median percentage reductions from baseline of urinary 5-HIAA, a biomarker of serotonin synthesis, at weeks 8 and 12 were 68.3% and 72.7%, respectively (each, p<0.05). Telotristat etiprate was well tolerated in the study, with no dose-limiting toxicity observed. Three patients reported serious adverse events, none of which were related to telotristat etiprate, and no patient discontinued from the study due to an adverse event.

We reported top-line data in August 2011 from a Phase 2 clinical trial evaluating the safety and tolerability of telotristat etiprate and its effects on symptoms associated with carcinoid syndrome. The trial enrolled 23 patients with symptomatic carcinoid syndrome who were refractory to octreotride therapy in a double-blind, randomized, placebo-controlled study of 150mg, 250mg, 350mg and 500mg doses of telotristat etiprate, each administered three times daily over a 28-day treatment period in combination with octreotide therapy. The efficacy endpoints under evaluation in the trial included the number of daily bowel movements, stool form, urgency, a global assessment of symptoms associated with carcinoid syndrome, flushing episodes and an assessment of pain and discomfort. Top-line data from the trial showed evidence of efficacy across multiple endpoints, including improvements in bowel movement frequency, decreased levels of urinary 5-HIAA, the primary metabolite of serotonin and a biomarker for serotonin production, and improvements in the assessment of pain and discomfort. Telotristat etiprate demonstrated a favorable safety profile in the trial, with no dose-limiting toxicity observed.  Adverse events were generally mild to moderate and similarly distributed across all groups, including the placebo group.

Telotristat etiprate has received Fast Track status and Orphan Drug designation from the United States Food and Drug Administration, or FDA, for the treatment of gastrointestinal symptoms associated with carcinoid syndrome in patients who no longer respond to standard care. Telotristat etiprate has also received Orphan Drug designation from the Committee for Orphan Medical Products of the European Medicines Agency for the treatment of carcinoid tumors.

Ulcerative Colitis. We reported top-line data in October 2013 from a Phase 2 clinical trial evaluating the safety and tolerability of telotristat etiprate and its effect on symptoms associated with ulcerative colitis. The clinical trial enrolled 59 patients with mild to moderate ulcerative colitis who were also taking mesalamine, a standard therapy, in a randomized, double-blind, placebo-controlled study of 500mg once daily and 500mg three times daily doses of telotristat etiprate over an eight-week treatment period. The primary efficacy endpoint under evaluation in the trial was the safety and tolerability of telotristat etiprate in patients with mild to moderate ulcerative colitis, with secondary endpoints including the change from baseline in patients' modified MAYO scores and other efficacy measures. Top-line data from the study did not show statistically significant improvements in modified MAYO scores or other efficacy measures relative to placebo. Telotristat etiprate was well tolerated, with adverse events and discontinuations evenly distributed between telotristat etriprate and placebo and no serious adverse events attributed to telotristat etiprate.

Other Clinical and Preclinical Development Programs

LX1033. LX1033 is an orally-delivered small molecule compound that is in development for the treatment of irritable bowel syndrome. LX1033 was internally generated by our medicinal chemists as an inhibitor of TPH, the same target as telotristat etiprate, but LX1033 is chemically distinct and was designed to reduce production of serotonin locally in the gastrointestinal tract without affecting serotonin synthesis elsewhere in the body.

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We reported top-line data in December 2013 from a Phase 2 clinical trial evaluating the safety and tolerability of LX1033 and its effect on symptoms associated with irritable bowel syndrome. The clinical trial enrolled 373 patients suffering from diarrhea-predominant irritable bowel syndrome in a randomized, double-blind, placebo-controlled study of 500mg twice daily, 500mg three times daily and 1,000mg twice daily doses of LX1033 over a four-week treatment period.  The primary efficacy endpoint under evaluation in the trial was stool consistency, with secondary efficacy endpoints including a global assessment of adequate relief and symptom severity evaluation (bloating, urgency and pain). Top-line data from the study showed that all treatment groups, including placebo, showed significant improvements in stool consistency over time, but such improvements in patients treated with LX1033 were not statistically significant relative to those treated with placebo. LX1033 reduced the production of plasma 5-HIAA, a biomarker for serotonin synthesis, significantly more than placebo, with the greatest reductions observed in the 500mg three times daily dose group. LX1033 was well tolerated and adverse events were evenly distributed among all LX1033 and placebo treatment groups.

We are presently conducting additional analyses in order to best understand the clinical significance of the Phase 2 clinical trial results.

LX2931. LX2931 is an orally-delivered small molecule compound that is in development for the treatment of autoimmune disease. LX2931 was internally generated by our medicinal chemists to target sphingosine-1-phosphate lyase, or S1P lyase, an enzyme in the sphingosine-1 phosphate (S1P) pathway associated with the activity of lymphocytes. Lymphocytes are a cellular component and key driver of the immune system, and are involved in a number of autoimmune and inflammatory disorders. Our scientists discovered that mice lacking this enzyme have increased retention of immune cells in the thymus and spleen with a corresponding reduction in the deployment of T-cells and B-cells into the circulating blood.

We previously completed a Phase 2 clinical trial in rheumatoid arthritis patients who were also taking methotrexate, a standard therapy, in which patients treated with 150mg of LX2931 once daily showed an improvement in the primary efficacy endpoint which did not achieve statistical significance. Patients treated with 70mg and 110mg of LX2931 once daily did not indicate improvement relative to placebo. LX2931 was well tolerated, with no notable differences in adverse events observed between placebo and any of the treatment groups.

We are presently conducting preclinical research in collaboration with CureDuchenne to evaluate the potential utility of LX2931 for the treatment of Duchenne muscular dystrophy.

LX7101. LX7101 is a topically-delivered small molecule compound that is under evaluation as a potential treatment for glaucoma. LX7101 was internally generated by our medicinal chemists to target LIMK2, a kinase associated with the regulation of intraocular pressure, and is designed to lower intraocular pressure by enhancing the fluid outflow facility of the eye. Our scientists discovered that mice lacking LIMK2 exhibited lower intraocular pressure compared to normal mice. We previously completed a Phase 1 clinical trial evaluating the safety, tolerability and pharmacokinetics of LX7101 in glaucoma patients, as well as intraocular pressure.

Preclinical Development Programs. We have advanced small molecule compounds from a number of additional drug programs into various stages of preclinical development, including LX2761, an orally-delivered small molecule compound for the treatment of diabetes that is designed to inhibit SGLT1 locally in the gastrointestinal tract without any significant inhibition of SGLT2 in the kidney.

Drug Target Discoveries

Our most advanced drug candidates, as well as compounds from a number of additional drug discovery and development programs that we have advanced into various stages of clinical and preclinical development, originated from our own internal drug discovery efforts. These efforts were driven by a systematic, target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets. We identified and validated in living animals, or in vivo, more than 100 targets with promising profiles for drug discovery.

Our Commercialization Strategy

We are working both independently and through strategic collaborations and alliances with third parties to capitalize on our drug target discoveries, and we intend to pursue the same strategy for our drug candidates in clinical development. Consistent with this approach, we seek to retain exclusive rights to the benefits of certain drug discovery and development programs by developing and commercializing drug candidates from those programs internally and to collaborate with other

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pharmaceutical and biotechnology companies with respect to the development and commercialization of drug candidates from other programs, particularly when the collaboration may provide us with access to expertise and resources that we do not possess internally or are complementary to our own. We also seek to collaborate with other pharmaceutical and biotechnology companies, research institutes and academic institutions to capitalize on our drug target discoveries.

Drug Discovery and Development Collaborations

Bristol-Myers Squibb.  We established a drug discovery alliance with Bristol-Myers Squibb Company in December 2003 to discover, develop and commercialize small molecule drugs in the neuroscience field.  Bristol-Myers Squibb extended the target discovery term of the alliance in May 2006.  We initiated the alliance with a number of neuroscience drug discovery programs at various stages of development and used our gene knockout technologies to identify additional drug targets with promise in the neuroscience field.  For those targets that were selected for the alliance, we and Bristol-Myers Squibb are working together, on an exclusive basis, to identify, characterize and carry out the preclinical development of small molecule drugs, and share equally both in the costs and in the work attributable to those efforts.  As drugs resulting from the alliance enter clinical trials, Bristol-Myers Squibb will have the first option to assume full responsibility for clinical development and commercialization.

We received $86 million in upfront payments and research funding under the agreement during the target discovery portion of the alliance, which expired in October 2009.  In addition, we are entitled to receive clinical and regulatory milestone payments ranging, depending on the timing and extent of our efforts in the alliance, up to $76 million for each drug developed by Bristol-Myers Squibb under the alliance.  We will also earn royalties on sales of drugs commercialized by Bristol-Myers Squibb under the alliance.

Genentech.  We established a drug discovery alliance with Genentech, Inc. in December 2002 to discover novel therapeutic proteins and antibody targets.  We and Genentech expanded the alliance in November 2005 for the advanced research, development and commercialization of new biotherapeutic drugs.  Under the original alliance agreement, we used our target validation technologies to discover the functions of secreted proteins and potential antibody targets identified through Genentech’s internal drug discovery research.  In the expanded alliance, we conducted additional, advanced research on a broad subset of those proteins and targets.  We have exclusive rights to develop and commercialize biotherapeutic drugs for two of these targets, while Genentech has exclusive rights to develop and commercialize biotherapeutic drugs for the other targets.  We retain certain other rights to discoveries made in the alliance, including non-exclusive rights, along with Genentech, for the development and commercialization of small molecule drugs addressing the targets included in the alliance.

We received $58 million in upfront payments, research funding and research milestone payments under the agreement during the research collaboration term, which expired in November 2008.  In addition, we are entitled to receive clinical and regulatory milestone payments ranging, depending on the extent of our efforts in the alliance, up to $25 million for each drug target for which Genentech develops a biotherapeutic drug under the alliance.  We will also earn royalties on sales of biotherapeutic drugs commercialized by Genentech under the alliance.  Genentech is entitled to receive milestone payments and royalties on sales of biotherapeutic drugs which we develop or commercialize under the alliance.

Takeda.  We established a drug discovery alliance with Takeda Pharmaceutical Company Limited in July 2004 to discover new drugs for the treatment of high blood pressure.  In the collaboration, we used our gene knockout technologies to identify drug targets that control blood pressure.  Takeda is responsible for the screening, medicinal chemistry, preclinical and clinical development and commercialization of drugs directed against targets selected for the alliance, and bears all related costs.

We received $18.5 million in upfront payments and research milestone payments under the agreement during the target discovery portion of the alliance, which expired in July 2007.  In addition, we are entitled to receive clinical development and product launch milestone payments of up to $29 million for each drug developed by Takeda under the alliance.  We will also earn royalties on sales of drugs commercialized by Takeda under the alliance.

Other Collaborations

We have established collaborations with a number of pharmaceutical and biotechnology companies, research institutes and academic institutions under which we have received fees in exchange for generating knockout mice for genes requested by the collaborator, providing phenotypic data with respect to such knockout mice or otherwise granting access to some of our technologies and discoveries.  In some cases, we remain eligible to receive milestone or royalty payments on the sale of mice and phenotypic data or on products that our collaborators discover or develop using our technology.

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Our Executive Officers

Our executive officers and their ages and positions are listed below.

Name	Age	Position with the Company
Arthur T. Sands, M.D., Ph.D.	52	President and Chief Executive Officer and Director
Pablo Lapuerta, M.D.	50	Executive Vice President, Clinical Development and Chief Medical Officer
Alan J. Main, Ph.D.	60	Executive Vice President of Pharmaceutical Research
Jeffrey L. Wade, J.D.	49	Executive Vice President, Corporate Development and Chief Financial Officer
Brian P. Zambrowicz, Ph.D.	51	Executive Vice President and Chief Scientific Officer
James F. Tessmer	54	Vice President, Finance and Accounting

Arthur T. Sands, M.D., Ph.D. co-founded our company and has been our president and chief executive officer and a director since September 1995. At Lexicon, Dr. Sands pioneered the development of large-scale gene knockout technology for use in drug discovery.  Before founding our company, Dr. Sands served as an American Cancer Society postdoctoral fellow in the Department of Human and Molecular Genetics at Baylor College of Medicine.  Dr. Sands received his B.A. in economics and political science from Yale University and his M.D. and Ph.D. from Baylor College of Medicine.

Pablo Lapuerta, M.D. has been our executive vice president, clinical development and chief medical officer since February 2013 and previously served as our senior vice president, clinical development and chief medical officer from 2011 until February 2013. From 2009 through 2010, Dr. Lapuerta served as vice president at Bristol-Myers Squibb Company with responsibility for global development of an Alzheimer's disease drug candidate. From 2007 through 2009, Dr. Lapuerta was senior vice president, clinical strategy and chief medical officer of Cogentus Pharmaceuticals, Inc. and prior to that served in a variety of clinical development leadership roles at Bristol-Myers Squibb, where he worked for 11 years before joining Cogentus. He holds a B.A. in biology from Harvard College and an M.D. from Harvard Medical School.

Alan J. Main, Ph.D. has been our executive vice president of pharmaceutical research since February 2007 and served as our senior vice president, Lexicon Pharmaceuticals from 2001 until February 2007.  Dr. Main was president and chief executive officer of Coelacanth Corporation, a leader in using proprietary chemistry technologies to rapidly discover new chemical entities for drug development, from 2000 until our acquisition of Coelacanth in 2001.  Dr. Main was formerly senior vice president, U.S. Research at Novartis Pharmaceuticals Corporation, where he worked for 20 years before joining Coelacanth.  Dr. Main holds a B.S. from the University of Aberdeen, Scotland and a Ph.D. in organic chemistry from the University of Liverpool, England and completed postdoctoral studies at the Woodward Research Institute.

Jeffrey L. Wade, J.D. has been our executive vice president, corporate development and chief financial officer since May 2010. Mr. Wade served as our executive vice president and general counsel from 2000 until May 2010 and was our senior vice president and chief financial officer from 1999 to 2000.  From 1988 through 1998, Mr. Wade was a corporate securities and finance attorney with the law firm of Andrews & Kurth L.L.P., for the last two years as a partner, where he represented companies in the biotechnology, information technology and energy industries.  Mr. Wade is a member of the board of directors of the Texas Healthcare and Bioscience Institute.  He received his B.A. and J.D. from the University of Texas.

Brian P. Zambrowicz, Ph.D. co-founded our company and has been our executive vice president and chief scientific officer since February 2007.  Dr. Zambrowicz served as our executive vice president of research from 2002 until February 2007, and previously in a series of leadership positions since co-founding our company.  From 1993 to 1996, Dr. Zambrowicz served as a National Institutes of Health postdoctoral fellow at the Fred Hutchinson Cancer Center in Seattle, Washington, where he studied gene trapping and gene targeting technology.  Dr. Zambrowicz received his B.S. in biochemistry from the University of Wisconsin.  He received his Ph.D. from the University of Washington, where he studied tissue-specific gene regulation using transgenic mice.

James F. Tessmer has been our vice president, finance and accounting since November 2007 and previously served as our senior director of finance from 2004 to November 2007 and director of finance from 2001 to 2004.  From January 1997 to 2001, Mr. Tessmer was assistant controller for Mariner Health Network, Inc. and prior to that served in a variety of financial and accounting management positions for HWC Distribution Corp. and American General Corporation.  Mr. Tessmer is a certified public accountant and received his B.B.A. from the University of Wisconsin – Milwaukee and his M.B.A. from the University of Houston.

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Patents and Proprietary Rights

We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that those rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. Accordingly, patents and other proprietary rights are an essential element of our business.  We own patent applications, and in some cases issued patents, covering each of our drug candidates in clinical development, including:

• worldwide patent applications that claim LX4211 and associated crystalline forms, pharmaceutical compositions, and methods of manufacture and use, from which patents have granted in multiple jurisdictions, including four in the United States;

• worldwide patent applications that claim telotristat etiprate, or LX1032, and associated crystalline forms, pharmaceutical compositions, and methods of manufacture and use, from which patents have granted in multiple jurisdictions, including ten in the United States;

• worldwide patent applications that claim LX1033 and associated crystalline forms, pharmaceutical compositions, and methods of manufacture and use, from which patents have granted in multiple jurisdictions, including ten in the United States;

• worldwide patent applications that claim LX2931 and associated crystalline forms, pharmaceutical compositions, and methods of manufacture and use, from which patents have granted in multiple jurisdictions, including five in the United States; and

• worldwide patent applications that claim LX7101 and associated crystalline forms, pharmaceutical compositions, and methods of manufacture and use, from which patents have granted in multiple jurisdictions, including two in the United States.

Additionally, we hold rights to a number of patents and patent applications under license agreements with third parties.  Many of these licenses are nonexclusive, although some are exclusive in specified fields.  Most of the licenses have terms that extend for the life of the licensed patents.

Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country.  We have filed patent applications and hold issued patents covering each of our drug candidates in clinical development.  No United States patent that has issued or may issue based on a patent application we have filed relating to one of our drug candidates in clinical development has a normal expiration date earlier than 2026.

All of our employees, consultants and advisors are required to execute a proprietary information agreement upon the commencement of employment or consultation. In general, the agreement provides that all inventions conceived by the employee or consultant, and all confidential information developed or made known to the individual during the term of the agreement, shall be our exclusive property and shall be kept confidential, with disclosure to third parties allowed only in specified circumstances. We cannot assure you, however, that these agreements will provide useful protection of our proprietary information in the event of unauthorized use or disclosure of such information.

Our patent and intellectual property rights are subject to certain rights and uncertainties. See “Risks Related to Our Intellectual Property” under “Item 1A. Risk Factors.”

Competition

The biotechnology and pharmaceutical industries are highly competitive and characterized by rapid technological change.  We face significant competition in each of the aspects of our business from other pharmaceutical and biotechnology companies. Many of our competitors have substantially greater research and development capabilities and financial, scientific, marketing and human resources than we do.  As a result, our competitors may succeed in developing products earlier than we do, obtaining approvals from the FDA or other regulatory agencies for those products more rapidly than we do, or developing products that are more effective than those we propose to develop.  Similarly, our collaborators face similar competition from other competitors who may succeed in developing products more quickly, or developing products that are more effective, than those developed by our collaborators.  Any products that we may develop or discover are likely to be in highly competitive markets.

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The competition for our drug candidates includes both marketed products and drug candidates that are being developed by others, including drug candidates that are currently in a more advanced stage of clinical development than are our own drug candidates.  These competitive marketed products and drug candidates include compounds that employ different mechanisms of action in addressing diseases and conditions for which we are developing our own drug candidates and, in some cases such as LX4211, that employ the same or similar mechanisms of action.

We believe that our ability to successfully compete with these potentially competitive drug candidates and other competitive products currently on the market will depend on, among other things:

• the efficacy, safety and reliability of our drug candidates;

• our ability, and the ability of our collaborators, to complete preclinical testing and clinical development and obtain regulatory approvals for our drug candidates;

• the timing and scope of regulatory approvals for our drug candidates;

• our ability, and the ability of our collaborators, to obtain product acceptance by physicians and other health care providers and reimbursement for product use in approved indications;

• our ability, and the ability of our collaborators, to manufacture and sell commercial quantities of our products;

• the skills of our employees and our ability to recruit and retain skilled employees;

• protection of our intellectual property; and

• the availability of substantial capital resources to fund development and commercialization activities.

Government Regulation

Regulation of Pharmaceutical Products

The development, manufacture and sale of any drug or biologic products developed by us or our collaborators will be subject to extensive regulation by United States and foreign governmental authorities, including federal, state and local authorities.  In the United States, new drugs are subject to regulation under the Federal Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or the FDC Act, and biologic products are subject to regulation both under certain provisions of the FDC Act and under the Public Health Services Act and the regulations promulgated thereunder, or the PHS Act.  The FDA regulates, among other things, the development, preclinical and clinical testing, manufacture, safety, efficacy, record keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution and export of small molecule and biotherapeutic drugs.

The standard process required by the FDA before a drug candidate may be marketed in the United States includes:

• preclinical laboratory and animal tests performed under the FDA’s current Good Laboratory Practices regulations;

• submission to the FDA of an Investigational New Drug application, or IND, which must become effective before human clinical trials may commence;

• adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug candidate for its intended use;

• for drug candidates regulated as small molecule drugs, submission of a New Drug Application, or NDA, and, for drug candidates regulated as biotherapeutic drugs, submission of a Biologic License Application, or BLA, with the FDA; and

• FDA approval of the NDA or BLA prior to any commercial sale or shipment of the product.

     This process for the testing and approval of drug candidates requires substantial time, effort and financial resources.  Preclinical development of a drug candidate can take from one to several years to complete, with no guarantee that an IND based on those studies will become effective to even permit clinical testing to begin.  Before commencing the first

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clinical trial of a drug candidate in the United States, we must submit an IND to the FDA.  The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the clinical trial.  In such a case, we and the FDA must resolve any outstanding concerns before the clinical trial may begin.  A separate submission to the existing IND must be made for each successive clinical trial conducted during product development, and the FDA must grant permission for each clinical trial to start and continue.  Further, an independent institutional review board for each medical center proposing to participate in the clinical trial must review and approve the plan for any clinical trial before it commences at that center.  Regulatory authorities or an institutional review board or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

For purposes of NDA or BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap.

• Phase 1 clinical trials are conducted in a limited number of healthy human volunteers or, in some cases, patients, to evaluate the safety, dosage tolerance, absorption, metabolism, distribution and excretion of the drug candidate;

• Phase 2 clinical trials are conducted in groups of patients afflicted with a specified disease or condition to obtain preliminary data regarding efficacy as well as to further evaluate safety and optimize dosing of the drug candidate; and

• Phase 3 clinical trials are conducted in larger patient populations at multiple clinical trial sites to obtain statistically significant evidence of the efficacy of the drug candidate for its intended use and to further test for safety in an expanded patient population.

In addition, the FDA may require, or companies may pursue, additional clinical trials after a product is approved.  These so-called Phase 4 studies may be made a condition to be satisfied after a drug receives approval.

Completion of the clinical trials necessary for an NDA or BLA submission typically takes many years, with the actual time required varying substantially based on, among other things, the nature and complexity of the drug candidate and of the disease or condition.  Success in earlier-stage clinical trials does not ensure success in later-stage clinical trials.  Furthermore, data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent proceeding with further clinical trials, filing or acceptance of an NDA or BLA, or obtaining marketing approval.

After completion of clinical trials, FDA approval of an NDA or BLA must be obtained before a new drug may be marketed in the United States.  An NDA or BLA, depending on the submission, must contain, among other things, information on chemistry, manufacturing controls and potency and purity, non-clinical pharmacology and toxicology, human pharmacokinetics and bioavailability and clinical data.  There can be no assurance that the FDA will accept an NDA or BLA for filing and, even if filed, that approval will be granted.  Among other things, the FDA reviews an NDA to determine whether a product is safe and effective for its intended use and a BLA to determine whether a product is safe, pure and potent and the facility in which it is manufactured, processed, packed, or held meets standards designed to assure the product’s continued safety, purity and potency.  The FDA may deny approval of an NDA or BLA if the applicable regulatory criteria are not satisfied, or it may require additional clinical data or an additional pivotal Phase 3 clinical trial.  Even if such data are submitted, the FDA may ultimately decide that the NDA or BLA does not satisfy the criteria for approval.  Once issued, the FDA may withdraw product approval if ongoing regulatory standards are not met or if safety problems occur after the product reaches the market.  In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products which have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.  Limited indications for use or other conditions could also be placed on any approvals that could restrict the commercial applications of a product or impose costly procedures in connection with the commercialization or use of the product.

In addition to obtaining FDA approval for each product, each drug manufacturing establishment must be inspected and approved by the FDA.  All manufacturing establishments are subject to inspections by the FDA and by other federal, state and local agencies and must comply with current Good Manufacturing Practices requirements.  Non-compliance with these requirements can result in, among other things, total or partial suspension of production, failure of the government to grant approval for marketing and withdrawal, suspension or revocation of marketing approvals.

Once the FDA approves a product, a manufacturer must provide certain updated safety and efficacy information.  Product changes as well as certain changes in a manufacturing process or facility would necessitate additional

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FDA review and approval.  Other post-approval changes may also necessitate further FDA review and approval.  Additionally, a manufacturer must meet other requirements including those related to adverse event reporting and record keeping.

The FDA closely regulates the marketing and promotion of drugs.  A company can make only those claims relating to safety and efficacy that are approved by the FDA.  Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.

Violations of the FDC Act, the PHS Act or regulatory requirements may result in agency enforcement action, including voluntary or mandatory recall, license suspension or revocation, product seizure, fines, injunctions and civil or criminal penalties.

In addition to regulatory approvals that must be obtained in the United States, drugs are also subject to regulatory approval in other countries in which they are marketed.  The conduct of clinical trials of drugs in countries other than the United States is likewise subject to regulatory oversight in such countries.  The requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary widely from country to country.  No action can be taken to market any drug in a country until the regulatory authorities in that country have approved an appropriate application.  FDA approval does not assure approval by other regulatory authorities.  The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval.  In some countries, the sale price of a drug or biologic product must also be approved.  The pricing review period often begins after marketing approval is granted.  Even if a foreign regulatory authority approves a drug, it may not approve satisfactory prices for the product.

Other Regulations

In addition to the foregoing, our business is and will be subject to regulation under various state and federal environmental laws, including the Occupational Safety and Health Act, the Resource Conservation and Recovery Act and the Toxic Substances Control Act.  These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in and wastes generated by our operations.  We believe that we are in material compliance with applicable environmental laws and that our continued compliance with these laws will not have a material adverse effect on our business.  We cannot predict, however, whether new regulatory restrictions will be imposed by state or federal regulators and agencies or whether existing laws and regulations will adversely affect us in the future.

Research and Development Expenses

In 2013, 2012 and 2011, respectively, we incurred expenses of $89.7 million, $82.6 million and $91.8 million in company-sponsored as well as collaborative research and development activities, including $4.4 million, $3.7 million and $3.2 million of stock-based compensation expense in 2013, 2012 and 2011, respectively.

Employees and Consultants

We have assembled a highly qualified team of scientists as well as executives with extensive experience in the biotechnology industry. As of February 27, 2014, we employed 149 persons, of whom 41 hold M.D., Ph.D. or D.V.M. degrees and another 23 hold other advanced degrees.  We believe that our relationship with our employees is good.

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Item 1A. Risk Factors

The following risks and uncertainties are important factors that could cause actual results or events to differ materially from those indicated by forward-looking statements.  The factors described below are not the only ones we face and additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Related to Our Need for Additional Financing and Our Financial Results

We will need additional capital in the future and, if it is unavailable, we will be forced to significantly curtail or cease our operations.  If it is not available on reasonable terms, we will be forced to obtain funds by entering into financing agreements on unattractive terms.

As of December 31, 2013, we had $129.1 million in cash, cash equivalents and investments.  We anticipate that our existing capital resources and the cash and revenues we expect to derive from collaborations and other sources will enable us to fund our currently planned operations for at least the next 12 months.  Our currently planned operations for that time period consist of the completion of our ongoing clinical trials and the initiation and conduct of additional clinical trials and preclinical research efforts.  However, we caution you that we may generate less cash and revenues or incur expenses more rapidly than we currently anticipate.

Although difficult to accurately predict, the amount of our future capital requirements will be substantial and will depend on many factors, including:

• our ability to obtain additional funds from collaborations and other sources;

• our ability to identify collaboration partners to help advance certain of our product candidates, including Phase 3 development of LX4211 in type 2 diabetes, on terms acceptable to us;

• the amount and timing of payments under such agreements;

• the level and timing of our preclinical and clinical development expenditures;

• the timing and progress of the clinical development of our drug candidates, including the timing of any required regulatory actions and the outcome of our anticipated discussions with regulators;

• future results from clinical trials of our drug candidates;

• the cost and timing of regulatory approvals of drug candidates that we successfully develop;

• market acceptance of products that we successfully develop and commercially launch;

• the effect of competing programs and products, and of technological and market developments;

• the filing, maintenance, prosecution, defense and enforcement of patent claims and other intellectual property rights; and

• the cost and timing of establishing or contracting for sales, marketing and distribution capabilities.

Our capital requirements will increase substantially as our drug candidates progress into more advanced stage clinical development.  Our capital requirements will also be affected by any expenditures we make in connection with license agreements and acquisitions of and investments in complementary products and technologies.  For all of these reasons, our future capital requirements cannot easily be quantified.

If our capital resources are insufficient to meet future capital requirements, we will need to raise additional funds to continue our currently planned operations.  If we raise additional capital by issuing equity securities, our then-existing stockholders will experience dilution and the terms of any new equity securities may have preferences over our common stock.  We cannot be certain that additional financing, whether debt or equity, will be available in amounts or on terms acceptable to us, if at all.  We may be unable to raise sufficient additional capital on reasonable terms, and if so, we will be forced to significantly curtail or cease our operations or obtain funds by entering into financing agreements on unattractive terms.

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We have a history of net losses, and we expect to continue to incur net losses and may not achieve or maintain profitability.

We have incurred net losses since our inception, including net losses of $104.1 million for the year ended December 31, 2013, $110.2 million for the year ended December 31, 2012 and $116.2 million for the year ended December 31, 2011.  As of December 31, 2013, we had an accumulated deficit of $1.0 billion.  We are unsure when we will become profitable, if ever.  The size of our net losses will depend, in part, on the rate of decline or growth in our revenues and on the level of our expenses.

We have derived substantially all of our revenues from drug discovery and development collaborations and other collaborations and technology licenses, and will continue to do so for at least the next several years.  Future revenues from our existing collaborations are uncertain because they depend, to a large degree, on the achievement of milestones and payment of royalties we earn from any future products developed under the collaborations.  As a result, we depend, in part, on securing new collaboration agreements.  Our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of our potential future collaborators, and to negotiate agreements that we believe are in our long-term best interests.  We may determine, as we have with certain of our clinical drug candidates, that our interests are better served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage, which could limit our near-term revenues.  Given the current stage of our operations, we do not currently derive any revenues from sales of pharmaceutical products.

A large portion of our expenses is fixed, including expenses related to facilities and equipment.  In addition, we expect to spend significant amounts to fund our preclinical and clinical development activities, including the conduct of ongoing clinical trials and the initiation and conduct of additional clinical trials.  To the extent that we elect to commercialize products on our own, we will be required to incur substantial expenditures in preparation for and to conduct commercialization activities. As a result, we will need to generate substantial additional revenues to achieve profitability.  Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

Our operating results have been and likely will continue to fluctuate, and we believe that period-to-period comparisons of our operating results are not a good indication of our future performance.

Our operating results and, in particular, our ability to generate additional revenues are dependent on many factors, including:

• our ability to establish new collaborations and technology licenses, and the timing of such arrangements;

• the success rate of our discovery and development efforts leading to opportunities for new collaborations and licenses, as well as milestone payments and royalties;

• the timing and willingness of our collaborators to commercialize pharmaceutical products that would result in milestone payments and royalties; and

• general and industry-specific economic conditions, which may affect our and our collaborators’ research and development expenditures.

Because of these and other factors, including the risks and uncertainties described in this section, our operating results have fluctuated in the past and are likely to do so in the future.  Due to the likelihood of fluctuations in our revenues and expenses, we believe that period-to-period comparisons of our operating results are not a good indication of our future performance.

Risks Related to Development of Our Drug Candidates

We have not proven our ability to successfully develop and commercialize our drug candidates.

Our success will depend upon our ability, on our own or through collaborations, to successfully develop and select an appropriate commercialization strategy for our drug candidates. We have not proven our ability to develop or commercialize drug candidates based on our drug target discoveries, and we do not know that any pharmaceutical products based on our drug target discoveries can be successfully developed or commercialized.  Our strategy was historically focused principally on the discovery and development of drug candidates for targets that have not been clinically validated in humans by drugs or drug candidates generated by others.  As a result, our drug candidates are subject to uncertainties as to the effects of modulating the human drug target as well as to those relating to the characteristics and activity of the particular compound.

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Clinical testing of our drug candidates in humans is an inherently risky and time-consuming process that may fail to demonstrate safety and efficacy, which could result in the delay, limitation or prevention of regulatory approval.

In order to obtain regulatory approvals for the commercial sale of any products that we may develop, we will be required to complete extensive clinical trials in humans to demonstrate the safety and efficacy of our drug candidates.  We or our collaborators may not be able to obtain authority from the FDA, or other equivalent foreign regulatory agencies to initiate or complete any clinical trials.  In addition, we have limited internal resources for making regulatory filings and interacting with regulatory authorities.

Clinical trials are inherently risky and the results from preclinical testing of a drug candidate that is under development may not be predictive of results that will be obtained in human clinical trials.  In addition, the results of early human clinical trials may not be predictive of results that will be obtained in larger-scale, advanced stage clinical trials.  A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after achieving positive results in earlier trials.  Negative or inconclusive results from a preclinical study or a clinical trial could cause us, one of our collaborators or the FDA to terminate a preclinical study or clinical trial or require that we repeat it.  Furthermore, we, one of our collaborators or a regulatory agency with jurisdiction over the trials may suspend clinical trials at any time if the subjects or patients participating in such trials are being exposed to unacceptable health risks or for other reasons.

Any preclinical or clinical test may fail to produce results satisfactory to the FDA or foreign regulatory authorities.  Preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval.  The FDA or institutional review boards at the medical institutions and healthcare facilities where we sponsor clinical trials may suspend any trial indefinitely if they find deficiencies in the conduct of these trials.  Clinical trials must be conducted in accordance with the FDA’s current Good Clinical Practices.  The FDA and these institutional review boards have authority to oversee our clinical trials, and the FDA may require large numbers of subjects or patients.  In addition, we must manufacture, or contract for the manufacture of, the drug candidates that we use in our clinical trials under the FDA’s current Good Manufacturing Practices.

The rate of completion of clinical trials is dependent, in part, upon the rate of enrollment of patients.  Patient accrual is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study, the nature of the study, the existence of competitive clinical trials and the availability of alternative treatments.  Delays in planned patient enrollment may result in increased costs and prolonged clinical development, which in turn could allow our competitors to bring products to market before we do and impair our ability to commercialize our products or potential products.

We or our collaborators may not be able to successfully complete any clinical trial of a potential product within any specified time period.  In some cases, we or our collaborators may not be able to complete the trial at all. Moreover, clinical trials may not show our potential products to be both safe and effective.  Thus, the FDA and other regulatory authorities may not approve any products that we develop for any indication or may limit the approved indications or impose other conditions.

Risks Related to Regulatory Approval of Our Drug Candidates

Our drug candidates are subject to a lengthy and uncertain regulatory process that may not result in the necessary regulatory approvals, which could adversely affect our ability to commercialize products.

Our drug candidates, as well as the activities associated with their research, development and commercialization, are subject to extensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries.  Failure to obtain regulatory approval for a drug candidate would prevent us from commercializing that drug candidate.  We have not received regulatory approval to market any of our drug candidates in any jurisdiction and have only limited experience in preparing and filing the applications necessary to gain regulatory approvals.  The process of obtaining regulatory approvals is expensive, and often takes many years, if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of the drug candidates involved.  Before a new drug application can be filed with the FDA, the drug candidate must undergo extensive clinical trials, which can take many years and may require substantial expenditures.  Any clinical trial may fail to produce results satisfactory to the FDA.  For example, the FDA could determine that the design of a clinical trial is inadequate to produce reliable results.  Furthermore, prior to approving a new drug, the FDA typically requires that the efficacy of the drug be demonstrated in two double-blind, controlled studies. In light of the unmet medical need in carcinoid syndrome, the results of our Phase 2 clinical trials of telotristat etiprate and our interactions with the FDA regarding those results, we believe a single Phase 3 clinical trial of telotristat etiprate will be sufficient. However, the FDA has indicated that the trial must provide compelling evidence of clinically meaningful benefit in order to warrant consideration for marketing approval. If the FDA determines that our Phase 3 results do not have clinically meaningful benefit,

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or if the FDA requires us to conduct additional Phase 3 clinical trials of telotristat etiprate prior to seeking marketing approval, we will incur significant additional development costs and commercialization of telotristat etiprate may be prevented or delayed. The regulatory process also requires preclinical testing, and data obtained from preclinical and clinical activities are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.  For example, we will need to complete carcinogenicity studies on a pre-approval basis in connection with our diabetes program and on a post-approval basis with respect to our carcinoid syndrome program. In addition, delays or rejections may be encountered based upon changes in regulatory policy for product approval during the period of product development and regulatory agency review.  Changes in regulatory approval policy, regulations or statutes or the process for regulatory review during the development or approval periods of our drug candidates may cause delays in the approval or rejection of an application.  Even if the FDA or a comparable authority in another country approves a drug candidate, the approval may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, marketing and/or production of such product and may impose ongoing requirements for post-approval studies, including additional research and development and clinical trials.  These agencies also may impose various civil or criminal sanctions for failure to comply with regulatory requirements, including withdrawal of product approval.

If our potential products receive regulatory approval, we or our collaborators will remain subject to extensive and rigorous ongoing regulation.

If we or our collaborators obtain initial regulatory approvals from the FDA or foreign regulatory authorities for any products that we may develop, we or our collaborators will be subject to extensive and rigorous ongoing domestic and foreign government regulation of, among other things, the research, development, testing, manufacture, labeling, promotion, advertising, distribution and marketing of our products and drug candidates.  The failure to comply with these requirements or the identification of safety problems during commercial marketing could lead to the need for product marketing restrictions, product withdrawal or recall or other voluntary or regulatory action, which could delay further marketing until the product is brought into compliance.  The failure to comply with these requirements may also subject us or our collaborators to stringent penalties.

Risks Related to Commercialization of Products

The commercial success of any products that we may develop will depend upon the degree of market acceptance of our products among physicians, patients, health care payors, private health insurers and the medical community.

Even if approved by the relevant regulatory authority, our ability to commercialize any products that we may develop will be highly dependent upon the extent to which these products gain market acceptance among physicians, patients, health care payors, such as Medicare and Medicaid, private health insurers, including managed care organizations and group purchasing organizations, and the medical community.  If these products do not achieve an adequate level of acceptance, we may not generate adequate product revenues, if at all, and we may not become profitable.  The degree of market acceptance of our drug candidates, if approved for commercial sale, will depend upon a number of factors, including:

• the effectiveness, or perceived effectiveness, of our products in comparison to competing products;

• the existence of any significant side effects, as well as their severity in comparison to any competing products;

• potential advantages over alternative treatments;

• the ability to offer our products for sale at competitive prices;

• relative convenience and ease of administration;

• the strength of marketing and distribution support; and

• sufficient third-party coverage or reimbursement.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our drug candidates, we may be unable to generate product revenues.

We have no experience as a company in the sales, marketing and distribution of pharmaceutical products and do not currently have a sales and marketing organization.  Developing a sales and marketing force would be expensive and time-consuming, could delay any product launch, and we may never be able to develop this capacity.  To the extent that we enter into

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arrangements with third parties to provide sales, marketing and distribution services, our product revenues are likely to be lower than if we market and sell any products that we develop ourselves.  If we are unable to establish adequate sales, marketing and distribution capabilities, independently or with others, we may not be able to generate product revenues.

If we are unable to obtain adequate coverage and reimbursement from third-party payors for any products that we may develop, our revenues and prospects for profitability will suffer.

Our ability to commercialize any products that we may develop will be highly dependent on the extent to which coverage and reimbursement for our products will be available from third-party payors, including governmental payors, such as Medicare and Medicaid, and private health insurers, including managed care organizations and group purchasing organizations.  Many patients will not be capable of paying themselves for some or all of the products that we may develop and will rely on third-party payors to pay for, or subsidize, their medical needs.  If third-party payors do not provide coverage or reimbursement for any products that we may develop, our revenues and prospects for profitability will suffer.  In addition, even if third-party payors provide some coverage or reimbursement for our products, the availability of such coverage or reimbursement for prescription drugs under private health insurance and managed care plans often varies based on the type of contract or plan purchased.

Another factor that may negatively affect the pricing of drugs is any action regarding drug reimportation into the United States. For example, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 gives discretion to the Secretary of Health and Human Services to allow drug reimportation into the United States under some circumstances from foreign countries, including countries where drugs are sold at a lower price than in the United States. Proponents of drug reimportation may attempt to pass additional legislation, which would allow direct reimportation under certain circumstances.  If legislation or regulations were passed allowing the reimportation of drugs, it could decrease the price we receive for any products that we may develop, thereby negatively affecting our revenues and prospects for profitability.

In addition, in some foreign countries, particularly the countries in the European Union, the pricing of prescription pharmaceuticals is subject to governmental control.  In these countries, price negotiations with governmental authorities can take six to 12 months or longer after the receipt of regulatory marketing approval for a product.  To obtain reimbursement and/or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our drug candidates or products to other available therapies.  The conduct of such a clinical trial could be expensive and result in delays in the commercialization of our drug candidates.  Third-party payors are challenging the prices charged for medical products and services, and many third-party payors limit reimbursement for newly approved health care products.  In particular, third-party payors may limit the indications for which they will reimburse patients who use any products that we may develop.  Cost-control initiatives could decrease the price we might establish for products that we may develop, which would result in lower product revenues to us.

Current and future healthcare laws and regulations may negatively affect our revenues and prospects for profitability.

A primary trend in the United States and some foreign countries is toward reform and cost containment in the health care industry.  The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals that may have the effect of reducing the prices that we are able to charge for products we develop. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the PPACA, substantially modifies the framework by which healthcare is financed by both governmental and private insurers in the United States. A number of provisions contained in the PPACA have the potential to significantly affect the pharmaceutical industry, including:

• an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs, apportioned among these entities according to their market share in certain governmental health programs;

• expansion of eligibility criteria and increases in the rebates manufacturers must pay under certain Medicaid programs;

• a new Medicare Part D coverage program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during any coverage gap period, as a condition for the manufacturer's outpatient drugs to be covered under Medicare Part D;

• expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and

• certain reporting requirements relating to financial arrangements with, and drug samples provided to, physicians.

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The PPACA and other healthcare reform measures which may be adopted in the future in the United States and foreign jurisdictions may result in more rigorous coverage criteria and significant downward pressure on the prices drug manufacturers may charge. As a result, our revenues and prospects for profitability could be significantly harmed.

Our competitors may develop products that make our products obsolete.

The biotechnology industry is highly fragmented and is characterized by rapid technological change.  We face, and will continue to face, intense competition from biotechnology and pharmaceutical companies, as well as academic research institutions, clinical reference laboratories and government agencies that are pursuing research and development activities similar to ours.  In addition, significant delays in the development of our drug candidates could allow our competitors to bring products to market before us, which would impair our ability to commercialize our drug candidates.  Any products that we develop will compete in highly competitive markets.  Further, our competitors may be more effective at using their technologies to develop commercial products.  Many of the organizations competing with us have greater capital resources, larger research and development staff and facilities, more experience in obtaining regulatory approvals and more extensive product manufacturing and marketing capabilities.  As a result, our competitors may be able to more easily develop products that would render our products, and those of our collaborators, obsolete and noncompetitive.  For example, drug candidates are currently being developed by other pharmaceutical companies for the treatment of type 2 diabetes that act through SGLT2, one of the targets of LX4211, which are in more advanced stages of development than LX4211 or have been approved for commercial sale by the FDA or other regulatory agencies.  In addition, there may be drug candidates of which we are not aware at an earlier stage of development that may compete with our drug candidates.

We may not be able to manufacture our drug candidates in commercial quantities, which would prevent us from commercializing our drug candidates.

To date, our drug candidates have been manufactured in small quantities for preclinical and clinical trials.  If any of these drug candidates are approved by the FDA or other regulatory agencies for commercial sale, we will need to manufacture them in larger quantities.  We may not be able to successfully increase the manufacturing capacity, whether in collaboration with third-party manufacturers or on our own, for any of our drug candidates in a timely or economic manner, or at all.  Significant scale-up of manufacturing may require additional validation studies, which the FDA must review and approve.  If we are unable to successfully increase the manufacturing capacity for a drug candidate, the regulatory approval or commercial launch of that drug candidate may be delayed or there may be a shortage in supply.  Our drug candidates require precise, high-quality manufacturing.  The failure to achieve and maintain these high manufacturing standards, including the incidence of manufacturing errors, could result in patient injury or death, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously hurt our business.

Risks Related to Our Relationships with Third Parties

We are dependent in many ways upon our collaborations with major pharmaceutical companies.  If we are unable to establish new collaborations, if milestones are not achieved under our collaborations or if our collaborators’ efforts fail to yield pharmaceutical products on a timely basis, our opportunities to generate revenues and earn royalties will be reduced.

We have derived a substantial majority of our revenues to date from collaborative drug discovery and development alliances with a limited number of major pharmaceutical companies.  In addition, we currently intend to seek a collaboration partner for Phase 3 development of LX4211 in type 2 diabetes and we cannot be certain that we will be successful in establishing such a collaborative alliance on terms acceptable to us, if at all.

Future revenues from our existing drug discovery and development alliances depend upon the achievement of milestones and payment of royalties we earn from any future products developed under the collaborations.  If our relationship terminates with any of our collaborators, our reputation in the business and scientific community may suffer and revenues will be negatively impacted to the extent such losses are not offset by additional collaboration agreements.  If milestones are not achieved under our collaborations or our collaborators are unable to successfully develop products from which royalties are payable, we will not earn the revenues contemplated by those drug discovery and development collaborations.  In addition, some of our alliances are exclusive and preclude us from entering into additional collaborative arrangements with other parties in the field of exclusivity.

We have limited or no control over the resources that any collaborator may devote to the development and commercialization of products under our alliances.  Any of our present or future collaborators may not perform their obligations as expected.  These collaborators may breach or terminate their agreements with us or otherwise fail to conduct discovery, development or commercialization activities successfully or in a timely manner.  Further, our collaborators may elect

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not to develop pharmaceutical products arising out of our collaborative arrangements or may not devote sufficient resources to the development, approval, manufacture, marketing or sale of these products.  If any of these events occurs, we may not be able to develop or commercialize potential pharmaceutical products.

Conflicts with our collaborators could jeopardize the success of our collaborative agreements and harm our product development efforts.

We may pursue opportunities in specific disease and therapeutic modality fields that could result in conflicts with our collaborators, if any of our collaborators takes the position that our internal activities overlap with those activities that are exclusive to our collaboration.  Moreover, disagreements could arise with our collaborators over rights to our intellectual property or our rights to share in any of the future revenues of compounds or therapeutic approaches developed by our collaborators.  Any conflict with or among our collaborators could result in the termination of our collaborative agreements, delay collaborative research or development activities, impair our ability to renew or obtain future collaborative agreements or lead to costly and time consuming litigation.  Conflicts with our collaborators could also have a negative impact on our relationship with existing collaborators, materially impairing our business and revenues.  Some of our collaborators are also potential competitors or may become competitors in the future.  Our collaborators could develop competing products, preclude us from entering into collaborations with their competitors or terminate their agreements with us prematurely.  Any of these events could harm our product development efforts.

We rely on third parties to carry out drug development activities.

We rely on clinical research organizations and other third party contractors to carry out many of our drug development activities, including the performance of preclinical laboratory and animal tests under the FDA’s current Good Laboratory Practices regulations and the conduct of clinical trials of our drug candidates in accordance with protocols we establish.  If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, our drug development activities may be delayed, suspended or terminated.  Such a failure by these third parties could significantly impair our ability to develop and commercialize the affected drug candidates.

We lack the capability to manufacture materials for preclinical studies, clinical trials or commercial sales and rely on third parties to manufacture our drug candidates, which may harm or delay our product development and commercialization efforts.

We currently do not have the manufacturing capabilities or experience necessary to produce materials for preclinical studies, clinical trials or commercial sales and intend in the future to continue to rely on collaborators and third-party contractors to produce such materials.  We will rely on selected manufacturers to deliver materials on a timely basis and to comply with applicable regulatory requirements, including the current Good Manufacturing Practices of the FDA, which relate to manufacturing and quality control activities.  These manufacturers may not be able to produce material on a timely basis or manufacture material at the quality level or in the quantity required to meet our development timelines and applicable regulatory requirements.  In addition, there are a limited number of manufacturers that operate under the FDA’s current Good Manufacturing Practices and that are capable of producing such materials, and we may experience difficulty finding manufacturers with adequate capacity for our needs.  If we are unable to contract for the production of sufficient quantity and quality of materials on acceptable terms, our product development and commercialization efforts may be delayed.  Moreover, noncompliance with the FDA’s current Good Manufacturing Practices can result in, among other things, fines, injunctions, civil and criminal penalties, product recalls or seizures, suspension of production, failure to obtain marketing approval and withdrawal, suspension or revocation of marketing approvals.

Risks Related to Our Intellectual Property

If we are unable to adequately protect our intellectual property, third parties may be able to use our products and technologies, which could adversely affect our ability to compete in the market.

Our success will depend in part upon our ability to obtain patents and maintain adequate protection of the intellectual property related to our products and technologies.  The patent positions of biotechnology companies, including our patent position, are generally uncertain and involve complex legal and factual questions.  We will be able to protect our intellectual property rights from unauthorized use by third parties only to the extent that our products and technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets.  We will continue to apply for patents covering our products and technologies as and when we deem appropriate.  Pending patent applications do not provide protection against competitors because they are not enforceable until they issue as patents.  Further, the disclosures contained in our current and future patent applications may not be sufficient to meet statutory requirements for patentability.  Once issued, patents still may not provide commercially meaningful protection.  Our existing patents and any future patents we obtain may not be sufficiently

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broad to prevent others from developing competing products and technologies.  Furthermore, others may independently develop similar or alternative products or technologies or design around our patents.  If anyone infringes upon our or our collaborators’ patent rights, enforcing these rights may be difficult, costly and time-consuming and, as a result, it may not be cost-effective or otherwise expedient to pursue litigation to enforce those patent rights.  In addition, our patents may be challenged or invalidated or may fail to provide us with any competitive advantages, if, for example, others were the first to invent or to file patent applications for these inventions.

Because patent applications can take many years to issue, there may be currently pending applications which may later result in issued patents that cover the production, manufacture, commercialization or use of our drug targets or drug candidates.   If any such patents are issued to other entities, we will be unable to obtain patent protection for the same or similar discoveries that we make relating to our drug targets or drug candidates.  Moreover, we may be blocked from using our drug targets or drug candidates or developing or commercializing our drug candidates, or may be required to obtain a license that may not be available on reasonable terms, if at all.  Further, others may discover uses for our drug targets and drug candidates other than those covered in our issued or pending patents, and these other uses may be separately patentable.  Even if we have a patent claim on a particular technology or product, the holder of a patent covering the use of that technology or product could exclude us from selling a product that is based on the same use of that product.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions.  Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties (for example, if the patent owner has failed to “work” the invention in that country or the third party has patented improvements).  In addition, many countries limit the enforceability of patents against government agencies or government contractors.  In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent.  Compulsory licensing of life-saving drugs is also becoming increasingly popular in developing countries either through direct legislation or international initiatives.  Such compulsory licenses could be extended to include some of our drug candidates, which could limit our potential revenue opportunities.  Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patent and other intellectual property protection, which makes it difficult to stop infringement.

We rely on trade secret protection for our confidential and proprietary information.  We have taken security measures to protect our proprietary information and trade secrets, but these measures may not provide adequate protection.  While we seek to protect our proprietary information by entering into confidentiality agreements with employees, collaborators and consultants, we cannot assure you that our proprietary information will not be disclosed, or that we can meaningfully protect our trade secrets.  In addition, our competitors may independently develop substantially equivalent proprietary information or may otherwise gain access to our trade secrets.

We may be involved in patent litigation and other disputes regarding intellectual property rights and may require licenses from third parties for our planned preclinical and clinical development and commercialization activities.  We may not prevail in any such litigation or other dispute or be able to obtain required licenses.

Our preclinical and clinical development efforts as well as our potential products and those of our collaborators may give rise to claims that they infringe the patents of others.  We are aware that other companies and institutions are developing products acting through the same drug targets through which some of our drug candidates currently in clinical development act, have conducted research on many of the same targets that we have identified and have filed patent applications potentially covering drug targets that we have identified and certain therapeutic products addressing such targets.  In some cases, patents have issued from these applications.  In addition, many companies and institutions have well-established patent portfolios directed to common techniques, methods and means of developing, producing and manufacturing pharmaceutical products.  These or other companies or institutions could bring legal actions against us or our collaborators for damages or to stop us or our collaborators from engaging in certain preclinical or clinical development activities or from manufacturing and marketing therapeutic products that allegedly infringe their patent rights.  If any of these actions are successful, in addition to our potential liability for damages, these entities would likely require us or our collaborators to obtain a license in order to continue engaging in the infringing activities or to manufacture or market the infringing therapeutic products or may force us to terminate such activities or manufacturing and marketing efforts.

We may need to pursue litigation against others to enforce our patents and intellectual property rights and may be the subject of litigation brought by third parties to enforce their patent and intellectual property rights.  In addition, we may become involved in litigation based on intellectual property indemnification undertakings that we have given to certain of our collaborators.  Patent litigation is expensive and requires substantial amounts of management attention.  The eventual outcome of any such litigation is uncertain and involves substantial risks.

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We believe that there will continue to be significant litigation in our industry regarding patent and other intellectual property rights.  We have expended and many of our competitors have expended and are continuing to expend significant amounts of time, money and management resources on intellectual property litigation.  If we become involved in future intellectual property litigation, it could consume a substantial portion of our resources and could negatively affect our results of operations.

We have not sought patent protection outside of the United States for some of our inventions, and some of our licensed patents only provide coverage in the United States.  As a result, our international competitors could be granted foreign patent protection with respect to our discoveries.

We have decided not to pursue patent protection with respect to some of our inventions outside the United States, both because we do not believe it is cost-effective and because of confidentiality concerns.  Accordingly, our international competitors could develop, and receive foreign patent protection for, genes or gene sequences, uses of those genes or gene sequences, gene products and drug targets, assays for identifying potential therapeutic products, potential therapeutic products and methods of treatment for which we are seeking United States patent protection.

We may be subject to damages resulting from claims that we, our employees or independent contractors have wrongfully used or disclosed alleged trade secrets of their former employers.

Many of our employees and independent contractors were previously employed at universities, other biotechnology or pharmaceutical companies, including our competitors or potential competitors.  We may be subject to claims that these employees, independent contractors or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers.  Litigation may be necessary to defend against these claims.  Even if we are successful in defending against these claims, litigation could result in substantial costs and divert management’s attention.  If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel.  A loss of key research personnel and/or their work product could hamper or prevent our ability to commercialize certain drug candidates, which could severely harm our business.

Risks Related to Employees, Advisors and Facilities Operations

The loss of key personnel or the inability to attract and retain additional personnel could impair our ability to expand our operations.

We are highly dependent upon the principal members of our management and scientific staff, the loss of whose services might adversely impact the achievement of our objectives.  Recruiting and retaining qualified medical, clinical and scientific personnel will be critical to support activities related to advancing our preclinical and clinical development programs, and supporting our collaborative arrangements.  Competition is intense for experienced medical and clinical personnel, in particular, and we may be unable to retain or recruit medical and clinical personnel with the expertise or experience necessary to allow us to pursue collaborations, develop our products or expand our operations to the extent otherwise possible.  Further, all of our employees are employed “at will” and, therefore, may leave our employment at any time.

Our collaborations with outside scientists may be subject to restriction and change.

We work with scientific and clinical advisors and collaborators at academic and other institutions that assist us in our preclinical and clinical development efforts.  These advisors and collaborators are not our employees and may have other commitments that limit their availability to us.  Although these advisors and collaborators generally agree not to perform competing work, if a conflict of interest between their work for us and their work for another entity arises, we may lose their services.  In such a circumstance, our development efforts with respect to the matters on which they were working may be significantly delayed or otherwise adversely affected.  In addition, although our advisors and collaborators sign agreements not to disclose our confidential information, it is possible that valuable proprietary knowledge may become publicly known through them.

Security breaches may disrupt our operations and harm our operating results.

Our network security and data recovery measures may not be adequate to protect against computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems. The misappropriation, theft, sabotage or any other type of security breach with respect to any of our proprietary and confidential information that is electronically stored, including research or clinical data, could have a material adverse impact on our business, operating results and financial condition. Additionally, any break-in or trespass of our facilities that results in the misappropriation, theft, sabotage or any

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other type of security breach with respect to our proprietary and confidential information, including research or clinical data, or that results in damage to our research and development equipment and assets could have a material adverse impact on our business, operating results and financial condition.

Because most of our operations are located at a single facility, the occurrence of a disaster could significantly disrupt our business.

Most of our operations are conducted at our facility in The Woodlands, Texas.  While we have developed redundant and emergency backup systems to protect our resources and the facilities in which they are stored, they may be insufficient in the event of a severe fire, flood, hurricane, tornado, mechanical failure or similar disaster.  If such a disaster significantly damages or destroys the facility in which our resources are maintained, our business could be disrupted until we could regenerate the affected resources.  Our business interruption insurance may not be sufficient to compensate us in the event of a major interruption due to such a disaster.

Risks Related to Environmental and Product Liability

We use hazardous chemicals and radioactive and biological materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

Our research and development processes have historically involved the controlled use of hazardous materials, including chemicals and radioactive and biological materials.  Our operations have produced hazardous waste products.  We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials.  Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials.  We may face liability for any injury or contamination that results from our use or the use by third parties of these materials, and such liability may exceed our insurance coverage and our total assets.  Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development and production efforts.

In addition, our collaborators may use hazardous materials in connection with our collaborative efforts. In the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property by exposure to, or release of, these hazardous materials used by these parties.  Further, we may be required to indemnify our collaborators against all damages and other liabilities arising out of our development activities or products produced in connection with these collaborations.

We face potential product liability exposure in excess of our insurance coverage.

We or our collaborators may be held liable if any product that we or our collaborators develop, or any product that is made with the use or incorporation of any of our technologies, causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing or sale.  Although we currently have and intend to maintain product liability insurance, this insurance may become prohibitively expensive or may not fully cover our potential liabilities.  Our inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of products developed by us or our collaborators.  If we are sued for any injury caused by our or our collaborators’ products, our liability could exceed our total assets.

Risks Related to Our Common Stock

Invus, L.P., Invus C.V. and their affiliates own a controlling interest in our outstanding common stock and may have interests which conflict with those of our other stockholders.

Invus, L.P. and Invus C.V., which we collectively refer to as Invus, and their affiliates currently own approximately 55.1% of the outstanding shares of our common stock and are thereby able to control the election and removal of our directors and determine our corporate and management policies, including potential mergers or acquisitions, asset sales, the amendment of our articles of incorporation or bylaws and other significant corporate transactions. This concentration of ownership may delay or deter possible changes in control of our company, which may reduce the value of an investment in our common stock. The interests of Invus and its affiliates may not coincide with the interests of other holders of our common stock.

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Invus has additional rights under our stockholders' agreement with Invus, L.P. which provides Invus with substantial influence over certain significant corporate matters.

Under our stockholders' agreement with Invus, L.P., Invus has the right to designate a number of directors equal to the percentage of all the outstanding shares of our common stock owned by Invus and its affiliates, rounded up to the nearest whole number of directors. Invus has designated three of the nine current members of our board of directors. While Invus has not presently exercised its director designation rights in full, it may exercise them at any time in the future in its sole discretion. To facilitate the exercise of such rights, we have agreed, upon written request from Invus, to take all necessary steps in accordance with our obligations under the stockholders' agreement to (1) increase the number of directors to the number specified by Invus (which number shall be no greater than reasonably necessary for the exercise of Invus' director designation rights under the stockholders' agreement) and (2) cause the appointment to the newly created directorships of directors so designated by Invus pursuant to its rights under the stockholders' agreement.

Invus also has the right to require proportionate representation of Invus-appointed directors on the audit, compensation and corporate governance committees of our board of directors, subject to certain restrictions. Invus-designated directors currently serve as one of the four members of the compensation committee and one of the three members of the corporate governance committee of our board of directors.

The provisions of the stockholders' agreement relating to Invus' rights to designate members of our board of directors and its audit, compensation and corporate governance committees will terminate if the percentage of all the outstanding shares of our common stock owned by Invus and its affiliates falls below 10%. Invus also has the right to terminate these provisions at any time in its discretion.

Invus has preemptive rights under the stockholders' agreement to participate in future equity issuances by us, subject to certain exceptions, so as to maintain its then-current percentage ownership of our capital stock. Subject to certain limitations, Invus will be required to exercise its preemptive rights in advance with respect to certain marketed offerings, in which case it will be obligated to buy its pro rata share of the number of shares being offered in such marketed offering, including any overallotment (or such lesser amount specified in its exercise of such rights), so long as the sale of the shares were priced within a range within 10% above or below the market price on the date we notified Invus of the offering and we met certain other conditions.

The provisions of the stockholders' agreement relating to preemptive rights will terminate on the earlier to occur of August 28, 2017 and the date on which the percentage of all the outstanding shares of our common stock owned by Invus and its affiliates falls below 10%.

Invus is entitled to certain consent rights under the stockholders' agreement, including with respect to (a) the creation or issuance of any new class or series of shares of our capital stock (or securities convertible into or exercisable for shares of our capital stock) having rights, preferences or privileges senior to or on parity with our common stock, (b) any amendment to our certificate of incorporation or bylaws, or amendment to the certificate of incorporation or bylaws of any of our subsidiaries, in a manner adversely affecting Invus' rights under the securities purchase agreement and the related agreements, (c) the repurchase, retirement, redemption or other acquisition of our or our subsidiaries' capital stock (or securities convertible into or exercisable for shares of our or our subsidiaries' capital stock), (d) any increase in the size of our board of directors to more than 12 members and (e) the adoption or proposed adoption of any stockholders' rights plan, “poison pill” or other similar plan or agreement, unless Invus is exempt from the provisions of such plan or agreement.

The provisions of the stockholders' agreement relating to those consent rights will terminate on the earlier to occur of August 28, 2017 and the date on which Invus and its affiliates hold less than 15% of the total number of outstanding shares of our common stock.

Our stock price may be extremely volatile.

The trading price of our common stock has been highly volatile, and we believe the trading price of our common stock will remain highly volatile and may fluctuate substantially due to factors such as the following:

• adverse results or delays in clinical trials;

• announcement of FDA approval or non-approval, or delays in the FDA review process, of our or our collaborators’ product candidates or those of our competitors or actions taken by regulatory agencies with respect to our, our collaborators’ or our competitors’ clinical trials;

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• the announcement of new products by us or our competitors;

• quarterly variations in our or our competitors’ results of operations;

• conflicts or litigation with our collaborators;

• litigation, including intellectual property infringement and product liability lawsuits, involving us;

• failure to achieve operating results projected by securities analysts;

• changes in earnings estimates or recommendations by securities analysts;

• financing transactions;

• developments in the biotechnology or pharmaceutical industry;

• sales of large blocks of our common stock or sales of our common stock by our executive officers, directors and significant stockholders;

• departures of key personnel or board members;

• developments concerning current or future collaborations;

• FDA or international regulatory actions;

• third-party reimbursement policies;

• acquisitions of other companies or technologies;

• disposition of any of our subsidiaries, drug programs or other technologies; and

• other factors, including factors unrelated to our operating performance or the operating performance of our competitors.

These factors, as well as general economic, political and market conditions, may materially adversely affect the market price of our common stock.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted.  A securities class action suit against us could result in substantial costs and divert management’s attention and resources, which could have a material and adverse effect on our business.

We may engage in future acquisitions, which may be expensive and time consuming and from which we may not realize anticipated benefits.

We may acquire additional businesses, technologies and products if we determine that these businesses, technologies and products complement our existing technology or otherwise serve our strategic goals.  If we do undertake any transactions of this sort, the process of integrating an acquired business, technology or product may result in operating difficulties and expenditures and may not be achieved in a timely and non-disruptive manner, if at all, and may absorb significant management attention that would otherwise be available for ongoing development of our business.  If we fail to integrate acquired businesses, technologies or products effectively or if key employees of an acquired business leave, the anticipated benefits of the acquisition would be jeopardized.  Moreover, we may never realize the anticipated benefits of any acquisition, such as increased revenues and earnings or enhanced business synergies.  Future acquisitions could result in potentially dilutive issuances of our equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to intangible assets, which could materially impair our results of operations and financial condition.

Future sales of our common stock may depress our stock price.

If our stockholders sell substantial amounts of our common stock (including shares issued upon the exercise of options) in the public market, the market price of our common stock could fall.  These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.  For example,

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following an acquisition, a significant number of shares of our common stock held by new stockholders may become freely tradable or holders of registration rights could cause us to register their shares for resale.  Sales of these shares of common stock held by existing stockholders could cause the market price of our common stock to decline.

If we are unable to meet Nasdaq continued listing requirements, Nasdaq may take action to delist our common stock.

Our common stock trades on The Nasdaq Global Select Market, which has qualitative and quantitative listing criteria, including operating results, net assets, corporate governance, minimum trading price and minimums for public float, which is the amount of stock not held by our affiliates.  If we are unable to meet Nasdaq continued listing requirements, Nasdaq may take action to delist our common stock. A delisting of our common stock could negatively impact us and our shareholders by reducing the liquidity and market price of our common stock and potentially reducing the number of investors willing to hold or acquire our common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2.  Properties

We currently own approximately 260,000 square feet of space for our corporate offices and laboratories in buildings located in The Woodlands, Texas, a suburb of Houston, Texas, and lease approximately 42,000 square feet of space for offices and laboratories near Princeton, New Jersey.

In April 2004, we obtained a $34.0 million mortgage on our facilities in The Woodlands, Texas.  The mortgage loan originally had a ten-year term with a 20-year amortization and a fixed rate of 8.23%. The mortgage was amended in September 2013 to extend the maturity date from April 2014 to April 2017, with the mortgage loan's monthly payment amount and fixed interest rate each remaining unchanged.  The mortgage had a principal balance outstanding of $21.9 million as of December 31, 2013.

In May 2002, our subsidiary Lexicon Pharmaceuticals (New Jersey), Inc. entered into a lease for our facility in Hopewell, New Jersey.  Effective December 31, 2012, this lease was amended and now extends until June 2018. The amended lease provides for escalating yearly base rent payments starting at $836,000 and increasing to $941,000 in the final year of the lease.  We are the guarantor of the obligations of our subsidiary under the lease.

We believe that our facilities are well-maintained, in good operating condition and acceptable for our current operations.

Item 3.  Legal Proceedings

We are from time to time party to claims and legal proceedings that arise in the normal course of our business and that we believe will not have, individually or in the aggregate, a material adverse effect on our results of operations, financial condition or liquidity.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on The Nasdaq Global Select Market under the symbol “LXRX.”  The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported on The Nasdaq Global Select Market.

	High		Low
2012
First Quarter	$	2.01	$	1.13
Second Quarter	$	2.36	$	1.45
Third Quarter	$	3.28	$	2.05
Fourth Quarter	$	2.75	$	1.55
2013
First Quarter	$	2.48	$	1.91
Second Quarter	$	2.41	$	1.84
Third Quarter	$	2.70	$	2.16
Fourth Quarter	$	3.18	$	1.70

As of February 27, 2014, there were approximately 358 holders of record of our common stock.

We have never paid cash dividends on our common stock. We anticipate that we will retain all of our future earnings, if any, for use in the expansion and operation of our business and do not anticipate paying cash dividends in the foreseeable future.

Performance Graph

The following performance graph compares the performance of our common stock to the Nasdaq Composite Index and the Nasdaq Biotechnology Index for the period beginning December 31, 2008 and ending December 31, 2013. The graph assumes that the value of the investment in our common stock and each index was $100 at December 31, 2008, and that all dividends were reinvested.

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	December 31,
	2008	2009	2010	2011	2012	2013
Lexicon Pharmaceuticals, Inc.	100	121	103	92	158	129
Nasdaq Composite Index	100	144	168	165	191	265
Nasdaq Biotechnology Index	100	116	133	149	196	325

The foregoing stock price performance comparisons shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference by any general statement incorporating by reference this annual report on Form 10-K into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that we specifically incorporate such comparisons by reference.

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Item 6. Selected Financial Data

The statements of comprehensive loss data for the years ended December 31, 2013, 2012 and 2011 and the balance sheet data as of December 31, 2013 and 2012 have been derived from our audited financial statements included elsewhere in this annual report on Form 10-K.  The statements of comprehensive loss data for the years ended December 31, 2010 and 2009, and the balance sheet data as of December 31, 2011, 2010 and 2009 have been derived from our audited financial statements not included in this annual report on Form 10-K.  Our historical results are not necessarily indicative of results to be expected for any future period.  The data presented below has been derived from financial statements that have been prepared in accordance with accounting principles generally accepted in the United States and should be read with our financial statements, including the notes, and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this annual report on Form 10-K.

	Year Ended December 31,
	2013			2012			2011			2010			2009
Statements of Comprehensive Loss Data:				(in thousands, except per share data)
Revenues	$	2,222		$	1,089		$	1,849		$	4,908		$	10,700
Operating expenses:
Research and development, including stock-based compensation of $4,376 in 2013, $3,673 in 2012, $3,249 in 2011, $3,170 in 2010 and $3,022 in 2009	89,682			82,574			91,828			78,520			81,238
Increase (decrease) in fair value of Symphony Icon, Inc. purchase liability	(2,210		)	9,887			6,766			2,710			—
General and administrative, including stock-based compensation of $3,045 in 2013, $2,822 in 2012, $2,458 in 2011, $2,308 in 2010 and $2,252 in 2009	17,121			17,043			17,350			19,396			19,418
Total operating expenses	104,593			109,504			115,944			100,626			100,656
Loss from operations	(102,371		)	(108,415		)	(114,095		)	(95,718		)	(89,956		)
Interest and other income (expense), net	(1,755		)	(1,796		)	(2,120		)	(6,083		)	(3,463		)
Consolidated net loss before taxes	(104,126		)	(110,211		)	(116,215		)	(101,801		)	(93,419		)
Income tax benefit	—			—			—			26			102
Consolidated net loss	(104,126		)	(110,211		)	(116,215		)	(101,775		)	(93,317		)
Less: net loss attributable to noncontrolling interest in Symphony Icon, Inc.	—			—			—			—			10,537
Net loss attributable to Lexicon Pharmaceuticals, Inc.	$	(104,126	)	$	(110,211	)	$	(116,215	)	$	(101,775	)	$	(82,780	)
Net loss attributable to Lexicon Pharmaceuticals, Inc. per common share, basic and diluted	$	(0.20	)	$	(0.23	)	$	(0.34	)	$	(0.34	)	$	(0.57	)
Shares used in computing net loss attributable to Lexicon Pharmaceuticals, Inc. per common share, basic and diluted	513,117			489,707			340,761			302,844			145,465

	As of December 31,
	2013			2012			2011			2010			2009
Balance Sheet Data:				(in thousands)
Cash, cash equivalents and short-term investments, including restricted cash and investments of $430	$	129,128		$	223,208		$	281,692		$	211,111		$	157,096
Short-term investments held by Symphony Icon, Inc.	—			—			—			—			5,417
Working capital	115,260			212,650			264,400			203,963			118,730
Total assets	274,160			371,778			430,512			366,884			257,761
Long-term debt, net of current portion	20,167			21,877			23,451			27,345			28,482
Accumulated deficit	(1,003,958		)	(899,832		)	(789,621		)	(673,406		)	(570,175		)
Lexicon Pharmaceuticals, Inc. stockholders’ equity	170,163			266,678			297,568			247,024			163,787

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read with “Selected Financial Data” and our financial statements and notes included elsewhere in this annual report on Form 10-K.

Overview

We are a biopharmaceutical company focused on the development of breakthrough treatments for human disease.  We have advanced multiple drug candidates into clinical development. We are presently devoting most of our resources to the development of our two most advanced drug candidates, LX4211 for diabetes and telotristat etiprate for carcinoid syndrome. Our most advanced drug candidates, as well as compounds from a number of additional drug discovery and development programs that we have advanced into various stages of clinical and preclinical development, originated from our own internal drug discovery efforts. These efforts were driven by a systematic, target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets. We identified and validated in living animals, or in vivo, more than 100 targets with promising profiles for drug discovery.

We are working both independently and through strategic collaborations and alliances with third parties to capitalize on our drug target discoveries, and we intend to pursue the same strategy for our drug candidates in clinical development. Consistent with this approach, we seek to retain exclusive rights to the benefits of certain drug discovery and development programs by developing and commercializing drug candidates from those programs internally and to collaborate with other pharmaceutical and biotechnology companies with respect to the development and commercialization of drug candidates from other programs, particularly when the collaboration may provide us with access to expertise and resources that we do not possess internally or are complementary to our own. We also seek to collaborate with other pharmaceutical and biotechnology companies, research institutes and academic institutions to capitalize on our drug target discoveries.

We have derived substantially all of our revenues from drug discovery and development collaborations and other research collaborations and technology licenses, and will continue to do so for the foreseeable future.  To date, we have generated a substantial portion of our revenues from a limited number of sources.

Our operating results and, in particular, our ability to generate additional revenues are dependent on many factors, including our success in establishing new collaborations and licenses, the success rate of our development efforts leading to opportunities for new collaborations and licenses, the timing and willingness of collaborators to commercialize products that would result in milestone payments and royalties and their success in such efforts, and general and industry-specific economic conditions which may affect research and development expenditures.  Future revenues from our existing collaborations are uncertain because they depend, to a large degree, on the achievement of milestones and payment of royalties we earn from any future products developed under the collaboration. As a result, we depend, in part, on securing new collaborations and license agreements.  Our ability to secure future revenue-generating agreements will depend upon our ability to address the needs of our potential future collaborators and licensees, and to negotiate agreements that we believe are in our long-term best interests.  We may determine, as we have with certain of our clinical drug candidates, that our interests are better served by retaining rights to our discoveries and advancing our therapeutic programs to a later stage, which could limit our near-term revenues.  Because of these and other factors, our operating results have fluctuated in the past and are likely to do so in the future, and we do not believe that period-to-period comparisons of our operating results are a good indication of our future performance.

