10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

OR

oTRANSITION 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 incorporation or organization)	(IRS Employer 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  ý  No o

As of November 6, 2002, there were outstanding 15,310,771 shares of Common Stock, par value $.01 per share, of the registrant.

ENCHIRA BIOTECHNOLOGY CORPORATION

Form 10-Q for the Quarter Ended September 30, 2002

INDEX

Factors Affecting Forward-Looking Statements
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Balance Sheets as of September 30, 2002 (Unaudited) and December 31, 2001
	Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001 (Unaudited)
	Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 (Unaudited)
	Notes to Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
PART II.	OTHER INFORMATION
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
	SIGNATURES

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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 include risks and uncertainties associated with the approval by the Company’s stockholders of the forthcoming liquidation and dissolution of the Company and other factors 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 for the year ended December 31, 2001 (“2001 Form 10-K”).

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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 2001 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.

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ENCHIRA BIOTECHNOLOGY CORPORATION

BALANCE SHEETS

	September 30, 2002			December 31, 2001
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	254,340		$	3,031,806
Short-term investments	—			775,941
Prepaid expenses and other current assets	369,813			221,833
Total current assets	624,154			4,029,580
Furniture, equipment and leasehold improvements, net	—			373,279
Intangible and other assets, net	1,679			814,716
Total assets	$	625,833		$	5,217,575
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	208,802		$	589,372
Capital lease, short-term	—			13,644
Deferred revenue	—			180,000
Total current liabilities	208,802			783,016
Capital lease, long-term	—			43,170
Stockholders’ equity:
Series B Convertible Preferred Stock, $0.01 par value (liquidation value $3,889,236; 760,000 shares authorized, 51,200 and 94,700 shares, respectively, issued and outstanding)	3,889,236			6,398,799
Common Stock, $0.01 par value (30,000,000 shares authorized, 14,310,771 shares, and 9,763,300 shares, respectively, issued and outstanding)	153,108			108,433
Treasury stock, 1,080,000 shares, at cost	(21,600		)	(21,600		)
Additional paid-in capital	91,858,713			89,191,974
Accumulated deficit	(95,462,426		)	(91,286,217		)
Total stockholders’ equity	417,031			4,391,389
Total liabilities and stockholders’ equity	$	625,833		$	5,217,575

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

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ENCHIRA BIOTECHNOLOGY CORPORATION

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2002			2001			2002			2001
Sponsored research and licensing revenues	$	—		$	125,000		$	180,000		$	655,601
Cost and expense:
Research and development	210,129			1,110,283			2,845,696			3,025,519
General and administrative	166,725			1,467,668			1,539,611			3,452,278
Total costs and expenses	376,854			2,577,951			4,385,307			6,477,797
Interest and investment income(loss)	29,385			(13,182		)	50,232			162,753
Gain on disposal of fixed assets	153,765			—			180,717			—
Net loss	$	(193,704	)	$	(2,466,133	)	$	(3,974,358	)	$	(5,659,443	)
Net loss per common share – basic and diluted	$	(0.02	)	$	(0.31	)	$	(0.30	)	$	(0.77	)
Shares used in computing net loss per common share – basic and diluted	15,310,771			9,444,391			14,394,438			9,265,289

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

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ENCHIRA BIOTECHNOLOGY CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,974,358	)	$	(5,659,443	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	126,825			247,726
Write-off of patent costs to net realizable value	600,188			167,921
Gain on disposal of fixed assets	(180,717		)	—
Issuance of common stock for services	—			50,000
Changes in assets and liabilities:
Decrease (increase) in prepaid expense and other current assets	(147,980		)	656,104
Decrease in intangible assets	64			—
Decrease in deferred revenue	(180,000		)	(466,667		)
Increase (decrease) in accounts payable and accrued liabilities	(380,571		)	1,281,772
Net cash used in operating activities	(4,136,550		)	(3,722,587		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(23,915		)	(21,319		)
Patent expenditures	(15,214		)	(106,947		)
Sales of fixed and intangible assets	679,086			—
Net sale (purchase) of investments held to maturity	775,941			4,474,269
Net cash provided by (used in) investing activities	1,415,898			4,346,003
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable	—			(255,867		)
Payments on capital lease obligations	(56,814		)	(9,979		)
Proceeds from exercise of common stock and warrants	—			4,072
Net cash provided by (used in) financing activities	(56,814		)	(261,774		)
NET INCREASE IN CASH AND CASH EQUIVALENTS	(2,777,466		)	361,642
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	3,031,806			7,524,191
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	254,340		$	7,885,833

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

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ENCHIRA BIOTECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

September 30, 2002

Note 1.  Basis of Presentation and Significant Accounting Policies

Enchira Biotechnology Corporation (“Enchira” or the “Company”), formerly Energy BioSystems Corporation, was incorporated in the State of Delaware on December 20, 1989, and commenced operations in January 1990.

On November 8, 2002, the Company filed a preliminary proxy statement with the Securities and Exchange Commission pursuant to which it is soliciting proxies from its stockholders to approve a plan of complete liquidation and dissolution of the Company.  The Company intends to file and mail a definitive proxy statement as soon as permissible.  The Company’s Board of Directors approved the proxy statement based on its belief that all other alternatives have been thoroughly evaluated and exhausted.

Enchira has devoted substantially all of its efforts to research and development.  There have been no revenues from operations other than sponsored research revenues and one site license fee of Enchira’s BDS technology in 1998 and there is no assurance of future revenues.  During the first nine months of 2002, Enchira used $4,136,550 in cash for operating activities.  As of September 30, 2002, Enchira had $254,340 in cash and $208,802 in liabilities.  The Company has incurred cumulative net losses since inception and is seeking to sell all its remaining assets and has ceased operations.  Please refer to “Part II – Item 5.  Other Matters” in this Form 10-Q for a description of the Company’s intentions with respect to these matters.  Enchira has an accumulated deficit since inception of approximately $95.5 million and expects that its existing financial resources will fund operations only through cessation of operations.

