-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KIdbgQEwS0kW5j3L8qGUjNo+gEymM7Teh+ppkIwrPrci49jLfINk62lf8DctjjUI sk91i0iLuigYdjamETeHYQ== /in/edgar/work/0000912057-00-049135/0000912057-00-049135.txt : 20001114 0000912057-00-049135.hdr.sgml : 20001114 ACCESSION NUMBER: 0000912057-00-049135 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENCHIRA BIOTECHNOLOGY CORP CENTRAL INDEX KEY: 0000895677 STANDARD INDUSTRIAL CLASSIFICATION: [8731 ] IRS NUMBER: 043078857 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21130 FILM NUMBER: 761247 BUSINESS ADDRESS: STREET 1: 4200 RESEARACH FOREST DR CITY: THE WOODLANDS STATE: TX ZIP: 77381 BUSINESS PHONE: 2813646142 MAIL ADDRESS: STREET 1: 4200 RESEARCH FOREST DR CITY: THE WOODLANDS STATE: TX ZIP: 77381 FORMER COMPANY: FORMER CONFORMED NAME: ENERGY BIOSYSTEMS CORP DATE OF NAME CHANGE: 19940204 10-Q 1 a2030390z10-q.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 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: 0-21130 ENCHIRA BIOTECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 04-3078857 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 4200 Research Forest Drive The Woodlands, Texas 77381 (address of principal executive offices) (zip code) 281-419-7000 (Registrant's telephone number, including area code) 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 X No --- --- As of November 1, 2000, there were outstanding 9,055,285 shares of Common Stock, par value $.01 per share, of the registrant. ENCHIRA BIOTECHNOLOGY CORPORATION FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 INDEX
Page ---- Factors Affecting Forward-Looking Statements 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements 4 Balance Sheets as of September 30, 2000 (Unaudited) and December 31, 1999 5 Statements of Operations for the Three and Nine Months Ended September 30, 2000 and 1999 (Unaudited) 6 Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 (Unaudited) 7 Notes to Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial 11 Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities and Uses of Proceeds 15 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17
2 FACTORS AFFECTING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words "anticipate", "believe", "expect", "estimate", "project" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, expected, estimated or projected. These risks and uncertainties include technological uncertainty and risks associated with the commercialization of the Company's technology, the pending dispute and arbitration with Maxygen relating to the Company's rights to its RACHITT-TM- technology, the Company's history of operating losses and uncertainty of future profitability, manufacturing risks and uncertainties, uncertainty of market acceptance of the Company's technology, uncertainties as to the protection offered by the Company's patents and proprietary technology, the Company's dependence on collaborations, the Company's need for additional funds, limited marketing experience and dependence on key personnel, government regulation, competition and other risks and uncertainties described in the Company's filings with the Securities and Exchange Commission. For additional discussion of such risks, uncertainties and assumptions ("Cautionary Statements"), see "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" included elsewhere in this report and "Item 1. Business - Risk Factors" in the Company's Annual Report on Form 10-K (filed as Energy BioSystems Corporation) for the year ended December 31, 1999 (the "1999 Form 10-K"). All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The following unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the 1999 Form 10-K. The information presented in the accompanying financial statements is unaudited, but in the opinion of management, reflects all adjustments (which include only normal recurring adjustments) necessary to present fairly such information. 4 ENCHIRA BIOTECHNOLOGY CORPORATION BALANCE SHEETS
September 30, December 31, 2000 1999 ----------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 10,408,434 $ 2,510,274 Short-term investments 3,518,496 3,445,199 Prepaid expenses and other current assets 445,340 143,014 ---------------- ---------------- Total current assets 14,372,270 6,098,487 Long-term investments 1,278,898 - Furniture, equipment and leasehold improvements, net 783,843 926,684 Intangible and other assets, net 1,199,821 1,038,927 ---------------- ---------------- Total assets $ 17,634,832 $ 8,064,098 ================ ================ LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 572,950 $ 327,150 Short-term capital lease 11,990 - Deferred revenue 855,000 180,000 ---------------- ---------------- Total current liabilities 1,439,940 507,150 Long-term capital lease 61,463 - Stockholders' equity: Series B Convertible Preferred Stock, $0.01 par value (liquidation value $23,640,918; 760,000 shares authorized, 387,700 and 519,400 shares, respectively, issued and outstanding) 22,962,211 28,100,250 Common Stock, $0.01 par value (30,000,000 shares authorized, 9,054,860 and 6,572,135 shares, respectively, issued and outstanding) 90,549 65,721 Additional paid-in capital 73,687,928 54,470,252 Accumulated deficit (80,607,259) (75,079,275) ---------------- ---------------- Total stockholders' equity 16,133,429 7,556,948 ---------------- ---------------- Total liabilities and stockholders' equity $ 17,634,832 $ 8,064,098 ================ ================
The accompanying notes are an integral part of these financial statements. 5 ENCHIRA BIOTECHNOLOGY CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 --------------- --------------- --------------- --------------- REVENUES: Sponsored research revenues $ 135,157 $ 390,241 $ 493,322 $ 1,415,177 Interest and investment income 68,440 89,837 193,879 131,180 --------------- --------------- --------------- --------------- Total revenues 203,597 480,078 687,201 1,546,357 COSTS AND EXPENSES: Research and development 964,327 1,008,510 2,949,998 3,677,615 General and administrative 816,334 428,784 1,831,455 1,441,380 --------------- --------------- --------------- --------------- Total costs and expenses 1,780,661 1,437,294 4,781,453 5,118,995 --------------- --------------- --------------- --------------- NET LOSS $ (1,577,064) $ (957,216) $ (4,094,252) $ (3,572,638) ============== =============== =============== =============== NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.28) $ (0.25) $ (0.83) $ (1.49) ============== =============== =============== =============== SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE 7,551,257 6,569,557 7,077,747 3,983,820 ============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements. 6 ENCHIRA BIOTECHNOLOGY CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, ------------------------------ 2000 1999 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (4,094,252) $ (3,572,638) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 350,361 608,435 Issuance of common stock for services 25,000 - Changes in assets and liabilities: Decrease (increase) in prepaid expenses and other current assets (240,733) 78,674 Increase in deferred revenue 675,000 - Increase (decrease) in accounts payable and accrued liabilities 245,800 (389,506) -------------- -------------- Net cash used in operating activities (3,038,824) (3,275,035) -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (97,109) (41,202) Patent expenditures (187,894) (127,297 Net purchase of short-term investments (1,352,195) (2,451,140) -------------- -------------- Net cash used in investing activities (1,637,198) (2,619,639) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on notes payable (61,594) (112,545) Payments on capital lease (9,957) - Dividends paid (115,522) - Proceeds from exercise of stock options and warrants 304,168 5,366 Issuance of common stock 12,457,087 7,503,198 -------------- -------------- Net cash provided by financing activities 12,574,182 7,396,019 -------------- -------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 7,898,160 1,501,345 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,510,274 2,795,429 -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,408,434 $ 4,296,774 ============== ==============