Since our inception, we have incurred significant losses and, as of December 31, 2013, we had an accumulated deficit of $1.0 billion. Our losses have resulted principally from costs incurred in research and development, general and administrative costs associated with our operations, and non-cash stock-based compensation expenses associated with stock options and restricted stock granted to employees and consultants.  Research and development expenses consist primarily of salaries and related personnel costs, external research costs related to our preclinical and clinical efforts, material costs, facility costs, depreciation on property and equipment, and other expenses related to our drug discovery and development programs. General and administrative expenses consist primarily of salaries and related expenses for executive and administrative personnel, professional fees and other corporate expenses, including information technology, facilities costs and general legal activities.  We expect to incur significant research and development costs in connection with the continuing development of our drug candidates. As a result, we will need to generate significantly higher revenues to achieve profitability.

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Critical Accounting Policies

Revenue Recognition

We recognize revenues when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectibility is reasonably assured.  Payments received in advance under these arrangements are recorded as deferred revenue until earned.

Upfront fees under our drug discovery and development alliances are recognized as revenue on a straight-line basis over the estimated period of service, generally the contractual research term, as this period is our best estimate of the period over which the services will be rendered, to the extent they are non-refundable.  We have determined that the level of effort we perform to meet our obligations is fairly constant throughout the estimated periods of service.  As a result, we have determined that it is appropriate to recognize revenue from such agreements on a straight-line basis, as we believe this reflects how the research is provided during the initial period of the agreement.  When it becomes probable that a collaborator will extend the research period, we adjust the revenue recognition method as necessary based on the level of effort required under the agreement for the extension period.

Research funding under these alliances is recognized as services are performed to the extent they are non-refundable, either on a straight-line basis over the estimated service period, generally the contractual research term; or as contract research costs are incurred.  Milestone-based fees are recognized upon completion of specified milestones according to contract terms.  Payments received under target validation collaborations and government grants and contracts are recognized as revenue as we perform our obligations related to such research to the extent such fees are non-refundable.  Non-refundable technology license fees are recognized as revenue upon the grant of the license, when performance is complete and there is no continuing involvement.

Revenues recognized from multiple element contracts are allocated to each element of the arrangement based on the relative fair value of the elements.  An element of a contract can be accounted for separately if the delivered elements have standalone value to the collaborator and the fair value of any undelivered elements is determinable through objective and reliable evidence.  If an element is considered to have standalone value but the fair value of any of the undelivered items cannot be determined, all elements of the arrangement are recognized as revenue over the period of performance for such undelivered items or services.

A change in our revenue recognition policy or changes in the terms of contracts under which we recognize revenues could have an impact on the amount and timing of our recognition of revenues.

Research and Development Expenses

Research and development expenses consist of costs incurred for research and development activities solely sponsored by us as well as collaborative research and development activities.  These costs include direct and research-related overhead expenses and are expensed as incurred.  Technology license fees for technologies that are utilized in research and development and have no alternative future use are expensed when incurred.

We have advanced multiple drug candidates into clinical development. We are presently devoting most of our resources to the development of our two most advanced drug candidates:

• LX4211, an orally-delivered small molecule drug candidate that we are developing as a treatment for type 1 and type 2 diabetes; and

• Telotristat etiprate, or LX1032, an orally-delivered small molecule drug candidate that we are developing as a treatment for carcinoid syndrome. 

Our most advanced drug candidates, as well as compounds from a number of additional drug discovery and development programs that we have advanced into various stages of clinical and preclinical development, originated from our own internal drug discovery efforts. These efforts were driven by a systematic, target biology-driven approach in which we used gene knockout technologies and an integrated platform of advanced medical technologies to systematically study the physiological and behavioral functions of almost 5,000 genes in mice and assessed the utility of the proteins encoded by the corresponding human genes as potential drug targets. We identified and validated in living animals, or in vivo, more than 100 targets with promising profiles for drug discovery.

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The drug development process takes many years to complete.  The cost and length of time varies due to many factors including the type, complexity and intended use of the drug candidate.  We estimate that drug development activities are typically completed over the following periods:

Phase	Estimated Completion Period
Preclinical development	1-2 years
Phase 1 clinical trials	1-2 years
Phase 2 clinical trials	1-2 years
Phase 3 clinical trials	2-4 years

We expect research and development costs to increase in the future as our existing clinical drug candidates advance to later stage clinical trials and new drug candidates enter clinical development.  Due to the variability in the length of time necessary for drug development, the uncertainties related to the cost of these activities and ultimate ability to obtain governmental approval for commercialization, accurate and meaningful estimates of the ultimate costs to bring our potential drug candidates to market are not available.

We record significant accrued liabilities related to unbilled expenses for products or services that we have received from service providers, specifically related to ongoing preclinical studies and clinical trials.  These costs primarily relate to clinical study management, monitoring, laboratory and analysis costs, drug supplies, toxicology studies and investigator grants.  We have multiple drugs in concurrent preclinical studies and clinical trials at clinical sites throughout the world.  In order to ensure that we have adequately provided for ongoing preclinical and clinical development costs during the period in which we incur such costs, we maintain accruals to cover these expenses.  Substantial portions of our preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors. For preclinical studies, we accrue expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. We monitor patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to us by the vendors and clinical site visits. Our estimates depend on the timeliness and accuracy of the data provided by our vendors regarding the status of each program and total program spending. We periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information we receive.  Although we use consistent milestones or subject or patient enrollment to drive expense recognition, the assessment of these costs is a subjective process that requires judgment.  Upon settlement, these costs may differ materially from the amounts accrued in our consolidated financial statements.

We record our research and development costs by type or category, rather than by project.  Significant categories of costs include personnel, facilities and equipment costs, laboratory supplies and third-party and other services.  In addition, a significant portion of our research and development expenses is not tracked by project as it benefits multiple projects. Consequently, fully-loaded research and development cost summaries by project are not available.

Stock-based Compensation Expense

We recognize compensation expense in our statements of comprehensive loss for share-based payments, including stock options issued to employees, based on their fair values on the date of the grant, with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award.  Stock-based compensation expense for awards without performance conditions is recognized on a straight-line basis. Stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met.  We had stock-based compensation expense of $7.4 million for the year ended December 31, 2013, or $0.01 per share.  As of December 31, 2013, stock-based compensation cost for all outstanding unvested options was $11.7 million, which is expected to be recognized over a weighted-average vesting period of 1.3 years.

The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model.  For purposes of determining the fair value of stock options, we segregate our options into two homogeneous groups, based on exercise and post-vesting employment termination behaviors, resulting in a change in the assumptions used for expected option lives and forfeitures.  Expected volatility is based on the historical volatility in our stock price.  The following weighted-average assumptions were used for options granted in the years ended December 31, 2013, 2012 and 2011, respectively:

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	Expected Volatility		Risk-free Interest Rate		Expected Term	Dividend Rate
December 31, 2013:
Employees	85	%	0.9	%	5	0	%
Officers and non-employee directors	81	%	1.6	%	8	0	%
December 31, 2012:
Employees	93	%	0.8	%	5	0	%
Officers and non-employee directors	81	%	1.5	%	8	0	%
December 31, 2011:
Employees	88	%	2.2	%	5	0	%
Officers and non-employee directors	78	%	3.2	%	8	0	%

Impairment of Long-Lived Assets

Our long-lived assets include property, plant and equipment, intangible assets and goodwill. We regularly review long-lived assets for impairment. The recoverability of long-lived assets, other than goodwill, is measured by comparing the assets carrying amount to the expected undiscounted future cash flows that the asset is expected to generate. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset's residual value, if any. We use internal cash flow estimates, quoted market prices when available and independent appraisals as appropriate to determine fair value. We derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate. During the year ended December 31, 2011, we determined that one of our buildings was impaired and therefore recorded an impairment loss of $800,000, which was recorded as research and development expense in the accompanying statement of comprehensive loss. In June 2011, we sold this building with an immaterial additional loss on the sale. There were no significant impairments of long-lived assets in 2012 and 2013.

Goodwill is not amortized, but is tested at least annually for impairment at the reporting unit level.  We have determined that the reporting unit is the single operating segment disclosed in our current financial statements.  Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.  The first step in the impairment process is to determine the fair value of the reporting unit and then compare it to the carrying value, including goodwill.  We determined that the market capitalization approach is the most appropriate method of measuring fair value of the reporting unit.  Under this approach, fair value is calculated as the average closing price of our common stock for the 30 days preceding the date that the annual impairment test is performed, multiplied by the number of outstanding shares on that date.  A control premium, which is representative of premiums paid in the marketplace to acquire a controlling interest in a company, is then added to the market capitalization to determine the fair value of the reporting unit.  If the fair value exceeds the carrying value, no further action is required and no impairment loss is recognized.  Additional impairment assessments may be performed on an interim basis if we encounter events or changes in circumstances that would indicate that, more likely than not, the carrying value of goodwill has been impaired.  There was no impairment of goodwill in 2013, 2012 and 2011.

Business Combinations

We allocate the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially at acquisition date with respect to intangible assets and in-process research and development.

These assumptions are based in part on historical experience and are inherently uncertain. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to: the feasibility and timing of achievement of development, regulatory and commercial milestones; expected costs to develop the in-process research and development into commercially viable products; and future expected cash flows from product sales.

In connection with the purchase price allocations for acquisitions, we estimate the fair value of the contingent payments. The estimated fair value of any contingent payments is determined utilizing a probability-based income approach inclusive of an estimated discount rate.

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Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.

Recent Accounting Pronouncements

There are no recent accounting pronouncements that have a material impact on our consolidated financial statements.

Results of Operations – Comparison of Years Ended December 31, 2013, 2012 and 2011

Revenues

Total revenues and dollar and percentage changes as compared to the prior year are as follows (dollar amounts are presented in millions):

	Year Ended December 31,
	2013			2012			2011
Total revenues	$	2.2		$	1.1		$	1.8
Dollar increase (decrease)	$	1.1		$	(0.8	)
Percentage increase (decrease)	104		%	(41		)%

Years Ended December 31, 2013 and 2012

• Collaborative research – Revenue from collaborative research increased 169% to $2.1 million, primarily due to revenues recognized from a collaboration with a non-profit institute supporting the Phase 2 development of LX4211 in type 1 diabetes.

• Subscription and license fees – Revenues from subscriptions and license fees decreased 63% to $0.1 million, primarily due to decreases in technology license fees.

Years Ended December 31, 2012 and 2011

• Collaborative research – Revenue from collaborative research decreased 52% to $0.8 million, primarily due to reduced revenues from functional genomics contracts and from the United States Army Medical Research Acquisition Activity.

• Subscription and license fees – Revenue from subscriptions and license fees increased 41% to $0.3 million, primarily due to increases in technology license fees.

In 2013, McNair Medical Institute, LLC and Taconic Farms, Inc. represented 57% and 33% of revenues, respectively. In 2012, Taconic Farms and Deltagen represented 68% and 25% of revenues, respectively.  In 2011, Taconic Farms, Texas A&M Institute for Genomic Medicine and United States Army Medical Research Acquisition Activity represented 46%, 20% and 20% of revenues, respectively.    

Research and Development Expenses

Research and development expenses and dollar and percentage changes as compared to the prior year are as follows (dollar amounts are presented in millions):

	Year Ended December 31,
	2013			2012			2011
Total research and development expense	$	89.7		$	82.6		$	91.8
Dollar increase (decrease)	$	7.1		$	(9.3	)
Percentage increase (decrease)	9		%	(10		)%

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Research and development expenses consist primarily of third-party and other services principally related to preclinical and clinical development activities, salaries and other personnel-related expenses, facility and equipment costs, stock-based compensation and laboratory supplies expenses.

Years Ended December 31, 2013 and 2012

• Third-party and other services – Third-party and other services increased 27% in 2013 to $42.0 million, primarily due to an increase in our external clinical research and development costs, partially offset by a decrease in external preclinical research and development costs. Third-party and other services relate principally to our clinical trial and related development activities, such as preclinical and clinical studies and contract manufacturing.

• Personnel – Personnel costs decreased 2% in 2013 to $25.8 million. Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

• Facilities and equipment – Facilities and equipment costs decreased 24% in 2013 to $8.7 million, primarily due to decreases in depreciation expense and rent costs.

• Stock-based compensation – Stock-based compensation expense increased 19% in 2013 to $4.4 million.

• Laboratory supplies – Laboratory supplies expense increased 3% in 2013 to $3.6 million.

• Other – Other costs increased 14% to $5.2 million.

Years Ended December 31, 2012 and 2011

• Third-party and other services – Third-party and other services decreased 6% in 2012 to $32.9 million, primarily due to a decrease in our external preclinical research and development costs, partially offset by an increase in external clinical research and development costs.

• Personnel – Personnel costs decreased 12% in 2012 to $26.4 million, primarily due to reductions in our personnel in January 2012.

• Facilities and equipment – Facilities and equipment costs decreased 17% in 2012 to $11.5 million, primarily due to an impairment of buildings due to excess capacity in 2011 and decreases in decreases in depreciation expense and rent costs.

• Stock-based compensation – Stock-based compensation expense increased 13% in 2012 to $3.7 million.

• Laboratory supplies – Laboratory supplies expense decreased 33% in 2012 to $3.5 million primarily due to reductions in early-stage research activities.

• Other – Other costs increased 5% to $4.5 million.

Increase (Decrease) in Fair Value of Symphony Icon Liability

The fair value of the Symphony Icon purchase liability decreased by $2.2 million in the year ended December 31, 2013 and increased by $9.9 million and $6.8 million for the years ended December 31, 2012 and 2011, respectively (see Note 9, Arrangements with Symphony Icon, Inc., of the Notes to Consolidated Financial Statements, for more information). The decrease in 2013 was primarily attributable to a reduction in the liability associated with our LX1033 development program in diarrhea-predominant irritable bowel syndrome.

General and Administrative Expenses

General and administrative expenses and dollar and percentage changes as compared to the prior year are as follows (dollar amounts are presented in millions):

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	Year Ended December 31,
	2013			2012			2011
Total general and administrative expense	$	17.1		$	17.0		$	17.4
Dollar increase (decrease)	$	0.1		$	(0.3	)
Percentage increase (decrease)	—		%	(2		)%

General and administrative expenses consist primarily of personnel costs to support our research and development activities, professional fees such as legal fees, stock-based compensation expense, and facility and equipment costs.

Years Ended December 31, 2013 and 2012

• Personnel – Personnel costs decreased 4% in 2013 to $7.7 million. Salaries, bonuses, employee benefits, payroll taxes, recruiting and relocation costs are included in personnel costs.

• Professional fees – Professional fees increased 16% in 2013 to $3.3 million, primarily due to increased patent-related legal costs.

• Stock-based compensation – Stock-based compensation expense increased 8% in 2013 to $3.0 million.

• Facilities and equipment – Facilities and equipment costs decreased 14% in 2013 to $1.7 million, primarily due to reduced rent costs and depreciation expense.

• Other – Other costs in 2013 were $1.4 million, consistent with the prior year.

Years Ended December 31, 2012 and 2011

• Personnel – Personnel costs decreased 4% in 2012 to $8.0 million.

• Professional fees – Professional fees in 2012 were $2.8 million, consistent with the prior year.

• Stock-based compensation – Stock-based compensation expense increased 15% in 2012 to $2.8 million.

• Facilities and equipment – Facilities and equipment costs decreased 12% in 2012 to $2.0 million, primarily due to reduced rent costs.

• Other – Other costs decreased 8% in 2012 to $1.4 million.

Interest Income, Interest Expense and Other Income (Expense), Net

Interest Income. Interest income was $0.2 million in 2013, consistent with the prior year, and decreased 16% in 2012 from $0.3 million in 2011, primarily due to lower yields on our investments.

Interest Expense.  Interest expense decreased 7% in 2013 to $2.0 million from $2.1 million in 2012 and decreased 16% in 2012 from $2.5 million in 2011.

Other Income (Expense), Net.  Other income, net was $0.1 million, $0.1 million, and $0.2 million in the years ended December 31, 2013, 2012, and 2011, respectively.  

Consolidated Net Loss and Consolidated Net Loss per Common Share

Consolidated net loss decreased to $104.1 million in 2013 from $110.2 million in 2012 and decreased from $116.2 million in 2011.  Net loss per common share was $0.20 in 2013, $0.23 in 2012, and $0.34 in 2011.

Liquidity and Capital Resources

We have financed our operations from inception primarily through sales of common and preferred stock, contract and milestone payments to us under our drug discovery and development collaborations, target validation, database subscription

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and technology license agreements, government grants and contracts and financing under debt and lease arrangements.  We have also financed certain of our research and development activities under our agreements with Symphony Icon, Inc.  From our inception through December 31, 2013, we had received net proceeds of $986.9 million from issuances of common and preferred stock.  In addition, from our inception through December 31, 2013, we received $457.9 million in cash payments from drug discovery and development collaborations, target validation, database subscription and technology license agreements, sales of compound libraries and reagents and government grants and contracts, of which $444.8 million had been recognized as revenues through December 31, 2013.

As of December 31, 2013, we had $129.1 million in cash, cash equivalents and investments.  As of December 31, 2012, we had $223.2 million in cash, cash equivalents.  We used cash of $91.1 million in operations in 2013. This consisted primarily of the consolidated net loss for the year of $104.1 million and non-cash charges of $2.2 million related to the decrease in fair value of the Symphony Icon purchase liability, partially offset by $7.4 million related to stock-based compensation expense, a net decrease in other operating assets net of liabilities of $5.0 million, and $2.9 million related to depreciation expense.  Investing activities provided cash of $99.5 million in 2013, primarily due to net maturities of investments of $101.1 million, partially offset by purchases of property and equipment of $1.7 million.  Financing activities used cash of $1.4 million primarily due to repayment of debt borrowings of $1.6 million and repurchase of common stock of $0.9 million, partially offset by net proceeds from issuance of common stock of $1.1 million.

Symphony Drug Development Financing Agreements.  In June 2007, we entered into a series of related agreements providing for the financing of the clinical development of certain drug programs, including LX1032 and LX1033, along with any other pharmaceutical compositions modulating the same targets as those drug candidates.  Under the financing arrangement, we licensed to Symphony Icon, Inc., a then wholly-owned subsidiary of Symphony Icon Holdings LLC, our intellectual property rights related to the programs and Holdings contributed $45 million to Symphony Icon in order to fund the clinical development of the programs.  We also issued and sold to Holdings shares of our common stock in exchange for $15 million and received an exclusive option to acquire all of the equity of Symphony Icon, thereby allowing us to reacquire the programs.   

Upon the recommendation of Symphony Icon’s development committee, which was comprised of an equal number of representatives from us and Symphony Icon, Symphony Icon’s board of directors had the right to require us to pay Symphony Icon up to $15 million for Symphony Icon’s use in the development of the programs in accordance with a specified development plan and related development budget.  Through July 2010, Symphony Icon’s board of directors requested us to pay Symphony Icon $9.3 million under the agreement, all of which was paid prior to the exercise of the purchase option in July 2010.

In July 2010, we entered into an amended and restated purchase option agreement with Symphony Icon and Holdings and simultaneously exercised our purchase option. Pursuant to the amended terms of the purchase option, we paid Holdings $10 million in July 2010 and issued 13,237,519 shares of common stock to designees of Holdings in July 2012 in satisfaction of an additional $35 million base payment obligation.

We also agreed to make up to $45 million in additional contingent payments, which will consist of 50% of any consideration we receive pursuant to any licensing transaction under which we grant a third party rights to commercialize LX1032, LX1033 or other pharmaceutical compositions modulating the same target as those drug candidates, which we refer to as the “LG103 programs,” subject to certain exceptions. The contingent payments will be due if and when we receive such consideration from such a licensing transaction. In the event we receive regulatory approval in the United States for the marketing and sale of any product resulting from the LG103 programs prior to entering into such a licensing transaction for the commercialization of such product in the United States, in lieu of any contingent payment from such a licensing transaction, we will pay Holdings the sum of $15 million and the amount of certain expenses we incurred after our exercise of the purchase option which are attributable to the development of such product, reduced by up to 50% of such sum on account of any contingent payments paid prior to such United States regulatory approval attributable to any such licensing transaction outside of the United States with respect to such product. In the event we make any such payment upon United States regulatory approval, we will have no obligation to make subsequent contingent payments attributable to any such licensing transactions for the commercialization of such product outside the United States until the proceeds of such licensing transactions exceed 50% of the payment made as a result of such United States regulatory approval.

The contingent payments may be paid in cash or a combination of cash and common stock, in our discretion, provided that no more than 50% of any contingent payment will be paid in common stock.

Texas Institute for Genomic Medicine.  In July 2005, we received an award from the Texas Enterprise Fund for the creation of a knockout mouse embryonic stem cell library containing 350,000 cell lines for the Texas Institute for Genomic

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Medicine, or TIGM, using our proprietary gene trapping technology, which we completed in 2007.  We also equipped TIGM with the bioinformatics software required for the management and analysis of data relating to the library.  The Texas Enterprise Fund made an additional award to the Texas A&M University System for the creation of facilities and infrastructure to house the library.

Under the terms of our award, we are responsible for the creation of a specified number of jobs beginning in 2012, reaching an aggregate of 1,616 new jobs in Texas by December 31, 2016. We will receive credits against those job obligations based on funding received by TIGM and certain related parties from sources other than the State of Texas.  We will also receive credits against those jobs obligations for any surplus jobs we create. We may be required to repay the state a portion of the award if we fail to meet those job obligations. Subject to these credits, if we fail to create the specified number of jobs, the State may require us to repay $2,415 for each job we fall short beginning in 2013.  Our maximum aggregate exposure for such payments, if we fail to create any new jobs, is approximately $14.2 million, including $1.5 million through 2014, without giving effect to any credits to which we may be entitled.

Facilities.  In April 2004, we obtained a $34.0 million mortgage on our facilities in The Woodlands, Texas.  The mortgage loan originally had a ten-year term with a 20-year amortization and a fixed interest rate of 8.23%. The mortgage was amended in September 2013 to extend the maturity date from April 2014 to April 2017, with the mortgage loan's monthly payment amount and fixed interest rate each remaining unchanged. The mortgage balance has a principal balance of $21.9 million as of December 31, 2013.

In May 2002, our subsidiary Lexicon Pharmaceuticals (New Jersey), Inc. leased a 76,000 square-foot laboratory and office space in Hopewell, New Jersey. Effective December 31, 2012, this lease was amended to decrease the space to approximately 42,000 square feet. The term of the amended lease extends until June 30, 2018.  The amended lease provides for escalating yearly base rent payments starting at $836,000 and increasing to $941,000 in the final year of the lease.  We are the guarantor of the obligations of our subsidiary under the lease.

Including the lease and debt obligations described above, we had incurred the following contractual obligations as of December 31, 2013:

	Payments due by period (in millions)
Contractual Obligations	Total		Less than 1 year		2-3 years		4-5 years		More than 5 years
Debt	$	21.9	$	1.7	$	3.9	$	16.3	$	—
Interest payment obligations	5.3		1.8		3.0		0.5		—
Operating leases	4.3		0.6		2.1		1.6		—
Total	$	31.5	$	4.1	$	9.0	$	18.4	$	—

The foregoing table does not include any potential payments related to the award we received from the Texas Enterprise Fund. Under the terms of the award, we are responsible for the creation of jobs beginning in 2012. Subject to credits, if we fail to create the specified number of jobs, the State of Texas may require us to repay $2,415 for each job we fall short beginning in 2013 and continuing until 2019. Our maximum aggregate exposure for such payment, if we fail to create any new jobs, is approximately $14.2 million, including $1.5 million through 2014, without giving effect to any credits to which we may be entitled. See Note 15, Collaboration and License Agreements, of the Notes to Consolidated Financial Statements, for further discussion.

Our future capital requirements will be substantial and will depend on many factors, including our ability to obtain drug discovery and development collaborations and other collaborations and technology license agreements, the amount and timing of payments under such agreements, the level and timing of our research and development expenditures, market acceptance of our products, the resources we devote to developing and supporting our products and other factors.  Our capital requirements will also be affected by any expenditures we make in connection with license agreements and acquisitions of and investments in complementary technologies and businesses.  We expect to devote substantial capital resources to continue our development efforts, to expand our support and product development activities, and for other general corporate activities.  We believe that our current unrestricted cash and investment balances and cash and revenues we expect to derive from drug discovery and development collaborations, other collaborations and technology licenses and other sources will be sufficient to fund our operations for at least the next 12 months.  During or after this period, if cash generated by operations is insufficient to satisfy our liquidity requirements, we will need to sell additional equity or debt securities or obtain additional credit

35

arrangements.  Additional financing may not be available on terms acceptable to us or at all. The sale of additional equity or convertible debt securities may result in additional dilution to our stockholders.

Disclosure about Market Risk

We are exposed to limited market and credit risk on our cash equivalents which have maturities of three months or less at the time of purchase.  We maintain a short-term investment portfolio which consists of U.S. Treasury bills, money market accounts, and certificates of deposit that mature three to 12 months from the time of purchase, which we believe are subject to limited market and credit risk.  We currently do not hedge interest rate exposure or hold any derivative financial instruments in our investment portfolio.

We had approximately $129.1 million in cash and cash equivalents and short-term investments as of December 31, 2013.  We believe that the working capital available to us will be sufficient to meet our cash requirements for at least the next 12 months.

We have operated primarily in the United States and substantially all sales to date have been made in U.S. dollars. Accordingly, we have not had any material exposure to foreign currency rate fluctuations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

See “Disclosure about Market Risk” under “Item 7. Management’s Discussion and Analysisof Financial Condition and Results of Operations” for quantitative and qualitative disclosures about market risk.

Item 8.  Financial Statements and Supplementary Data

The financial statements required by this Item are incorporated under Item 15 in Part IV of this report.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures

Our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in the reports we file under the Securities Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness, based on an evaluation of such controls and procedures as of the end of the period covered by this report.

Subsequent to our evaluation, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act).

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (1992 Framework).

Based on such assessment using those criteria, management believes that, as of December 31, 2013, our internal control over financial reporting is effective.

36

Our independent auditors have also audited our internal control over financial reporting as of December 31, 2013 as stated in the audit report which appears on page F-2 and is incorporated under Item 15 in Part IV of this report.

Item 9B.     Other Information

None.

37

PART III

Item 10.  Directors, Executive Officers and Corporate Governance

The information required by this Item is hereby incorporated by reference from (a) the information appearing under the captions “Election of Directors,” “Stock Ownership of Certain Beneficial Owners and Management,” “Corporate Governance” and “Executive and Director Compensation” in our definitive proxy statement which involves the election of directors and is to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on December 31, 2013 and (b) the information appearing under Item 1 in Part Iof this report.

Item 11.  Executive Compensation

The information required by this Item is hereby incorporated by reference from the information appearing under the captions “Corporate Governance” and “Executive and Director Compensation” in our definitive proxy statement which involves the election of directors and is to be filed with the Commission pursuant to the Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on December 31, 2013. Notwithstanding the foregoing, in accordance with the instructions to Item 407(e)(5) of Regulation S-K, the information contained in our proxy statement under the sub-heading “Compensation Committee Report” shall not be deemed to be filed as part of or incorporated by reference into this annual report on Form 10-K.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is hereby incorporated by reference from the information appearing under the captions “Stock Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our definitive proxy statement which involves the election of directors and is to be filed with the Commission pursuant to the Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on December 31, 2013.

Item 13.  Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is hereby incorporated by reference from the information appearing under the captions “Corporate Governance” and “Transactions with Related Persons” in our definitive proxy statement which involves the election of directors and is to be filed with the Commission pursuant to the Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on December 31, 2013.

Item 14.   Principal Accounting Fees and Services

The information required by this Item as to the fees we pay our principal accountant is hereby incorporated by reference from the information appearing under the caption “Ratification and Approval of Independent Auditors” in our definitive proxy statement which involves the election of directors and is to be filed with the Commission pursuant to the Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on December 31, 2013.

38

PART IV

Item 15.               Exhibits and Financial Statement Schedules

(a) Documents filed as a part of this report:

1. Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	F-1
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Comprehensive Loss	F-4
Consolidated Statements of Stockholders’ Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7

2. Financial Statement Schedules

All other financial statement schedules are omitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto.

3.           Exhibits

Exhibit No.		Description
3.1	—	Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated April 26, 2012 and incorporated by reference herein).
3.2	—	Second Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company’s Current Report on Form 8‑K dated April 26, 2012 and incorporated by reference herein).
4.1	—	Securities Purchase Agreement, dated June 17, 2007, with Invus, L.P. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 17, 2007 and incorporated by reference herein).
4.2	—	Amendment, dated October 7, 2009, to Securities Purchase Agreement, dated June 17, 2007, with Invus, L.P. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 7, 2009 and incorporated by reference herein).
4.3	—	Registration Rights Agreement, dated June 17, 2007, with Invus, L.P. (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated June 17, 2007 and incorporated by reference herein).
4.4	—	Stockholders’ Agreement, dated June 17, 2007, with Invus, L.P. (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K dated June 17, 2007 and incorporated by reference herein).
4.5	—	Supplement to Transaction Agreements, dated March 15, 2010, with Invus, L.P. and Invus C.V. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated March 15, 2010 and incorporated by reference herein).
4.6	—	Supplement No. 2 to Transaction Agreements, dated February 23, 2012, with Invus, L.P. and Invus C.V. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated February 23, 2012 and incorporated by reference herein).
4.7	—	Amended and Restated Purchase Option Agreement, dated July 30, 2010, with Symphony Icon Holdings LLC and Symphony Icon, Inc. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated July 30, 2010 and incorporated by reference herein).
4.8		Amended and Restated Registration Rights Agreement, dated July 30, 2010, with Symphony Icon Holdings LLC (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K dated July 30, 2010 and incorporated by reference herein).

39

Exhibit No.		Description
10.1	—	Restated Employment Agreement with Arthur T. Sands, M.D., Ph.D. (filed as Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2005 and incorporated by reference herein).
10.2	—	Employment Agreement with Alan Main, Ph.D. (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2001 and incorporated by reference herein).
10.3	—	Employment Agreement with Jeffrey L. Wade, J.D. (filed as Exhibit 10.3 to the Company’s Registration Statement on Form S-1 (Registration No. 333-96469) and incorporated by reference herein).
10.4	—	Employment Agreement with Brian P. Zambrowicz, Ph.D. (filed as Exhibit 10.4 to the Company’s Registration Statement on Form S-1 (Registration No. 333-96469) and incorporated by reference herein).
10.5	—	Offer Letter, dated March 10, 2011, with Pablo Lapuerta, M.D. (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the period ended December 31, 2011 and incorporated by reference herein).
10.6	—	Consulting Agreement with Alan S. Nies, M.D. dated February 19, 2003, as amended (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2010 and incorporated by reference herein).
10.7	—	Consulting Agreement with Robert J. Lefkowitz, M.D. dated March 31, 2003 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2003 and incorporated by reference herein).
10.8	—	Form of Indemnification Agreement with Officers and Directors (filed as Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (Registration No. 333-96469) and incorporated by reference herein).
10.9	—	Summary of Non-Employee Director Compensation (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated April 26, 2012 and incorporated by reference herein).
10.10	—	Equity Incentive Plan, as amended (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 26, 2012 and incorporated by reference herein).
10.11	—	Non-Employee Directors’ Equity Incentive Plan, as amended (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated April 26, 2012 and incorporated by reference herein).
10.12	—	Form of Stock Option Agreement with Chairman of Board of Directors under the Equity Incentive Plan (filed as Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2005 and incorporated by reference herein).
*10.13	—	Form of Stock Option Agreement with Directors under the Non-Employee Directors’ Equity Incentive Plan (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 2009 and incorporated by reference herein).
10.14	—	Form of Stock Option Agreement with Officers under the Equity Incentive Plan, as amended (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the period ended December 31, 2011 and incorporated by reference herein).
10.15	—	Form of Restricted Stock Unit Agreement with Officers under the Equity Incentive Plan, as amended (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the period ended December 31, 2012 and incorporated by reference herein).
†10.16	—	Collaboration and License Agreement, dated December 17, 2003, with Bristol-Myers Squibb Company (filed as Exhibit 10.15 to the amendment to the Company’s Annual Report on Form 10-K/A for the period ended December 31, 2003, as filed on July 16, 2004, and incorporated by reference herein).
†10.17	—	First Amendment, dated May 30, 2006, to Collaboration and License Agreement, dated December 17, 2003, with Bristol-Myers Squibb Company (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2006, and incorporated by reference herein).
†10.18	—	Collaboration Agreement, dated July 27, 2004, with Takeda Pharmaceutical Company Limited (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2004 and incorporated by reference herein).
†10.19	—	Second Amended and Restated Collaboration and License Agreement, dated November 30, 2005, with Genentech, Inc. (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the period ended December 31, 2005 and incorporated by reference herein).

40

Exhibit No.		Description
10.20	—	Amendment, dated June 8, 2009, to Second Amended and Restated Collaboration and License Agreement, dated November 30, 2005, with Genentech, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A dated June 8, 2009 and incorporated by reference herein).
10.21	—	Economic Development Agreement dated July 15, 2005, with the State of Texas and the Texas A&M University System (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2005 and incorporated by reference herein).
10.22	—	Amendment, dated April 30, 2008, to Economic Development Agreement, dated July 15, 2005, with the State of Texas and the Texas A&M University System (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 30, 2008 and incorporated by reference herein).
*10.23	—	Loan and Security Agreement, dated April 21, 2004, between Lex-Gen Woodlands, L.P. and iStar Financial Inc., as amended.
21.1	—	Subsidiaries (filed as Exhibit 21.1 to the Company's Annual Report on Form 10-K for the period ended December 31, 2010 and incorporated by reference herein).
*23.1	—	Consent of Independent Registered Public Accounting Firm.
*24.1	—	Power of Attorney (contained in signature page).
*31.1	—	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	—	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	—	Certification of Principal Executive and Principal Financial Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101.INS	—	XBRL Instance Document.
*101.SCH	—	XBRL Taxonomy Extension Schema Document.
*101.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document.
*101.DEF	—	XBRL Taxonomy Extension Definition Linkbase Document.
*101.LAB	—	XBRL Taxonomy Extension Label Linkbase Document.
*101.PRE	—	XBRL Taxonomy Extension Presentation Linkbase Document.

_____________________        

*	Filed herewith.
†	Confidential treatment has been requested for a portion of this exhibit.  The confidential portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission.

41

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Lexicon Pharmaceuticals, Inc.
Date:	March 7, 2014	By:	/s/ ARTHUR T. SANDS
			Arthur T. Sands, M.D., Ph.D.
			President and Chief Executive Officer
Date:	March 7, 2014	By:	/s/ JEFFREY L. WADE
			Jeffrey L. Wade
			Executive Vice President, Corporate Development and Chief Financial Officer

Power of Attorney

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Arthur T. Sands and Jeffrey L. Wade, or either of them, each with the power of substitution, his or her attorney-in-fact, to sign any amendments to this Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, here ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ ARTHUR T. SANDS	President, Chief Executive Officer and Director (Principal Executive Officer)	March 7, 2014
Arthur T. Sands, M.D., Ph.D.
/s/ JEFFREY L. WADE	Executive Vice President, Corporate Development and Chief Financial Officer (Principal Financial Officer)	March 7, 2014
Jeffrey L. Wade
/s/ JAMES F. TESSMER	Vice President, Finance and Accounting (Principal Accounting Officer)	March 7, 2014
James F. Tessmer
/s/ RAYMOND DEBBANE	Chairman of the Board of Directors	March 7, 2014
Raymond Debbane
/s/ PHILIPPE J. AMOUYAL	Director	March 7, 2014
Philippe J. Amouyal
/s/ SAMUEL L. BARKER	Director	March 7, 2014
Samuel L. Barker, Ph.D.
/s/ ROBERT J. LEFKOWITZ	Director	March 7, 2014
Robert J. Lefkowitz, M.D.
/s/ ALAN S. NIES	Director	March 7, 2014
Alan S. Nies, M.D.
/s/ FRANK P. PALANTONI	Director	March 7, 2014
Frank P. Palantoni
/s/ CHRISTOPHER J. SOBECKI	Director	March 7, 2014
Christopher J. Sobecki
/s/ JUDITH L. SWAIN	Director	March 7, 2014
Judith L. Swain, M.D.

42

Report of Independent

Registered Public Accounting Firm

The Board of Directors and Stockholders

of Lexicon Pharmaceuticals, Inc.:

We have audited the accompanying consolidated balance sheets of Lexicon Pharmaceuticals, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lexicon Pharmaceuticals, Inc. as of December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Lexicon Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated March 7, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Houston, Texas

March 7, 2014

F-1

Report of Independent

Registered Public Accounting Firm

The Board of Directors and Stockholders

of Lexicon Pharmaceuticals, Inc.:

We have audited Lexicon Pharmaceuticals, Inc.’s  internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 1992 framework (the COSO criteria). Lexicon Pharmaceuticals, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Lexicon Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Lexicon Pharmaceuticals, Inc. and subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013 and our report dated March 7, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Houston, Texas

March 7, 2014

F-2

Lexicon Pharmaceuticals, Inc.

Consolidated Balance Sheets

(In thousands, except par value)

	As of December 31,
	2013			2012
Assets
Current assets:
Cash and cash equivalents	$	37,499		$	30,423
Short-term investments, including restricted investments of $430	91,629			192,785
Accounts receivable, net of allowances of $35	790			1,378
Prepaid expenses and other current assets	4,636			6,349
Total current assets	134,554			230,935
Property and equipment, net of accumulated depreciation and amortization of $81,945 and $83,416, respectively	41,362			42,634
Goodwill	44,543			44,543
Other intangible assets	53,557			53,557
Other assets	144			109
Total assets	$	274,160		$	371,778
Liabilities and Equity
Current liabilities:
Accounts payable	$	9,715		$	7,661
Accrued liabilities	7,674			8,922
Current portion of deferred revenue	195			128
Current portion of long-term debt	1,710			1,574
Total current liabilities	19,294			18,285
Deferred revenue, net of current portion	13,405			13,910
Long-term debt	20,167			21,877
Deferred tax liabilities	18,745			18,745
Other long-term liabilities	32,386			32,283
Total liabilities	103,997			105,100
Commitments and contingencies
Equity:
Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $.001 par value; 900,000 shares authorized; 514,349 and 512,375 shares issued, respectively	514			512
Additional paid-in capital	1,175,108			1,166,605
Accumulated deficit	(1,003,958		)	(899,832		)
Accumulated other comprehensive gain	2			23
Treasury stock, at cost, 814 and 380 shares, respectively	(1,503		)	(630		)
Total equity	170,163			266,678
Total liabilities and equity	$	274,160		$	371,778

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Comprehensive Loss

(In thousands, except per share amounts)

	Year Ended December 31,
	2013			2012			2011
Revenues:
Collaborative research	$	2,109		$	783		$	1,632
Subscription and license fees	113			306			217
Total revenues	2,222			1,089			1,849
Operating expenses:
Research and development, including stock-based compensation of $4,376, $3,673 and $3,249, respectively	89,682			82,574			91,828
Increase (decrease) in fair value of Symphony Icon, Inc. purchase liability	(2,210		)	9,887			6,766
General and administrative, including stock-based compensation of $3,045, $2,822 and $2,458, respectively	17,121			17,043			17,350
Total operating expenses	104,593			109,504			115,944
Loss from operations	(102,371		)	(108,415		)	(114,095		)
Interest income	157			213			255
Interest expense	(1,971		)	(2,114		)	(2,528		)
Other income, net	59			105			153
Consolidated net loss	$	(104,126	)	$	(110,211	)	$	(116,215	)
Consolidated net loss per common share, basic and diluted	$	(0.20	)	$	(0.23	)	$	(0.34	)
Shares used in computing consolidated net loss per common share, basic and diluted	513,117			489,707			340,761
Other comprehensive gain (loss):
Unrealized gain (loss) on investments	(21		)	2			16
Comprehensive loss	$	(104,147	)	$	(110,209	)	$	(116,199	)

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

									Accumulated
				Additional					Other
	Common Stock			Paid-In		Accumulated			Comprehensive			Treasury
	Shares	Par Value		Capital		Deficit			Gain			Stock			Total
Balance at December 31, 2010	337,566	$	338	$	920,324	$	(673,406	)	$	5		$	(237	)	$	247,024
Stock-based compensation	—	—		5,707		—			—			—			5,707
Issuance of common stock under Equity Incentive Plans	330	—		552		—			—			—			552
Issuance of common stock, net of fees	142,493	142		160,450		—			—			—			160,592
Repurchase of common stock	—	—		—		—			—			(108		)	(108		)
Net loss	—	—		—		(116,215		)	—			—			(116,215		)
Unrealized gain on investments	—	—		—		—			16			—			16
Balance at December 31, 2011	480,389	480		1,087,033		(789,621		)	21			(345		)	297,568
Stock-based compensation	—	—		6,495		—			—			—			6,495
Issuance of common stock to designees of Symphony Icon Holdings LLC	13,238	13		34,987		—			—			—			35,000
Issuance of common stock under Equity Incentive Plans	1,248	1		1,053		—			—			—			1,054
Issuance of common stock, net of fees	17,500	18		37,037		—			—			—			37,055
Repurchase of common stock	—	—		—		—			—			(285		)	(285		)
Net loss	—	—		—		(110,211		)	—			—			(110,211		)
Unrealized gain on investments	—	—		—		—			2			—			2
Balance at December 31, 2012	512,375	512		1,166,605		(899,832		)	23			(630		)	266,678
Stock-based compensation	—	—		7,421		—			—			—			7,421
Issuance of common stock under Equity Incentive Plans	1,974	2		1,082		—			—			—			1,084
Repurchase of common stock	—	—		—		—			—			(873		)	(873		)
Net loss	—	—		—		(104,126		)	—			—			(104,126		)
Unrealized loss on investments	—	—		—		—			(21		)	—			(21		)
Balance at December 31, 2013	514,349	$	514	$	1,175,108	$	(1,003,958	)	$	2		$	(1,503	)	$	170,163

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Lexicon Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(In thousands)

	Year Ended December 31,
	2013			2012			2011
Cash flows from operating activities:
Consolidated net loss	$	(104,126	)	$	(110,211	)	$	(116,215	)
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
Depreciation	2,863			4,190			4,887
Impairment of fixed assets	—			—			704
Increase (decrease) in fair value of Symphony Icon, Inc. purchase liability	(2,210		)	9,887			6,766
Stock-based compensation	7,421			6,495			5,707
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	588			(1,028		)	394
(Increase) decrease in prepaid expenses and other current assets	1,713			(2,601		)	(865		)
(Increase) decrease in other assets	(9		)	96			414
Increase (decrease) in accounts payable and other liabilities	3,119			(995		)	10,365
Decrease in deferred revenue	(438		)	(293		)	(95		)
Net cash used in operating activities	(91,079		)	(94,460		)	(87,938		)
Cash flows from investing activities:
Purchases of property and equipment	(1,721		)	(492		)	(1,206		)
Proceeds from disposal of property and equipment	130			85			2,625
Purchases of investments	(111,490		)	(233,250		)	(108,092		)
Maturities of investments	212,625			135,850			176,628
Net cash provided by (used in) investing activities	99,544			(97,807		)	69,955
Cash flows from financing activities:
Proceeds from issuance of common stock, net of fees	1,084			38,109			160,781
Repurchase of common stock	(873		)	(285		)	(108		)
Repayment of debt borrowings	(1,574		)	(1,443		)	(3,589		)
Other financing activities	(26		)	—			—
Net cash provided by (used in) financing activities	(1,389		)	36,381			157,084
Net increase (decrease) in cash and cash equivalents	7,076			(155,886		)	139,101
Cash and cash equivalents at beginning of year	30,423			186,309			47,208
Cash and cash equivalents at end of year	$	37,499		$	30,423		$	186,309
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,897		$	2,028		$	2,447
Supplemental disclosure of noncash investing and financing activities:
Unrealized gain (loss) on investments	$	(21	)	$	2		$	16
Common stock issued in satisfaction of Symphony Icon base payment obligation	$	—		$	35,000		$	—

The accompanying notes are an integral part of these consolidated financial statements.

F-6

Lexicon Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

December 31, 2013

1.Organization and Operations

Lexicon Pharmaceuticals, Inc. (“Lexicon” or the “Company”) is a Delaware corporation incorporated on July 7, 1995. Lexicon was organized to discover the functions and pharmaceutical utility of genes and use those gene function discoveries in the discovery and development of pharmaceutical products for the treatment of human disease.

Lexicon has financed its operations from inception primarily through sales of common and preferred stock, contract and milestone payments to it under drug discovery and development collaborations, target validation, database subscription and technology license agreements, government grants and contracts and financing under debt and lease arrangements. The Company’s future success is dependent upon many factors, including, but not limited to, its ability to discover and develop pharmaceutical products for the treatment of human disease, establish new collaboration and license agreements, achieve milestones under such agreements, obtain and enforce patents and other proprietary rights in its discoveries, comply with federal and state regulations, and maintain sufficient capital to fund its activities.  As a result of the aforementioned factors and the related uncertainties, there can be no assurance of the Company’s future success. 

2.Summary of Significant Accounting Policies

Basis of Presentation: The accompanying consolidated financial statements include the accounts of Lexicon and its wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.

Use of Estimates: The preparation of financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Cash, Cash Equivalents and Short-Term Investments: Lexicon considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  As of December 31, 2013 and 2012, short-term investments consist of U.S. treasury bills and certificates of deposit. The certificates of deposits are classified as available-for-sale securities and are carried at fair value, based on quoted market prices of the securities.  The Company views its available-for-sale securities as available for use in current operations regardless of the stated maturity date of the security.  Unrealized gains and losses on such securities are reported as a separate component of stockholders’ equity.  Net realized gains and losses, interest and dividends are included in interest income.  The cost of securities sold is based on the specific identification method.

Restricted Cash and Investments:  Lexicon is required to maintain restricted cash or investments to collateralize standby letters of credit for the lease on its office and laboratory facilities in Hopewell, New Jersey (see Note 10).  As of December 31, 2013 and 2012, restricted cash and investments were $0.4 million and $0.4 million, respectively.

Accounts Receivable:  Lexicon records trade accounts receivable in the normal course of business related to the sale of products or services.   The allowance for doubtful accounts takes into consideration such factors as historical write-offs, the economic climate and other factors that could affect collectibility.  Write-offs are evaluated on a case by case basis.

Concentration of Credit Risk: Lexicon's cash equivalents, investments and accounts receivable represent potential concentrations of credit risk. The Company attempts to minimize potential concentrations of risk in cash equivalents and investments by placing investments in high-quality financial instruments. The Company’s accounts receivable are unsecured and are concentrated in pharmaceutical and biotechnology companies located in the United States.  The Company has not experienced any significant credit losses to date.  In 2013, 2012 and 2011, customers in the United States represented 100%, 100% and 100% of revenue, respectively.  At December 31, 2013, management believes that the Company has no significant concentrations of credit risk.

Segment Information and Significant Customers: Lexicon operates in one business segment, which primarily focuses on the discovery of the functions and pharmaceutical utility of genes and the use of those gene function discoveries in the discovery and development of pharmaceutical products for the treatment of human disease. Substantially all of the Company’s revenues have been derived from drug discovery alliances, target validation collaborations for the development and, in some

F-7

cases, analysis of the physiological effects of genes altered in knockout mice, technology licenses, subscriptions to its databases, government grants and contracts and compound library sales. In 2013, McNair Medical Institute, LLC and Taconic Farms, Inc. represented 57% and 33% of revenues, respectively. In 2012, Taconic Farms and Deltagen represented 68% and 25% of revenues, respectively.  In 2011, Taconic Farms, Texas A&M Institute for Genomic Medicine and United States Army Medical Research Acquisition Activity represented 46%, 20% and 20% of revenues, respectively.    

Property and Equipment: Property and equipment are carried at cost and depreciated using the straight-line method over the estimated useful life of the assets which ranges from three to 40 years.  Maintenance, repairs and minor replacements are charged to expense as incurred.  Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining lease term.  Significant renewals and betterments are capitalized.

Impairment of Long-Lived Assets:  Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.  In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values.

Goodwill Impairment:  Goodwill is not amortized, but is tested at least annually for impairment at the reporting unit level.  The Company has determined that the reporting unit is the single operating segment disclosed in its current financial statements. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.  The first step in the impairment process is to determine the fair value of the reporting unit and then compare it to the carrying value, including goodwill.  If the fair value exceeds the carrying value, no further action is required and no impairment loss is recognized.  Additional impairment assessments may be performed on an interim basis if the Company encounters events or changes in circumstances that would indicate that, more likely than not, the carrying value of goodwill has been impaired.  There was no impairment of goodwill in 2013, 2012 or 2011.

Revenue Recognition: Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured.  Payments received in advance under these arrangements are recorded as deferred revenue until earned.  Revenues are earned from drug discovery and development collaborations, target validation collaborations, database subscriptions, technology licenses, and government grants and contracts.  Revenues generated from third parties under collaborative arrangements are recorded on a gross basis on the consolidated statements of comprehensive loss as Lexicon is the principal participant for these transactions for the purpose of accounting for these arrangements.

Upfront fees under drug discovery and development collaborations are recognized as revenue on a straight-line basis over the estimated period of service, generally the contractual research term, as this period is Lexicon’s best estimate of the period over which the services will be rendered, to the extent they are non-refundable.  Lexicon has determined that the level of effort it performs to meet its obligations is fairly constant throughout the estimated periods of service.  As a result, Lexicon has determined that it is appropriate to recognize revenue from such agreements on a straight-line basis, as management believes this reflects how the research is provided during the initial period of the agreement.  When it becomes probable that a collaborator will extend the research period, Lexicon adjusts the revenue recognition method as necessary based on the level of effort required under the agreement for the extension period.

Research funding under these alliances is recognized as services are performed to the extent they are non-refundable, either on a straight-line basis over the estimated service period, generally the contractual research term, or as contract research costs are incurred.  Milestone-based fees are recognized upon completion of specified milestones according to contract terms.  Payments received under target validation collaborations and government grants and contracts are recognized as revenue as Lexicon performs its obligations related to such research to the extent such fees are non-refundable.  Non-refundable technology license fees are recognized as revenue upon the grant of the license when performance is complete and there is no continuing involvement.

The Company analyzes its multiple element arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting.  An element of a contract can be accounted for separately if the delivered elements have standalone value to the collaborator and the fair value of any undelivered elements is determinable through objective and reliable evidence. If an element is considered to have standalone value but the fair value of any of the undelivered items cannot be determined, all elements of the arrangement are recognized as revenue over the period of performance for such undelivered items or services. 

F-8

Research and Development Expenses: Research and development expenses consist of costs incurred for company-sponsored as well as collaborative research and development activities. These costs include direct and research-related overhead expenses and are expensed as incurred.  Technology license fees for technologies that are utilized in research and development and have no alternative future use are expensed when incurred. Substantial portions of the Company's preclinical and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to the Company by the vendors and clinical site visits. The Company's estimates depend on the timeliness and accuracy of the data provided by the vendors regarding the status of each program and total program spending. The Company periodically evaluates the estimates to determine if adjustments are necessary or appropriate based on information it receives.

Stock-Based Compensation:  The Company recognizes compensation expense in its statements of comprehensive loss for share-based payments, including stock options and restricted stock units issued to employees, based on their fair values on the date of the grant, with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award.  Stock-based compensation expense for awards without performance conditions is recognized on a straight-line basis. Stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met.  As of December 31, 2013, stock-based compensation cost for all outstanding unvested options and restricted stock units was $11.7 million, which is expected to be recognized over a weighted-average period of 1.3 years.

The fair value of stock options is estimated at the date of grant using the Black-Scholes method.  The Black-Scholes option-pricing model requires the input of subjective assumptions.  Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.  For purposes of determining the fair value of stock options, the Company segregates its options into two homogeneous groups, based on exercise and post-vesting employment termination behaviors, resulting in a change in the assumptions used for expected option lives and forfeitures.  Expected volatility is based on the historical volatility in the Company’s stock price.  The following weighted-average assumptions were used for options granted in the years ended December 31, 2013, 2012 and 2011, respectively:

	Expected Volatility	Risk-free Interest Rate	Expected Term	Dividend Rate
December 31, 2013:
Employees	85%	0.9%	5	0	%
Officers and non-employee directors	81%	1.6%	8	0	%
December 31, 2012:
Employees	93%	0.8%	5	0	%
Officers and non-employee directors	81%	1.5%	8	0	%
December 31, 2011:
Employees	88%	2.2%	5	0	%
Officers and non-employee directors	78%	3.2%	8	0	%

Net Loss per Common Share: Net loss per common share is computed using the weighted average number of shares of common stock outstanding. Shares associated with stock options, restricted stock units and warrants are not included because they are antidilutive.

F-9

3.Cash and Cash Equivalents and Investments

The fair value of cash and cash equivalents and investments held at December 31, 2013 and 2012 are as follows:

	As of December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	37,499	$	—	$	—		$	37,499
Securities maturing within one year:
Certificates of deposit	552		—		—			552
U.S. treasury securities	91,075		3		(1		)	91,077
Total short-term investments	$	91,627	$	3	$	(1	)	$	91,629
Total cash and cash equivalents and investments	$	129,126	$	3	$	(1	)	$	129,128

	As of December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	30,423	$	—	$	—		$	30,423
Securities maturing within one year:
Certificates of deposit	551		—		—			551
U.S. treasury securities	192,211		24		(1		)	192,234
Total short-term investments	$	192,762	$	24	$	(1	)	$	192,785
Total cash and cash equivalents and investments	$	223,185	$	24	$	(1	)	$	223,208

There were no realized gains or losses for the year ended December 31, 2013, no realized gains or losses for the year ended December 31, 2012, and no realized gains or losses for the year ended December 31, 2011.  

4.Fair Value Measurements

The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis.  Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value.  The following levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities:

• Level 1 – quoted prices in active markets for identical assets, which include U.S. treasury securities

• Level 2 – other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)

• Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of assets and liabilities)

The inputs or methodology used for valuing securities are not necessarily an indication of the credit risk associated with investing in those securities.  The following tables provide the fair value measurements of applicable Company assets and liabilities that are measured at fair value on a recurring basis according to the fair value levels defined above as of December 31, 2013 and 2012.

F-10

	Assets and Liabilities at Fair Value
	As of December 31, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	37,499	$	—	$	—	$	37,499
Short-term investments	91,077		552		—		91,629
Total cash and cash equivalents and investments	$	128,576	$	552	$	—	$	129,128
Liabilities
Other long-term liabilities	$	—	$	—	$	27,710	$	27,710
Total liabilities	$	—	$	—	$	27,710	$	27,710

	Assets and Liabilities at Fair Value
	As of December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	30,423	$	—	$	—	$	30,423
Short-term investments	192,234		551		—		192,785
Total cash and cash equivalents and investments	$	222,657	$	551	$	—	$	223,208
Liabilities
Other long-term liabilities	$	—	$	—	$	29,920	$	29,920
Total liabilities	$	—	$	—	$	29,920	$	29,920

The Company did not have any Level 3 assets during the years ended December 31, 2013, 2012 and 2011. Transfers between levels are recognized at the actual date of circumstance that caused the transfer. The Company's Level 3 liabilities are estimated using a probability-based income approach utilizing an appropriate discount rate. Subsequent changes in the fair value of the Symphony Icon purchase consideration liability are recorded as an increase or decrease in Symphony Icon purchase liability in the accompanying consolidated statements of comprehensive loss. The fair value of the Symphony Icon ("Symphony Icon") purchase consideration liability decreased by $2.2 million during the year ended December 31, 2013 and increased by $9.9 million and $6.8 million during the years ended December 31, 2012 and 2011, respectively. The following table summarizes the change in consolidated balance sheet carrying value associated with Level 3 liabilities for the years ended December 31, 2011, 2012 and 2013.

	Other Long-term Liabilities
	(in thousands)
Balance at December 31, 2010	$	48,267
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	6,766
Balance at December 31, 2011	55,033
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	9,887
Payment of base payment obligation with common stock	(35,000		)
Balance at December 31, 2012	29,920
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	(2,210		)
Balance at December 31, 2013	$	27,710

F-11

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis.  These assets include goodwill associated with the acquisitions of Coelacanth Corporation in 2001 and Symphony Icon on July 30, 2010 and intangible assets associated with the acquisition of Symphony Icon on July 30, 2010.  For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired.

5.Property and Equipment

Property and equipment at December 31, 2013 and 2012 are as follows:

	Estimated Useful Lives		As of December 31,
	In Years		2013			2012
			(in thousands)
Computers and software	3-5		$	11,180		$	11,042
Furniture and fixtures	5-7		7,315			7,343
Laboratory equipment	3-7		34,952			36,065
Leasehold improvements	7-10		8,092			9,991
Buildings	15-40		59,104			58,945
Land		—	2,664			2,664
Total property and equipment			123,307			126,050
Less: Accumulated depreciation and amortization			(81,945		)	(83,416		)
Net property and equipment			$	41,362		$	42,634

During the year ended December 31, 2011, the Company determined that one of its buildings was impaired and therefore recorded an impairment loss of $800,000, which was recorded as research and development expense in the accompanying statement of comprehensive loss. The fair value of the impaired building was estimated using sales prices in similar real estate sales and offers received from potential purchasers of the building. In June 2011, the Company sold this building with an immaterial additional loss on the sale.

6.Income Taxes

Lexicon recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized differently in the financial statements and tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of liabilities and assets using enacted tax rates and laws in effect in the years in which the differences are expected to reverse. Deferred tax assets are evaluated for realization based on a more-likely-than-not criteria in determining if a valuation allowance should be provided.

The components of Lexicon’s deferred tax assets (liabilities) at December 31, 2013 and 2012 are as follows:

F-12

	As of December 31,
	2013			2012
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	238,608		$	216,579
Research and development tax credits	37,453			32,066
Capitalized research and development	83,375			71,839
Stock-based compensation	7,703			12,972
Deferred revenue	4,760			4,906
Other	4,712			10,429
Total deferred tax assets	376,611			348,791
Deferred tax liabilities:
Deferred tax liability related to acquisition of Symphony Icon	(18,745		)	(18,745		)
Other	—			(340		)
Total deferred tax liabilities	(18,745		)	(19,085		)
Less: valuation allowance	(376,611		)	(348,451		)
Net deferred tax liabilities	$	(18,745	)	$	(18,745	)

The $18.7 million deferred tax liability relates to the tax impact of future amortization or possible impairments associated with intangible assets acquired with Symphony Icon, which are not deductible for tax purposes. Lexicon does not believe it can estimate the reversal of the temporary difference related to the assets acquired with sufficient certainty such that the related deferred tax liability could be considered as a source of taxable income in assessing the Company's need for a valuation allowance.

At December 31, 2013, Lexicon had both federal and state NOL carryforwards of approximately $665.3 million and $444.1 million, respectively.  The federal and state NOL carryforwards began to expire in 2011 and continued to expire in 2012.  The Company's R&D tax credit carryforwards of approximately $37.5 million began to expire in 2012.  Utilization of the NOL and R&D credit carryforwards may be subject to a significant annual limitation due to ownership changes that have occurred previously or could occur in the future provided by Section 382 of the Internal Revenue Code.  Based on the federal tax law limits and the Company’s cumulative loss position, Lexicon concluded it was appropriate to establish a full valuation allowance for its net deferred tax assets until an appropriate level of profitability is sustained.  During the year ended December 31, 2013, the valuation allowance increased $28.2 million, primarily due to the Company’s current year net loss.  Lexicon recorded income tax benefits of $0, $0 and $0 in the years ended December 31, 2013, 2012 and 2011, respectively. During the year ended December 31, 2013, the Company recorded certain revisions to its deferred tax assets. The revisions reduced the deferred tax assets and valuation allowance by $13.8 million. There was no impact to the Company's equity or operating results for any period.  As of December 31, 2013 and 2012, the Company did not have any unrecognized tax benefits.

The Company is primarily subject to U.S. federal and New Jersey and Texas state income taxes.  The tax years 1995 to current remain open to examination by U.S. federal authorities and 2004 to current remain open to examination by state authorities.  The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.  As of December 31, 2013 and 2012, the Company had no accruals for interest or penalties related to income tax matters.

7.Goodwill

On July 12, 2001, Lexicon completed the acquisition of Coelacanth Corporation in a merger. Coelacanth, now Lexicon Pharmaceuticals (New Jersey), Inc., forms the core of the Company’s division responsible for small molecule compound discovery.  The results of Lexicon Pharmaceuticals (New Jersey), Inc. are included in the Company’s results of operations for the period subsequent to the acquisition. Goodwill associated with the acquisition of $25.8 million, which represents the excess of the $36.0 million purchase price over the fair value of the underlying net identifiable assets, was assigned to the consolidated entity, Lexicon.  

F-13

On July 30, 2010, Lexicon exercised its Purchase Option (as defined in Note 9) and completed the acquisition of Symphony Icon. Goodwill associated with the acquisition of $18.7 million, which represents the assets recognized in connection with the deferred tax liability acquired and did not result from excess purchase price, was assigned to the consolidated entity, Lexicon.

Goodwill is not subject to amortization, but is tested at least annually for impairment at the reporting unit level, which is the Company’s single operating segment.  The Company performed an impairment test of goodwill on its annual impairment assessment date.  This test did not result in an impairment of goodwill.

8.Debt Obligations

In April 2004, Lexicon purchased its existing laboratory and office buildings and animal facilities in The Woodlands, Texas with proceeds from a $34.0 million third-party mortgage financing and $20.8 million in cash.  The mortgage loan originally had a ten-year term with a 20-year amortization and a fixed interest rate of 8.23%. The mortgage was amended in September 2013 to extend the maturity date from April 2014 to April 2017, with the mortgage loan's monthly payment amount and fixed interest rate each remaining unchanged. The mortgage had a principal balance of $21.9 million as of December 31, 2013. Net proceeds from the sale of the building as discussed in Note 5, "Property and Equipment," were used to pay down the mortgage principal in June 2011 in the amount of $2.4 million.  The buildings and land that serve as collateral for the mortgage loan are included in property and equipment at $59.1 million and $2.7 million, respectively, before accumulated depreciation, as of December 31, 2013. The fair value of Lexicon’s mortgage loan approximates its carrying value.  The fair value of Lexicon’s mortgage loan is estimated using discounted cash flow analysis, based on the Company’s estimated current incremental borrowing rate.

The following table includes the aggregate future principal payments of the Company’s long-term debt as of December 31, 2013:

	For the Year Ending December 31
	(in thousands)
2014	$	1,710
2015	1,859
2016	2,015
2017	16,293
Total debt	21,877
Less current portion	(1,710		)
Total long-term debt	$	20,167

9.Arrangements with Symphony Icon, Inc.

On June 15, 2007, Lexicon entered into a series of related agreements providing for the financing of the clinical development of certain of its drug candidates, including LX1032 and LX1033, along with any other pharmaceutical compositions modulating the same targets as those drug candidates (the “Programs”). The agreements included a Novated and Restated Technology License Agreement pursuant to which the Company licensed to Symphony Icon, a then wholly-owned subsidiary of Symphony Icon Holdings LLC (“Holdings”), the Company's intellectual property rights related to the Programs. Holdings contributed $45 million to Symphony Icon in order to fund the clinical development of the Programs.

Under a Share Purchase Agreement, dated June 15, 2007, between the Company and Holdings, the Company issued and sold to Holdings 7,650,622 shares of its common stock on June 15, 2007 in exchange for $15 million and an exclusive purchase option (the "Purchase Option") that gave the Company the right to acquire all of the equity of Symphony Icon, thereby allowing the Company to reacquire all of the Programs. On July 30, 2010, Lexicon entered into an Amended and Restated Purchase Option Agreement with Symphony Icon and Holdings and simultaneously exercised the Purchase Option, thereby reacquiring the Programs. Pursuant to the amended terms of the Purchase Option, Lexicon paid Holdings $10 million on July 30, 2010 and issued 13,237,519 shares of common stock to designees of Holdings on July 30, 2012 in satisfaction of an additional $35.0 million base payment obligation.

Lexicon also agreed to make up to $45 million in additional contingent payments, which will consist of 50% of any consideration Lexicon receives pursuant to any licensing transaction (a “Licensing Transaction”) under which Lexicon grants a

F-14

third party rights to commercialize LX1032, LX1033 or other pharmaceutical compositions modulating the same target as those drug candidates (the “LG103 Programs”), subject to certain exceptions. The contingent payments will be due if and when Lexicon receives such consideration from a Licensing Transaction. In the event Lexicon receives regulatory approval in the United States for the marketing and sale of any product resulting from the LG103 Programs prior to entering into a Licensing Transaction for the commercialization of such product in the United States, in lieu of any contingent payment from such a Licensing Transaction, Lexicon will pay Holdings the sum of $15 million and the amount of certain expenses Lexicon incurred after its exercise of the Purchase Option which are attributable to the development of such product, reduced by up to 50% of such sum on account of any contingent payments paid prior to such United States regulatory approval attributable to any such Licensing Transaction outside of the United States with respect to such product. In the event Lexicon makes any such payment upon United States regulatory approval, Lexicon will have no obligation to make subsequent contingent payments attributable to any such Licensing Transactions for the commercialization of such product outside the United States until the proceeds of such Licensing Transactions exceed 50% of the payment made as a result of such United States regulatory approval. The contingent payments may be paid in cash or a combination of cash and common stock, in Lexicon's discretion, provided that no more than 50% of any contingent payment will be paid in common stock.

Lexicon accounted for the exercise of the Purchase Option and acquisition of Symphony Icon as a business combination. In connection with its acquisition of Symphony Icon, Lexicon paid $10.0 million in cash, and has also agreed to pay Holdings additional base and contingent payments as discussed above. The fair value of the base and contingent consideration payments was $45.6 million and was estimated by applying a probability-based income approach utilizing an appropriate discount rate. This estimation was based on significant inputs that are not observable in the market, referred to as Level 3 inputs. Key assumptions include: (1) a discount rate of 14% for the base payments; (2) a discount rate of 18% for the contingent payments; and (3) a probability adjusted contingency. The discount rate assumptions have not changed through December 31, 2013, and as programs progress, the probability adjusted contingency is adjusted as necessary. Subsequent changes in the fair value of the Symphony Icon purchase consideration liability are recorded as increase or decrease in fair value of Symphony Icon purchase liability expense in the accompanying consolidated statements of comprehensive loss. The fair value of the Symphony Icon purchase consideration liability decreased by $2.2 million during the year ended December 31, 2013 and increased by $9.9 million and $6.8 million during the years ended December 31, 2012 and 2011, respectively.

10.Commitments and Contingencies

Operating Lease Obligations:  A Lexicon subsidiary leases laboratory and office space in Hopewell, New Jersey under an amended lease agreement which expires in June 2018. The amended lease includes escalating lease payments.  Rent expense is recognized on a straight-line basis over the amended lease term.  Lexicon is the guarantor of the obligation of its subsidiary under this lease.  The Company is required to maintain restricted investments to collateralize a standby letter of credit for this lease.  The Company had $0.4 million and $0.4 million in restricted investments as collateral as of December 31, 2013 and 2012, respectively.  Additionally, Lexicon leases certain equipment under operating leases.

Rent expense for all operating leases was approximately $0.9 million, $2.2 million and $2.5 million for the years ended December 31, 2013, 2012 and 2011, respectively.  The following table includes non-cancelable, escalating future lease payments for the facility in New Jersey:

	For the Year Ending December 31
	(in thousands)
2014	$	620
2015	1,043
2016	1,067
2017	1,093
2018	554
Total	$	4,377

Employment Agreements: Lexicon has entered into employment agreements with certain of its corporate officers. Under the agreements, each officer receives a base salary, subject to adjustment, with an annual discretionary bonus based upon specific objectives to be determined by the compensation committee. The employment agreements are at-will and contain non-competition agreements. The agreements also provide for a termination clause, which requires either a six or 12-month

F-15

payment based on the officer’s salary and payment of a specified portion of the officer’s bonus target for such year, in the event of termination.

Legal Proceedings:  Lexicon is from time to time party to claims and legal proceedings that arise in the normal course of its business and that it believes will not have, individually or in the aggregate, a material adverse effect on its results of operations, financial condition or liquidity.

11.Agreements with Invus, L.P. and Its Affiliates

In June 2007, Lexicon entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Invus, L.P. under which Invus, L.P. purchased 50,824,986 shares of the Company’s common stock in August 2007. In November 2011, Invus, L.P. and its affiliate Invus C.V. (collectively “Invus”) exercised their rights under the Securities Purchase Agreement to require Lexicon to conduct a pro rata rights offering to its stockholders. In December 2011, Lexicon completed the rights offering of 142,492,883 shares of its common stock at a price of $1.13 per share, resulting in net proceeds of $160.6 million, after offering expenses of $0.4 million. Invus and its affiliates purchased 115,044,247 of these shares, resulting in Invus and its affiliates owning greater than 50% of Lexicon's outstanding common stock. All of the net proceeds of this rights offering are reflected as issuance of common stock in the accompanying financial statements. The rights offering exercise price of $1.13 was less than the closing price of Lexicon's common stock on the last day of the offering period of $1.14; however, if considered a bonus element, this difference in price did not result in a change in earnings per share from what was originally reported in previous periods.

In connection with the Securities Purchase Agreement, Lexicon also entered into a Stockholders’ Agreement with Invus, L.P. under which Invus has specified rights with respect to designation of directors, participation in future equity issuances by the Company and certain consent rights.

12.Other Capital Stock Agreements

Common Stock: In October 2012, Lexicon sold 17,500,000 shares of its common stock at a price of $2.25 per share in a public offering, resulting in net proceeds of $37.1 million, after deducting underwriting discounts and commissions of $2.0 million and offering expenses of $0.2 million. Invus, L.P. purchased 3,000,000 of these shares. All of the net proceeds of this offering are reflected as issuance of common stock in the accompanying financial statements.

13.Equity Incentive Awards

Equity Incentive Plans

Equity Incentive Plan:  In September 1995, Lexicon adopted the 1995 Stock Option Plan, which was subsequently amended and restated in February 2000 and renamed the 2000 Equity Incentive Plan, subsequently amended and restated in April 2009 and renamed the Equity Incentive Plan (the “Equity Incentive Plan”), and subsequently amended in April 2012.

The Equity Incentive Plan provides for the grant of incentive stock options to employees and nonstatutory stock options to employees, directors and consultants of the Company. The plan also permits the grant of stock bonus awards, restricted stock awards, restricted stock unit (phantom stock) awards and stock appreciation rights. Incentive and nonstatutory stock options have an exercise price of 100% or more of the fair market value of our common stock on the date of grant.  The purchase price of restricted stock awards may not be less than 85% of fair market value.  However, the plan administrator may award stock bonus awards in consideration of past services or phantom stock awards without a purchase payment. Shares may be subject to a repurchase option in the discretion of the plan administrator.  Most options granted under the Equity Incentive Plan become vested and exercisable over a period of four years; however some have been granted with different vesting schedules.  Options granted under the Equity Incentive Plan have a term of ten years from the date of grant.

The total number of shares of common stock that may be issued pursuant to stock awards under the Equity Incentive Plan shall not exceed in the aggregate 50,000,000 shares.  No more than 15,000,000 shares may be issued pursuant to awards other than stock options and stock appreciation rights.  As of December 31, 2013, an aggregate of 50,000,000 shares of common stock had been reserved for issuance, options to purchase 22,342,175 shares and 4,241,869 restricted stock units were outstanding, 5,659,265 shares had been issued upon the exercise of stock options, 1,839,850 shares had been issued pursuant to restricted stock units and 740,300 shares had been issued pursuant to stock bonus awards or restricted stock awards granted under the Equity Incentive Plan.

F-16

Non-Employee Directors’ Equity Incentive Plan:  In February 2000, Lexicon adopted the 2000 Non-Employee Directors’ Stock Option Plan, which was subsequently amended and restated in April 2009 and renamed the Non-Employee Directors’ Stock Option Plan, and subsequently amended in April 2012 and renamed the Non-Employee Directors’ Equity Incentive Plan (the “Directors’ Plan”).  Under the Directors’ Plan, non-employee directors receive an initial option to purchase 30,000 shares of common stock.  In addition, on the day following each of the Company’s annual meetings of stockholders, each non-employee director who has been a director for at least six months is automatically granted an option to purchase 20,000 shares of common stock and a restricted stock award of the number of shares of common stock having a fair market value on the date of grant of $20,000, rounded down to the nearest whole share number.  Initial option grants become vested and exercisable over a period of five years and annual option grants become vested over a period of 12 months from the date of grant.  Options granted under the Directors’ Plan have an exercise price equal to the fair market value of the Company’s common stock on the date of grant and a term of ten years from the date of grant.

The total number of shares of common stock that may be issued pursuant to stock awards under the Directors’ Plan shall not exceed in the aggregate 1,500,000 shares.  As of December 31, 2013, an aggregate of 1,500,000 shares of common stock had been reserved for issuance, options to purchase 964,000 shares were outstanding, none had been issued upon the exercise of stock options and 174,920 shares had been issued pursuant to restricted stock awards granted under the Directors’ Plan.