On August 13, 2002, the Company received a letter from Nasdaq informing the Company that it failed to meet certain of Nasdaq’s maintenance requirements for inclusion on The Nasdaq SmallCap Market (the “SmallCap Market”), including the minimum value of publicly held shares and the minimum bid price requirements for the prior 90 days, and that, as a result, the Company would be delisted from the SmallCap Market.  The Company requested a hearing to appeal this delisting letter, which acted to stay the delisting until the hearing was held.  The Company received notice subsequent to the hearing that effective October 22, 2002, the Company’s securities would be delisted from the SmallCap Market effective immediately.

On August 22, 2002, the Company held an auction at its corporate headquarters at which the Company was able to sell all of its fixed assets for a net price (after the expense of the auction) of $193,750.  On September 20, 2002 the Company completed the sale of its biodesulfurization technology to a third party for $200,000.  See “Part II – Item 5. Other Matters” in this Form 10-Q for a more complete description.  The financial statements include adjustments relating to recoverability and classification of carrying amounts, including intangible and other assets, however, no such adjustments have been made to the amount and classification of liabilities that might result should the Company be liquidated.

Since the Company’s common stock is delisted from Nasdaq altogether, trading in its common stock is now conducted in the over-the-counter markets on the OTC Bulletin Board.  Consequently, the liquidity of the Company’s common stock may be impaired, not only in the number of shares which may be bought and sold, but also

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through delays in the timing of the transactions, reductions in security analysts’ and the news media’s coverage of the Company, and lower prices for the Company’s common stock than it might otherwise attain.

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 2001 Form 10-K.

Note 2.  Series B Convertible Preferred Stock

Under the terms of the Company’s Series B Preferred Stock, the Company is required to redeem all outstanding shares of Series B Preferred Stock at a price of $50 per share on or after February 26, 2002.  Additionally, at the time of redemption, the Company is also required to pay any accrued but unpaid dividends on the shares of Series B Preferred Stock being redeemed.  The Company was unable to redeem the stock for cash and elected to redeem all shares of Series B Preferred Stock with shares of its common stock.  Under the terms of the Series B Preferred Stock, the Company is required to provide a firm commitment underwriting of the shares of its common stock being issued in connection with the redemption or the holder of Series B Preferred Stock may elect to waive this requirement in the event the Company is unable to timely provide a firm commitment underwriting.  As a result, the Company has completed the redemption of 41,100 shares of Series B Preferred Stock from one holder who waived this requirement, which resulted in the issuance of 3,425,000 shares of the Company’s common stock for the redemption and an additional 1,024,075 shares of the Company’s common stock in payment of accrued dividends on the shares.  The Company has an additional 51,200 shares of Series B Preferred Stock outstanding.  If these shares were redeemed at the closing price in effect on November 6, 2002, the Company would be required to issue 64,000,000 shares of its common stock for the redemption and an additional 33,230,887 shares of its common stock in payment of accrued but unpaid dividends.  The number of shares of common stock issuable upon such redemption is based on the 10-day average of the closing prices of the Company’s common stock at the time of redemption.  If required to be redeemed for cash, the Company does not have sufficient funds (approximately $3.9 million) and would be required to file for bankruptcy protection.

Dividends on the Series B Preferred Stock are cumulative from 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 or upon redemption thereof.  As of November 6, 2002, Enchira has paid common stock dividends of 2,423,444 shares of common stock and cash dividends of $2,626,244 on Series B Preferred Stock.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

To date, Enchira has devoted substantially all of its efforts to research and development.  There have been no revenues from operations other than sponsored research revenues and one site license fee in 1998 and there is no assurance of future revenues.  The Company has incurred cumulative net losses since inception.  At September 30, 2002 the Company’s only remaining assets are its Anti-Cancer LigandÔ technology, cash and accounts receivable for the sale of the Company’s fixed and intangible assets.  Enchira has an accumulated deficit since inception of approximately $95.5 million and believes that its existing financial resources will fund operations until it completes its liquidation and dissolves.

On August 16, 2002 and October 15, 2002, respectively, Paul G. Brown, III and Daniel J. Monticello terminated their full-time employment with the Company and agreed to continue to provide services, on a part-time as needed basis, which are necessary in connection with the wind up and dissolution of the Company.

On November 8, 2002, the Company filed a preliminary proxy statement with the Securities and Exchange Commission pursuant to which it is soliciting proxies from its stockholders to approve a plan of complete liquidation and dissolution of the Company.  The Company intends to file and mail a definitive proxy statement as soon as permissible.  The Company’s Board of Directors approved the proxy statement based on its belief that all other alternatives have been thoroughly evaluated and exhausted.  See “Part II – Item 5.  Other Matters” in this Form 10-Q for a more complete description.  The financial statements include adjustments relating to recoverability and classification of carrying amounts, including intangible and other assets, however, no such adjustments have been made to the amount and classification of liabilities that might result should the Company be liquidated.

Results of Operations

The Company had sponsored research revenues for the three months ended September 30, 2002 and 2001 of zero and $125,000, respectively.  The decrease of $125,000 in sponsored research revenues resulted from payments received in 2001 under a research and development collaboration agreement with Genencor International Inc. (“Genencor”) entered into in August 2000 and cancelled in December 2001.

The Company had sponsored research revenues of $180,000 during the first nine months of 2002 as compared to $655,601 during the first nine months of 2001.  The decrease of $475,601 in sponsored research revenues resulted from the cancellation of the collaboration agreement with Genencor in December 2001 and the completion of the DOE grant in May 2001 offset in part by the recognition of deferred revenue in the first quarter of 2002.