The accompanying notes are an integral part of these financial statements. 7 ENCHIRA BIOTECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Enchira Biotechnology Corporation ("EBC" or the "Company"), formerly Energy BioSystems Corporation, was incorporated in the State of Delaware on December 20, 1989, and commenced operations in January 1990. EBC is a biotechnology company incorporating genetic recombination, high throughput screening and bioprocessing in an integrated, directed evolution technology platform. The Company believes that this proprietary platform technology can be used to generate libraries of novel genes for the creation of improved enzymes for a broad range of applications, such as protein-based pharmaceuticals, agricultural crop enhancement and protection products, and industrial enzymes for the manufacture of specialty chemicals, fine chemicals and pharmaceutical intermediates. EBC believes that the proprietary platform technology will greatly accelerate the development of a commercial biocatalyst for its biocatalytic desulfurization ("BDS"), a proprietary process involving the use of enzymes in bacteria to remove sulfur from petroleum. EBC has discovered that its proprietary biocatalytic technology may also provide an economic basis for production of a broad family of industrial organosulfur chemicals with potential uses in detergent, surfactant, polymer and adhesive markets. Joint development and testing agreements were executed with several major chemical companies for detailed evaluation of these products in specific commercial applications, and EBC is pursuing strategic business alliances for commercialization of this technology. On April 27, 2000, the Company received notice from Maxygen Inc. that they had elected to seek arbitration under the License and Development Agreement dated May 19, 1997 between the Company and Maxygen. Maxygen claims that the Company used Maxygen's confidential information, which they allege was provided to the Company under the Agreement, to develop its own RACHITT-TM- directed evolution technology. The Company denies all allegations of Maxygen and believes that its technology was independently developed after the collaboration with Maxygen ceased. Arbitration is set to begin November 13, 2000. The Company believes that there is no merit to the allegations brought against it by Maxygen and believes the action will not have a material adverse affect on the financial statements. However, the Company cannot assure that its defense will be successful. If the Company is not successful, its business could be materially and adversely affected, and the Company could be required to enter into cross license agreements, pay a substantial amount in damages or otherwise have its proprietary rights in directed evolution technology adversely affected. The outcome of the arbitration cannot currently be determined or estimated. However, the Company has recorded accrued expenses of approximately $210,000 as of September 30, 2000 to cover estimated future legal costs for the arbitration. The accompanying unaudited interim financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. These financial statements should be read in conjunction with the 1999 Form 10-K. 8 ENCHIRA BIOTECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) Revenue Recognition In August 2000, the Company entered into a collaboration agreement with Genencor International, Inc. ("Genencor") for research and development work on improved industrial proteins. Under the agreement, Genencor will provide $1 million of funding over the next two years. In May 2000, the Company entered into a licensing agreement with Genencor involving EBC's proprietary gene shuffling technology for directed evolution. Under the agreement, Genencor will use the Company's proprietary RACHITT-TM- technology to develop gene-based products for the cleaning, textiles, grain processing, animal feed and food ingredients industries. An initial licensing fee and an additional fee for an option to expand the licensing field were paid by Genencor in June 2000. In the event that Genencor's rights to the RACHITT-TM- technology are materially and adversely affected as a result of the arbitration with Maxygen, the payments received from Genencor are refundable. Payments received under the licensing and collaboration agreements during 2000 have been recorded as deferred revenue on the balance sheet. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101") which provides guidance related to revenue recognition. EBC is required to adopt SAB 101 by the fourth quarter of 2000. Upon its adoption, SAB 101 will be effective as of January 1, 2000, at which time EBC will report any changes in revenue recognition as a cumulative change in accounting principle. EBC is currently evaluating the impact of SAB 101 on its financial position and results of operations. Net Loss Per Common Share Net loss per share has been computed by dividing the net loss, which has been increased for periodic accretion and accrued dividends on the Series B Convertible Preferred Stock issued in February and March 1997, by the weighted average number of shares of common stock outstanding during the period. NOTE 2. COMMON STOCK OFFERING The Company completed a private placement of its common stock during September 2000. The Company offered and sold 2,000,000 shares of its common stock at $6.4325 per share. Net proceeds from the offering were approximately $12.5 million. In connection with the closing, warrants to purchase 600,000 shares of the Company's common stock were issued at an exercise price of $7.44. In addition, warrants to purchase 31, 375 shares of the Company's common stock at an exercise price of $7.44 per share were issued to The Trout Group, LLC, one of the Company's placement agents, in partial payment of their placement fees. The warrants expire in two years and have been recorded at an aggregate estimated fair value of $2,522,094, which was computed using the Black-Scholes option pricing model and the following assumptions: risk free rate of 6.19 percent; expected dividend yield of zero; expected life of two years; and an expected volatility at an average weight of 125 percent. 9 ENCHIRA BIOTECHNOLOGY CORPORATION NOTES TO FINANCIAL STATEMENTS - (CONTINUED) NOTE 3. SERIES B CONVERTIBLE PREFERRED STOCK Shares of Series B Preferred Stock are convertible into shares of common stock at an adjusted conversion price currently equal to $16.76 per share, subject to certain adjustments. The Series B Preferred Stock may be redeemed by the Company under certain circumstances after February 26, 1999 and is required to be redeemed, subject to certain limitations, on February 26, 2002 at a redemption price of $50.00 per share, plus accrued and unpaid dividends. It is the Company's present intent, however, to redeem the Series B Preferred Stock for common stock, subject to certain requirements. Accordingly, the Series B Preferred Stock is included in stockholders' equity. During the first nine months of 2000, 131,700 shares of Series B Preferred Stock were converted to 328,261 shares of common stock. As of September 30, 2000, 314,400 aggregate shares of Series B Preferred Stock had been converted to 541,950 shares of common stock. Dividends on the Series B Preferred Stock are cumulative from the date of the initial closing, February 27, 1997, and are payable, at the Company's election, in cash or common stock of the Company, or a combination thereof, at an annual rate equal to (i) $4.00 per share to the extent the dividend is paid in cash and (ii) $4.50 per share to the extent the dividend is paid in common stock. The Company has not declared a dividend payment since November 1998, and since that date, has not paid dividends on Series B Preferred Stock except on conversion of Series B Preferred Stock to common stock. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Since its inception in December 1989, the Company has devoted substantially all of its resources to its research and development. To date, all of the Company's revenues have resulted from interest and investment income and sponsored research payments from collaborative agreements. The Company has incurred cumulative net losses since inception and expects to incur substantial losses for at least the next several years, due primarily to its research and development activities and the development of its directed evolution technology, organosulfur compounds and biocatalyst development. The Company expects that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. As of September 30, 2000, the Company's accumulated deficit was $80,607,259. RESULTS OF OPERATIONS The Company had total revenues for the three months ended September 30, 2000 and 1999 of $203,597 and $480,078, respectively. The decrease in total revenues of $276,481 was attributable to decreases in sponsored research revenues and in interest and investment income. The Company had sponsored research revenues of $135,157 during the third quarter of 2000 as compared to $390,241 during the third quarter of 1999. The decrease of $255,084 in sponsored research revenues resulted primarily from the decrease in sponsored research revenues from a Department of Energy ("DOE") grant. The Company had total revenues for the nine months ended September 30, 2000 and 1999 of $687,201 and $1,546,357, respectively. The decrease of $859,156 in total revenues was attributable to decreases in sponsored