Stock Option Activity:  The following is a summary of option activity under Lexicon’s equity incentive plans:

	2013				2012				2011
(in thousands, except exercise price data)	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at beginning of year	21,525		$	2.51	20,476		$	2.84	19,598		$	3.46
Granted	3,490		2.13		3,441		1.84		2,974		1.80
Exercised	(572	)	1.75		(636	)	1.66		(130	)	1.46
Expired	(950	)	3.98		(1,231	)	6.93		(1,662	)	8.50
Forfeited	(187	)	1.94		(525	)	1.78		(304	)	1.76
Outstanding at end of year	23,306		2.42		21,525		2.51		20,476		2.84
Exercisable at end of year	17,378		$	2.56	15,582		$	2.77	13,940		$	3.34

The weighted average estimated grant date fair value of options granted during the years ended December 31, 2013, 2012 and 2011 were $1.59, $1.37 and $1.36, respectively.  The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 were $325,000, $462,000 and $63,000, respectively.  The weighted average remaining contractual term of options outstanding and exercisable was 5.8 and 4.9 years, respectively, as of December 31, 2013.  At December 31, 2013, the aggregate intrinsic value of the outstanding options and the exercisable options was $1.4 million and $1.4 million, respectively.

Stock Bonus and Restricted Stock Unit Activity:

During the year ended December 31, 2011, Lexicon granted its officers 200,277 shares of stock bonus awards

in lieu of cash bonus awards. The stock bonus awards had a weighted average grant date fair value of $1.81 per share and vested immediately. During the years ended December 31, 2013 and 2012, Lexicon granted its non-employee directors 80,808 and 94,112 shares, respectively, of restricted stock awards. The restricted stock awards had weighed average grant date fair values of $1.98 and $1.70 per share, respectively, and vested immediately.

During the years ended December 31, 2013, 2012 and 2011, Lexicon granted its employees restricted stock units in lieu of or in addition to annual stock option awards. These restricted stock units vest in four annual installments. The following is a summary of restricted stock units activity under Lexicon’s stock-based compensation plans for the year ended December 31, 2013:

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	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2012	3,543		$	1.80
Granted	1,969		2.09
Vested	(992	)	1.80
Forfeited	(278	)	1.91
Nonvested at December 31, 2013	4,242		$	1.93

During 2010, Lexicon granted certain employees restricted stock units with a performance condition. The shares subject to the restricted stock units granted in 2010 vested upon the dosing of the first patient in a pivotal human clinical trial in any country, the results of which could be used to establish safety and efficacy of a pharmaceutical product discovered or developed by Lexicon as a basis for a New Drug Application. This performance condition occurred during the year ended December 31, 2013, and therefore all outstanding restricted stock units with this performance condition vested. Stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met. The following is a summary of performance-based restricted stock units activity under Lexicon's stock-based compensation plans for the year ended December 31, 2013:

	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2012	329		$	1.90
Vested	(329	)	1.90
Nonvested at December 31, 2013	—		$	—

Aggregate Shares Reserved for Issuance

As of December 31, 2013, an aggregate of 27,548,044 shares of common stock were reserved for issuance upon exercise of outstanding stock options and vesting of outstanding restricted stock units and 15,537,621 additional shares were available for future grants under Lexicon’s equity incentive plans.  The Company has a policy of using either authorized and unissued shares or treasury shares, including shares acquired by purchase in the open market or in private transactions, to satisfy equity award exercises.

14.Benefit Plan

Lexicon maintains a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code.  The plan covers substantially all full-time employees.  Participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit.  Beginning in 2000, the Company was required to match employee contributions according to a specified formula.  The matching contributions totaled $511,000, $490,000 and $583,000 in the years ended December 31, 2013, 2012 and 2011, respectively.  Company contributions are vested based on the employee’s years of service, with full vesting after four years of service.

15.Collaboration and License Agreements

Lexicon has derived substantially all of its revenues from drug discovery and development alliances, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, government grants and contracts, technology licenses, subscriptions to its databases and compound library sales.

Texas Institute for Genomic Medicine.   In July 2005, Lexicon received a $35.0 million award from the Texas Enterprise Fund for the creation of a knockout mouse embryonic stem cell library containing 350,000 cell lines for the Texas Institute for Genomic Medicine (“TIGM”) using Lexicon’s proprietary gene trapping technology, which Lexicon completed in 2007.  Lexicon also equipped TIGM with the bioinformatics software required for the management and analysis of data relating

F-18

to the library.  The Texas Enterprise Fund also awarded $15.0 million to the Texas A&M University System for the creation of facilities and infrastructure to house the library.  

Under the terms of the award, Lexicon is responsible for the creation of a specified number of jobs beginning in 2012, reaching an aggregate of 1,616 new jobs in Texas by December 31, 2016.  Lexicon will obtain credits based on funding received by TIGM and certain related parties from sources other than the State of Texas that it may offset against its potential liability for any job creation shortfalls.  Lexicon will also obtain credits against future jobs commitment liabilities for any surplus jobs it creates.  Subject to these credits, if Lexicon fails to create the specified number of jobs, the state may require Lexicon to repay $2,415 for each job Lexicon falls short beginning in 2013.  Lexicon’s maximum aggregate exposure for such payments, if Lexicon fails to create any new jobs, is approximately $14.2 million, including $1.5 million through 2014, without giving effect to any credits to which Lexicon may be entitled.  Lexicon has recorded this obligation as deferred revenue and accounts payable in the accompanying consolidated balance sheets.  The Texas A&M University System, together with TIGM, has independent job creation obligations and is obligated for an additional period to maintain an aggregate of 5,000 jobs, inclusive of those Lexicon creates.

Taconic Farms.  Lexicon established a collaboration with Taconic Farms, Inc. in November 2005 for the marketing, distribution and licensing of certain lines of knockout mice and entered into an expanded collaboration with Taconic in July 2009 that expired in July 2010.  Under the terms of the collaboration, Lexicon is presently making available through Taconic more than 3,600 distinct lines of knockout mice, and in some cases, phenotypic data relating to such lines of knockout mice, for use by pharmaceutical and biotechnology companies, academic and non-profit institutions and other researchers.  Lexicon receives license fees and royalties from payments received by Taconic from customers obtaining access to knockout mice and any related phenotypic data.  The Company received payments totaling $7.5 million through December 31, 2013.  Revenue recognized under these agreements was $0.7 million, $0.7 million and $0.8 million for the years ended December 31, 2013, 2012 and 2011, respectively.

16.Selected Quarterly Financial Data

The table below sets forth certain unaudited statements of comprehensive loss data, and net loss per common share data, for each quarter of 2013 and 2012:

(in thousands, except per share data)

	Quarter Ended
	March 31			June 30			September 30			December 31
				(Unaudited)
2013
Revenues	$	360		$	214		$	238		$	1,410
Loss from operations	$	(25,555	)	$	(28,624	)	$	(31,216	)	$	(16,976	)
Consolidated net loss	$	(25,974	)	$	(29,080	)	$	(31,658	)	$	(17,414	)
Consolidated net loss per common share, basic and diluted	$	(0.05	)	$	(0.06	)	$	(0.06	)	$	(0.03	)
Shares used in computing consolidated net loss per common share	512,428			513,083			513,419			513,523
2012
Revenues	$	300		$	199		$	372		$	218
Loss from operations	$	(29,383	)	$	(25,480	)	$	(29,060	)	$	(24,492	)
Consolidated net loss	$	(29,868	)	$	(25,931	)	$	(29,539	)	$	(24,873	)
Consolidated net loss per common share, basic and diluted	$	(0.06	)	$	(0.05	)	$	(0.06	)	$	(0.05	)
Shares used in computing consolidated net loss per common share	480,324			480,634			490,049			507,619

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17. Subsequent Event

In January 2014, Lexicon's board of directors committed to narrow its strategic initiatives and focus resources on its late-stage drug development programs, principally LX4211 for diabetes and telotristat etiprate (LX1032) for carcinoid syndrome, in preparation for the transition to commercialization. The decision will result in a workforce reduction of approximately 125 employees, primarily in research, discovery and support positions, representing approximately 50% of the Company's total workforce. Lexicon expects to complete the majority of the workforce reduction in the first quarter of 2014, and the remainder in the second quarter of 2014.

Lexicon estimates that it will incur approximately $6.0 to $7.0 million in total costs as a result of the reduction in staff (of which approximately 90% to 95% are expected to result in cash expenditures), including severance and other one-time termination benefits of approximately $5.0 to $6.0 million.

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EX-10.13

Exhibit 10.13

STOCK OPTION AGREEMENT

(Non-Employee Director Stock Option)

This Stock Option Agreement (this “Agreement”), effective as of _____________ (the “Grant Date”), is by and between Lexicon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and _______________ (“Optionee”).

To carry out the purposes of the Lexicon Pharmaceuticals, Inc. Non-Employee Directors’ Equity Incentive Plan (the “Plan”), by providing Optionee the opportunity to purchase shares of Common Stock, par value $0.001 per share, of the Company (“Stock”), and in consideration of the mutual agreements and other matters set forth herein and in the Plan, the Company and Optionee hereby agree as follows:

1.    Grant of Option. The Company hereby grants to Optionee the right and option (the “Option”) to purchase all or any part of an aggregate of [20,000 (for annual grant)] [30,000 (for initial grant)] shares of Stock, on the terms and conditions set forth in this Agreement and in the Plan. The Option shall be treated as a non-statutory stock option and not as an “incentive stock option” within the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended (the “Code”).

2.Exercise Price. The price at which Optionee may purchase Stock upon exercise of the Option (the “Exercise Price”) shall be $_______ per share, which has been determined to be the Fair Market Value (as defined in the Plan) of the Stock on the Grant Date. The Exercise Price is subject to adjustment under certain circumstances as provided in the Plan.

3.Term. The Option shall expire on the 10th anniversary of the Grant Date, subject to earlier termination under the circumstances specified in Section 8 of this Agreement.

4.Exercisability and Vesting. Subject to the terms and conditions set forth in this Agreement and the Plan, the Option may be exercised, in whole or in part, at any time and from time to time during the term of the Option, to purchase the number of shares of Stock that have vested and become exercisable in accordance with this Agreement. The Option shall vest and become exercisable with respect to [1/12 of the total number of shares of Stock subject to the Option each month after grant for 12 months after the Grant Date (Use with annual grants)] [1/60 of the total number of shares of Stock subject to the Option each month after grant for five years after the Grant Date (Use with initial grants)]; provided that, such vesting schedule may be accelerated upon a change in control of the Company pursuant to the provisions of the Plan and; provided further, that, upon the termination of Optionee’s Continuous Service (as defined in the Plan), the Option shall cease to vest and shall terminate with respect to all shares of Stock that have not vested and become exercisable prior to such time.

5.Procedures for Exercise. Subject to the terms and conditions set forth in this Agreement and the Plan, the Option may be exercised by delivery to the Company at its principal executive office of (i) written notice addressed to the Secretary of the Company specifying the number of shares of Stock as to which the Option is being exercised and (ii) payment in full of the Exercise Price for such shares. The Exercise Price shall be paid in cash or in such other manner as may be authorized by the administrator of the Plan in accordance with the terms of the Plan. If the offering, sale and delivery of the shares of Stock issuable upon exercise of the Option have not been registered under the Securities Act of 1933 (the “Securities Act”), the Company may require Optionee, as a condition to Optionee’s exercise of the Option, to enter into a stock purchase agreement containing such representations and warranties as the Company may deem necessary to permit the issuance of the Stock purchased upon exercise of the Option in compliance with the Securities Act and applicable state securities laws.

6.NoRights of Ownership in Stock Before Issuance. No person shall be entitled to the rights and privileges of stock ownership with respect to any shares of Stock issuable upon exercise of the Option until such shares have been issued in accordance with the terms of this Agreement and the Plan.

7.Non-Transferability. The Option may not be transferred by Optionee otherwise than (i) by will or the laws of descent and distribution, by instrument to an inter vivos or testamentary trust or by gift to a member of Optionee’s immediate family, in each case in accordance with the terms of the Plan, or (ii) pursuant to a qualified domestic relations order (as defined in Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder).

8.Termination of Option. If Optionee’s Continuous Service is terminated for any reason other than the Disability (as defined in the Plan) or death of Optionee, the Option shall remain exercisable, with respect to the shares of Stock that had vested under the terms of this Agreement before the date of such termination, for a period of six months after the date of such termination (subject to extension as provided in the Plan, but in no event later than the expiration date of the Option specified in Section 3 of this Agreement), following which six-month period this Agreement and Optionee’s right to exercise the Option shall terminate. If Optionee’s Continuous Service is terminated because of Disability of Optionee, the Option shall remain exercisable, with respect to the shares of Stock that had vested under the terms of this Agreement before the date of such termination, for a period of 12 months after the date of such termination (but in no event later than the expiration date of the Option specified in Section 3 of this Agreement), following which 12-month period this Agreement and Optionee’s right to exercise the Option shall terminate. If (i) Optionee’s Continuous Service is terminated because of death of Optionee or (ii) Optionee dies within the three-month period after the termination of Optionee’s Continuous Service for a reason other than death, the Option shall remain exercisable, with respect to the shares of Stock that had vested under the terms of this Agreement before the date of death, for a period of 18 months after the date of such termination (but in no event later than the expiration date of the Option specified in Section 3 of this Agreement), following which 18-month period this Agreement and the right to exercise the Option shall terminate. Notwithstanding the foregoing, if the Optionee is removed from the Company’s Board of Directors for cause in accordance with the Company’s Bylaws, this Agreement and Optionee’s right to exercise any portion of the Option, whether or not vested, shall terminate at the commencement of business on the date of such removal.

9.Withholding of Tax. To the extent that the Company is required under applicable federal or state income tax laws to withhold any amount on account of any present or future tax imposed as a result of the exercise of the Option, Optionee shall pay the Company, at the time of such exercise, funds in an amount sufficient to permit the Company to satisfy such withholding obligations in full. If Optionee fails to pay such amount, the Company shall be authorized (i) to withhold from any cash remuneration then or thereafter payable to Optionee any tax required to be withheld or (ii) to refuse to issue or transfer any shares otherwise required to be issued pursuant to the terms of this Agreement.

10.Status of Stock. (a) Unless the offering, sale and delivery of the shares of Stock issuable upon exercise of the Option have been registered under the Securities Act, Optionee agrees that any shares of Stock purchased upon exercise of the Option shall be acquired for investment without a view to distribution, within the meaning of the Securities Act, and shall not be sold, transferred, assigned, pledged or hypothecated in the absence of an effective registration statement under the Securities Act and applicable state securities laws or an applicable exemption from the registration requirements of the Act and any applicable state securities laws. Optionee further agrees that the shares of Stock which Optionee may acquire by exercising the Option will not be sold or disposed of in any manner which would constitute a violation of any other applicable federal or state securities laws. In addition, Optionee agrees (i) that the certificates representing the shares of Stock issued under this Agreement may bear such legend or legends as the administrator of the Plan deems appropriate in order to assure compliance with applicable securities laws, and (ii) that the Company may give instruction to its transfer agent, if any, to stop transfer of the shares of Stock issued under this Agreement on the stock transfer records of the Company, if such proposed transfer would, in the opinion of counsel to the Company, constitute a violation of any applicable securities law or any such agreements.

(b)Optionee further agrees that the Option granted herein shall be subject to the requirement that if at any time the administrator of the Plan shall determine, in its discretion, that the listing, registration or qualification of the shares of Stock subject to such Option upon any securities exchange or market or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in

connection with, the purchase or issuance of shares of Stock hereunder, such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not reasonably acceptable to the administrator of the Plan.

11.Stock Option Plan. The Plan, a copy of which is available for inspection by Optionee or other persons entitled to exercise this Option at the Company’s principal executive office during business hours, is incorporated by reference in this Agreement. The Option is subject to, and the Company and Optionee agree to be bound by, all of the terms and conditions of the Plan. In the event of a conflict between this Agreement and the Plan, the terms of the Plan shall control. Subject to the terms of the Plan, the administrator of the Plan shall have authority to construe the terms of this Agreement, and the determinations of the administrator of the Plan shall be final and binding on Optionee and the Company.

12.Binding Agreement. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under Optionee.

13.Governing Law. This Agreement and all actions taken hereunder shall be governed by and construed in accordance with the laws of the State of Delaware.

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and Optionee has executed this Agreement as of the day and year first above written.

Lexicon Pharmaceuticals, Inc.
By:
	Arthur T. Sands, M.D., Ph.D.
	President and Chief Executive Officer
Optionee
[Name]

EX-10.23

Exhibit 10.23

$34,000,000

LOAN AND SECURITY AGREEMENT

between

LEX-GEN WOODLANDS, L.P.,

a Delaware limited partnership

as Borrower

and

iSTAR FINANCIAL INC.,

as Lender

Dated as of April 21, 2004

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of April 21, 2004, by LEX‑GEN WOODLANDS, L.P., a Delaware limited partnership (“Borrower”), having an address at c/o Lexicon Genetics Incorporated, 8800 Technology Forest Place, The Woodlands, Texas 77381‑1160 and iSTAR FINANCIAL INC., a Maryland corporation (together with its successors and assigns, hereinafter referred to as “Lender”), with offices at 1114 Avenue of the Americas, 27^th Floor, New York, New York 10036.

R E C I T A L S

A.The Mortgaged Property. Borrower is the fee owner of the Land and Improvements (as such terms are defined herein).

B.The Loan. Borrower desires to borrow from Lender and Lender desires to lend to Borrower, a loan in the amount of $34,000,000.

NOW, THEREFORE, in consideration of the foregoing and of the covenants, conditions and agreements contained herein, Borrower and Lender agree as follows:

SECTION 1

DEFINITIONS

1.1General Definitions.

In addition to any other terms defined in this Agreement, the following terms shall have the following meanings:

“Acceptable Financial Institution” means a depository institution or trust company incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by federal or state banking authorities, so long as (a) at all times the short-term commercial paper, certificates of deposit or other debt obligations of such depository institution or trust company are rated at least A‑1 by S&P and P‑1 by Moody’s and the long-term unsecured debt obligations of which are rated at least A by S&P and the equivalent thereof by Moody’s or (b) such depository institution or trust company has otherwise been approved by Lender, such approval not to be unreasonably withheld.

“Accounting Changes” means (a) changes in accounting principles required by GAAP consistently applied and implemented by Borrower; and (b) changes in accounting principles recommended or approved by Borrower’s certified public accountant, with the approval of Lender, which approval shall not be unreasonably withheld; provided that Lender’s approval shall not be required so long as (i) Borrower’s financial statements are prepared on a consolidated basis with the financial statements of Guarantor, (ii) Guarantor is a reporting company under the Exchange Act, and (iii) Guarantor’s financial statements are audited by a so‑called “Big‑4” accounting firm.

“Accounts” means Borrower’s present and future rights to payment of money, accounts and accounts receivable including (a) rights to payment of money, accounts and accounts receivable arising from or relating to the construction, use, leasing, occupancy or operation of the Mortgaged Property, the rental of, or payment for, space, goods sold or leased or services rendered, whether or not yet earned by performance, and all other “accounts” (as defined in the UCC), (b) rights to payment, accounts, and accounts receivable arising from any consumer credit, charge, entertainment or travel card or service organization or entity, (c) all reserves, deferred payments, refunds, cost savings payments and deposits no matter how evidenced and whether now

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or later to be received from third parties (including all earnest money sales deposits) or deposited with, or by, Borrower by, or with, third parties (including all utility deposits), (d) all chattel paper, instruments, documents, notes, drafts and letters of credit (other than any letters of credit in favor of Lender), (e) the Reserve Accounts and any and all other accounts held by or on behalf of Lender and/or Borrower pursuant to this Agreement, (f) all “deposit accounts” (as defined in the UCC), (g) all “securities accounts” (as defined in the UCC), and (h) all contracts and agreements which relate to any of the foregoing.

“Affiliate” means any Person: (A) directly or indirectly controlling, controlled by, or under common control with, another Person; (B) directly or indirectly owning or holding ten percent (10%) or more of any equity interest in another Person; or (C) ten percent (10%) or more of whose voting stock or other equity interest is directly or indirectly owned or held by such other Person. When used with respect to Borrower, the term “Affiliate” shall also include the spouse, ancestors, descendants and siblings of an Affiliate of Borrower (such Persons being sometimes referred to as “Family Members”), Affiliates of such Family Members and trusts for the benefit of another Affiliate of Borrower.

“Agreement” means this Loan and Security Agreement (including all schedules, exhibits, annexes and appendices hereto), as amended, modified or supplemented from time to time.

“Alteration” is defined in Section 7.14.

“Annual Budget” is defined in Section 5.1(D) hereof.

“Approved Budget” means the Budget and Capital Plan approved by Lender from time to time as described in Section 5.1(D) hereof.

“Approved Capital Plan” means the Capital Plan approved by Lender as part of the Approved Budget.

“Approved Operating Expenses” means Expenses set forth in an Approved Budget.

“Assignment(s)” means individually and collectively, the assignment of leases and rents, assignments of contracts, agreements and equipment leases, the assignments of licenses, permits and approvals, the assignments of management agreement, if any, the assignment of trademarks, tradenames and copyrights, if any, and such other assignments of even date herewith from Borrower to or for the benefit of Lender, each granting a security interest in collateral for the Loan.

“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy,” as amended from time to time and all rules and regulations promulgated thereunder.

“Bank(s)” means the Acceptable Financial Institution at which the Reserve Accounts are maintained.

“Base Rate” means a fixed rate per annum equal to eight and 23/100ths percent (8.23%).

“Borrower Account”means a demand, time or deposit account maintained by the Borrower at the Bank or other financial institution selected by the Borrower, as required under the Loan Agreement.

“Borrower Representative” means Lex‑Gen Woodlands GP, LLC, a Delaware limited liability company, the sole general partner in Borrower.

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“Budget” means a budget setting forth the projected revenues and budgeted costs and expenses for the ownership, operation and management for the Mortgaged Property for each calendar year commencing with calendar year 2004.

“Business Day” means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state is closed.

“Capital Lease” means any lease of any property (whether real, personal or mixed) that, in conformity with GAAP, should be accounted for as a capital lease.

“Capital Plan” means Borrower’s budget for capital improvements and equipment for the Mortgaged Property for each calendar year.

“Cash Management Agreement” shall mean the Cash Management Agreement dated as of the date hereof, among Borrower, Lender and Bank.

“Change in Control” means the occurrence of any one or more of the following: (i) a sale of all or substantially all of the assets of Guarantor, in a single transaction or series of transactions, (ii) a Person or Group shall have acquired, in one or more transactions, ownership or control of forty-nine percent (49%) or more of the voting Securities of Guarantor, (iii) Guarantor shall cease to directly or indirectly Control the business and affairs of the Borrower or (iv) Guarantor shall cease to directly or indirectly own fifty-one percent (51%) or more of the voting Securities of Borrower.

“Claims” is defined in Section 5.3(A).

“Closing” means that all conditions for disbursement of the proceeds of the Loan to or for the benefit of Borrower have been satisfied or waived in writing by Lender and the disbursement of the proceeds of the Loan shall have been made to, or upon the order of, Borrower.

“Closing Checklist” means the closing checklist attached hereto as Exhibit F.

“Closing Date” means the date on which the Closing occurs.

“Code” means the United States Internal Revenue Code of 1986, and any rule or regulation promulgated thereunder from time to time.

“Collateral” means the Mortgaged Property, the Reserve Account Collateral and all other real and personal property of Borrower or any other Person pledged or mortgaged to Lender as collateral security for repayment of the Loan, if any.

“Confidential Information” is defined in Section 11.12.

“Construction” means the Restoration, the Alterations, the construction, equipping and fixturing of the Required Capital Improvements or any other construction, equipping, fixturing and furnishing, approved (or deemed approved) by Lender.

“Construction Legal Compliance” means Borrower’s satisfaction of all of the following: (A) (i) the applicable Construction through the applicable date of determination, has been constructed substantially in accordance with the applicable Plans and Specifications (other than deviations therefrom that are immaterial individually and in the aggregate); and (ii) the applicable Construction has been, or will be, constructed in

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substantial compliance with all Legal Requirements; (B) all material entitlements, approvals, allocations, certificates, authorizations, permits and licenses required through the then-current stage of construction have been obtained from all appropriate Governmental Authorities and have been validly and irrevocably obtained without qualification, appeal or existence of unexpired appeal periods; (C) all conditions to the issuance of, and the requirements under, all permits, conditional use permits and licenses required through the current stage of construction have been satisfied in all material respects; and (D) no appeals, suits or other actions are pending or threatened in writing by any Governmental Authority which, if determined adversely to the interests of Borrower or the Mortgaged Property, would result in the revocation, suspension or qualification of any of such permits or approvals.

“Contingent Obligation,” as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person: (A) with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; (B) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (C) under any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement designed to protect the applicable Person against fluctuations in interest rates; or (D) under any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect that Person against fluctuations in currency values. Contingent Obligations shall include (1) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co‑making, discounting with recourse or sale with recourse by such Person of the obligation of another, (2) the obligation to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement, and (3) any liability of such Person for the obligations of another through any agreement to purchase, repurchase or otherwise acquire such obligation or any property constituting security therefor, to provide funds for the payment or discharge of such obligation or to maintain the solvency, financial condition or any balance sheet item or level of income of another. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed and determined amount, the maximum amount so guaranteed.

“Contractor” means the contractor(s) or construction manager(s) for the Construction as Lender may, from time to time approve, which approval shall not be unreasonably withheld, conditioned or delayed.

“Contracts” means all contracts, agreements, warranties and representations relating to or governing the use, occupancy, design, construction, operation, management, repair and service of any other component of the Mortgaged Property, as amended, modified or supplemented from time to time.

“Contractual Obligation,” as applied to any Person, means any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject including the Loan Documents.

“Control” (including with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”) means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Credit Rating” means the senior unsecured debt rating issued by S&P and Moody’s or if either or both no longer exist or no longer issue ratings then, for either or both as so applicable, another Rating Agency.

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All references to specific levels of a Credit Rating mean such rating with a “stable” or “positive” outlook, but not a “negative” outlook or “on watch” associated with such rating.

“Default” means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default if that condition or event were not cured or removed within any applicable grace or cure period.

“Default Interest” is defined in Section 2.2(A).

“Default Rate” means a rate per annum equal to the Base Rate plus five percent (5%).

“Distribution” is defined in Section 7.12.

“Dollars” and the sign “$” mean the lawful money of the United States of America.

“EBITDA Interest Coverage” means, at any reporting date, for a Person, the ratio calculated by dividing (A) the earnings from continuing operations (including interest income and equity earnings, but excluding nonrecurring items) before interest, taxes, depreciation and amortization for such Person by (B) gross interest incurred by such Person before subtracting (i) capitalized interest and (ii) interest income.

“Eligible Account” means a segregated account maintained at an Acceptable Financial Institution. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument.

“Employee Benefit Plan” means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Part 3 of Title I of ERISA or Section 412 of the Code and is either (a) maintained by any Person or any ERISA Affiliate for employees of such Person or any ERISA Affiliate or (b) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which such Person or any ERISA Affiliate is then making or has any obligation to make contributions or, within the preceding five (5) plan years, has made or has had any obligation to make contributions.

“Environmental Claims” is defined in Section 4.13.

“Environmental Indemnity Agreement” means the Environmental Indemnity Agreement, dated of even date herewith, executed by Borrower and Guarantor in favor of Lender, together with all amendments, modifications, renewals, substitutions and extensions thereto.

“Environmental Laws” means all present and future federal, state and/or local laws, statutes, ordinances, codes, rules, regulations, orders, decrees, licenses, decisions, orders, injunctions, requirements and/or directives of Governmental Authorities, as well as common law, imposing liability, standards of conduct or otherwise pertains or relates to, or for, for the environment, industrial hygiene, the regulation of Hazardous Substances, natural resources, pollution or waste management.

“Environmental Reports” means those reports and audits itemized on Schedule 1.1(B) hereto.

“Equipment, Fixtures and Personalty” means all fixtures and all of the equipment and personalty listed on Exhibit B hereto, together with all accessions, replacements and substitutions thereto and the proceeds thereof.

“ERISA” means the Employee Retirement Income Security Act of 1974, and all rules and regulations promulgated thereunder.

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“ERISA Affiliate” means any Person who is a member of a group which is under common control with another Person, who together with such other Person is treated as a single employer within the meaning of Sections 414(b), (c), (m) and (o) of the IRC or Sections 4001 of ERISA. Guarantor shall be deemed to be an ERISA Affiliate of Borrower for purposes of this Agreement, irrespective of whether it and Borrower would be treated as a single employer.

“Event of Default” is defined in Section 9.1.

“Excess Interest” is defined in Section 2.2(C).

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Existing Indebtedness” means the synthetic leaseencumbering the Mortgaged Property immediately prior to the Closing.

“Expenses” means the costs and expenditures accrued or incurred by Borrower, without duplication, in connection with the ownership, operation and management of the Mortgaged Property, specifically including in Expenses (1) periodic deposits required to be made into the Reserves; (2) capital expenditures incurred pursuant to an Approved Budget to the extent not paid from any Reserves or the proceeds of the Loan; and (3) management fees and specifically excluding from Expenses, however, (i) all expenditures to the extent funded from any Reserves, (ii) principal, interest and all other payments made by Borrower to Lender under the Loan Documents, (iii) federal or state income taxes, and (iv) depreciation and other non‑cash expenses of the Mortgaged Property.

“Financing Statements” means the UCC‑1 Financing Statements naming Borrower, as debtor, and Lender, as secured party, and filed with such filing offices as Lender may require.

“FIRREA” means The Financial Institutions Reform, Recovery and Enforcement Act of 1989, Pub. L. No. 101‑73 Stat. 183 (1989) and the regulations adopted pursuant thereto, as the same may be amended from time to time.

“GAAP” means generally accepted accounting principles in the United States of America, consistently applied, as of the date in question.

“General Intangibles” means all of the items listed on Exhibit Chereto. In addition, the General Intangibles also include all of Borrower’s right, title and interest in and to all Contracts.

“Governmental Authority” means the United States of America, any state, any foreign governments and any political subdivision or regional division of the foregoing, and any agency, department, court, regulatory body, commission, board, bureau or instrumentality of any of them.

“Gross Revenues” means, for the applicable period, all Rents and all other income, rents, revenues, issues, profits, deposits, proceeds of rent loss insurance, lease termination or similar payments and all other payments actually received by or for the benefit of Borrower in cash or current funds or other consideration from any source whatsoever from or with respect to the Mortgaged Property; provided, however, that Gross Revenues shall exclude Proceeds (other than insurance proceeds in respect of rent loss insurance), litigation proceeds, sale or refinancing proceeds and any other non-recurring income from extraordinary events.

“Group” means any Person or Persons acting together which would constitute a “group” for purposes of Section 13(d) of the Exchange Act, as in effect on the date hereof, together with all affiliates and associates (as defined in Rule 12b‑2 under the Exchange Act, as in effect on the date hereof) thereof.

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“Guarantor” means Lexicon Genetics Incorporated, a Delaware corporation and its successors.

“Guarantor Lease”means that Lease Agreement dated as of even date herewith, by and between Borrower and Guarantor for the Lease by Guarantor of the Improvements.

“Guaranty” means that certain Guaranty of Guarantor in favor of Lender of even date herewith.

“Hazardous Materials” means (a) any pollutants, toxic pollutants, oil, gasoline, petroleum products, asbestos, materials or substances containing asbestos, explosives, chemical liquids or solids, radioactive materials, polychlorinated biphenyls or related or similar materials, or any other solid, liquid or other emission, substance, material, product or by‑product, in each case defined, listed or regulated as a hazardous, noxious, toxic or solid substance, material or waste or defined, listed or regulated as causing cancer or reproductive toxicity, or otherwise defined, listed or regulated as hazardous or toxic in, pursuant to, or by any federal, state or local law, ordinance, rule, or regulation, now or hereafter enacted, amended or modified, in each case to the extent applicable to the Mortgaged Property including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601, et seq.); the Hazardous Materials Transportation Act (49 U.S.C. Section 1801, et seq.); the Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.); any so‑called “Superfund” or “Superlien” law; the Toxic Substance Control Act of 1976 (15 U.S.C. Section 2601 et seq.); the Clean Water Act (33 U.S.C. Section 1251 et seq.); and the Clean Air Act (42 U.S.C. Section 7901 et seq.); (b) any substance which is or contains asbestos, radon, polychlorinated biphenyl, urea formaldehyde foam insulation, explosive or radioactive material, lead paint, motor fuel or other petroleum hydrocarbons, and/or (c) fungus, mold, mildew, or other biological agents the presence of which may adversely affect the health of individuals or other animals or materially adversely affect the value or utility of the Mortgaged Property.

“Impositions” means all real estate and personal property taxes, and vault charges and all other taxes, levies, assessments and other similar charges, general and special, ordinary and extraordinary, foreseen and unforeseen, of every kind and nature whatsoever, which at any time prior to, at or after the execution hereof may be assessed, levied or imposed by, in each case, (i) a Governmental Authority or (ii) The Woodlands Community Association or The Woodlands Commercial Owners Association (or their respective successor entities) upon the Mortgaged Property or upon the ownership, use, occupancy or enjoyment thereof, and any interest, cost or penalties imposed by such entity with respect to any of the foregoing. Impositions shall not include any sales or use taxes or any income taxes payable by Borrower.

“Improvements” means all buildings, improvements, alterations or appurtenances now, or at any time hereafter, located upon, in, under or above the Land or any part thereof. The term “Improvements” also includes all buildings, improvements, alterations or appurtenances not located on, in, under or above the land to the extent of Borrower’s right, title and interest therein.

“Indebtedness” means with respect to any Person, without duplication, (a) any indebtedness of such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of any property or asset of such Person to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such property from such Person), (b) any obligations of such Person for the deferred purchase price of property or services, (c) any obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) any obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) any obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) any obligations of such Person as a result of any final judgment rendered against such Person or any settlement agreement entered into by

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such Person with respect to any litigation unless such obligations are stayed upon appeal (for so long as such appeal shall be maintained) or are fully discharged or bonded within thirty (30) days after the entry of such judgment or execution of such settlement agreement, (g) any obligations, contingent or otherwise, of such Person in respect of acceptances, letters of credit or similar extensions of credit, (h) any Contingent Obligations, (i) any Indebtedness of others referred to in clauses (a) through (h) above or clause (j) below guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (1) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (2) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (3) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (4) otherwise to assure a creditor against loss, and (j) any Indebtedness referred to in clauses (a) through (i) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness.

“Indemnified Liabilities” is defined in Section 11.3.

“Indemnitees” is defined in Section 11.3.

“Independent Architect” is defined in Section 7.14.

“Independent Person” has the meaning ascribed to it in Schedule 7.13.

“Inspection Certificate” means a certificate from an architect or other design professional approved by Lender in form and substance reasonably acceptable to Lender.

“Insurance Reserve” is the reserve for insurance premiums established pursuant to Section 5.5.

“Insurance Reserve Account” is defined in Section 6.1.

“Interest Period” means the period of time beginning on the 10^th day of a Loan Month and ending on the 9^th day of the following Loan Month, provided, however, the first Interest Period shall commence on the date the Loan commences to bear interest and continues to and includes May 9, 2004.

“Interest Rate” means the applicable of the Base Rate or the Default Rate.

“Inventory” means “inventory” (as defined in the UCC), including any and all goods, merchandise and other personal property, whether tangible or intangible, now owned or hereafter acquired by Borrower which is held for sale, lease or license to customers, furnished to customers under any contract or service or held as raw materials, work in process, or supplies or materials used or consumed in Borrower’s business, if any.

“Investment” means (A) any direct or indirect purchase or other acquisition by Borrower of any beneficial interest in, including stock, partnership interest or other Securities of, any other Person or (B) any direct or indirect loan, advance or capital contribution by Borrower to any other Person, including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business.

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“Land” means the real estate comprising the Mortgaged Property, as more specifically described in the Mortgage, including all of Borrower’s right, title and interest in and to all oil, gas and mineral rights, oil, gas and minerals (whether before or after extraction), easements, appurtenances, water rights, water stock, rights in and to streets, roads and highways (whether before or after vacation thereof), hereditaments and privilege relating, in any manner whatsoever, to the Land. The Land is legally described on Exhibit A.

“Late Charge” is defined in Section 2.2(D).

“Leases” means any and all leases, subleases, occupancy agreements or grants of other possessory interests, whereby Borrower acts as the lessor, sublessor, licensor, grantor or in another similar capacity, now or hereafter in force, oral or written, covering or affecting the Land or Improvements, or any part thereof, together with all rights, powers, privileges, options and other benefits of Borrower thereunder and any and all guaranties of the obligations of the lessees, sublessees, occupants, and grantees thereunder, as such leases, subleases, occupancy agreements or grants may be extended, renewed, modified or replaced from time to time (exclusive of any ground lease having Borrower as ground lessee).

“Legal Requirements” means all applicable laws, statutes, ordinances, rulings, regulations, codes, decrees, orders, judgments, covenants, conditions, restrictions, approvals, permits and requirements under any Permitted Encumbrances or of, from or by any Governmental Authority, including zoning, subdivision, land use, environmental, building, safety, health, wetlands and landmark preservation, housing and fire laws and the Americans with Disabilities Act.

“Lender’s Representative” means an independent consulting architect, inspector and/or engineering designated by Lender in Lender’s sole discretion.

“Lien” means (a) any lien, mortgage, pledge, security interest, charge or monetary encumbrance of any kind, whether voluntary or involuntary (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and (b) any negative pledge or analogous agreement including any agreement not to directly or indirectly convey, assign, sell, mortgage, pledge, hypothecate, grant a security interest in, grant options with respect to, transfer or otherwise dispose of, voluntarily or involuntarily, by operation of law or otherwise, any direct or indirect interest in an asset or direct or indirect interest in the ownership of an asset.

“Loan” means the loan in the aggregate amount of $34,000,000 from Lender to Borrower as evidenced by the Note.

“Loan Documents” means this Agreement, the Note, the Mortgage, the Assignments, the Environmental Indemnity Agreement, the Cash Management Agreement, the Financing Statements, the Guaranty and all other documents, instruments, certificates and other deliveries made by Borrower or Guarantor to Lender in accordance herewith or which otherwise evidence, secure and/or govern the Loan.

“Loan Month” means a calendar month.

“Loan Quarter” means a calendar quarter.

“Lockout Expiration Date” means the third anniversary of the Closing.

“Management Agreement” means the property management agreement for the Mortgaged Property between Borrower and Manager, if any.

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“Manager” means the Person which is the manager of the Mortgaged Property from time to time, which Person must be a Qualified Manager.

“Material Adverse Effect” means (A) a material adverse effect upon the business, operations, properties, assets or condition (financial or otherwise) of Borrower, Guarantor or the Mortgaged Property taken as a whole, or (B) the impairment, in any material respect, of the ability of Borrower or Guarantor to perform its respective obligations under any of the Loan Documents or of Lender to enforce any of the Obligations. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding that such event does not of itself have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then existing events would result in a Material Adverse Effect.

“Material Contracts” means (a) the Permitted Encumbrances (not otherwise referred to in this definition of Material Contracts), and (b) those (i) Contracts set forth on Schedule 4.6(C) attached hereto and (ii) other Contracts which, if not complied with by Borrower, could reasonably be expected to have a Material Adverse Effect.

“Maturity Date” means the Maturity Date, as defined in Section 2.4(B),or such earlier date as the Loan is prepaid in full or accelerated.

“Maximum Rate” is defined in Section 2.2(C).

“Moody’s” means Moody’s Investors Services, Inc. and its successors and assigns.

“Mortgage” means the Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing of even date herewith from Borrower to or for the benefit of Lender, constituting a first Lien on the Mortgaged Property as collateral for the Loan.

“Mortgaged Property” means the Land, the Improvements and the Equipment, Fixtures and Personalty, and all of Borrower’s now and/or hereafter existing right, title and interest in and to the Inventory, the Accounts, the General Intangibles, the Leases, the Rents and other Gross Revenues, the Proceeds, the Plans and Specifications and all other property of every kind and description used or useful in connection with the ownership, occupancy, operation and maintenance of the other components of the Mortgaged Property and all substitutions therefor, replacements and accessions thereto, and proceeds including “proceeds” (as defined in the UCC) derived therefrom, all as more specifically described in the Mortgage.

“Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA to which Borrower or any ERISA Affiliate is making, or is accruing an obligation to make, contributions or has made, or been obligated to make, contributions within the preceding six (6) years, or for which Borrower or any ERISA Affiliate has any liability, including contingent liability.

“Net Worth” means, at any reporting date, for a Person, which shall include such Person’s subsidiaries, if any, on either a combined or consolidated basis pursuant to and determined in accordance with GAAP (such combined or consolidated entities are collectively herein called the “Subject Person”) the total assets of the Subject Person less (i) intangible assets of such Subject Person (including, goodwill, anticipated future benefits of tax loss carry forwards, and organization or developmental expenses and specifically excluding from the definition of intangible assets solely for purposes of this definition, patents, trademarks, service marks, trade names and copyrights) otherwise determined in accordance with GAAP, and less (ii) the total liabilities of such Subject Person, all on either a combined or consolidated basis, as applicable, determined in accordance with GAAP, in each case without duplication.

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“Note” means the Promissory Note, together with the Substitute Notes and all future advances, extensions, renewals, substitutions, modifications and amendments of the Promissory Note and Substitute Notes.

“Obligations” means, in the aggregate, all obligations, liabilities and indebtedness of every nature of Borrower from time to time owed to Lender under the Loan Documents, including the principal amount of all debts, claims and indebtedness, accrued and unpaid interest and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from time to time hereafter owing, due or payable to Lender under the Loan Documents whether before or after the filing of a proceeding under the Bankruptcy Code by or against Borrower. The term “Obligations” shall also include any judgment against Borrower or the Mortgaged Property with respect to such obligations, liabilities and indebtedness of Borrower.

“OFAC” is defined in Section 4.9.

“Officer’s Certificate” means the certificate of a president, vice president, or other officer or representative with knowledge of the matters addressed in such certificate.

“Organizational Documents” means, as applicable, for any Person, such Person’s articles or certificate of incorporation, by‑laws, partnership agreement, trust agreement, certificate of limited partnership, articles of organization, certificate of formation, shareholder agreement, voting trust agreement, operating agreement, limited liability company agreement and/or analogous documents, as amended, modified or supplemented from time to time.

“Origination Fee” means an amount of money equal to $510,000.

“Payment Date” means the 10^th day of each calendar month commencing on June 10, 2004.

“Permitted Contest” is defined in Section 5.3(B).

“Permitted Encumbrances” means the matters identified on Exhibit D .

“Permitted Indebtedness” means (a) ordinary and customary trade payables incurred in the ordinary course of business of ownership and operation of the Mortgaged Property which are payable not later than thirty (30) days after receipt of the original invoice which are in fact not more than sixty (60) days overdue, and do not at any one time exceed $500,000 in the aggregate (not including any payables for Impositions or insurance premiums for which amounts have been deposited by Borrower in the Reserve Accounts) and (b) the Loan.

“Permitted Investments” means any of the investments identified on Schedule 6.4, and any other investments that are approved by Lender in its sole discretion, provided that at all times Lender has a perfected first priority security interest in such investment, and Borrower has provided evidence of such, in form and substance satisfactory to Lender, and provided further that the Lender has approved the maturity of such investments.

“Person” means and includes natural persons, corporations, limited liability companies, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof and their respective permitted successors and assigns (or in the case of a governmental person, the successor functional equivalent of such Person).

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“Physical Condition Report” means the report(s) regarding the physical inspection of the Land and Improvements listed on Schedule 1.1(C).

“Plans and Specifications” means the final drawings and specifications for the development and construction of each component part of the applicable Construction (as the same may be amended in accordance with the provisions permitted by this Agreement), as applicable, which plans and specifications and all amendments thereto shall be (i) subject to Lender’s approval, which approval shall not be unreasonably withheld or delayed, and (ii) in accordance with all applicable Legal Requirements.

“Prepayment Premium” means the Yield Maintenance Amount. However, if an Event of Default occurs on or before the Lockout Expiration Date and the Loan is accelerated to a date on or before the Lockout Expiration Date, the Prepayment Premium shall be equal to the sum of (a) the Yield Maintenance Amount and (b) five percent (5%) of the principal balance of the Loan.

“Proceeds” is defined in Section 8.1.

“Promissory Note” means the Promissory Note dated of even date herewith made by Borrower to the order of Lender in the original principal amount of $34,000,000.

“Proprietary Rights” is defined in Section 4.11.

“Punch-List Items” means details of construction, decoration and mechanical and electrical adjustment which in the aggregate are minor in character and do not materially interfere with the intended use and operation of the applicable Construction.

“Qualified Manager” shall mean any property manager reasonably acceptable to Lender that, as of the date of such designation, is a nationally recognized management firm engaged in the business, operation and management of office buildings, laboratories, vivariums, life service facilities or facilities for other similar uses containing in the aggregate at least 1,000,000 square feet of gross leaseable office space which are located in the United States and which is approved by Lender and with respect to which a Rating Agency Confirmation is provided.

“Rating Agency Confirmation” shall mean, collectively, an affirmation from each of the Rating Agencies that the credit rating by such Rating Agency of the securities issued in connection with a securitization of the Loan or otherwise secured by a pledge of the Note immediately prior to the occurrence of the event with respect to which such Rating Agency Confirmation is sought will not be qualified, downgraded or withdrawn as a result of the occurrence of such event, which affirmation may be granted or withheld in such Rating Agency’s sole and absolute discretion provided, however if the Loan has not been securitized in connection with a Securitization in which some or all of the securities have been rated by one or more of the Rating Agencies, Rating Agency Confirmation means Lender’s approval, which approval is not to be unreasonably withheld or delayed.

“Rating Agencies” shall mean S&P and Moody’s or, if any of such firms shall for any reason no longer perform the functions of a securities rating agency, any other nationally recognized statistical rating agency reasonably designated by Lender; provided, however, that at any time during which the Loan is an asset of a securitization, “Rating Agencies” shall mean the rating agencies that from time to time rate the securities issued in connection with such securitization. If the Loan is not an asset in a securitization, Rating Agency shall mean those rating agencies designated by Lender from time to time.

“Rents” shall mean all of Borrower’s right, title and interest in and to rents, income, receipts, royalties, profits, issues, service reimbursements, fees, termination payments receivables, accounts receivable and

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payments from or related to the Land and/or Improvements from time to time accruing from the operation of the Land and/or Improvements.

“Request for Release” means a request from Borrower to Lender in connection with a request for disbursement from the applicable Reserve accompanied by the following items, which request and items are subject to the approval of Lender not to be unreasonably withheld, conditioned or delayed: (a) currently dated certificate approved by Borrower from a Contractor, the Independent Architect, if any, and Lender’s Representative, if any, on a form to be reasonably approved by Lender; (b) the Required Lien Waivers in form and substance reasonably satisfactory to Lender; (c) if requested by Lender, from time to time, the requisitions for payment then the subject of such Request for Release from subcontractors and material suppliers engaged in the construction of the applicable Construction in form and content reasonably satisfactory to Lender; (d) an Inspection Certificate of an architect approved by Lender based upon an on‑site inspection of the applicable Construction made by the Independent Architect and confirmed by Lender’s Representative, if any, which shall certify to all work for which such Request for Release has been completed; (e) evidence reasonably satisfactory to Lender of Construction Legal Compliance in the form of (i) a certificate of an Independent Architect as to items (a), (b) and (c) of the definition of Construction Legal Compliance (together with copies of the applicable entitlements, approvals, allocations, permits, licenses and conditional use permits), (ii) a certificate from the Borrower Representative as to item (d) of the definition of Construction Legal Compliance (which certificate may, as to “threatened” matters, be qualified to “such Person’s knowledge following due inquiry”) and (iii) such other showings, certificates, reports and items as Lender or Lender’s Representative, if any, may reasonably request to confirm Construction Legal Compliance; (f) a date‑down endorsement to the Title Policy dating the Title Policy down to the date and time of the requested disbursement; and (g) such other information and documents as may be reasonably requested or required by Lender or Lender’s Representative, if any, including, but not limited to, certificates, inspections, date‑down and other title policy endorsements, invoices, receipts, estoppel certificates, permits, licenses and certificates of occupancy, affidavits and other documents, appropriate for the applicable stage of Construction.

“Required Capital Improvements”is defined in Section 5.12.

“Required Completion Date”means with respect to the Required Capital Improvements the applicable date for the applicable component of the Required Capital Improvements identified on Exhibit E.

“Required Lien Waivers” means, waivers of liens executed by (a) for each Request for Release, Contractor and each design professional with whom Borrower has a direct agreement, respectively, waiving their respective rights, if any, and any right of a subcontractor claiming through or under any of them, to file or maintain any construction liens or claims, all in such form containing such provisions as may be reasonably required by Lender and in accordance with applicable law and (b) for each Request for Release that includes a request for final payment to any subcontractor, such subcontractor, waiving its right to file or maintain any construction liens or claims, all in such form and containing such provisions as may be reasonably required by Lender executed with respect to and applicable to the extent such subcontractor has received payment. Such waivers may be conditioned upon payment for work performed and materials supplied; provided, that the Request for Release that includes the request described in clause (b) above shall include (and in the case of the final Request for Release, within ten (10) days after the funding of such final Request for Release, Borrower shall deliver to Lender) a duly executed, unconditional waiver for each Person described in clauses (a) or (b) above.

“Required Restoration Date” is defined in Section 8.1.

“Reserve Account Collateral” is defined in Section 6.5.

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“Reserve Accounts” means the Insurance Reserve Account, the Tax Reserve Account and any other securities or deposit accounts required to be maintained pursuant to this Agreement or the other Loan Documents.

“Reserves” means the Tax Reserve and the Insurance Reserve.

“Restoration” is defined in Section 8.1.

“S&P” means Standard & Poor’s Rating Service and its successors and assigns.

“Secure Areas” means the restricted access areas located within (i) that certain building containing approximately 29,600 square feet of rentable area, commonly referred to as the “Original Vivarium” and (ii) that certain building containing approximately 60,000 square feet of rentable area, commonly referred to as the “New Vivarium” in which access to such areas is restricted in order to provide a specific pathogen free environment, such restricted access areas being commonly referred to as the “area behind the barrier.”

“Securities” means any stock, shares, voting trust certificates, bonds, debentures, options, warrants, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.

“Securitization” is defined in Section 10.1.

“Servicer” is defined in Section 10.1.

“Special Purpose Bankruptcy Remote Entity” is defined in Schedule 7.13.

“Subsidiary” means, with respect to any Person (the “Parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than fifty percent (50%) of the equity or more than fifty percent (50%) of the ordinary voting power or, in the case of a partnership, more than fifty percent (50%) of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more Subsidiaries of the parent or by the parent and one or more Subsidiaries of the parent.

“Substantial Completion and Substantially Completed” means the satisfaction of all of the following conditions: (a) the date when the applicable Construction shall have been completed (except for Punch List Items and minor items which can be fully completed without material interference with the use and operation of the Mortgaged Property) in accordance with the applicable Plans and Specifications as certified by the Independent Architect on standard AIA‑G702 forms and approved by Lender’s Representative, if any, and Lender, such approval not to be unreasonably withheld or delayed; (b) all material permits and approvals required for the normal use and occupancy of the applicable Construction (including a certificate of occupancy if required for occupancy under applicable Legal Requirements) shall have been issued by the appropriate Governmental Authority and shall be in full force and effect; and (c) the applicable Construction shall have been equipped with all fixtures and equipment required for the intended use and operation of the Required Capital Improvements.

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“Substitute Note” means all notes given in substitution or exchange for the Promissory Note or another Substitute Note.

“Tax Abatement Agreements” means, collectively, the Tax Abatement Agreement dated as of December 1, 2000, by and among Wells Fargo Bank Northwest, National Association (formerly First Security Bank, National Association), not in its individual capacity but solely as the Owner Trustee under the LEXI TRUST 2000‑1, Guarantor and Montgomery County, Texas, as amended, and that certain Assessment Abatement Agreement dated as of December 4, 2000, by and between Wells Fargo Bank Northwest, National Association (formerly First Security Bank, National Association), not in its individual capacity but solely as the Owner Trustee under the LEXI TRUST 2000‑1, Guarantor and The Woodlands Commercial Owners Association, as amended.

“Tax Reserve” is the reserve for Impositions established pursuant to Section 5.5.

“Tax Reserve Account” shall have the meaning provided in Section 6.1.

“Tenant Impairment Event” means any one or more of the following has occurred: (a) the tenant under the Guarantor Lease has commenced or is the subject of a proceeding under the Bankruptcy Code; or (b) a default by the tenant under the Guarantor Lease shall have occurred which is not cured prior to the expiration of the applicable grace or curative period, if any, in such Lease.

“Title Company” means Commonwealth Land Title Insurance Company.

“Title Policy” means a the mortgagee’s policy of title insurance issued on the standard Texas form by the Title Company, together with such reinsurance and direct access agreements as Lender may require, insuring that the Mortgage is a valid first and prior enforceable lien on Borrower’s fee simple interest in the Mortgaged Property (including any easements appurtenant thereto but excluding any non-real estate property interests included in the definition of Mortgaged Property) subject only to the Permitted Encumbrances. The Title Policy shall contain such endorsements as Lender may require.

“Total Debt/Capitalization” means, at any reporting date, for a Person, the percentage equal to (A) the sum of the long term debt (including any amounts for operating lease debt equivalents) of such Person plus the amount of any current maturities, commercial paper and other short-term borrowings (the “Total Debt”) divided by (B) the sum of the Total Debt plus the amount of shareholder’s equity (including any preferred stock) plus minority interests.

“Total Loss” means (i) a casualty, damage or destruction of the Mortgaged Property, the cost of restoration of which (as reasonably determined by Lender) would exceed $40,000,000, (ii) a permanent taking of fifty percent (50%) or more of the gross leasable area of the Land or Improvements, (iii) a permanent taking of fifty percent (50%) or more of the automobile parking spaces located on the Land or such number of parking spaces as would cause the Borrower or the Mortgaged Property to cease to comply with applicable Legal Requirements or Material Contracts, or (iv) a permanent taking of so much of the Land or Improvements, in either case, such that it would be impracticable, in Lender’s reasonable discretion, even after restoration, to operate the Mortgaged Property as an economically viable whole.

“Transfer” means, (a) when used as a verb, to, directly or indirectly, lease, sell, assign, convey, give, exchange, devise, mortgage, encumber, pledge, hypothecate, alienate, grant a security interest, or otherwise create or suffer to exist any Lien, transfer or otherwise dispose, or to contract or agreement to do any of the foregoing, whether by operation of law, voluntarily, involuntarily or otherwise as well as any other action or omission which has the practical effect of initiating or completing the foregoing and (b) when used as a noun,

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a direct or indirect, lease, sale, assignment, conveyance, gift, exchange, devise, mortgage, encumbrance, pledge, hypothecation, alienation, grant of a security interest or other creation or sufferance of a Lien, transfer of other disposition, or contract or agreement by which any of the foregoing may be effected, whether by operation of law, voluntary or involuntary and any other action or omission which has the practical effect of initiating or completing the foregoing.

“Treasury Rate” means the annualized yield on securities issued by the United States Treasury having a maturity corresponding to the remaining term to the originally scheduled Maturity Date, as quoted in Federal Reserve Statistical Release H. 15(519) under the heading “U.S. Government Securities - Treasury Constant Maturities” for the Treasury Rate Determination Date (as defined below), converted to a monthly equivalent yield. If yields for such securities of such maturity are not shown in such publication, then the Treasury Rate shall be determined by Lender by linear interpolation between the yields of securities of the next longer and next shorter maturities. If said Federal Reserve Statistical Release or any other information necessary for determination of the Treasury Rate in accordance with the foregoing is no longer published or is otherwise unavailable, then the Treasury Rate shall be reasonably determined by Lender based on comparable data.

“Treasury Rate Determination Date” means the date which is five (5) Business Days prior to the scheduled prepayment date.

“UCC” means the Uniform Commercial Code as in effect in the State of New York.

“UCC Collateral” is defined in Section 2.9.

“U.S. Government Obligations” means any direct obligations of, or obligations guaranteed as to principal and interest by, the United States Government or any agency or instrumentality thereof, provided that such obligations are backed by the full faith and credit of the United States. Any such obligation must be limited to instruments that have a predetermined fixed dollar amount of principal due at maturity that cannot vary or change. If any such obligation is rated by S&P, it shall not have an “r” highlighter affixed to its rating. Interest must be fixed or tied to a single interest rate index plus a single fixed spread (if any), and move proportionately with said index. U.S. Government Obligations include, but are not limited to: U.S. Treasury direct or fully guaranteed obligations, Farmers Home Administration certificates of beneficial ownership, General Services Administration participation certificates, U.S. Maritime Administration guaranteed Title XI financing, Small Business Administration guaranteed participation certificates or guaranteed pool certificates, U.S. Department of Housing and Urban Development local authority bonds, and Washington Metropolitan Area Transit Authority guaranteed transit bonds. In no event shall any such obligation have a maturity in excess of one hundred eighty (180) days.

“Yield Maintenance Amount”means (A) the net present value of all future payments of principal and interest due for the remainder of the Term, discounted, each from the date such payments are due to the date of the prepayment, at the result of the Treasury Rate divided by 12, less (B) the then outstanding principal balance of the Loan; such Yield Maintenance Amount can never be less than zero; provided, however, for purposes of any partial prepayment, all references to the remaining outstanding principal balance of the Loan shall instead refer to the amount of such partial prepayment. For purposes of computing the Yield Maintenance Amount with regard to Section 2.4(C)(iii), the date of prepayment shall be deemed the date the Loan is accelerated.

1.2 Terms; Utilization of GAAP for Purposes of Financial Statements Under Agreement.

For purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to such terms in conformity with GAAP. Financial statements and other information

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furnished to Lender pursuant to subsection 5.1 shall be prepared in accordance with GAAP as in effect at the time of such preparation. No Accounting Changes shall affect financial covenants, standards or terms in this Agreement; provided, that Borrower shall prepare footnotes to the financial statements required to be delivered hereunder that show the differences between the financial statements delivered (which reflect such Accounting Changes) and the basis for calculating financial covenant compliance (without reflecting such Accounting Changes).

1.3Other Definitional Provisions.

References to “Sections,” “Exhibits” and “Schedules” shall be to Sections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement, “hereof,” “herein,” “hereto,” “hereunder” and the like mean and refer to this Agreement as a whole and not merely to the specific section, paragraph or clause in which the respective word appears; words importing any gender include the other genders; references to “writing” include printing, typing, lithography and other means of reproducing words in a tangible visible form; the words “including,” “includes” and “include” shall be deemed to be followed by the words “without limitation”; the phrase “and/or” shall mean that either “and” or “or” may apply; the phrases “attorneys’ fees,” “legal fees” and “counsel fees” shall include any and all attorneys’, paralegal and law clerk fees and disbursements, including court costs, fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Lender in protecting its interest in the Mortgaged Property and the Collateral and enforcing its rights hereunder and/or the other Loan Documents; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement or any other Loan Document; references to Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; references to a Person’s “knowledge” in this Agreement or the other Loan Documents refers to the actual knowledge of the Person in question and such knowledge as a reasonably prudent Person would have acquired by virtue of such inquiry and due diligence as a reasonably prudent Person would have undertaken and all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.

SECTION 2

AMOUNTS AND TERMS OF THE LOAN

2.1Loan Disbursement and Note. Subject to the terms and conditions of this Agreement, Lender shall lend the Loan to Borrower on the Closing Date. The proceeds of the Loan shall be used to (i) satisfy the Existing Indebtedness encumbering the Mortgaged Property; and (ii) satisfy actual, documented closing costs related to the Loan and approved by Lender. The disbursement of the Loan in accordance with the foregoing shall be made on the Closing Date. The Loan shall be evidenced by the Note. The Obligations of Borrower under this Agreement, the Note and the other Loan Documents are secured by, among other things, the Mortgage and the Liens created or arising under the other Loan Documents.

2.2Interest.

(A)Interest Rate. Subject to the provisions of Section 2.2(C) hereof, the outstanding principal balance of the Loan shall bear interest at the Base Rate. However, (a) during the existence of any Event of Default, or (b) after the Maturity Date or earlier upon acceleration of the Loan, the principal amount of the Loan shall bear interest (“Default Interest”) at the Default Rate. With respect to any scheduled payments of principal and interest (excluding the payment due on the Maturity Date), Borrower will be entitled to a

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grace period of five (5) days from such date before Default Interest is imposed by reason of such late payment; provided, however, such grace period will not be available more than once in any twelve (12) Loan Month period and if Borrower fails to make the required payment within said five (5) day period, Default Interest will be calculated from the original due date. Except as set forth in the preceding sentence, the Default Interest shall commence, without notice, immediately upon and from the occurrence of (a) or (b) above, as the case may be, and shall continue until all Events of Default are cured and all sums then due and payable under the Loan Documents are paid in full; provided that in the event of any monetary Event of Default, Default Interest shall be calculated from the date the applicable Default actually occurred. Default Interest shall be payable upon demand, and, to the extent unpaid, shall be compounded monthly at the Default Rate.

(B)Computation and Payment of Interest. Interest on the Loan and all other Obligations owing to Lender shall be computed on the daily principal balance of the Note on the basis of actual days elapsed and a three hundred sixty (360)‑day year. Interest on the Loan is payable in arrears. Payments of interest shall be paid to Lender as specified in Section 2.3. In addition, all accrued and unpaid interest shall be paid to Lender on the earlier of the date of prepayment (to the extent prepayment is permitted under Section 2.4) and maturity, whether by acceleration or otherwise. The Loan shall commence to bear interest on the date the proceeds of the Loan are to be disbursed to or for the order of Borrower, provided, however, if the proceeds are disbursed to an escrowee, the Loan shall commence to bear interest from and including the date of disbursement to such escrowee regardless of the date such proceeds are disbursed from escrow.

(C)Interest Laws. Notwithstanding any provision to the contrary contained in this Agreement or the other Loan Documents, Borrower shall not be required to pay, and Lender shall not be permitted to collect, any amount of interest in excess of the maximum amount of interest permitted by law (“Excess Interest”). If any Excess Interest is provided for or determined by a court of competent jurisdiction to have been provided for in this Agreement or in any of the other Loan Documents, then in such event: (1) the provisions of this Section shall govern and control; (2) Borrower shall not be obligated to pay any Excess Interest; (3) any Excess Interest that Lender may have received hereunder shall be, at Lender’s option, (a) applied as a credit against the outstanding principal balance of the Obligations due and owing to Lender (without any prepayment penalty or premium therefor) or for accrued and unpaid interest thereunder (not to exceed the maximum amount permitted by law), (b) refunded to the payor thereof, or (c) any combination of the foregoing; (4) the interest rate(s) provided for herein shall be automatically reduced to the maximum lawful rate allowed from time to time under applicable law (the “Maximum Rate”), and this Agreement and the other Loan Documents shall be deemed to have been and shall be, reformed and modified to reflect such reduction; and (5) Borrower shall not have any action against Lender for any damages arising out of the payment or collection of any Excess Interest. Notwithstanding the foregoing, if for any period of time interest on any Obligation due and owing to Lender is calculated at the Maximum Rate rather than the applicable rate under this Agreement, and thereafter such applicable rate becomes less than the Maximum Rate, the rate of interest payable on such Obligations due and owing to Lender shall, to the extent permitted by law, remain at the Maximum Rate until Lender shall have received or accrued the amount of interest which Lender would have received or accrued during such period on Obligations due and owing to Lender had the rate of interest not been limited to the Maximum Rate during such period. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of the Obligations of Borrower to Lender shall, to the extent permitted by applicable law, (i) be amortized, prorated, allocated and spread throughout the full term of such Obligations until payment in full so that the actual rate of interest on account of such Obligations does not exceed the Maximum Rate throughout the term thereof, (ii) be characterized as a fee, expense or other charge other than interest, and/or (iii) exclude any voluntary prepayments and the effects thereof.

(D)Late Charges. If any scheduled payment of principal and/or interest or other amount owing pursuant to this Agreement or the other Loan Documents (excluding the payment due on the Maturity Date)

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is not paid when due, Borrower shall pay to Lender, in addition to all sums otherwise due and payable, a late charge (“Late Charge”) in an amount equal to five percent (5%) of the unpaid amount. With respect to regular monthly payments of principal and/or interest, Borrower will be entitled to a grace period of five (5) days (five (5) Business Days with respect to any non-scheduled payment due pursuant to this Agreement or the other Loan Documents) from the date due before a late charge is imposed by reason of such late payment; provided, however, such grace period will not be available more than once in any consecutive twelve (12) month period. Any unpaid late charge shall bear interest at the Default Rate until paid.

2.3Payments.

Interest for the period commencing on the date of disbursement of the Loan and ending on May 9, 2004 shall be paid on the Closing Date. On each Payment Date thereafter commencing with the Payment Date occurring on June 10, 2004, Borrower shall pay to Lender interest on the outstanding principal of the Loan accrued from and including the immediately preceding Payment Date, to, but not including, the Payment Date on which such payment is to be made. Commencing on June 10, 2004, and on each Payment Date thereafter, principal of the Loan evidenced by the Note shall be paid to Lender in monthly installments of principal and interest in an amount equal to Two Hundred Eighty-Nine Thousand Two Hundred Seventy-Five and 64/100 Dollars ($289,275.64) per month, which amount shall be sufficient to amortize the full principal amount outstanding as of the date of disbursement of the Loan over a twenty (20) year term (such amortization schedule is attached hereto as Schedule 2.3). A balloon payment will be required on the Maturity Date as set forth on Schedule 2.3.

2.4Payments and Prepayments on the Loan.

(A)Manner and Time of Payment. Borrower agrees to pay all of the Obligations relating to the Loan as such amounts become due or are declared due pursuant to the terms of this Agreement and the other Loan Documents. All payments shall be made without deduction, defense, setoff or counterclaim by the wire transfer of good immediately available wire transferred federal funds to Lender’s account at JP Morgan Chase Bank for the account of Lender, Reference: The Lexicon Campus, or at such other place as Lender may direct from time to time by five (5) days’ advance written notice to Borrower. Borrower shall receive credit for such funds on the date received if such funds are received by Lender by 1:00 P.M. (New York time) on such day. In the absence of timely receipt, such funds shall be deemed to have been paid by Borrower on the following Business Day. Whenever any payment to be made under the Loan Documents shall be stated to be due on a day that is not a Business Day, or any time period relating to a payment to be made hereunder is stated to expire on a day that is not a Business Day, the payment may be made on the following Business Day and the period will not expire until the following Business Day.

(B)Maturity. The outstanding principal balance of the Loan, all accrued and unpaid interest thereon and all other sums owing to Lender pursuant to the Loan Documents, shall be due and payable on April 21, 2014 (the “Maturity Date”).

(C)Prepayments.

(i)Except as otherwise provided in Section 5.3(C), Section 8.1 or Section 11.17 herein, no prepayment of the Loan shall be allowed in whole or in part, on or prior to the Lockout Expiration Date other than principal payments required pursuant to Section 2.3. Thereafter, the Loan may be prepaid, in whole, but not in part, upon not less than thirty (30) days’ prior notice to Lender. Any prepayments on the principal balance of the Loan evidenced by the Note whether voluntary or involuntary, shall be accompanied by payment of interest accrued to the date of prepayment, together with the applicable Prepayment Premium.

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(ii)In the event of (a) the payment of any principal of any Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default) or (b) the failure to borrow or prepay the Loan on the date specified in any notice delivered pursuant to this Agreement or the other Loan Documents (regardless of whether such notice was revoked by Borrower prior to such prepayment), then, in any such event and, in addition to the payments to be made to Lender pursuant to 2.4(C)(i), Borrower agrees to compensate Lender for all out-of-pocket losses, costs, expenses and damages Lender may incur attributable to such event. A certificate of Lender setting forth any amount or amounts that Lender is entitled to receive pursuant to this Section shall be delivered to Borrower and shall be conclusive absent manifest error. Borrower shall pay Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.

(iii)If, following an Event of Default, payment of all or any part of the Loan is tendered by Borrower or otherwise recovered by Lender, such tender or recovery shall be deemed a voluntary prepayment by Borrower in violation of the prohibition against prepayment set forth in Section 2.4(C)(i) and Borrower shall pay to Lender, in addition to the other Obligations, the Prepayment Premium. If the Maturity Date is accelerated, due to an Event of Default or otherwise, or if any prepayment of all or any portion of the Loan hereunder occurs, whether in connection with Lender’s acceleration of the Loan or otherwise, or if the Mortgage is satisfied or released by foreclosure (whether by power of sale or judicial proceeding), deed in lieu of foreclosure or by any other means, then the Prepayment Premium shall become immediately due and owing and Borrower shall immediately pay the Prepayment Premium to Lender. Nothing contained in this Section 2.4(C)(iii) shall create any right of prepayment.

2.5Lender’s Records; Mutilated, Destroyed or Lost Notes. The balance on Lender’s books and records shall be presumptive evidence (absent manifest error) of the amounts due and owing to Lender by Borrower; provided that any failure to so record or any error in so recording shall not limit or otherwise affect Borrower’s obligation to pay the Obligations. In case any Note shall become mutilated or defaced, or be destroyed, lost or stolen, Borrower shall, upon request from Lender, execute and deliver a new Note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the mutilated or defaced Note shall be surrendered to Borrower upon delivery to Lender of the new Note. In the case of any destroyed, lost or stolen Note, Lender shall furnish to Borrower, upon delivery to Lender of the new Note (i) certification of the destruction, loss or theft of such Note and (ii) such security or indemnity as may be reasonably required by Borrower to hold Borrower harmless.

2.6Taxes. Any and all payments or reimbursements made under the Agreement, the Note or the other Loan Documents shall be made free and clear of and without deduction for any and all taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto arising out of or in connection with the transactions contemplated by the Loan Documents; excluding, however, the following: taxes imposed on the income of Lender by any jurisdiction or any political subdivision thereof; taxes that are not directly attributable to the Loan; and any “doing business” taxes, however denominated, charged by any state or other jurisdiction (all such taxes, levies, imposts, deductions, charges or withholdings and all liabilities with respect thereto, excluding such taxes imposed on income, taxes not directly attributable to the Loan and any “doing business” taxes, herein “Tax Liabilities”). If Borrower shall be required by law to deduct any such amounts from or in respect of any sum payable hereunder to Lender, then the sum payable hereunder shall be increased as may be necessary so that, after making all required deductions, Lender receives an amount equal to the sum it would have received had no such deductions been made. In the event that, subsequent to the Closing Date, (1) any changes in any existing law, regulation, treaty or directive or in the interpretation or application thereof, (2) any new law, regulation, treaty or directive enacted or any

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interpretation or application thereof, or (3) compliance by Lender with any new request or directive (whether or not having the force of law) from any governmental authority, agency or instrumentality does or shall subject Lender to any tax of any kind whatsoever with respect to this Agreement, the other Loan Documents or the Loan, or change the basis of taxation of payments to Lender of principal, fees, interest or any other amount payable hereunder (except for income taxes, or franchise taxes imposed in lieu of income taxes, imposed generally by federal, state or local taxing authorities with respect to interest or commitment or other fees payable hereunder or changes in the rate of interest or tax on the overall income of Lender, taxes that are not directly attributable to the Loan and any “doing business” taxes, however denominated, charged by any state or other jurisdiction) and the result of any of the foregoing is to increase the cost to Lender of making or continuing its Loan hereunder, as the case may be, or to reduce any amount receivable hereunder, then, in any such case, Borrower shall promptly pay to Lender, within thirty (30) days after its demand, any additional amounts necessary to compensate Lender, on an after-tax basis, for such additional cost or reduced amount receivable, as determined by Lender with respect to this Agreement or the other Loan Documents. If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.6, it shall promptly notify Borrower of the event by reason of which Lender has become so entitled.

2.7Application of Payments. Except as otherwise expressly provided in the last sentence of this Section 2.7, all payments made hereunder shall be applied first, to the payment of any Late Charges and other sums (other than principal and interest) due from Borrower to Lender under the Loan Documents, second, to any interest then due at the Default Rate, third to interest then due at the Base Rate, and last to the principal amount. Following and during the continuance of an Event of Default, all sums collected by Lender shall be applied in such order of priority to such items set forth below as Lender shall determine in its sole discretion: (i) to the costs and expenses, including reasonable attorneys’ and paralegals’ fees and costs of appeal, incurred in the collection of any or all of the Loan due or the realization of any collateral securing any or all of the Loan; and (ii) to any or all unpaid amounts owing pursuant to the Loan Documents in any order of application as Lender, in its sole discretion, shall determine.

2.8Origination Fee. Borrower shall pay the Origination Fee to Lender on the Closing Date.

2.9Security Agreement. To secure the payment, performance and discharge of the Obligations, Borrower hereby grants, assigns, transfers, conveys and sets over unto Lender, and hereby grants to Lender a continuing first priority, perfected security interest in all of Borrower’s right, title and interest in, to and under any and all of the following, whether now and/or existing and/or now owned and/or hereafter acquired and/or arising:

(1)the Accounts;

(2)the Contracts;

(3)the Reserve Accounts and other Reserve Account Collateral;

(4)the Equipment, Fixtures and Personalty;

(5)the General Intangibles;

(6)the Leases;

(7)the Inventory;

(8)the Management Agreement(s);

(9)the Rents and other Gross Revenues;

(10)the Proceeds; and

(11)together with all accessions to, substitutions for, and replacements of, any of the foregoing and any and all products and cash and non-cash proceeds of any of the foregoing (collectively, the “UCC Collateral”).