The Company had research and development expenses for the three months ended September 30, 2002 and 2001 of $210,129 and $1,110,283, respectively, and for the nine months ended September 30, 2002 and 2001 of  $2,845,696 and $3,025,519, respectively.  The decrease in research and development expenses of $900,154 and $179,823, respectively, for the three and nine months ended September 30, 2002 as compared to the corresponding prior year periods resulted primarily from the reduction in workforce in the second quarter of 2002 and the cessation of continuing operations offset in part by the write-off of patent costs to approximate net realizable value and the retention bonus, severance pay and related wind up expenses associated with the reduction in workforce in May 2002 and the anticipated liquidation of the Company.  Such expenses were characterized as research and development expenses in order to be consistent with prior treatment.  See “Liquidity and Capital Resources” below for additional discussion.

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The Company had general and administrative expenses for the three months ended September 30, 2002 and 2001 of $166,725 and $1,467,668, respectively, and for the nine months ended September 30, 2002 and 2001 of $ 1,539,611 and $3,452,278, respectively. The decrease of $1,300,943 for the three months ended September 30, 2002 reflects a decrease in legal expenses paid resulting from the settlement of the arbitration with Maxygen.  The decrease of $1,912,667 for the nine months ended September 30, 2002 as compared to the corresponding period of 2001 resulted from decreased legal expenses associated with the arbitration with Maxygen offset in part by the payment of retention bonuses and severance pay associated with the reduction in workforce in May 2002.

The Company had interest and investment gains of $29,385 in the third quarter of 2002 as compared to a loss of $13,182 in the third quarter of 2001.  The increase of $45,567 in interest and investment income resulted primarily from realized capital gains on the maturity of the Company’s short-term investment and interest income compared to losses on investments in the third quarter of 2001.  The Company had interest and investment income of $50,232 for the first nine months of 2002 compared to $162,753 for the first nine months of 2001.  The decrease of $112,521 in interest and investment income resulted primarily from a decrease in interest and investment income on cash equivalents and short-term investments during the first nine months of 2002.

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Liquidity and Capital Resources

Since its inception in December 1989, Enchira has devoted substantially all of its resources to 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.  Enchira has incurred cumulative losses since inception and expects to incur continued losses for the remainder of the year.  As of September 30, 2002, the Company’s accumulated deficit was approximately $95.5 million.

The Company has an additional 51,200 shares of Series B Preferred Stock outstanding.  If these shares were redeemed at the closing price in effect on November 6, 2002, the Company would be required to issue 64,000,000 shares of its common stock for the redemption and an additional 33,230,887 shares of its common stock in payment of accrued but unpaid dividends.  The number of shares of common stock issuable upon such redemption is based on the 10-day average of the closing prices of the Company’s common stock at the time of redemption.  If required to be redeemed for cash, the Company does not have sufficient funds (approximately $3.9 million) and would be required to file for bankruptcy protection.

For the nine months ended September 30, 2002, the Company used $4,136,550 in operating activities, incurred $39,129 in capital and patent expenditures and used $56,814 in financing activities.  At September 30, 2002, the Company had cash totaling $254,340, and working capital of $415,352.

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 believes that its available cash will be adequate to fund the anticipated liquidation and dissolution.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

Not Applicable

Item 4.  Controls and Procedures

Within 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of its President and Chief Financial Officer of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) of the Exchange Act.  Based on that evaluation, the Company’s President and CFO have concluded that the Company’s disclosure controls and procedures are effective. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the evaluation.

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Part II.  Other Information

Item 5.  Other Matters

Since prior to the Company’s reduction in force in May 2002, the Company has attempted to obtain additional capital from potential investors and has searched for potential partners.  This search has been unsuccessful and, as of September 30, 2002, the Company had approximately $254,000 in available cash to finance operations.  As a result, the Company held a public auction of its remaining physical assets located at its headquarters in The Woodlands, Texas on August 22, 2002 and received approximately $194,000. The Company also sold its biodesulfurization technology to a third party on September 20, 2002 for $200,000.  This amount is reflected in the accounts receivable at September 30, 2002.  The cash was received on October 12, 2002.  Also during the last quarter of 2002, the Company intends to mail to its stockholders proxy solicitation materials asking its stockholders to approve a plan of liquidation under which the Company would be liquidated and dissolved.

Item 6.  Exhibits and Reports on Form 8-K

a.       Exhibits

*10.1 Asset Transfer and Sublicense Agreement dated September 20, 2002

10.2 Consulting Agreement dated as of August 16, 2002 between the Company and Paul G. Brown, III

10.3 Settlement and Release Agreement dated as of August 16, 2002 between the Company and Paul G. Brown, III

10.4 Fourth Amendment to Employment Agreement dated as of August 15, 2002 between the Company and Daniel J. Monticello

10.5 Settlement and Release Agreement dated as of August 15, 2002 between the Company and Daniel J. Monticello

10.6 Letter Agreement dated October 15, 2002 between the Company and Daniel J. Monticello

11.1 Statement regarding Computation of Per Share Earnings.

99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* 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.

b.      Reports on Form 8-K

On August 12, the Company filed a current report on Forms 8-K, reporting an event under Item 5.

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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/ Paul G. Brown, III
	Paul G. Brown, III
	President and Chief Financial Officer

Date: November 19, 2002

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CERTIFICATION

I, Paul G. Brown, III, certify that:

1.I have reviewed this quarterly report on Form 10-Q of the registrant;

2.Based on my knowledge, this quarterly 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 quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4.I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:

a)             designed such disclosure controls and procedures 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 quarterly report is being prepared;

b)            evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)             presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.I have disclosed, based on my most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)             all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 19, 2002

/s/ Paul G. Brown, III

Paul G. Brown, III, President and Chief Financial Officer

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EX-10.1

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 “Exchange Act”).  The omitted portions are marked [ ** ] and have been filed separately with the Securities and Exchange Commission (the “Commission”).