research revenues offset in part by increases in interest and investment income. The Company had sponsored research revenues of $493,322 during the first nine months of 2000 as compared to $1,415,177 during the first nine months of 1999. The decrease of $921,855 in sponsored research revenues resulted primarily from the decrease in sponsored research revenues from a DOE grant. Payments received under the licensing and collaboration agreements during 2000 have been recorded as deferred revenue on the balance sheet. The Company had interest and investment income of $68,440 in the third quarter of 2000 as compared to $89,837 in the third quarter of 1999. The decrease of $21,397 in interest and investment income resulted primarily because the Company's average balances of cash, cash equivalents and short-term investments during the third quarter of 2000 were less than those during the corresponding period of 1999. The Company had interest and investment income of $193,879 for the first nine months of 2000 compared to $131,180 for the first nine months of 1999. The increase of $62,699 in interest and investment income resulted primarily from a increase in the available cash from which interest and other investment income are generated. The Company had research and development expenses for the three months ended September 30, 2000 and 1999 of $964,327 and $1,008,510, respectively, and for the nine months ended September 30, 2000 and 1999 of $2,949,998 and $3,677,615, respectively. The decrease in research and development expenses of $44,183 and $727,617, respectively, for the three and 11 nine months ended September 30, 2000 as compared to the corresponding prior year periods resulted primarily from a reduction in research and development personnel and the charge to research and development expense in the first quarter of 1999 for warrants issued to Petro Star Inc. ("Petro Star") in the amount of $404,500. The Company expects its research and development expenses to remain below 1999 levels for the remainder of 2000, reflecting a decrease in the number of research and development personnel due to attrition and a change in the primary focus of the Company's research and development efforts to directed evolution technology. The Company had general and administrative expenses for the three months ended September 30, 2000 and 1999 of $816,334 and $428,784, respectively, and for the nine months ended September 30, 2000 and 1999 of $1,831,445 and $1,441,380, respectively. The increase of $387,550 and $390,065 for the three and nine months ended September 30, 2000, respectively, as compared to the corresponding periods of 1999 resulted from increases in legal expenses as a result of the Maxygen arbitration offset in part by the reduction of the administrative personnel at the end of the first quarter of 1999 and the sublease of approximately 5,700 square feet of space at the end of the second quarter of 1999. The Company expects a slight increase from 1999 levels in its general and administrative expenses during the remainder of 2000, reflecting increased business development activities. LIQUIDITY AND CAPITAL RESOURCES The Company completed a private placement of its common stock during September 2000. The Company offered and sold 2,000,000 shares of its common stock at $6.4325 per share. Net proceeds from the offering were approximately $12.5 million. In connection with the closing, warrants to purchase 600,000 shares of the Company's common stock were issued at an exercise price of $7.44. In addition, warrants to purchase 31,375 shares of the Company's stock at an exercise price of $7.44 per share were issued to The Trout Group, LLC, one of the Company's placement agents, in partial payment of their placement fees. The warrants expire in two years and have been recorded at an aggregate estimated fair value of $2,522,094, which was computed using the Black-Scholes option pricing model and the following assumptions: risk free rate of 6.19 percent; expected dividend yield of zero; expected life of two years; and an expected volatility at an average weight of 125 percent. For the nine months ended September 30, 2000, the Company used $3,038,824 of net cash in operating activities, incurred $285,003 in capital expenditures and provided $12,574,182 in net financing activities. At September 30, 2000, the Company had cash, cash equivalents and marketable securities totaling $15,205,828 and working capital of $12,932,330. The Company intends to spend approximately $20,000 during the remainder of 2000 for the purchase of laboratory and analytical instrumentation. The Company also expects to incur additional research and development expenses associated with its directed evolution technology, organosulfur compounds and biocatalyst development. In addition, the Company is subject to cost sharing arrangements under various collaboration agreements. In August 2000, the Company entered into a collaboration agreement with Genencor for research and development work on improved industrial proteins. Under the agreement Genencor will provide $1 million of funding to the Company over a two year period. 12 In May 2000, the Company entered into a licensing agreement with Genencor involving EBC's proprietary gene shuffling technology for directed evolution. Under the agreement, Genencor will use the Company's proprietary RACHITT-TM- technology to develop gene-based products for the cleaning, textiles, grain processing, animal feed and food ingredients industries. An initial licensing fee and an additional fee for an option to expand the licensing field were paid by Genencor in June 2000. In the event that Genencor's rights to the RACHITT-TM- technology are materially and adversely affected as a result of the arbitration with Maxygen, the payments received from Genencor are refundable. Payments received under the licensing and collaboration agreements during 2000 have been recorded as deferred revenue on the balance sheet. In October 1999, the DOE approved the third year of funding to the Company of approximately $1.0 million for a program dedicated to the development of a BDS application for gasoline. Through September 30, 2000 the Company has recognized approximately $2.4 million in sponsored research revenue from the grant, of which approximately $200,000 was receivable at September 30, 2000. This receivable is included in prepaid expenses and other current assets on the balance sheet. The Company has experienced negative cash flow from operations since its inception and has funded its activities to date primarily from equity financings and sponsored research revenues. The Company will continue to require substantial funds to continue its research and development activities and to market, sell and commercialize its technology. The Company believes that its available cash, investments and interest income will be adequate to fund its operations for at lease the next two years. The Company's capital requirements will depend on many factors, including the problems, delays, expenses and complications frequently encountered by companies developing and commercializing new technologies; the progress of the Company's research and development activities; the rate of technological advances; determinations as to the commercial potential of the Company's technology under development; the status of competitive technology; the outcome of the Maxygen dispute; the establishment of biocatalyst manufacturing capacity or third-party manufacturing arrangements; the establishment of collaborative relationships; the success of the Company's sales and marketing programs; the cost of filing, prosecuting and defending and enforcing patents and intellectual property rights and of defending the Maxygen claims; and other changes in economic, regulatory or competitive conditions in the Company's planned business. Estimates about the adequacy of funding for the Company's activities are based upon certain assumptions, including assumptions that the research and development programs relating to the Company's technology can be conducted at projected costs and that progress towards the commercialization of its technology will be timely and successful. There can be no assurance that changes in the Company's research and development plans, acquisitions or other events will not result in accelerated or unexpected expenditures. To satisfy its capital requirements, the Company may seek additional funding through various alternatives that include: an equity financing, government funding, and alliances with chemical companies and corporate partners. There can be no assurance that any such funding will be available to the Company on favorable terms or at all. If adequate funds are not available when needed, the Company may be required to delay, scale back or eliminate some or all of its research and product development programs. If the Company is successful in obtaining additional financing, the terms of such financing may have the effect of diluting or adversely affecting the holdings or the rights of the holders of the Company's Common Stock. 