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With respect to all UCC Collateral constituting a part of the Mortgaged Property, including, without limitation, the Accounts, this Agreement shall constitute a “security agreement” within the meaning of, and shall create a security interest under, the UCC. Borrower hereby acknowledges and agrees that Lender shall be permitted to file one or more financing statements naming Borrower as debtor and Lender as secured party identifying “the Accounts, the Contracts, the Reserve Accounts and other Reserve Account Collateral, the Equipment, Fixtures and Personalty, the General Intangibles, the Leases, the Inventory, the Management Agreements, the Rents and other Gross Revenues and the Proceeds” of Borrower in the collateral description thereon. As to the UCC Collateral, the grant, transfer, and assignment provisions of this Section 2.9 shall control over the grant provision of Section 2.1 of the Mortgage. Borrower represents and warrants that, except for any financing statement filed by Lender, no presently effective financing statement covering the Collateral or any part thereof has been filed with any filing officer, and no other security interest has attached to or has been perfected in the Collateral or any part thereof. Borrower shall from time to time within fifteen (15) days after request by Lender, execute, acknowledge and deliver, or authorize the filing of any financing statement, renewal, affidavit, certificate, continuation statement or other document as Lender may reasonably request in order to evidence, perfect, preserve, continue, extend or maintain this security agreement and the security interest created hereby as a first priority Lien on the UCC Collateral, subject only to the Permitted Encumbrances.

2.10Certain Secured Party Remedies. If an Event of Default shall have occurred and be continuing, Lender shall have all the remedies of a secured party under the UCC and all other rights and remedies now or hereafter provided or permitted by law, including, without limitation, the right to take immediate and exclusive possession of the UCC Collateral, or any part thereof, and for that purpose Lender may, as far as Borrower can give authority therefor, with or without judicial process, enter (if this can be done without breach of the peace) upon any premises on which any of the Collateral or any part thereof may be situated. Without limitation of the foregoing, Lender shall be entitled to hold, maintain, preserve and prepare all of the Collateral for sale and to dispose of said Collateral, if Lender so chooses, from the Mortgaged Property provided that Lender may require Borrower to assemble such UCC Collateral and make it available to Lender for disposition at a place to be designated by Lender from which the UCC Collateral would be sold or disposed of, and provided further that, for a reasonable period of time prior to the disposition of such UCC Collateral, Lender shall have the right to use same in the operation of the Mortgaged Property. Borrower will execute and deliver to Lender any and all forms, documents, certificates and registrations as may be necessary or appropriate to enable Lender to sell and deliver good and clear title to the UCC Collateral to the buyer at the sale as herein provided. Unless the UCC Collateral is of the type customarily sold on a recognized market, Lender will give Borrower at least ten (10) days’ written notice of the time and place of any public sale of such UCC Collateral or of the time after which any private sale or any other intended disposition thereof is to be made. The requirements of reasonable notice shall be met if such notice is given to Borrower in writing at least ten (10) days before the time of the sale or disposition. Lender may buy at any public sale and, if the UCC Collateral is of a type customarily sold in a recognized market or is a type which is the subject of widely distributed standard price quotations, it may buy at private sale. Unless Lender shall otherwise elect, any sale of the UCC Collateral shall be solely as a unit and not in separate lots or parcels, it being expressly agreed, however, that Lender shall have the absolute right to dispose of such UCC Collateral in separate lots or parcels. Lender shall further have the absolute right to elect to sell the UCC Collateral as a unit with, and not separately from, the Land and Improvements constituting a portion of the Mortgaged Property. The net proceeds realized upon any disposition of the UCC Collateral, after deduction for the expenses of retaining, holding, preparing for sale, selling and the like and the attorneys’ fees and legal expenses incurred by Lender shall be applied towards satisfaction of such of the Obligations secured hereby, and in such order of application, as Lender may elect. If all of the Obligations are satisfied, Lender will account to Borrower for any surplus realized on such disposition.

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SECTION 3

CONDITIONS TO LOAN

3.1 Conditions to Funding of the Loan on the Closing Date.

The obligation of Lender to disburse the Loan is subject to the prior or concurrent satisfaction of the conditions set forth below.

(A)Performance of Agreements; Truth of Representations and Warranties; No Injunction. Borrower, Guarantor and all other Persons executing any Loan Document on behalf of Borrower and Guarantor shall have performed in all material respects all agreements which any of the Loan Documents provide shall be performed on or before the Closing Date. The representations and warranties contained in the Loan Documents shall be true, correct and complete in all material respects on and as of the Closing Date to the same extent as though made on and as of that date. No Legal Requirements shall have been adopted, no order, judgment or decree of any Governmental Authority shall have been issued or entered, and no litigation shall be pending or threatened, which in the reasonable judgment of Lender would enjoin, prohibit or restrain, or impose or result in an adverse effect upon the making, borrowing or repayment of the Loan or the execution, delivery or performance of the Loan Documents. No Default or Event of Default shall have occurred and then be continuing.

(B)Opinion of Counsel. Lender shall have received and approved written opinions of counsel for Borrower, Guarantor and Borrower Representative, in form and substance reasonably satisfactory to Lender and its counsel, dated as of the Closing Date. By execution of this Agreement, Borrower authorizes and directs its counsel to render and deliver such opinions to Lender.

(C)Loan Documents. On or before the Closing Date, Borrower shall execute and deliver and cause to be executed and delivered, to Lender all of the Loan Documents, each, unless otherwise noted, dated the Closing Date, duly executed, in form and substance satisfactory to Lender and in quantities designated by Lender (except for the Promissory Note, of which only the original shall be executed). Borrower hereby authorizes Lender to file the financing statements in such filing offices as Lender elects.

(D)[Intentionally Omitted.]

(E)Insurance Policies and Endorsements. Lender shall have received and approved the original policies of insurance required to be maintained under this Agreement and the other Loan Documents, together with endorsements satisfactory to Lender naming Lender as additional insured under such policies. If such policies are not delivered to Lender, Lender must receive and approve a copy of the insurance policies in question and evidence of such insurance required to be maintained in connection with this Agreement.

(F)Organizational and Authorization Documents. Lender shall have received all documents reasonably requested by Lender, including all Organizational Documents, with regard to the due organization, existence, internal governance, power and authority, due authorization, execution and delivery, authorization to do business and good standing of Borrower, Guarantor and the Borrower Representative, the validity and binding effect of the Loan Documents and other matters relating thereto, in form and substance reasonably satisfactory to Lender.

(G)Closing Statement. Lender shall have received and approved a closing and disbursement statement executed by Borrower with respect to the disbursement of the proceeds of the Loan.

(H)Financial Statements. Lender shall have received financial statements of Guarantor as of December 31, 2003. Lender shall have received (a) audited historical operating statements for the Mortgaged

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Property (such statements may be unaudited, to the extent audited statements are not available), for the calendar years 2002 and 2003, and unaudited financial statements for 2004 (to date); (b) audited financial statements for Guarantor for the calendar years 2002 and 2003, and unaudited financial statements for the calendar year 2004 (to date); and (c) a pro forma balance sheet of Borrower dated the Closing Date giving effect to the making of the Loan and the transactions occurring on the Closing Date, each accompanied by an Officer’s Certificate of the Borrower Representative.

(I)Budget and Capital Plan. Lender shall have received and approved the initial Budget and initial Capital Plan for Borrower.

(J)Appointment of Agent for Service of Process. Lender shall have received and approved a letter appointing (and accepted by) CT Corporation System as Borrower’s and Guarantor’s agent for service of process.

(K)Material Contracts and Other Agreements. Lender shall have received and approved true, correct and complete certified copies of each Material Contract, all other operating agreements, service contracts and equipment leases and all permits, licenses and documents pertaining to the Proprietary Rights relating to the Mortgaged Property. Lender shall have received executed estoppel certificates from all Parties to the Material Contracts designated by Lender (and not otherwise addressed in this Section 3.1).

(L)Environmental Assessments, Physical Condition Reports and Lender’s Inspection and Plans and Specifications. Lender shall have received and approved the Environmental Reports and Physical Condition Reports relating to the Mortgaged Property, together with letters from the preparer(s) thereof permitting Lender to rely upon the Environmental Reports and Physical Condition Reports. To the extent in the possession of, or reasonably obtainable by, the Borrower, a true, correct and complete copy of “as‑built” plans and specifications for the Improvements.

(M)Title Policy, Survey, Searches, Perfection and Priority. Lender shall have received and approved (i) the Title Policy and (ii) a plat of survey of the Land, Improvements and other components of the Mortgaged Property constituting real estate certified to such Persons as Lender may designate and prepared in accordance with Lender’s requirements. Lender shall have received and approved copies of Uniform Commercial Code financing statement, judgment, tax lien, bankruptcy and litigation search reports of such jurisdictions and offices as Lender may reasonably designate with respect to Borrower, Guarantor, Borrower Representative and such other Persons as Lender may reasonably require. Lender shall have received such other evidence as Lender may require confirming that Lender has a perfected first priority security interests and Lien upon the Collateral.

(N)Licenses, Permits and Approvals, Zoning and Land Use Compliance. Lender shall have received and approved (i) a copy of the certificate of compliance issued by The Community Standards Committee of The Woodlands Commercial Owners Association and The Woodlands Community Association issued with respect to the Mortgaged Property and all other applicable licenses, permits and approvals required to own, use, occupy, operate and maintain the Mortgaged Property, including all necessary licenses and permits relating to wetlands compliance, and use of water; (ii) evidence satisfactory to Lender of the existence, ownership and status of all Proprietary Rights and Material Contracts; and (iii) evidence satisfactory to Lender as to the compliance of the Mortgaged Property with all applicable Legal Requirements.

(O)Reserve Accounts and Deposits. The Reserve Accounts shall have been established in a manner satisfactory to Lender. The initial deposits into the Reserves on the Closing Date, shall have been made (which amounts may, with Lender’s approval, be made from the proceeds of the Loan).

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(P)Origination Fee. Lender shall have received its Origination Fee.

(Q)Leases. Lender shall have received (a) an estoppel certificate and subordination, nondisturbance and attornment agreement executed by each tenant of the Mortgaged Property and (b) true, correct and complete certified copies of each of the Leases.

(R)Other Documents and Deliveries. Borrower shall have delivered such other documents and deliveries as are set forth on the Closing Checklist attached hereto as Schedule 1.1(A).

(S)Legal Fees; Closing Expenses. Borrower shall have paid any and all legal fees and expenses of counsel to Lender, together with all recording fees and taxes, title insurance premiums, and other costs and expenses related to the Loan.

(T)Guaranty. Guarantor shall have executed and delivered the Guaranty.

SECTION 4

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Lender that, after giving effect to the Loan, as of the Closing Date:

4.1Organization, Powers, Qualification and Organization Chart. Borrower is a limited partnership duly formed, validly existing and in good standing under the laws of its state of formation. Each of Borrower and Borrower Representative has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and proposed to be conducted, and to enter into each Loan Document to which it is a party and to perform the terms thereof. Guarantor is a corporation, duly organized, validly existing and in good standing under the laws of its state of formation and has all requisite power and authority to own and operate its properties, to carry on its business as now conducted, and to enter into each Loan Document to which it is a party and to perform the terms thereof. Borrower’s U.S. taxpayer identification number is set forth on Schedule 4.1(A)‑1. Borrower and Guarantor are each duly qualified and in good standing wherever necessary to carry on its present business and operations. Borrower Representative is a limited liability company, duly organized and validly existing under the laws of the State of Delaware and is the sole general partner in Borrower. Guarantor owns one hundred percent (100%) of the ownership interests in Borrower Representative. Guarantor owns, indirectly, one hundred percent (100%) of the ownership interests in Borrower. The organization chart attached hereto as Schedule 4.1(A)‑2 correctly identifies each Subsidiary of Borrower and each Person directly owning (and/or indirectly owning five percent (5%) or more of) the ownership interests in Borrower and Borrower Representative; provided that such organizational chart shall not identify any Person owning, directly or in directly, any ownership interests of Guarantor. The principal place of business and chief executive office of Borrower is set forth on Schedule 4.1(A)‑3. Borrower has filed in a timely manner all reports, documents and other materials required to be filed by it with any Governmental Authorities and the information contained in each of such filings is true, correct and complete in all respects). Borrower has retained all records and documents required to be retained by it pursuant to any law, ordinance, rule, regulation, order, policy, guideline or other requirement of any Governmental Authority. Borrower has no Subsidiaries and has not made an Investment in any Person. Borrower Representative’s sole asset is its interest in Borrower.

4.2Authorization of Borrowing; No Conflicts; Governmental Consents; Binding Obli-gations and License and Security Interests of Loan Documents. Borrower has the power and authority to incur the Obligations evidenced by the Note and other Loan Documents to which it is a party, to execute and deliver the Loan Documents to which it is a party and to perform its Obligations, to own the Mortgaged Property

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and to continue its businesses and affairs as presently conducted. Guarantor has the power and authority to execute and deliver the Guaranty, the Environmental Indemnification Agreement and the other Loan Documents to which it is a party. The incurring of the Obligations and the execution, delivery and performance by Borrower and Guarantor of each of the Loan Documents to which either is a party and the consummation of the transactions contemplated thereby have been duly authorized by all necessary partnership, corporate or limited liability company action, as the case may be. The incurring of the Obligations and the execution, delivery and performance by Borrower and Guarantor of the Loan Documents to which either is a party and the consummation of the transactions contemplated thereby do not and will not: (1) violate any provision of law applicable to Borrower, Guarantor or the Mortgaged Property, the respective other Organizational Documents of, or applicable to, Borrower or Guarantor, as the case may be, or any order, judgment or decree of any court or other agency of government binding on Borrower or Guarantor or their respective properties including the Mortgaged Property; (2) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any Material Contracts or any other agreement or document to which such Person is a party or by which such Person or its property may be bound; (3) result in or require the creation or imposition of any Lien upon the Mortgaged Property or assets of Borrower or Guarantor (other than the Liens of Lender); or (4) require any approval or consent of any Person under any Material Contracts or any other agreement or document to which such Person is a party or by which such Person or its property may be bound (except to the extent such approvals or consents have been unconditionally obtained on or before the Closing Date). The incurring of the Obligations, the execution, delivery and performance by Borrower and Guarantor of the Loan Documents and the consummation of the transactions contemplated thereby do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other Governmental Authority or regulatory body (except to the extent unconditionally obtained on or before the Closing Date). The Loan Documents, when executed and delivered by Borrower and Guarantor, as applicable, will be the legally valid and binding obligations of Borrower and Guarantor, as applicable, enforceable against Borrower and Guarantor, subject to bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting creditors’ rights generally and to the application of general equitable principles in connection with the enforcement thereof. The Mortgage, together with the Financing Statements to be filed in connection therewith, create a valid, enforceable and perfected first priority lien and security interest in the Mortgaged Property subject to no other interests, Liens or encumbrances, other than the Permitted Encumbrances. Article 6 of this Agreement creates a valid, enforceable and perfected first priority security interest in the Reserve Account Collateral. Borrower is a “registered organization” (as defined in the UCC) organized under the laws of the State of Delaware.

4.3Financial Statements. All financial statements concerning Borrower and Guarantor which have been or will hereafter be furnished by Borrower and Guarantor to Lender pursuant to this Agreement have been or will be prepared in accordance with GAAP consistently applied (except as disclosed therein, to the extent Lender approves such disclosure) and do or will, in all material respects, present fairly the financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended.

4.4Indebtedness. As of the Closing Date, after giving effect to the transactions contemplated hereby, Borrower does not have any Indebtedness except for Permitted Indebtedness. Other than ordinary operating expenses pertaining to the Mortgaged Property, all Expenses owing or accrued as of the Closing Date, have been paid in full or have been reserved for by deposit into the Reserves. No claim of any creditor of Borrower exists which would have a Material Adverse Effect.

4.5No Material Adverse Change. Since December 31, 2003, no event or change has occurred that has caused or evidences, either individually or together with such other events or changes, a Material Adverse Effect.

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4.6Title to Property; Liens; Zoning; Contracts; Condition of the Mortgaged Property.

(A)Borrower has good and indefeasible fee simple title to the Land, the Improvements and the other components of the Mortgaged Property, subject only to the Permitted Encumbrances. Borrower owns all real and personal property necessary for the operation of the Mortgaged Property subject only to the Permitted Encumbrances. Except for the Permitted Encumbrances, the Mortgaged Property is free and clear of Liens and other encumbrances. Except as otherwise identified on Schedule 4.6(a), there are no outstanding Claims and all work, services or materials the provision of which might ripen into a Claim have been fully paid for. There are no assessments for improvements or other similar outstanding charges or Impositions affecting the Mortgaged Property. Except as otherwise identified on the survey provided to Lender, no Improvements lie outside the boundaries and building restriction lines of the Land or encroach onto any easements to any extent (unless affirmatively insured by the Title Policy), and no improvements on adjoining properties encroach upon the Land to any extent which would materially impair the Mortgaged Property. The Title Policy premium has been fully paid. Except for the affidavit as to debts, liens and possession provided by Borrower to the Title Company at Closing, neither Borrower, nor, to Borrower’s knowledge, any other Person, has provided any title indemnities (or analogous documentation) or deposits of cash or other security to the title insurer to obtain the Title Policy. The Permitted Encumbrances do not and will not materially interfere with the security intended to be provided by the Mortgage, the use or operation of the Mortgaged Property or the marketability or value of the Mortgaged Property. Borrower will preserve its right, title and interest in and to the Mortgaged Property for so long as the Obligations remain outstanding and will warrant and defend same and the validity and priority of the Mortgage and the Liens arising pursuant to the Loan Documents from and against any and all claims whatsoever other than the Permitted Encumbrances.

(B)The Mortgaged Property is restricted for use as an office, laboratory, vivarium, research, marketing, sales, storage, experimentation and production of laboratory animals, which restriction is in full force and effect, and is beyond all applicable appeal periods. Borrower is not in violation of, and, the Mortgaged Property is in full compliance with all applicable zoning, subdivision, land use and other Legal Requirements. No legal proceedings are pending or, to Borrower’s knowledge threatened, with respect to the compliance of the Mortgaged Property with Legal Requirements. Neither the zoning nor any other right to construct, use or operate the Mortgaged Property is in any way dependent upon or related to any real estate other than the Mortgaged Property and validly created, existing appurtenant perpetual easements insured in the Title Policy or use of public rights of way. In the event that all or any part of the Improvements are destroyed or damaged, said Improvements can be legally reconstructed to their condition prior to such damage or destruction, and thereafter exist for the same use without violating any zoning or other Legal Requirements applicable thereto and without the necessity of obtaining any variances or special permits. The Mortgaged Property contains not less than 468 parking spaces, which is enough permanent parking spaces to satisfy all requirements imposed by applicable Legal Requirements with respect to parking. All licenses, permits and other Proprietary Rights necessary to operate the Mortgaged Property as it is currently operated are in full force and effect including all water permits and approvals. Borrower has not received any written notice of any violation of any such licenses, permits, authorizations, registrations or approvals that materially impair the value of the Mortgaged Property for which such notice was given or which would affect the use or operation of the Mortgaged Property in any material respect, which noticed violation remains uncured.

(C)Borrower has provided Lender with true and complete copies of all Material Contracts, all of which are specifically listed on Schedule 4.6(C) hereof, other than the Permitted Encumbrances. Except for the Loan Documents and as set forth on Schedule 4.6(C), Borrower is not a party to and neither it nor the Mortgaged Property is bound by any material agreement, document or instrument which is binding upon the Mortgaged Property other than the Loan Documents, the Permitted Encumbrances, the other Material

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Contracts, if any, and such party’s organizational documents, true, correct and complete copies of which have been delivered to Lender. Except for the Loan Documents and the Material Contracts, none of Borrower, Borrower Representative and Guarantor are parties to or bound by, nor is any of their respective property subject to or bound by, any contract or other agreement which restricts its ability to conduct its business at the Mortgaged Property in the ordinary course or, either individually or in the aggregate, has a Material Adverse Effect or could reasonably be expected to have a Material Adverse Effect. Borrower, Borrower Representative and Guarantor are not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Material Contract of any such Person which could have a Material Adverse Effect. No Default or Event of Default exists.

(D)All of the Improvements are in good condition and repair except with respect to the Required Capital Improvements. To Borrower’s knowledge, except as disclosed in the Physical Condition Report, there are no latent or patent structural or other significant defects or deficiencies in the Improvements or Equipment, Fixtures and Personalty. Municipal or private water supply, storm and sanitary sewers, and electrical, gas and telephone facilities are available to the Mortgaged Property to the boundary lines of the Mortgaged Property through publicly dedicated streets or highways or perpetual appurtenant easements insured on the Title Policy as appurtenant easements, are sufficient to meet the reasonable needs of the Mortgaged Property as now used or as otherwise presently contemplated to be used, and are connected to, and is in full unimpaired operation with respect to the Improvements and no other utility facilities are necessary to meet the reasonable needs of the Mortgaged Property as now used. The design and as‑built conditions of the Mortgaged Property are such that surface and storm water does not accumulate on the Mortgaged Property and does not drain from the Mortgaged Property across land of adjacent property owners or others in any manner which would have a Material Adverse Effect or which require any approvals or easements not already obtained. Except as set forth on Schedule 4.6(D) or on the plat of survey delivered to Lender, no part of the Mortgaged Property is within a flood plain or in a flood hazard area as currently shown on the most recent Flood Hazard Boundary Maps prepared by the Department of Housing and Urban Development and (except to the extent validly created and existing perpetual appurtenant easements insured in the Title Policy have been created therefor) none of the Improvements create encroachments over, across or upon any of the Mortgaged Property’s boundary lines, rights of way or easements, and no building or other improvements on adjoining land create such an encroachment. All irrigation lines servicing the Mortgaged Property are entirely located on the Mortgaged Property or are located on adjacent property pursuant to validly created and existing perpetual appurtenant easements insured as appurtenant easements in the Title Policy. The Land and Improvements have legally adequate contiguous rights of access to public ways. All roads necessary for the full utilization of the Land and Improvements for their current purpose have been completed and dedicated to public use and accepted by all Governmental Authorities. No offsite improvements are necessary or used for the ownership, use or operation of the Mortgaged Property, other than public utilities. The Improvements, the Land, the Equipment, Fixtures and Personalty and the Inventory located on the Land constitutes all of the real property, equipment, fixtures and other tangible property currently owned or leased by Borrower or used in the operation of the Mortgaged Property and the Equipment, Fixtures and Personalty owned by the Borrower are sufficient to own, operate and use the Land and Improvements as currently operated. Except as identified in the Permitted Encumbrances, Borrower has not entered into any agreement or option, and is not otherwise bound, to sell the Mortgaged Property (or any part thereof). Borrower has not entered into any agreement or option, and is not otherwise bound, to acquire any additional real estate or Investments. As of the date hereof, no portion of the Improvements constituting part of the Mortgaged Property or on the Land has been materially damaged, destroyed or injured by fire or other casualty which has not been fully restored.

4.7Litigation. Except as set forth on Schedule 4.7, there are no judgments outstanding against Borrower or Guarantor or are binding upon the Mortgaged Property or any property of, Borrower Representative or

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Guarantor, nor is there any litigation, governmental investigation or arbitration pending or, to Borrower’s knowledge, threatened against Borrower, Borrower Representative or Guarantor. The judgments, litigation, investigations and arbitrations set forth on Schedule 4.7 will not result, if adversely determined, and could not reasonably be expected to result, either individually or in the aggregate, in any Material Adverse Effect and do not relate to and will not affect the consummation of the transactions contemplated hereby. No petition in bankruptcy, whether voluntary or involuntary, or assignment for the benefit of creditors, or any other action involving debtors’ and creditors’ rights has ever been filed under the laws of the United States of America or any state thereof, or threatened, by or against, Borrower, Guarantor or Borrower Representative. Except as set forth on Schedule 4.7, there are no mechanics’ or materialmen’s liens, alienable bills or other claims constituting or that may constitute a Lien on the Mortgaged Property or any part thereof, and no work for which any such Lien could be asserted has been performed which has not been fully paid for. Borrower has not received any notice from any governmental or quasi-governmental body or agency or from any person or entity with respect to (and Borrower does not know of) any actual or threatened taking of the Land or Improvements, or any portion thereof, for any public or quasi-public propose or of any moratorium which may affect the use, operation or ownership of the Mortgaged Property.

4.8Payment of Taxes. All tax returns and reports of Borrower, Borrower Representative and Guarantor required to be filed by such Persons have been timely filed, and all taxes, assessments, fees and other governmental charges upon such Person and upon the Mortgaged Property, assets, income and franchises which are due and payable have been paid in full. To Borrower’s knowledge, no tax returns of Borrower, Borrower Representative or Guarantor is under audit. No tax liens have been filed and, to Borrower’s knowledge no claims are being asserted with respect to any such taxes. The charges, accruals and reserves on the books of Borrower, Borrower Representative and Guarantor in respect of any taxes or other governmental charges are in accordance with GAAP. Except as described in Schedule 4.8, none of Borrower, Guarantor and Borrower Representative has given or been requested to give waivers or extensions (or is or would be subject to a waiver or extension given by any other Person) of any statute of limitations relating to the payment of taxes of Borrower, Guarantor and Borrower Representative or for which Borrower, Guarantor and Borrower Representative may be liable. All taxes that Borrower, Guarantor and Borrower Representative is or was required by Legal Requirements to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the applicable Governmental Authority. All tax returns filed by (or that include on a consolidated basis) Borrower, Guarantor and Borrower Representative are true, correct and complete. There is no tax sharing agreement that will require any payment by Borrower, Guarantor and Borrower Representative after the date of this Agreement.

4.9Governmental Regulation; Margin Loan. Borrower, Borrower Representative and Guarantor are not, nor after giving effect to the Loan, will be, subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940 or to any federal or state statute or regulation limiting its ability to incur indebtedness for borrowed money. Borrower shall use the proceeds of the Loan only for the purposes set forth in this Agreement and consistent with all applicable laws, statutes, rules and regulations. No portion of the proceeds of the Loan shall be used by Borrower in any manner that might cause the borrowing or the application of such proceeds to violate Regulation U, Regulation T or Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act or any other Legal Requirements. The Loan is an exempt transaction under the Truth-in-Lending Act (15 U.S.C.A. §§ 1601 et seq.). Borrower is not a non-resident alien for purposes of U.S. income taxation and neither Borrower nor Borrower Representative is a foreign corporation, partnership, foreign trust or foreign estate (as said terms are defined in the United States Internal Revenue Code). Borrower, Borrower Representative, Guarantor or any of their respective Subsidiaries are not, and shall not become, a Person with whom Lender is restricted from doing business with under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including, but not limited to, those named on

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OFAC’s Specially Designated and Blocked Persons list) or under any statute, executive order (including, but not limited to, the September 24, 2001 Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism) or other governmental action relating to terrorism financing, terrorism support and/or otherwise relating to terrorism and are not and shall not engage in any dealings or transaction or otherwise be associated with Persons named on OFAC’s Specially Designated and Blocked Persons list.

4.10Employee Benefit Plans; ERISA; Employees. Except for the Employee Benefit Plans set forth on Schedule 4.10, neither Borrower nor any ERISA Affiliate of Borrower maintains or contributes to, or has any obligation under, any Employee Benefit Plans. Borrower is not an “employee benefit plan” (within the meaning of section 3(3) of ERISA) to which ERISA applies and the Mortgaged Property and Borrower’s assets do not constitute plan assets. No actions, suits or claims under any laws and regulations promulgated pursuant to ERISA are pending or, to Borrower’s knowledge, threatened against Borrower. Borrower has no knowledge of any material liability incurred by Borrower which remains unsatisfied for any taxes or penalties with respect to any Employee Benefit Plan or any Multiemployer Plan, or of any lien which has been imposed on Borrower’s assets pursuant to section 412 of the Code or section 302 or 4068 of ERISA. The Loan, the execution, delivery and performance of the Loan Documents and the transactions contemplated by this Agreement do not constitute a non-exempt prohibited transaction under ERISA. Borrower is not a party to any collective bargaining or other employment agreement other than the agreements identified on Schedule 4.10.

4.11Intellectual Property. Schedule 4.11 sets forth a true, correct and complete list of all of the patents, trademarks, tradenames, technology, other intellectual property rights and other Proprietary Rights owned by Borrower and used in connection with the ownership, operation and management of the Mortgaged Property. Borrower possesses, owns or has valid licenses, permits, certificates of public convenience, service marks, authorizations, licenses, patents, patent rights or licenses, trademarks, trademark rights, trade name rights, trade styles, trade dress, logos and other source or business affiliation identifiers, and copyrights, certificates, consents, orders, approvals and other authorizations from, and have made all declarations and filings with, all federal, state, local and other Governmental Authority, all self-regulatory organizations and all courts and other tribunals (collectively, together with the goodwill associated therewith, “Proprietary Rights”) presently required or necessary to own or lease, as the case may be, and to operate, the Mortgaged Property and to carry on its business as now conducted in accordance with the Approved Budget and Approved Capital Plan, except where the failure to obtain same would not, individually or in the aggregate, have a Material Adverse Effect. Borrower has fulfilled and performed all of its obligations with respect to such permits, and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or could result in any other material impairment of the rights of the holder of any such permit; and Borrower has not received any notice of any proceeding relating to unenforceability, invalidity, revocation or modification of any Proprietary Rights, except where such revocation, unenforceability, invalidity, or modification would not, individually or in the aggregate, have a Material Adverse Effect. Borrower has not received any notice that any Proprietary Rights have been declared unenforceable or otherwise invalid by any court or Governmental Authority other than notices relating to Proprietary Rights the loss of which would not, individually or in the aggregate, have a Material Adverse Effect. Borrower has not received any notice of infringement of, or conflict with, and Borrower does not know of any such infringement of or conflict with, asserted rights of others with respect to any Proprietary Rights which, if such assertion of infringement or conflict were sustained, would have a Material Adverse Effect.

4.12Broker’s Fees. No broker’s or finder’s fee, commission or similar compensation will be payable with respect to the Loan, the issuance of the Note or any of the other transactions contemplated hereby or by any of the Loan Documents based upon any broker or lender engaged by Borrower, Guarantor or any

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affiliate of Borrower. Borrower shall indemnify and hold Lender harmless from and against any and all claims of all brokers or finders claiming by, through or under Borrower and in any way related to the Loan or any of the transactions contemplated hereby.

4.13Environmental Compliance. There are no claims, liabilities, investigations, litigation, administrative proceedings, whether pending or, to Borrower’s knowledge threatened, or judgments or orders relating to any Hazardous Materials (collectively called “Environmental Claims”) asserted or threatened against Borrower, any predecessor owner, tenant or operator or relating to any real property currently or formerly owned, leased or operated by Borrower including the Mortgaged Property. Except as disclosed in the Environmental Reports, to Borrower’s knowledge, neither Borrower nor any other Person has caused or permitted any Hazardous Material to be used, generated, reclaimed, transported, released, treated, stored or disposed of in a manner which could form the basis for an Environmental Claim against Borrower. Except as disclosed in the Environmental Reports, to Borrower’s knowledge, no Hazardous Materials in violation of applicable Environmental Laws are or were stored or otherwise located, and no underground storage tanks or surface impoundments are or were located, on real property currently or formerly owned, leased or operated by Borrower, including the Mortgaged Property, or to the knowledge of Borrower, on adjacent parcels of real property, and no part of such real property or, to the knowledge of Borrower no part of such adjacent parcels of real property, including the groundwater located thereon, is presently contaminated by Hazardous Materials in violation of applicable Environmental Laws or to any extent which has, or might reasonably be expected to have, a Material Adverse Effect. Except as disclosed in the Environmental Reports, to Borrower’s knowledge, Borrower and the Mortgaged Property has been and is currently in compliance with all applicable Environmental Laws, including obtaining and maintaining in effect all permits, licenses or other authorizations required by applicable Environmental Laws.

4.14Solvency. As of the date of this Agreement and after giving effect to the consummation of the transactions contemplated by the Loan Documents, Borrower: (A) owns and will own assets the fair saleable value of which are (1) greater than the total amount of liabilities (including Contingent Obligations) of Borrower, and (2) greater than the amount that will be required to pay the probable liabilities of Borrower’s then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to Borrower; (B) has capital that is not insufficient in relation to its business as presently conducted or any contemplated or undertaken transaction; and (C) does not intend to incur and does not believe that it will incur debts beyond its ability to pay such debts as they become due. Borrower has not entered into the Loan Documents or the transactions contemplated under the Loan Documents with the actual intent to hinder, delay, or defraud any creditor. After giving effect to the Loan and the transactions occurring on the Closing Date, Borrower’s net unreimbursed investment in the Mortgaged Property is not less than $21,000,000. After giving effect to the transactions occurring on the Closing Date, no Default or Event of Default exists. No material adverse change in the financial conditions or operation of the business of Borrower and Guarantor has occurred since the applicable dates of the financial statements of the applicable Person provided on or before the Closing Date.

4.15Disclosure. The representations and warranties of Borrower and Guarantor contained in the Loan Documents, the financial statements referred to in Section 5.1(A), and any other documents, certificates or written statements furnished to Lender by or on behalf of Borrower or Guarantor for use in connection with the Loan do not contain any untrue statement of a material fact or omit or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. There is no material fact known to Borrower that has had or will have a Material Adverse Effect that has not been disclosed in this Agreement or in such other documents, certificates and statements furnished to Lender by or, on behalf of, Borrower for use in connection with the Loan.

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4.16Insurance. Schedule 4.16 sets forth a complete and accurate description of all policies of insurance that will be in effect as of the Closing Date for Borrower and such policies of insurance satisfy all of the requirements of Section 5.4. All premiums thereon have been paid in full through December 1, 2004, no notice of cancellation has been received with respect to such policies and Borrower is in compliance, in all material respects, with all conditions contained in such policies.

4.17Budget. The Approved Budget submitted to Lender for the Mortgaged Property is a true, correct and complete copy of the Budget and Capital Plan in effect on and as of the Closing Date. A true, correct and complete copy of the initial Approved Budget for the period ending December 31, 2004 is attached hereto as Schedule 4.17. The Approved Budget and all of the amounts set forth therein, present a true, full and complete line itemization (by category for the fiscal year to which such Annual Budget applies) of all reasonably estimated Gross Revenues and all reasonably estimated Expenses which Borrower expects to pay or anticipates becoming obligated to pay relating to the Mortgaged Property. No material capital expenditures with respect to the Mortgaged Property are being incurred, contemplated or are reasonably necessary, except as specified in the Approved Budget.

4.18Accounts. Schedule 4.18 sets forth a complete and accurate itemization of all of Borrower’s time, demand, securities or similar Accounts that are in existence as of the Closing Date.

4.19Management Agreement. Borrower is not party to any Management Agreement nor has it otherwise contracted with any managing agent to assist Borrower in the management and operation of the Mortgaged Property.

4.20Special Assessments; Taxes. There are no pending or, to the knowledge of Borrower proposed, special or other assessments for public improvements or otherwise affecting the Mortgaged Property, nor, to Borrower’s knowledge, are there any contemplated improvements to the Mortgaged Property that may result in such special or other assessments. Borrower has provided Lender with true, correct and complete copies of all bills and invoices for Impositions which have been levied or assessed against or are outstanding with respect to the Mortgaged Property. Borrower has provided Lender with a true, correct and complete schedule of the assessment of the Mortgaged Property in effect as of the Closing Date. Borrower has not received any notice that any portion of the Mortgaged Property has been re‑assessed or is currently the subject of a reassessment. Except for abatements pursuant to the Tax Abatement Agreements, no portion of the Mortgaged Property is exempt from taxation or constitutes an “omitted” tax parcel. No Impositions are currently delinquent or outstanding with respect to the Mortgaged Property. The conveyance of the Mortgaged Property to Borrower did not, in and of itself, constitute the basis for any reassessment of all or any part of the Mortgaged Property or the basis for any increase in any currently outstanding or previously satisfied Impositions which has not already been imposed and disclosed in writing to Lender by Borrower. No tax contests of any Impositions or assessments are currently pending. The Land and Improvements constitute a separate tax lot or lots, with a separate tax assessment or assessments, independent of any other land or improvements not constituting a part of the Mortgaged Property and no other land or improvements is assessed and taxed together with any portion of the Mortgaged Property.

4.21Leases. Except for the Guarantor Lease, there are no Leases or other arrangements for occupancy of space within the Mortgaged Property that are currently in effect. Borrower has provided Lender with a true, complete and correct copy of the Guarantor Lease, including any amendments or modifications thereto. The Mortgaged Property is occupied solely by Guarantor.

4.22Representations Remade. Borrower warrants and covenants that the foregoing representations and warranties will be true and shall be deemed remade as of the date of the Closing. All representations and warranties made in the other Loan Document or in any certificate or other document delivered to Lender by

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or on behalf of Borrower pursuant to the Loan Documents shall be deemed to have been relied upon by Lender, notwithstanding any investigation made by or on behalf of Lender. All such representations and warranties shall survive the making of the Loan and shall continue in full force and effect until such time as the Loan has been paid in full.

SECTION 5

AFFIRMATIVE COVENANTS

Borrower covenants and agrees that so long as this Agreement shall remain in effect or the Note shall remain outstanding, Borrower shall perform and comply with all covenants in this Section 5.

5.1Financial Statements and Other Reports. Borrower will maintain a system of accounting in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP and proper and accurate books, records and accounts reflecting all of the financial affairs of Borrower with respect to all items of income and expense in connection with the operation of the Mortgaged Property.

(A)Financial Statements. Within one hundred twenty (120) days after the end of each calendar year, Borrower shall provide to Lender true and complete annual audited consolidated financial statements for Guarantor and true and complete annual unaudited financial statements for Borrower and the operation of the Mortgaged Property, all prepared in accordance with GAAP. All audited financial statements shall be audited by a so‑called “Big‑4” accounting firm or another independent certified public accounting firm reasonably satisfactory to Lender. All financial statements (whether or not audited) shall include a balance sheet as of the end of such year, profit and loss statements for such year and a statement of cash flow for such year, with such detailed supporting schedules covering the operation of the Mortgaged Property as Lender shall reasonably require including a reconciliation to the monthly reports and statements delivered to Lender and include an itemized accounting of all Gross Revenues and Expenses for the Mortgaged Property. As soon as reasonably practicable (but in any event within forty-five (45) days) after the end of each calendar quarter, Borrower shall provide to Lender a true and complete quarterly cash flow, balance sheet, and operating statement for Borrower, Guarantor and the Mortgaged Property (none of which are required to be audited) certified by the president or vice president of Borrower Representative and Guarantor which quarterly statements shall be in form and substance acceptable to Lender. Such quarterly statements shall be compared to the prior year’s quarter and year-to-date and to the then applicable Approved Budget. Borrower shall also provide (and cause Guarantor to provide), such other financial information as Lender may, from time to time, reasonably request certified (if requested by Lender) by the applicable chief financial officer (or similar position). Borrower will deliver, concurrently with the annual and quarterly statements, a certificate of its chief financial officer (or analogous position) certifying that no Default or Event of Default has occurred. In the event Borrower enters into a Management Agreement subsequent to the date hereof, as soon as available, and in any event within twenty (20) days after the end of each Loan Month, Borrower will deliver to Lender a copy of the periodic reporting package required to be delivered to Borrower by a Manager pursuant to such Management Agreement.

(B)Accountants’ Certification. Together with each delivery of annual financial statements of Borrower and Guarantor pursuant to subsection 5.1(A), Borrower shall request as part of the engagement of its independent certified public accountant, and shall use best effortsto obtain, a written statement by such independent certified public accountant (1) stating that the examination has included a review of the terms of this Agreement as such terms relate to accounting matters, (2) stating whether, in connection with the examination, any condition or event that constitutes a Default or an Event of Default (of which said accountants may be aware from said review, and without obligation to review other aspects of this Agreement or to review any of the other Loan Documents) has come to their attention, and (3) if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that the requirements set

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forth in this subsection (B) shall be waived for so long as (i) Borrower’s financial statements are prepared on a consolidated basis with the financial statements of Guarantor and (ii) Guarantor is a reporting company under the Exchange Act, and provided further that, for purposes of the foregoing, “best efforts” shall not require a change in Borrower’s independent certified public accountant.

(C)Accountants’ Reports. Promptly upon receipt thereof, Borrower will deliver copies of all significant reports submitted to Borrower or Guarantor, as applicable, by independent public accountants in connection with each annual, interim or special audit of the financial statements of Borrower or Guarantor, as applicable, made by such accountants, including the comment letter submitted by such accountants to management in connection with their annual audit; provided that the requirements set forth in this subsection (C) shall be waived for so long as (i) Borrower’s financial statements are prepared on a consolidated basis with the financial statements of Guarantor and (ii) Guarantor is a reporting company under the Exchange Act.

(D)Annual Budgets and Capital Plans. Not later than November 30^th of each calendar year, Borrower shall deliver a Budget and a Capital Plan for the following calendar year for the Mortgaged Property to Lender for its review and approval (the Budget and Capital Plan are collectively referred to as the “Annual Budget” and the Annual Budget approved by Lender is referred to herein as the “Approved Budget”), which approval shall not be unreasonably withheld, conditioned or delayed. Lender shall have fifteen (15) Business Days to approve or reject each proposed Annual Budget. Concurrently, Borrower shall deliver an annual business plan for the Mortgaged Property. If Lender disapproves the Annual Budget, which disapproval shall specify the respects in which it is unacceptable, Borrower shall resubmit same to Lender for its review until such time as the Annual Budget is approved by Lender. Borrower shall not modify any Approved Budget without Lender’s approval, which approval shall not be unreasonably withheld, conditioned or delayed. Borrower shall not incur any Expenses which are not set forth in the Approved Budget except as otherwise approved by Lender, which approval shall not be unreasonably withheld, conditioned or delayed. Borrower shall, within one hundred twenty (120) days after the end of each calendar year during the term of the Loan, deliver to Lender an annual summary of any and all capital expenditures made at the Mortgaged Property during the prior twelve (12)‑month period.

(E)Notices, Events of Default and Litigation.Borrower shall promptly deliver, or cause to be delivered, copies of all notices, demands, reports or requests given to, or received by Borrower from, any Governmental Authorities or with respect to any Indebtedness of Borrower or any Material Contracts, and shall notify Lender within two (2) Business Days after Borrower receives notice or acquires knowledge of, any violation of Legal Requirements, investigation, subpoena or audit by any Governmental Authority or default with respect to the Mortgaged Property or any Indebtedness or Material Contracts. Promptly upon Borrower obtaining knowledge of any of the following events or conditions, Borrower shall deliver to Lender a written notice specifying the nature and period of existence of such condition or event and what action Borrower has taken, is taking and proposes to take with respect thereto: (1) any condition or event that constitutes an Event of Default or Default; and/or (2) or any fact, circumstance, event or condition which has, or would reasonably be expected to have, a Material Adverse Effect. Promptly upon Borrower obtaining knowledge of (i) the institution of any action, suit, proceeding, governmental investigation or arbitration against or affecting Borrower or Guarantor or the Mortgaged Property, or any other property of Borrower that would reasonably be expected to have a Material Adverse Effect or (ii) any material development in any action, suit, proceeding, governmental investigation or arbitration at any time pending against or affecting Borrower or Guarantor or the Mortgaged Property or any other property of Borrower that would reasonably be expected to have a Material Adverse Effect, Borrower will give notice thereof to Lender and provide such other information as may be available to it to enable Lender and its counsel to evaluate such matters.

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(F)ERISA. Borrower shall deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as Lender, in its sole discretion, may reasonably request, that (A)  Borrower is not and does not maintain an “employee benefit plan” as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a “governmental plan” within the meaning of Section 3(32) of ERISA; (B)  Borrower is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (C) one or more of the following circumstances is true: (i) equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. §2510.3‑101(b)(2); (ii) less than twenty-five percent (25%) of each outstanding class of equity interests in Borrower is held by “benefit plan investors” within the meaning of 29 C.F.R. §2510.3‑101(f)(2); or (iii) Borrower qualifies as an “operating company” or a “real estate operating company” within the meaning of 29 C.F.R. §2510.3‑101(c) or (e).

(G)Tax Returns. Borrower will deliver to Lender copies of all federal and state income and other tax returns, schedules, statements and reports to its owners within ten (10) Business Days after the earlier of filing or delivery of such tax returns or other items with the Internal Revenue Service or the applicable Governmental Authority or delivery to its owners.

(H)Estoppel Certificates.Within ten (10) Business Days following a request by Lender, Borrower shall provide to Lender, a duly acknowledged written statement confirming the amount of the outstanding Obligations, the terms of payment and maturity date of the Note, the date to which interest has been paid, and whether, to Borrower’s knowledge, any offsets or defenses exist against the Obligations, and if any such offsets or defenses are alleged to exist, the nature thereof shall be set forth in detail.

(I)Other. With reasonable promptness, Borrower will deliver such other infor-mation and data with respect to Borrower as from time to time may be reasonably requested by Lender. Borrower shall also provide Lender with a copy of each 8K, 10Q and 10K (each as defined in the Exchange Act) or their successor forms under the Exchange Act, filed by Guarantor from time to time with the United States Securities and Exchange Commission not later than five (5) Business Days after the filing thereof. Borrower shall deliver, or cause to be delivered, to Lender annually, concurrently with the renewal of the insurance policies required hereunder, an Officer’s Certificate stating that the insurance policies required to be delivered to Lender pursuant to Section 5.4 are maintained with insurers who comply with the terms of Section 5.4, setting forth a schedule describing all premiums required to be paid by Borrower to maintain the policies of insurance required under Section 5.4, and confirming full payment of all such premiums.

(J)Electronic Format. To the extent then available, Borrower will provide to Lender a copy of any reports, notices, statements or other deliveries required pursuant to this Section 5.1 in an electronic format reasonably satisfactory to Lender.

5.2Existence; Qualification. Borrower will be, and will cause Guarantor to be, and continue to be, qualified in the jurisdiction in which the Mortgaged Property is located and keep in full force and effect its existence in the jurisdiction in which the Mortgaged Property is located.

5.3Payment of Impositions and Lien Claims; Permitted Contests.

(A)Subject to Section 5.3(B), Borrower will pay, or cause payment of, (i) all Impositions before in each instance any penalty or fine is incurred with respect thereto, (ii) all claims (“Claims”) (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon the Mortgaged Property or Borrower, before in each instance any penalty or fine is incurred with respect thereto, and (iii) all federal, state and local income taxes, sales taxes, excise taxes and all other taxes and assessments levied, imposed, confirmed or assessed against Borrower,

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its business, income, liabilities or assets or the Mortgaged Property, before in each instance any penalty or fine is incurred with respect thereto.

(B)With prior notice to Lender, Borrower shall have the right to pay Impositions, in full, under “protest.” Notwithstanding Section 5.3(A), Borrower shall not be required to pay, discharge or remove or cause payment, discharge or removal of any Imposition or Claims pertaining to labor, services, materials and supplies supplied to the Land and Improvements so long as Borrower contests (each such contest, a “Permitted Contest”) in good faith such Imposition or Claims or the validity, applicability or amount thereof by an appropriate legal proceeding which operates to prevent the collection of such amounts and the sale of the Mortgaged Property or any portion thereof so long as: (a) at least thirty (30) days prior to the date on which such Imposition or Claims would otherwise have become delinquent, Borrower shall have given Lender notice of its intent to contest said Imposition, (b) at least thirty (30) days prior to the date on which such Imposition would otherwise have become delinquent, Borrower shall have deposited with Lender (or with a court of competent jurisdiction or other appropriate Person approved by Lender) such additional amounts or other security as are necessary to keep on deposit at all times, an amount equal to at least one hundred twenty-five percent (125%) (or such higher amount as may be required by applicable law) of the total of (x) the balance of such Imposition or Claims then remaining unpaid, and (y) all interest, penalties, costs and charges accrued or accumulated thereon, (c) no risk of sale, forfeiture or loss of any interest in the Mortgaged Property or any part thereof arises, in Lender’s reasonable judgment, during the pendency of such contest, (d) such contest does not, in Lender’s reasonable discretion, have a Material Adverse Effect and (e) in the case of Claims, the liens, if any, securing the Claims in question have been defeased or bonded against in a manner satisfactory to Lender. Each Permitted Contest shall be prosecuted, at Borrower’s sole cost and expense, with reasonable diligence, and Borrower shall promptly pay, or cause payment of, the amount of such Imposition or Claims as finally determined, together with all interest and penalties payable in connection with such Permitted Contest. Lender, in its sole discretion, may apply any amount or other security deposited with Lender under this subsection or otherwise to the payment of any unpaid Imposition or Claims to prevent the sale, loss or forfeiture of the Mortgaged Property or any portion thereof. Lender shall not be liable for any failure to so apply any amount or other security deposited. Any surplus retained by Lender after payment of the Imposition or Claims for which a deposit was made shall be repaid to Borrower unless an Event of Default exists, in which case the surplus may be applied by Lender to the Obligations. Notwithstanding any provision of this Section 5.3 to the contrary, Borrower shall promptly pay any Imposition or Claims which it might otherwise be entitled to contest if, in reasonable determination of Lender, the Mortgaged Property or any portion thereof is in jeopardy or in danger of being forfeited or foreclosed. If Borrower refuses to pay any such Imposition or Claims, Lender may (but shall not be obligated to) make such payment and Borrower shall reimburse Lender within five (5) Business Days of written notice by Lender for all such advances which advances will bear interest at the Default Rate.

(C)Subject to Section 2.6, Borrower shall pay any and all taxes, charges, filing, registration and recording fees, excises and levies imposed upon Lender by reason of its interests in, or measured by amounts payable under, the Note, this Agreement, the Mortgage or any other Loan Document (other than income, franchise and doing business taxes), and shall pay all stamp taxes and other taxes required to be paid on the Note or any of the other Loan Documents. If Borrower fails to make such payment within five (5) days after notice thereof from Lender, Lender may (but shall not be obligated to) pay the amount due, and Borrower shall reimburse Lender within five (5) Business Days of written notice by Lender for all such advances which will bear interest at the Default Rate. If applicable law prohibits Borrower from paying such taxes, charges, filing, registration and recording fees, excises, levies, stamp taxes or other taxes, then Lender may declare Borrower’s Obligations to be immediately due and payable, upon ninety (90) days’ prior written notice.

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5.4Insurance.

(A)Borrower shall at all times provide, maintain and keep in force or cause to be provided, maintained and kept in force, at no expense to Lender, the following policies of insurance with respect to the Mortgaged Property and Borrower, as applicable:

(i)Property insurance on an “all risk” and “special perils” basis (special form cause of loss) for one hundred percent (100%) of the replacement value of the Mortgaged Property with customary deductibles as approved by Lender. The policy should contain the following endorsements: (a) Replacement Cost (without any deduction made for depreciation), (b) Agreed Amount (waiving co‑insurance penalties), (c) Building Ordin-ance and Law coverage and (d) a standard mortgagee clause acceptable to Lender. Such policy will also include the following coverage: (i) comprehensive boiler and machinery coverage in amounts as reasonably determined by Lender; (ii) earthquake and earth movement coverage with a $2,500,000 limit; however if in Lender’s reasonable judgment, the risks associated with such coverage have increased whereby additional coverage would be maintained by a prudent operator of property similar in use and locale, in sufficient amount as reasonably determined by Lender; and (iii) flood insurance coverage with a $2,500,000 limit; however, if the Improvements are located in a special flood hazard area as designated by the Director of the Federal Emergency Management Agency, in sufficient amount as reasonably determined by Lender.

(ii)Insurance against rent loss for not less than eighteen months gross rent or gross income from the Mortgaged Property including stabilized management fees and applicable reserve deposits plus debt service. The perils covered by this policy shall be the same as those accepted on the Mortgaged Property including flood, earthquake and earth movement.

(iii)Commercial general liability insurance covering bodily injury and property damage occurring on, in or about the Mortgaged Property and any adjoining streets, sidewalks, and passageways arising out of or connected with the possession, use, leasing, operation, or condition of the Mortgaged Property. Policy limits will be not less than $1,000,000 per occurrence, $2,000,000 per location in the aggregate with respect to the Mortgaged Property and $1,000,000 per occurrence, $2,000,000 per location in the aggregate with respect to Borrower. Such coverage shall include but not be limited to premises/ operations, personal injury and liquor liability (if applicable).

(iv)Umbrella excess liability insurance for not less than $10,000,000 in the aggregate with respect to the Mortgaged Property and Borrower.

(v)During the course of construction of Improvements, Borrower will obtain (1) commercial general liability insurance including contractual liability, in the amount of $1,000,000 primary and $10,000,000 excess liability in the aggregate (the policy shall provide coverage on an occurrence basis against claims for personal injury, bodily injury and death or property damage occurring on, in or about the Mortgaged Property and the adjoining streets, sidewalks and passageways). In addition, Borrower shall require all contractors and subcontractors, architects and engineers to provide appropriate insurance coverage); and (2) Builder’s risk completed value form insurance against “all risks” of physical loss, including collapse, water damage, flood, earthquake and transit coverage (coverage should be on a non-reporting form, covering the total value of work performed and equipment, supplies and materials furnished (with an appropriate limit for soft costs in the case of construction) with deductibles approved by Lender). Borrower agrees to consult with Lender prior to commencing the construction of any Improvements and to comply with all reasonable special insurance requirements of Lender pertaining to any construction.

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(B)No policies shall contain any exclusion for terrorism, terrorist activities or similar activities defined under the Terrorism Risk Insurance Act of 2002 (“TRIA”) and will be endorsed to insure such risks. Notwithstanding the foregoing, should the cost of TRIA coverage and/or endorsements for the full replacement cost of the Mortgaged Property be greater than 10% of the premium for the applicable all risk property policy, then Borrower shall purchase the maximum terrorism insurance available for 10% of the then applicable all risk property insurance premium.

(C)All insurance policies required pursuant to this Agreement shall be endorsed to provide that: (i) Lender, its successors, and/or assigns, is named as mortgagee with respect to the all risk property; as a loss payee with respect to all rent loss coverage; as additional named insured on all liability coverage, with the understanding that any obligation imposed upon the insureds (including the liability to pay premiums) shall be the sole obligation of Borrower and not of any other insured; (ii) the interests of Lender shall not be invalidated by any action or inaction of Borrower or any other Person, and such policies shall insure Lender regardless of any breach or violation by Borrower or any other Person of any warranties, declaration or conditions in such policies; (iii) the insurer under each such policy shall waive all rights of subrogation against Lender, any right to set‑off and counterclaim and any other right to deduction, whether by attachment or otherwise; (iv) such insurance shall be primary and without right of contribution of any other insurance carried by or on behalf of Lender with respect to its interest in the Mortgaged Property; (v) if such insurance is canceled for any reason whatsoever, including nonpayment of premium or, if any substantial modification, change or reduction is made in the coverage which affects the interests of Lender, such cancellation, modification, change or reduction in coverage shall not be effective as to Lender until thirty (30) days after receipt by Lender of written notice sent by registered mail from such insurer; (vi) any such insurance shall be endorsed to provide in as much as the policy is written to cover more than one insured, all terms, conditions, insuring agreements and endorsements with the exception of limits of liability, shall operate in the same manner as if there were a separate policy covering each insured; and (vii) if required by Lender, such insurance shall contain “cut‑through” endorsements providing Lender with direct access to any re‑insurers.

(D)Borrower shall deliver to Lender a copy of each insurance policy with further evidence of such insurance acceptable to Lender, together with a copy of the declaration page for each such policy. Renewal certificates should be provided no later than five (5) days prior to the expiration of each policy. Upon request of Lender, Borrower shall deliver a renewed policy or policies, or duplicate original or originals thereof, marked “premium paid,” or accompanied by such other evidence of payment satisfactory to Lender with standard non-contributory mortgagee clause in favor of and acceptable to Lender. Borrower shall comply promptly with and conform to (i) all provisions of each such insurance policy and (ii) all requirements of the insurers applicable to Borrower as respects use, occupancy, possession, operation, maintenance, alteration or repair of the Mortgaged Property. Borrower shall not use or permit the use of the Mortgaged Property in any manner that would permit any insurer to cancel any insurance policy or void coverage required to be maintained by this Agreement. No insurance policy may provide for assessments to be made against Lender or Lender’s servicer, if any. The insurance coverage required under this Section 5.4 may be effected under a blanket policy or policies covering the Mortgaged Property and other properties and assets not constituting a part of the Mortgaged Property; provided that any such blanket policy shall specify the portion of the total coverage of such policy that is allocated to the Mortgaged Property, and any sublimits in such blanket policy applicable to the Mortgaged Property, which amounts shall not be less than the amounts required pursuant to this Section 5.4 and which shall in any case comply in all other respects with all of the requirements of this Section 5.4. Borrower shall comply with all insurance requirements and shall not bring or keep or permit to be brought or kept any article upon the Mortgaged Property or cause or permit any condition to exist thereon which would be prohibited by any insurance requirement, or would invalidate insurance coverage required hereunder to be maintained by Borrower on or with respect to any part of the Mortgaged Property pursuant to this Section 5.4. Notwithstanding anything to the contrary contained herein, it is expressly

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understood and agreed that any insurance which Borrower shall cause any tenant to provide that shall otherwise be in compliance with all of the terms and conditions of this Section 5.4 shall satisfy Borrower’s obligations with respect thereto hereunder. Borrower shall cause each tenant to provide business interruption, products/completed operations and workers compensation coverage in amounts reasonably acceptable to Borrower to insure risks of each tenant’s business. Borrower will not take out separate insurance contributing in the event of loss with that required to be maintained pursuant to this Section 5.4 unless such insurance complies with this Section 5.4. All insurance policies shall be in form, with endorsements, risk coverage, deductibles and amounts and maintained with companies approved by Lender, such approval not to be unreasonably withheld, conditioned or delayed. Without limiting Lender’s ability to approve the aforementioned, an insurance company shall not be reasonably satisfactory unless such insurance company (a) has a rating of a least A with financial size of Class X or better as specified in Best’s Key Rating Guide, (b) is licensed or authorized to do business, as required under applicable law, in the State where the Mortgaged Property is located and (c) a claims-paying ability rating by S&P of not less than “A” and an equivalent rating by another Rating Agency. All insurance policies insuring against casualty, rent loss and other appropriate policies shall provide that no claims be paid thereunder without twenty (20) days’ advance written notice to Lender. Such notice may be given by Borrower. Lender shall not, by the fact of approving, disapproving, accepting, preventing, obtaining or failing to obtain any insurance, incur any liability for or with respect to the amount of insurance carried, the form or legal sufficiency of insurance contracts, solvency of insurance companies, or payment or defense of lawsuits, and Borrower hereby expressly assumes full responsibility therefore and all liability, if any, with respect thereto. If Borrower fails to provide to Lender the policies of insurance required by this Section 5.4 or any other Loan Documents, Lender may (but shall have no obligation to) procure such insurance or single-interest insurance for such risks covering Lender’s interest and Borrower will pay all premiums thereon within five (5) Business Days of written notice by Lender, and until such payment is made by Borrower, the amount of all such premiums shall bear interest at the Default Rate and shall constitute additions to the Obligations.

5.5Tax Reserve and Insurance Reserve. Borrower shall deposit (or cause to be deposited) with Lender (or such agent of Lender as Lender may designate in writing to Borrower from time to time), monthly, on each Payment Date, 1/12th of the annual charges (as estimated by Lender) for all Impositions relating to the Mortgaged Property and all insurance premiums with respect to the insurance required pursuant to Section 5.4(A)(i)‑(iv). Borrower shall also deposit with Lender, simultaneously with such monthly deposits and/or on the Closing Date, a sum of money which, together with such monthly deposits, will be sufficient to make the payment of each such charge at least thirty (30) days prior to the date finally delinquent. Should such charges not be ascertainable at the time any deposit is required to be made, the deposit shall be made on the basis of Lender’s reasonable estimate. When the charges are fixed for the then current year or period, Borrower shall deposit any deficiency within fifteen (15) days following Lender’s written demand. Should an Event of Default occur and be continuing, the funds so deposited may be applied in payment of the charges for which such funds shall have been deposited or to the payment of the Obligations or any other charges affecting the Mortgaged Property as Lender in its sole and absolute discretion may determine, but no such application shall be deemed to have been made by operation of law or otherwise until actually made by Lender as herein provided. Borrower shall provide Lender with bills and all other documents necessary for the payment of the foregoing charges at least ten (10) days prior to the date on which each payment thereof shall first become delinquent. So long as (i) no Event of Default exists, (ii) Borrower has provided Lender with the foregoing bills and other documents in a timely manner, and (iii) sufficient funds are held by Lender for the payment of the Impositions and insurance premiums relating to the Mortgaged Property, as applicable, Lender shall pay said items or allow such funds to be used to pay said items or to reimburse Borrower for such items upon Lender’s receipt of reasonable evidence documenting Borrower’s payment of such items. All refunds of Impositions and insurance premiums shall be deposited into the applicable of the Tax Reserve Account or the Insurance Reserve Account.

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5.6Maintenance of Mortgaged Property. Borrower will maintain or cause the Mortgaged Property to be maintained in compliance with all Legal Requirements and in good repair, working order and condition and will make or cause to be made all appropriate repairs, renewals and replacements thereof. Without regard as to whether Proceeds are made available to Borrower for such purposes, Borrower will promptly restore and repair all loss or damage occasioned by (i) any casualty which has occurred to at least the condition existing prior to any such casualty or (ii) any condemnation to an economically and structurally integrated unit. Borrower will prevent any act or thing which might materially impair the value or usefulness of the Mortgaged Property. Borrower will not commit or permit any waste of the Mortgaged Property or any part thereof.

5.7Inspection; Lender Meeting. Borrower shall, upon request from Lender, permit (and cause to be permitted) Lender’s designated representatives to (a) visit, examine, audit, and inspect the Mortgaged Property, (b) examine, audit, inspect, copy, duplicate and abstract Borrower’s financial, accounting and other books and records, and (c) discuss Borrower’s and the Mortgaged Property’s affairs, finances and business with Borrower Representative’s officers, representatives, independent public accountants and agents (including the Manager). Lender acknowledges and agrees that any inspection or entry to the Mortgaged Property by Lender or Lender’s designated representatives shall be conducted (i) during Borrower’s normal business hours, (ii) in accordance with Borrower’s safety and security procedures then applicable to the Mortgaged Property in general and to the Secure Areas in particular that are, in each instance, in effect from time to time, (iii) at Borrower’s option, accompanied by an employee or representative of Borrower and/or Guarantor, (iv) in accordance with the confidentiality requirements of Section 11.12 and (v) in such a manner so as to minimize any disruption or interference with Borrower’s use or operation of the Mortgaged Property. Borrower shall cause its books and records to be maintained at Borrower’s principal offices located at c/o Lexicon Genetics Incorporated, 8800 Technology Forest Place, The Woodlands, Texas 77381‑1160. Borrower will not change its principal offices or the location where its books and records are kept without giving at least thirty (30) days’ advance notice to Lender. Borrower shall pay Lender’s costs and expenses incurred in connection with such audit if an Event of Default has occurred and is continuing or if any audit reveals any material discrepancy, in Lender’s reasonable judgment, in the financial information provided by Borrower. All audits, inspections and reports shall be made for the sole benefit of Lender. Neither Lender nor Lender’s auditors, inspectors, representatives, agents or contractors assumes any responsibility or liability (except to Lender) by reason of such audits, inspections or reports. Borrower will not rely upon any of such audits, inspections or reports. The performance of such audits, inspections and reports will not constitute a waiver of any of the provisions of the Loan Documents. Neither Lender nor any other of Lender’s inspectors, representatives, agents or contractors, shall be responsible for any matters related to design or construction of the Improvements or any Construction. Borrower shall cooperate, from time to time, with Lender and use reasonable efforts to assist Lender in obtaining an appraisal of the Mortgaged Property. Such cooperation and assistance from Borrower shall include reasonable access to the Mortgaged Property and books and records pertaining to the Mortgaged Property for Lender and its appraiser. The appraiser performing any such appraisal shall be engaged by Lender. Borrower shall not be responsible for the expenses of any such appraisal, provided, however, Borrower shall pay the fees of such appraiser in connection with one appraisal of the Mortgaged Property during the term of the Loan and any such appraisal when conducted following the occurrence and during the continuation of an Event of Default. Borrower shall cooperate with Lender with respect to any proceedings before any Governmental Authority which may in any way affect the rights of Lender under any of the Loan Documents and, in connection therewith, not prohibit Lender, at its election, from participating in any such proceedings.

5.8Environmental Compliance. Borrower shall: (a)  comply (or cause compliance) at all times with all applicable Environmental Laws, and (b) promptly take, or cause to be taken, any and all necessary remedial actions upon obtaining knowledge of the presence, storage, use, disposal, transportation, release or discharge

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of any Hazardous Materials on, under or about the Mortgaged Property which has a Material Adverse Effect or is in violation of any Environmental Laws. Borrower shall cause all remedial action with respect to Hazardous Material on, under or about the Mortgaged Property, to comply with all applicable Environmental Laws and the applicable policies, orders and directives of all federal, state and local Governmental Authorities. If Lender at any time has a reasonable basis to believe that there may be a violation of any Environmental Law by, or any liability arising thereunder of, Borrower or related to the Mortgaged Property, Borrower shall, upon request from Lender, provide Lender with such reports, certificates, engineering studies and other written material or data as Lender may reasonably require to confirm compliance by Borrower and the Mortgaged Property with all applicable Environmental Laws. Borrower shall permit Lender, its authorized representatives, consultants or other Persons retained by Lender to enter upon, examine, test and inspect the Mortgaged Property with regard to compliance with Environmental Laws, the presence of Hazardous Materials and the environmental condition of the Mortgaged Property and properties adjacent to the Land. Such entry, examination, testing and inspecting and reporting shall be at the expense of Borrower if (x) an Event of Default has occurred or (y) Lender has reasonably determined that there may be a violation of Environmental Law or any liability arising under Environmental Law, which expense shall be paid by Borrower to Lender within five (5) Business Days of written notice by Lender.

5.9Environmental Disclosure. Borrower shall immediately upon becoming aware thereof advise Lender in writing and in reasonable detail of: (1) any release, disposal or discharge of any Hazardous Material at the Mortgaged Property required to be reported to any federal, state or local governmental or regulatory agency under all applicable Environmental Laws; (2) any and all written communications sent or received by Borrower or its agents with respect to any Environmental Claims or any release, disposal or discharge of Hazardous Material required to be reported to any federal, state or local governmental or regulatory agency; (3) any remedial action taken by Borrower or any other Person in response to any Hazardous Material on, under or about any real property owned, leased or operated by Borrower or the Mortgaged Property or its agents, the existence of which could result in an Environmental Claim; (4) the discovery by Borrower or its agents of any occurrence or condition on any real property adjoining or in the vicinity of the Mortgaged Property that could cause such real property or any part thereof to be classified as “border-zone property” or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws; and (5) any request for information from any Governmental Authority that indicates such Governmental Authority is investigating whether Borrower or another present or former occupant of the Mortgaged Property may be potentially responsible for a release, disposal or discharge of Hazardous Materials from any of the Mortgaged Property. Borrower shall promptly notify Lender of any proposed action to be taken by Borrower to commence any operations that could reasonably be expected to subject Borrower to additional laws, rules or regulations, including laws, rules and regulations requiring additional or amended environmental permits or licenses. Borrower shall, at its own expense, provide copies of such documents or information as Lender may reasonably request in relation to any matters disclosed pursuant to this Section 5.9.

5.10Compliance with Laws, Employee Benefit Plans and Contractual Obligations. Borrower will promptly and faithfully (A) comply and cause the Mortgaged Property to comply, in all material respects, with the requirements of all Legal Requirements and the orders and requirements of any Governmental Authority in all jurisdictions in which it is now doing business or may hereafter be doing business and of every board of fire underwriters or similar body exercising similar functions, (B) maintain all licenses, certificates of occupancy, permits and Proprietary Rights now held or hereafter acquired by it or with respect to which a Material Adverse Effect will result if same are not existing and held by Borrower and (C) perform, observe, comply and fulfill all of its obligations, covenants and conditions contained in the Loan Documents and the Material Contracts. Borrower shall: (i) promptly notify Lender of any claim made against Borrower that Borrower is in default under any Material Contract or that any other party is in default under any Material

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Contract; (ii) not terminate, or permit termination of, any Material Contract, and (iii) not enter into, amend or modify any Material Contract without first obtaining the prior written approval of Lender. Except for the plans described in Schedule 4.10, Borrower is not a party to, and will not establish, any Employee Benefit Plan. Except for the plans described in Schedule 4.10, Borrower will not commence making contributions to (or obligate itself to make contributions to) any Employee Benefit Plan.

5.11Further Assurances. Borrower shall, from time to time, at its sole cost and expense, execute and/or deliver, or cause execution and/or delivery of, such documents, agreements and reports, and perform such acts as Lender at any time may reasonably request to carry out the purposes and otherwise implement the terms and provisions provided for in the Loan Documents. Borrower shall execute any documents and take any other actions necessary to provide Lender with a first priority, perfected security interest in the Reserves and the other Collateral. Borrower shall, at Borrower’s sole cost and expense: (i) upon Lender’s request therefore given from time to time (but not more frequently than once per calendar year unless an Event of Default then exists) pay for (a) current reports of Uniform Commercial Code, federal tax lien, state tax lien, judgment and pending litigation searches with respect to Borrower and Borrower Representative, (b) current good standing and existence certificates with respect to Borrower and Borrower Representative and (c) current searches of title to the Mortgaged Property, each such search to be conducted by search firms reasonably designated by Lender in each of the locations reasonably designated by Lender; and (ii) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary, to evidence, preserve and/or protect the Reserve Account Collateral and the other Collateral at any time securing or intended to secure the Obligations, as Lender may require in Lender’s reasonable discretion. Borrower shall promptly execute, acknowledge, deliver, file or do, at its sole cost and expense, all acts, assignments, notices, agreements or other instruments as Lender may require in order to effectuate, assure, convey, secure, assign, transfer and convey unto Lender any of the rights granted by this Agreement and to more fully perfect and protect any assignment, pledge, lien and security interest confirmed or purported to be created under the Loan Documents or to enable Lender to exercise and enforce their rights and remedies hereunder, in respect of the Collateral.

5.12Required Capital Improvements. Each of the capital improvement items listed on Exhibit E hereto (“Required Capital Improvements”) shall be completed by the applicable Required Completion Date.

5.13[Intentionally Omitted.]

5.14[Intentionally Omitted.]

5.15[Intentionally Omitted.]

5.16[Intentionally Omitted.]

5.17[Intentionally Omitted.]

5.18Management. Borrower shall provide competent, responsible management for the Mortgaged Property, which management, Lender acknowledges, is currently being provided, at no expense or cost to Borrower, by employees of Guarantor. In the event Borrower enters into a Management Agreement subsequent to the date hereof, the Manager and such Management Agreement must contain subordination and termination provisions and must be otherwise satisfactory to Lender. Borrower shall not enter into any management agreement or arrangement with any Person with respect to the management of the Mortgaged Property without Lender’s prior written consent. Borrower shall cause management subordination agreements in form and substance satisfactory to Lender to be executed by the Manager. Borrower shall not modify, amend or terminate any approved management agreement without Lender’s prior written consent.

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Borrower shall provide Lender with written notice of the occurrence of any event of default or condition which with the giving of notice or passage of time, or both, would constitute an event of default under any Management Agreement or which would entitle the Manager to terminate the Management Agreement. Any Management Agreement entered into by Borrower shall be terminated by Borrower, at Lender’s request, upon thirty (30) days’ prior notice to Borrower (i) upon the occurrence of an Event of Default or (ii) if such Manager commits any act which would permit termination by Borrower under such Management Agreement. If a Manager is terminated pursuant hereto, Borrower shall immediately seek to appoint a replacement manager which is a Qualified Manager, and Borrower’s failure to appoint an acceptable Manager within thirty (30) days after Lender’s request of such Borrower to terminate the Management Agreement shall constitute an immediate Event of Default.

5.19Construction Matters. Without limitation of Lender’s rights and Borrower’s Obliga-tions set forth elsewhere in the Loan Documents, Borrower shall: (1) cause the Restoration and all other Construction to proceed with reasonable diligence and continuously, with sufficient workers employed and sufficient materials supplied for that purpose so that the applicable Construction is substantially completed by the applicable Required Completion Date, or, if no Required Completion Date is applicable, as promptly as reasonably practicable or, in the case of Restoration, the Restoration is Substantially Completed prior to the Required Restoration Date; (2) cause all Construction to be performed in accordance with the applicable Plans and Specifications or plans and specifications for the work in question, in substantial conformity with the Legal Requirements, the requirements of all insurers and fire underwriters, and with the requirements set forth herein and in the other Loan Documents, in compliance with the Material Contracts and in a good, safe and workmanlike manner; (3) cause all materials acquired or furnished in connection with the Construction and Restoration to be new and stored under adequate safeguards to minimize the possibility of loss, theft, damage or commingling with other materials or projects; (4) utilize, or permit utilization of, only contractors approved by Lender (such approval not to be unreasonably withheld, conditioned or delayed); (5) not permit the revision of Plans and Specifications without consent of Lender (not to be unreasonably withheld, conditioned or delayed); and (6) from time to time upon the reasonable request of Lender deliver to Lender such certificates and other documentation confirming the matters set forth in the preceding clauses (1) through (5). Promptly upon the giving or receipt of such notice, Borrower shall forward to Lender copies of all material written notices given or received by, or on behalf of, Borrower with respect to the Construction to or from: (x) Contractor or any subcontractor or material supplier, or any of the design professionals (including notices relating to any nonconforming construction, any refusal or inability to pay or perform pursuant to the terms of any contract or other agreement or any delay, default or change order) or (y) any claim of default, or relating to any work stoppage, notice of violation or cease and desist order, stop order, construction liens, strike, claim, litigation, damage, loss or any other materially adverse condition, circumstance or event. Borrower shall pay and discharge or cause to be paid and discharged promptly all payments due for labor, materials and supplies unless the same shall be contested by Borrower in accordance with Section 5.3(B). Borrower shall make available for inspection at all times by Lender and its representatives copies of all contracts for Construction and, to the extent available to or reasonably obtained by Borrower, entered into by Contractor and design professionals relating to the Construction. Within ninety (90) days after Substantial Completion of applicable Construction activities, Borrower shall (i) complete, or cause to be completed, all Punch-List Items, (ii) deliver to Lender two (2) copies of the as‑built Plans and Specifications and such other as‑built surveys and plans and specifications as Lender may reasonably require and (iii) obtain all final permits and approvals required for the normal use and occupancy of the Improvements in question (including a permanent certificate of occupancy if required for occupancy under applicable laws or its equivalent for the Improvements in question, to the extent available) provided, however, to the extent that applicable Legal Requirements require satisfaction of items (i), (ii) or (iii) prior to the expiration of such ninety (90)-day period, the date such items must be satisfied prior to the date satisfaction is required pursuant to the applicable Legal Requirements.