ASSET TRANSFER AND SUBLICENSE AGREEMENT

THIS ASSET TRANSFER AND SUBLICENSE AGREEMENT, dated and effective as of September 20, 2002 (the “Effective Date”), is by and between [  **  ] (“[  **  ]”), having its principal place of business at [  **  ], and ENCHIRA BIOTECHNOLOGY CORPORATION, a Delaware corporation (“Enchira”), having its principal place of business at 4200 Research Forest Drive, The Woodlands, TX 77381 (collectively, the “Parties”).

RECITALS

WHEREAS, [  **  ] has developed technologies for, among other things, the  [  **  ] ;

WHEREAS, Enchira owns and has licensed intellectual property and materials related to, among other things, biodesulfurization of fossil fuels (“BDS”);

WHEREAS, [  **  ] desires to acquire from Enchira, and Enchira desires to transfer to [  **  ], certain of Enchira’s intellectual property and materials related to BDS;

WHEREAS, [  **  ] desires to sublicense from Enchira, and Enchira desires to sublicense to [  **  ], certain of Enchira’s intellectual property related to BDS; and

WHEREAS, the Parties desire to set forth herein the terms governing such transfer and such sublicense.

NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement, the receipt and sufficiency of which the Parties hereby acknowledge, the Parties, intending to be legally bound, hereby agree as follows:

1.DEFINITIONS.

“Additional Materials” shall mean the materials listed in Schedule D.

“Affiliate” shall mean any entity that directly or indirectly Owns, is Owned by or is under common Ownership, with Enchira, or [  **  ], as the case may be, where “Owns,” “Owned” or “Ownership” means direct or indirect possession of more than fifty percent (50%) of the outstanding voting securities of a corporation or a comparable equity interest in any other type of entity or such lesser amount as constitutes control in the relevant jurisdiction.

“Agreement” shall mean this Asset Transfer and Sublicense Agreement.

“Assigned Know-How” shall mean all know-how, trade secrets, inventions, data, processes, procedures, devices, methods, formulas, media, strains and all lines, reagents, protocols and marketing and other information and materials, including improvements thereon, whether or not patentable, but which are necessary or useful for the commercial

[  **  ] This portion has been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Exchange Act.  The omitted portion has been separately filed with the Commission.

exploitation of the Assigned Patent Rights or Sublicensed Patent Rights or the construction, installation, development or operation of BDS Units or the development, use, manufacture, offer for sale, sale, import, or export of products or services produced using BDS Units, in each case which are owned by Enchira as of the Effective Date. Assigned Know-How shall not include Assigned Patent Rights or the Sublicensed Patent Rights.

“Assigned Patent Rights” shall mean the patents and patent applications listed in Schedule A and all provisionals, converted provisionals, continued prosecution applications, substitutions, divisionals, continuations, continuations-in-part, reissues, reexaminations, extensions and supplementary protection certificates thereof, including foreign counterparts of the foregoing, which comprise all patent applications and issued and subsisting patents claiming inventions, owned by Enchira as of the Effective Date, which are necessary or useful to construct, install, develop or operate BDS Units or to develop, use, manufacture, offer for sale, sell, import, or export products or services produced using BDS Units.

“Assigned Technology” shall mean the Assigned Know-How and the Assigned Patent Rights.

“BDS” shall have the meaning set forth in the Recitals above.

“BDS Unit” shall mean a fermenter or other apparatus, together with all components thereof, designed to be used, or actually used, for BDS.

“Confidential Information” shall have the meaning set forth in Section 6.1.

“Covered Technology” shall mean the Assigned Technology and the Sublicensed Technology.

“Defaulting Party” shall have the meaning set forth in Section 9.3.1.

“Excluded Items” shall mean any technology and/or materials that are or have been subject to arbitration and/or litigation with Maxygen, Inc., or any order or ruling resulting therefrom, including, without limitation, those items that involve or involved the process referred to by Enchira as RACHITTÔ.

“GTI” shall mean The Gas Institute of Technology.

“GTI License Agreement” shall mean the License and Technology Assistance Agreement, dated January 15, 1991, between Enchira and GTI, as amended as of the Effective Date.

“Indemnitee” shall have the meaning set forth in Section 8.1.

“Non-Defaulting Party” shall have the meaning set forth in Section 9.3.1.

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[  **  ] This portion has been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Exchange Act.  The omitted portion has been separately filed with the Commission.

“Notice of Default” shall have the meaning set forth in Section 9.3.1.

“Party” shall mean [  **  ] or Enchira, as applicable.

“Performance Default” shall have the meaning set forth in Section 9.3.1.

“Petro Star” shall mean Petro Star Inc., an Alaska corporation.

“Product” shall mean fossil fuels produced utilizing Covered Technology.

“Purchase Price” shall have the meaning set forth in Section 4.1.

“RACHITTÔ” is a trademark of Enchira and, as used herein, shall mean the DNA shuffling process publicly referred to by Enchira as “random chimeragenesis on transient templates,” including the technology described and claimed (either as originally filed and/or amended at any time) in U.S. Patent Application No. 60/160,420, dated October 19, 1999, or U.S. Patent Application No. 09/514,660, dated February 29, 2000, or U.S. Patent Application No. 09/618,935, dated July 18, 2000, or PCT Patent Application WO 01/29211, dated October 19, 2000, and/or any U.S. or foreign patent application issuing from or claiming priority through any of the preceding patent applications, as well as any other technologies that are not described in any of the preceding patent applications but which are mere modifications of any invention claimed therein.

“Representation Default” shall have the meaning set forth in Section 9.3.1.

“Sublicense” shall mean the sublicense set forth in Section 3.1.