13 On April 27, 2000, the Company received notice from Maxygen Inc. that they had elected to seek arbitration under the License and Development Agreement dated May 19, 1997 between the Company and Maxygen. Maxygen claims that the Company used Maxygen's confidential information which they allege was provided to the Company under the Agreement to develop its own RACHITT-TM- directed evolution technology. The Company denies all allegations of Maxygen and believes that its technology was independently developed after the collaboration with Maxygen ceased. The case is scheduled to go to arbitration beginning November 13, 2000. The Company believes that there is no merit to the allegations brought against it by Maxygen and believes the action will not have a material adverse affect on the financial statements. However, the Company cannot assure that its defense will be successful. If the Company is not successful, its business could be materially and adversely affected and the Company could be required to enter into cross license agreements, pay a substantial amount in damages or otherwise have its proprietary rights in directed evolution technology adversely affected. The outcome of the arbitration cannot currently be determined or estimated. However, the Company has recorded accrued expenses of approximately $210,000 as of September 30, 2000 to cover estimated future legal costs for the arbitration. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK None 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On April 27, 2000, the Company received notice from Maxygen Inc. that they had elected to seek arbitration under the License and Development Agreement dated May 19, 1997 between the Company and Maxygen. Maxygen claims that the Company used Maxygen's confidential information which they allege was provided to the Company under the Agreement to develop its own RACHITT-TM- directed evolution technology. The Company denies all allegations of Maxygen and believes that its technology was independently developed after the collaboration with Maxygen ceased. The case is scheduled to go to arbitration beginning November 13, 2000. The Company believes that there is no merit to the allegations brought against it by Maxygen and believes the action will not have a material adverse affect on the financial statements. However, the Company cannot assure that its defense will be successful. If the Company is not successful, its business could be materially and adversely affected and the Company could be required to enter into cross license agreements, pay a substantial amount in damages or otherwise have its proprietary rights in directed evolution technology adversely affected. The outcome of the arbitration cannot currently be determined or estimated. However, the Company has recorded accrued expenses of approximately $210,000 as of September 30, 2000 to cover estimated future legal costs for the arbitration. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On September 8, 2000, the Company completed a private placement of units consisting of its common stock and warrants to purchase shares of its common stock. In the private placement, the Company sold an aggregate of 128.65 units which consisted of an aggregate of 2,000,000 shares of its common stock and two year warrants to purchase 600,000 shares of the Company's common stock at an exercise price of $7.44 per share. Each unit consisted of approximately 15,546 shares of the Company's common stock and a warrant to purchase approximately 4,664 shares of the Company's common stock, and each unit sold for a purchase price of $100,000. The Company raised approximately $12.8 million ($12.5 million net of placement fees and expenses). The Company intends to use the net proceeds of the private placement for general corporate purposes. The Trout Group, LLC ("Trout Group") and Ten Peaks Capital Corp. ("Ten Peaks") served as placement agents for the private placement. In consideration for such services, the Company paid Ten Peaks placement fees of approximately $159,000, paid Trout Group placement fees of approximately $201,000 and issued a two year warrant to Trout Group to purchase 31,375 shares of the Company's common stock at an exercise price of $7.44 per share. The private placement was not registered under the Securities Act of 1933, as amended (the "Securities Act"), and was made in reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D. The purchasers in the private placement consisted only of accredited investors. 15 On October 31, 2000, the Company filed a registration statement to register both (i) the shares of common stock sold in the private placement and (ii) the shares issuable upon exercise of the warrants issued pursuant to the private placement. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits 4.1 Form of Subscription Agreement (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on September 21, 2000 (the "Form 8-K")). 4.2 Form of Warrant (incorporated by reference to Exhibit 4.2 on the Form 8-K). 10.1 +Collaboration Agreement dated August 25, 2000 between EBC and Genencor International, Inc. 10.2 Offer of Employment, dated August 30, 2000, between EBC and David Carpi. 11.1 Statement regarding Computation of Per Share Earnings. 27.1 Financial Data Schedule. b. Reports on Form 8-K On September 21, 2000, the Company filed a current report on Form 8-K reporting an event under Item 5. +Portions of this exhibit have been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Exchange Act/ Such omitted portions have been filed separately with the Commission. 16 SIGNATURES Pursuant to the requirements 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. Enchira Biotechnology Corporation By: /s/ Peter P. Policastro ------------------------------------- Peter P. Policastro Chief Executive Officer and President Date: November 10, 2000 By: /s/ Paul G. Brown III ------------------------------------- Paul G. Brown III Chief Financial Officer and Vice President, Finance and Administration Date: November 10, 2000 17 EX-10.1 2 a2030390zex-10_1.txt EXHIBIT 10.1 PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE OMITTED PORTIONS ARE MARKED "***" AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. EXHIBIT 10.1 COLLABORATION AGREEMENT This Collaboration Agreement is made this August 25, 2000 ("Effective Date") by and between Enchira Biotechnology Corporation, 4200 Research Forest Drive, The Woodlands, Texas 77381 (formerly Energy BioSystems Corporation and hereinafter referred to as "ENBC") and Genencor International Inc., 925 Page Mill Road, Palo Alto, California 94304 (hereinafter referred to as "Genencor"). WITNESSETH: WHEREAS, ENBC has developed and possesses expertise, know-how and intellectual property rights relating to "chimeragenesis" of divergent genes on transient templates and referred to as "ENBC's RACHITT Technology"; WHEREAS, Genencor is engaged in the commercial manufacturing and marketing of Industrial Proteins in certain uses and applications and ENBC and Genencor have entered into that certain License Agreement dated effective as of May 17, 2000 (the "License Agreement") pursuant to which ENBC has licensed to Genencor certain rights to ENBC's RACHITT Technology for use by Genencor in such efforts; WHEREAS, the License Agreement contemplates that ENBC and Genencor shall enter into a definitive collaboration agreement setting forth the terms and conditions under which Genencor will fund certain development activities to be conducted by ENBC with respect to ENBC's RACHITT Technology; and WHEREAS, the parties intend for this Agreement to constitute the definitive collaboration agreement as defined in, and contemplated by the License Agreement. NOW, THEREFORE, ENBC and Genencor hereby agree as follows: 1. DEFINITIONS The following definitions shall control the construction of each of the following terms wherever they appear in this Agreement: 1.1 "AGREEMENT" shall mean this Collaboration Agreement. 1.2 "AGREEMENT QUARTER" shall mean each three (3) month period during the Term as measured from the Initiation Date of work under the Development Program. 1.3 "DEVELOPMENT FUNDS" shall have the meaning set forth in Section 2.2(a). 18 1.4 "DEVELOPMENT PROGRAM" shall mean the research and development activities relating to the use of ENBC's RACHITT Technology for development of Genencor targets to be conducted by ENBC in collaboration with Genencor under this Agreement. A detailed Work Plan including objectives, R&D plan, staffing, timelines, deliverables of the Development Program is set forth on EXHIBIT A attached hereto and incorporated herein and may be amended from time to time with the written consent of the Parties. 