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SECTION 6

ACCOUNTS/CASH MANAGEMENT

6.1Establishment of Accounts.

(A)Accounts. Borrower and Lender confirm that Lender has established, and agrees that Borrower and Lender shall maintain at Bank, the following segregated securities accounts (each a “Reserve Account” and, collective the “Reserve Accounts”) shall be maintained by Borrower with Bank:

(i)Account No. _____, captioned “Lex-Gen Woodlands, L.P./iStar Financial Inc./Tax Reserve” for the retention of collateral in respect of insurance premiums for the Mortgaged Property as provided in Section 5.5 (the “Insurance Reserve Account”); and

(ii)Account No. ____, captioned “Lex-Gen Woodlands, L.P./iStar Financial Inc./Tax Reserve” for the retention of collateral for the payment of Impositions for the Mortgaged Property as provided in Section 5.5 (“Tax Reserve Account”).

(B)Type and Control of Accounts. Borrower represents, warrants, covenants and agrees that (A) each of the Reserve Accounts are and shall be maintained as a “securities account” (as in Section 8‑501(a) of the UCC); (B) Lender is entitled to exercise the rights that comprise any financial asset credited to such Reserve Accounts; (C) Borrower shall have no right to give entitlement orders with respect to such Reserve Accounts and, except as provided in this Agreement, no Reserve Account Collateral shall be released to Borrower from such Reserve Accounts; and (D) all securities or other property underlying any financial assets credited to the Reserve Accounts shall be registered in the name of Bank or indorsed to Bank or in blank and in no case will any financial asset credited to the Reserve Accounts be registered in the name of Borrower, payable to the order of Borrower or specially indorsed to Borrower.

(C)Eligible Accounts. Each of the Reserve Accounts shall be an Eligible Account.

(D)Cash Management Agreement. Borrower agrees that: (i) the Reserve Accounts shall be maintained in accordance with the terms hereof and of the Cash Management Agreement; and (ii) prior to the indefeasible re‑payment in full of the Loan and indefeasible satisfaction of the Obligations, the Cash Management Agreement shall not be amended, supplemented or modified without the prior written consent of Lender, which consent Lender may grant or withhold in its sole and absolute discretion.

(E)No Other Accounts. Borrower represents and warrants that there are no deposit, securities or similar Accounts other than the Reserve Accounts maintained by Borrower or any other Person with respect to the collection of Gross Revenues. Borrower agrees that, until the Loan is indefeasibly re‑paid in full and the indefeasible satisfaction of the Obligations neither Borrower nor any other Person shall open any Accounts for the collection or holding of Gross Revenues, except for the Reserve Accounts. The foregoing shall not prohibit Borrower from (i) utilizing one or more separate accounts for the disbursement or retention of funds that have been transferred to Borrower pursuant to Section 6.3 of this Agreement or (ii) maintaining a separate bank account for the collection of Rents under the Guarantor Lease. Borrower covenants and agrees that it will not pledge, or create or permit to exist any security interest in, the foregoing accounts.

(F)Miscellaneous Account Provisions. The Reserve Accounts shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other banking or governmental authority, as may now or hereafter be in effect. Interest accruing on the Reserve Accounts, if any, shall be periodically added to the principal amount of the applicable Reserve Account and shall be held, disbursed and applied in accordance with the provisions of this Agreement. All statements relating to the Reserve Accounts shall be issued simultaneously by Bank to Lender and Borrower.

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Borrower shall be the beneficial owner of the Reserve Accounts for federal and state income tax purposes and shall report all income on the Reserve Accounts.

6.2Deposits into Accounts.

(A)Initial Deposits. On the Closing Date, Borrower agrees, represents and warrants that it has deposited or caused to be deposited the following amounts into the Accounts: (i) $156,000 into the Insurance Reserve Account; and (ii) $590,000.00 into the Tax Reserve Account.

(B)Continuing Deposits. Borrower agrees to deposit on each Payment Date funds in the following amounts:

(i)funds in an amount equal to the deposit for insurance premiums due under Section 5.5 on the applicable Payment Date shall be deposited into the Insurance Reserve Account; and

(ii)funds in an amount equal to the deposit for Impositions due under Section 5.5 on the applicable Payment Date shall be deposited into the Tax Reserve Account.

6.3Payments from Reserve Accounts.

(A)No Event of Default. Borrower hereby irrevocably authorizes Lender to withdraw, and, Lender shall withdraw or re‑allocate, the following payments or allocations, as applicable, from the applicable Reserve Accounts to the extent of the monies on deposit in the applicable Reserve Account if no Event of Default exists:

(i)funds from the Tax Reserve Account and Insurance Reserve Account sufficient to pay (A) Impositions and (B) insurance premiums for the insurance required to be maintained pursuant to the terms of the Agreement, on the due date therefore, and pay such funds to the Governmental Authority or insurance company having the right to receive such funds, provided, that Lender shall only be required to make such payments if Borrower has delivered to Lender an Officer’s Certificate identifying (1) the amount of such required payments, (2) the due date of such payments and (3) the person entitled to receive such payments, at least five (5) Business Days prior to the due date thereof, provided further, if Borrower shall have paid Impositions or insurance proceeds directly, the funds will be paid to Borrower in reimbursement thereof provided no Event of Default exists and Borrower provides evidence reasonably satisfactory to Lender of payment of the item in question.

(B)Event of Default Exists. If an Event of Default exists, Borrower hereby irrevocably authorizes Lender to make any and all withdrawals from and transfers between any Reserve Account, as Lender shall determine in Lender’s sole and absolute discretion.

6.4Accounts. Borrower shall not, without the prior written consent of Lender, change the account location of any Reserve Account and, as a condition precedent to any such change, the bank to which Borrower proposes to relocate such Reserve Account shall have executed an appropriate acknowledgment letter, in accordance with the provisions set forth above. With respect to the Reserve Account Collateral, Lender shall not be liable for any acts, omissions, errors in judgment or mistakes of fact or law, except for those arising as a result of Lender’s investment of such Reserve Account Collateral in other than Permitted Investments or from gross negligence or willful misconduct. Funds in the Borrower Account shall (a) be used only to pay Expenses related to the Mortgaged Property prior to any distributions by Borrower and (b) not be disbursed in violation of any provision of this Agreement.

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6.5Creation of Security Interest in Accounts. Borrower hereby pledges, transfers and assigns to Lender, and grants to Lender, as additional security for the Obligations, a continuing perfected first priority security interest in and to, and a first lien upon: (i) the Reserve Accounts and all amounts which may from time to time be on deposit in each of the Reserve Accounts; (ii) all of Borrower’s right, title and interest in and to all cash, property or rights transferred to or deposited in each of the Reserve Accounts from time to time; (iii) all certificates and instruments, if any, from time to time representing or evidencing any such Reserve Account or any amount on deposit in any thereof, or any value received as a consequence of possession thereof, including all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Reserve Accounts; (iv) all monies, chattel paper, checks, notes, bills of exchange, negotiable instruments, documents of title, money orders, commercial paper, and other security instruments, documents, deposits and credits from time to time in the possession of Lender representing or evidencing such Reserve Accounts; (v) all other property, held in, credited to, or constituting part of any of the Reserve Accounts; (vi) all earnings and investments held in any Reserve Account in accordance with this Agreement; and (vii) to the extent not described above, any and all proceeds of the foregoing, (collectively, the “Reserve Account Collateral”). This Agreement and the pledge, assignment and grant of security interest made hereby secures payment of all Obligations in accordance with the provisions set forth herein. This Agreement shall be deemed a security agreement within the meaning of the Uniform Commercial Code.

6.6Certain Matters Regarding Lender following an Event of Default. Borrower agrees that the Bank shall pay over to Lender all amounts deposited in the Reserve Accounts on demand, without notice to Borrower, if, in making such demand, Lender shall give notice, in writing, signed by Lender or an authorized agent thereof, that an Event of Default exists. Lender may exercise in respect of the Reserve Account Collateral all rights and remedies available to Lender hereunder or under the other Loan Documents, or otherwise available at law or in equity. If an Event of Default exists, Lender may exercise in respect of the Reserve Account Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party upon default under the Uniform Commercial Code then in effect in the applicable jurisdiction. Without limiting the generality of the foregoing, Borrower agree(s) that, upon the occurrence and during the continuance of an Event of Default, it will have no further right to request or otherwise require Lender to disburse funds from any Account in accordance with the terms of this Agreement, it being agreed that Lender may, at its option, (i) direct the Bank to continue to hold the funds in the Reserve Accounts, (ii) continue, from time to time, to apply all or any portion of the funds held in the Reserve Accounts to any payment(s) which such funds could have been applied to prior to such Event of Default (or to pay Expenses directly), to the extent and in such order and manner as Lender in its sole discretion may determine, and/or (iii) direct the Bank to disburse all or any portion of the funds held in the Reserve Accounts or other Reserve Account Collateral then or thereafter held by the Bank to Lender, in which event Lender may apply the funds held in the Reserve Accounts or other Reserve Account Collateral to the Obligations, in any order and in such manner as Lender may determine in its sole discretion. If an Event of Default exists, Lender may, at any time or from time to time: (1) collect, appropriate, redeem, realize upon or otherwise enforce its rights with respect to the Reserve Account Collateral, or any part thereof, without notice to any Borrower and without the need to institute any legal action, make demand to or upon any Borrower or any other Person, exhaust any other remedies or otherwise proceed to enforce its rights; (2) execute (in the name, place and stead of Borrower) any endorsements, assignments or other instruments of conveyance which may be required for the withdrawal and negotiation of the Reserve Account Collateral; and/or (3) exercise all other rights and remedies available to Lender hereunder and under any of the other Loan Documents. Notwithstanding anything to the contrary contained herein: (w) Borrower shall remain liable under the Loan Documents to the extent set forth herein and therein to perform all of its respective obligations thereunder, to the same extent as if this Agreement had not been executed; (x) the exercise by Lender of any of its rights hereunder shall not release Borrower from its obligations under any of the Loan

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Documents, nor shall it constitute an election of remedies by Lender or a waiver by Lender of any of its rights and remedies under the Loan Documents; (y) except as expressly set forth in this Agreement or in any of the other Loan Documents, Lender shall not have any obligation or liability by reason of this Agreement, nor shall Lender be obligated to perform any of the obligations or duties of Borrower hereunder or to take any action, in each case, to collect or enforce any claim for payment assigned hereunder; and (z) Lender shall not have to resort to using the Reserve Account Collateral before making demand upon or bringing an action against Borrower under any Loan Document under any guaranty given in connection with the Loan. No failure on the part of Lender to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right under this Agreement or the other Loan Documents. The remedies provided in this Agreement, the Note and the other Loan Documents are cumulative and not exclusive of any remedies provided at law or in equity.

6.7Representations and Warranties Regarding Reserve Account Collateral. In addition to any representations or warranties contained in this Agreement, Borrower represents and warrants as follows: (a) Borrower is the legal and beneficial owner of the Reserve Account Collateral, respectively, free and clear of any Liens, except for the Liens in favor of Lender created by this Agreement and the other Loan Documents; (b) upon execution by Borrower of this Agreement, the pledge and assignment of the Reserve Account Collateral pursuant to this Agreement will create a valid, first priority security interest in the such Reserve Account Collateral, securing the payment and performance of the Obligations; and (c) Borrower is not a party to any credit agreement or other borrowing facility including, but not limited to, a line of credit or overdraft line, with the Bank.

6.8Covenants Regarding Reserve Account Collateral. Borrower will not, without the prior consent of Lender, (a) sell, assign (by operation of law or otherwise), pledge, or grant any option with respect to, any of the Gross Revenues or any interest in the Reserve Account Collateral or (b) create or permit to exist any assignment, lien, security interest, option or other charge or encumbrance upon or with respect to any Gross Revenues or any Reserve Account Collateral, except for the Liens in favor of Lender under this Agreement and the other Loan Documents. Borrower will give Lender not less than thirty (30) days’ prior written notice of any change in the address of its chief executive office or its principal office. Borrower agrees that all records of Borrower with respect to the Reserve Account Collateral will be kept at Borrower’s principal office and will not be removed from such addresses without the prior written consent of Lender. Borrower will not make or consent to any amendment or other modification or waiver with respect to any Reserve Account Collateral, or enter into any agreement, or permit to exist any restriction, with respect to any Reserve Account Collateral. Borrower will, at its expense, defend Lender’s right, title and security interest in and to the Reserve Account Collateral against the claims of any Person. Borrower will not take any action which would in any manner impair the enforceability of this Agreement or the security interests created hereby. Borrower will not enter into any credit agreement or other borrowing facility including a line of credit or overdraft line, with Bank. Nothing contained in this Section 6 shall impair or otherwise limit Borrower’s obligations to timely make the payments (including interest and principal) required by the Note and the other Loan Documents, it being understood that such payments shall be so timely made in accordance with the Loan Documents, regardless of the amounts on deposit in any Account. Lender may, from time to time, at its sole option, perform any act which Borrower agrees hereunder to perform which Borrower shall fail to perform after being requested in writing to so perform and Lender may from time to time take any other action which Lender deems necessary for the maintenance, preservation or protection of any of the rights granted to Lender hereunder. With respect to the powers conferred on Lender hereunder, Lender shall not have any duty as to the Accounts or the other Reserve Account Collateral, or any responsibility for (i) ascertaining or taking action with respect to any matters relative to the Accounts or the other Reserve Account Collateral, whether or not Lender has or is deemed to have knowledge of such matters or (ii) taking

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any necessary steps to preserve rights against prior parties or any other rights pertaining to the Accounts or the other Reserve Account Collateral.

6.9Cash Management Fees. All fees, costs and expenses associated with the Cash Management Agreement and Reserve Account Collateral shall be paid by Borrower when due.

SECTION 7

NEGATIVE COVENANTS

Borrower covenants and agrees that from the date hereof and so long as this Agreement shall remain in effect or the Note remains outstanding, Borrower shall comply with all covenants and agreements in this Section 7.

7.1Indebtedness. Borrower will not directly or indirectly create, incur, assume, guaranty, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness except Permitted Indebtedness.

7.2Liens and Related Matters. Borrower will not directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to the Mortgaged Property or other Collateral whether now owned or hereafter acquired, or any income or profits therefrom, except the Liens in favor of Lender under this Agreement and the Permitted Encumbrances. Borrower shall have the right to contest any such Lien securing Claims in accordance with Section 5.3(B), except by their own terms or in accordance with a specific termination right granted thereunder.

7.3Material Rights. Without Lender’s consent, which consent shall not be unreasonably withheld, conditioned or delayed, Borrower shall not (a) amend, modify or waive the performance of material obligations with regard to the Material Contracts or Proprietary Rights, (b) request a waiver or consent from, any party to, or issuer of any of the Material Contracts or Proprietary Rights or (c) terminate or permit termination of any Material Contracts or Proprietary Rights.

7.4Restriction on Fundamental Changes. Neither Borrower nor Borrower Representative will: (1) amend, modify or waive in any material respect any term or provision of its Organizational Documents, (2) liquidate, wind‑up or dissolve itself (or suffer any liquidation or dissolution); or (3) acquire by purchase or otherwise all or any part of the business or assets of, or stock or other evidence of beneficial ownership of, any Person. Neither Borrower nor Borrower Representative will issue, sell, assign, pledge, convey, dispose or otherwise encumber any partnership, stock, membership, beneficial or other ownership interests or grant any options, warrants, purchase rights or other similar agreements or understandings with respect thereto. Borrower will not establish any Subsidiaries. Borrower will not make any Investments in any other Person.

7.5Restriction on Leases. Except for the Guarantor Lease and as set forth below, Borrower shall not hereafter enter into any Lease or other rental or occupancy arrangement or concession agreement with respect to the Mortgaged Property or any portion thereof or otherwise permit any occupancy of the Mortgaged Property other than by Guarantor. Borrower shall not modify, amend or terminate any Lease, give any consents, waive any obligations under any leases or release any tenant of any Lease, without, in each instance, Lender’s consent, such consent not to be unreasonably withheld, conditioned or delayed. Borrower shall perform and comply, in all material respects, with all of the landlord’s obligations under each Lease and shall not suffer or permit any material breach or default on the part of the landlord to occur thereunder. In addition to the Guarantor Lease, Guarantor shall have the right to enter into subleases with third parties for occupancy of the Improvements without Lender’s consent, provided that (i) any such sublease shall be subject and subordinate to the Liens in favor of Lender under this Agreement and (ii) all subleases, in the aggregate, shall

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be for (1) less than 50% of the leasable space of any single building and (2) less than 30% of the aggregate leasable improved space for the Mortgaged Property. Borrower shall provide Lender with written notice of any such permitted sublease prior to Guarantor entering into any such sublease. In no event will Borrower enter into any Capital Leases.

7.6Transactions with Affiliates. Except for the Guarantor Lease, Borrower shall not directly or indirectly enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any director, officer, employee or Affiliate of Borrower, Borrower Representative or Guarantor, except transactions in the ordinary course of and pursuant to the reasonable requirements of the business of Borrower and upon fair and reasonable terms which are fully disclosed to Lender and are no less favorable to Borrower than would be obtained in a comparable arm’s length transaction with a Person that is not an Affiliate, director, officer or employee of Borrower. Each such agreement with any Affiliate, director, officer or employee of Borrower shall provide that the same may be terminated by Lender at its option if an Event of Default exists. Other than pursuant to the Management Agreement approved by Lender, Borrower shall not pay any management, consulting, director or similar fees to any director, officer, employee or Affiliate of Borrower or Guarantor.

7.7Management Fees and Compensation; Contracts. Borrower will not enter into or become obligated under any management (property and asset), brokerage or other such similar agreement, whether with an Affiliate or any other Person, with respect to the Mortgaged Property, without Lender’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, and unless the same may be terminated, without cause and without payment of a penalty or fee, on not more than thirty (30) days’ prior written notice. In no event will Borrower pay a management fee in excess of the then prevailing market rates.

7.8Conduct of Business. From and after the Closing Date, Borrower will not engage in any business other than the ownership and operation of the Mortgaged Property. Borrower shall not use the Mortgaged Property or any part thereof, or allow the same to be used or occupied, for any purpose other than for the purposes of an office, laboratory, vivarium or other facility for similar use and related amenities, or for any unlawful purpose, or in violation of any Legal Requirement. Borrower will not suffer any act to be done or any condition to exist on the Mortgaged Property or any part thereof or any article to be brought thereon, which may be dangerous (unless safeguarded as required by Legal Requirement) or which may constitute a nuisance, public or private, or which may void or make voidable any insurance then in force with respect thereto. No tract map, parcel map, condominium plan, condominium declaration, or plat of subdivision (or analogous document) will be recorded with respect to the Mortgaged Property without Lender’s consent, which consent shall not be unreasonably withheld, conditioned or delayed. The Mortgaged Property shall not be converted to the condominium or “cooperative” form of ownership. Borrower will not initiate or consent to any change in the zoning of the Mortgaged Property. Borrower shall at all times maintain good and indefeasible fee title to the Mortgaged Property free and clear of any encumbrances other than the Liens in favor of Lender under the Loan Documents and the Permitted Encumbrances. Borrower shall not change its fiscal year without giving advance notice thereof to Lender.

7.9Use of Lender’s Name. Borrower shall not use the names of Lender or any of Lender’s Subsidiaries or Affiliates in connection with the development, marketing, leasing, use and operation of the Mortgaged Property. Borrower shall not disclose or permit any Subsidiary of Guarantor or Borrower, or any officer, director, partner, manager, member or employee of Borrower to disclose any of the terms and conditions of the Loan to any Person except (a) to the extent disclosed in the Mortgage and the Financing Statements, (b) to the extent such disclosure is required pursuant to the Loan Documents or applicable legal process, (c) to the extent, and only to the extent, such disclosure is required pursuant to Guarantor’s reporting requirements

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under the Exchange Act, (d) to the extent the content of such disclosure is already generally available to the public, or (e) to the extent Lender consents to such disclosure.

7.10Compliance with ERISA. Borrower shall not adopt, modify or terminate any Employee Benefit Plans except as described in Schedule 4.10. Borrower shall not fail to maintain and operate each existing Employee Benefit Plan in compliance in all material respects with the provisions of ERISA, the Code and all other applicable laws and the regulations and interpretations thereof. Borrower shall not engage in any transaction which would cause the Obligations or any action taken or to be taken under this Agreement or the other Loan Documents or otherwise (or the exercise by Lender of any of its rights under the Loan Documents) to be a non-exempt prohibited transaction under ERISA. Borrower shall not become an “employee benefit plan” (within the meaning of Section 3(3) of ERISA) to which ERISA applies and Borrower shall not permit its assets to be plan assets.

7.11Due on Sale or Encumbrance. Without Lender’s consent, which consent may be given or withheld in the sole discretion of Lender, neither Borrower nor any other Person directly or indirectly holding any direct or indirect legal, beneficial, equitable or other interest in Borrower (at each and every tier or level of ownership) shall, or permit other Persons to, Transfer (whether or not for consideration or of record) all or any portion of the Mortgaged Property or any direct or indirect legal, equitable, beneficial or other interest (1) in all or any portion of the Mortgaged Property; (2) in Borrower; or (3) at each and every tier or level of ownership, in Borrower’s direct or indirect partners, members, shareholders, beneficial or constituent owners including Guarantor, Borrower Representative, any owners of Borrower Representative (or the direct or indirect owners of any direct or indirect interests in any such constituent owners), including (a) an installment sales agreement for a price to be paid in installments; (b) except as otherwise permitted pursuant to Section 7.5, any Leases or a sale, assignment or other transfer of, or the grant of a security interest in, Borrower’s right, title and interest in and to any Leases or any Rents; (c) any direct or indirect voluntary or involuntary sale of any ownership interest in Borrower or other Person directly or indirectly owning any direct or indirect interest in Borrower; (d) the creation, issuance or redemption of direct or indirect ownership interests by Borrower or any Person owning a direct or indirect interest in Borrower (at each every tier or level of ownership); (e) any merger, consolidation, dissolution or liquidation; and (f) without limitation of any of the foregoing, any direct or indirect voluntary or involuntary Transfer by any Person which indirectly controls Borrower (by operation of law or otherwise) of its direct or indirect controlling interests in Borrower. Notwithstanding the foregoing, the following shall not be deemed to be prohibited under this Section 7.11: (i) a Transfer of an indirect ownership interest in Borrower, by the current owner thereof to a wholly-owned subsidiary of Guarantor and (ii) Transfers of ownership interests in a Person whose stock is publicly traded, so long as (x) no such transfers described in parts (i) and (ii) of this sentence result in any Person or Group acquiring, directly or indirectly, more than a forty-nine percent (49%) direct or indirect interest in Borrower (if such Person or Group did not prior to the Transfer, own at least forty-nine percent (49%) of the direct or indirect ownership interests in Borrower), unless such Person or Group acquiring, directly or indirectly, more than a forty-nine percent (49%) direct or indirect interest in Borrower has a Credit Rating of “Baa2” or higher from Moody’s or “BBB” or higher from S&P, or, as applicable, an equivalent rating from another Rating Agency, or, if such Person or Group is not rated by a Rating Agency, has (A) a Net Worth of $1,000,000,000 or more, (B) an EBITDA Interest Coverage of 6.0 or greater and (C) a Total Debt/Capitalization no greater than 40%, and (y) no Change in Control occurs by virtue of such Transfers (other than pursuant to clause (ii) of the definition of “Change of Control”). Notwithstanding the foregoing, Borrower may sell Inventory in the ordinary course of business and transfer or dispose of tangible personal property to Persons that are not Borrower’s Affiliates, which tangible personal property is immediately replaced by an article of equivalent suitability and value or which is no longer necessary in connection with the operation of the Mortgaged Property provided that such transfer or disposal will (i) not have a Material Adverse Effect; (ii) not materially impair the utility of the Mortgaged Property, and (iii) not result in a reduction or abatement of, or right of

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offset against, the Gross Revenues payable under any Lease or otherwise, and provided that any tangible personal property acquired by Borrower (and not so disposed of) shall be subject to the Lien of the Mortgage. Borrower acknowledges that Lender has examined and relied on the experience of Borrower and Guarantor in owning and operating properties such as the Mortgaged Property in agreeing to make the Loan and will continue to rely on such ownership of the Mortgaged Property and Borrower and Guarantor as a means of maintaining the value of the Mortgaged Property as security for repayment of the Loan and the performance of the other Obligations. Borrower acknowledges that Lender has a valid interest in maintaining the value of the Mortgaged Property so as to ensure that, should Borrower default in the repayment of the Loan or the performance of the other Obligations, Lender can recover the Loan by a sale of the Mortgaged Property. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Loan immediately due and payable upon any Default under this Section 7.11.

7.12Payments; Distributions. Except for payments of management fees otherwise permitted to be paid to Manager under this Agreement pursuant to a Management Agreement approved by Lender at a time when no Event of Default exists, Borrower shall not pay any distributions, dividends or other payments or return any capital to any of its respective partners, members, owners or shareholders or any other Affiliate or make any distribution of assets, rights, options, obligations or securities to any of its respective partners, members, shareholders or owners or any other Affiliate (individually, or collectively, a “Distribution”) unless (a) on the date of the proposed Distribution, and after giving effect to the subsequent Distribution, no Default or Event of Default exists; (b) funds are not then required to be deposited into any Reserves; (c) Borrower is not “insolvent” (as defined in the Bankruptcy Code) and will not be rendered insolvent by virtue of such Distribution; (d) Borrower shall deliver, at least ten (10) days in advance of the proposed Distribution, to Lender, an Officer’s Certificate executed by the chief financial officer or similar officer of Borrower, stating that the foregoing conditions (a), (b) and (c) have been satisfied.

7.13Single Purpose Bankruptcy Remote Entities. Borrower hereby represents, warrants, agrees and covenants that Borrower and Borrower Representative have, at all times, from their formation, been, and, at all times will be, a Special Purpose Bankruptcy Remote Entity. Neither Borrower nor Borrower Representative will, directly or indirectly, make any change, amendment or modification to its Organizational Documents or otherwise take any action which could result in Borrower or Borrower Representative not being a Special Purpose Bankruptcy Remote Entity.

7.14Alterations. Borrower shall not alter, remove or demolish or permit the alteration, removal or demolition of, any Improvement except as the same may be necessary in connection with (i) a Restoration in connection with a taking or casualty in accordance with the terms and conditions of the Agreement, (ii) Required Capital Improvements in accordance with the terms and conditions of the Agreement and (iii) other Alterations permitted in accordance with the terms and conditions of this Section 7.14. If no Event of Default exists, Borrower may undertake any alteration, improvement, demolition or removal of Improvements or any portion thereof (any such alteration, improvement, demolition or removal, an “Alteration”) so long as (1) Borrower provides Lender with at least thirty (30) days’ prior notice of any such Alteration, (2) such Alteration is undertaken in accordance with the applicable provisions of this Agreement, is not prohibited by, and is in full compliance with, and does not violate, any Material Contracts or Legal Requirements and does not, during Construction and upon completion, have a Material Adverse Effect, (3) Borrower provides Lender with evidence, satisfactory to Lender, that Borrower has sufficient funds to complete and pay all of the costs of the Alterations, (4) such Alteration does not eliminate or materially modify any amenity (e.g., health club) available to tenants and their employees or customers, (5) such Alteration is in the nature of (x) Required Capital Improvements permitted under this Agreement, (y) a Restoration required or permitted under the Agreement or (z) if not in the nature of the Alterations contemplated by (x) or (y), such Alteration

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has been consented to by Lender (such consent will not be unreasonably withheld, conditioned or delayed in the case of Alterations the cost of which, as estimated by Lender, does not exceed $50,000) and (6) prior to commencement and from time to time upon request from Lender, Borrower delivers an Officer’s Certificate certifying that conditions (1)-(5), inclusive, have been satisfied. Any Alteration shall, unless Lender otherwise approves or the Agreement otherwise provides, be conducted under the supervision of an independent architect approved by Lender (an “Independent Architect”). No Alteration shall be undertaken until Lender has approved plans and specifications and cost estimates for the Alterations, prepared by such Independent Architect or another Person approved by Lender, such approvals not to be unreasonably withheld, conditioned or delayed. Notwithstanding anything contained in this Section 7.14 to the contrary, Borrower shall have the right to make non-structural Alterations to the Improvements, the cost of which does not exceed $500,000 per Alteration, without Lender’s consent and without complying with clauses (3)-(5) set forth above; provided, however, that Borrower shall provide Lender with prior written notice at least ten (10) days prior to commencing such Alteration and prior to commencing any permitted Alteration, Borrower shall have delivered to Lender a copy of the proposed plans and specifications for such Alteration.

SECTION 8

CASUALTY AND CONDEMNATION

8.1Restoration Following Casualty or Condemnation. After the happening of any casualty or condemnation to the Mortgaged Property or any part thereof, Borrower shall give prompt notice thereof to Lender.

(a)In the event of any damage or destruction of all or any part of the Mortgaged Property, all Proceeds shall be payable to Lender. Borrower hereby authorizes and directs any affected insurance company or condemning Governmental Authority or other Persons to make payment of such proceeds directly to Lender. Borrower shall obtain Lender’s approval prior to any settlement, adjustment or compromise of any claims for loss, damage or destruction under any policy or policies of insurance or with respect to any condemnation, and Lender shall have the right to participate with Borrower in negotiation of any such settlement, adjustment or compromise provided, however, Borrower shall be permitted, so long as no Event of Default exists, to settle insurance claims of $250,000 or less without Lender’s approval (but with reasonable advance notice to Lender) and utilize any such funds for Restoration. Lender shall also have the right to appear with Borrower in any action against an insurer based on a claim for loss, damage or destruction under any policy or policies of insurance.

(b)All compensation, proceeds, damages, claims, insurance recoveries, rights of action and payments which Borrower may receive or to which Borrower may become entitled with respect to the Mortgaged Property or any part thereof as a result of any casualty or condemnation, except as set forth below in this Section 8.1 (the “Proceeds”), shall be paid over to Lender and shall be held in an escrow account with an Acceptable Financial Institution. The Proceeds shall be applied first toward reimbursement of all costs and expenses of Lender in connection with recovery of the same, and then, except as set forth below in this Section 8.1, shall be applied in the sole and absolute discretion of Lender, without regard to the adequacy of Lender’s security hereunder, to the payment or prepayment of the Obligations in such order as Lender may determine, and any amounts so applied shall reduce the Obligations pro tanto (without any Prepayment Premium due in connection therewith). Any application of the Proceeds or any portion thereof to the Obligations shall not be construed to cure or waive any Default or Event of Default or invalidate any act done pursuant to any such Default or Event of Default.

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(c)Subject to the other provisions of this Section 8.1, and provided that (i) all Proceeds have been deposited with an Acceptable Financial Institution; (ii) no Event of Default shall exist; (iii) a Total Loss with respect to the Property shall not have occurred; (iv) the Restoration is capable, as reasonably determined by Lender, of being completed before the earlier (the “Required Restoration Date”) to occur of (x) the date which is six (6) months prior to the Maturity Date, (y) the date on which the insurance carried by Borrower pursuant to Section 5.4(a)(ii), with respect to the Mortgaged Property shall expire and (z) eighteen (18) months after the occurrence of the casualty or condemnation in question; (v) Lender shall have been furnished with an estimate of the cost of restoration accompanied by an architect’s certificate as to such costs and appropriate final plans and specifications for reconstruction of the Improvements, all of which shall be approved by Lender, which approval shall not be unreasonably withheld, conditioned or delayed; (vi) the Improvements so restored or rebuilt shall be of at least equal value and substantially the same character as prior to the damage or destruction and appropriate for the purposes for which they were originally erected (and, if requested by Lender, Borrower will furnish, at its expense, an appraisal confirming such valuation); (vii) Borrower shall have furnished Lender with evidence reasonably satisfactory to Lender that all Improvements so restored and/or reconstructed and their use fully comply with all applicable zoning, building laws, ordinances and regulations and other Legal Requirements and that all required licenses and approvals required for use, operation and occupancy of the Improvements can be obtained, to the extent available; (viii) if the estimated cost of restoration exceeds the Proceeds available, Borrower shall have deposited with Lender such sums or other security as may be necessary, in Lender’s reasonable judgment, to pay such excess costs and (ix) Lender shall have received notice within thirty (30) days of the fire or other hazard or of the condemnation proceedings specifying the date of such fire or other hazard or the date the notice of condemnation proceedings was received and the request to Lender to make said Proceeds available to Borrower; then the Proceeds, less the actual costs, fees and expenses, if any, incurred in connection with adjustment of loss and Lender’s reasonable administrative expenses relating to such loss and the disbursement of the Proceeds shall be made available by Lender to the payment of all the costs of the aforesaid restoration, repairs, replacement, rebuilding or alterations, including the cost of temporary repairs or for the protection of property pending the completion of permanent restoration, repairs, replacements, rebuilding or alterations (all of which temporary repairs, protection of property and permanent restoration, repairs, replacement, rebuilding or alterations are hereinafter collectively referred to as the “Restoration”), and shall be paid out from time to time as such Restoration progresses upon the request of Borrower if the work for which payment is requested has been done in a good and workmanlike manner, in compliance with applicable Legal Requirements and substantially in accordance with the plans and specifications therefor. Each request by Borrower for disbursement of Proceeds shall (unless Lender otherwise elects, in its sole discretion, with respect to a Restoration estimated by Lender to cost $100,000 or less to complete, to waive any of the following requirements) be accompanied by the required Lien Waivers, a Request for Release, and, to the extent not subsumed within a Request for Release, the following:

(1)A certificate signed by Borrower, dated not more than thirty (30) days prior to such request, setting forth the following: (A) That the sum then requested either has been paid, or is justly due to contractors, subcontractors, materialmen, engineers, architects or other persons who have rendered services or furnished materials for the restoration therein specified or have paid for the same, the names and addresses of such persons, a brief description of such services and materials, the several amounts so paid or due to each of said persons in respect thereof (together with supporting statements and invoices for the same), that no part of such expenditures has been or is being made the basis of any previous or then pending request for the withdrawal of Proceeds or has been made out of any of the Proceeds received

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by Borrower, and that the sum then requested does not exceed the value of the services and materials described in the certificate; and (B) That the costs, as estimated by the persons signing such certificate, of the Restoration required to be done subsequent to the date of such certificate in order to complete and pay for the same, do not exceed the Proceeds, plus any amount or security approved by Lender and deposited with such Acceptable Financial Institution by Borrower to defray such costs and remaining in the hands of Lender after payment of the sum requested in such certificate.

(2)A title insurance report or other evidence satisfactory to Lender to the effect that there has not been filed with respect to the Mortgaged Property, or any part thereof, any vendor’s, contractor’s, mechanics’, laborer’s, materialmen’s or other Lien which has not been discharged of record or bonded or insured over, except such as will be disbursed by payment of the amount then requested.

(3)A certificate signed by the Independent Architect and/or engineer in charge of the Restoration, who shall be selected by Borrower and approved in writing by Lender, certifying that the Restoration is proceeding in accordance with the plans and specifications approved by Lender and in accordance with all zoning, subdivision and other Legal Requirements. Upon compliance with the foregoing provisions, Lender shall, out of Proceeds (and the amount of security approved by Lender, if any, deposited by Borrower to defray the costs of the Restoration), pay or cause to be paid to Borrower or the Persons named (pursuant to clause (1)(A) above) in such certificate the respective amounts stated therein to have been paid by Borrower or to be due to them, as the case may be.

(d)If the Proceeds at the time held by the Acceptable Financial Institution, less the actual costs, fees and expenses, if any, incurred in connection with the adjustment of the loss and Lender’s administrative expenses relating to such loss and the disbursement of the Proceeds, shall be, in Lender’s reasonable judgment, insufficient to pay the entire cost of the Restoration, Borrower shall deposit with such Acceptable Financial Institution any such deficiency prior to disbursement of any additional portion of the Proceeds. Lender shall at all times have a perfected security interest on all Proceeds and other amounts held by such Acceptable Financial Institution pursuant to this Section 8. No payment made prior to the final completion of the Restoration shall exceed ninety percent (90%) of the value of the work performed from time to time (provided that, notwithstanding the foregoing, subcontractors who have completed their work may be paid in full), and at all times the undisbursed balance of said Proceeds remaining in the hands of Lender shall be at least sufficient to pay for the cost of completion of the Restoration free and clear of liens. In addition to the requirements and conditions set forth in Section 5.19, final payment shall be upon an architect’s certificate of completion in accordance with the final plans and specifications and compliance with all applicable zoning, building, subdivision and other governmental laws, ordinances, rules, and regulations, the filing of a notice of completion and the expiration of the period provided under applicable law for the filing of mechanic’s and materialmen’s liens and delivery to Lender of a certified copy of a final unconditional permanent (i) certificate of occupancy regarding the Restoration, to the extent available, and (ii) certificate of compliance from The Woodlands Community Association and The Woodlands Community Owners Association (or their successor entities). To the extent available, Lender may, at its option, require an endorsement to the Title Policy insuring the continued priority of the lien of the Mortgage as to all sums advanced hereunder, such endorsement to be paid for by Borrower. Upon completion of the Restoration in a good and workmanlike manner in accordance herewith, and provided that Lender has received satisfactory evidence that the Restoration has been paid for in full and the Mortgaged Property is free and clear of all Liens, other than the Liens created in favor of

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Lender by the Loan Documents and the Permitted Encumbrances (including signed lien waivers from all contractors and subcontractors conditioned only on payment of amounts specified therein), any balance of the Proceeds at the time held by Lender (after reimbursement to Lender of all costs and expenses of Lender, including administrative expenses, in connection with recovery of the same and disbursement of such Proceeds for the Restoration), if any, shall be applied as follows: (i) to the extent that such balance of the Proceeds is equal to or less than the amount, if any, by which the value of the Mortgaged Property prior to such damage or destruction exceeds the value of the Mortgaged Property after such Restoration (for these purposes, the value of the Mortgaged Property shall be determined by Lender in its discretion), then the portion of the balance of the Proceeds equal to such excess amount shall be applied to the payment or prepayment of the principal balance of the Obligations in such order as Lender may determine, and any amounts so applied shall reduce the Obligations pro tanto (without any Prepayment Premium due in connection therewith); and (ii) to the extent that the balance of the Proceeds exceeds such excess amount, such portion of the balance of the Proceeds shall be paid to Borrower.

(e)Nothing herein contained shall be deemed to excuse Borrower from repairing or maintaining the Mortgaged Property as provided in the Agreement hereof or restoring all damage or destruction to the Mortgaged Property, regardless of whether or not there are insurance proceeds available or whether any such Proceeds are sufficient in amount, and the application or release by Lender of any Proceeds shall not cure or waive any Default or Event of Default or invalidate any other act done by Lender to exercise its remedies under this Agreement or the other Loan Documents; provided, however, if, prior to the last two (2) years of the term of the Loan, Lender elects not to make such Proceeds available to Borrower for restoration, then Borrower may prepay the Loan without payment of the Prepayment Premium, so long as an Event of Default is not then in existence.

SECTION 9

DEFAULT, RIGHTS AND REMEDIES

9.1Event of Default. “Event of Default” means the occurrence or existence of any one or more of the following:

(A)Payment. Failure of Borrower to pay (i) on the Maturity Date, the outstanding principal of, accrued interest in, and other Indebtedness owing pursuant to the Agreement, the Note and the other Loan Documents, (ii) within five (5) days after the due date, any installment of principal or interest due under the Note; provided, however, the aforesaid five (5) day grace period may be utilized by Borrower no more than once in any consecutive twelve (12) Loan Month period, or (iii) within five (5) days after the respective due date, any other amount due under the other Loan Documents, provided, however, the aforesaid five (5)‑day grace period may be utilized by Borrower no more than once in any consecutive twelve (12) Loan Month period.

(B)Breach of Certain Provisions.

(i)Failure of Borrower to perform or comply with any term, agreement, covenant, representation, warranty or condition contained in Sections 5.1(E), 5.1(F), 5.1(G), 5.1(H), 5.13, 6.2, 7.2, 7.5, 7.9, 7.12, 7.13, 7.14, 8.1(a), 8.1(b) or 10 and such failure is not remedied or waived within five (5) Business Days after receipt by Borrower of notice from Lender of such failure.

(ii)Failure of Borrower to perform or comply with any term, agreement, covenant, representation, warranty or condition contained in Sections 5.4 (except any such failure which does

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not result in any insurance coverage required by Section 5.4 not in fact being in place), 7.1, 7.3, 7.4, 7.10 or 7.11.

(C)Breach of Representation and Warranty. Any representation, warranty, certification or other statement made by Borrower or Guarantor in any Loan Document or in any statement or certificate at any time given in writing pursuant or in connection with any Loan Document (other than occurrences described in other provisions of this Section 9.1 for which a different grace or cure period is specified or which constitute immediate Events of Default) is false in any material respect on the date made which remains uncured for five (5) Business Days after notice, but no grace or curative period will apply if the representation, warranty, certification or other statement was known by Borrower or Guarantor to be false when made or deemed made.

(D)Other Defaults Under Loan Documents. A default by Borrower shall occur in the performance of or compliance with any term contained in this Agreement or the other Loan Documents and such default is not remedied or waived within thirty (30) days after receipt by Borrower of notice from Lender of such default (other than occurrences described in other provisions of this Section 9.1 for which a different grace or cure period is specified or which constitute immediate Events of Default); provided, however, that (i) if such default cannot be remedied with reasonably diligent effort within a period of thirty (30) days, but is susceptible to cure within a period of one hundred twenty (120) days and (ii) the continued default in performance will not have a Material Adverse Effect, such longer period, not to exceed ninety (90) additional days, as Borrower may need to remedy such default, if Borrower is proceeding with diligent effort to remedy such default throughout said one hundred twenty (120)-day period; provided, further, however, that (A) if Borrower has been, and will continue to be, diligent in its efforts to cure such default, and (B) the continued default has not, and will not, have a Material Adverse Effect, Borrower shall have such longer period, not to exceed an additional sixty (60) days (for a total of one hundred eighty (180) days), as Borrower may need to remedy such default. The rights to notice and cure periods granted herein shall not be cumulative with any other rights to notice or a cure period in any other Loan Document and the giving of notice or a cure period pursuant to this section shall satisfy any and all obligations of Lender to grant any such notice or cure period pursuant to any of the Loan Documents.

(E)Involuntary Bankruptcy; Appointment of Receiver, etc. (1)  A court enters a decree or order for relief with respect to Borrower, Guarantor or Borrower Representative in an involuntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed or other similar relief is not granted under any applicable federal or state law; or (2) the continuance of any of the following events for ninety (90) days unless dismissed, bonded or discharged: (a) an involuntary case is commenced against any Borrower, Borrower Representative or Guarantor under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or (b) a decree or order of a court for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Borrower, Borrower Representative or Guarantor or over all or a substantial part of its property, is entered; or (c) an interim receiver, trustee or other custodian is appointed without the consent of Borrower, Borrower Representative or Guarantor for all or a substantial part of the property of Borrower, Borrower Representative or Guarantor; or

(F)Voluntary Bankruptcy; Appointment of Receiver, etc. (1) An order for relief is entered with respect to Borrower, Borrower Representative or Guarantor or Borrower, Borrower Representative or Guarantor commences a voluntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case or to the conversion of an involuntary case to a voluntary case under any such law or consents to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or (2) Borrower, Borrower Representative or Guarantor makes any assignment for the benefit

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of creditors; or (3) partners, shareholders, or members in Borrower, Borrower Representative or Guarantor adopts any resolution or otherwise authorizes action to approve any of the actions referred to in this Section 9.1(F); or

(G)Governmental Liens. Any lien, levy or assessment is filed or recorded with respect to or otherwise imposed upon all or any part of the Mortgaged Property by the United States or any department or instrumentality thereof or by any state, county, municipality or other governmental agency (other than Permitted Encumbrances) and such lien, levy or assessment is not stayed, vacated, paid, discharged or insured or bonded over within thirty (30) days;

(H)Judgment and Attachments. Any money judgment, writ or warrant of attachment, or similar process (other than those described in Section 9.1(G)) involving (1) an amount in any individual case in excess of $100,000 or (2) an amount in the aggregate at any time in excess of $250,000 (in either case not adequately covered by insurance as to which the insurance company has acknowledged coverage) is entered or filed against Borrower, Borrower Representative or Guarantor and remains undischarged, unvacated, unbonded, uninsured or unstayed for a period of thirty (30) days or in any event later than five (5) days prior to the date of any proposed sale thereunder;

(I)Dissolution. Any order, judgment or decree is entered against Borrower, Borrower Representative or Guarantor decreeing the dissolution or split up of Borrower, Borrower Representative or Guarantor and such order remains undischarged or unstayed for a period in excess of twenty (20) days; or

(J)Injunction. Either (i) Borrower, Borrower Representative or any Guarantor is enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting all or any material part of its business relating to the any Mortgaged Property and such order continues for more than thirty (30) days; or (ii) any order or decree is entered by any court of competent jurisdiction directly or indirectly enjoining or prohibiting Lender, Borrower, Borrower Representative or Guarantor from performing any of their obligations under this Agreement or any of the other Loan Documents; or

(K)Invalidity of Loan Documents. Any of the Loan Documents for any reason, other than a partial or full release in accordance with the terms of the Loan Documents, ceases to be in full force and effect or is declared to be null and void by a court of competent jurisdiction, or any of Borrower, Borrower Representative or Guarantor denies that it has any further liability under any Loan Documents to which it is party, or gives notice to such effect; or

(L)Event of Default. The occurrence of an Event of Default specified elsewhere in this Agreement or in any of the other Loan Documents or the occurrence of an Event of Default by Guarantor under the Guaranty; or

(M)Cross-Default. The occurrence of any of the following with respect to Guarantor: (i) the acceleration of any Indebtedness in the aggregate amount of $10,000,000 or more; (ii) the occurrence of a default under any Indebtedness in the aggregate amount of $10,000,000 or more not cured within the grace or curative period applicable to such Indebtedness, (iii) the occurrence of a default or breach under any Material Contracts not cured within any applicable grace period or notice and cure period, which, in Lender’s reasonable judgment, could have a Material Adverse Effect, or (iv) the loss or termination of any Proprietary Rights which, in Lender’s reasonable judgment, could have a Material Adverse Effect.

(N)Death, etc. Dissolution, cessation of existence or felony or other criminal conviction or indictment of Borrower, Borrower Representative and/or Guarantor, a punishment for which could result in

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forfeiture of any assets of the Borrower, Guarantor or any direct or indirect equity interest to Borrower or loss of eligibility for any material Proprietary Rights, which in Lender’s reasonable judgment could have a Material Adverse Effect; or

(O)Independent Person. Borrower or Borrower Representative shall at any time cease to have at least one (1) Independent Person or, if requested by Lender in writing in connection with a contemplated Securitization, two (2) Independent Persons for more than ten (10) consecutive Business Days; or

(P)Zoning. The Land and Improvements or any portion thereof are zoned either voluntarily or involuntarily, such that the zoning or other applicable land use restriction prohibits the Borrower from operating the Land and Improvements or any portion thereof as an office, laboratory, vivarium, life sciences facility or other facility for similar use;

(Q)Tenant Impairment Event. The occurrence of a Tenant Impairment Event;

(R)Change in Control. The occurrence of any direct or indirect Change in Control with respect to Borrower or Guarantor, except as permitted pursuant to Section 7.11; or

(S)Lease. The occurrence of any default by Borrower in any of its obligations under the Guarantor Lease.

9.2Acceleration and Remedies. Upon the occurrence of any Event of Default specified in Sections 9.1(E) and 9.1(F), payment of all Obligations shall be accelerated without notice, presentment, demand, protest or notice of protest and shall be immediately due and payable and, in addition, Lender may in addition to any other rights and remedies available to Lender at law or in equity or under any other Loan Documents, exercise one of more of the following rights and remedies as it, in its sole discretion, deems necessary or advisable. Upon the occurrence of any Event of Default (other than Events of Default specified in Sections 9.1(E) and 9.1(F)), Lender, in addition to any other rights or remedies available to Lender at law or in equity, or under any of the other Loan Documents, may exercise any one or more of the following rights and remedies as it, in its sole discretion, deems necessary or desirable:

(a)Acceleration. Declare immediately due and payable, without further notice, protest, presentment, notice of protest or demand, all Obligations including all monies advanced under this Agreement, the Note, the Mortgage and/or any of the Loan Documents which are then unpaid, together with all interest then accrued thereon and all other amounts then owing (including any Default Interest, or prepayment premium owed as a result of such acceleration). If payment of the Obligations is accelerated, Lender may, in its sole discretion, exercise all rights and remedies hereunder and under the Note, the Mortgage and/or any of the other Loan Documents at law, in equity or otherwise.

(b)Possession. Enter upon and take possession of the Mortgaged Property and proceed in the name of Lender or Borrower as the attorney-in-fact of Borrower (which authority, to the extent permitted by law, is hereby granted by Borrower, is coupled with an interest, and is irrevocable), as Lender shall elect. If Lender elects to so enter upon and take possession of the Mortgaged Property, Lender (i) may enforce or cancel all contracts entered into by Borrower or make other contracts which are in Lender’s sole opinion advisable, and (iii) shall be reimbursed by Borrower upon demand any reasonable amount or amounts expended by Lender for such performance together with any reasonable costs, charges, or expenses incident thereto or otherwise incurred or expended by Lender or its representatives (including an appraisal) on behalf of Borrower in connection with the Mortgaged Property, and the amounts so expended shall be considered part of the Loan evidenced by the Note and secured by the Loan Documents and shall bear interest at the Default Rate.

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(c)Injunctive Relief. Institute appropriate proceedings for injunctive relief (including specific performance of the obligations of Borrower).

(d)Accounts. Release all funds contained in the Reserve Accounts to be applied to Borrower’s Obligations.

9.3Remedies Cumulative; Waivers; Reasonable Charges. All of the remedies given to Lender in the Loan Documents or otherwise available at law or in equity to Lender shall be cumulative and may be exercised separately, successively or concurrently. Failure to exercise any one of the remedies herein provided shall not constitute a waiver thereof by Lender, nor shall the use of any such remedies prevent the subsequent or concurrent resort to any other remedy or remedies vested in Lender by the Loan Documents or at law or in equity. To be effective, any waiver by Lender must be in writing and such waiver shall be limited in its effect to the condition or default specified therein, and no such waiver shall extend to any subsequent condition or default. It is agreed that (i) the actual costs and damages that Lender would suffer by reason of an Event of Default (exclusive of the attorneys’ fees and other costs incurred in connection with enforcement of Lender’s rights under the Loan Documents) or a prepayment would be difficult and needlessly expensive to calculate and establish, and (ii) the amounts of the Default Rate, the Late Charge, payments to be made pursuant to Section 2.4(c)(ii) and the Prepayment Premium are reasonable, taking into consideration the circumstances known to the parties at this time, and (iii) the Default Rate, the Late Charges and Lender’s reasonable attorneys’ fees and other costs and expenses incurred in connection with enforcement of Lender’s rights under the Loan Documents shall be due and payable as provided herein, and (iv) the Default Rate, Late Charges, Prepayment Premium, the payments to be made pursuant to Section 2.4(c)(ii) and the obligation to pay Lender’s reasonable attorneys’ fees and other enforcement costs do not, individually or collectively, constitute a penalty.

SECTION 10

SECONDARY MARKET TRANSACTION

10.1Secondary Market Transaction. Borrower agrees that Lender has the absolute right to securitize, syndicate, grant participations in, or otherwise Transfer all or any portion of the Loan (each such transaction, a “Securitization”). Lender may determine to Transfer some or all of the Loan or retain title to some or all of the Loan as part of a Securitization. Borrower further agrees that Lender may delegate any or all of Lender’s rights, powers and privileges to a servicer (“Servicer”) and Borrower shall, upon notice from Lender, recognize the Servicer as the agent of Lender. In the event this Loan becomes or is designated by Lender to become an asset of a Securitization, upon Lender’s request, Borrower shall meet, from time to time, with representatives of the Rating Agencies in connection with such a Securitization to discuss the business and operations of the Mortgaged Property and, in that regard, agrees to cooperate with the reasonable requests of the Rating Agencies. Lender may retain the Rating Agencies to provide rating surveillance services on any certificates issued in a Securitization. In no event shall Borrower be required to pay any servicer fees, Securitization trustee fees or other Securitization administrative expenses except as may be expressly provided in this Agreement. Borrower shall, upon request from Lender, from time to time, cooperate, and Borrower shall, cause Guarantor and Borrower’s partners and/or members to cooperate, in all reasonable respects in connection with a Securitization. Such cooperation may, in Lender’s discretion, include documentation changes, changes in organizational documents, changes in Accounts, Reserves, Payment Dates, Interest Periods, insurance endorsement changes, tenant payment direction changes, site inspections, updated appraisals, preparation and delivery of financial information or other diligence requested by Lender and/or any Rating Agency; provided, however, any third party costs incurred by Borrower related to such changes shall be reimbursed by Lender and such changes shall not materially and adversely diminish Borrower’s rights under the Loan Documents nor increase Borrower’s burdens and obligations under the Loan Documents. Such cooperation may include, in Lender’s discretion, execution of one or more promissory notes and the creation of Liens securing such notes of differing priority and/or the creation of mezzanine

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debt secured by pledges of all of the membership interests in the Borrower so long as the principal amount, interest rate, payment terms and other monetary terms of the Loan do not, in the aggregate change. Borrower will not be required to incur any expenses or costs pursuant to this Section 10.1. Borrower will, upon request from Lender, in connection with a Securitization, enter into such acknowledgments and confirmations of the applicable assignments as Lender may request. Borrower shall, subject to the terms and provisions of this Section 10.1, use reasonable efforts to satisfy the market standards which Lender determines are reasonably required in the marketplace or by the Rating Agencies in connection with a Securitization. Notwithstanding anything else contained to the contrary herein, Borrower will not, pursuant to any of the provisions of this Section 10.1, incur, suffer or accept (i) any lesser rights or greater obligations as are currently set forth in the Loan Documents or Borrower’s Organizational Documents (unless Borrower is made whole by the holder of the Note) or (ii) subject to Section 11.13 hereof, any personal liability other than as set forth in the Loan Documents. Borrower will also, if requested by Lender, cause independent counsel to render opinions customary in securitization transactions with respect to the Mortgaged Property and Borrower and Borrower’s and Guarantor’s Subsidiaries (but not a true sale, 10b‑5 opinion or nonconsolidation opinion), which counsel and opinions shall be reasonably satisfactory to Lender and the Rating Agencies and which shall be addressed to such Persons as shall be reasonably designated by the holder of the Note. Borrower’s failure to deliver the opinions required hereby within ten (10) Business Days after written request therefore shall constitute an Event of Default hereunder. If requested by Lender, Borrower’s cooperation will also include (but subject to Section 11.3) certifications and agreements pursuant to which Borrower will certify that it has examined the portion of applicable preliminary and final private placement memorandum or preliminary, final and supplement or prospectus specified by Lender as pertaining to Borrower, the Loan, Guarantor, the Mortgaged Property and the Manager, and that each such designated portion, as it relates to Borrower, Guarantor, the Mortgaged Property, Manager and all other aspects of the Loan, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. All reasonable costs of Borrower’s cooperation as described in this Section 10.1 shall be at the expense of Lender, except (a) any costs and expenses for the appointment of a second Independent Person for Borrower and Borrower Representative, which costs shall be paid by Borrower, and (b) any reasonable fees and expenses of the Servicer which Borrower may be obligated to pay based upon actions, consents or waivers requested by Borrower.

SECTION 11

MISCELLANEOUS

11.1Expenses and Attorneys’ Fees. Whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to promptly pay all fees, costs and expenses (including reasonable attorneys’ fees, court costs, cost of appeal and the reasonable fees, costs and expenses of other professionals retained by Lender) incurred by Lender in connection with the following, and all such fees, costs and expenses shall be part of the Obligations, payable on five (5) Business Days written notice: (A) the examination, review, due diligence investigation, documentation and closing of the financing arrangements evidenced by the Loan Documents; (B) the giving or withholding of any consents, approvals, or permissions, administration of the Loan, disbursements of the Loan and disbursements from the Accounts and in connection with any amendments, modifications and waivers relating to the Loan Documents requested by Borrower; (C) the review, documentation, negotiation and closing of any subordination or intercreditor agreements, Lease reviews, and subordination, nondisturbance and attornment agreements; (D) Lender’s Representative; and (E) enforcement of this Agreement or the other Loan Documents, the collection of any payments due from Borrower or Guarantor under the Loan Documents or any refinancing or restructuring of the credit arrangements provided under the Loan Document, whether in the nature of a “workout” or in connection with any insolvency or bankruptcy proceedings or otherwise; provided, however, in no event shall Borrower be liable for any fees incurred by Lender in connection with a Securitization.

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11.2Certain Lender Matters. Lender may, in accordance with Lender’ customary practices, destroy or otherwise dispose of all documents, schedules, invoices or other papers, delivered by Borrower to Lender unless Borrower requests, at the time of delivery, in writing that same be returned. Borrower and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender nor to grant Lender any interest in the Mortgaged Property other than that of mortgagee, beneficiary or lender. No provision in this Agreement or in any of the other Loan Documents and no course of dealing between the parties shall be deemed to create any fiduciary duty by Lender to Borrower or any other Person. All attorneys, accountants, appraisers, and other professional Persons and consultants retained by Lender shall have the right to act exclusively in the interest of Lender and shall have no duty of loyalty, duty of care or any other duty to Borrower or any of Borrower’s partners, shareholders, members, managers, Affiliates or any other Person. By accepting or approving anything required to be observed, performed or fulfilled or to be given to Lender pursuant to the Loan Documents, Lender shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty or representation with respect hereto or thereto by Lender. Borrower shall rely solely on its own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender or their respective attorneys, advisors, accountants, officers, representatives, directors, employees, partners, shareholders, trustees, members or managers. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in Borrower, and Borrower hereby irrevocably waives the right to raise any defense or take any action, in either case, on the basis of the foregoing with respect to Lender’s exercise of any such rights or remedies. Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates. LENDER SHALL HAVE NO LIABILITY HEREUNDER FOR ANY CONSEQUENTIAL, SPECIAL, PUNITIVE OR INDIRECT DAMAGES. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Borrower or Borrower Representative or Guarantor, or their respective creditors or property, Lender, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Lender allowed in such proceedings for the entire secured Obligations at the date of the institution of such proceedings and for any additional amount which may become due and payable by Borrower after such date. Lender shall have the right from time to time to designate, appoint and replace one or more servicers and to allow servicer to exercise any and all rights of Lender under the Loan Documents. All documents and other matters required by any of the provisions of this Agreement to be submitted or provided to Lender shall be in form and substance satisfactory to Lender. Borrower shall not be entitled to (and does hereby waive any and all rights to receive) any notices of any nature whatsoever from Lender except with respect to matters for which the Loan Documents expressly provide for the giving of notice by Lender to Borrower. In any action or proceeding brought by Borrower against Lender claiming or based upon an allegation that Lender unreasonably withheld its consent to or approval of a proposed act by Borrower which requires Lender’s consent hereunder, Borrower’s sole and exclusive remedy in said action or proceeding shall be injunctive relief or specific performance requiring Lender to grant such consent or approval.

11.3Indemnity. In addition to the payment of expenses pursuant to Section 11.1 and the indemnification obligations set forth in other portions of this Agreement, the Environmental Indemnification Agreement or the other Loan Documents, whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to indemnify, pay, defend and hold Lender, its officers, directors, members, partners,

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shareholders, participants, beneficiaries, trustees, employees, agents, successors and assigns, any subsequent holder of the Note, any trustee, fiscal agent, servicer, underwriter and placement agent, (collectively, the “Indemnitees”) harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, causes of action, suits, claims, tax liabilities, broker’s or finders fees, costs, expenses and disbursements of any kind or nature whatsoever (including the fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may be imposed on, incurred by, or asserted against that Indemnitee, based upon any third party claims against such Indemnitees in any manner related to or arising out of (A) any breach by Borrower or Guarantor of any representation, warranty, covenant, or other agreement contained in any of the Loan Documents, (B) the actual or threatened presence, release, disposal, spill, escape, leakage, transportation, migration, seepage, discharge, removal, or cleanup of any Hazardous Material located on, about, within, under, affecting, from or onto the Mortgaged Property or any violation of any applicable Environmental Law by Borrower or the Mortgaged Property, or (C) the use or intended use of the proceeds of any of the Loan (the foregoing liabilities herein collectively referred to as the “Indemnified Liabilities”); provided that Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of that Indemnitee as determined in a final order by a court of competent jurisdiction. Borrower shall be relieved of its obligation under clause (B) of this Section 11.3 with respect to Hazardous Materials first introduced to the Land and Improvements after either (1) the foreclosure of the Mortgage or (2) the delivery by Borrower to, and acceptance by, Lender or its designee of a deed-in-lieu of foreclosure with respect to the Mortgaged Property. To the extent that the undertaking to indemnify, pay, defend and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, Borrower shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. If any such action or other proceeding shall be brought against Lender, upon written notice from Borrower to Lender (given reasonably promptly following Lender’s notice to Borrower of such action or proceeding), Borrower shall be entitled to assume the defense thereof, at Borrower’s expense, with counsel reasonably acceptable to Lender; provided, however, Lender may, at its own expense, retain separate counsel to participate in such defense, but such participation shall not be deemed to give Lender a right to control such defense, which right Borrower expressly retains. Notwithstanding the foregoing, each Indemnitee shall, following notice to and consultation with Borrower, have the right to employ separate counsel at Borrower’s expense if, in the reasonable opinion of legal counsel, a conflict or potential conflict exists between the Indemnitee and Borrower that would make such separate representation advisable. Borrower shall have no obligation to indemnify an Indemnitee for damage or loss resulting from such Indemnitee’s gross negligence or willful misconduct.

11.4Amendments and Waivers. Except as otherwise provided herein, no amendment, modification, termination or waiver of any provision of this Agreement, the Note or any other Loan Document, or consent to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by Lender (and, with respect to any amendment or modification, unless also signed by Borrower). Each amendment, modification, termination or waiver shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Borrower in any case shall entitle Borrower, or any other Person to any other or further notice or demand in similar or other circumstances. To the fullest extent permitted by law, Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of Borrower, Borrower’s partners or members and others with interests in Borrower, and of the Mortgaged Property, or to a sale in inverse order of alienation in the event of foreclosure of all or any of the Mortgage, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan

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Documents to a sale of the Mortgaged Property for the collection of the obligations without any prior or different resort for collection or of the right of Lender to the payment of the obligations owing Lender on account of the Loan Documents out of the net proceeds of the Mortgaged Property in preference to every other claimant whatsoever. In addition, Borrower, for itself and its successors and assigns, waives in the event of foreclosure of the Mortgage, any equitable right otherwise available to Borrower which would require the separate sale of any of any portion of the Mortgaged Property or require Lender to exhaust its remedies against any portion of the Mortgaged Property or any combination of the Mortgaged Property before proceeding against any other portion; and further in the event of such foreclosure, Borrower expressly consents to and authorizes, at the option of Lender, the foreclosure and sale either separately of all or any portion of the Mortgaged Property. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim or defense of performance, in any action or proceeding brought against it by Lender or its agents. Subject to the remaining terms of the Loan Documents, Borrower shall have the right to bring a separate action against Lender for breaches of Lender’s obligations under the Loan Documents. No failure or delay on the part of Lender or any holder of any Note in the exercise of any power, right or privilege hereunder or under the Note or any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement, the Note and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. Lender shall not be under any obligation to marshal any assets in favor of any Person or against or in payment of any or all of the Obligations. To the extent that any Person makes a payment or payments to Lender, or Lender enforces its remedies or exercise its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the Obligations or part thereof originally intended to be satisfied, and all Liens, if any, rights and remedies therefore, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. Borrower agrees (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, which would prohibit or forgive Borrower from paying all or any portion of the principal of, premium, if any, or interest on Loan contemplated herein or in any of the other Loan Documents or which may affect the covenants or the performance of this Agreement; and Borrower (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the holders, but will suffer and permit the execution of every such power as though no such law had been enacted.

11.5Notices. Unless otherwise specifically provided herein, any notice or other communica-tion required or permitted to be given shall be in writing addressed to the respective party as set forth below and may be personally served, telecopied (with request for confirmation) or sent by overnight courier service or United States registered mail return receipt requested, postage prepaid. Any notice so given shall be deemed effective upon delivery or on refusal or failure of delivery during normal business hours. Notices shall be addressed to the parties at the addresses specified on Schedule 11.5 or to such other address as the party addressed shall have previously designated by written notice to the serving party, given in accordance with this Section 11.5.

11.6Survival of Warranties and Certain Agreements. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement, the making of the Loan hereunder and the execution and delivery of the Notes. Notwithstanding anything in this Agreement or implied by law to the contrary, the provisions of Sections 2.6, 5.8, 11.1, 11.2, 11.3, 11.12, 11.13 and 11.15 shall survive the

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payment of the Loan and the termination of this Agreement. Subject to this Section 11.6, all other representations, warranties and agreements of Borrower and Lender set forth in this Agreement shall terminate upon indefeasible payment in full of the Loan and the termination of this Agreement.

11.7Miscellaneous. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. All covenants and agreements hereunder shall be given in any jurisdiction independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. The invalidity, illegality or unenforceability in any jurisdiction of any provision in or obligation under this Agreement, the Note or other Loan Documents shall not affect or impair the validity, legality or enforceability of the remaining provisions or obligations under this Agreement, the Note or other Loan Documents or of such provision or obligation in any other jurisdiction. This Agreement is made for the sole benefit of Borrower and Lender, and no other Person shall be deemed to have any privity of contract hereunder nor any right to rely hereon to any extent or for any purpose whatsoever, nor shall any other person have any right of action of any kind hereon or be deemed to be a third party beneficiary hereunder. This Agreement, the Note, and the other Loan Documents referred to herein embody the final, entire agreement among the parties hereto and supersede any and all prior commitments, agreements, representations, and understandings, whether written or oral, relating to the subject matter hereof and may not be contradicted or varied by evidence of prior, contemporaneous, or subsequent oral agreements or discussions of the parties hereto. There are no oral agreements among the parties hereto. Borrower and Lender acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel and that this Agreement and the other Loan Documents shall be construed as if jointly drafted by Borrower and Lender. If any term, condition or provision of this Agreement shall be inconsistent with any term, condition or provision of any other Loan Document, this Agreement shall control. This Agreement and any amendments, waivers, consents, or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto.

11.8APPLICABLE LAW. THE PARTIES ACKNOWLEDGE AND AGREE THAT THE LOAN AND LOAN DOCUMENTS HAVE A SUBSTANTIAL NEXUS TO THE STATE OF NEW YORK AND AGREE THAT THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.

11.9Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns except that Borrower may not assign its rights or obligations hereunder or under any of the other Loan Documents without the written consent of Lender. Any assignee of Lender’s interest in the Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to the Loan Documents which Borrower may otherwise have against any assignor of the Loan Documents.

11.10CONSENT TO JURISDICTION AND SERVICE OF PROCESS. BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE

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LITIGATED IN SUCH COURTS. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS MORTGAGED PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE NOTE, SUCH OTHER LOAN DOCUMENTS OR SUCH OBLIGATION. BORROWER DESIGNATES AND APPOINTS CT CORPORATION SYSTEM AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY BORROWER WITH LENDER’S APPROVAL WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS PROVIDED IN SUBSECTION 11.5 EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLIC-ABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY BORROWER AS ITS AGENT FOR SERVICE OF PROCESS REFUSES TO ACCEPT SERVICE OF PROCESS, BORROWER HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT SERVICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.

11.11WAIVER OF JURY TRIAL. BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. BORROWER AND LENDER ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF BORROWER OR LENDER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL‑ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. BORROWER AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER AND LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOAN. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

11.12Publicity. Lender (and Lender’s Affiliates) may, subject to the applicable limitations on distribution of Confidential Information set forth in this Section 11.12 and subject to the approval of Guarantor, such

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approval not to be unreasonably withheld, and Borrower does hereby authorize Lender (and its Affiliates) to, refer, in its sole discretion, to the Loan in tombstone advertisements, offering memoranda in connection with Securitizations and reports to investors, which references, may include use of photographs, drawings and other depictions, images of the Land and Improvements (provided that such photographs, drawings and other depictions, and/or images shall not include floor plans of the area behind the barrier or other trade secrets), a description of the Loan, use of Borrower’s name, the address of the Mortgaged Property and the logo of Borrower and/or Guarantor. Borrower shall cause the owner of such “logo” rights to consent to such use upon request from Lender at the Closing. Lender hereby agrees that (i) any written information, data, documents, etc. delivered in connection with the making of the Loan which has been expressly designated as such by notice to Lender from Borrower, (ii) any information contained in the books and records of Borrower, Guarantor or Borrower Representative which is either confidential, proprietary, or otherwise not generally available to the public (but excluding information Lender has obtained independently from third-party sources without Lender’s knowledge that the source has violated any fiduciary or other duty not to disclose such information) and which has been expressly designated as such by notice to Lender from Borrower, (iii) any financial statements of Borrower provided pursuant to this Agreement which are not publicly available and which has been expressly designated as confidential by notice to Lender from Borrower, and (iv) any other information, data, documents, etc. which are delivered to or received by Lender and which are conspicuously stamped or marked “CONFIDENTIAL”, or, if delivered or received pursuant to an oral communication, such communication is subsequently referred to in a writing memorializing such communication delivered to Lender within thirty (30) days of such communication and marked as “CONFIDENTIAL” (collectively, the “Confidential Information”), will be kept confidential by Lender, using the same standard of care in safeguarding the Confidential Information as Lender employs in protecting its own proprietary information which Lender desires not to disseminate or publish. Notwithstanding the foregoing, Confidential Information may be disseminated (a) pursuant to the requirements of applicable law, (b) pursuant to judicial process, administrative agency process or order of Governmental Authority, (c) in connection with litigation, arbitration proceedings or administrative proceedings before or by any Governmental Authority or stock exchange, (d) to Lender’s attorneys, accountants, advisors and actual or prospective financing sources who will be instructed to comply with this Section 11.12, (e) to the Rating Agencies, (f) to actual or prospective trustees, assignees, pledgees, participants, agents, servicers, or securities holders in a Securitization, and (g) pursuant to the requirements or rules of a stock exchange or stock trading system on which the Securities of Lender or its Affiliates may be listed or traded. In addition, notwithstanding any other provision, any party (and its employee, representative or other agent) may disclose to any and all persons, without limitation of any kind, any information with respect to the tax treatment and tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to such party relating to such tax treatment and tax structure, if required by applicable law. For purposes of this Section 11.12, Confidential Information will not be deemed to include the Loan amount and the other terms, conditions and provisions of the Loan Documents, the street address and common name, if any, of the Land and Improvements and the name of Borrower and Guarantor, the logo of Borrower and /or Guarantor and photographs or other depictions of the Mortgaged Property (provided that such photographs or other depictions shall not include floor plans of the area behind the barrier or other trade secrets). Notwithstanding the foregoing, in the event Borrower or Guarantor conspicuously marks specific information, data, documents, etc. or with respect to an oral communication, in a subsequent writing memorializing such communication delivered to Lender within thirty (30) days of such communication marked as, “CONFIDENTIAL: FOR LENDER’S INTERNAL USE ONLY; NOT FOR DISTRIBUTION,” then Lender may only disseminate such information, data, documents, etc. pursuant to the requirements of applicable law (including pursuant to an order of a Governmental Authority) or pursuant to the written consent of Borrower or Guarantor.

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11.13Recourse Loan. Borrower shall have full personal recourse liability for the Obligations incurred under this Agreement, this Note or any of the other Loan Documents.