“Sublicensed Know-How” shall mean that Know-How, as defined in the GTI License Agreement, whether or not patentable, licensed by Enchira pursuant to the GTI License Agreement as of the Effective Date. Sublicensed Know-How shall not include the Sublicensed Patent Rights.

“Sublicensed Patent Rights” shall mean all Industrial Property Rights, as defined in the GTI License Agreement, including the patents listed in Schedule B, together with all associated provisionals, converted provisionals, continued prosecution applications, substitutions, divisionals, continuations, continuations-in-part, reissues, reexaminations, extensions and supplementary protection certificates thereof, including foreign counterparts of the foregoing, licensed by Enchira pursuant to the GTI License Agreement as of the Effective Date.

“Sublicensed Technology” shall mean the Sublicensed Know-How and the Sublicensed Patent Rights.

“Term” shall mean the term of this Agreement as specified in Section 9.1.

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[  **  ] This portion has been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Exchange Act.  The omitted portion has been separately filed with the Commission.

“Third Party” shall mean any individual, partnership, joint venture, corporation, trust, estate, unincorporated organization, government or any department or agency thereof, or any other entity other than [  **  ] or Enchira or an Affiliate of [  **  ] or Enchira.

The above definitions are intended to encompass the defined terms in both the singular and plural tenses.

2.DATA AND MATERIALS.

2.1Due Diligence. Schedules A, B and D attached hereto and incorporated by reference herein contain a listing of certain data, materials, and other intellectual property of Enchira relating to BDS that are necessary or helpful for [  **  ] in the practice of BDS, including specified bacterial strains and reagents.  Enchira hereby represents and warrants to [  **  ] that none of the items listed on Schedules A, B and/or D hereto include, incorporate, or are based upon, any Excluded Items.

2.2Deliverables. On the Effective Date, Enchira shall immediately transfer to [  **  ] the data and materials listed on Schedules A, B and D hereto in the quantities and in the manner set forth on such schedules.

3.ASSIGNMENT AND ASSUMPTION; SUBLICENSE.

3.1Assignment  by Enchira.   In consideration of and upon payment of the Purchase Price,  Enchira hereby assigns to  [  **  ] free and clear of all liens and encumbrances, all its right, title and interest in and to the Assigned Patent Rights and the Assigned Know-How.   As evidence of such assignment, Enchira will provide, at the request of  [  **  ] on or after the Effective Date and in form and substance acceptable to [  **  ], duly executed bills of sale and/or assignment documents transferring the Assigned Patent Rights and the Assigned Know-How to [  **  ], including, but not limited to, the Assignment of Patents attached hereto as Schedule F.

3.2Grant of Sublicense. Subject to the terms and conditions of this Agreement, including payment of the Purchase Price, Enchira hereby grants to [  **  ] a non-exclusive, perpetual, irrevocable, fully-paid and royalty-free sublicense, with the right to further sublicense through multiple tiers, to the Sublicensed Technology to use such Sublicensed Technology to the full extent of Enchira’s rights to the Sublicensed Technology under the GTI License Agreement (the “Sublicense”).

3.3Excluded Items; Hold Harmless. Notwithstanding Sections 3.1 and 3.2 herein, nothing within this Agreement shall be construed to grant [  **  ] any rights, license or sublicense to Excluded Items or to any Enchira technology other than the Covered Technology and the Additional Materials. Enchira agrees that it will hold harmless, and will not initiate any legal action against, [ ** ], [  **  ]’s Affiliates and sublicensees, and/or customers with respect to any claim for infringement or misappropriation of intellectual property owned by or licensed to Enchira prior to the date hereof (including all provisionals

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[  **  ] This portion has been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Exchange Act.  The omitted portion has been separately filed with the Commission.

and converted provisionals existing as of the date hereof relating to BDS, but excluding the Sublicensed Technology, which is subject to the Sublicense) arising from the construction, installation, development, and operation by or for [  **  ] of one or more BDS Units or development, manufacture, import, export, use, offer for sale, and sale of Products by or for [  **  ].

4.PAYMENTS.

4.1Payment to Enchira.  In consideration of the transfer of the Assigned Technology, the grant of the Sublicense and the other rights granted to [  **  ] by Enchira hereunder, [  **  ] will pay to Enchira a total of Two Hundred Thousand Dollars ($200,000) (the “Purchase Price”) upon receipt of all deliverables pursuant to Section 2.2 hereof.

4.2Currency. All payments made pursuant to this Agreement will be paid in United States dollars.

4.3Taxes. Enchira shall pay any and all taxes levied on account of payment it receives under this Agreement.

4.4Allocation. The Parties hereby agree to the allocation of the Purchase Price set forth in Schedule C. Such allocation shall be adopted for all purposes, and neither [  **  ] nor Enchira shall file a tax return or otherwise take a position for tax purposes, or otherwise, inconsistent with this allocation.

5.INTELLECTUAL PROPERTY RIGHTS.

5.1Filing, Prosecution and Maintenance of Patents.

5.1.1Assigned Patent Rights. [  **  ] shall have the sole right, at its own expense, to control the filing, prosecution and maintenance, defense, and enforcement of all Assigned Patent Rights.

5.2Cooperation of the Parties. Each Party agrees (and will cause any of its Affiliates)to cooperate fully in the preparation, filing, prosecution and maintenance of any patent rights under this Agreement. Such cooperation shall include, but not be limited to:

(a)Executing all papers and instruments, or using reasonable efforts to cause its employees or agents, to execute such papers and instruments, so as to effectuate the ownership of intellectual property rights set forth in Article 3 above and to enable the other Party to file and to prosecute patent applications and to maintain patents in any country; and

(b)Undertaking no actions that are potentially deleterious to the preparation, filing, or prosecution of such patent applications or to the maintenance of such patents.