1.5 "INITIATION DATE" shall mean the date ENBC initiates work under the Development Program. 1.6 "PARTY" shall mean either ENBC or Genencor, as appropriate, whereas the term "Parties" shall mean ENBC and Genencor jointly. 1.7 "STEERING COMMITTEE" shall have the meaning set forth in Section 2.4. 1.8 "BIOLOGICAL MATERIAL" shall mean material including strains, genes, vectors, plasmids, and other DNA sequence or constructs, libraries and the like, together with any progeny, mutants, derivatives or replicated forms thereof, and any information relating thereto. All other capitalized terms shall have the meaning set forth in the License Agreement. 2. DEVELOPMENT COLLABORATION 2.1 SCOPE OF DEVELOPMENT COLLABORATION. The Parties hereby undertake to jointly carry out the Development Program in accordance with the Work Plan attached as EXHIBIT A hereto with the purpose of improving Genencor's Industrial Proteins within the Licensed and/or Option Fields. The Work Plan may be adjusted by the Parties from time to time as recommended by the Steering Committee. 2.2 FUNDING OF COLLABORATION BY GENENCOR. (a) FUNDING. Subject to the terms and conditions set forth herein, Genencor shall fund ENBC the amount of One Million Dollars ($1,000,000) (the "Development Funds") as payment for the activities to be performed by ENBC under the Development Program, such amount to be paid in accordance with the terms of Section 2.2(b). (b) PAYMENT. Genencor agrees to make quarterly installments of One Hundred Twenty-Five Thousand Dollars ($125,000) to ENBC, the first such installment being payable within ten (10) days of the Initiation Date and the remaining installments being payable within 10 days of the end of each Agreement Quarter until the payment in full of the Development Funds. 19 (c) STAFFING. Staffing levels will be mutually agreed to by the Parties through the operation of the Steering Committee and based on the needs of the Development Program. It is expected that the overall annual level of personnel allocated by ENBC will be an average of three (3.0) full time equivalent (FTE) scientific personnel ("ENBC's Minimum Staffing"). ENBC will, at the end of each Agreement Quarter, provide Genencor a report confirming the man-months expended during the prior Agreement Quarter. (d) GENENCOR COSTS. Genencor will pay all its own expenses for work on the Development Program, with no cost sharing by ENBC. (e) PERFORMANCE. Payment of the Development Funds shall be a condition to ENBC's obligation to perform the work set out in the Development Program, and shall be a basis for termination of this Agreement by ENBC under Section 5.2 if such payments are not timely made. Adequate staffing at or above the ENBC Minimum Staffing level shall be a condition to Genencor's obligation to make payments pursuant to this Section 2.2, and shall be a basis for termination of this Agreement by Genencor under Section 5.2 if staffing is not adequately provided. Satisfactory performance of the work to be conducted by ENBC and timely delivery of the deliverables set forth for ENBC in the Work Plan shall be a condition to Genencor's obligation to make payments pursuant to this Section 2.2, and shall be a basis for termination of this Agreement by Genencor under Section 5.2. 2.3 PERFORMANCE OBLIGATIONS. The collaboration shall be conducted at and/or coordinated from the facilities of each Party under the direction and supervision of the Steering Committee. ENBC shall use reasonable commercial efforts to diligently carry out and perform its tasks and duties under the Development Program within the time periods set out in the Work Plan. Each Party shall be responsible for the administrative management and, subject to the funding obligations of Genencor under Section 2.2, fiscal control and all other expenses incurred by it for tasks and duties assigned to it in the Development Program. So long as the collaboration continues, ENBC shall periodically (at least quarterly) provide to Genencor and the Steering Committee progress reports summarizing the technical progress of ENBC's work. Notwithstanding any other provision herein, provided ENBC shall have used reasonable commercial efforts to perform its tasks and duties under the Development Program as herein required, ENBC shall not be liable for any failure to achieve its objectives described in the Work Plan on a timely basis or at all. 2.4 STEERING COMMITTEE. (a) MEMBERSHIP. A committee (the "Steering Committee") consisting of two (2) members appointed by ENBC and two (2) members appointed by Genencor shall be established in order to monitor and coordinate the joint collaboration efforts under this Agreement including the Development Program. Each Party has one (1) vote total on any matter within the scope of the Development Program coming before the Steering 20 Committee. The Steering Committee may invite additional representatives from both parties to participate in meetings as deemed necessary and appropriate. (b) RESPONSIBILITIES. The Steering Committee shall have general responsibility, subject to the provisions of Section 2.4(d) below, for directing the research efforts under the Development Program and for monitoring the work done under the Development Program. The Steering Committee shall in good faith discuss matters related, but not limited, to: - goals of the collaboration; - setting of priorities and time frames for the performance of certain activities and deliverables outlined in the Work Plan; - possible changes to, expansion of or abandonment of the Work Plan; - possible conflicts of interest; - inclusion of any third parties or any intellectual property rights or know-how belonging to third parties in the project; - personnel requirements for each goal or project within the Development Program; and - funding requirements for each goal or project within the Development Program subject to the funding obligations set forth in this Agreement. (c) MEETINGS. The Steering Committee shall hold meetings at such times and places as shall be determined by a majority of the entire membership of the Steering Committee, provided that in no event shall such meetings be held less frequently than once every quarter. Such meetings may be held in person or by telephone conference, provided that any decision made during a telephone conference is evidenced by a confirmed writing signed by one or more of the members of the Steering Committee from each Party. (d) VOTES. Actions to be taken by the Steering Committee pursuant to the terms of this Agreement shall only be taken following the unanimous vote of the Steering Committee. The Steering Committee shall attempt to have all decisions approved by all members of the Steering Committee. If the Steering Committee is unable to reach a unanimous decision, such matters shall be referred to the management of each Party for consideration and action. While the Steering Committee may take actions to coordinate the efforts taken by each Party under the Development Program and to make recommendations concerning the matters set forth in Section 2.4(b), the Steering Committee shall not have any authority to enter into any contract or to amend the terms and condition of this Agreement or the License Agreement or incur any liability on behalf of either Party but shall be required to refer any such matters to, and obtain authorization from, the respective management of each Party. Notwithstanding the creation of the 21 Steering Committee, each Party shall retain the rights, powers and discretion granted to it under this Agreement and such Steering Committee shall not be delegated with any such rights, powers or discretion unless the Parties expressly agree in writing. (e) EXPENSES. Each Party shall bear all expenses of its representatives related to the Steering Committee and the attendance at any meetings of the Steering Committee. 