11.14Performance by Lender/Attorney-in-Fact. In the event that Borrower shall at any time fail to duly and punctually pay, perform, observe or comply with any of its covenants and agreements hereunder or under the other Loan Documents or if any Event of Default hereunder shall exist, then Lender may (but shall in no event be required to) make any such payment or perform any such term, provision, condition, covenant or agreement or cure any such Event of Default. Lender shall not take action under this Section 11.14 prior to the occurrence of an Event of Default unless in Lender’s good faith judgment reasonably exercised, such action is necessary or appropriate in order to preserve the value of the Collateral, to protect Persons or property, or Borrower has abandoned the Mortgaged Property or any portion thereof. Lender shall not be obligated to continue any such action having commenced the same and may cease the same without notice to Borrower. Any amounts expended by Lender in connection with such action shall constitute additional advances hereunder, the payment of which is additional Indebtedness, secured by the Loan Documents and shall become due and payable within five (5) Business Days of written notice by Lender upon demand by Lender, with interest at the Default Rate from the date of disbursement thereof until fully paid. No further direction or authorization from Borrower shall be necessary for such disbursements. The execution of this Agreement by Borrower shall and hereby does constitute an irrevocable direction and authorization to Lender to so disburse such funds. To the extent permitted by law, Borrower hereby irrevocably appoints Lender, as its attorney-in-fact, coupled with an interest, with full authority in the place and stead of Borrower and in the name of Borrower or otherwise (A) during the existence of an Event of Default in the discretion of Lender, to take any action and to execute any instrument which Lender may deem necessary to accomplish the purpose of this Agreement or any other Loan Document, including the following: (i) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for monies due and to become due under or in respect of the Accounts and/or any of the Reserve Account Collateral; (ii) to receive, endorse, and collect (x) any Gross Revenues, (y) any instruments made payable to any Borrower representing any dividend, payment of principal, interest, redemption price, purchase price or other distribution or payment in respect of any Reserve Account Collateral, or (z) any other instruments, documents and chattel paper received in connection with this Agreement or any other Loan Document; and (iii) to file any claims, or take any action or institute any proceedings which Lender shall deem necessary or desirable for the collection of any Gross Revenues in the event Borrower shall fail to do so, or to otherwise enforce the rights of Lender with respect to this Agreement; (B) to execute and/or file, without the signature of Borrower any Uniform Commercial Code financing statements, continuation statements, or other filing, and any amendment thereof, relating to the Reserve Account Collateral; (C) to give notice to any third parties which may be required to perfect Lender’s security interest in the Reserve Account Collateral; and (D) during the existence of an Event of Default, to register, purchase, sell, assign, transfer, pledge or take any other action with respect to any Reserve Account Collateral in accordance with this Agreement or any Loan Document. Lender shall notify Borrower of Lender’s taking of any action as attorney-in-fact, or otherwise in Borrower’s name, pursuant to the provisions of this Section.

11.15Brokerage Claims. Borrower shall protect, defend, indemnify and hold Lender harmless from and against all loss, cost, liability and expense incurred as a result of any claim for a broker’s or finder’s fee against Lender or any Person, in connection with the transaction herein contemplated, provided such claim is made by or arises through or under Borrower or is based in whole or in part upon alleged acts or omissions of Borrower. Lender shall protect, defend, indemnify and hold Borrower harmless from and against all loss, cost, liability and expense incurred as a result of any claim for a broker’s or finder’s fee against Borrower or any other Person in connection with the transaction herein contemplated, provided such claim is made by or arises through or under Lender or is based in whole or in part upon alleged acts or omissions of Lender.

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11.16Agreement. THE RIGHTS AND OBLIGATIONS OF BORROWER AND LENDER SHALL BE DETERMINED SOLELY FROM THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND ANY PRIOR ORAL OR WRITTEN AGREEMENTS BETWEEN LENDER AND BORROWER CONCERNING THE SUBJECT MATTER HEREOF AND OF THE OTHER LOAN DOCUMENTS ARE SUPERSEDED BY AND MERGED INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY NOT BE VARIED BY ANY ORAL AGREEMENTS OR DISCUSSIONS THAT OCCUR BEFORE, CONTEMPORANEOUSLY WITH, OR SUBSEQUENT TO THE EXECUTION OF THIS LOAN AGREEMENT OR THE LOAN DOCUMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE CONTRA-DICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

11.17Release of Excess Land. In the event that Borrower wishes to develop an additional building on a portion of the Excess Land containing not more than 91,000 rentable square feet (the “Additional Development”) at any time prior to the Maturity Date, then Borrower shall deliver written notice (the “Additional Development Notice”) to Lender which shall include the following: (i) a statement of Borrower’s intent to construct the Additional Development, (ii) a statement of Borrower’s belief that the Release Conditions (defined below) have been satisfied, and (iii) a copy of the Appraisal (defined below). During the thirty (30)‑day period following Lender’s receipt of the Additional Development Notice, Lender and Borrower shall negotiate in good faith to arrange construction and/or permanent financing with respect to the Additional Development. During such thirty (30)‑day period, Borrower shall negotiate exclusively and in good faith with Lender with respect to said financing. If Borrower and Lender are unable to agree upon terms with respect to such construction and/or permanent financing within the aforementioned thirty (30)‑day period, then upon written notice to Lender, Borrower may pursue the arrangement of construction and/or permanent financing with respect to the Additional Development from a third party lender.

Simultaneously with the closing for the construction and/or permanent financing with respect to the Additional Development, provided that the Release Conditions have been satisfied and Lender has received the Excess Land Principal Reduction Amount (defined below), Lender shall release the Excess Land from the Liens created in favor of Lender pursuant to the Loan Documents and amend the Loan Documents to exclude the Excess Land from the Mortgaged Property. Simultaneously with, and in consideration of, Lender’s release of the Excess Land from the Liens created in favor of Lender pursuant to the Loan Documents, Borrower shall pay to Lender an amount equal to the sum of (A) the Fair Market Value (as defined below) of the Excess Land (“Excess Land Principal Reduction Amount”), which payment shall be used to reduce the then outstanding principal balance of the Loan, and (B) the Prepayment Premium payable as a result of the partial prepayment of the Loan by Borrower’s delivery of the Excess Land Principal Reduction Amount to Lender.

In connection with the Additional Development, Lender hereby agrees that if same is required by Borrower or Borrower’s Mortgagee (defined below), Lender shall enter into reciprocal easement agreements, temporary construction easements, and/or other easement agreements reasonably acceptable to Borrower, Lender and Borrower’s mortgagee with respect to the Excess Land (if such mortgagee is other than Lender (“Borrower’s Mortgagee”)), providing for (1) mutual restrictive covenants regarding the use of each of the Excess Land and the remaining Mortgaged Property in a manner that does not adversely affect the operation of the remaining Mortgaged Property and that does not violate any Permitted Encumbrance; and (2) appropriate rights with respect to access, egress, utilities and parking, and for the maintenance of access

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roads, curb cuts, utilities and common facilities (including parking facilities) to be shared by each of the Excess Land and the remaining Mortgaged Property.

Lender hereby acknowledges and agrees that Section 2.4(C) of the Loan Agreement pertaining to the restriction imposed against Borrower making non-scheduled principal payments prior to the Lockout Expiration Date shall not apply to the payment of the Excess Land Principal Reduction Amount by Borrower prior to said Lockout Expiration Date, nor shall the restriction set forth in Section 2.4(C) of the Loan Agreement pertaining to partial prepayments of the Loan apply to the payment of the Excess Land Principal Reduction Amount by Borrower to Lender. Any and all reasonable costs and expenses approved in advance by Borrower that are incurred by, or on behalf of Lender in connection with releasing the Excess Land from the Liens created in favor of Lender under the Loan Documents or the attempt by Lender to arrange financing with respect to the Additional Development, shall be reimbursed by Borrower within ten (10) Business Days following Lender’s written request therefore.

For purposes hereof, “Excess Land” shall mean the portion of the Land marked as “Excess Land” on Exhibit G hereto.

For purposes hereof, the following shall constitute the “Release Conditions” that must be satisfied prior to Borrower having the right to cause Lender to release the Excess Land from the Liens created in favor of Lender pursuant to the Loan Documents:

(i)at the time of Borrower’s request for the release of the Excess Land, no Event of Default must then exist or be continuing;

(ii)at the time of Borrower’s request for release of the Excess Land, Borrower shall have obtained an appraisal of the Excess Land performed by an MAI certified appraiser selected by Borrower, and approved by Lender, said approval not to be unreasonably withheld, conditioned or delayed, which appraisal shall be in a form reasonably acceptable to Lender (the “Appraisal”), and

(iii)neither the release of the Excess Land from the Liens created by the Loan Documents nor Borrower’s development of the Additional Development shall result in a Material Adverse Effect.

For purposes hereof, the “Fair Market Value” shall be the fair market value of the Excess Land as agreed upon by the Borrower and Lender; provided that if Borrower and Lender are unable to reach an agreement on the fair market value after reasonable negotiations, the fair market value of the Excess Land shall be determined by the agreement of two (2) appraisers (each, an “Initial Appraiser”), one of which shall be selected by Borrower and the other of which shall be selected by Lender. Each of Borrower and Lender shall direct, in writing with a copy to the other party, its Initial Appraiser to work with the other party’s Initial Appraiser to endeavor to determine and reach agreement upon the fair market value of the Excess Land, and thereafter to deliver in writing to Borrower and Landlord within thirty (30) days (such thirty (30)-day period, the “Valuation Period”) the agreed-upon fair market value (the “Valuation Notice”). The costs and expenses of each Initial Appraiser shall be paid by Borrower.

If the Initial Appraisers are not able to reach agreement upon the fair market value within the Valuation Period, within ten (10) days after the end of the Valuation Period each Initial Appraiser shall deliver a written notice to Borrower, Lender, and the other Initial Appraiser setting forth (i) such Initial Appraiser’s valuation of the fair market value (each, an “Initial Valuation”) and (ii) the name, address and qualifications of a third appraiser selected jointly by the Initial Appraisers (the “Third Appraiser”); provided that if the higher of the valuations of the two Initial Appraisers is within ten percent (10%) of the lower valuation, then the arithmetic average of the valuations of the Initial Appraisers shall be the “Fair Market Value” for the Excess

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Land and the parties shall not be required to engage the Third Appraiser. The Initial Appraisers shall, in writing with a copy to Borrower and Lender, direct the Third Appraiser (or substitute Third Appraiser) to determine a valuation of the fair market value of the Excess Land, and to deliver in writing to Borrower, Lender and the Initial Appraisers such valuation (the “Third Valuation”) within twenty (20) days of the date of the written direction retaining such Third Appraiser. The fair market value shall be the arithmetic mean of (A) the Third Valuation and (B) the Initial Valuation closer to the Third Valuation. If the Third Valuation is exactly between the two Initial Valuations, then the fair market value shall be the Third Valuation. If the Initial Appraisers are unable to agree upon the designation of a Third Appraiser within the requisite time period or if the Third Appraiser selected does not make a valuation of the fair market value within twenty (20) calendar days after being directed by the Initial Appraisers, then such Third Appraiser or a substitute Third Appraiser, as applicable, shall, at the request of Lender, be appointed by the President or Chairman of the American Arbitration Association in the area in which the Excess Land is located. The costs and expenses of the Third Appraiser (and substitute Third Appraiser and the American Arbitration Association, if applicable) shall be paid by Borrower.

All appraisers selected or appointed pursuant to this Section 11.17 shall be independent qualified appraisers. Such appraisers shall have no right, power or authority to alter or modify the provisions of this Agreement, and such appraisers shall determine the fair market value of the Excess Land.

Witness the due execution hereof by the undersigned as of the date first written above.

BORROWER:

LEX‑GEN WOODLANDS, L.P.,

a Delaware limited partnership

By: Lex‑Gen Woodlands GP, LLC,

a Delaware limited liability company,

its sole general partner

By:

Julia P. Gregory, Vice President

LENDER:

iSTAR FINANCIAL INC.,

a Maryland corporation

By:

Name:

Its:

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Exhibit A

Legal Description

A-1

Exhibit B

List of Equipment and Personalty

• Fisher Hamilton modular lab casework and lab furniture

• Teknion Altos modular wall system

• Environmental cold and warm rooms

• Getinge Castle tunnel cage washers

• Getinge Castle cage rack washers

• Getinge Castle bedding disposal and dispensing/filling systems

• Getinge Castle bulk steam sterilizers/autoclaves

• AVAYA Definity phone switch

• Voice and data patch bays

• Dumpster containers, to the extent owned by Borrower

• CO₂ distribution piping and regulators at the source

• Reverse osmosis / de-ionized water systems

• All fixed mechanical, electrical and plumbing systems, active or redundant, including emergency generators, server room AC and UPS units and air compressors.

• Kitchen and food service equipment, to the extent owned by Borrower and affixed to the Improvements, whose removal would require material repairs to be made

• CCTV monitors, multiplexers, recorders, security badge station with printer, camera, etc., to the extent required to operate the security software system

• A workstation or server with all peripherals, if and to the extent necessary to operate the software systems listed in Exhibit C.

• All red-line, and/or as-built system and facility drawings

• All facility and equipment installation and operation and maintenance books, drawings, special tools and materials

• Biological materials digester and Bio-hazard dumpster disposal unit

B-1

Exhibit C

List of General Intangibles

• Edstrom vivarium environmental monitoring software and installed database

• Teletrol HVAC controls software and installed database

• CCure 800 security software, including ID, NETVUE, etc (if installed) and installed database

• Micromain work order software and installed database

C-1

Exhibit D

Permitted Encumbrances

a. Restrictions as set out under File Nos. 8624668, 8647645, 2000-084612, 9353446, 9886434, 2000-090175, 9357930, 2000-090176 and 2000-090177 in the Official Public Records of Real Property of Montgomery County, Texas, and Cabinet O, Sheet 180, Cabinet E, Sheet 193A and Cabinet G, Sheet 68B of the Map Records of Montgomery County, Texas

b. Restrictions as set out under File Nos 8610313, 8620448, 9429755, 9445768 and 2000-104003 of the Real Property of Montgomery County, Texas, and in Cabinet E, Sheet 163B and 164A of the Map Records of Montgomery County, Texas.

c. Restrictions as set out under File Nos 8807519, 9429754, 9445769 and 9445792 of the real Property of Montgomery County, Texas, and in Cabinet F, Sheet 24 of the Map Records of Montgomery County, Texas.

Deleting from each of a, b and c above any covenant or restriction based on race, color, religion, sex, handicap, familial status, or national origin.

d. Easements and Building lines as shown on maps filed of record in Cabinet E, Sheet 193, Cabinet O, Sheet 180 and Cabinet G, Sheet 68B all of the Map Records of Montgomery County, Texas.

e. Easement 10 feet wide along the front and rear property line and 5 feet wide along the side property lines of the property as reserved by instrument recorded under County Clerk's File No. 8624668 of the Real Property Records of Montgomery County, Texas. Partial Release as to strip 10 feet wide along the northeast boundary line of subject property recorded under Clerk's File No. 2000-086442 of the Real Property Records of Montgomery County, Texas. (Applies to 6.1797 acres of Tract I)

f. Forest preserves and Pathway easements as imposed by instrument recorded under Clerk's File Nos. 2000-090175 and 2000-09177 of the Real Property Records of Montgomery County, Texas.

g. Easement 10 feet wide along the front and rear property lines and 5 feet wide along the side property lines of the subject property as reserved for public utilities by instrument recorded under Clerk's File No. 9357930, annexed by File No. 2000-090176 of the Real Property Records of Montgomery County, Texas. Partial Release as to strip of land 10 feet wide running along and adjacent to the southwest boundary line of subject property as recorded under Clerk's File No. 2000-090190 of the Real Property Records of Montgomery County, Texas. (As to 5.5921 acres of Tract I)

h. Easement 5 feet wide along the southeast property line of the property, as reserved for public utilities by instrument recorded under County Clerk's File No. 9353446 and annexed by County Clerk's File No. 9886434 of the Real Property Records of Montgomery County, Texas. Partial release as to 10 foot wide strip along the southwest and northeast boundary lines of subject property and 5 foot wide strip along the northwest boundary line of subject property as recorded under Clerk's File No. 2000-086441 of the Real Property Records of Montgomery County, Texas. (As to a 0.588 acre portion of Tract I)

D-1

i. Utility easement Ten (10) feet in width along the Southeasterly property line granted to Entergy Gulf States, Inc. recorded under Montgomery County Clerk's File No. 2001-081155.

j. An undivided 8.74098% interest of the oil, gas and other minerals, as conveyed to Gloria Harris and Faye M. Monroe by Mineral Deed recorded under Clerk's File No. 8011718 of the Real Property Records of Montgomery County, Texas. Title to said interest has not been investigated subsequent to the date of the aforesaid instrument. (As to that portion of the property lying in the Henry Applewhite Survey, A-51)

k. All of the oil, gas and other minerals, the royalties, bonuses, rentals and all other rights in connection with same, and all subterranean waters including without limitation all percolating waters and underground reservoirs are expressly excepted here from as the same are reserved by The Woodlands Commercial Properties Company, L.P., by instrument recorded under File Nos. 2000-090175 and 2000-090177 of the Real Property Records of Montgomery County, Texas. Surface rights waived therein. Title to said interests have not been investigated subsequent to the execution date of cited instrument.

l. Annual Maintenance Charge payable to The Woodlands Community Association, Inc., secured by a Vendor's Lien retained in instrument(s) filed for record under Montgomery County Clerk's File No(s) 8624668 and 9353446, annexed under Clerk's File No. 9886434. Said maintenance assessments are subordinated to first liens and improvement liens.

m. Terms, conditions and stipulations in that certain Non-Exclusive Reciprocal Access Easement., as described by instrument filed for record under Montgomery County Clerk's File No(s). 8647647, amended under Clerk's File No. 8713940.

n. Easement for utility purposes 10 feet wide adjacent to, parallel with, and extending the full length of the northwest, southeast, northeast and southwest boundary lines of the property as imposed by instrument recorded under Clerk's File No. 2000-090177 of the Real Property Records of Montgomery County, Texas. (As to 5.5921 acres of Tract I)

o. Terms, conditions and stipulations in that certain Non-Exclusive Reciprocal Access Easement., as described by instrument filed for record under Montgomery County Clerk's File No(s). 8647647, amended under Clerk's File No. 8713940.

p. Terms, conditions and stipulations in that certain Reciprocal Easement Agreement dated December 8, 2000, recorded under Clerk's File No. 2000-104008 of the Real Property Records of Montgomery County, Texas, by and between Woodlands Office Equities-'95 Limited and First Security Bank, National Association, not individually, but solely as Owner Trustee under the Lexi Trust 2000-1.

q. All of the oil, gas and other minerals, the royalties, bonuses, rentals and all other rights in connection with same, and all subterranean waters including without limitation all percolating waters and underground reservoirs are expressly excepted here from as the same are reserved by instrument recorded under File Nos. 9445792 and 2000-104003 of the Real Property Records of Montgomery County, Texas. Surface rights waived therein. Title to said interests have not been investigated subsequent to the execution date of cited instruments.

r. Building lines and easements as shown on map recorded in Cabinet E, Sheet 164-A of the Map Records of Montgomery County, Texas.

D-2

s. Forest preserves and Pathway easement as reserved by instrument recorded under County Clerk's File No. 9445792 and 2000-104003 of the Real Property Records of Montgomery County, Texas.

t. Easement 10 feet wide along the front and rear property lines and 5 feet wide along the side property lines as reserved for public utilities by instruments recorded under County Clerk's File Nos. 8610313 and 8620448 of the Real Property Records of Montgomery County, Texas.

u. Utility Easement 10 feet wide adjacent to, parallel with, and extending the full length of each boundary line as reserved by instrument recorded under County Clerk's File Nos. 9445792 and 2000-104003 of the Real Property Records of Montgomery County, Texas.

v. Annual Maintenance Charge payable to The Woodlands Community Association, Inc., secured by a Vendor's Lien retained in instrument(s) filed for record under Montgomery County Clerk's File No. 8610313. Said maintenance assessments are subordinated to first liens and improvement liens.

w. Terms, conditions and stipulations in that certain Reciprocal Easement Agreement dated December 8, 2000, recorded under Clerk's File No. 2000-104008 of the Real Property Records of Montgomery County, Texas, by and between Woodlands Office Equities-'95 Limited and First Security Bank, National Association, not individually, but solely as Owner Trustee under the Lexi Trust 2000-1.

x. Building set-back lines as reflected by Cabinet F, Sheet 24A of the Map Records of Montgomery County, Texas.

y. Forest preserve and Pathway easement as reserved by instrument recorded under County Clerk's File No. 9445792 of the Real Property Records of Montgomery County, Texas.

z. Easement 10 feet wide along the southwesterly property line and 5 feet wide along the side property lines as reserved for public utilities by instruments recorded under County Clerk's File No. 8807519 of the Real Property Records of Montgomery County, Texas.

aa. Utility Easement 10 feet wide adjacent to, parallel with, and extending the full length of each boundary line as reserved by instrument recorded under County Clerk's File No. 9445792 of the Real Property Records of Montgomery County, Texas.

bb. All oil, gas and other minerals, the royalties, bonuses, rentals and all other rights in connection with same and all subterranean waters including without limitation all percolating waters and underground reservoirs and all other rights in connection with same are reserved by The Woodlands Corporation by instrument filed for record under Montgomery County Clerk's File No.9445792. Surface rights waived therein.

cc. Maintenance assessment payable to the Woodlands Community Association, Inc. as set forth in instrument recorded under County Clerk's File No. 8807519 of the Real Property Records of Montgomery County, Texas.

D-3

Exhibit E

Required Capital Improvements

Required Capital Improvement	Required Completion Date
Replace Roof at Building 1	April 21, 2009
Replace HVAC units at Building 3	April 21, 2009

E-1

AMENDMENT TO LOAN AND SECURITY AGREEMENT

AND TO OTHER LOAN DOCUMENTS

THIS AMENDMENT TO LOAN AND SECURITY AGREEMENT AND TO OTHER LOAN DOCUMENTS (this “Amendment”) is made as of September ___, 2009, by and between LEX-GEN WOODLANDS, L.P., a Delaware limited partnership (“Borrower”), and iSTAR FINANCIAL INC., a Maryland corporation (together with its successors and assigns, hereinafter referred to as “Lender”), with offices at c/o iStar Financial Inc., 1114 Avenue of the Americas, 38^th Floor, New York, New York 10036.

RECITALS

A.Borrower and Lender entered into a Loan and Security Agreement dated as of April 21, 2004 (the “Loan Agreement”), pursuant to which, among other things, Lender agreed to make a loan to Borrower in the principal amount of Thirty-Four Million Dollars ($34,000,000) (the “Loan”) upon the terms and conditions set forth in the Loan Agreement. Capitalized terms used in this Amendment but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. The Loan is evidenced by that certain Promissory Note of even date with the Loan Agreement in the principal amount of the Loan (the “Note”) and is secured by, among other things, that certain Deed of Trust with Security Agreement, Assignment of Leases and Rents and Fixture Filing of even date with the Loan Agreement,, recorded in the Official Records of Montgomery County, Texas, as Document No. 2004-042420 (the “Mortgage”), covering the Property more particularly described on Exhibit A attached hereto and made a part hereof.

B.Section 5.12 of the Loan Agreement provides that Borrower must complete the Required Capital Improvements by April 21, 2009 (the “Required Completion Date”).

C.Borrower has requested that Lender extend the Required Completion Date to permit additional time to perform the Required Capital Improvements, and Lender is willing to do so upon the establishment of a Capital Improvements Reserve and the pledge of a Capital Improvements Account (each as defined hereafter), all upon the terms and subject to the conditions set forth herein.

AGREEMENT

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Incorporation of Recitals. The foregoing Recitals are incorporated herein and expressly made a part hereof.

2.Amendments to Loan Agreement.

(a)The following terms and related definition are hereby added to Section 1.1 of the Loan Agreement immediately after the defined term “Business Day” and immediately before the defined term “Capital Lease,” and shall read as follows:

“Capital Improvements Account” is defined in Section 6.1.

“Capital Improvements Reserve” means the reserve for Required Capital Improvements established pursuant to Section 5.12.

“Capital Improvements Reserve Statement” is defined in Section 5.12.

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(b)The following term and related definition is hereby added to Section 1.1 of the Loan Agreement immediately after the defined term “Collateral” and immediately before the defined term “Confidential Information,” and shall read as follows:

“Completion Date” is defined in Section 5.12.

(c)The definition of “Required Completion Date” in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety and shall read as follows:

“Required Completion Date” means the date that is sixty (60) days following (i) the date that Borrower receives written notice from Lender that a Required Capital Improvement item requires replacement or repair, or (ii) such earlier date specified in a notification from Borrower to Lender that such replacement or repair is necessary.

(d)The definition of “Reserve Accounts” in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety and shall read as follows:

“Reserve Accounts” means the Insurance Reserve Account, the Tax Reserve Account, the Capital Improvements Reserve Account and any other securities or deposit accounts required to be maintained pursuant to this Agreement or the other Loan Documents.

(e)The definition of “Reserves” in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety and shall read as follows:

“Reserves” means the Tax Reserve, the Insurance Reserve and the Capital Improvements Reserve.

(f)Section 5.12 of the Loan Agreement is amended and restated in its entirety as follows:

5.12 Required Capital Improvements and Capital Improvements Reserve.

(A)Required Capital Improvements.Subject to Section 5.12(C), each of the capital improvement items listed on Exhibit E hereto (“Required Capital Improvements”) shall be completed by the Required Completion Date.

(B)Capital Improvements Reserve.On or before September __, 2009, Borrower shall deposit $282,000 into the Capital Improvements Account for the purpose of establishing and maintaining a reserve (the “Capital Improvements Reserve”) for the completion of the Required Capital Improvements as required by this Agreement. Subject to Section 5.12(C), the funds contained in the Capital Improvements Reserve shall be utilized by Borrower solely for the Required Capital Improvements. So long as no Default or Event of Default exists at the time of any requested distribution of funds from the Capital Improvements Reserve, Lender shall make funds in the Capital Improvements Reserve available to Borrower subject to satisfaction of each of the following terms and conditions: (a) all Capital Improvements Reserve funds released by Lender to Borrower shall be used to pay for or reimburse Borrower for the reasonable expenses actually incurred and paid by Borrower for Required Capital Improvements; (b) Borrower shall have given Lender a Request for Release satisfactory to Lender; (c) disbursements from the Capital Improvements Reserve shall not be made more frequently than once per Loan Month; (d) each request for a disbursement shall be in an amount of not less than $10,000.00; and (e) upon

2

request of Lender, Borrower shall also provide Lender with additional evidence reasonably satisfactory to Lender that Borrower is the owner or lessee of any capital improvements or equipment for which reimbursement is sought, free of any Liens (other than the first priority security interest in favor of Lender). Lender shall make each disbursement of the Capital Improvements Reserve funds within fifteen (15) days after satisfaction of all the conditions to that disbursement. If an Event of Default exists, Lender may apply the Capital Improvements Reserve funds, together with any interest accrued thereon, to Borrower’s Obligations in such order and priority as Lender may determine. Lender shall not make any disbursements from the Capital Expenditure Reserve to or for the benefit of Borrower until (i) Lender has approved the expenditures proposed by Borrower, (ii) all conditions to such disbursement have been satisfied and (iii) Borrower has provided Lender with all invoices, receipts, lien waivers and other documentation reasonably requested by Lender. If at any time Lender determines, in its reasonable discretion, that the amount in the Capital Improvements Reserve is insufficient for Borrower to complete the requested Required Capital Improvements, then Borrower shall deposit any deficiency, based on Lender’s reasonable estimate, within fifteen (15) days following Lender’s written demand. If there are any funds remaining in the Capital Improvements Reserve on the date on which the Required Capital Improvements have been completed to Lender’s satisfaction (the “Completion Date”), then Lender shall promptly return such remaining funds to Borrower. If Borrower has prepaid the Loan pursuant to Section 2.4(C) before the Completion Date, then Lender shall promptly return any amount remaining in the Capital Improvements Reserve to Borrower.

(C)Transfer of Mortgaged Property Relating to Required Capital Improvements. If Borrower Transfers any portion of the Mortgaged Property to which the Required Capital Improvements relate, and Lender consents in writing to such Transfer, in each case prior to the Required Completion Date with respect to such Required Capital Improvements, (a) Lender shall promptly return to Borrower the funds in the Capital Improvements Reserve which would otherwise have been made available to Borrower hereunder to pay for or reimburse Borrower for such Required Capital Improvements and (b) Borrower shall be under no further obligation to complete such Required Capital Improvements.

(g) Section 6.1 of the Loan Agreement is amended by adding the following Section 6.1(A)(iii):

(iii) Account No. 293-0798992, captioned “Lex-Gen Woodlands, L.P./iStar Tara LLC/Upgrades and Improvements Account” for the retention of collateral in respect of the Required Capital Contributions as provided in Section 5.12 (the “Capital Improvements Account”).

(h)Exhibit E attached to the Loan Agreement is amended by deleting the column entitled “Required Completion Date.”

3.Amendments to Other Loan Documents. All references in each Loan Document to the Loan Agreement shall refer to the Loan Agreement as amended hereby, as such Loan Agreement may be further amended from time to time.

3

4.Conditions Precedent. Borrower agrees that it shall be a condition precedent to the effectiveness of this Amendment that, among other things, all of the following shall have been satisfied on or prior to the date of this Amendment:

(a)Borrower shall have paid the actual out-of-pocket fees and expenses of Lender reasonably incurred in connection with this Amendment, including reasonable fees and disbursements of Lender’s attorneys fees;

(b)Borrower shall have furnished to Lender an affidavit stating the following:

i. that there have been no modifications to Borrower’s Articles of Organization;

ii. that there has been no change to the status of Borrower’s good standing in the State of Delaware; and

iii. that there has been no change to the status of Borrower’s qualification to do business in the State of Texas.

(c)Borrower shall have deposited or caused to be deposited $282,000 into the Capital Improvements Account.

Lender hereby acknowledges and agrees that its execution and delivery of this Amendment shall constitute the satisfaction and/or waiver of the above conditions.

5.Representations and Warranties. In order to induce Lender to execute this Amendment, Borrower represents and warrants as follows:

(a)This Amendment, and any other documents and instruments required to be executed and delivered by Borrower in connection herewith, when executed and delivered, will constitute the duly authorized, valid and legally binding obligations of Borrower, and will be enforceable in accordance with their respective terms, subject only to bankruptcy and insolvency laws of general applicability and the application of general principles of equity.

(b)The execution, delivery and performance of this Amendment will not: (i) violate any laws or (ii) conflict with, be inconsistent with, or result in any breach or default of any of the terms, covenants, conditions, or provisions of any indenture, mortgage, deed of trust, corporate charter or bylaws, instrument, document, agreement or contract of any kind to which Borrower is a party or by which Borrower may be bound. Borrower is not in default (beyond applicable grace or cure periods) under any contract or agreement to which each is a party, the effect of which default will materially adversely affect the performance by Borrower its representative obligations pursuant to and as contemplated by the terms and provisions of this Amendment.

(c)Borrower hereby represents and warrants that as of the date hereof, Borrower has no defenses, claims, offsets or setoffs with regard to the enforcement of the Loan Documents as modified hereby.

6.Miscellaneous.

(a)Borrower agrees that the Loan Agreement, the Note and each other Loan Document, as amended by this Amendment, remain in full force and effect in accordance with the previously existing terms thereof, as amended by this Amendment, and such documents and instruments are hereby ratified and confirmed.

4

(b)This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

(c)This Amendment shall be construed in accordance with and governed by the internal laws of the State of New York, except that the creation, perfection and enforcement of the Liens and security interests created pursuant to the Mortgage shall be governed and construed according to the law of the state of Texas, it being understood that to the fullest extent permitted by the laws of Texas, the law of the State of New York shall govern the Loan Agreement, the Notes and the other Loan Documents as set forth in Section 11.8 of the Loan Agreement.

(d)The parties hereto expressly acknowledge and agree that this Amendment shall not be construed as a novation of the Note, the Mortgage or any other Loan Document.

(e)All of the Mortgaged Property (as defined in the Mortgage) shall remain in all respects subject to the lien, charge and encumbrance of the Mortgage, as herein modified, and nothing herein contained and nothing done pursuant hereto, shall affect the lien, charge or encumbrance of the Mortgage, as herein modified, or the priority thereof with respect to other liens, charges, encumbrances or conveyances, or release or affect the liability of any part or parties whomsoever, who may now or hereafter be liable under, or on account of, the Loan Documents.

(f)The execution and delivery of this Amendment does not constitute a waiver of any default under the Note, Mortgage or any of the other Loan Documents (other than Lender waiving Borrower’s obligation to complete the Required Capital Improvements by the Required Completion Date as originally contemplated by the Loan Agreement); provided, however, that Lender hereby acknowledges that it is not aware of any defaults under the Loan Documents.

(g)Time is hereby declared to be of the essence of this Amendment and of every part hereof.

[Signatures Follow on the Next Page]

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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.

BORROWER:

LEX-GEN WOODLANDS, L.P., a Delaware limited partnership

By: Lex-Gen Woodlands GP, LLC, a Delaware limited liability company, its sole general partner

By:____________________________

Name:____________________________

Title:____________________________

LENDER:

iSTAR FINANCIAL INC., a Maryland corporation

By:____________________________

Name:____________________________

Title:____________________________

6

CONSENT OF GUARANTOR

The undersigned, being the “Guarantor” under that certain Guaranty dated as of April 21, 2004 (the “Guaranty”), made by the undersigned for the benefit of iStar Financial Inc. (“Lender”), hereby consents to the foregoing Amendment to Loan and Security Agreement and to Other Loan Documents. The undersigned agrees that the Guaranty is and shall remain in full force and effect, that the Guaranty is ratified and confirmed hereby, that no defenses or offsets exist to the enforcement thereof, and that Guarantor has no Claims against Lender with respect thereto.

LEXICON PHARMACEUTICALS, INC.

(formerly known as Lexicon Genetics

Incorporated), a Delaware corporation

`By:____________________________

Name:____________________________

Title:____________________________

7

Exhibit A

Legal Description

TRACT 1

METES AND BOUNDS DESCRIPTION

12.359 ACRES

HENRY APPLEWHITE SURVEY, ABSTRACT NUMBER 51

JOHN TAYLOR SURVEY, ABSTRACT NUMBER 547

MONTGOMERY COUNTY, TEXAS

Being a tract or parcel containing 12.359 acres of land situated in the Henry Applewhite Survey, Abstract Number 51 and the John Taylor Survey, Abstract Number 547, Montgomery County, Texas; being all of Restricted Reserve "A" (called 12.359 acres), The Woodlands Medical Research Park, Section 9, a subdivision plat recorded in Cabinet O, Sheet 180 Montgomery County Map Records (M.C.M.R.), Montgomery County, Texas; said 12.359 acre tract being more particularly described as follows (bearings are referenced to the record information contained in the above described subdivision plat);

BEGINNING at a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set marking the south end of a 25-foot cut-back line at the intersection of the northeasterly right-of-way (R.O.W.) line of Research Forest Drive (160-foot wide R.O.W.) with the southeasterly R.O.W. line of Technology Forest Place (width varies), said iron rod marking the most southerly west corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 01°27'36" West, along said southeasterly R.O.W. line of Technology Forest Place, along said cut-back line and along the west line of said Restricted Reserve "A", a distance of 35.36 feet to a 5/8-inch iron rod with cap found marking the north end of said 25-foot cut-back line and marking the most northerly west corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 43°32'24" East, continuing along said southeasterly R.O.W. line of Technology Forest Place and along the northwesterly line of said Restricted Reserve "A", a distance of 1,060.00 feet to a 5/8-inch iron rod with cap found marking the west end of a 25-foot cut-back line and marking the most westerly north corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 88°32'24" East, continuing along said southeasterly R.O.W. line, along said cutback line and along the north line of said Restricted Reserve "A", a distance of 35.36 feet to a 5/8-inch iron rod with cap found marking the east end of said cut-back line and marking the intersection of said southeasterly R.O.W. line of Technology Forest Place with the southwesterly R.O.W. line of New Trails Drive (80-foot wide R.O.W.), said iron rod marking the most easterly north corner of said Restricted Reserve "A" and the herein described tract;

THENCE, South 46°27'36" East, along said southwesterly R.O.W. line of New Trails Drive and along the northeasterly line of said Restricted Reserve "A", a distance of 460.59 feet to a 5/8-inch iron rod with cap found marking the most northerly corner of Restricted Reserve "A", Medical Research Park, Section 4, a subdivision plat recorded in Cabinet G, Sheet 51A, M.C.M.R., said iron rod marking the most easterly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and the herein described tract;

THENCE, South 43°32'24" West, departing said southwesterly R.O.W. line of New Trails Drive, along the northwesterly line of said Restricted Reserve "A", Medical Research Park, Section 4, and along the

8

southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9, at a distance of 742.00 feet passing a 5/8-inch iron rod with cap found marking the most northerly corner of Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a subdivision plat recorded in Cabinet E, Sheet 163B and 164A M.C.M.R. and marking the most westerly corner of said Section 4, continuing along southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and along the northwesterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, in all, a distance of 1,110.00 feet to a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set in the aforesaid northeasterly R.O.W. line of Research Forest Drive, marking the most westerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and marking the most southerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and the herein described tract;

THENCE, North 46°27'36" West, along said northeasterly R.O.W. line of Research Forest Drive and along the southwesterly line of said Restricted Reserve "A", a distance of 460.59 feet to the POINT OF BEGINNING and containing 12.359 acres (538,380 square feet) of land. This description is based on the ALTA/ACSM Land Title Survey and plat made by Terra Surveying Co., dated April, 2003, updated April 2004, Project Number 1851-0316-S.

TRACT 2

METES AND BOUNDS DESCRIPTION

3.590 ACRES

JOHN TAYLOR SURVEY, ABSTRACT NUMBER 547

MONTGOMERY COUNTY, TEXAS

Being a tract or parcel containing 3.590 acres of land situated in the John Taylor Survey, Abstract Number 547, Montgomery County, Texas; being all of Restricted Reserve "A" (called 3.5905 acres), The Woodlands Medical Research Park, Section 1, a subdivision plat recorded in Cabinet E, Sheet 163B and 164A Montgomery County Map Records (M.C.M.R.), Montgomery County, Texas; said 3.590 acre tract being more particularly described as follows (bearings are referenced to the record information contained in the above described subdivision plat);

BEGINNING at a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set in the northeasterly right-of-way (R.O.W.) line of Research Forest Drive (160-foot wide R.O.W.), marking most southerly corner of Restricted Reserve "A", The Woodlands Medical Research Park, Section 9, a subdivision plat recorded in Cabinet O, Sheet 180 M.C.M.R. and marking the most westerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and the herein described tract;

THENCE, North 43°32'24" East, departing the northeasterly R.O.W. line of said Research Forest Drive, along the southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and along the northwesterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a distance of 368.00 feet to a 5/8-inch iron rod with cap found marking the most westerly corner of Restricted Reserve "A", Medical Research Park, Section 4, a subdivision plat recorded in Cabinet G, Sheet 51A M.C.M.R. and marking the most northerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and the herein described tract;

THENCE, South 46°27'36" East, along the southwesterly line of said Restricted Reserve "A", Medical Research Park, Section 4 and along the northeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a distance of 425.00 feet to a 5/8-inch iron rod with cap found marking

9

the most northerly corner of Restricted Reserve "A", The Woodlands Medical Research Park, Section 2, a subdivision plat recorded in Cabinet F, Sheet 24 M.C.M.R. and marking the most easterly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and the herein described tract;

THENCE, South 43°32'24" West, along the northwesterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 2 and along the southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a distance of 368.00 feet to a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set in the aforesaid northeasterly R.O.W. line of Research Forest Drive, marking the most westerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 2 and marking the most southerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and the herein described tract;

THENCE, North 46°27'36" West, along said northeasterly R.O.W. line of Research Forest Drive and along the southwesterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a distance of 425.00 feet to the POINT OF BEGINNING and containing 3.590 acres (156,400 square feet) of land. This description is based on the ALTA/ACSM Land Title Survey and plat made by Terra Surveying Co., dated April, 2003, updated April, 2004, Project Number 1851-0316-S.

TRACT 3

A non-exclusive easement for vehicular and pedestrian ingress and egress created under the Reciprocal Easement Agreement by and between Woodlands Office Equities-’95 Limited and First Security Bank, National Association, not individually, but solely as Owner Trustee under the Lexi Trust 2000-1 dated as of December 8, 2000, and recorded under the County Clerk’s File No. 2000-104008 and the Real Property Records of Montgomery County, Texas.

10

SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT

AND TO OTHER LOAN DOCUMENTS

THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT AND TO OTHER LOAN DOCUMENTS (this “Amendment”) is made as of June ___, 2011, by and between LEX-GEN WOODLANDS, L.P., a Delaware limited partnership (“Borrower”), and SFI BELMONT LLC, a Delaware limited liability company (together with its successors and assigns, hereinafter referred to as “Lender”), with offices at c/o iStar Financial Inc., 1114 Avenue of the Americas, 38^th Floor, New York, New York 10036.

RECITALS

A.Borrower and iStar Financial Inc., a Maryland corporation (“Original Lender”) entered into a Loan and Security Agreement dated as of April 21, 2004 (the “Original Loan Agreement”), as amended by that certain Amendment to Loan and Security Agreement and to other Loan Documents dated as of September 28, 2009 (the “First Amendment”; the Original Loan Agreement, as amended by such First Amendment, is herein called the “Loan Agreement”), pursuant to which, among other things, Lender agreed to make a loan to Borrower in the principal amount of Thirty-Four Million Dollars ($34,000,000) (the “Loan”) upon the terms and conditions set forth in the Loan Agreement. Capitalized terms used in this Amendment but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. The Loan is evidenced by that certain Promissory Note of even date with the Loan Agreement in the principal amount of the Loan (the “Note”) and is secured by, among other things, (i) that certain Deed of Trust with Security Agreement, Assignment of Leases and Rents and Fixture Filing of even date with the Loan Agreement, recorded in the Official Records of Montgomery County, Texas (“Official Records”), as Document No. 2004-042420 (the “Mortgage”), covering the Property more particularly described on Exhibit A attached hereto and made a part hereof, and (ii) that certain Guaranty of even date with the Loan Agreement (“Guaranty”) in favor of Original Lender made by Lexicon Genetics Incorporated, which is now known as Lexicon Pharmaceuticals, Inc., a Delaware corporation.

B.The Loan Documents were assigned by Original Lender to iSTAR TARA LLC, a Delaware limited liability company (“iStar Tara”), pursuant to that certain Assignment and Assumption of Note, Mortgage, and Other Loan Documents made as of March 1, 2009, recorded in the Official Records as Document No. 2009-022702 (the “First Assignment”) and then subsequently assigned by iStar Tara to Lender pursuant to that certain Assignment and Assumption of Note, Deed of Trust and Other Loan Documents made as of March 16, 2011 and recorded in the Official Records as Document No. 2011039443-1.

C.Section 7.11 of the Loan Agreement prohibits, among other things, the sale of all or any portion of the Mortgaged Property without Lender’s consent.

D.Borrower desires to sell the portion of the Mortgaged Property which constitutes that portion of the Land (and the Improvement located thereupon) identified as “TRACT 2” on Exhibit A attached hereto (herein called the “Tract 2 Release Parcel”), with Borrower retaining both “TRACT 1” and “TRACT 3” on Exhibit A, pursuant to that certain Purchase and Sale Agreement (“Tract 2 Agreement”) between Borrower and Tridan II, LLC, a Texas limited liability company, as successor by assignment to Tridan, LLC, a Texas limited liability company (“Tract 2 Purchaser”), and has requested Lender’s consent to such sale and Lender to release the lien of the Mortgage on the Tract 2 Release Parcel, and Lender is willing to do so solely upon the terms and subject to the conditions set forth herein.

1

AGREEMENT

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Incorporation of Recitals. The foregoing Recitals are incorporated herein and expressly made a part hereof.

2.Lender Consent. Lender hereby consents to the sale of the Tract 2 Release Parcel to the Tract 2 Purchaser (or its permitted assigns) pursuant to the Tract 2 Agreement and agrees to authorize the Title Company (as defined in the Tract 2 Agreement) to record an executed and acknowledged counterpart of the partial release attached hereto as Exhibit B (“Partial Release”) only upon satisfaction of all of the following conditions:

(a)Borrower and Lender execute and deliver this Amendment and Guarantor executes and delivers the Consent of Guarantor attached hereto.

(b)The gross purchase price paid by Tract 2 Purchaser to Borrower (that is, prior to deducting commissions, pro rated taxes and other expenses, costs associated with the title policy to be acquired for the benefit of Tract 2 Purchaser, any other closing costs to be paid by Borrower, as contemplated by the Tract 2 Agreement, and Borrower’s expenses related to such sale, including reasonable attorneys fees (collectively, the “Tract 2 Closing Costs”)), remains at least $2,500,000.

(c)Prior to the closing of the sale of the Tract 2 Release Parcel to Tract 2 Purchaser (herein, the “Tract 2 Closing”), and Borrower’s executing and delivering the final settlement statement for the Tract 2 Closing, Borrower obtains Lender’s prior consent thereto (which consent shall not be unreasonably withheld, conditioned or delayed, but may be withheld by Lender if the requirements in item (d) below is not satisfied).

(d)The final closing statement for the Tract 2 Closing reflects that all of the net proceeds (i.e., gross purchase price reduced by the Tract 2 Closing Costs) shall be paid directly to Lender.

(e)Contemporaneously with or prior to the Tract 2 Closing, Borrower pays (or delivers sufficient funds to the Title Company to pay) Lender an amount equal to $210,000, which amount Borrower and Lender agree is the Prepayment Premium attributable to the partial principal repayment being made in item (d) above.

Lender agrees to deliver the Partial Release to the Title Company on or prior to the scheduled date of the Tract 2 Closing, whereupon Borrower agrees that it shall cause each of the foregoing conditions to be satisfied and completed within two (2) business days of such Tract 2 Closing, or alternatively, Borrower shall cause the Partial Release to be returned to Lender within two (2) business days following the scheduled date of the Tract 2 Closing.

3.Application of Payments. Lender agrees that all amounts Lender receives pursuant to item (d) of Section 2 above shall be applied to reduce the outstanding principal of the Loan. Borrower understands and agrees that none of the yield maintenance premium paid to Lender pursuant to item (e) of Section 2 above shall be applied to any principal or interest due under the Loan. Additionally, Lender and Borrower recognize and agree that regular monthly installments of principal and interest following the Tract 2 Closing shall continue (so long as interest is not charged at the Default Rate as required by the Loan Documents) to be in an amount of Two Hundred Eighty-Nine Thousand Two Hundred Seventy-Five and 64/100 Dollars ($289,275.64).

2

4.Partial Termination of Guarantor Lease. Subject to Borrower’s satisfaction of the conditions set forth in Section 2 above, Lender consents to the termination of the Guarantor Lease with respect to Tract 2 simultaneously with, and as part of, the Tract 2 Closing.

5.Capital Improvements. As used herein, “Sale Modification Date” means the first day when all of the following have occurred: (A) the Tract 2 Closing has occurred, (B) Lender has received the payments required by Sections 2(d) and (e) above, and (C) Lender has authorized the Title Company to record the Partial Release. Promptly following the Sale Modification Date, Lender shall deliver or cause to be delivered to Borrower, One Hundred Thirty-Eight Thousand and No/100 Dollars ($138,000.00) from the Capital Improvements Reserve. Effective as of the Sale Modification Date, and only if such date occurs, Exhibit E attached to the Loan Agreement shall be amended by deleting the row stating “Replace HVAC units at Building 3”, without further action by any party.

6.Amendments to Other Loan Documents. All references in each of the Loan Documents to the Loan Agreement shall refer to the Loan Agreement, as amended hereby, as such Loan Agreement may be further amended from time to time. From and after such time, if ever, when Lender delivers and releases the Partial Release for recording, all references to the Mortgaged Property shall not include the portion of the Mortgaged Property released from Lender’s liens as set forth in the Partial Release.

7.Conditions Precedent. Borrower agrees that it shall be a condition precedent to the effectiveness of this Amendment that, among other things, all of the following shall have been satisfied on or prior to the date Lender authorizes the Title Company to record the Partial Release:

(a)Borrower shall have paid (or have delivered sufficient funds to the Title Company to pay) the actual out-of-pocket fees and expenses of Lender reasonably incurred in connection with this Amendment, including reasonable fees and disbursements of Lender’s attorneys;

(b)Borrower shall have furnished to Lender an affidavit stating the following:

i. that there have been no modifications to Borrower’s Articles of Organization that have not been previously delivered to Lender;

ii. that Borrower is in good standing in the State of Delaware; and

iii. that Borrower is qualified to conduct business in the State of Texas.

8.Representations and Warranties. In order to induce Lender to execute this Amendment, Borrower represents and warrants as follows:

(a)This Amendment, and any other documents and instruments required to be executed and delivered by Borrower in connection herewith, when executed and delivered, will constitute the duly authorized, valid and legally binding obligations of Borrower, and will be enforceable in accordance with their respective terms, subject only to bankruptcy and insolvency laws of general applicability and the application of general principles of equity.

(b)The execution, delivery and performance of this Amendment will not: (i) violate any laws or (ii) conflict with, be inconsistent with, or result in any breach or default of any of the terms, covenants, conditions, or provisions of any indenture, mortgage, deed of trust, corporate charter or bylaws, instrument, document, agreement or contract of any kind to which Borrower is a party or by which Borrower may be bound.

(c)To Borrower’s knowledge, Borrower is not in default (beyond applicable grace or cure periods) under any contract or agreement to which Borrower is a party, the effect of which default will materially

3

adversely affect the performance by Borrower of its representative obligations pursuant to and as contemplated by the terms and provisions of this Amendment.

(d)Borrower hereby represents and warrants that as of the date hereof, Borrower has no defenses, claims, offsets or setoffs with regard to the enforcement of the Loan Documents as modified hereby.

9.Miscellaneous.

(a)Borrower agrees that the Loan Agreement, the Note and each other Loan Document, as amended by this Amendment, remain in full force and effect in accordance with the previously existing terms thereof, as amended by this Amendment, and such documents and instruments are hereby ratified and confirmed.

(b)This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

(c)This Amendment shall be construed in accordance with and governed by the internal laws of the State of New York, except that the creation, perfection and enforcement of the Liens and security interests created pursuant to the Mortgage shall be governed and construed according to the law of the state of Texas, it being understood that to the fullest extent permitted by the laws of Texas, the law of the State of New York shall govern the Loan Agreement, the Notes and the other Loan Documents as set forth in Section 11.8 of the Loan Agreement.

(d)The parties hereto expressly acknowledge and agree that this Amendment shall not be construed as a novation of the Note, the Mortgage or any other Loan Document.

(e)All of the Mortgaged Property (other than the portion of the Mortgaged Property released from Lender’s liens as set forth in the Partial Release, upon the execution and recording of same) shall remain in all respects subject to the lien, charge and encumbrance of the Mortgage, as herein modified, and nothing herein contained and nothing done pursuant hereto, shall affect the lien, charge or encumbrance of the Mortgage, as herein modified, or the priority thereof with respect to other liens, charges, encumbrances or conveyances, or release or affect the liability of any part or parties whomsoever, who may now or hereafter be liable under, or on account of, the Loan Documents.

(f)The execution and delivery of this Amendment does not constitute a waiver of any default under the Note, Mortgage or any of the other Loan Documents (other than Lender waiving Borrower’s obligation to complete the Required Capital Improvements by the Required Completion Date as originally contemplated by the Loan Agreement); provided, however, that Lender hereby acknowledges that it is not aware of any defaults under the Loan Documents.

(g)Time is hereby declared to be of the essence of this Amendment and of every part hereof.

[Signatures Follow on the Next Page]

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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.

BORROWER:

LEX-GEN WOODLANDS, L.P., a Delaware limited partnership

By: Lex-Gen Woodlands GP, LLC, a Delaware limited liability company, its sole general partner

By:____________________________

Name:____________________________

Title:____________________________

LENDER:

SFI BELMONT LLC, a Delaware limited liability

company

By:____________________________

Name:____________________________

Title:____________________________

5

CONSENT OF GUARANTOR

The undersigned, being the “Guarantor” under the Guaranty, hereby consents to the foregoing Amendment to Loan and Security Agreement and to Other Loan Documents. The undersigned agrees that the Guaranty is and shall remain in full force and effect, that as of the date hereof (i) the Guaranty is ratified and confirmed hereby, (ii) no defenses or offsets exist to the enforcement thereof, and (iii) Guarantor has no Claims against Lender with respect thereto. All capitalized terms used in this Consent of Guarantor shall have the meaning ascribed to such terms in the Amendment to which this Consent of Guarantor is attached. Further, Guarantor, as tenant under the Guarantor Lease, agrees for the benefit of Lender and Borrower that following the Tract 2 Closing, the Premises under and as defined in the Guarantor Lease shall not include the property sold by Borrower to Tract 2 Purchaser and released from Lender’s liens by the Partial Release, and that such reduction in the Premises does not and shall not change the rent payable under such Guarantor Lease or Guarantor’s obligations and liabilities for the remaining portions of such Premises. Guarantor agrees, upon request of either Lender or Borrower, to enter into an amendment to the Guarantor Lease, to reflect such change in the Premises and other items above.

LEXICON PHARMACEUTICALS, INC.

(formerly known as Lexicon Genetics

Incorporated), a Delaware corporation

By:____________________________

Name:____________________________

Title:____________________________

6

Exhibit A

Legal Description

TRACT 1

METES AND BOUNDS DESCRIPTION

12.359 ACRES

HENRY APPLEWHITE SURVEY, ABSTRACT NUMBER 51

JOHN TAYLOR SURVEY, ABSTRACT NUMBER 547

MONTGOMERY COUNTY, TEXAS

Being a tract or parcel containing 12.359 acres of land situated in the Henry Applewhite Survey, Abstract Number 51 and the John Taylor Survey, Abstract Number 547, Montgomery County, Texas; being all of Restricted Reserve "A" (called 12.359 acres), The Woodlands Medical Research Park, Section 9, a subdivision plat recorded in Cabinet O, Sheet 180 Montgomery County Map Records (M.C.M.R.), Montgomery County, Texas; said 12.359 acre tract being more particularly described as follows (bearings are referenced to the record information contained in the above described subdivision plat);

BEGINNING at a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set marking the south end of a 25-foot cut-back line at the intersection of the northeasterly right-of-way (R.O.W.) line of Research Forest Drive (160-foot wide R.O.W.) with the southeasterly R.O.W. line of Technology Forest Place (width varies), said iron rod marking the most southerly west corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 01°27'36" West, along said southeasterly R.O.W. line of Technology Forest Place, along said cut-back line and along the west line of said Restricted Reserve "A", a distance of 35.36 feet to a 5/8-inch iron rod with cap found marking the north end of said 25-foot cut-back line and marking the most northerly west corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 43°32'24" East, continuing along said southeasterly R.O.W. line of Technology Forest Place and along the northwesterly line of said Restricted Reserve "A", a distance of 1,060.00 feet to a 5/8-inch iron rod with cap found marking the west end of a 25-foot cut-back line and marking the most westerly north corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 88°32'24" East, continuing along said southeasterly R.O.W. line, along said cutback line and along the north line of said Restricted Reserve "A", a distance of 35.36 feet to a 5/8-inch iron rod with cap found marking the east end of said cut-back line and marking the intersection of said southeasterly R.O.W. line of Technology Forest Place with the southwesterly R.O.W. line of New Trails Drive (80-foot wide R.O.W.), said iron rod marking the most easterly north corner of said Restricted Reserve "A" and the herein described tract;

THENCE, South 46°27'36" East, along said southwesterly R.O.W. line of New Trails Drive and along the northeasterly line of said Restricted Reserve "A", a distance of 460.59 feet to a 5/8-inch iron rod with cap found marking the most northerly corner of Restricted Reserve "A", Medical Research Park, Section 4, a subdivision plat recorded in Cabinet G, Sheet 51A, M.C.M.R., said iron rod marking the most easterly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and the herein described tract;

THENCE, South 43°32'24" West, departing said southwesterly R.O.W. line of New Trails Drive, along the northwesterly line of said Restricted Reserve "A", Medical Research Park, Section 4, and along the

7

southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9, at a distance of 742.00 feet passing a 5/8-inch iron rod with cap found marking the most northerly corner of Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a subdivision plat recorded in Cabinet E, Sheet 163B and 164A M.C.M.R. and marking the most westerly corner of said Section 4, continuing along southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and along the northwesterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, in all, a distance of 1,110.00 feet to a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set in the aforesaid northeasterly R.O.W. line of Research Forest Drive, marking the most westerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and marking the most southerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and the herein described tract;

THENCE, North 46°27'36" West, along said northeasterly R.O.W. line of Research Forest Drive and along the southwesterly line of said Restricted Reserve "A", a distance of 460.59 feet to the POINT OF BEGINNING and containing 12.359 acres (538,380 square feet) of land. This description is based on the ALTA/ACSM Land Title Survey and plat made by Terra Surveying Co., dated April, 2003, updated April 2004, Project Number 1851-0316-S.

TRACT 2

METES AND BOUNDS DESCRIPTION

3.590 ACRES

JOHN TAYLOR SURVEY, ABSTRACT NUMBER 547

MONTGOMERY COUNTY, TEXAS

Being a tract or parcel containing 3.590 acres of land situated in the John Taylor Survey, Abstract Number 547, Montgomery County, Texas; being all of Restricted Reserve "A" (called 3.5905 acres), The Woodlands Medical Research Park, Section 1, a subdivision plat recorded in Cabinet E, Sheet 163B and 164A Montgomery County Map Records (M.C.M.R.), Montgomery County, Texas; said 3.590 acre tract being more particularly described as follows (bearings are referenced to the record information contained in the above described subdivision plat);

BEGINNING at a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set in the northeasterly right-of-way (R.O.W.) line of Research Forest Drive (160-foot wide R.O.W.), marking most southerly corner of Restricted Reserve "A", The Woodlands Medical Research Park, Section 9, a subdivision plat recorded in Cabinet O, Sheet 180 M.C.M.R. and marking the most westerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and the herein described tract;

THENCE, North 43°32'24" East, departing the northeasterly R.O.W. line of said Research Forest Drive, along the southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and along the northwesterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a distance of 368.00 feet to a 5/8-inch iron rod with cap found marking the most westerly corner of Restricted Reserve "A", Medical Research Park, Section 4, a subdivision plat recorded in Cabinet G, Sheet 51A M.C.M.R. and marking the most northerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and the herein described tract;

THENCE, South 46°27'36" East, along the southwesterly line of said Restricted Reserve "A", Medical Research Park, Section 4 and along the northeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a distance of 425.00 feet to a 5/8-inch iron rod with cap found marking the most northerly corner of Restricted Reserve "A", The Woodlands Medical Research Park, Section 2, a

8

subdivision plat recorded in Cabinet F, Sheet 24 M.C.M.R. and marking the most easterly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and the herein described tract;

THENCE, South 43°32'24" West, along the northwesterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 2 and along the southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a distance of 368.00 feet to a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set in the aforesaid northeasterly R.O.W. line of Research Forest Drive, marking the most westerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 2 and marking the most southerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and the herein described tract;

THENCE, North 46°27'36" West, along said northeasterly R.O.W. line of Research Forest Drive and along the southwesterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a distance of 425.00 feet to the POINT OF BEGINNING and containing 3.590 acres (156,400 square feet) of land. This description is based on the ALTA/ACSM Land Title Survey and plat made by Terra Surveying Co., dated April, 2003, updated April, 2004, Project Number 1851-0316-S.

TRACT 3

A non-exclusive easement for vehicular and pedestrian ingress and egress created under the Reciprocal Easement Agreement by and between Woodlands Office Equities-’95 Limited and First Security Bank, National Association, not individually, but solely as Owner Trustee under the Lexi Trust 2000-1 dated as of December 8, 2000, and recorded under the County Clerk’s File No. 2000-104008 and the Real Property Records of Montgomery County, Texas.

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Exhibit B

Partial Release

10

THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT

AND TO OTHER LOAN DOCUMENTS

THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT AND TO OTHER LOAN DOCUMENTS (this “Amendment”) is made as of August 30, 2011, by and between LEX-GEN WOODLANDS, L.P., a Delaware limited partnership (“Borrower”), and SFI BELMONT LLC, a Delaware limited liability company (together with its successors and assigns, hereinafter referred to as “Lender”), with offices at c/o iStar Financial Inc., 1114 Avenue of the Americas, 38^th Floor, New York, New York 10036.

RECITALS

A.Borrower and iStar Financial Inc., a Maryland corporation (“Original Lender”) entered into a Loan and Security Agreement dated as of April 21, 2004 (the “Original Loan Agreement”), as amended by that certain Amendment to Loan and Security Agreement and to other Loan Documents dated as of September 28, 2009 (the “First Amendment”) and that certain Second Amendment to Loan and Security Agreement and to other Loan Documents dated as of June 17, 2011 (the “Second Amendment”; the Original Loan Agreement, as amended by such First Amendment and Second Amendment, is herein called the “Loan Agreement”), pursuant to which, among other things, Lender agreed to make a loan to Borrower in the principal amount of Thirty-Four Million Dollars ($34,000,000) (the “Loan”) upon the terms and conditions set forth in the Loan Agreement. Capitalized terms used in this Amendment but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. The Loan is evidenced by that certain Promissory Note of even date with the Loan Agreement in the principal amount of the Loan (the “Note”) and is secured by, among other things, (i) that certain Deed of Trust with Security Agreement, Assignment of Leases and Rents and Fixture Filing of even date with the Loan Agreement, recorded in the Official Records of Montgomery County, Texas (“Official Records”), as Document No. 2004-042420 (the “Mortgage”), covering the Property more particularly described on Exhibit A attached hereto and made a part hereof, and (ii) that certain Guaranty of even date with the Loan Agreement (“Guaranty”) in favor of Original Lender made by Lexicon Genetics Incorporated, which is now known as Lexicon Pharmaceuticals, Inc., a Delaware corporation.

B.The Loan Documents were assigned by Original Lender to iSTAR TARA LLC, a Delaware limited liability company (“iStar Tara”), pursuant to that certain Assignment and Assumption of Note, Mortgage, and Other Loan Documents made as of March 1, 2009, recorded in the Official Records as Document No. 2009-022702 (the “First Assignment”) and then subsequently assigned by iStar Tara to Lender pursuant to that certain Assignment and Assumption of Note, Deed of Trust and Other Loan Documents made as of March 16, 2011 and recorded in the Official Records as Document No. 2011039443.

C.Borrower has requested that the definition of “Change in Control” in the Loan Agreement be modified as contemplated by this Amendment, and Lender is willing to consent to such modification, all upon the terms and subject to the conditions set forth herein.

AGREEMENT

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Incorporation of Recitals. The foregoing Recitals are incorporated herein and expressly made a part hereof.

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2.Amendment to Loan Agreement.

(a)The definition of “Change in Control” in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety and shall read as follows:

“Change in Control” means the occurrence of any one or more of the following: (i) a sale of all or substantially all of the assets of Guarantor, in a single transaction or series of transactions, (ii) a Person or Group, other than Invus, shall have acquired, in one or more transactions, ownership or control of forty-nine percent (49%) or more of the voting Securities of Guarantor, (iii) Guarantor shall cease to directly or indirectly Control the business and affairs of the Borrower or (iv) Guarantor shall cease to directly or indirectly own fifty-one percent (51%) or more of the voting Securities of Borrower.

(b)The following term and related definition is hereby added to Section 1.1 of the Loan Agreement immediately after the defined term “Investment” and immediately before the defined term “Land,” and shall read as follows:

“Invus” means, collectively, Invus, L.P., a Bermuda limited partnership, Invus C.V., a Netherlands limited partnership, Invus Public Equities, L.P., a Bermuda limited partnership, and any other Person who, directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, any of such entities.

3.Amendments to Other Loan Documents. All references in each of the Loan Documents to the Loan Agreement shall refer to the Loan Agreement, as amended hereby, as such Loan Agreement may be further amended from time to time.

4.Conditions Precedent. Borrower agrees that it shall be a condition precedent to the effectiveness of this Amendment that, among other things, all of the following shall have been satisfied promptly following the date of this Amendment:

(a)Borrower shall have paid the actual out-of-pocket fees and expenses of Lender reasonably incurred in connection with this Amendment, including reasonable fees and disbursements of Lender’s attorneys;

(b)Borrower shall have furnished to Lender an affidavit stating the following:

i. that there have been no modifications to Borrower’s Articles of Organization that have not been previously delivered to Lender;

ii. that Borrower is in good standing in the State of Delaware; and

iii. that Borrower is qualified to conduct business in the State of Texas.

5.Representations and Warranties. In order to induce Lender to execute this Amendment, Borrower represents and warrants as follows:

(a)This Amendment, and any other documents and instruments required to be executed and delivered by Borrower in connection herewith, when executed and delivered, will constitute the duly authorized, valid and legally binding obligations of Borrower, and will be enforceable in accordance with their respective terms, subject only to bankruptcy and insolvency laws of general applicability and the application of general principles of equity.

(b)The execution, delivery and performance of this Amendment will not: (i) violate any laws or (ii) conflict with, be inconsistent with, or result in any breach or default of any of the terms, covenants, conditions, or provisions of any indenture, mortgage, deed of trust, corporate charter or bylaws, instrument,

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document, agreement or contract of any kind to which Borrower is a party or by which Borrower may be bound.

(c)To Borrower’s knowledge, Borrower is not in default (beyond applicable grace or cure periods) under any contract or agreement to which Borrower is a party, the effect of which default will materially adversely affect the performance by Borrower of its representative obligations pursuant to and as contemplated by the terms and provisions of this Amendment.

(d)Borrower hereby represents and warrants that as of the date hereof, Borrower has no defenses, claims, offsets or setoffs with regard to the enforcement of the Loan Documents as modified hereby.

6.Miscellaneous.

(a)Borrower agrees that the Loan Agreement, the Note and each other Loan Document, as amended by this Amendment, remain in full force and effect in accordance with the previously existing terms thereof, as amended by this Amendment, and such documents and instruments are hereby ratified and confirmed.

(b)This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

(c)This Amendment shall be construed in accordance with and governed by the internal laws of the State of New York, except that the creation, perfection and enforcement of the Liens and security interests created pursuant to the Mortgage shall be governed and construed according to the law of the state of Texas, it being understood that to the fullest extent permitted by the laws of Texas, the law of the State of New York shall govern the Loan Agreement, the Notes and the other Loan Documents as set forth in Section 11.8 of the Loan Agreement.

(d)The parties hereto expressly acknowledge and agree that this Amendment shall not be construed as a novation of the Note, the Mortgage or any other Loan Document.

(e)All of the Mortgaged Property shall remain in all respects subject to the lien, charge and encumbrance of the Mortgage, as herein modified, and nothing herein contained and nothing done pursuant hereto, shall affect the lien, charge or encumbrance of the Mortgage, as herein modified, or the priority thereof with respect to other liens, charges, encumbrances or conveyances, or release or affect the liability of any part or parties whomsoever, who may now or hereafter be liable under, or on account of, the Loan Documents.

(f)The execution and delivery of this Amendment does not constitute a waiver of any default under the Note, Mortgage or any of the other Loan Documents; provided, however, that Lender hereby acknowledges that it is not aware of any defaults under the Loan Documents.

(g)Time is hereby declared to be of the essence of this Amendment and of every part hereof.

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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.

BORROWER:

LEX-GEN WOODLANDS, L.P., a Delaware limited partnership

By: Lex-Gen Woodlands GP, LLC, a Delaware limited liability company, its sole general partner

By:____________________________

Name:____________________________

Title:____________________________

LENDER:

SFI BELMONT LLC, a Delaware limited liability

company

By:____________________________

Name:____________________________

Title:____________________________

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CONSENT OF GUARANTOR

The undersigned, being the “Guarantor” under the Guaranty, hereby consents to the foregoing Amendment to Loan and Security Agreement and to Other Loan Documents. The undersigned agrees that the Guaranty is and shall remain in full force and effect, that as of the date hereof (i) the Guaranty is ratified and confirmed hereby, (ii) no defenses or offsets exist to the enforcement thereof, and (iii) Guarantor has no Claims against Lender with respect thereto. All capitalized terms used in this Consent of Guarantor shall have the meaning ascribed to such terms in the Amendment to which this Consent of Guarantor is attached.

LEXICON PHARMACEUTICALS, INC.

(formerly known as Lexicon Genetics

Incorporated), a Delaware corporation

By:____________________________

Name:____________________________

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Exhibit A

Legal Description

TRACT 1

METES AND BOUNDS DESCRIPTION

12.359 ACRES

HENRY APPLEWHITE SURVEY, ABSTRACT NUMBER 51

JOHN TAYLOR SURVEY, ABSTRACT NUMBER 547

MONTGOMERY COUNTY, TEXAS

Being a tract or parcel containing 12.359 acres of land situated in the Henry Applewhite Survey, Abstract Number 51 and the John Taylor Survey, Abstract Number 547, Montgomery County, Texas; being all of Restricted Reserve "A" (called 12.359 acres), The Woodlands Medical Research Park, Section 9, a subdivision plat recorded in Cabinet O, Sheet 180 Montgomery County Map Records (M.C.M.R.), Montgomery County, Texas; said 12.359 acre tract being more particularly described as follows (bearings are referenced to the record information contained in the above described subdivision plat);

BEGINNING at a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set marking the south end of a 25-foot cut-back line at the intersection of the northeasterly right-of-way (R.O.W.) line of Research Forest Drive (160-foot wide R.O.W.) with the southeasterly R.O.W. line of Technology Forest Place (width varies), said iron rod marking the most southerly west corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 01°27'36" West, along said southeasterly R.O.W. line of Technology Forest Place, along said cut-back line and along the west line of said Restricted Reserve "A", a distance of 35.36 feet to a 5/8-inch iron rod with cap found marking the north end of said 25-foot cut-back line and marking the most northerly west corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 43°32'24" East, continuing along said southeasterly R.O.W. line of Technology Forest Place and along the northwesterly line of said Restricted Reserve "A", a distance of 1,060.00 feet to a 5/8-inch iron rod with cap found marking the west end of a 25-foot cut-back line and marking the most westerly north corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 88°32'24" East, continuing along said southeasterly R.O.W. line, along said cutback line and along the north line of said Restricted Reserve "A", a distance of 35.36 feet to a 5/8-inch iron rod with cap found marking the east end of said cut-back line and marking the intersection of said southeasterly R.O.W. line of Technology Forest Place with the southwesterly R.O.W. line of New Trails Drive (80-foot wide R.O.W.), said iron rod marking the most easterly north corner of said Restricted Reserve "A" and the herein described tract;

THENCE, South 46°27'36" East, along said southwesterly R.O.W. line of New Trails Drive and along the northeasterly line of said Restricted Reserve "A", a distance of 460.59 feet to a 5/8-inch iron rod with cap found marking the most northerly corner of Restricted Reserve "A", Medical Research Park, Section 4, a subdivision plat recorded in Cabinet G, Sheet 51A, M.C.M.R., said iron rod marking the most easterly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and the herein described tract;

THENCE, South 43°32'24" West, departing said southwesterly R.O.W. line of New Trails Drive, along the northwesterly line of said Restricted Reserve "A", Medical Research Park, Section 4, and along the

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southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9, at a distance of 742.00 feet passing a 5/8-inch iron rod with cap found marking the most northerly corner of Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a subdivision plat recorded in Cabinet E, Sheet 163B and 164A M.C.M.R. and marking the most westerly corner of said Section 4, continuing along southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and along the northwesterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, in all, a distance of 1,110.00 feet to a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set in the aforesaid northeasterly R.O.W. line of Research Forest Drive, marking the most westerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and marking the most southerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and the herein described tract;

THENCE, North 46°27'36" West, along said northeasterly R.O.W. line of Research Forest Drive and along the southwesterly line of said Restricted Reserve "A", a distance of 460.59 feet to the POINT OF BEGINNING and containing 12.359 acres (538,380 square feet) of land. This description is based on the ALTA/ACSM Land Title Survey and plat made by Terra Surveying Co., dated April, 2003, updated April 2004, Project Number 1851-0316-S.

TRACT 2

A non-exclusive easement for vehicular and pedestrian ingress and egress created under the Reciprocal Easement Agreement by and between Woodlands Office Equities-’95 Limited and First Security Bank, National Association, not individually, but solely as Owner Trustee under the Lexi Trust 2000-1 dated as of December 8, 2000, and recorded under the County Clerk’s File No. 2000-104008 and the Real Property Records of Montgomery County, Texas.

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FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

AND TO OTHER LOAN DOCUMENTS

THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND TO OTHER LOAN DOCUMENTS (this “Amendment”) is made as of September 17, 2013, by and between LEX-GEN WOODLANDS, L.P., a Delaware limited partnership (“Borrower”), and SFI BELMONT LLC, a Delaware limited liability company (together with its successors and assigns, hereinafter referred to as “Lender”), with offices at c/o iStar Financial Inc., 1114 Avenue of the Americas, 38^th Floor, New York, New York 10036.

RECITALS

A.Borrower and iStar Financial Inc., a Maryland corporation (“Original Lender”) entered into a Loan and Security Agreement dated as of April 21, 2004 (the “Original Loan Agreement”), as amended by that certain Amendment to Loan and Security Agreement and to other Loan Documents dated as of September 28, 2009 (the “First Amendment”); that certain Second Amendment to Loan and Security Agreement and to other Loan Documents dated as of June 17, 2011 (the “Second Amendment”); and that certain Third Amendment to Loan and Security and to other Loan Documents dated as of August 30, 2011 (the “Third Amendment”); the Original Loan Agreement, as amended by such First Amendment, Second Amendment, and Third Amendment, is herein called the “Loan Agreement”), pursuant to which, among other things, Lender agreed to make a loan to Borrower in the principal amount of Thirty-Four Million Dollars ($34,000,000) (the “Loan”) upon the terms and conditions set forth in the Loan Agreement. Capitalized terms used in this Amendment but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. The Loan is evidenced by that certain Promissory Note of even date with the Loan Agreement in the principal amount of the Loan (the “Note”) and is secured by, among other things, (i) that certain Deed of Trust with Security Agreement, Assignment of Leases and Rents and Fixture Filing of even date with the Loan Agreement, recorded in the Official Records of Montgomery County, Texas (“Official Records”), as Document No. 2004-042420 (the “Mortgage”), covering the Property more particularly described on Exhibit A attached hereto and made a part hereof, and (ii) that certain Guaranty of even date with the Loan Agreement (“Guaranty”) in favor of Original Lender made by Lexicon Genetics Incorporated, which is now known as Lexicon Pharmaceuticals, Inc., a Delaware corporation.