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[  **  ] This portion has been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Exchange Act.  The omitted portion has been separately filed with the Commission.

6.CONFIDENTIAL INFORMATION.

6.1Definition of Confidential Information. “Confidential Information” shall mean any technical or business information furnished by one Party (the “Disclosing Party”) to the other Party (the “Receiving Party”) in connection with this Agreement, whether orally or in writing which is identified by the Disclosing Party as confidential. Confidential Information disclosed orally shall be further identified as confidential in writing within thirty (30) days from the date of disclosure. [  **  ]’s commitment to Enchira under this Section 6 with respect to Enchira Confidential Information is made only (a) with respect to Confidential Information disclosed by Enchira to [  **  ] in connection with the GTI License Agreement and (b) because Enchira is required to impose such requirements on [  **  ] in order to grant the Sublicense to [  **  ]. For purposes of clarity, [  **  ] shall have no confidentiality obligation with respect Assigned Technology or Additional Materials and [  **  ] shall not be required to comply with Section 9.5 hereof with respect to Assigned Technology or Additional Material.

6.2Obligations. The Receiving Party agrees that it shall:

6.2.1Maintain all Confidential Information of the Disclosing Party in strict confidence, except that a Receiving Party may disclose or permit the disclosure of any such Confidential Information to its, and its Affiliates, directors, officers, employees, consultants and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purposes set forth in this Agreement;

6.2.2Use all Confidential Information of the Disclosing Party solely for the purposes set forth in, or as permitted by, this Agreement; and

6.2.3Allow its Affiliates, directors, officers, employees, consultants and advisors to reproduce the Confidential Information of the Disclosing Party only to the extent necessary to effect the purposes set forth in this Agreement, with all such reproductions being considered Confidential Information.

Each Party shall be responsible for any breaches of this Section 6.2 by any of its Affiliates, directors, officers, employees, consultants and advisors.

6.3Exceptions. The obligations of a Receiving Party under Section 6.2 above shall not apply to any specific Confidential Information of the Disclosing Party to the extent that the Receiving Party can demonstrate by competent proof that such Confidential Information:

6.3.1Was generally known to the public or otherwise part of the public domain prior to the time of its disclosure under this Agreement;

6.3.2Entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or

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[  **  ] This portion has been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Exchange Act.  The omitted portion has been separately filed with the Commission.

omission by the Receiving Party or its Affiliates, directors, officers, employees, consultants, advisors or agents;

6.3.3Was independently developed by the Receiving Party, without use of Confidential Information of the Disclosing Party, prior to the time of disclosure by the Disclosing Party; or

6.3.4Was disclosed to the Receiving Party by a Third Party having no fiduciary relationship with the Disclosing Party and having no obligation of confidentiality to the Disclosing Party with respect to such Confidential Information; or

6.3.5Is required to be disclosed to comply with applicable laws or regulations (such as disclosure to the United States Securities and Exchange Commission, the United States Environmental Protection Agency, the United States Department of Energy, or the United States Patent and Trademark Office, or to their foreign equivalents), or to comply with a court or administrative order, provided that the Disclosing Party receives prior written notice of such disclosure and that the Receiving Party takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

6.4Survival of Obligations. The obligations set forth in Sections 6.1, 6.2, and 6.3 shall remain in effect after termination or expiration of this Agreement for a period of five (5) years.

6.5Publicity. Enchira shall not issue any press release or other public statement concerning the existence or terms of this Agreement or any activities related hereto without the written consent of [  **  ]. Notwithstanding the foregoing, Enchira may disclose this Agreement or any activities related hereto without [  **  ]’s approval if such approval has been requested but not received within forty-eight (48) hours and Enchira reasonably 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. [  **  ] shall be free to disclose a portion or all of the terms of this Agreement without requiring the consent of Enchira.

7.REPRESENTATIONS, WARRANTIES, AND DISCLAIMERS.

7.1Organization; Good Standing. Each Party hereby represents to the other Party on the Effective Date and thereafter throughout the Term that, to the best of its knowledge, it (a) is a corporation duly organized and validly existing, (b) is in good standing under the laws of the jurisdiction of its incorporation, (c) is qualified to do business and in good standing in each jurisdiction in which the performance of its obligations hereunder requires such qualification and (d) has all requisite power and authority, corporate or otherwise, and the legal right to conduct its business as now being conducted, to own, lease and operate its properties and to execute, deliver and perform under this Agreement.

7.2Binding Obligation; Due Authorization; No Conflict. Each Party hereby represents to the other Party on the Effective Date and thereafter throughout the Term that,

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[  **  ] This portion has been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Exchange Act.  The omitted portion has been separately filed with the Commission.

to the best of its knowledge, this Agreement is a legal and valid obligation binding upon its execution and enforceable in accordance with its terms and conditions. The execution, delivery and performance of this Agreement by such Party have been duly authorized by all necessary corporate action, and the person executing this Agreement on behalf of such Party has been duly authorized to do so by all requisite corporate actions and do not and will not (a) require any consent or approval of its stockholders or any Third Party or (b) conflict with, or constitute a material breach or violation of, any agreement, instrument, understanding, oral or written, to which it is a party or by which it may be bound, and any judgment of any court, governmental body, or arbitrator applicable to such a Party or (c) violate any law, decree, order, rule or regulation of any court, governmental body or administrative or other agency having authority over it.

7.3No Suit. Enchira hereby represents on the Effective Date, that it is aware of no action, suit or inquiry or investigation contemplated or instituted by any Third Party that questions or threatens the validity of this Agreement.

7.4Title to Intellectual Property Rights. Enchira hereby represents to [  **  ] that Enchira (i) is the sole owner, free and clear of all liens and encumbrances, of the Assigned Technology, (ii) has the right to grant the Sublicense, and (iii) has the right to do all other things necessary for the purposes contemplated under this Agreement.