2.5 OWNERSHIP OF INTELLECTUAL PROPERTY. (a) ENBC PATENTS AND KNOW-HOW. ENBC Patents and ENBC Know-How are and shall continue to be the sole and exclusive property of ENBC, subject to the licenses granted to Genencor pursuant to the License Agreement. (b) IMPROVEMENTS AND ENBC FUTURE PATENTS. Any Improvements as defined in Section 1.12(ii) of the License Agreement and ENBC Future Patents claiming such Improvements, shall be owned solely by ENBC, regardless of the inventorship of such Improvements, subject to the licenses and options granted to Genencor pursuant to the License Agreement. Genencor agrees that it will, and does hereby, assign its rights to any such Improvements to ENBC and further agrees to otherwise cooperate in all respects in providing such other assistance to ENBC in the filing, prosecution, maintenance and/or enforcement of any ENBC Future Patents. ENBC agrees to reimburse Genencor for its reasonable expenses incurred in rendering such assistance. (c) OTHER INVENTIONS. Genencor shall own any invention, discovery or development including any patent rights relating thereto developed under the Development Program that relate to inventions, discoveries or developments other than Improvements (Other Inventions), regardless of inventorship, including but not limited to those rights relating to Industrial Protein(s). ENBC agrees that it will, and does hereby, assign its rights to any such Other Inventions relating thereto to Genencor and further agrees to otherwise cooperate in all respects in providing such other assistance to Genencor in the filing, prosecution, maintenance and/or enforcement of any patents relating to such. Genencor agrees to reimburse ENBC for its reasonable expenses incurred in rendering such assistance. (d) LICENSE TO CERTAIN OTHER INVENTIONS. Genencor will upon request by ENBC grant ENBC a non-exclusive, sublicenseable, worldwide, license under those Other Inventions (expressly excluding Industrial Protein inventions) for the manufacture, use and sale of products or processes developed or commercialized using RACHITT Technology for use and sale outside of the Licensed Field and Option Field(s). This license shall be royalty free for ENBC's internal research use of such Other Inventions and royalty bearing for commercialization by ENBC or its sublicensee of any product or process developed or commercialized using RACHITT Technology for use or sale outside the Licensed Field or elected Option Field(s). 22 2.6 PUBLICATION OF RESULTS. Neither Party shall be entitled to publish the results obtained under the Development Program, to the extent such results include a description of any technology rights or confidential information owned by the other Party, without the prior written approval of the other Party. 3. REPRESENTATIONS AND WARRANTIES 3.1 BY ENBC. ENBC represents and warrants to Genencor that: (a) it has the authority to enter into this Agreement; (b) it has duly informed Genencor, prior to the Effective Date, of administrative or judicial proceedings, if any, contesting the inventorship, ownership, validity or enforceability of any element of the ENBC Patents and ENBC's RACHITT Technology; and (c) as of the Effective Date, ENBC has no third party agreements which would be violated by the disclosure to Genencor of ENBC Know-How. 3.2 BY GENENCOR. Genencor represents and warrants to ENBC that it has the authority to enter into this Agreement and that this Agreement, including the disclosure to ENBC by Genencor of any of its proprietary and confidential information hereunder, does not conflict with the terms of any other agreement to which it is subject. 4. PATENT PROSECUTION/ENFORCEMENT 4.1 PATENT PROSECUTION. Prosecution, filing and maintenance of patents and patent applications relating to any Improvements and ENBC Future Patents developed under this Agreement shall be handled in accordance with the terms provided in Section 6.1 of the License Agreement. 4.2 PATENT ENFORCEMENT. In the event any Improvement developed pursuant to this Agreement becomes subject to any claim of infringement, the Parties shall comply with the terms of Sections 6.2, 6.3 and 6.4 of the License Agreement in such matters. 5. TERM AND TERMINATION 5.1 TERM. This Agreement shall become effective on the Effective Date and, subject to the earlier termination hereof in accordance with the provisions of this Section 5, continue for two (2) years. 23 5.2 TERMINATION DUE TO MATERIAL BREACH. (a) If a Party to this Agreement commits a material breach of any provision of this Agreement and fails to remedy such breach within thirty (30) days after written notice thereof from the other Party stating the intent to terminate, the Party not in default may, at its option, terminate this Agreement by giving thirty (30) days prior written notice to the Party in default. (b) If a Party to this Agreement terminates the License Agreement as a result of the other Party's commission of a material breach thereof and failure to cure same within the applicable terms of the License Agreement, the Party so terminating the License Agreement shall be permitted to terminate this Agreement. 5.3 GENENCOR TERMINATION OPTION. In the event Genencor elects to terminate the License Agreement in accordance with the provisions of Section 9.3 thereof, Genencor shall have the right to terminate this Agreement. ENBC shall not be required to refund any previously paid Development Funds upon any termination of this Agreement by Genencor pursuant to this Section 5.3. 5.4 EFFECT OF TERMINATION. (a) If Genencor terminates this Agreement pursuant to Section 5.2 or 5.3, Genencor shall pay to ENBC all installments of the Development Funds due and payable as of the effective date of termination with the Development Fund payment accruing for the Agreement Quarter in which such termination occurs being paid on a pro rata basis through and including the effective date of termination. Except as otherwise provided in the preceding sentence, if Genencor terminates this Agreement pursuant to Section 5.2 or 5.3, Genencor shall have no further obligation to pay any additional Development Funds under this Agreement. (b) If ENBC terminates this Agreement pursuant to Section 5.2, Genencor shall, in addition to any of the rights or remedies otherwise available to ENBC, pay to ENBC all installments of the Development Funds due and payable as of the effective date of termination with the Development Fund payment accruing for the Agreement Quarter in which such termination occurs being paid on a pro rata basis through and including the effective date of termination. (c) Notwithstanding the expiration or sooner termination of this Agreement, the provisions contained in Sections 2.5 and 2.6 and Articles 6 and 7 of this Agreement shall continue to survive any such expiration or sooner termination of this Agreement. (d) The termination or expiration of this Agreement for any reason shall be without prejudice to any rights which shall have accrued to the benefit of either Party prior to such termination or expiration, including damages arising from any breach hereunder. 24 6. CONFIDENTIALITY 6.1 In consideration of disclosure by either of the Parties to the other Party of confidential information in written or oral form or in the form of samples, the recipient and the recipient's Affiliates undertake for a period of ten (10) years from the date of disclosure to treat received information as strictly secret and therefore not to disclose it to any third party (except reliable employees and Affiliates and sublicensees under similar secrecy obligations), and to make no commercial use of it except for the purposes of this Agreement or except as otherwise specifically provided for herein. This obligation does not apply to: (a) information which, at the time of disclosure, is already in the public domain; (b) information which, after disclosure, becomes a part of the public domain by publication through no violation of this Agreement; (c) information which the recipient is able to prove by competent written evidence to have been in the recipient's possession prior to any disclosure by the disclosing Party including, without limitation, any prior disclosure pursuant to the License Agreement; (d) information which is hereafter lawfully disclosed by a third party to the recipient, which third party did not acquire the information under a still effective obligation of confidentiality to the disclosing Party; I. information which is independently developed by or for a Party; and (f) information originally disclosed orally which is not promptly confirmed in writing to the receiving party as being the confidential information of the disclosing party. 6.2 PRESS RELEASE. Provided neither Party is precluded from doing so, the Parties will endeavor to issue a joint press release after execution of this Agreement. Neither Party shall issue any other public statement concerning the existence or terms of this Agreement or any activities related hereto without consulting and agreeing with the other Party. However, each Party may disclose this Agreement or any activities related hereto without the other Party's approval if such approval has been requested but not received within forty-eight (48) hours and such party concludes, after consulting with its legal advisors, that it is required by law or regulatory or listing agency to disclose the transaction or part thereof. 25 7. INDEMNIFICATION 7.1 BY ENBC. ENBC shall defend, indemnify and hold Genencor harmless against any liability, damage, loss, cost or expense, including legal fees arising out of or resulting from: (i) ENBC's breach of a material term of this Agreement; and (ii) ENBC's breach of any representation or warranty set forth in Section 3. 