B.The Loan Documents were assigned by Original Lender to iSTAR TARA LLC, a Delaware limited liability company (“iStar Tara”), pursuant to that certain Assignment and Assumption of Note, Mortgage, and Other Loan Documents made as of March 1, 2009, recorded in the Official Records as Document No. 2009-022702 (the “First Assignment”) and then subsequently assigned by iStar Tara to Lender pursuant to that certain Assignment and Assumption of Note, Deed of Trust and Other Loan Documents made as of March 16, 2011 and recorded in the Official Records as Document No. 2011039443.

C.Borrower has requested an extension of the Maturity Date of the Loan as contemplated by this Amendment, and Lender is willing to consent to such modification, all upon the terms and subject to the conditions set forth herein.

AGREEMENT

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Incorporation of Recitals. The foregoing Recitals are incorporated herein and expressly made a part hereof.

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2.Amendment to Loan Agreement.

(a)The definition of “Lockout Expiration Date” in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety and shall read as follows:

“Lockout Expiration Date” means January 20, 2017.”

(b)The definition of “Maturity Date” in Section 2.4(B) of the Loan Agreement and all references in the other Loan Documents to the Maturity Date shall mean April 21, 2017, or such earlier date as the Loan is prepaid in full or accelerated.

(c)A new Section 11.18 is hereby added to the Loan Agreement immediately following Section 11.17 and before the sentence “witness the due execution hereof as of the date first written above”, which new Section 11.18 provides as follows:

11.18 Right of First Offer.

(a)If Borrower or any Affiliate of Borrower (herein, “Borrower Party”) intends to seek, obtain or accept a proposal for a loan, refinancing, or sale-leaseback transaction of the Mortgaged Property, or any portion thereof, Borrower shall deliver to Lender a letter or other writing setting forth Borrower Party’s desire to undertake such a transaction and the general requirements thereof, including the requested loan amount, loan term, interest rate, purchase price, and/or lease term, as applicable, together with any special conditions (collectively, the “Request for Proposal”).

(b)During the period from the receipt by Lender of the initial Request for Proposal and thirty (30) days thereafter (the “Proposal Period”), Lender shall have the right and option to provide a loan, refinancing, loan extension, or a sale-leaseback proposal for such transaction for the Mortgaged Property (collectively, the “Lender’s Proposal”) to Borrower Party setting forth the terms and conditions of such transaction from Lender, which Lender’s Proposal shall include a time period (which shall not extend more than ten (10) days beyond the Proposal Period) (the “Response Period”) within which Borrower Party must accept or reject such Lender’s Proposal by delivering written notice thereof to Lender. To the extent Borrower Party fails to so accept or reject Lender’s Proposal on or prior to the expiration of Response Period, Borrower Party shall be deemed to have rejected Lender’s Proposal.

(c)Borrower Party shall have the right to request and negotiate additional proposals, term sheets, commitments, or similar items relating to any potential loan, refinancing, or sale-leaseback transactions for the Mortgaged Property or any portion thereof (each, a “Third-Party Proposal”) during the Proposal Period and thereafter. If Borrower Party receives a Third Party Proposal during the Proposal Period, and if such Third-Party Proposal is “Competitive With” (as defined below) Lender’s Proposal, then within three (3) Business Days of Borrower Party’s receipt of such Third-Party Proposal, Borrower shall furnish to Lender a copy of such Third-Party Proposal (subject to any confidentiality restrictions to which Borrower Party may be subject thereunder). Lender agrees (i) to hold any such Third-Party Proposal in strict confidence and take reasonable precautions to protect such Third-Party Proposal, (ii) not to divulge the contents of any such Third-Party Proposal to any third party, subject to the right to disclose such information (a) to Lender’s directors, officers, employees and agents, including advisors, accountants, attorneys and parent entities, under like strictures of confidentiality, as may be reasonably required for Lender to evaluate the Third-Party Proposal, and (b) to the extent required by law or regulations or by any

2

subpoena or similar legal process, and (iii) not to make any use of any such Third-Party Proposal except to evaluate whether to revise Lender’s Proposal as contemplated in this Section 11.18. For clarity, Borrower shall only be obligated to furnish Lender with a copy of any Third-Party Proposal received by Borrower Party from any particular third party during the Proposal Period.

(d)If Borrower Party furnishes a copy of a Third-Party Proposal to Lender pursuant to Section 11.18(b), on or prior to the earlier of (i) five (5) Business Days of Lender’s receipt of a copy of a Third-Party Proposal or (ii) the last day of the Proposal Period (the “Revised Proposal Submission Period”), Lender shall be permitted to (but Lender shall be under no obligation to) provide an initial Lender’s Proposal or, if Lender has already provided an initial Lender’s Proposal, revise Lender’s Proposal as Lender deems appropriate, if at all, and submit same to Borrower Party, in which event Borrower Party shall have until the later of (1) five (5) Business Days following Lender’s submission of the initial or revised Lender’s Proposal, as applicable, or (2) the last day of the Proposal Period (the “Revised Proposal Response Period”), to accept or reject the initial or revised Lender’s Proposal, as applicable, by delivering written notice thereof to Lender. To the extent Borrower Party fails to so accept or reject the initial or revised Lender’s Proposal, as applicable, on or prior to the expiration of the Revised Proposal Response Period, Borrower shall be deemed to have rejected such Lender’s Proposal. For purposes of this Section 11.18, Lender’s Proposal shall be deemed to be “Competitive With” a Third-Party Proposal if (a) Lender’s Proposal is for a loan amount or purchase price, as applicable, of one hundred percent (100%) or more of the loan amount or purchase price, as applicable, set forth in such Third-Party Proposal and (b) if (I) a sale-leaseback transaction, Lender’s Proposal sets forth an annual rental rate as a percentage of purchase price calculated over the term of the lease which is within twenty-five (25) basis points (0.0025) of the annual rental rate as a percentage of purchase price (calculated over the term of the lease) set forth in such Third-Party Proposal or (II) a loan or refinance, the annual interest rate is within fifty (50) basis points (0.0050) of the interest rate set forth in such Third-Party Proposal. Except as set forth in Section 11.18(g), upon the later to occur of Borrower’s rejection of Lender’s Proposal or the revised Lender’s Proposal, as applicable, this Section 11.18 shall be of no further force or effect.

(e)Borrower shall not and shall not permit its Affiliates to accept or commit to any loan, refinancing, or any sale-leaseback transaction set forth in any Third-Party Proposal required to be furnished to Lender hereunder until the expiration of the Proposal Period or the Revised Proposal Response Period, as applicable.

(f)If Borrower Party elects to accept Lender’s Proposal or the revised Lender’s Proposal, as applicable, such parties shall negotiate in good faith for purposes of entering into documents relating thereto as the parties shall agree upon consistent with the terms of Lender’s Proposal or the revised Lender’s Proposal, as applicable; provided, however, that neither party shall be under any obligation to consummate the transaction described in the Lender’s Proposal or the revised Lender’s Proposal, as applicable.

(g)If (i) Borrower Party does not close on a loan, refinancing, or sale-leaseback transaction for the Mortgaged Property, or any portion thereof, pursuant to a Third-Party Proposal within one hundred eighty (180) days following the expiration of the Proposal Period or the Revised Proposal Response Period, as applicable, and (ii) Borrower Party intends at any time thereafter to seek, obtain or accept a proposal for a loan, refinancing or sale-leaseback transaction of the Mortgaged Property, then Borrower shall deliver to Lender a new

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Request for Proposal in connection therewith and the process set forth in this Section 11.18 shall be reinitiated.

(d)Schedule 2.3, Amortization Schedule, to the Loan Agreement is hereby amended and restated to be Schedule 2.3, Amortization Schedule, attached to this Amendment.

3.Amendments to Other Loan Documents. All references in each of the Loan Documents to the Loan Agreement shall refer to the Loan Agreement, as amended hereby, as such Loan Agreement may be further amended from time to time.

4.Conditions Precedent. Borrower agrees that it shall be a condition precedent to the effectiveness of this Amendment that, among other things, all of the following shall have been satisfied promptly and in any event within the time periods specified below:

(a)Within five (5) Business Days following Borrower’s receipt from Lender of an invoice setting forth the amounts due and payable with respect thereto, Borrower shall have paid the actual out-of-pocket fees and expenses of Lender reasonably incurred in connection with this Amendment, including reasonable fees and disbursements of Lender’s attorneys;

(b)Within five (5) Business Days following the date of this Amendment, Borrower shall have furnished to Lender an affidavit stating the following:

i. that there have been no modifications to Borrower’s Articles of Organization that have not been previously delivered to Lender;

ii. that Borrower is in good standing in the State of Delaware; and

iii. that Borrower is qualified to conduct business in the State of Texas.

(c)Within five (5) Business Days following the date of this Amendment, Borrower shall have paid Lender a fee in the amount of $111,422 as an extension fee for the Loan.

5.Representations and Warranties. In order to induce Lender to execute this Amendment, Borrower represents and warrants as follows:

(a)This Amendment, and any other documents and instruments required to be executed and delivered by Borrower in connection herewith, when executed and delivered, will constitute the duly authorized, valid and legally binding obligations of Borrower, and will be enforceable in accordance with their respective terms, subject only to bankruptcy and insolvency laws of general applicability and the application of general principles of equity.

(b)The execution, delivery and performance of this Amendment will not: (i) violate any laws or (ii) conflict with, be inconsistent with, or result in any breach or default of any of the terms, covenants, conditions, or provisions of any indenture, mortgage, deed of trust, corporate charter or bylaws, instrument, document, agreement or contract of any kind to which Borrower is a party or by which Borrower may be bound.

(c)To Borrower’s knowledge, Borrower is not in default (beyond applicable grace or cure periods) under any contract or agreement to which Borrower is a party, the effect of which default will materially adversely affect the performance by Borrower of its representative obligations pursuant to and as contemplated by the terms and provisions of this Amendment.

(d)Borrower hereby represents and warrants that as of the date hereof, Borrower has no defenses, claims, offsets or setoffs with regard to the enforcement of the Loan Documents as modified hereby.

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6.Miscellaneous.

(a)Borrower agrees that the Loan Agreement, the Note and each other Loan Document, as amended by this Amendment, remain in full force and effect in accordance with the previously existing terms thereof, as amended by this Amendment, and such documents and instruments are hereby ratified and confirmed.

(b)This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

(c)This Amendment shall be construed in accordance with and governed by the internal laws of the State of New York, except that the creation, perfection and enforcement of the Liens and security interests created pursuant to the Mortgage shall be governed and construed according to the law of the state of Texas, it being understood that to the fullest extent permitted by the laws of Texas, the law of the State of New York shall govern the Loan Agreement, the Notes and the other Loan Documents as set forth in Section 11.8 of the Loan Agreement.

(d)The parties hereto expressly acknowledge and agree that this Amendment shall not be construed as a novation of the Note, the Mortgage or any other Loan Document.

(e)All of the Mortgaged Property shall remain in all respects subject to the lien, charge and encumbrance of the Mortgage, as herein modified, and nothing herein contained and nothing done pursuant hereto, shall affect the lien, charge or encumbrance of the Mortgage, as herein modified, or the priority thereof with respect to other liens, charges, encumbrances or conveyances, or release or affect the liability of any part or parties whomsoever, who may now or hereafter be liable under, or on account of, the Loan Documents.

(f)The execution and delivery of this Amendment does not constitute a waiver of any default under the Note, Mortgage or any of the other Loan Documents; provided, however, that Lender hereby acknowledges that it is not aware of any defaults under the Loan Documents.

(g)Time is hereby declared to be of the essence of this Amendment and of every part hereof.

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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.

BORROWER:

LEX-GEN WOODLANDS, L.P., a Delaware limited partnership

By: Lex-Gen Woodlands GP, LLC, a Delaware limited liability company, its sole general partner

By:__/s/ Jeffrey L. Wade__________________

Name:__Jeffrey L. Wade_____________________

Title:__EVP, Corporate Development and CFO__

LENDER:

SFI BELMONT LLC, a Delaware limited liability

company

By:__/s/ Samantha K. Garbus____________________

Name:__Samantha K. Garbus_______________________

Title:__Senior Vice President______________________

6

CONSENT OF GUARANTOR

The undersigned, being the “Guarantor” under the Guaranty, hereby consents to the foregoing Amendment to Loan and Security Agreement and to Other Loan Documents. The undersigned agrees that the Guaranty is and shall remain in full force and effect, that as of the date hereof (i) the Guaranty is ratified and confirmed hereby, (ii) no defenses or offsets exist to the enforcement thereof, and (iii) Guarantor has no Claims against Lender with respect thereto. All capitalized terms used in this Consent of Guarantor shall have the meaning ascribed to such terms in the Amendment to which this Consent of Guarantor is attached.

LEXICON PHARMACEUTICALS, INC.

(formerly known as Lexicon Genetics

Incorporated), a Delaware corporation

By:__/s/ Jeffrey L. Wade__________________

Name:__Jeffrey L. Wade_____________________

Title:__EVP, Corporate Development and CFO__

7

Exhibit A

Legal Description

TRACT 1

METES AND BOUNDS DESCRIPTION

12.359 ACRES

HENRY APPLEWHITE SURVEY, ABSTRACT NUMBER 51

JOHN TAYLOR SURVEY, ABSTRACT NUMBER 547

MONTGOMERY COUNTY, TEXAS

Being a tract or parcel containing 12.359 acres of land situated in the Henry Applewhite Survey, Abstract Number 51 and the John Taylor Survey, Abstract Number 547, Montgomery County, Texas; being all of Restricted Reserve "A" (called 12.359 acres), The Woodlands Medical Research Park, Section 9, a subdivision plat recorded in Cabinet O, Sheet 180 Montgomery County Map Records (M.C.M.R.), Montgomery County, Texas; said 12.359 acre tract being more particularly described as follows (bearings are referenced to the record information contained in the above described subdivision plat);

BEGINNING at a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set marking the south end of a 25-foot cut-back line at the intersection of the northeasterly right-of-way (R.O.W.) line of Research Forest Drive (160-foot wide R.O.W.) with the southeasterly R.O.W. line of Technology Forest Place (width varies), said iron rod marking the most southerly west corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 01°27'36" West, along said southeasterly R.O.W. line of Technology Forest Place, along said cut-back line and along the west line of said Restricted Reserve "A", a distance of 35.36 feet to a 5/8-inch iron rod with cap found marking the north end of said 25-foot cut-back line and marking the most northerly west corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 43°32'24" East, continuing along said southeasterly R.O.W. line of Technology Forest Place and along the northwesterly line of said Restricted Reserve "A", a distance of 1,060.00 feet to a 5/8-inch iron rod with cap found marking the west end of a 25-foot cut-back line and marking the most westerly north corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 88°32'24" East, continuing along said southeasterly R.O.W. line, along said cutback line and along the north line of said Restricted Reserve "A", a distance of 35.36 feet to a 5/8-inch iron rod with cap found marking the east end of said cut-back line and marking the intersection of said southeasterly R.O.W. line of Technology Forest Place with the southwesterly R.O.W. line of New Trails Drive (80-foot wide R.O.W.), said iron rod marking the most easterly north corner of said Restricted Reserve "A" and the herein described tract;

THENCE, South 46°27'36" East, along said southwesterly R.O.W. line of New Trails Drive and along the northeasterly line of said Restricted Reserve "A", a distance of 460.59 feet to a 5/8-inch iron rod with cap found marking the most northerly corner of Restricted Reserve "A", Medical Research Park, Section 4, a subdivision plat recorded in Cabinet G, Sheet 51A, M.C.M.R., said iron rod marking the most easterly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and the herein described tract;

THENCE, South 43°32'24" West, departing said southwesterly R.O.W. line of New Trails Drive, along the northwesterly line of said Restricted Reserve "A", Medical Research Park, Section 4, and along the

8

southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9, at a distance of 742.00 feet passing a 5/8-inch iron rod with cap found marking the most northerly corner of Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a subdivision plat recorded in Cabinet E, Sheet 163B and 164A M.C.M.R. and marking the most westerly corner of said Section 4, continuing along southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and along the northwesterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, in all, a distance of 1,110.00 feet to a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set in the aforesaid northeasterly R.O.W. line of Research Forest Drive, marking the most westerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and marking the most southerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and the herein described tract;

THENCE, North 46°27'36" West, along said northeasterly R.O.W. line of Research Forest Drive and along the southwesterly line of said Restricted Reserve "A", a distance of 460.59 feet to the POINT OF BEGINNING and containing 12.359 acres (538,380 square feet) of land. This description is based on the ALTA/ACSM Land Title Survey and plat made by Terra Surveying Co., dated April, 2003, updated April 2004, Project Number 1851-0316-S.

TRACT 3

A non-exclusive easement for vehicular and pedestrian ingress and egress created under the Reciprocal Easement Agreement by and between Woodlands Office Equities-’95 Limited and First Security Bank, National Association, not individually, but solely as Owner Trustee under the Lexi Trust 2000-1 dated as of December 8, 2000, and recorded under the County Clerk’s File No. 2000-104008 and the Real Property Records of Montgomery County, Texas.

9

Schedule 2.3

Amortization Schedule

See Attached

10

FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

AND TO OTHER LOAN DOCUMENTS

THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND TO OTHER LOAN DOCUMENTS (this “Amendment”) is made as of October 2, 2013, by and between LEX-GEN WOODLANDS, L.P., a Delaware limited partnership (“Borrower”), and SFI BELMONT LLC, a Delaware limited liability company (together with its successors and assigns, hereinafter referred to as “Lender”), with offices at c/o iStar Financial Inc., 1114 Avenue of the Americas, 38^th Floor, New York, New York 10036.

RECITALS

A.Borrower and iStar Financial Inc., a Maryland corporation (“Original Lender”) entered into a Loan and Security Agreement dated as of April 21, 2004 (the “Original Loan Agreement”), as amended by that certain Amendment to Loan and Security Agreement and to other Loan Documents dated as of September 28, 2009 (the “First Amendment”); that certain Second Amendment to Loan and Security Agreement and to other Loan Documents dated as of June 17, 2011 (the “Second Amendment”); that certain Third Amendment to Loan and Security Agreement and to other Loan Documents dated as of August 30, 2011 (the “Third Amendment”); and that certain Fourth Amendment to Loan and Security Agreement and to other Loan Documents dated as of September 17, 2013 (the “Fourth Amendment”); the Original Loan Agreement, as amended by such First Amendment, Second Amendment, Third Amendment and Fourth Amendment, is herein called the “Loan Agreement”), pursuant to which, among other things, Lender agreed to make a loan to Borrower in the principal amount of Thirty-Four Million Dollars ($34,000,000) (the “Loan”) upon the terms and conditions set forth in the Loan Agreement. Capitalized terms used in this Amendment but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. The Loan is evidenced by that certain Promissory Note of even date with the Loan Agreement in the principal amount of the Loan (the “Note”) and is secured by, among other things, (i) that certain Deed of Trust with Security Agreement, Assignment of Leases and Rents and Fixture Filing of even date with the Loan Agreement, recorded in the Official Records of Montgomery County, Texas (“Official Records”), as Document No. 2004-042420 (the “Mortgage”), covering the Property more particularly described on Exhibit A attached hereto and made a part hereof, and (ii) that certain Guaranty of even date with the Loan Agreement (“Guaranty”) in favor of Original Lender made by Lexicon Genetics Incorporated, which is now known as Lexicon Pharmaceuticals, Inc., a Delaware corporation.

B.The Loan Documents were assigned by Original Lender to iSTAR TARA LLC, a Delaware limited liability company (“iStar Tara”), pursuant to that certain Assignment and Assumption of Note, Mortgage, and Other Loan Documents made as of March 1, 2009, recorded in the Official Records as Document No. 2009-022702 (the “First Assignment”) and then subsequently assigned by iStar Tara to Lender pursuant to that certain Assignment and Assumption of Note, Deed of Trust and Other Loan Documents made as of March 16, 2011 and recorded in the Official Records as Document No. 2011039443.

C.Borrower has requested certain clarifications on Borrower’s ability to prepay the Loan as contemplated by this Amendment, and Lender is willing to consent to such modification, all upon the terms and subject to the conditions set forth herein.

AGREEMENT

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1

1.Incorporation of Recitals. The foregoing Recitals are incorporated herein and expressly made a part hereof.

2.Amendment to Loan Agreement.

(a)The definition of “Lockout Expiration Date” in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety and shall read as follows:

““Lockout Expiration Date” means the third anniversary of the Closing.”

(b)The last sentence of Section 2.4(c)(i) is amended by deleting the word “together” and in its place adding the phrase “and if prepaid before January 20, 2017 then together”.

3.Amendments to Other Loan Documents. All references in each of the Loan Documents to the Loan Agreement shall refer to the Loan Agreement, as amended hereby, as such Loan Agreement may be further amended from time to time.

4.Conditions Precedent. Borrower agrees that it shall be a condition precedent to the effectiveness of this Amendment that, among other things, all of the following shall have been satisfied promptly and in any event within the time periods specified below:

(a)Within five (5) Business Days following Borrower’s receipt from Lender of an invoice setting forth the amounts due and payable with respect thereto, Borrower shall have paid the actual out-of-pocket fees and expenses of Lender reasonably incurred in connection with this Amendment, if any, excluding any reasonable fees and disbursements of Lender’s attorneys;

(b)Within five (5) Business Days following the date of this Amendment, Borrower shall have furnished to Lender an affidavit stating the following:

i. that there have been no modifications to Borrower’s Articles of Organization that have not been previously delivered to Lender;

ii. that Borrower is in good standing in the State of Delaware; and

iii. that Borrower is qualified to conduct business in the State of Texas.

5.Representations and Warranties. In order to induce Lender to execute this Amendment, Borrower represents and warrants as follows:

(a)This Amendment, and any other documents and instruments required to be executed and delivered by Borrower in connection herewith, when executed and delivered, will constitute the duly authorized, valid and legally binding obligations of Borrower, and will be enforceable in accordance with their respective terms, subject only to bankruptcy and insolvency laws of general applicability and the application of general principles of equity.

(b)The execution, delivery and performance of this Amendment will not: (i) violate any laws or (ii) conflict with, be inconsistent with, or result in any breach or default of any of the terms, covenants, conditions, or provisions of any indenture, mortgage, deed of trust, corporate charter or bylaws, instrument, document, agreement or contract of any kind to which Borrower is a party or by which Borrower may be bound.

(c)To Borrower’s knowledge, Borrower is not in default (beyond applicable grace or cure periods) under any contract or agreement to which Borrower is a party, the effect of which default will materially

2

adversely affect the performance by Borrower of its representative obligations pursuant to and as contemplated by the terms and provisions of this Amendment.

(d)Borrower hereby represents and warrants that as of the date hereof, Borrower has no defenses, claims, offsets or setoffs with regard to the enforcement of the Loan Documents as modified hereby.

6.Miscellaneous.

(a)Borrower agrees that the Loan Agreement, the Note and each other Loan Document, as amended by this Amendment, remain in full force and effect in accordance with the previously existing terms thereof, as amended by this Amendment, and such documents and instruments are hereby ratified and confirmed.

(b)This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

(c)This Amendment shall be construed in accordance with and governed by the internal laws of the State of New York, except that the creation, perfection and enforcement of the Liens and security interests created pursuant to the Mortgage shall be governed and construed according to the law of the state of Texas, it being understood that to the fullest extent permitted by the laws of Texas, the law of the State of New York shall govern the Loan Agreement, the Notes and the other Loan Documents as set forth in Section 11.8 of the Loan Agreement.

(d)The parties hereto expressly acknowledge and agree that this Amendment shall not be construed as a novation of the Note, the Mortgage or any other Loan Document.

(e)All of the Mortgaged Property shall remain in all respects subject to the lien, charge and encumbrance of the Mortgage, as herein modified, and nothing herein contained and nothing done pursuant hereto, shall affect the lien, charge or encumbrance of the Mortgage, as herein modified, or the priority thereof with respect to other liens, charges, encumbrances or conveyances, or release or affect the liability of any part or parties whomsoever, who may now or hereafter be liable under, or on account of, the Loan Documents.

(f)The execution and delivery of this Amendment does not constitute a waiver of any default under the Note, Mortgage or any of the other Loan Documents; provided, however, that Lender hereby acknowledges that it is not aware of any defaults under the Loan Documents.

(g)Time is hereby declared to be of the essence of this Amendment and of every part hereof.

[Signatures Follow on the Next Page]

3

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.

BORROWER:

LEX-GEN WOODLANDS, L.P., a Delaware limited partnership

By: Lex-Gen Woodlands GP, LLC, a Delaware limited liability company, its sole general partner

By:____________________________

Name:____________________________

Title:____________________________

LENDER:

SFI BELMONT LLC, a Delaware limited liability

company

By:____________________________

Name:____________________________

Title:____________________________

4

CONSENT OF GUARANTOR

The undersigned, being the “Guarantor” under the Guaranty, hereby consents to the foregoing Amendment to Loan and Security Agreement and to Other Loan Documents. The undersigned agrees that the Guaranty is and shall remain in full force and effect, that as of the date hereof (i) the Guaranty is ratified and confirmed hereby, (ii) no defenses or offsets exist to the enforcement thereof, and (iii) Guarantor has no Claims against Lender with respect thereto. All capitalized terms used in this Consent of Guarantor shall have the meaning ascribed to such terms in the Amendment to which this Consent of Guarantor is attached.

LEXICON PHARMACEUTICALS, INC.

(formerly known as Lexicon Genetics

Incorporated), a Delaware corporation

By:____________________________

Name:____________________________

Title:____________________________

5

Exhibit A

Legal Description

TRACT 1

METES AND BOUNDS DESCRIPTION

12.359 ACRES

HENRY APPLEWHITE SURVEY, ABSTRACT NUMBER 51

JOHN TAYLOR SURVEY, ABSTRACT NUMBER 547

MONTGOMERY COUNTY, TEXAS

Being a tract or parcel containing 12.359 acres of land situated in the Henry Applewhite Survey, Abstract Number 51 and the John Taylor Survey, Abstract Number 547, Montgomery County, Texas; being all of Restricted Reserve "A" (called 12.359 acres), The Woodlands Medical Research Park, Section 9, a subdivision plat recorded in Cabinet O, Sheet 180 Montgomery County Map Records (M.C.M.R.), Montgomery County, Texas; said 12.359 acre tract being more particularly described as follows (bearings are referenced to the record information contained in the above described subdivision plat);

BEGINNING at a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set marking the south end of a 25-foot cut-back line at the intersection of the northeasterly right-of-way (R.O.W.) line of Research Forest Drive (160-foot wide R.O.W.) with the southeasterly R.O.W. line of Technology Forest Place (width varies), said iron rod marking the most southerly west corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 01°27'36" West, along said southeasterly R.O.W. line of Technology Forest Place, along said cut-back line and along the west line of said Restricted Reserve "A", a distance of 35.36 feet to a 5/8-inch iron rod with cap found marking the north end of said 25-foot cut-back line and marking the most northerly west corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 43°32'24" East, continuing along said southeasterly R.O.W. line of Technology Forest Place and along the northwesterly line of said Restricted Reserve "A", a distance of 1,060.00 feet to a 5/8-inch iron rod with cap found marking the west end of a 25-foot cut-back line and marking the most westerly north corner of said Restricted Reserve "A" and the herein described tract;

THENCE, North 88°32'24" East, continuing along said southeasterly R.O.W. line, along said cutback line and along the north line of said Restricted Reserve "A", a distance of 35.36 feet to a 5/8-inch iron rod with cap found marking the east end of said cut-back line and marking the intersection of said southeasterly R.O.W. line of Technology Forest Place with the southwesterly R.O.W. line of New Trails Drive (80-foot wide R.O.W.), said iron rod marking the most easterly north corner of said Restricted Reserve "A" and the herein described tract;

THENCE, South 46°27'36" East, along said southwesterly R.O.W. line of New Trails Drive and along the northeasterly line of said Restricted Reserve "A", a distance of 460.59 feet to a 5/8-inch iron rod with cap found marking the most northerly corner of Restricted Reserve "A", Medical Research Park, Section 4, a subdivision plat recorded in Cabinet G, Sheet 51A, M.C.M.R., said iron rod marking the most easterly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and the herein described tract;

THENCE, South 43°32'24" West, departing said southwesterly R.O.W. line of New Trails Drive, along the northwesterly line of said Restricted Reserve "A", Medical Research Park, Section 4, and along the

A-1

southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9, at a distance of 742.00 feet passing a 5/8-inch iron rod with cap found marking the most northerly corner of Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, a subdivision plat recorded in Cabinet E, Sheet 163B and 164A M.C.M.R. and marking the most westerly corner of said Section 4, continuing along southeasterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and along the northwesterly line of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1, in all, a distance of 1,110.00 feet to a 5/8-inch iron rod with plastic cap stamped "Terra Surveying" set in the aforesaid northeasterly R.O.W. line of Research Forest Drive, marking the most westerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 1 and marking the most southerly corner of said Restricted Reserve "A", The Woodlands Medical Research Park, Section 9 and the herein described tract;

THENCE, North 46°27'36" West, along said northeasterly R.O.W. line of Research Forest Drive and along the southwesterly line of said Restricted Reserve "A", a distance of 460.59 feet to the POINT OF BEGINNING and containing 12.359 acres (538,380 square feet) of land. This description is based on the ALTA/ACSM Land Title Survey and plat made by Terra Surveying Co., dated April, 2003, updated April 2004, Project Number 1851-0316-S.

TRACT 3

A non-exclusive easement for vehicular and pedestrian ingress and egress created under the Reciprocal Easement Agreement by and between Woodlands Office Equities-’95 Limited and First Security Bank, National Association, not individually, but solely as Owner Trustee under the Lexi Trust 2000-1 dated as of December 8, 2000, and recorded under the County Clerk’s File No. 2000-104008 and the Real Property Records of Montgomery County, Texas.

A-2

PROMISSORY NOTE

$34,000,000April 21, 2004

FOR VALUE RECEIVED, LEX-GEN WOODLANDS, L.P., a Delaware limited partnership (“Borrower”), promises to pay to iSTAR FINANCIAL, INC., a Maryland corporation (“Holder”), or order, at 1114 Avenue of the Americas, 27th Floor, New York, New York 10036, or at such other place as Holder may from time to time in writing designate, in lawful money of the United States of America, the principal sum of THIRTY FOUR MILLION AND NO/100 DOLLARS ($34,000,000.00) or such other sum as may be the total amount outstanding pursuant to this Note (the “Loan”), payable at such rates and at such times as are provided in the “Loan Agreement” (as hereinafter defined).

Payments of both principal and interest are to be made in lawful money of the United States of America.

This Promissory Note (this “Note”) evidences Indebtedness incurred under, and is subject to the terms and provisions of, that certain Loan and Security Agreement of even date herewith, by and among the Borrower and the Holder (herein, as the same may be further amended, modified or supplemented from time to time, called the “Loan Agreement”). The Loan Agreement, to which reference is hereby made, sets forth said terms and provisions, including those under which this Note may or must be paid prior to its due date or may have its due date accelerated or extended. The Loan Agreement also contains provisions for the payment of late charges and interest at the Default Rate, all as more specifically set forth therein. Repayment of the Indebtedness evidenced by this Note is secured by the Mortgage and the other Loan Documents referred to in the Loan Agreement, and reference is made thereto for a statement of terms and provisions.

Terms used but not otherwise defined herein are used herein as defined in the Loan Agreement.

This Note may only be prepaid in whole or in part in accordance with the terms of Section 2.4 of the Loan Agreement (or as otherwise expressly provided elsewhere in the Loan Agreement or the other Loan Documents). Any payments of the outstanding principal balance of the Loan evidenced by this Note, whether voluntary or involuntary, shall be accompanied by interest accrued to the date of prepayment and the Prepayment Premium, to the extent, if any, provided in Section 2.4 of the Loan Agreement (except to the extent any other provision of the Loan Agreement expressly provides otherwise, including, without limitation, Section 2.2(C) of the Loan Agreement).

EXCEPT AS OTHERWISE EXPRESSLY PERMITTED IN THIS NOTE OR THE OTHER LOAN DOCUMENTS, BORROWER HEREBY EXPRESSLY (i) WAIVES ANY RIGHTS IT MAY HAVE UNDER LAW TO PREPAY THIS NOTE, IN WHOLE OR IN PART, WITHOUT PENALTY, UPON ACCELERATION OF THE MATURITY DATE, AND (ii) AGREES THAT IF, FOR ANY REASON, A PREPAYMENT OF ALL OR ANY PORTION OF THE PRINCIPAL AMOUNT OF THIS NOTE IS MADE, INCLUDING, WITHOUT LIMITATION, UPON OR FOLLOWING ANY ACCELERATION OF THE MATURITY DATE BY HOLDER ON ACCOUNT OF THE OCCURRENCE OF ANY EVENT OF DEFAULT, INCLUDING, WITHOUT LIMITATION, ANY TRANSFER, DISPOSITION, OR FURTHER ENCUMBRANCE PROHIBITED OR RESTRICTED BY THE LOAN AGREEMENT, THEN BORROWER SHALL BE OBLIGATED TO PAY CONCURRENTLY WITH SUCH PREPAYMENT THE PREPAYMENT PREMIUM TO THE EXTENT REQUIRED UNDER SECTION 2.4 OF THE LOAN AGREEMENT. BY INITIALING THIS PROVISION IN THE SPACE PROVIDED BELOW, BORROWER HEREBY DECLARES THAT (1) EACH OF THE MATTERS SET FORTH IN THIS PARAGRAPH IS TRUE AND CORRECT, (2) HOLDER’S AGREEMENT TO MAKE THE LOAN EVIDENCED BY THIS

1

NOTE AT THE INTEREST RATES SET FORTH IN THE LOAN AGREEMENT AND FOR THE TERM SET FORTH IN THIS NOTE CONSTITUTES ADEQUATE CONSIDERATION FOR THIS WAIVER AND AGREEMENT, AND HAS BEEN GIVEN INDIVIDUAL WEIGHT BY BORROWER AND HOLDER, (3) BORROWER IS A SOPHISTICATED AND KNOWLEDGE-ABLE REAL ESTATE INVESTOR WITH COMPETENT AND INDEPENDENT LEGAL COUNSEL, AND (4) BORROWER FULLY UNDERSTANDS THE EFFECT OF THIS WAIVER AND AGREEMENT.

On behalf of the Borrower

The remedies of Holder, as provided in this Note, the Loan Agreement and the other Loan Documents, shall be cumulative and concurrent and may be pursued singularly, successively or together, at the sole discretion of Holder, and may be exercised as often as occasion therefor shall occur; and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof. In any action, sale of collateral, or other proceedings to enforce this Note, the Loan Agreement or any other Loan Document, Holder need not file or produce the original of this Note, but only need file or produce a photocopy of this Note certified by Holder to be a true and correct copy of this Note.

In the event of any dispute, action or lawsuit regarding the terms hereof, subject to the provisions of the Loan Agreement, the prevailing party will have the right to recover from the other party all court costs and reasonable attorneys’ fees and disbursements incurred with respect thereto, in addition to all other applicable damages and costs.

BORROWER WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, DILIGENCE, PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF DEMAND, NOTICE OF PROTEST, NOTICE OF NONPAYMENT OR DISHONOR, NOTICE OF INTENTION TO ACCELERATE, NOTICE OF ACCELERATION, PROTEST AND NOTICE OF PROTEST OF THIS NOTE, AND ALL OTHER NOTICES (OTHER THAN AS EXPRESSLY PROVIDED IN THE LOAN AGREEMENT OR OTHER LOAN DOCUMENTS) IN CONNECTION WITH THE DELIVERY, ACCEPTANCE, PERFORMANCE, DEFAULT OR ENFORCEMENT OF THE PAYMENT OF THIS NOTE. BORROWER FURTHER WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ALL VALUATION AND APPRAISEMENT PRIVILEGES, CLAIMS OF LACK OF DILIGENCE OR DELAYS IN COLLECTION OR ENFORCEMENT OF THIS NOTE, THE RELEASE OF ANY PARTY LIABLE, THE RELEASE OF ANY SECURITY FOR THE DEBT, THE TAKING OF ANY ADDITIONAL SECURITY AND ANY OTHER INDULGENCE OF FORBEARANCE.

Holder shall not be deemed, by any act of omission or commission, to have waived any of its rights or remedies hereunder unless such waiver is in writing and signed by Holder, and then only to the extent specifically set forth in the writing. The acceptance by Holder of any payment hereunder which is less than payment in full of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the foregoing options at that time or at any subsequent time or nullify any prior exercise of any such option without the express consent of Holder, except as and to the extent otherwise provided by law. A waiver with reference to one event shall not be construed as continuing or as a bar to or waiver of any right or remedy as to a subsequent event.

PURSUANT TO SECTION 5‑1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BORROWER AND ANY GUARANTOR OF THIS NOTE AGREE THAT THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERE-UNDER SHALL BE GOVERNED

2

AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE LAWS OF THE STATE OF NEW YORK.

Whenever used, the singular number shall include the plural, the plural shall include the singular, and the words “Holder” and “Borrower” shall be deemed to include their respective heirs, executors, successors and assigns.

All notices which Holder or Borrower may be required or permitted to give hereunder shall be made in the same manner as set forth in Section 11.5 of the Loan Agreement.

In the event any one or more of the provisions hereof shall be invalid, illegal or unenforceable in any respect, the validity of the remaining provisions hereof shall be in no way affected, prejudiced or disturbed thereby.

Borrower acknowledges that Holder may, in its sole discretion, sell all or any part of its interest in the Loan evidenced by this Note, including, without limitation, for purposes of effecting a Securitization.

Notwithstanding anything to the contrary contained in this Note or any other Loan Documents, to the fullest extent permitted by applicable law, the Holder’s rights hereunder shall be reinstated and revived, and the enforceability of this Note and the other Loan Documents shall continue, with respect to any amount at any time paid on account of the Loan which thereafter shall be required to be restored by Holder pursuant to a court order or judgment (whether or not final or non-appealable), as though such amount had not been paid. The rights of Holder created or granted herein and the enforceability of the Loan Documents at all times shall, to the fullest extent permitted by applicable law, remain effective to cover the full amount of the Loan even though the Loan, including any part thereof or any other security or guaranty therefor, may be or hereafter may become invalid or otherwise unenforceable as against any other party and whether or not any other party shall have any personal liability with respect thereto.

Borrower and Holder, by acceptance of this Note, hereby agree that the Loan Documents supersede any prior oral or written agreements of the parties; without limiting the generality of the foregoing, in the event of conflict between the terms of this Note and the terms of the Loan Agreement, the terms of the Loan Agreement shall prevail.

Time is of the essence for the performance of each and every covenant of the parties hereunder or under the other Loan Documents. No excuse, delay, act of God, or other reason, whether or not within the control of Borrower or Holder (as the case may be), shall operate to defer, reduce or waive Borrower’s or Holder’s (as the case may be) performance of any such covenant or obligation.

(END OF PAGE)

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IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has duly executed this Note the day and year first above written.

BORROWER:

LEX-GEN WOODLANDS, L.P., a Delaware limited partnership

By:Lex-Gen Woodlands GP, LLC, a

Delaware limited liability company

and its sole general partner

By:

Julia P. Gregory, Vice President

4

GUARANTY

THIS GUARANTY (this “Guaranty”), dated as of April 21, 2004, is made and entered into by LEXICON GENETICS INCORPORATED, a Delaware corporation (“Guarantor”), in favor of iSTAR FINANCIAL INC., a Maryland corporation (“Lender”), with an address for notice hereunder of 1114 Avenue of the Americas, 27^th Floor, New York, New York 10036.

WHEREAS, Lex-Gen Woodlands, L.P., a Delaware limited partnership (“Borrower”), and Lender have entered into a certain Loan and Security Agreement of even date herewith (as the same may be amended, modified, supplemented or restated from time to time, the “Loan Agreement”).

WHEREAS, Lender has required, as a condition to making the Loan and entering into and executing the Loan Agreement and the other Loan Documents, that Guarantor enter into this Guaranty.

WHEREAS, Guarantor directly or indirectly owns all of the ownership interests in the Borrower and will benefit from the making of the Loan and the financial accommodations extended to Borrower pursuant to the Loan Agreement and the other Loan Documents.

NOW, THEREFORE, in consideration for the extension of credit and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, and to induce Lender to extend credit to Borrower, Guarantor does hereby unconditionally, absolutely and irrevocably guarantee to Lender, its successors and assigns, the due payment, fulfillment and performance of the “Guaranteed Obligations” (as hereinafter defined). Guarantor, hereby irrevocably and unconditionally covenants and agrees that it is liable for and shall pay, the Guaranteed Obligations as primary obligor, this Guaranty being upon the following terms and conditions:

1.Definitions. All capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Loan Agreement. As used herein, the term “Guaranteed Obligations” means the full, complete and punctual observance, performance, payment and satisfaction of all of the Borrower’s Obligations. The failure by Guarantor to pay or perform any Guaranteed Obligations, after expiration of any applicable notice and cure periods provided to Borrower, without duplication thereof, or any other covenant, agreement or obligation of Guarantor under this Guaranty or the inaccuracy when made, or deemed made, of any representations, certifications and warranties of Guarantor in this Guaranty or in any certificate, agreement or document provided by, or on behalf of Guarantor, pursuant to this Guaranty or any of the other Loan Documents shall constitute an “Event of Default” for purposes of this Guaranty and the Loan Agreement.

2.Continuing Guaranty. This is an irrevocable, absolute, continuing guaranty of payment and performance. This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to the Guaranteed Obligations arising or created after any attempted revocation by Guarantor and after Guarantor’s dissolution (in which event this Guaranty shall be binding upon Guarantor’s successors and assigns). It is the intent of Guarantor that the obligations and liabilities of Guarantor hereunder are absolute and unconditional under any and all circumstances and that until the Guaranteed Obligations are fully, finally and indefeasibly satisfied, such obligations and liabilities shall not be discharged or released in whole or in part, by any act or occurrence which might, but for the provisions of this Guaranty, be deemed a legal or equitable discharge or release of Guarantor. Each and every default in payment of any amounts due or performance of any obligation required under this Guaranty shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises, or, in the discretion of Lender, may be brought as a consolidated suit or suits.

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3.Waivers.

(a)Guarantor hereby assents to all terms and agreements heretofore or hereafter made by Borrower with Lender, and, to the fullest extent permitted by applicable law, waives notice of:

(i)Any loans or advances made by Lender to Borrower under the Loan Documents;

(ii)The present existence or future incurring of any of the indebtedness pursuant to the Note or any future modifications thereof or any terms or amounts thereof or any Guaranteed Obligations or any terms or amounts thereof;

(iii)The obtaining or release of any guaranty or surety agreement (in addition to this Guaranty), pledge, assignment, or other security for any of the indebtedness evidenced by the Note, or any Guaranteed Obligations; and

(iv)Notice of protest, default, notice of intent to accelerate and notice of acceleration in relation to any instrument relating to the indebtedness evidenced by the Note or any Guaranteed Obligations.

(b)Guarantor hereby waives, to the fullest extent permitted by applicable law, any rights and defenses which such Guarantor might have as a result of any representation, warranty or statement made by Lender or its agents to such Guarantor in order to induce Guarantor to execute this Guaranty.

(c)Regardless of whether Guarantor may have made any payments to Lender, until the Loan is indefeasibly paid in full and except as set forth in Section 10 hereof, Guarantor hereby waives, to the fullest extent permitted by applicable law: (i) all rights of subrogation, indemnification, contribution and any other rights to collect reimbursement from Borrower or any other party for any sums paid to Lender, whether contractual or arising by operation of law (including the United States Bankruptcy Code or any successor or similar statute) or otherwise, (ii) all rights to enforce any remedy that Lender may have against Borrower, and (iii) all rights to participate in any security now or later to be held by Lender for the Loan.

(d)Guarantor further waives, to the fullest extent permitted by applicable law, any defense to the recovery by Lender against Guarantor of any deficiency or otherwise to the enforcement of this Guaranty or any security for this Guaranty based upon Lender’s election of any remedy against Guarantor or Borrower, including the defense to enforcement of this Guaranty by virtue of any “anti-deficiency” statutes and their application following a non-judicial foreclosure sale.

4.Events and Circumstances Not Reducing or Discharging Guarantor’s Obligations. Guarantor hereby consents and agrees to each of the following, and agrees that Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives, to the fullest extent permitted by applicable law, any rights and defenses (excluding the rights to notice, if any, as herein provided or as required by law) which Guarantor might have otherwise as a result of or in connection with any of the following:

(a)any and all extensions, modifications, adjustments, indulgences, forbearances or compromises that might be granted or given by Lender to Borrower, including, without limitation, any and all amendments, modifications, supplements, extensions or restatements of any of the Loan Documents;

(b)the insolvency, bankruptcy, rearrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower or any other party at any time liable for the payment of all or part of the indebtedness evidenced by the Note or any Guaranteed Obligations; or any dissolution,

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consolidation or merger of Borrower or Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any changes in the ownership, partners or members of Borrower or Guarantor;

(c)the invalidity, illegality or unenforceability of all or any part of the indebtedness evidenced by the Note or any Guaranteed Obligations, or any document or agreement executed in connection with the indebtedness evidenced by the Note or any Guaranteed Obligations, for any reason whatsoever, including, without limitation, the fact that the indebtedness evidenced by the Note, or any part thereof exceeds the amount permitted by law, the act of creating the indebtedness evidenced by the Note or any Guaranteed Obligations or any part thereof is ultravires, the representatives executing the Note or the other Loan Documents or otherwise creating the indebtedness evidenced by the Note or any Guaranteed Obligations acted in excess of their authority, the indebtedness evidenced by the Note violates applicable usury laws, Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the indebtedness evidenced by the Note or any Guaranteed Obligations wholly or partially uncollectible from Borrower, the creation, performance or repayment of the indebtedness evidenced by the Note or any Guaranteed Obligations is illegal, uncollectible, legally impossible or unenforceable, or any of the other Loan Documents pertaining to the indebtedness evidenced by the Note or any Guaranteed Obligations are irregular or not genuine or authentic; provided, however, the foregoing shall not prohibit Guarantor from (i) asserting a defense of performance, (ii) asserting a compulsory counterclaim on an action brought under this Guaranty, or (iii) subject to the remaining terms of the Loan Documents, bringing a separate action against Lender for breaches of Lender’s obligations under the Loan Documents;

(d)the taking or accepting of any other security, collateral or guaranty, or other assurance of the payment, for all or any of the indebtedness evidenced by the Note or any Guaranteed Obligations;

(e)any release, surrender or exchange of any collateral, property or security, at any time existing in connection with, or assuring or securing payment of, all or any part of the indebtedness evidenced by the Note or the Guaranteed Obligations;

(f)the failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security;

(g)the fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the indebtedness evidenced by the Note or Guaranteed Obligations shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the indebtedness evidenced by the Note or the Guaranteed Obligations; or

(h)any payment by Borrower to Lender is held to constitute a preference under the Bankruptcy Code, or for any reason Lender is required to refund such payment or pay such amounts to such Borrower, or any other Person.

It is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay and perform the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, except for the full and final payment and satisfaction of all Guaranteed Obligations.

5.Payment by Guarantor. If the Guaranteed Obligations, or any part thereof, are not punctually paid or performed (following the expiration of any applicable notice and cure periods), as the case may be,

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Guarantor shall, immediately on demand and without protest or notice of protest, pay the amount due thereon to Lender, at its address set forth above or as otherwise designated by Lender. Such demand(s) may be made at any time coincident with or after the time for payment or performance of all or part of the Guaranteed Obligations. Such demand shall be deemed made if given in accordance with Section 18 hereof. It shall not be necessary for Lender, in order to enforce such payment or performance by Guarantor, first to institute suit or exhaust its remedies against Borrower, or others liable to pay or perform such Guaranteed Obligations, or to enforce its rights against any security which shall ever have been given to secure the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the indebtedness evidenced by the Note or Guaranteed Obligations.

6.Indebtedness or Other Obligations of Guarantor. If Guarantor is or becomes liable for any indebtedness owed by Borrower to Lender by endorsement or otherwise than under this Guaranty, such liability shall not be in any manner impaired or affected by this Guaranty, and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against Guarantor. The exercise by Lender of any right or remedy hereunder or under any other instrument or at law or in equity shall not preclude the concurrent or subsequent exercise of any other instrument or remedy at law or in equity and shall not preclude the concurrent or subsequent exercise of any other right or remedy. Further, without in any way diminishing or limiting the generality of the foregoing, it is specifically understood and agreed that this Guaranty is given by Guarantor as an additional guaranty to any and all guarantees hereafter executed and delivered to Lender by Guarantor in favor of Lender relating to the indebtedness and obligations of Borrower to Lender, and nothing herein shall ever be deemed to replace or be in lieu of any other of such previous or subsequent guarantees.

7.Application of Payments. If, at any time, there is any indebtedness or obligations (or any portion thereof) of Borrower to Lender which is not guaranteed by Guarantor, Lender, without in any manner impairing its rights hereunder, may, at its option, apply all amounts realized by Lender from collateral or security held by Lender first to the payment of such unguaranteed indebtedness or obligations, with the remaining amounts, if any, to then be applied to the payment of the indebtedness or obligations guaranteed by Guarantor.

8.Suits, Releases of Settlements with Others. Guarantor agrees that Lender, in its sole discretion, may bring suit against any other guarantor without impairing the rights of Lender or its successors and assigns against Guarantor or any other guarantor of the Guaranteed Obligations; and Lender may settle or compromise with such other guarantor for such sum or sums as Lender may see fit and release such other guarantor from all further liability to Lender, all without impairing its rights against Guarantor.

9.Warranties, Representations and Covenants.

(a)Guarantor warrants and represents, as follows:

(i)Guarantor has received, or will receive, direct or indirect benefit from the making of this Guaranty, the making of the Loan and the entering into and execution of the Loan Agreement and the Loan Documents in connection therewith;

(ii)Guarantor is familiar with, and has independently reviewed the financial condition of the Borrower and is familiar with the value of any and all collateral intended to be created as security for the payment and performance of the indebtedness evidenced by the Note and the Guaranteed Obligations, and Guarantor assumes full responsibility for keeping fully informed as to such matters in the future; however, Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty; and

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(iii)All financial statements concerning Guarantor which have been or will hereafter be furnished by Guarantor or Borrower to Lender pursuant to the Loan Documents, have been or will be prepared in accordance with GAAP consistently applied (except as disclosed therein, to the extent Lender approves such disclosure; provided that Lender’s approval shall not be required so long as (a) Guarantor is a reporting company under the Exchange Act, and (b) Guarantor’s financial statements are audited by a so-called “Big-4” accounting firm) and, in all material respects, present fairly the financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended.

(iv)No ERISA Affiliate of Guarantor maintains or contributes to, or has any obligation under, any Employee Benefit Plans. Guarantor is not an “employee benefit plan” (within the meaning of section 3(3) of ERISA) to which ERISA applies and Guarantor’s assets do not constitute plan assets. No actions, suits or claims under any laws and regulations promulgated pursuant to ERISA are pending or, to Guarantor’s knowledge, threatened against Guarantor. Guarantor has no knowledge of any material liability incurred by Guarantor which remains unsatisfied for any taxes or penalties with respect to any employee benefit plan or any Multiemployer Plan, or of any lien which has been imposed on Guarantor’s assets pursuant to section 412 of the Code or sections 302 or 4068 of ERISA. The Loan, the execution, delivery and performance of the Loan Documents and the transactions contemplated by this Guaranty do not constitute a non-exempt prohibited transaction under ERISA or the Code. Guarantor is an “operating company” as defined in ERISA.

(v)As of the date hereof, and after giving effect to this Guaranty and the contingent obligations evidenced hereby, Guarantor is and expects to be solvent at all times, and has and expects to have assets at all times which, fairly valued, exceed his or its obligations, liabilities and debts, and has and expects to have property and assets at all times sufficient to satisfy and repay its obligations and liabilities.

(b)Guarantor covenants and agrees that, for so long as this Guaranty remains in effect, Guarantor shall not liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution).

10.Subordination. If, for any reason Borrower is now or hereafter becomes indebted to Guarantor (such indebtedness and all interest thereon being referred to as the “Affiliated Debt”), such Affiliated Debt shall, at all times, be subordinate in all respects to the full payment and performance of the obligations evidenced by the Note, and Guarantor shall not be entitled to enforce or receive payment thereof until all of the obligations evidenced by the Note have been fully paid. Guarantor agrees that any liens, mortgages, deeds of trust, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Affiliated Debt shall be and remain subordinate and inferior to any liens, security interests, judgment liens, charge or other encumbrances upon Borrower’s assets securing the payment of the obligations evidenced by the Note and Guaranteed Obligations, and without the prior written consent of Lender, Guarantor shall not exercise or enforce any creditor’s rights of any nature against Borrower to collect the Affiliated Debt (other than demand payment therefor). In the event of the receivership, bankruptcy, reorganization, arrangement, debtor’s relief or other insolvency proceedings involving Borrower as a debtor, to the fullest extent permitted by law, Lender shall have the right and authority, either in its own name or as attorney-in-fact for Guarantor, to file such proof of debt claim, petition or other documents and to take such other steps as are necessary to prove its rights hereunder.

11.Waiver of Subrogation. Notwithstanding any other provision of this Guaranty to the contrary, until the Loan is indefeasibly paid in full, Guarantor hereby waives any claim or other rights which Guarantor may now have or hereafter acquire against Borrower or any other guarantor of all or any of the obligations that arise from the existence or performance of Guarantor’s obligations under this Guaranty (all such claims and rights are referred to as “Guarantor’s Conditional Rights”), including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, or indemnification, any right to participate in any

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claim or remedy of Lender against Borrower or any security or collateral which Lender now has or hereafter acquires, whether or not such claim, remedy or right arises in equity or under contract, statute (including the Bankruptcy Code or any successor or similar statute) or common law, by any payment made hereunder or otherwise, including without limitation, the right to take or receive from Borrower, directly or indirectly, in cash or other property or by setoff or in any other manner, payment or security on account of such claim or other rights. If, notwithstanding the foregoing provisions, any amount shall be paid to Guarantor on account of Guarantor’s Conditional Rights and either (i) such amount is paid to Guarantor at any time when the Guaranteed Obligations shall not have been paid or performed in full, or (ii) regardless of when such amount is paid to Guarantor, any payment made by Borrower to Lender is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid by Lender or paid over to a trustee, receiver or any other entity, whether under any bankruptcy act or otherwise (such payment, a “Preferential Payment”), then such amount paid to Guarantor shall be held in trust for the benefit of Lender and shall forthwith be paid to Lender to be credited and applied upon the Guaranteed Obligations, whether matured or unmatured, in such order as Lender, in its sole and absolute discretion, shall determine. The foregoing waivers shall be effective until the Guaranteed Obligations have been paid and performed in full.

12.Impairment of Subrogation Rights; Waivers of Rights Under the Anti-Deficiency Rules.

(a)Guarantor agrees that upon the occurrence and during the continuance of an Event of Default under the Loan Documents, Lender in its sole discretion, without prior notice to or consent of Guarantor, may elect to (i) foreclose either nonjudicially or judicially against any real or personal property security (including, without limitation, the Mortgaged Property) it holds for the obligations evidenced by the Note or any Guaranteed Obligations, or any part thereof, (ii) accept any transfer or assignment of any such security in lieu of foreclosure, (iii) compromise or adjust any part of such obligations, or (iv) make any other accommodation with Borrower or Guarantor, or exercise any other remedy against Borrower or any collateral or security. No such action by Lender will release or limit the liability of Guarantor to Lender, who shall remain liable under this Guaranty after the action, even if the effect of that action is to deprive Guarantor of the right to collect reimbursement from Borrower or any other person for any sums paid to Lender or Guarantor’s rights of subrogation, contribution, or indemnity against Borrower or any other person. Without limiting the foregoing, it is understood and agreed that on any foreclosure or assignment in lieu of foreclosure of any collateral or security held by Lender, such security will no longer exist and that any right that Guarantor might otherwise have, on full payment of the Guaranteed Obligations by Guarantor to Lender, to participate in any such security or to be subrogated to any rights of Lender with respect to any such security will be nonexistent; nor shall Guarantor be deemed to have any right, title, interest or claim under any circumstances in or to any real or personal property held by Lender or any third party following any foreclosure or assignment in lieu of foreclosure of any such security.

(b)Guarantor understands and acknowledges that if Lender forecloses judicially or nonjudicially against any real property security for Borrower’s obligations, such foreclosure could impair or destroy any right or ability that Guarantor may have to seek reimbursement, contribution, or indemnification for any amounts paid by Guarantor under this Guaranty.

(c)Without limiting the foregoing, Guarantor waives, to the fullest extent permitted by applicable law, all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies, such as nonjudicial foreclosure with respect to security for a guaranteed obligation, may adversely affect Guarantor’s rights of subrogation and reimbursement against Borrower.

(d)Guarantor intentionally, freely, irrevocably and unconditionally waives and relinquishes, to the fullest extent permitted by applicable law, all rights which may be available to it under any provision of applicable law to limit the amount of any deficiency judgment or other judgment which may be obtained against Guarantor under this Guaranty to not more than the amount by which the unpaid

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Guaranteed Obligations plus all other indebtedness due from Borrower under the Loan Documents exceeds the fair market value or fair value of any real or personal property securing said obligations and any other indebtedness due from Borrower under the Loan Documents, including, without limitation, all rights to an appraisement of, judicial or other hearing on, or other determination of the value of said property. Guarantor acknowledges and agrees that, as a result of the foregoing waiver, Lender may be entitled to recover from Guarantor an amount which, when combined with the value of any real or personal property foreclosed upon by Lender (or the proceeds of the sale of which have been received by Lender) and any sums collected by Lender from Borrower or other Persons, might exceed the amount of the Guaranteed Obligations plus all other indebtedness due from Borrower under the Loan Documents.

(e)Guarantor understands and agrees that Lender may have the ability to pursue Guarantor for a judgment on the Guaranteed Obligations without having first foreclosed on the real property security for such Guaranteed Obligations, that Lender may have the ability to sue Guarantor for a deficiency judgment on the Guaranteed Obligations after a non-judicial foreclosure sale or, regardless of any election of remedies by Lender, if the Guaranteed Obligations or any of the other indebtedness of Borrower to Lender under the Loan Documents is considered to have been provided by a vendor to a buyer and to evidence part of the purchase price for the real property security, and that Lender may be able to recover from Borrower an amount which, when combined with the fair market value of the property acquired by Lender in a foreclosure sale or the proceeds of the foreclosure sale received by Lender, might exceed the amount of the Guaranteed Obligations due and owing by Guarantor and the amounts payable under the Loan Documents.

(f)Without limiting any of the other waivers and provisions set forth in this Guaranty, Guarantor waives all rights and defenses that Guarantor may have because Borrower’s debt is secured by real property; this means, among other things: (a) Lender may collect from Guarantor without first foreclosing on any real or personal property collateral pledged by Borrower; (b) the amount of the Guaranteed Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price; (c) Lender may collect from Guarantor even if Lender, by foreclosing on the real property collateral, has destroyed any right Guarantor may have to collect from Borrower. This is an unconditional and irrevocable waiver of any rights and defenses Guarantor may have because the indebtedness evidenced by the Note is secured by real property.

Notwithstanding the foregoing or any provisions of Section 12(a) hereof, nothing contained in this Guaranty shall in any way be deemed to imply that any other state’s law other than the law of the State of New York shall govern this Guaranty or any of the Loan Documents in any respect, except as expressly set forth therein, including with respect to the exercise of Lender’s remedies under the Loan Documents.

Notwithstanding any other provision herein to the contrary, upon the indefeasible payment in full of the Note, Guarantor shall have all rights of subrogation available at law or in equity.

13.Benefit. This Guaranty is for the benefit of Lender, its successors and assigns, and in the event of an assignment by Lender, its successors and assigns, of the obligations evidenced by the Note, or any part or parts thereof, the rights and benefits hereunder, to the extent applicable to the obligations so assigned, shall be transferred with such obligations.

14.No Release if Preference, Refund, Etc. In the event any payment by Borrower to Lender is determined to be a preferential payment under any applicable bankruptcy or insolvency laws, or if for any reason Lender is required to refund part or all of any payment or pay the amount thereof to any other party, such repayment by Lender to Borrower shall not constitute a release of Guarantor from any liability hereunder, and Guarantor agrees to pay such amount to Lender upon demand to the extent such amount constitutes a Guaranteed Obligation.

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15.Right of Set-Off. In addition to any other rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon Guarantor’s failure to pay the Guaranteed Obligations, after demand by Lender, Lender is hereby authorized at any time and from time to time, without notice to Guarantor or to any other person, to set off and to appropriate and to apply any and all deposits (general or special) and any other indebtedness at any time held or owing by Lender to or for the credit or the account of Guarantor against or on account of the obligations evidenced by the Note.

16.Consent to Use of Logo. Guarantor hereby consents to the use by Lender of Guarantor’s logo, solely for the purpose specified, and in accordance with the terms and conditions set forth, in Section 11.12 of the Loan Agreement.

17.GOVERNING LAW. PURSUANT TO SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, GUARANTOR AGREES THAT THIS GUARANTY AND ALL RIGHTS, OBLIGATIONS AND LIABILITIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

18.Notices. Unless otherwise specifically provided herein, any notice or other communication required or permitted to be given shall be in writing addressed to the respective party as set forth below and may be personally served, telecopied (with request for confirmation) or sent by overnight courier service or United States registered mail return receipt requested, postage prepaid. Any notice so given shall be deemed effective upon delivery or on refusal or failure of delivery during normal business hours. Notices shall be addressed to the parties at the following addresses or to such other address as the party addressed shall have previously designated by written notice to the serving party, given in accordance with this Section 18.

If to Guarantor: Lexicon Genetics Incorporated

8800 Technology Forest Place

The Woodlands, Texas 77381-1160

Attn: General Counsel

Telephone: 281-863-3000

Facsimile: 281-863-8010

With a copy to: Andrews Kurth LLP

600 Travis, Suite 4200

Houston, Texas 77002

Attn: Michael A. Boyd, Esq.

Telephone: 713-220-3921

Facsimile: 713-238-7138

If to Lender: iStar Financial Inc.

1114 Avenue of the Americas, 27^th Floor

New York, New York 10036

Attn: Chief Operating Officer

Telephone: 212-930-9400

Facsimile: 212-930-9494

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With a copy to: iStar Financial Inc.

1114 Avenue of the Americas, 27^th Floor

New York, New York 10036

Attn: Nina B. Matis, Esq./General Counsel

Telephone: 212-930-9406

Facsimile: 212-930-9492

With a copy to: iStar Asset Services Inc.

180 Glastonbury Boulevard, Suite 201

Glastonbury, Connecticut 06033

Attn: President

Telephone: 860-815-5900

Facsimile: 860-815-5901

With a copy to: Katten Muchin Zavis Rosenman

525 West Monroe Street, Suite 1600

Chicago, Illinois 60661-3693

Attn: Gregory P.L. Pierce, Esq.

208972-002289

Telephone: 312-902-5541

Facsimile: 312-902-1061

19.Consent of Jurisdiction/Service of Process. IN ACCORDANCE WITH SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH THIS GUARANTY AND THE OTHER LOAN DOCUMENTS, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS GUARANTY, THE NOTE, SUCH OTHER LOAN DOCUMENTS OR SUCH OBLIGATION. GUARANTOR ACKNOWLEDGES AND AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION, SUIT OR PROCEEDING WILL BE DEEMED EFFECTIVE. SERVICE OF PROCESS ON GUARANTOR IF PERSONALLY SERVED OR SERVED IN ACCORDANCE WITH SECTION 17 ABOVE OR AT SUCH OTHER ADDRESS AS SUCH GUARANTOR MAY HAVE FURNISHED AS TO ITSELF TO THE SERVING PARTY BY LIKE NOTICE, OR TO THE LAST KNOWN ADDRESS OF SUCH GUARANTOR PROVIDED THEREUNDER.

20.WAIVER OF JURY TRIAL. GUARANTOR AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION AND THE RELATIONSHIP THAT IS BEING ESTABLISHED. GUARANTOR AND LENDER ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF GUARANTOR OR LENDER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL‑ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL

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OTHER COMMON LAW AND STATUTORY CLAIMS. GUARANTOR AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS GUARANTY AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. GUARANTOR AND LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY, THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOAN. IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

21.Expenses. Guarantor agrees to fully and punctually pay all costs and expenses, including, without limitation, reasonable attorneys’ fees, court costs and costs of appeal, which Lender may incur in enforcing and collecting the Guaranteed Obligations.

[Remainder of Page Intentionally Left Blank;

Signature Page Follows]

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IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the day and year first above written.

GUARANTOR:

LEXICON GENETICS INCORPORATED, a Delaware corporation

By:

Julia P. Gregory, Chief Financial Officer and

Executive Vice President

11

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statements (Form S-8 Nos. 333-41532, 333-168678 and 333-183020) pertaining to the Equity Incentive Plan and to the Non-Employee Directors' Equity Incentive Plan of Lexicon Pharmaceuticals, Inc., and

(2) Registration Statement (Form S-3 No. 333-182859) of Lexicon Pharmaceuticals, Inc.

of our reports dated March 7, 2014, with respect to the consolidated financial statements of Lexicon Pharmaceuticals, Inc. and the effectiveness of internal control over financial reporting of Lexicon Pharmaceuticals, Inc., included in this annual report (Form 10-K) of Lexicon Pharmaceuticals, Inc. for the year ended December 31, 2013.

/s/ Ernst & Young LLP

Houston, Texas

March 7, 2014

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Arthur T. Sands, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Lexicon Pharmaceuticals, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions)
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 7, 2014

/s/ Arthur T. Sands

Arthur T. Sands, M.D., Ph.D.

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Jeffrey L. Wade, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Lexicon Pharmaceuticals, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 7, 2014

/s/ Jeffrey L. Wade

Jeffrey L. Wade

Executive Vice President, Corporate Development and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350, as adopted), Arthur T. Sands, M.D., Ph.D., Principal Executive Officer of Lexicon Pharmaceuticals, Inc. (“Lexicon”), and Jeffrey L. Wade, Principal Financial Officer of Lexicon, each hereby certify that:

1.	Lexicon's Annual Report on Form 10-K for the year ended December 31, 2013, and to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, and
2.	The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Lexicon.

IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 7th day of March, 2014.

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

By:	/s/ Jeffrey L. Wade
	Jeffrey L. Wade Executive Vice President, Corporate Development and Chief Financial Officer

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Summary of Significant Accounting Policies Stock-based Compensation (Details 2) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013
Employee Service Share-based Compensation, Allocation of Recognized Period Costs
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	$ 11.7
Employee Service Share-based Compensation, Outstanding, Weighted Average Remaining Vesting Period	1 year 4 months

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Other Capital Stock Agreements (Details) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended
	Oct. 31, 2012
Schedule of Capitalization, Equity
Stock Issued During Period, Shares, New Issues	17,500,000
Offering Price Per Share	$ 2.25
Net Proceeds From Stock Offering	$ 37.1
Payments of Underwriting Discounts and Commissions	2.0
Payments of Stock Issuance Costs	$ 0.2
Stock Issued During Period to Invus, Shares	3,000,000

XML

Debt Obligations (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Debt Instrument
Long-term Debt, Maturities, Repayments of Principal in Next Twelve Months	$ 1,710
Long-term Debt, Maturities, Repayments of Principal in Year Two	1,859
Long-term Debt, Maturities, Repayments of Principal in Year Three	2,015
Long-term Debt, Maturities, Repayments of Principal in Year Four	16,293
Long-term Debt, Gross	21,877
Long-term Debt, Current Maturities	1,710	1,574
Long-term Debt, Excluding Current Maturities	$ 20,167	$ 21,877

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Equity Incentive Awards (Details 1) (USD $)	12 Months Ended
	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award
Stock Option Exercise Price as Percent of Value of Common Stock	100.00%
Restricted Stock Purchase Price as Percent of Value of Common Stock	85.00%
Total Shares That May be Issued, Equity Incentive Plan	50,000,000
Limit On Shares That May Be Issued Other Than Stock Options or SARs, Equity Incentive Plan	15,000,000
Options Outstanding, Equity Incentive Plan	22,342,175
Restricted Stock Units Outstanding, Equity Incentive Plan	4,241,869
Stock Options Exercised, Equity Incentive Plan	5,659,265
Shares Issued Pursuant to Restricted Stock Units, Equity Incentive Plan	1,839,850
Shares Issued Pursuant to Stock Bonus Awards, Equity Incentive Plan	740,300
Directors Intial Option Grant	30,000
Directors Annual Option Grant	20,000
Directors Annual Restricted Stock Award Value	$ 20,000
Total Shares That May Be Issued, Non-Employee Directors Equity Incentive Plan	1,500,000
Options Outstanding, Non-Employee Directors Equity Incentive Plan	964,000
Stock Options Exercised, Non-Employee Directors Equity Incentive Plan	0
Shares Issued Pursuant to Restricted Stock Awards, Non-Employee Directors Equity Incentive Plan	174,920
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	27,548,044
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	15,537,621

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Income Taxes (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Other Tax Information
Document Period End Date	Dec. 31, 2013
Revision to Deferred Tax Assets	$ 13,800,000
Valuation Allowance, Deferred Tax Asset, Change in Amount	28,200,000
Operating Loss Carryforwards, Federal	665,300,000
Operating Loss Carryforwards, State	444,100,000
Income Tax Expense (Benefit)	$ 0	$ 0	$ 0

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Equity Incentive Awards (Tables)

12 Months Ended

Dec. 31, 2013

Equity Incentive Awards [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity

	2013				2012				2011
(in thousands, except exercise price data)	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at beginning of year	21,525		$	2.51	20,476		$	2.84	19,598		$	3.46
Granted	3,490		2.13		3,441		1.84		2,974		1.80
Exercised	(572	)	1.75		(636	)	1.66		(130	)	1.46
Expired	(950	)	3.98		(1,231	)	6.93		(1,662	)	8.50
Forfeited	(187	)	1.94		(525	)	1.78		(304	)	1.76
Outstanding at end of year	23,306		2.42		21,525		2.51		20,476		2.84
Exercisable at end of year	17,378		$	2.56	15,582		$	2.77	13,940		$	3.34

Schedule of Nonvested Restricted Stock Units Activity

	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2012	3,543		$	1.80
Granted	1,969		2.09
Vested	(992	)	1.80
Forfeited	(278	)	1.91
Nonvested at December 31, 2013	4,242		$	1.93

Schedule of Nonvested Performance-based Units Activity

	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2012	329		$	1.90
Vested	(329	)	1.90
Nonvested at December 31, 2013	—		$	—

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Equity Incentive Awards (Details 3) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award
Share-based Compensation Arrangement by Share-based Payment Award, Stock Bonus and Restricted Stock, Grants in Period	80,808	94,112	200,277
Share-based Compensation Arrangement by Share-based Payment Award, Stock Bonus and Restricted Stock, Grants in Period, Weighted Average Grant Date Fair Value	$ 1.98	$ 1.70	$ 1.81

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2013

Basis of Presentation [Abstract]

Consolidation, Policy

Basis of Presentation: The accompanying consolidated financial statements include the accounts of Lexicon and its wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.

Use of Estimates, Policy

Use of Estimates: The preparation of financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Cash and Cash Equivalents, Policy

Cash, Cash Equivalents and Short-Term Investments: Lexicon considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  As of December 31, 2013 and 2012, short-term investments consist of U.S. treasury bills and certificates of deposit. The certificates of deposits are classified as available-for-sale securities and are carried at fair value, based on quoted market prices of the securities.  The Company views its available-for-sale securities as available for use in current operations regardless of the stated maturity date of the security.  Unrealized gains and losses on such securities are reported as a separate component of stockholders’ equity.  Net realized gains and losses, interest and dividends are included in interest income.  The cost of securities sold is based on the specific identification method.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy

Restricted Cash and Investments:  Lexicon is required to maintain restricted cash or investments to collateralize standby letters of credit for the lease on its office and laboratory facilities in Hopewell, New Jersey (see Note 10).

Trade and Other Accounts Receivable, Policy

Accounts Receivable:  Lexicon records trade accounts receivable in the normal course of business related to the sale of products or services.   The allowance for doubtful accounts takes into consideration such factors as historical write-offs, the economic climate and other factors that could affect collectibility.  Write-offs are evaluated on a case by case basis.

Concentration Risk Disclosure

Concentration of Credit Risk: Lexicon's cash equivalents, investments and accounts receivable represent potential concentrations of credit risk. The Company attempts to minimize potential concentrations of risk in cash equivalents and investments by placing investments in high-quality financial instruments. The Company’s accounts receivable are unsecured and are concentrated in pharmaceutical and biotechnology companies located in the United States.  The Company has not experienced any significant credit losses to date.

Segment Reporting Disclosure

Segment Information and Significant Customers: Lexicon operates in one business segment, which primarily focuses on the discovery of the functions and pharmaceutical utility of genes and the use of those gene function discoveries in the discovery and development of pharmaceutical products for the treatment of human disease. Substantially all of the Company’s revenues have been derived from drug discovery alliances, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, technology licenses, subscriptions to its databases, government grants and contracts and compound library sales.