7.5No Violations of Third Party Intellectual Property Rights. Enchira represents (a) that there are no actions against it pending in any court of law or governmental agency (other than prosecution of patents in the various patent offices in the world) of infringement of valid patent rights of a Third Party and (b) that, to the best of its knowledge, by conducting its obligations as currently proposed under this Agreement, Enchira would not violate any of the intellectual property rights of any Third Party.

7.6No Unauthorized Use Necessary. Enchira hereby represents to [  **  ] that, to the best of Enchira’s knowledge, there is no material unauthorized use, infringement or misappropriation of any of the Covered Technology by anyone.

7.7No Other Third Party Licenses To Assigned Technology. Enchira hereby represents to [  **  ] that no Third Party licenses, or other right to title, use, sublicense or otherwise acquire, the Assigned Technology exist.

7.8Termination of Agreements. The BDS Technology Agreement and the Umbrella Agreement, each dated August 31, 1994 and in each case by and between Enchira and The M.W. Kellogg Company, were terminated by Enchira on or before the Effective Date. The Site License Agreement, dated March 6, 1998, by and between Enchira and PetroStar, was terminated by Enchira and PetroStar on or before the Effective Date.

7.9No Warranties. Except as expressly set forth in this Agreement, each Party hereby acknowledges that the data and any materials to be provided by Enchira to [  **  ] under this Agreement will be of an experimental nature, provided without warranties, and Enchira shall not accept any liability in connection with their use, storage and disposal by

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[  **  ] This portion has been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Exchange Act.  The omitted portion has been separately filed with the Commission.

[  **  ]. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF NON­INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EACH PARTY ACKNOWLEDGES THAT NO WARRANTY IS MADE REGARDING THE UTILITY OF ANY INFORMATION, MATERIALS OR TECHNOLOGY PROVIDED HEREUNDER. EXCEPT AS EXPRESSLY SET FORTH HEREIN, EACH PARTY EXPRESSLY DISCLAIMS ALL WARRANTIES AS TO THE VALIDITY OR SCOPE OF PATENTS AND PATENT CLAIMS, ISSUED AND PENDING, PROTECTING ITS TECHNOLOGY OR THAT ANY TECHNOLOGY WILL BE FREE FROM INFRINGEMENT OF PATENTS OR PROPRIETARY RIGHTS OF THIRD PARTIES, OR THAT NO THIRD PARTIES ARE IN ANY WAY INFRINGING PATENT RIGHTS.

7.10Limitation of Liability. EXCEPT FOR AMOUNTS PAYABLE UNDER SECTION 4.1 OR FOR LIABILITY FOR BREACH OF CONFIDENTIALITY, IN NO EVENT WILL EITHER PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT.

8.INDEMNIFICATION.

8.1Enchira shall indemnify, defend, and hold harmless [  **  ] and its Affiliates and their directors, officers, employees, and agents and their respective successors, heirs and assigns (each an “Indemnitee”), against any liability, damage, loss, or expense incurred by or imposed upon such persons or any one of them in connection with any claims, settlements, suits, actions, demands, or judgments by any Third Party arising from the pursuit of the purposes of this Agreement concerning (i) any theory of product liability (including, but not limited to, actions in the form of tort, warranty, or strict liability), (ii) any breach of the representations and warranties made by Enchira to [  **  ] under this Agreement, including, without limitation, in Sections 2.1 and 7.5 herein or (iii) any and all claims by Maxygen, Inc. (or any successor-in-interest thereto) that any of the Covered Technology licensed hereunder, or, any of the Additional Materials or other materials provided by Enchira to [  **  ] hereunder, includes, incorporates, or is based on, the RACHITTÔ process. None of [  **  ] and its Affiliates and their directors, officers, employees, and agents and their respective successors, heirs and assigns shall be entitled to indemnification for the settlement of any claim pursuant to this Agreement unless it obtains the prior written consent of Enchira to such settlement.

8.2Any Indemnitee that intends to claim indemnification under Section 8.1 shall promptly notify Enchira of any claim in respect of which the Indemnitee intends to claim

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[  **  ] This portion has been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Exchange Act.  The omitted portion has been separately filed with the Commission.

such indemnification, and Enchira shall assume the defense thereof with counsel mutually satisfactory to the Parties; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses of no more than the law firm representing all Indemnitees in the proceeding or related proceeding, to be paid by Enchira, if representation of such Indemnitee by the counsel retained by the Enchira would be inappropriate due to actual or potential differing interests between such Indemnitee and any other Party represented by such counsel in such proceedings. The indemnity agreement in Section 8.1 shall not apply to amounts paid in settlement of any loss, claim, liability or action if such settlement is effected without the consent of the Enchira. The failure to deliver notice to Enchira within a reasonable time after the commencement of any such action, shall not relieve Enchira of any liability to the Indemnitee under Section 8.1, except to the extent Enchira has been prejudiced by such failure to give notice. Each Party and its Affiliates and their employees and agents shall cooperate fully with the other Party and its legal representatives in the investigation of any action, claim or liability covered by this indemnification.

9.TERM AND TERMINATION.

9.1Term. The term of this Agreement will commence as of the Effective Date of this Agreement and, unless sooner terminated as provided hereunder, will expire upon the expiration of the last to expire of the patents included in the Sublicensed Patents (the “Term”).

9.2Mutual Consent. This Agreement may be terminated at any time by mutual written agreement of the Parties.

9.3Default.

9.3.1Notice of Default. In the event any material representation or warranty made hereunder by either Party shall be untrue (“Representation Default”) or upon any breach or default of a material obligation of this Agreement by a Party (“Performance Default”), the Party not in Default (“Non-Defaulting Party”) must first give the other Party (“Defaulting Party”) written notice thereof (“Notice of Default”), which notice must state the nature of the untruthfulness, breach or default in reasonable detail and request the Defaulting Party cure such Default within sixty (60) days.