7.2 BY GENENCOR. Genencor shall defend, indemnify and hold ENBC harmless against any liability, damage, loss, cost or expense, including legal fees arising out of or resulting from: (i) Genencor's breach of a material term of this Agreement; and (ii) Genencor's breach of a representation or warranty set forth in Section 3. 7.3 NOTICE AND COOPERATION. If either party hereunder receives notice of any claim or of the commencement of any action, administrative or legal proceeding, or investigation as to which the indemnity provided for in Section 7 hereof may apply: 7.3.1 the party seeking indemnification shall notify the indemnifying party of such fact within 14 days at the address noted in Section 8.7; PROVIDED that the failure to so notify shall not release an indemnifying party of its obligation hereunder unless such failure shall be materially detrimental to the defense of any such action, proceeding or investigation; and 7.3.2 the party seeking indemnification shall cooperate with and assist the indemnifying party and its representatives in the investigation and defense of any claim and/or suit for which indemnification is provided. 7.4 DEFENSE AND SETTLEMENT. The indemnifying party shall control the defense of any claim and/or suit for which indemnification is provided under this Section 7. This agreement of indemnity shall not be valid as to any settlement of a claim or suit or offer of settlement or compromise without the prior written approval of the indemnifying party. 8. MISCELLANEOUS 8.1 FORCE MAJEURE. Each of the Parties hereto shall be excused from the performance of its obligations hereunder and shall not be liable for damages to the other in the event that such performance is prevented by circumstances beyond its effective control. Such excuse from performance shall continue for as long as the condition responsible for such excuse continues and for a period of thirty (30) days thereafter, provided that if such excuse continues for a period of one hundred and eighty (180) days, the Party whose performance is not being prevented shall be entitled to withdraw from this Agreement. For the purpose of this Agreement circumstances beyond the effective control of the Party which excuse said Party from performance shall include, without limitation, acts of God, enactments, regulations or laws of any government, injunctions or judgment of any court, war, civil commotion, destruction of facility or 26 materials by fire, earthquake, storm or other casualty, labor disturbances and failure of public utilities or common carrier. 8.2 INDEPENDENT CONTRACTORS. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, employment or joint venture relationship between the Parties. All activities by the Parties hereunder shall be performed by the Parties as independent parties. Neither Party shall incur any debts or make any commitment for or on behalf of the other Party except to the extent, if at all, specifically provided herein or subsequently agreed upon. 8.3 LIMITATION ON ASSIGNMENT. Except as provided herein, ENBC may not assign this Agreement nor any interest or obligation hereunder except with the prior written consent of Genencor, which consent shall not be unreasonably or untimely withheld. Either Party may assign this Agreement in connection with the sale or transfer of all or substantially all of its business to which this Agreement relates. Any permitted assignee shall assume all of the obligations of its assignor under this Agreement. 8.4 AMENDMENTS OF AGREEMENT. This Agreement may be amended or modified or one or more provisions hereof waived only by a written instrument signed by both Parties. 8.5 SEVERABILITY. In the event that any one or more of the provisions of this Agreement should for any reason be held by any court or authority having jurisdiction over this Agreement and the Parties to be invalid, illegal or unenforceable, such provisions shall be deleted in such jurisdiction; elsewhere this Agreement shall not be affected. 8.6 ARTICLE HEADINGS. The section headings contained in this Agreement are for convenience only and are to be of no force or effect in construing and interpreting this Agreement. 8.7 NOTICES. Any notice, report, request, approval, payment, consent or other communication required or permitted to be given under this Agreement shall be in writing and shall for all purposes be deemed to be fully given and received, if delivered in person or sent by registered mail, postage prepaid or by facsimile transmission to the respective parties at the following addresses: If to ENBC: Enchira Biotechnology Corporation 4200 Research Forest Drive The Woodlands, Texas 77381 Telefax: (281) 364-6112 Attention: Paul G. Brown, III 27 If to Genencor: Genencor International, Inc. 925 Page Mill Road Palo Alto, CA 94304 Attention: Senior Vice President Commercial & Legal Affairs Either Party may change its address for the purpose of this Agreement by giving the other Party written notice of its new address. 8.8 NON-WAIVER FOR FAILURE TO ENFORCE COMPLIANCE. The express or implied waiver by either Party of a breach of any provision of this Agreement shall not constitute a continuing waiver of other breaches of the same or other provisions of this Agreement. 8.9 APPLICABLE LAW. This Agreement shall be construed and interpreted in accordance with the laws of the State of Texas. 8.10 AUTHORITY TO SIGN; COUNTERPARTS. Each person signing below and each Party on whose behalf such person executes this Agreement warrants that he, she or it as the case may be, has the authority to enter into this Agreement. This Agreement may be executed in one or more counterparts, each of which is an original but all of which, taken together, shall constitute one and the same instrument. 9. PROVISION OF BIOLOGICAL MATERIALS 9.1 Biological Material made available to a party ("Receiving Party") by the other party ("Delivering Party") is made available for research purposes within the Development Program only and shall not be used for any other purpose without the prior written consent of the Delivering Party. Biological Material provided hereunder will not be used for experiments in which human beings are subjected to the Biological Material, nor for research purposes other than the Development Program, for third parties, nor will Biological Material be transferred to any party outside the Receiving Party without the prior written consent of the Delivering Party. The Receiving Party obtains no rights or license in the transferred Biological Material nor may the Receiving Party file any patent applications claiming such Biological Material. The Receiving Party will handle such Biological Material in compliance with all laws, regulations and guidelines applicable to the Biological Material and its use. The Biological Material is experimental in nature, and is provided AS IS without any warranties with respect to performance or fitness for particular purpose, or to completeness and accuracy of information accompanying the Biological Material. The Receiving Party acknowledges that the Biological Material is provided AS IS and without any representation or warranty, express or implied unless otherwise agreed by the Parties. IN WITNESS WHEREOF, this Collaboration Agreement has been entered into on the last date signed by the Parties below. 28 GENENCOR INTERNATIONAL, INC. Date: By: ----------------- ------------------------------------ Name: ---------------------------------- Title: --------------------------------- ENCHIRA BIOTECHNOLOGY CORPORATION Date: By: ----------------- ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 29 EXHIBIT A "***" 30 EX-10.2 3 a2030390zex-10_2.txt EXHIBIT 10.2 EXHIBIT 10.2 August 30, 2000 David Carpi 53 Fremont St. Somerset, NJ 08873 Re: Offer of Employment Dear David: Enchira Biotechnology Corporation (the "Company") is pleased to offer you the position of Vice President-Business Development on the terms provided herein. You will report directly to and work closely with the President and Chief Executive Officer of the Company. The purpose of this letter is to ensure our mutual understanding and agreement on the details of your employment, which are as follows: EXECUTIVE POSITION & BASE SALARY As Vice President-Business Development, you will be responsible for the Company's strategic alliances, license agreements, collaborations, business development and such other duties as may be assigned to you by me. You will be entitled to an annual base salary of $170,000, paid in accordance with the Company's normal payroll practices. The Compensation Committee of the Board of Directors will review your base salary on an annual basis, and may authorize merit increases in its sole discretion. You will be eligible for bonuses in the discretion of the Board. RELOCATION The Company will pay the reasonable, direct costs necessary to move you, your family and your household goods from New Jersey to The Woodlands area; however, we would ask that you coordinate such move with my office in order to minimize such expenses. The Company will also pay the costs of temporary housing and commuting expenses for you from New Jersey until 60 days following the arbitrator's decision in the arbitration proceeding currently pending between the Company and Maxygen (the "Targeted Relocation Date" or 60 days following the end of the New Jersey school year if necessary), provided that all such arrangements are mutually agreeable, and will reimburse you for usual costs incurred in selling your home in New Jersey. In addition, we will pay for two house-hunting trips for you and your family to The Woodlands area. All amounts paid in connection with your relocation will be grossed up for any applicable taxes due thereon. 