Property, Plant and Equipment, Policy

Property and Equipment: Property and equipment are carried at cost and depreciated using the straight-line method over the estimated useful life of the assets which ranges from three to 40 years.  Maintenance, repairs and minor replacements are charged to expense as incurred.  Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining lease term.  Significant renewals and betterments are capitalized.

Impairment or Disposal of Long-Lived Assets, Policy

Impairment of Long-Lived Assets:  Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.  In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values.

Goodwill and Intangible Assets, Policy

Goodwill Impairment:  Goodwill is not amortized, but is tested at least annually for impairment at the reporting unit level.  The Company has determined that the reporting unit is the single operating segment disclosed in its current financial statements. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.  The first step in the impairment process is to determine the fair value of the reporting unit and then compare it to the carrying value, including goodwill.  If the fair value exceeds the carrying value, no further action is required and no impairment loss is recognized.  Additional impairment assessments may be performed on an interim basis if the Company encounters events or changes in circumstances that would indicate that, more likely than not, the carrying value of goodwill has been impaired.

Revenue Recognition, Policy

Revenue Recognition: Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured.  Payments received in advance under these arrangements are recorded as deferred revenue until earned.  Revenues are earned from drug discovery and development collaborations, target validation collaborations, database subscriptions, technology licenses, and government grants and contracts.  Revenues generated from third parties under collaborative arrangements are recorded on a gross basis on the consolidated statements of comprehensive loss as Lexicon is the principal participant for these transactions for the purpose of accounting for these arrangements.

Upfront fees under drug discovery and development collaborations are recognized as revenue on a straight-line basis over the estimated period of service, generally the contractual research term, as this period is Lexicon’s best estimate of the period over which the services will be rendered, to the extent they are non-refundable.  Lexicon has determined that the level of effort it performs to meet its obligations is fairly constant throughout the estimated periods of service.  As a result, Lexicon has determined that it is appropriate to recognize revenue from such agreements on a straight-line basis, as management believes this reflects how the research is provided during the initial period of the agreement.  When it becomes probable that a collaborator will extend the research period, Lexicon adjusts the revenue recognition method as necessary based on the level of effort required under the agreement for the extension period.

Research funding under these alliances is recognized as services are performed to the extent they are non-refundable, either on a straight-line basis over the estimated service period, generally the contractual research term, or as contract research costs are incurred.  Milestone-based fees are recognized upon completion of specified milestones according to contract terms.  Payments received under target validation collaborations and government grants and contracts are recognized as revenue as Lexicon performs its obligations related to such research to the extent such fees are non-refundable.  Non-refundable technology license fees are recognized as revenue upon the grant of the license when performance is complete and there is no continuing involvement.

The Company analyzes its multiple element arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting.  An element of a contract can be accounted for separately if the delivered elements have standalone value to the collaborator and the fair value of any undelivered elements is determinable through objective and reliable evidence. If an element is considered to have standalone value but the fair value of any of the undelivered items cannot be determined, all elements of the arrangement are recognized as revenue over the period of performance for such undelivered items or services. 

Research and Development Expense, Policy

Research and Development Expenses: Research and development expenses consist of costs incurred for company-sponsored as well as collaborative research and development activities. These costs include direct and research-related overhead expenses and are expensed as incurred.  Technology license fees for technologies that are utilized in research and development and have no alternative future use are expensed when incurred. Substantial portions of the Company's preclinical and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to the Company by the vendors and clinical site visits. The Company's estimates depend on the timeliness and accuracy of the data provided by the vendors regarding the status of each program and total program spending. The Company periodically evaluates the estimates to determine if adjustments are necessary or appropriate based on information it receives.

Share-based Compensation, Option and Incentive Plans Policy

Stock-Based Compensation:  The Company recognizes compensation expense in its statements of comprehensive loss for share-based payments, including stock options and restricted stock units issued to employees, based on their fair values on the date of the grant, with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award.  Stock-based compensation expense for awards without performance conditions is recognized on a straight-line basis. Stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met.  As of December 31, 2013, stock-based compensation cost for all outstanding unvested options and restricted stock units was $11.7 million, which is expected to be recognized over a weighted-average period of 1.3 years.

The fair value of stock options is estimated at the date of grant using the Black-Scholes method.  The Black-Scholes option-pricing model requires the input of subjective assumptions.  Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.  For purposes of determining the fair value of stock options, the Company segregates its options into two homogeneous groups, based on exercise and post-vesting employment termination behaviors, resulting in a change in the assumptions used for expected option lives and forfeitures.  Expected volatility is based on the historical volatility in the Company’s stock price.

Earnings Per Share, Policy

Net Loss per Common Share: Net loss per common share is computed using the weighted average number of shares of common stock outstanding. Shares associated with stock options, restricted stock units and warrants are not included because they are antidilutive.

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Arrangements with Symphony Icon, Inc. (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Jul. 30, 2012	Jul. 30, 2010	Jun. 15, 2007
Loss Contingencies
Holdings Contribution To Icon						$ 45,000,000
Lexicon Sold Shares To Holdings						7,650,622
Lexicon Received Cash From Holdings						15,000,000
Lexicon Paid Holdings Cash					10,000,000
Symphony Fair Value Of Base And Contingent Payments					45,600,000
Symphony Base Payment Discount Rate					14.00%
Symphony Contingent Payment Discount Rate					18.00%
Symphony Base Payment In Shares				13,237,519
Symphony Base Payment Obligation				35,000,000
Symphony Contingent Payment Maximum					45,000,000
Symphony Contingent Payment Percentage					50.00%
Symphony Regulatory Approval Payment					15,000,000
Symphony Regulatory Approval Reduction Percentage					50.00%
Symphony Regulatory Approval Percentage Limit					50.00%
Symphony Payment In Stock Limitation					50.00%
Increase (decrease) in fair value of Symphony Icon, Inc. purchase liability	$ (2,210,000)	$ 9,887,000	$ 6,766,000

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Fair Value Measurements (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
Increase (decrease) in fair value of Symphony Icon, Inc. purchase liability	$ (2,210)	$ 9,887	$ 6,766
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Gain (Loss) Included in Earnings	(2,210)	9,887	6,766
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Settlements		(35,000)
Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value	$ 27,710	$ 29,920	$ 55,033	$ 48,267

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Summary of Significant Accounting Policies Segment Information and Signficant Customers (Details)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Revenue, Major Customer
Entity-Wide Revenue, McNair Medical Institute, Percentage	57.00%
Document Period End Date	Dec. 31, 2013
Entity-Wide Revenue, Taconic Farms, Percentage	33.00%	68.00%	46.00%
Entity-Wide Revenue, Deltagen, Percentage		25.00%
Entity-Wide Revenue, Texas AM Institute for Genomic Medicine, Percentage			20.00%
Entity-Wide Revenue, United States Army Medical Research Acquisition Activity, Percentage			20.00%

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Commitments and Contingencies (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Operating Leased Assets
Operating Leases, Future Minimum Payments Due, Next Twelve Months	$ 620
Operating Leases, Future Minimum Payments, Due in Two Years	1,043
Operating Leases, Future Minimum Payments, Due in Three Years	1,067
Operating Leases, Future Minimum Payments, Due in Four Years	1,093
Operating Leases, Future Minimum Payments, Due in Five Years	554
Operating Leases, Future Minimum Payments Due	$ 4,377

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Collaboration and License Agreements (Details) (USD $)	1 Months Ended	12 Months Ended
	Jul. 31, 2005	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Collaborative Arrangements and Non-collaborative Arrangement Transactions
TX Enterprise Fund Award	$ 35,000,000
TX Enterprise Fund Award to Texas AM University System	15,000,000
TIGM Per Job Payment Amount		2,415
TIGM Maximum Exposure		14,200,000
TIGM Maximum Exposure Through Reporting Date		1,500,000
Taconic Total Cash Received		7,500,000
Document Period End Date		Dec. 31, 2013
Taconic Revenue		$ 700,000	$ 700,000	$ 800,000

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Goodwill (Details) (USD $) In Millions, unless otherwise specified	Jul. 30, 2010	Jul. 12, 2001
Goodwill
Coelacanth Goodwill		$ 25.8
Coelacanth Purchase Price		36.0
Symphony Icon Goodwill	$ 18.7

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2013

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Basis of Presentation: The accompanying consolidated financial statements include the accounts of Lexicon and its wholly-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation.

Use of Estimates: The preparation of financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Cash, Cash Equivalents and Short-Term Investments: Lexicon considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  As of December 31, 2013 and 2012, short-term investments consist of U.S. treasury bills and certificates of deposit. The certificates of deposits are classified as available-for-sale securities and are carried at fair value, based on quoted market prices of the securities.  The Company views its available-for-sale securities as available for use in current operations regardless of the stated maturity date of the security.  Unrealized gains and losses on such securities are reported as a separate component of stockholders’ equity.  Net realized gains and losses, interest and dividends are included in interest income.  The cost of securities sold is based on the specific identification method.

Restricted Cash and Investments:  Lexicon is required to maintain restricted cash or investments to collateralize standby letters of credit for the lease on its office and laboratory facilities in Hopewell, New Jersey (see Note 10).  As of December 31, 2013 and 2012, restricted cash and investments were $0.4 million and $0.4 million, respectively.

Accounts Receivable:  Lexicon records trade accounts receivable in the normal course of business related to the sale of products or services.   The allowance for doubtful accounts takes into consideration such factors as historical write-offs, the economic climate and other factors that could affect collectibility.  Write-offs are evaluated on a case by case basis.

Concentration of Credit Risk: Lexicon's cash equivalents, investments and accounts receivable represent potential concentrations of credit risk. The Company attempts to minimize potential concentrations of risk in cash equivalents and investments by placing investments in high-quality financial instruments. The Company’s accounts receivable are unsecured and are concentrated in pharmaceutical and biotechnology companies located in the United States.  The Company has not experienced any significant credit losses to date.  In 2013, 2012 and 2011, customers in the United States represented 100%, 100% and 100% of revenue, respectively.  At December 31, 2013, management believes that the Company has no significant concentrations of credit risk.

Segment Information and Significant Customers: Lexicon operates in one business segment, which primarily focuses on the discovery of the functions and pharmaceutical utility of genes and the use of those gene function discoveries in the discovery and development of pharmaceutical products for the treatment of human disease. Substantially all of the Company’s revenues have been derived from drug discovery alliances, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, technology licenses, subscriptions to its databases, government grants and contracts and compound library sales. In 2013, McNair Medical Institute, LLC and Taconic Farms, Inc. represented 57% and 33% of revenues, respectively. In 2012, Taconic Farms and Deltagen represented 68% and 25% of revenues, respectively.  In 2011, Taconic Farms, Texas A&M Institute for Genomic Medicine and United States Army Medical Research Acquisition Activity represented 46%, 20% and 20% of revenues, respectively.    

Property and Equipment: Property and equipment are carried at cost and depreciated using the straight-line method over the estimated useful life of the assets which ranges from three to 40 years.  Maintenance, repairs and minor replacements are charged to expense as incurred.  Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining lease term.  Significant renewals and betterments are capitalized.

Impairment of Long-Lived Assets:  Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.  In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values.

Goodwill Impairment:  Goodwill is not amortized, but is tested at least annually for impairment at the reporting unit level.  The Company has determined that the reporting unit is the single operating segment disclosed in its current financial statements. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value.  The first step in the impairment process is to determine the fair value of the reporting unit and then compare it to the carrying value, including goodwill.  If the fair value exceeds the carrying value, no further action is required and no impairment loss is recognized.  Additional impairment assessments may be performed on an interim basis if the Company encounters events or changes in circumstances that would indicate that, more likely than not, the carrying value of goodwill has been impaired.  There was no impairment of goodwill in 2013, 2012 or 2011.

Revenue Recognition: Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured.  Payments received in advance under these arrangements are recorded as deferred revenue until earned.  Revenues are earned from drug discovery and development collaborations, target validation collaborations, database subscriptions, technology licenses, and government grants and contracts.  Revenues generated from third parties under collaborative arrangements are recorded on a gross basis on the consolidated statements of comprehensive loss as Lexicon is the principal participant for these transactions for the purpose of accounting for these arrangements.

Upfront fees under drug discovery and development collaborations are recognized as revenue on a straight-line basis over the estimated period of service, generally the contractual research term, as this period is Lexicon’s best estimate of the period over which the services will be rendered, to the extent they are non-refundable.  Lexicon has determined that the level of effort it performs to meet its obligations is fairly constant throughout the estimated periods of service.  As a result, Lexicon has determined that it is appropriate to recognize revenue from such agreements on a straight-line basis, as management believes this reflects how the research is provided during the initial period of the agreement.  When it becomes probable that a collaborator will extend the research period, Lexicon adjusts the revenue recognition method as necessary based on the level of effort required under the agreement for the extension period.

Research funding under these alliances is recognized as services are performed to the extent they are non-refundable, either on a straight-line basis over the estimated service period, generally the contractual research term, or as contract research costs are incurred.  Milestone-based fees are recognized upon completion of specified milestones according to contract terms.  Payments received under target validation collaborations and government grants and contracts are recognized as revenue as Lexicon performs its obligations related to such research to the extent such fees are non-refundable.  Non-refundable technology license fees are recognized as revenue upon the grant of the license when performance is complete and there is no continuing involvement.

The Company analyzes its multiple element arrangements to determine whether the elements can be separated and accounted for individually as separate units of accounting.  An element of a contract can be accounted for separately if the delivered elements have standalone value to the collaborator and the fair value of any undelivered elements is determinable through objective and reliable evidence. If an element is considered to have standalone value but the fair value of any of the undelivered items cannot be determined, all elements of the arrangement are recognized as revenue over the period of performance for such undelivered items or services. 

Research and Development Expenses: Research and development expenses consist of costs incurred for company-sponsored as well as collaborative research and development activities. These costs include direct and research-related overhead expenses and are expensed as incurred.  Technology license fees for technologies that are utilized in research and development and have no alternative future use are expensed when incurred. Substantial portions of the Company's preclinical and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical studies, expenses are accrued based upon the number of patients enrolled and the duration of the study. The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data reported to the Company by the vendors and clinical site visits. The Company's estimates depend on the timeliness and accuracy of the data provided by the vendors regarding the status of each program and total program spending. The Company periodically evaluates the estimates to determine if adjustments are necessary or appropriate based on information it receives.

Stock-Based Compensation:  The Company recognizes compensation expense in its statements of comprehensive loss for share-based payments, including stock options and restricted stock units issued to employees, based on their fair values on the date of the grant, with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award.  Stock-based compensation expense for awards without performance conditions is recognized on a straight-line basis. Stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met.  As of December 31, 2013, stock-based compensation cost for all outstanding unvested options and restricted stock units was $11.7 million, which is expected to be recognized over a weighted-average period of 1.3 years.

The fair value of stock options is estimated at the date of grant using the Black-Scholes method.  The Black-Scholes option-pricing model requires the input of subjective assumptions.  Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.  For purposes of determining the fair value of stock options, the Company segregates its options into two homogeneous groups, based on exercise and post-vesting employment termination behaviors, resulting in a change in the assumptions used for expected option lives and forfeitures.  Expected volatility is based on the historical volatility in the Company’s stock price.  The following weighted-average assumptions were used for options granted in the years ended December 31, 2013, 2012 and 2011, respectively:

	Expected Volatility	Risk-free Interest Rate	Expected Term	Dividend Rate
December 31, 2013:
Employees	85%	0.9%	5	0	%
Officers and non-employee directors	81%	1.6%	8	0	%
December 31, 2012:
Employees	93%	0.8%	5	0	%
Officers and non-employee directors	81%	1.5%	8	0	%
December 31, 2011:
Employees	88%	2.2%	5	0	%
Officers and non-employee directors	78%	3.2%	8	0	%

Net Loss per Common Share: Net loss per common share is computed using the weighted average number of shares of common stock outstanding. Shares associated with stock options, restricted stock units and warrants are not included because they are antidilutive.

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Selected Quarterly Financial Data (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Condensed Financial Statements, Captions
Revenues	$ 1,410	$ 238	$ 214	$ 360	$ 218	$ 372	$ 199	$ 300	$ 2,222	$ 1,089	$ 1,849
Loss From Operations	(16,976)	(31,216)	(28,624)	(25,555)	(24,492)	(29,060)	(25,480)	(29,383)	(102,371)	(108,415)	(114,095)
Consolidated Net Loss	$ (17,414)	$ (31,658)	$ (29,080)	$ (25,974)	$ (24,873)	$ (29,539)	$ (25,931)	$ (29,868)	$ (104,126)	$ (110,211)	$ (116,215)
Consolidated Net Loss Per Common Share, Basic and Diluted	$ (0.03)	$ (0.06)	$ (0.06)	$ (0.05)	$ (0.05)	$ (0.06)	$ (0.05)	$ (0.06)	$ (0.20)	$ (0.23)	$ (0.34)
Shares Used In Computing Consolidated Net Loss Per Common Share Basic And Diluted	513,523	513,419	513,083	512,428	507,619	490,049	480,634	480,324	513,117	489,707	340,761

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Property and Equipment (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Property, Plant and Equipment
Property, Plant and Equipment, Gross	$ 123,307	$ 126,050
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	(81,945)	(83,416)
Property, Plant and Equipment, Net	41,362	42,634
Computers and Software
Property, Plant and Equipment
Property, Plant and Equipment, Gross	11,180	11,042
Furniture and Fixtures
Property, Plant and Equipment
Property, Plant and Equipment, Gross	7,315	7,343
Laboratory Equipment
Property, Plant and Equipment
Property, Plant and Equipment, Gross	34,952	36,065
Leasehold Improvements
Property, Plant and Equipment
Property, Plant and Equipment, Gross	8,092	9,991
Buildings
Property, Plant and Equipment
Property, Plant and Equipment, Gross	59,104	58,945
Land
Property, Plant and Equipment
Property, Plant and Equipment, Gross	$ 2,664	$ 2,664

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Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2013

Property and Equipment [Abstract]

Property, Plant and Equipment

	Estimated Useful Lives		As of December 31,
	In Years		2013			2012
			(in thousands)
Computers and software	3-5		$	11,180		$	11,042
Furniture and fixtures	5-7		7,315			7,343
Laboratory equipment	3-7		34,952			36,065
Leasehold improvements	7-10		8,092			9,991
Buildings	15-40		59,104			58,945
Land		—	2,664			2,664
Total property and equipment			123,307			126,050
Less: Accumulated depreciation and amortization			(81,945		)	(83,416		)
Net property and equipment			$	41,362		$	42,634

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Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2013

Fair Value, Balance Sheet Grouping, Financial Statement Captions

Fair Value, by Balance Sheet Grouping

	Assets and Liabilities at Fair Value
	As of December 31, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	37,499	$	—	$	—	$	37,499
Short-term investments	91,077		552		—		91,629
Total cash and cash equivalents and investments	$	128,576	$	552	$	—	$	129,128
Liabilities
Other long-term liabilities	$	—	$	—	$	27,710	$	27,710
Total liabilities	$	—	$	—	$	27,710	$	27,710

	Assets and Liabilities at Fair Value
	As of December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	30,423	$	—	$	—	$	30,423
Short-term investments	192,234		551		—		192,785
Total cash and cash equivalents and investments	$	222,657	$	551	$	—	$	223,208
Liabilities
Other long-term liabilities	$	—	$	—	$	29,920	$	29,920
Total liabilities	$	—	$	—	$	29,920	$	29,920

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

	Other Long-term Liabilities
	(in thousands)
Balance at December 31, 2010	$	48,267
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	6,766
Balance at December 31, 2011	55,033
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	9,887
Payment of base payment obligation with common stock	(35,000		)
Balance at December 31, 2012	29,920
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	(2,210		)
Balance at December 31, 2013	$	27,710

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Equity Incentive Awards (Details 2) (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2009
Share-based Compensation Arrangement by Share-based Payment Award
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 1.59	$ 1.37	$ 1.36
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Total Intrinsic Value	$ 325,000	$ 462,000	$ 63,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	5 years 10 months
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term	4 years 11 months
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	1,400,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value	$ 1,400,000
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	23,306	21,525	20,476	19,598
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price	$ 2.42	$ 2.51	$ 2.84	$ 3.46
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	3,490	3,441	2,974
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 2.13	$ 1.84	$ 1.80
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	(572)	(636)	(130)
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price	$ 1.75	$ 1.66	$ 1.46
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period	(950)	(1,231)	(1,662)
Share-based Compensation Arrangements by Share-based Payment Award, Options, Expirations in Period, Weighted Average Exercise Price	$ 3.98	$ 6.93	$ 8.50
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period	(187)	(525)	(304)
Share-based Compensation Arrangements by Share-based Payment Award, Options, Forfeitures in Period, Weighted Average Exercise Price	$ 1.94	$ 1.78	$ 1.76
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	17,378	15,582	13,940
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 2.56	$ 2.77	$ 3.34

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Property and Equipment (Details 2) (USD $)	12 Months Ended
	Dec. 31, 2011
Impaired Assets to be Disposed of
Impairment of Real Estate	$ 800,000

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

Income Taxes [Abstract]

Schedule of Deferred Tax Assets and Liabilities

	As of December 31,
	2013			2012
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	238,608		$	216,579
Research and development tax credits	37,453			32,066
Capitalized research and development	83,375			71,839
Stock-based compensation	7,703			12,972
Deferred revenue	4,760			4,906
Other	4,712			10,429
Total deferred tax assets	376,611			348,791
Deferred tax liabilities:
Deferred tax liability related to acquisition of Symphony Icon	(18,745		)	(18,745		)
Other	—			(340		)
Total deferred tax liabilities	(18,745		)	(19,085		)
Less: valuation allowance	(376,611		)	(348,451		)
Net deferred tax liabilities	$	(18,745	)	$	(18,745	)

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Debt Obligations (Tables)

12 Months Ended

Dec. 31, 2013

Debt Instrument

Schedule of Maturities of Long-term Debt

	For the Year Ending December 31
	(in thousands)
2014	$	1,710
2015	1,859
2016	2,015
2017	16,293
Total debt	21,877
Less current portion	(1,710		)
Total long-term debt	$	20,167

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Organization and Operations

12 Months Ended

Dec. 31, 2013

Organization and Operations [Abstract]

Organization and Operations

Organization and Operations

Lexicon Pharmaceuticals, Inc. (“Lexicon” or the “Company”) is a Delaware corporation incorporated on July 7, 1995. Lexicon was organized to discover the functions and pharmaceutical utility of genes and use those gene function discoveries in the discovery and development of pharmaceutical products for the treatment of human disease.

Lexicon has financed its operations from inception primarily through sales of common and preferred stock, contract and milestone payments to it under drug discovery and development collaborations, target validation, database subscription and technology license agreements, government grants and contracts and financing under debt and lease arrangements. The Company’s future success is dependent upon many factors, including, but not limited to, its ability to discover and develop pharmaceutical products for the treatment of human disease, establish new collaboration and license agreements, achieve milestones under such agreements, obtain and enforce patents and other proprietary rights in its discoveries, comply with federal and state regulations, and maintain sufficient capital to fund its activities.  As a result of the aforementioned factors and the related uncertainties, there can be no assurance of the Company’s future success.

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases

	For the Year Ending December 31
	(in thousands)
2014	$	620
2015	1,043
2016	1,067
2017	1,093
2018	554
Total	$	4,377

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Cash and Cash Equivalents and Investments (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash and Cash Equivalents
Realized Investment Gains (Losses)	$ 0	$ 0	$ 0
Cash
Cash and Cash Equivalents
Available-for-sale Securities, Amortized Cost Basis	37,499,000	30,423,000
Available-for-sale Securities, Gross Unrealized Gain Accumulated in Investments	0	0
Available-for-sale Securities, Gross Unrealized Losses	0	0
Available-for-sale Securities, Current	37,499,000	30,423,000
Certificates of Deposit
Cash and Cash Equivalents
Available-for-sale Securities, Amortized Cost Basis	552,000	551,000
Available-for-sale Securities, Gross Unrealized Gain Accumulated in Investments	0	0
Available-for-sale Securities, Gross Unrealized Losses	0	0
Available-for-sale Securities, Current	552,000	551,000
US Treasury Securities
Cash and Cash Equivalents
Available-for-sale Securities, Amortized Cost Basis	91,075,000	192,211,000
Available-for-sale Securities, Gross Unrealized Gain Accumulated in Investments	3,000	24,000
Available-for-sale Securities, Gross Unrealized Losses	(1,000)	(1,000)
Available-for-sale Securities, Current	91,077,000	192,234,000
Short-term Investments
Cash and Cash Equivalents
Available-for-sale Securities, Amortized Cost Basis	91,627,000	192,762,000
Available-for-sale Securities, Gross Unrealized Gain Accumulated in Investments	3,000	24,000
Available-for-sale Securities, Gross Unrealized Losses	(1,000)	(1,000)
Available-for-sale Securities, Current	91,629,000	192,785,000
Cash and Cash Equivalents and Investments
Cash and Cash Equivalents
Available-for-sale Securities, Amortized Cost Basis	129,126,000	223,185,000
Available-for-sale Securities, Gross Unrealized Gain Accumulated in Investments	3,000	24,000
Available-for-sale Securities, Gross Unrealized Losses	(1,000)	(1,000)
Available-for-sale Securities, Current	$ 129,128,000	$ 223,208,000

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Agreements with Invus, L.P. (Details) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended
	Dec. 31, 2011	Aug. 31, 2007
Schedule of Capitalization
Invus Purchase Shares		50,824,986
Rights Offering, Shares	142,492,883
Rights Offering, Price Per Share	$ 1.13
Rights Offering Net Proceeds	$ 160.6
Rights Offering, Offering Expenses	$ 0.4
Rights Offering, Invus Shares	115,044,247
Rights Offering, Invus Ownership Percentage	50.00%
Rights Offering, Stock Price	$ 1.14

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 37,499	$ 30,423
Short-term investments, including restricted investments of $430	91,629	192,785
Accounts receivable, net of allowances of $35	790	1,378
Prepaid expenses and other current assets	4,636	6,349
Total current assets	134,554	230,935
Property and equipment, net of accumulated depreciation and amortization of $81,945 and $83,416, respectively	41,362	42,634
Goodwill	44,543	44,543
Other intangible assets	53,557	53,557
Other assets	144	109
Total assets	274,160	371,778
Current liabilities:
Accounts payable	9,715	7,661
Accrued liabilities	7,674	8,922
Current portion of deferred revenue	195	128
Current portion of long-term debt	1,710	1,574
Total current liabilities	19,294	18,285
Deferred revenue, net of current portion	13,405	13,910
Long-term debt	20,167	21,877
Deferred tax liabilities	18,745	18,745
Other long-term liabilities	32,386	32,283
Total liabilities	103,997	105,100
Commitments and contingencies
Equity:
Preferred stock, $.01 par value; 5,000 shares authorized; no shares issued and outstanding	0	0
Common stock, $.001 par value; 900,000 shares authorized; 514,349 and 512,375 shares issued, respectively	514	512
Additional paid-in capital	1,175,108	1,166,605
Accumulated deficit	(1,003,958)	(899,832)
Accumulated other comprehensive gain	2	23
Treasury stock, at cost, 814 and 380 shares, respectively	(1,503)	(630)
Total equity	170,163	266,678
Total liabilities and equity	$ 274,160	$ 371,778

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Income Taxes (Details 1) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Deferred Tax Assets and Liabilities
Document Period End Date	Dec. 31, 2013
Deferred Tax Assets, Operating Loss Carryforwards	$ 238,608	$ 216,579
Deferred Tax Assets, Tax Credit Carryforwards, Research	37,453	32,066
Deferred Tax Assets, In Process Research and Development	83,375	71,839
Deferred Tax Assets, Tax Deferred Expense, Compensation and Benefits, Share-based Compensation Cost	7,703	12,972
Deferred Tax Assets, Deferred Income	4,760	4,906
Deferred Tax Assets, Other	4,712	10,429
Deferred Tax Assets, Gross	376,611	348,791
Deferred Tax Liability Related to Acquisition of Symphony Icon	(18,745)	(18,745)
Deferred Tax Liabilities, Other	0	(340)
Deferred Tax Liabilities, Gross	(18,745)	(19,085)
Deferred Tax Assets, Valuation Allowance	(376,611)	(348,451)
Deferred Tax Liabilities, Net	$ (18,745)	$ (18,745)

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Consolidated Statements of Stockholders' Equity (USD $) In Thousands, except Share data	Total	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Gain	Treasury Stock
Balance, value at Dec. 31, 2010	$ 247,024	$ 338	$ 920,324	$ (673,406)	$ 5	$ (237)
Balance, shares at Dec. 31, 2010		337,566,000
Stock-based compensation	5,707	0	5,707	0	0	0
Issuance of common stock to designees of Symphony Icon Holdings LLC, value	0
Issuance of common stock under Equity Incentive Plans, shares		330,000
Issuance of common stock under Equity Incentive Plans, value	552	0	552	0	0	0
Issuance of common stock, net of fees, shares		142,493,000
Issuance of common stock, net of fees, value	160,592	142	160,450	0	0	0
Repurchase of common stock	(108)	0	0	0	0	(108)
Net loss	(116,215)	0	0	(116,215)	0	0
Unrealized gain (loss) on investments	16	0	0	0	16	0
Balance, value at Dec. 31, 2011	297,568	480	1,087,033	(789,621)	21	(345)
Balance, shares at Dec. 31, 2011		480,389,000
Stock-based compensation	6,495	0	6,495	0	0	0
Issuance of common stock to designees of Symphony Icon Holdings LLC, shares		13,238,000
Issuance of common stock to designees of Symphony Icon Holdings LLC, value	35,000	13	34,987	0	0	0
Issuance of common stock under Equity Incentive Plans, shares		1,248,000
Issuance of common stock under Equity Incentive Plans, value	1,054	1	1,053	0	0	0
Issuance of common stock, net of fees, shares		17,500,000
Issuance of common stock, net of fees, value	37,055	18	37,037	0	0	0
Repurchase of common stock	(285)	0	0	0	0	(285)
Net loss	(110,211)	0	0	(110,211)	0	0
Unrealized gain (loss) on investments	2	0	0	0	2	0
Balance, value at Dec. 31, 2012	266,678	512	1,166,605	(899,832)	23	(630)
Balance, shares at Dec. 31, 2012		512,375,000
Stock-based compensation	7,421	0	7,421	0	0	0
Issuance of common stock to designees of Symphony Icon Holdings LLC, value	0
Issuance of common stock under Equity Incentive Plans, shares		1,974,000
Issuance of common stock under Equity Incentive Plans, value	1,084	2	1,082	0	0	0
Repurchase of common stock	(873)	0	0	0	0	(873)
Net loss	(104,126)	0	0	(104,126)	0	0
Unrealized gain (loss) on investments	(21)	0	0	0	(21)	0
Balance, value at Dec. 31, 2013	$ 170,163	$ 514	$ 1,175,108	$ (1,003,958)	$ 2	$ (1,503)
Balance, shares at Dec. 31, 2013		514,349,000

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Equity Incentive Awards (Details 5) (Performance Units, USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Performance Units
Share-based Compensation Arrangement by Share-based Payment Award
Performance Stock Units Outstanding	0	329
Performance Stock Units, Nonvested, Weighted Average Grant Date Fair Value	$ 0.00	$ 1.90
Performance Stock Units Vested	(329)
Performance Stock Units, Vested in Period, Weighted Average Grant Date Fair Value	$ 1.90

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Summary of Significant Accounting Policies Restricted Cash and Investments (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Restricted Cash and Cash Equivalents Items
Restricted investments	$ 430	$ 430

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Collaboration and License Agreements

12 Months Ended

Dec. 31, 2013

Collaboration and License Agreements [Abstract]

Collaboration and License Agreements

Collaboration and License Agreements

Lexicon has derived substantially all of its revenues from drug discovery and development alliances, target validation collaborations for the development and, in some cases, analysis of the physiological effects of genes altered in knockout mice, government grants and contracts, technology licenses, subscriptions to its databases and compound library sales.

Texas Institute for Genomic Medicine.   In July 2005, Lexicon received a $35.0 million award from the Texas Enterprise Fund for the creation of a knockout mouse embryonic stem cell library containing 350,000 cell lines for the Texas Institute for Genomic Medicine (“TIGM”) using Lexicon’s proprietary gene trapping technology, which Lexicon completed in 2007.  Lexicon also equipped TIGM with the bioinformatics software required for the management and analysis of data relating to the library.  The Texas Enterprise Fund also awarded $15.0 million to the Texas A&M University System for the creation of facilities and infrastructure to house the library.  

Under the terms of the award, Lexicon is responsible for the creation of a specified number of jobs beginning in 2012, reaching an aggregate of 1,616 new jobs in Texas by December 31, 2016.  Lexicon will obtain credits based on funding received by TIGM and certain related parties from sources other than the State of Texas that it may offset against its potential liability for any job creation shortfalls.  Lexicon will also obtain credits against future jobs commitment liabilities for any surplus jobs it creates.  Subject to these credits, if Lexicon fails to create the specified number of jobs, the state may require Lexicon to repay $2,415 for each job Lexicon falls short beginning in 2013.  Lexicon’s maximum aggregate exposure for such payments, if Lexicon fails to create any new jobs, is approximately $14.2 million, including $1.5 million through 2014, without giving effect to any credits to which Lexicon may be entitled.  Lexicon has recorded this obligation as deferred revenue and accounts payable in the accompanying consolidated balance sheets.  The Texas A&M University System, together with TIGM, has independent job creation obligations and is obligated for an additional period to maintain an aggregate of 5,000 jobs, inclusive of those Lexicon creates.

Taconic Farms.  Lexicon established a collaboration with Taconic Farms, Inc. in November 2005 for the marketing, distribution and licensing of certain lines of knockout mice and entered into an expanded collaboration with Taconic in July 2009 that expired in July 2010.  Under the terms of the collaboration, Lexicon is presently making available through Taconic more than 3,600 distinct lines of knockout mice, and in some cases, phenotypic data relating to such lines of knockout mice, for use by pharmaceutical and biotechnology companies, academic and non-profit institutions and other researchers.  Lexicon receives license fees and royalties from payments received by Taconic from customers obtaining access to knockout mice and any related phenotypic data.  The Company received payments totaling $7.5 million through December 31, 2013.  Revenue recognized under these agreements was $0.7 million, $0.7 million and $0.8 million for the years ended December 31, 2013, 2012 and 2011, respectively.

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Summary of Significant Accounting Policies Concentration of Credit Risk (Details)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Concentration Risk
Disclosure on Geographic Areas, Revenue from External Customers Attributed to Entity's Country of Domicile, Percent	100.00%	100.00%	100.00%

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Subsequent Event (Notes)

12 Months Ended

Dec. 31, 2013

Subsequent Event

Subsequent Events

Subsequent Event

In January 2014, Lexicon's board of directors committed to narrow its strategic initiatives and focus resources on its late-stage drug development programs, principally LX4211 for diabetes and telotristat etiprate (LX1032) for carcinoid syndrome, in preparation for the transition to commercialization. The decision will result in a workforce reduction of approximately 125 employees, primarily in research, discovery and support positions, representing approximately 50% of the Company's total workforce. Lexicon expects to complete the majority of the workforce reduction in the first quarter of 2014, and the remainder in the second quarter of 2014.

Lexicon estimates that it will incur approximately $6.0 to $7.0 million in total costs as a result of the reduction in staff (of which approximately 90% to 95% are expected to result in cash expenditures), including severance and other one-time termination benefits of approximately $5.0 to $6.0 million.

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Consolidated net loss	$ (104,126)	$ (110,211)	$ (116,215)
Adjustments to reconcile consolidated net loss to net cash used in operating activities:
Depreciation	2,863	4,190	4,887
Impairment of fixed assets	0	0	704
Increase (decrease) in fair value of Symphony Icon, Inc. purchase liability	(2,210)	9,887	6,766
Stock-based compensation	7,421	6,495	5,707
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	588	(1,028)	394
(Increase) decrease in prepaid expenses and other current assets	1,713	(2,601)	(865)
(Increase) decrease in other assets	(9)	96	414
Increase (decrease) in accounts payable and other liabilities	3,119	(995)	10,365
Decrease in deferred revenue	(438)	(293)	(95)
Net cash used in operating activities	(91,079)	(94,460)	(87,938)
Cash flows from investing activities:
Purchases of property and equipment	(1,721)	(492)	(1,206)
Proceeds from disposal of property and equipment	130	85	2,625
Purchases of investments	(111,490)	(233,250)	(108,092)
Maturities of investments	212,625	135,850	176,628
Net cash provided by (used in) investing activities	99,544	(97,807)	69,955
Cash flows from financing activities:
Proceeds from issuance of common stock, net of fees	1,084	38,109	160,781
Repurchase of common stock	(873)	(285)	(108)
Repayment of debt borrowings	(1,574)	(1,443)	(3,589)
Other financing activities	(26)	0	0
Net cash provided by (used in) financing activities	(1,389)	36,381	157,084
Net increase (decrease) in cash and cash equivalents	7,076	(155,886)	139,101
Cash and cash equivalents at beginning of year	30,423	186,309	47,208
Cash and cash equivalents at end of year	37,499	30,423	186,309
Supplemental disclosure of cash flow information:
Cash paid for interest	1,897	2,028	2,447
Supplemental disclosure of noncash investing and financing activities:
Unrealized gain (loss) on investments	(21)	2	16
Common stock issued in satisfaction of Symphony Icon base payment obligation	$ 0	$ 35,000	$ 0

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Balance Sheet Parentheticals (USD $) In Thousands, except Per Share data, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Restricted investments	$ 430	$ 430
Allowance for doubtful accounts receivable	35	35
Accumulated depreciation and amortization, property and equipment	$ 81,945	$ 83,416
Preferred stock, par value per share	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000	5,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value per share	$ 0.001	$ 0.001
Common stock, shares authorized	900,000	900,000
Treasury stock, shares	814	380
Common Stock
Common stock, shares issued	514,349	512,375

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Operating Lease Obligations:  A Lexicon subsidiary leases laboratory and office space in Hopewell, New Jersey under an amended lease agreement which expires in June 2018. The amended lease includes escalating lease payments.  Rent expense is recognized on a straight-line basis over the amended lease term.  Lexicon is the guarantor of the obligation of its subsidiary under this lease.  The Company is required to maintain restricted investments to collateralize a standby letter of credit for this lease.  The Company had $0.4 million and $0.4 million in restricted investments as collateral as of December 31, 2013 and 2012, respectively.  Additionally, Lexicon leases certain equipment under operating leases.

Rent expense for all operating leases was approximately $0.9 million, $2.2 million and $2.5 million for the years ended December 31, 2013, 2012 and 2011, respectively.  The following table includes non-cancelable, escalating future lease payments for the facility in New Jersey:

	For the Year Ending December 31
	(in thousands)
2014	$	620
2015	1,043
2016	1,067
2017	1,093
2018	554
Total	$	4,377

Employment Agreements: Lexicon has entered into employment agreements with certain of its corporate officers. Under the agreements, each officer receives a base salary, subject to adjustment, with an annual discretionary bonus based upon specific objectives to be determined by the compensation committee. The employment agreements are at-will and contain non-competition agreements. The agreements also provide for a termination clause, which requires either a six or 12-month payment based on the officer’s salary and payment of a specified portion of the officer’s bonus target for such year, in the event of termination.

Legal Proceedings:  Lexicon is from time to time party to claims and legal proceedings that arise in the normal course of its business and that it believes will not have, individually or in the aggregate, a material adverse effect on its results of operations, financial condition or liquidity.

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Document and Entity Information Document (USD $)	12 Months Ended
	Dec. 31, 2013	Feb. 27, 2014	Jun. 30, 2013
Document Information
Entity Registrant Name	LEXICON PHARMACEUTICALS, INC./DE
Entity Central Index Key	0001062822
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-K
Document Period End Date	Dec. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Common Stock, Shares Outstanding		513,790,361
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 493,400,000

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Agreements with Invus, L.P.

12 Months Ended

Dec. 31, 2013

Agreements with Invus, L.P. [Abstract]

Agreements With Invus, L.P.

Agreements with Invus, L.P. and Its Affiliates

In June 2007, Lexicon entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Invus, L.P. under which Invus, L.P. purchased 50,824,986 shares of the Company’s common stock in August 2007. In November 2011, Invus, L.P. and its affiliate Invus C.V. (collectively “Invus”) exercised their rights under the Securities Purchase Agreement to require Lexicon to conduct a pro rata rights offering to its stockholders. In December 2011, Lexicon completed the rights offering of 142,492,883 shares of its common stock at a price of $1.13 per share, resulting in net proceeds of $160.6 million, after offering expenses of $0.4 million. Invus and its affiliates purchased 115,044,247 of these shares, resulting in Invus and its affiliates owning greater than 50% of Lexicon's outstanding common stock. All of the net proceeds of this rights offering are reflected as issuance of common stock in the accompanying financial statements. The rights offering exercise price of $1.13 was less than the closing price of Lexicon's common stock on the last day of the offering period of $1.14; however, if considered a bonus element, this difference in price did not result in a change in earnings per share from what was originally reported in previous periods.

In connection with the Securities Purchase Agreement, Lexicon also entered into a Stockholders’ Agreement with Invus, L.P. under which Invus has specified rights with respect to designation of directors, participation in future equity issuances by the Company and certain consent rights.

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Consolidated Statements of Comprehensive Loss (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Revenues:
Collaborative research	$ 2,109	$ 783	$ 1,632
Subscription and license fees	113	306	217
Total revenues	2,222	1,089	1,849
Operating expenses:
Research and development, including stock-based compensation of $4,376, $3,673 and $3,249, respectively	89,682	82,574	91,828
Increase (decrease) in fair value of Symphony Icon, Inc. purchase liability	(2,210)	9,887	6,766
General and administrative, including stock-based compensation of $3,045, $2,822 and $2,458, respectively	17,121	17,043	17,350
Total operating expenses	104,593	109,504	115,944
Loss from operations	(102,371)	(108,415)	(114,095)
Interest income	157	213	255
Interest expense	(1,971)	(2,114)	(2,528)
Other income, net	59	105	153
Consolidated net loss	(104,126)	(110,211)	(116,215)
Consolidated net loss per common share, basic and diluted	$ (0.20)	$ (0.23)	$ (0.34)
Shares used in computing consolidated net loss per common share, basic and diluted	513,117	489,707	340,761
Other comprehensive gain (loss):
Unrealized gain (loss) on investments	(21)	2	16
Comprehensive loss	$ (104,147)	$ (110,209)	$ (116,199)

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Property and Equipment

12 Months Ended

Dec. 31, 2013

Property and Equipment [Abstract]

Property and Equipment

Property and Equipment

Property and equipment at December 31, 2013 and 2012 are as follows:

	Estimated Useful Lives		As of December 31,
	In Years		2013			2012
			(in thousands)
Computers and software	3-5		$	11,180		$	11,042
Furniture and fixtures	5-7		7,315			7,343
Laboratory equipment	3-7		34,952			36,065
Leasehold improvements	7-10		8,092			9,991
Buildings	15-40		59,104			58,945
Land		—	2,664			2,664
Total property and equipment			123,307			126,050
Less: Accumulated depreciation and amortization			(81,945		)	(83,416		)
Net property and equipment			$	41,362		$	42,634

During the year ended December 31, 2011, the Company determined that one of its buildings was impaired and therefore recorded an impairment loss of $800,000, which was recorded as research and development expense in the accompanying statement of comprehensive loss. The fair value of the impaired building was estimated using sales prices in similar real estate sales and offers received from potential purchasers of the building. In June 2011, the Company sold this building with an immaterial additional loss on the sale.

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Fair Value Measurements

12 Months Ended

Dec. 31, 2013

Fair Value Measurements [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis.  Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value.  The following levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities:

• Level 1 – quoted prices in active markets for identical assets, which include U.S. treasury securities

• Level 2 – other significant observable inputs (including quoted prices for similar investments, market corroborated inputs, etc.)

• Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of assets and liabilities)

The inputs or methodology used for valuing securities are not necessarily an indication of the credit risk associated with investing in those securities.  The following tables provide the fair value measurements of applicable Company assets and liabilities that are measured at fair value on a recurring basis according to the fair value levels defined above as of December 31, 2013 and 2012.

	Assets and Liabilities at Fair Value
	As of December 31, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	37,499	$	—	$	—	$	37,499
Short-term investments	91,077		552		—		91,629
Total cash and cash equivalents and investments	$	128,576	$	552	$	—	$	129,128
Liabilities
Other long-term liabilities	$	—	$	—	$	27,710	$	27,710
Total liabilities	$	—	$	—	$	27,710	$	27,710

	Assets and Liabilities at Fair Value
	As of December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Cash and cash equivalents	$	30,423	$	—	$	—	$	30,423
Short-term investments	192,234		551		—		192,785
Total cash and cash equivalents and investments	$	222,657	$	551	$	—	$	223,208
Liabilities
Other long-term liabilities	$	—	$	—	$	29,920	$	29,920
Total liabilities	$	—	$	—	$	29,920	$	29,920

The Company did not have any Level 3 assets during the years ended December 31, 2013, 2012 and 2011. Transfers between levels are recognized at the actual date of circumstance that caused the transfer. The Company's Level 3 liabilities are estimated using a probability-based income approach utilizing an appropriate discount rate. Subsequent changes in the fair value of the Symphony Icon purchase consideration liability are recorded as an increase or decrease in Symphony Icon purchase liability in the accompanying consolidated statements of comprehensive loss. The fair value of the Symphony Icon ("Symphony Icon") purchase consideration liability decreased by $2.2 million during the year ended December 31, 2013 and increased by $9.9 million and $6.8 million during the years ended December 31, 2012 and 2011, respectively. The following table summarizes the change in consolidated balance sheet carrying value associated with Level 3 liabilities for the years ended December 31, 2011, 2012 and 2013.

	Other Long-term Liabilities
	(in thousands)
Balance at December 31, 2010	$	48,267
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	6,766
Balance at December 31, 2011	55,033
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	9,887
Payment of base payment obligation with common stock	(35,000		)
Balance at December 31, 2012	29,920
Change in valuation of purchase consideration payable to former Symphony Icon stockholders	(2,210		)
Balance at December 31, 2013	$	27,710

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis.  These assets include goodwill associated with the acquisitions of Coelacanth Corporation in 2001 and Symphony Icon on July 30, 2010 and intangible assets associated with the acquisition of Symphony Icon on July 30, 2010.  For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired.

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Selected Quarterly Financial Data

12 Months Ended

Dec. 31, 2013

Selected Quarterly Financial Data [Abstract]

Selected Quarterly Financial Data

Selected Quarterly Financial Data

The table below sets forth certain unaudited statements of comprehensive loss data, and net loss per common share data, for each quarter of 2013 and 2012:

(in thousands, except per share data)

	Quarter Ended
	March 31			June 30			September 30			December 31
				(Unaudited)
2013
Revenues	$	360		$	214		$	238		$	1,410
Loss from operations	$	(25,555	)	$	(28,624	)	$	(31,216	)	$	(16,976	)
Consolidated net loss	$	(25,974	)	$	(29,080	)	$	(31,658	)	$	(17,414	)
Consolidated net loss per common share, basic and diluted	$	(0.05	)	$	(0.06	)	$	(0.06	)	$	(0.03	)
Shares used in computing consolidated net loss per common share	512,428			513,083			513,419			513,523
2012
Revenues	$	300		$	199		$	372		$	218
Loss from operations	$	(29,383	)	$	(25,480	)	$	(29,060	)	$	(24,492	)
Consolidated net loss	$	(29,868	)	$	(25,931	)	$	(29,539	)	$	(24,873	)
Consolidated net loss per common share, basic and diluted	$	(0.06	)	$	(0.05	)	$	(0.06	)	$	(0.05	)
Shares used in computing consolidated net loss per common share	480,324			480,634			490,049			507,619

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Other Capital Stock Agreements

12 Months Ended

Dec. 31, 2013

Other Capital Stock Agreements [Abstract]

Other Capital Stock Agreements

Other Capital Stock Agreements

Common Stock: In October 2012, Lexicon sold 17,500,000 shares of its common stock at a price of $2.25 per share in a public offering, resulting in net proceeds of $37.1 million, after deducting underwriting discounts and commissions of $2.0 million and offering expenses of $0.2 million. Invus, L.P. purchased 3,000,000 of these shares. All of the net proceeds of this offering are reflected as issuance of common stock in the accompanying financial statements.

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Debt Obligations

12 Months Ended

Dec. 31, 2013

Debt Obligations [Abstract]

Debt Obligations

Debt Obligations

In April 2004, Lexicon purchased its existing laboratory and office buildings and animal facilities in The Woodlands, Texas with proceeds from a $34.0 million third-party mortgage financing and $20.8 million in cash.  The mortgage loan originally had a ten-year term with a 20-year amortization and a fixed interest rate of 8.23%. The mortgage was amended in September 2013 to extend the maturity date from April 2014 to April 2017, with the mortgage loan's monthly payment amount and fixed interest rate each remaining unchanged. The mortgage had a principal balance of $21.9 million as of December 31, 2013. Net proceeds from the sale of the building as discussed in Note 5, "Property and Equipment," were used to pay down the mortgage principal in June 2011 in the amount of $2.4 million.  The buildings and land that serve as collateral for the mortgage loan are included in property and equipment at $59.1 million and $2.7 million, respectively, before accumulated depreciation, as of December 31, 2013. The fair value of Lexicon’s mortgage loan approximates its carrying value.  The fair value of Lexicon’s mortgage loan is estimated using discounted cash flow analysis, based on the Company’s estimated current incremental borrowing rate.

The following table includes the aggregate future principal payments of the Company’s long-term debt as of December 31, 2013:

	For the Year Ending December 31
	(in thousands)
2014	$	1,710
2015	1,859
2016	2,015
2017	16,293
Total debt	21,877
Less current portion	(1,710		)
Total long-term debt	$	20,167

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Benefit Plan (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Defined Benefit Plans and Other Postretirement Benefit Plans
Defined Contribution Plan, Cost Recognized	$ 511,000	$ 490,000	$ 583,000

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Income Taxes

12 Months Ended

Dec. 31, 2013

Income Taxes [Abstract]

Income Taxes

Income Taxes

Lexicon recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized differently in the financial statements and tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of liabilities and assets using enacted tax rates and laws in effect in the years in which the differences are expected to reverse. Deferred tax assets are evaluated for realization based on a more-likely-than-not criteria in determining if a valuation allowance should be provided.

The components of Lexicon’s deferred tax assets (liabilities) at December 31, 2013 and 2012 are as follows:

	As of December 31,
	2013			2012
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	238,608		$	216,579
Research and development tax credits	37,453			32,066
Capitalized research and development	83,375			71,839
Stock-based compensation	7,703			12,972
Deferred revenue	4,760			4,906
Other	4,712			10,429
Total deferred tax assets	376,611			348,791
Deferred tax liabilities:
Deferred tax liability related to acquisition of Symphony Icon	(18,745		)	(18,745		)
Other	—			(340		)
Total deferred tax liabilities	(18,745		)	(19,085		)
Less: valuation allowance	(376,611		)	(348,451		)
Net deferred tax liabilities	$	(18,745	)	$	(18,745	)

The $18.7 million deferred tax liability relates to the tax impact of future amortization or possible impairments associated with intangible assets acquired with Symphony Icon, which are not deductible for tax purposes. Lexicon does not believe it can estimate the reversal of the temporary difference related to the assets acquired with sufficient certainty such that the related deferred tax liability could be considered as a source of taxable income in assessing the Company's need for a valuation allowance.

At December 31, 2013, Lexicon had both federal and state NOL carryforwards of approximately $665.3 million and $444.1 million, respectively.  The federal and state NOL carryforwards began to expire in 2011 and continued to expire in 2012.  The Company's R&D tax credit carryforwards of approximately $37.5 million began to expire in 2012.  Utilization of the NOL and R&D credit carryforwards may be subject to a significant annual limitation due to ownership changes that have occurred previously or could occur in the future provided by Section 382 of the Internal Revenue Code.  Based on the federal tax law limits and the Company’s cumulative loss position, Lexicon concluded it was appropriate to establish a full valuation allowance for its net deferred tax assets until an appropriate level of profitability is sustained.  During the year ended December 31, 2013, the valuation allowance increased $28.2 million, primarily due to the Company’s current year net loss.  Lexicon recorded income tax benefits of $0, $0 and $0 in the years ended December 31, 2013, 2012 and 2011, respectively. During the year ended December 31, 2013, the Company recorded certain revisions to its deferred tax assets. The revisions reduced the deferred tax assets and valuation allowance by $13.8 million. There was no impact to the Company's equity or operating results for any period.  As of December 31, 2013 and 2012, the Company did not have any unrecognized tax benefits.

The Company is primarily subject to U.S. federal and New Jersey and Texas state income taxes.  The tax years 1995 to current remain open to examination by U.S. federal authorities and 2004 to current remain open to examination by state authorities.  The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.  As of December 31, 2013 and 2012, the Company had no accruals for interest or penalties related to income tax matters.

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Goodwill

12 Months Ended

Dec. 31, 2013

Goodwill [Abstract]

Goodwill

Goodwill

On July 12, 2001, Lexicon completed the acquisition of Coelacanth Corporation in a merger. Coelacanth, now Lexicon Pharmaceuticals (New Jersey), Inc., forms the core of the Company’s division responsible for small molecule compound discovery.  The results of Lexicon Pharmaceuticals (New Jersey), Inc. are included in the Company’s results of operations for the period subsequent to the acquisition. Goodwill associated with the acquisition of $25.8 million, which represents the excess of the $36.0 million purchase price over the fair value of the underlying net identifiable assets, was assigned to the consolidated entity, Lexicon.  

On July 30, 2010, Lexicon exercised its Purchase Option (as defined in Note 9) and completed the acquisition of Symphony Icon. Goodwill associated with the acquisition of $18.7 million, which represents the assets recognized in connection with the deferred tax liability acquired and did not result from excess purchase price, was assigned to the consolidated entity, Lexicon.

Goodwill is not subject to amortization, but is tested at least annually for impairment at the reporting unit level, which is the Company’s single operating segment.  The Company performed an impairment test of goodwill on its annual impairment assessment date.  This test did not result in an impairment of goodwill.

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Arrangements with Symphony Icon, Inc.

12 Months Ended

Dec. 31, 2013

Arrangements with Symphony Icon Inc [Abstract]

Arrangements with Symphony Icon, Inc.

Arrangements with Symphony Icon, Inc.

On June 15, 2007, Lexicon entered into a series of related agreements providing for the financing of the clinical development of certain of its drug candidates, including LX1032 and LX1033, along with any other pharmaceutical compositions modulating the same targets as those drug candidates (the “Programs”). The agreements included a Novated and Restated Technology License Agreement pursuant to which the Company licensed to Symphony Icon, a then wholly-owned subsidiary of Symphony Icon Holdings LLC (“Holdings”), the Company's intellectual property rights related to the Programs. Holdings contributed $45 million to Symphony Icon in order to fund the clinical development of the Programs.

Under a Share Purchase Agreement, dated June 15, 2007, between the Company and Holdings, the Company issued and sold to Holdings 7,650,622 shares of its common stock on June 15, 2007 in exchange for $15 million and an exclusive purchase option (the "Purchase Option") that gave the Company the right to acquire all of the equity of Symphony Icon, thereby allowing the Company to reacquire all of the Programs. On July 30, 2010, Lexicon entered into an Amended and Restated Purchase Option Agreement with Symphony Icon and Holdings and simultaneously exercised the Purchase Option, thereby reacquiring the Programs. Pursuant to the amended terms of the Purchase Option, Lexicon paid Holdings $10 million on July 30, 2010 and issued 13,237,519 shares of common stock to designees of Holdings on July 30, 2012 in satisfaction of an additional $35.0 million base payment obligation.

Lexicon also agreed to make up to $45 million in additional contingent payments, which will consist of 50% of any consideration Lexicon receives pursuant to any licensing transaction (a “Licensing Transaction”) under which Lexicon grants a third party rights to commercialize LX1032, LX1033 or other pharmaceutical compositions modulating the same target as those drug candidates (the “LG103 Programs”), subject to certain exceptions. The contingent payments will be due if and when Lexicon receives such consideration from a Licensing Transaction. In the event Lexicon receives regulatory approval in the United States for the marketing and sale of any product resulting from the LG103 Programs prior to entering into a Licensing Transaction for the commercialization of such product in the United States, in lieu of any contingent payment from such a Licensing Transaction, Lexicon will pay Holdings the sum of $15 million and the amount of certain expenses Lexicon incurred after its exercise of the Purchase Option which are attributable to the development of such product, reduced by up to 50% of such sum on account of any contingent payments paid prior to such United States regulatory approval attributable to any such Licensing Transaction outside of the United States with respect to such product. In the event Lexicon makes any such payment upon United States regulatory approval, Lexicon will have no obligation to make subsequent contingent payments attributable to any such Licensing Transactions for the commercialization of such product outside the United States until the proceeds of such Licensing Transactions exceed 50% of the payment made as a result of such United States regulatory approval. The contingent payments may be paid in cash or a combination of cash and common stock, in Lexicon's discretion, provided that no more than 50% of any contingent payment will be paid in common stock.

Lexicon accounted for the exercise of the Purchase Option and acquisition of Symphony Icon as a business combination. In connection with its acquisition of Symphony Icon, Lexicon paid $10.0 million in cash, and has also agreed to pay Holdings additional base and contingent payments as discussed above. The fair value of the base and contingent consideration payments was $45.6 million and was estimated by applying a probability-based income approach utilizing an appropriate discount rate. This estimation was based on significant inputs that are not observable in the market, referred to as Level 3 inputs. Key assumptions include: (1) a discount rate of 14% for the base payments; (2) a discount rate of 18% for the contingent payments; and (3) a probability adjusted contingency. The discount rate assumptions have not changed through December 31, 2013, and as programs progress, the probability adjusted contingency is adjusted as necessary. Subsequent changes in the fair value of the Symphony Icon purchase consideration liability are recorded as increase or decrease in fair value of Symphony Icon purchase liability expense in the accompanying consolidated statements of comprehensive loss. The fair value of the Symphony Icon purchase consideration liability decreased by $2.2 million during the year ended December 31, 2013 and increased by $9.9 million and $6.8 million during the years ended December 31, 2012 and 2011, respectively.

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Subsequent Event (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended
	Jan. 31, 2014
Subsequent Event
Workforce Reduction Total Cost Low End of Range	$ 6.0
Workforce Reduction Total Cost High End of Range	7.0
Workforce Reduction Percentage of Cash Expenditures Low End of Range	90.00%
Workforce Reduction Percentage of Cash Expenditures High End of Range	95.00%
Workforce Reduction Termination Costs Low End of Range	5.0
Workforce Reduction Termination Costs High End of Range	$ 6.0

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Selected Quarterly Financial Data (Tables)

12 Months Ended

Dec. 31, 2013

Selected Quarterly Financial Data [Abstract]

Selected Quarterly Financial Data

Selected Quarterly Financial Data

The table below sets forth certain unaudited statements of comprehensive loss data, and net loss per common share data, for each quarter of 2013 and 2012:

(in thousands, except per share data)

	Quarter Ended
	March 31			June 30			September 30			December 31
				(Unaudited)
2013
Revenues	$	360		$	214		$	238		$	1,410
Loss from operations	$	(25,555	)	$	(28,624	)	$	(31,216	)	$	(16,976	)
Consolidated net loss	$	(25,974	)	$	(29,080	)	$	(31,658	)	$	(17,414	)
Consolidated net loss per common share, basic and diluted	$	(0.05	)	$	(0.06	)	$	(0.06	)	$	(0.03	)
Shares used in computing consolidated net loss per common share	512,428			513,083			513,419			513,523
2012
Revenues	$	300		$	199		$	372		$	218
Loss from operations	$	(29,383	)	$	(25,480	)	$	(29,060	)	$	(24,492	)
Consolidated net loss	$	(29,868	)	$	(25,931	)	$	(29,539	)	$	(24,873	)
Consolidated net loss per common share, basic and diluted	$	(0.06	)	$	(0.05	)	$	(0.06	)	$	(0.05	)
Shares used in computing consolidated net loss per common share	480,324			480,634			490,049			507,619

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Commitments and Contingencies (Details 1) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Operating Leased Assets
Restricted Investments	$ 430,000	$ 430,000
Operating Leases, Rent Expense	$ 900,000	$ 2,200,000	$ 2,500,000

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Benefit Plan

12 Months Ended

Dec. 31, 2013

Benefit Plan [Abstract]

Benefit Plan

Benefit Plan

Lexicon maintains a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code.  The plan covers substantially all full-time employees.  Participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit.  Beginning in 2000, the Company was required to match employee contributions according to a specified formula.  The matching contributions totaled $511,000, $490,000 and $583,000 in the years ended December 31, 2013, 2012 and 2011, respectively.  Company contributions are vested based on the employee’s years of service, with full vesting after four years of service.

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2013

Share-based Compensation [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

	Expected Volatility	Risk-free Interest Rate	Expected Term	Dividend Rate
December 31, 2013:
Employees	85%	0.9%	5	0	%
Officers and non-employee directors	81%	1.6%	8	0	%
December 31, 2012:
Employees	93%	0.8%	5	0	%
Officers and non-employee directors	81%	1.5%	8	0	%
December 31, 2011:
Employees	88%	2.2%	5	0	%
Officers and non-employee directors	78%	3.2%	8	0	%

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Debt Obligations (Details 2) (USD $) In Millions, unless otherwise specified	1 Months Ended
	Jun. 30, 2011	Apr. 30, 2004	Dec. 31, 2013
Debt Instrument
Woodlands Mortgage		$ 34.0
Woodlands Cash Paid		20.8
Debt Instrument, Interest Rate, Stated Percentage			8.23%
Proceeds from Sale of Real Estate	2.4
Buildings Collateral			59.1
Land Collateral			$ 2.7

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Fair Value Measurements (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Fair Value, Level 1
Fair Value, Balance Sheet Grouping, Financial Statement Captions
Cash and Cash Equivalents, Fair Value Disclosure	$ 37,499	$ 30,423
Available-for-sale Securities, Fair Value Disclosure	91,077	192,234
Investments, Fair Value Disclosure	128,576	222,657
Other Liabilities, Fair Value Disclosure	0	0
Liabilities, Fair Value Disclosure	0	0
Fair Value, Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions
Cash and Cash Equivalents, Fair Value Disclosure	0	0
Available-for-sale Securities, Fair Value Disclosure	552	551
Investments, Fair Value Disclosure	552	551
Other Liabilities, Fair Value Disclosure	0	0
Liabilities, Fair Value Disclosure	0	0
Fair Value, Level 3
Fair Value, Balance Sheet Grouping, Financial Statement Captions
Cash and Cash Equivalents, Fair Value Disclosure	0	0
Available-for-sale Securities, Fair Value Disclosure	0	0
Investments, Fair Value Disclosure	0	0
Other Liabilities, Fair Value Disclosure	27,710	29,920
Liabilities, Fair Value Disclosure	27,710	29,920
Fair Value, Total
Fair Value, Balance Sheet Grouping, Financial Statement Captions
Cash and Cash Equivalents, Fair Value Disclosure	37,499	30,423
Available-for-sale Securities, Fair Value Disclosure	91,629	192,785
Investments, Fair Value Disclosure	129,128	223,208
Other Liabilities, Fair Value Disclosure	27,710	29,920
Liabilities, Fair Value Disclosure	$ 27,710	$ 29,920

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Statements of Comprehensive Loss Parentheticals (Parentheticals) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Stock-based compensation expense associated with research and development expense	$ 4,376	$ 3,673	$ 3,249
Stock-based compensation expense associated with general and administrative expense	$ 3,045	$ 2,822	$ 2,458

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Cash and Cash Equivalents and Investments

12 Months Ended

Dec. 31, 2013

Cash and Cash Equivalents and Investments [Abstract]

Cash and Cash Equivalents and Investments

Cash and Cash Equivalents and Investments

The fair value of cash and cash equivalents and investments held at December 31, 2013 and 2012 are as follows:

	As of December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	37,499	$	—	$	—		$	37,499
Securities maturing within one year:
Certificates of deposit	552		—		—			552
U.S. treasury securities	91,075		3		(1		)	91,077
Total short-term investments	$	91,627	$	3	$	(1	)	$	91,629
Total cash and cash equivalents and investments	$	129,126	$	3	$	(1	)	$	129,128

	As of December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	30,423	$	—	$	—		$	30,423
Securities maturing within one year:
Certificates of deposit	551		—		—			551
U.S. treasury securities	192,211		24		(1		)	192,234
Total short-term investments	$	192,762	$	24	$	(1	)	$	192,785
Total cash and cash equivalents and investments	$	223,185	$	24	$	(1	)	$	223,208

There were no realized gains or losses for the year ended December 31, 2013, no realized gains or losses for the year ended December 31, 2012, and no realized gains or losses for the year ended December 31, 2011.

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Equity Incentive Awards (Details 4) (Restricted Stock Units (RSUs), USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	4,242	3,543
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 1.93	$ 1.80
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	1,969
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 2.09
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	(992)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value	$ 1.80
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	(278)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period, Weighted Average Fair Value	$ 1.91

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Cash and Cash Equivalents and Investments (Tables)

12 Months Ended

Dec. 31, 2013

Cash and Cash Equivalents and Investments [Abstract]

Schedule of Cash, Cash Equivalents and Short-term Investments

	As of December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	37,499	$	—	$	—		$	37,499
Securities maturing within one year:
Certificates of deposit	552		—		—			552
U.S. treasury securities	91,075		3		(1		)	91,077
Total short-term investments	$	91,627	$	3	$	(1	)	$	91,629
Total cash and cash equivalents and investments	$	129,126	$	3	$	(1	)	$	129,128

	As of December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
			(in thousands)
Cash and cash equivalents	$	30,423	$	—	$	—		$	30,423
Securities maturing within one year:
Certificates of deposit	551		—		—			551
U.S. treasury securities	192,211		24		(1		)	192,234
Total short-term investments	$	192,762	$	24	$	(1	)	$	192,785
Total cash and cash equivalents and investments	$	223,185	$	24	$	(1	)	$	223,208

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Summary of Significant Accounting Policies Stock-Based Compensation (Details 1) (Stock Option)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Stock Option
Share-based Compensation Arrangement by Share-based Payment Award
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected VolatilityRate, Employees	85.00%	93.00%	88.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Employee	0.90%	0.80%	2.20%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term, Employees	5 years	5 years	5 years
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate, Employees	0.00%	0.00%	0.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate, Officers and Non-employee Directors	81.00%	81.00%	78.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Officers and Non-employee Directors	1.60%	1.50%	3.20%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term, Officers and Non-employee Directors	8 years	8 years	8 years
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate, Officers and Non-employee Directors	0.00%	0.00%	0.00%

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Equity Incentive Awards

12 Months Ended

Dec. 31, 2013

Equity Incentive Awards [Abstract]

Equity Incentive Awards

Equity Incentive Awards

Equity Incentive Plans

Equity Incentive Plan:  In September 1995, Lexicon adopted the 1995 Stock Option Plan, which was subsequently amended and restated in February 2000 and renamed the 2000 Equity Incentive Plan, subsequently amended and restated in April 2009 and renamed the Equity Incentive Plan (the “Equity Incentive Plan”), and subsequently amended in April 2012.

The Equity Incentive Plan provides for the grant of incentive stock options to employees and nonstatutory stock options to employees, directors and consultants of the Company. The plan also permits the grant of stock bonus awards, restricted stock awards, restricted stock unit (phantom stock) awards and stock appreciation rights. Incentive and nonstatutory stock options have an exercise price of 100% or more of the fair market value of our common stock on the date of grant.  The purchase price of restricted stock awards may not be less than 85% of fair market value.  However, the plan administrator may award stock bonus awards in consideration of past services or phantom stock awards without a purchase payment. Shares may be subject to a repurchase option in the discretion of the plan administrator.  Most options granted under the Equity Incentive Plan become vested and exercisable over a period of four years; however some have been granted with different vesting schedules.  Options granted under the Equity Incentive Plan have a term of ten years from the date of grant.

The total number of shares of common stock that may be issued pursuant to stock awards under the Equity Incentive Plan shall not exceed in the aggregate 50,000,000 shares.  No more than 15,000,000 shares may be issued pursuant to awards other than stock options and stock appreciation rights.  As of December 31, 2013, an aggregate of 50,000,000 shares of common stock had been reserved for issuance, options to purchase 22,342,175 shares and 4,241,869 restricted stock units were outstanding, 5,659,265 shares had been issued upon the exercise of stock options, 1,839,850 shares had been issued pursuant to restricted stock units and 740,300 shares had been issued pursuant to stock bonus awards or restricted stock awards granted under the Equity Incentive Plan.

Non-Employee Directors’ Equity Incentive Plan:  In February 2000, Lexicon adopted the 2000 Non-Employee Directors’ Stock Option Plan, which was subsequently amended and restated in April 2009 and renamed the Non-Employee Directors’ Stock Option Plan, and subsequently amended in April 2012 and renamed the Non-Employee Directors’ Equity Incentive Plan (the “Directors’ Plan”).  Under the Directors’ Plan, non-employee directors receive an initial option to purchase 30,000 shares of common stock.  In addition, on the day following each of the Company’s annual meetings of stockholders, each non-employee director who has been a director for at least six months is automatically granted an option to purchase 20,000 shares of common stock and a restricted stock award of the number of shares of common stock having a fair market value on the date of grant of $20,000, rounded down to the nearest whole share number.  Initial option grants become vested and exercisable over a period of five years and annual option grants become vested over a period of 12 months from the date of grant.  Options granted under the Directors’ Plan have an exercise price equal to the fair market value of the Company’s common stock on the date of grant and a term of ten years from the date of grant.

The total number of shares of common stock that may be issued pursuant to stock awards under the Directors’ Plan shall not exceed in the aggregate 1,500,000 shares.  As of December 31, 2013, an aggregate of 1,500,000 shares of common stock had been reserved for issuance, options to purchase 964,000 shares were outstanding, none had been issued upon the exercise of stock options and 174,920 shares had been issued pursuant to restricted stock awards granted under the Directors’ Plan.

Stock Option Activity:  The following is a summary of option activity under Lexicon’s equity incentive plans:

	2013				2012				2011
(in thousands, except exercise price data)	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at beginning of year	21,525		$	2.51	20,476		$	2.84	19,598		$	3.46
Granted	3,490		2.13		3,441		1.84		2,974		1.80
Exercised	(572	)	1.75		(636	)	1.66		(130	)	1.46
Expired	(950	)	3.98		(1,231	)	6.93		(1,662	)	8.50
Forfeited	(187	)	1.94		(525	)	1.78		(304	)	1.76
Outstanding at end of year	23,306		2.42		21,525		2.51		20,476		2.84
Exercisable at end of year	17,378		$	2.56	15,582		$	2.77	13,940		$	3.34

The weighted average estimated grant date fair value of options granted during the years ended December 31, 2013, 2012 and 2011 were $1.59, $1.37 and $1.36, respectively.  The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 were $325,000, $462,000 and $63,000, respectively.  The weighted average remaining contractual term of options outstanding and exercisable was 5.8 and 4.9 years, respectively, as of December 31, 2013.  At December 31, 2013, the aggregate intrinsic value of the outstanding options and the exercisable options was $1.4 million and $1.4 million, respectively.

Stock Bonus and Restricted Stock Unit Activity:

During the year ended December 31, 2011, Lexicon granted its officers 200,277 shares of stock bonus awards

in lieu of cash bonus awards. The stock bonus awards had a weighted average grant date fair value of $1.81 per share and vested immediately. During the years ended December 31, 2013 and 2012, Lexicon granted its non-employee directors 80,808 and 94,112 shares, respectively, of restricted stock awards. The restricted stock awards had weighed average grant date fair values of $1.98 and $1.70 per share, respectively, and vested immediately.

During the years ended December 31, 2013, 2012 and 2011, Lexicon granted its employees restricted stock units in lieu of or in addition to annual stock option awards. These restricted stock units vest in four annual installments. The following is a summary of restricted stock units activity under Lexicon’s stock-based compensation plans for the year ended December 31, 2013:

	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2012	3,543		$	1.80
Granted	1,969		2.09
Vested	(992	)	1.80
Forfeited	(278	)	1.91
Nonvested at December 31, 2013	4,242		$	1.93

During 2010, Lexicon granted certain employees restricted stock units with a performance condition. The shares subject to the restricted stock units granted in 2010 vested upon the dosing of the first patient in a pivotal human clinical trial in any country, the results of which could be used to establish safety and efficacy of a pharmaceutical product discovered or developed by Lexicon as a basis for a New Drug Application. This performance condition occurred during the year ended December 31, 2013, and therefore all outstanding restricted stock units with this performance condition vested. Stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met. The following is a summary of performance-based restricted stock units activity under Lexicon's stock-based compensation plans for the year ended December 31, 2013:

	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2012	329		$	1.90
Vested	(329	)	1.90
Nonvested at December 31, 2013	—		$	—

Aggregate Shares Reserved for Issuance

As of December 31, 2013, an aggregate of 27,548,044 shares of common stock were reserved for issuance upon exercise of outstanding stock options and vesting of outstanding restricted stock units and 15,537,621 additional shares were available for future grants under Lexicon’s equity incentive plans.  The Company has a policy of using either authorized and unissued shares or treasury shares, including shares acquired by purchase in the open market or in private transactions, to satisfy equity award exercises.