31 EQUITY Upon joining the Company, you will receive an option to purchase 100,000 shares of the Company's Common Stock under the Company's Stock Option Plan, subject to formal approval by the Board of Directors. This option will entitle you to purchase the specified number of shares at a purchase price which is equal to the fair market value of the Common Stock on the date your employment commences and will contain vesting provisions as follows: - 25,000 shares vest as a bonus on closing of a mutually agreeable strategic alliance with a biopharmaceutical company within 12 months of employment; in the event that a strategic alliance was not completed with a biopharmaceutical company in the first 12 months of employment but is completed after 12 months of employment but prior to the expiration of 18 months, then 25% of the 25,000 shares shall vest on completion of the strategic alliance, and the remaining 75% thereof shall vest on a monthly basis over a three year period of continued employment thereafter. - 18,750 shares vest on the completion of 12 months of employment with the Company, provided relocation has occurred by this date. - 56,250 shares vest monthly over the following 36 months of employment commencing on the completion of the first year of employment provided relocation has occurred prior to the Targeted Relocation Date. All shares vest in entirety upon a change of control. EMPLOYEE BENEFITS AND VACATION You will be entitled to participate in all Company benefit programs in effect from time to time on the same basis as other employees. Information regarding such benefit programs will be sent to you under separate cover. Please note that such policies and benefits may be changed by the Company from time to time, subject to applicable laws. SEVERANCE PAY In the event that your employment is terminated by the Company at any time after the date hereof, except for "cause" as defined below, the Company will continue to pay your then current salary and benefits for a period of nine months following such termination. Such compensation will be contingent upon your signing a waiver of rights releasing the Company from any and all further liability or responsibility. The Company shall have no obligation to pay salary or benefits in the event you terminate your employment or in the event the Company terminates your employment for "Cause." "Cause" shall include your repeated failure, neglect or refusal, to perform your duties and responsibilities, dishonesty affecting the Company, excessive use of alcohol or use of illegal drugs, conviction of a felony or of any crime involving moral turpitude, fraud or misrepresentation, or the commission of any willful or intentional act which could reasonably be expected to materially injure the reputation, business or business relationships of the Company. 32 SECRECY AGREEMENT Consistent with Company policy, you will be required to execute the Company's standard Confidentiality and Non-Competition Agreement prior to commencement of employment. Such non-compete agreement shall provide that you may not, for a three year period after termination of your employment for any reason, be employed by or otherwise associated with a direct competitor of the Company which is engaged in directed evolution technologies for the development of gene-based products, such as Maxygen, Diversa, or Applied Molecular Evolution, to name a few. A copy of such agreement will be sent to you under separate cover. This offer is subject to your accepting this offer by August 31, 2000, and starting employment by September 18, 2000, to completion of our final reference checks, and to satisfactory completion of a pre-employment physical examination at the Company's cost. A list of physicians in your area is included in the enclosed benefit information. David, it was clear during your visit that we share a great deal of enthusiasm and high expectations for the Company's future. We believe that you can make a significant contribution to the success of the Company and are eager to have you join us. Please call if there is any other information or assistance we can provide. We look forward to hearing from you and to seeing you on September 18, 2000. Sincerely, Peter P. Policastro President and CEO Except as provided above, this letter does not create an employment contract and each party is free to terminate this relationship at any time. Please indicate your acceptance of this offer which will remain in effect until August 31, 2000, by signing and returning the enclosed copy. Date: -------------------------- David Carpi 33 EX-11.1 4 a2030390zex-11_1.txt EXHIBIT 11.1 EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS The following schedules reflect the information used in calculating the number of shares in the computation of net loss per share for each of the periods set forth in the Statements of Operations. 34 BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION THREE MONTHS ENDED SEPTEMBER 30, 2000 Weighted Average Shares Outstanding:
TOTAL # DAYS SHARES OUTSTANDING 7,034,921 x 6 = 42,209,526 7,042,398 x 17 = 119,720,766 7,054,860 x 46 = 324,523,560 9,054,860 x 23 = 208,261,780 -- ----------- 92 = 694,715,632 == =========== 694,715,632 / 92 = 7,551,257 ========= Loss Per Share: Net Loss plus dividend accrual plus accretion of offering costs $(2,126,768) = $ (0.28) - --------------------------------- ------------ ========= Weighted Avg. Shares 7,551,257
35 BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION THREE MONTHS ENDED SEPTEMBER 30, 1999 Weighted Average Shares Outstanding:
TOTAL # DAYS SHARES OUTSTANDING 6,569,557 x 92 = 604,399,244 -- ----------- 92 604,399,244 == =========== 604,399,244 /92 = 6,569,557 Loss Per Share: Net Loss plus dividend accrual plus accretion of offering costs $(1,650,295) = $ (0.25) - --------------------------------- ------------ ========= Weighted Avg. Shares 6,569,557
36 BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION NINE MONTHS ENDED SEPTEMBER 30, 2000 Weighted Average Shares Outstanding:
TOTAL # DAYS SHARES OUTSTANDING 6,572,135 x 3 = 19,716,405 6,574,135 x 7 = 46,018,945 6,576,135 x 15 = 98,642,025 6,578,135 x 14 = 92,093,890 6,591,135 x 1 = 6,591,135 6,596,135 x 6 = 39,576,810 6,624,189 x 8 = 52,993,512 6,629,189 x 1 = 6,629,189 6,691,762 x 6 = 40,150,572 6,706,762 x 1 = 6,706,762 6,723,424 x 3 = 20,170,272 6,734,224 x 14 = 94,279,136 6,734,917 x 4 = 26,939,668 6,772,512 x 6 = 40,635,072 7,016,029 x 7 = 49,112,203 7,018,059 x 4 = 28,072,236 7,020,039 x 17 = 119,340,663 7,020,342 x 5 = 35,101,710 7,021,002 x 20 = 140,420,040 7,034,921 x 46 = 323,606,366 7,042,398 x 17 = 119,720,766 7,054,860 x 46 = 324,523,560 9,054,860 x 23 = 208,261,780 --- ------------- 274 = 1,939,302,717 === ============= 1,939,302,717 / 274 = 7,077,747 ========== Loss Per Share: Net Loss plus dividend accrual plus accretion of offering costs $(5,856,545) = $ (0.83) - --------------------------------- ------------- ========== Weighted Avg. Shares 7,077,747
37 BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION NINE MONTHS ENDED SEPTEMBER 30, 1999 Weighted Average Shares Outstanding:
TOTAL # DAYS SHARES OUTSTANDING 2,179,124 x 19 = 41,403,356 2,179,713 x 30 = 65,391,390 2,180,358 x 74 = 161,346,492 2,182,328 x 3 = 6,546,984 2,315,330 x 13 = 30,099,290 2,328,334 x 7 = 16,298,338 2,354,737 x 15 = 35,321,055 6,150,068 x 11 = 67,650,748 6,569,557 x 101 = 663,525,257 --- ------------- 273 1,087,582,910 === ============= 1,087,582,910 /273 = 3,983,820 ========== Loss Per Share: Net Loss plus dividend accrual plus accretion of offering costs $ (5,922,616) = $ (1.49) - --------------------------------- ------------- ========== Weighted Avg. Shares 3,983,820
38 EX-27.1 5 a2030390zex-27_1.txt EXHIBIT 27.1 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 10,408,434 4,797,394 324,461 0 16,514 14,372,270 6,769,812 5,985,969 17,634,832 1,439,940 0 0 22,962,211 90,549 73,687,928 17,634,832 0 687,201 0 4,781,453 0 0 0 (4,094,252) 0 (4,094,252) 0 0 0 (4,094,252) (0.83) (0.83)
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