9.3.2Termination for Default. The Non-Defaulting Party may, in addition to any other remedies which may be available to such Non-Defaulting Party at law or equity, terminate this Agreement in the event of (a) a Representation Default by the Defaulting Party or (b) a Performance Default by the Defaulting Party; that has not been cured within sixty (60) days after receipt of a Notice of Default; or, if such Performance Default cannot be cured within such sixty (60) day period, and the defaulting Party shall have failed to commence substantial remedial actions within such sixty (60) day period and to diligently pursue the same. Notwithstanding the foregoing, if a Representation or Performance Default is not curable by its nature, the Non-Defaulting Party may immediately terminate this Agreement with a Notice of Default to the Defaulting Party.

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[  **  ] This portion has been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Exchange Act.  The omitted portion has been separately filed with the Commission.

9.4Bankruptcy.

9.4.1A Party may terminate this Agreement if, during the Term, the other Party shall file in court or agency pursuant to any statute or regulation of any state or country, a petition in bankruptcy or insolvency or for reorganization or for an arrangement or for the appointment of a receiver or trustee of the Party or of its assets, or if the other Party proposes a written agreement of composition or extension of its debts, or if the other Party shall be served with an involuntary petition in bankruptcy or seeking reorganization, liquidation, dissolution, winding-up arrangement, composition or readjustment of its debts or any other relief under any bankruptcy, insolvency, reorganization or other similar act or law of any jurisdiction now or hereafter in effect, or there shall have been issued a warrant of attachment, execution or similar process against it, filed in any insolvency proceeding, and such petition shall not be dismissed within ninety (90) days after the filing thereof, or if the other Party shall propose or be a Party to any dissolution or liquidation, or if the other Party shall make an assignment for the benefit of creditors.

9.4.2All rights and licenses granted under or pursuant to this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101 of the U.S. Bankruptcy Code. The Parties agree that each Party that is a licensee of such rights under this Agreement shall retain and may fully exercise its rights and elections under the U.S. Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against either Party under the U.S. Bankruptcy Code, the Party hereto which is not a Party to such proceeding shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, and same, if not already in their possession, shall be, within ten (10) days of the commencement of such proceeding, delivered to them (i) upon any such commencement of a bankruptcy proceeding upon their written request therefore, unless the Party subject to such proceeding (or a trustee on behalf of the subject Party) elects to continue to perform all of its obligations under this Agreement or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon written request therefor by the non-subject Party.

9.5Disposition of Confidential Information. In the event of termination of this Agreement, each Receiving Party shall return or destroy all forms of Confidential Information provided to such Receiving Party by a Disclosing Party under this Agreement within thirty (30) days after such termination or expiration, provided, however, that a Receiving Party may retain one copy of such Confidential Information for the sole purpose of use in any litigation resulting from this Agreement or the activities undertaken pursuant to this Agreement.

9.6Effect of Termination or Expiration. Termination or expiration of this Agreement shall not relieve the Parties of any obligation accruing prior to such termination or expiration and shall not terminate any sublicense granted prior to such termination or expiration pursuant to Section 3.2. Except as otherwise provided herein, the provisions of

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[  **  ] This portion has been omitted based on a request for confidential treatment pursuant to Rule 24b-2 of the Exchange Act.  The omitted portion has been separately filed with the Commission.

Articles 1, 3, 6, 8, 10 and 11 and of Sections 5.1, 5.2, 7.9, 7.10 and 9.5 shall survive the expiration or termination of this Agreement.

10.DISPUTES.Any dispute under this Agreement shall be finally decided in the appropriate court of law or equity.  Except as otherwise expressly provided in this Agreement, each Party shall bear its own costs, attorneys’ and witness’ fees and court fees incurred in connection with the litigation.

11.MISCELLANEOUS.

11.1Relationship of Parties. It is expressly agreed that [  **  ] and Enchira shall be independent contractors and that nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, distributorship, employer-employee or joint venture relationship between the Parties. No Party shall incur any debts or make any commitments for the other, except to the extent, if at all, specifically provided herein.

11.2Governing Law.   This Agreement shall be governed by and construed in accordance with the laws of the State  of [  **  ] without regard to those provisions governing conflicts of law.

11.3Binding Effect. This Agreement and all rights and obligations hereunder shall inure to the benefit of and be binding upon the Parties, their affiliates, and their respective lawful successors and assigns (including, without limitation, any successor to a Party upon a change of control).

11.4Notices. All notices, requests, demands and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed to have been duly given upon the date of receipt if delivered by hand, recognized international overnight courier or confirmed facsimile transmission to the following addresses or facsimile numbers:

If to Enchira:	If to [  **  ]:
Enchira Biotechnology Corporation	[  **  ]
4200 Research Forest Drive	[  **  ]
The Woodlands, TX 77381	[  **  ]
Attention:    Paul Brown	[  **  ]
Tel: (281) 364-6100	Tel: [  **  ]
Fax: (281) 364-6112	Fax: [  **  ]
with a copy to:	with a copy to:
Andrews & Kurth L.L.P.	[  **  ]
Waterway Plaza Two, Suite 200	[  **  ]
10001 Woodloch Forest Drive	[  **  ]
The Woodlands, TX 77380
Attention: Jeffrey R. Harder	[  **  ]
Tel: (713) 220-4312	Tel: [  **  ]
Fax: (713)238-7282	Fax: [  **  ]

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Either Party may change its designated address and facsimile number by notice to the other Party in the manner provided in this Section.

11.5Amendment and Waiver. This Agreement may be amended, supplemented, or otherwise modified only by means of a written instrument signed by both Parties. Any waiver of any rights or failure to act in a specific instance shall relate only to such instance and shall not be construed as an agreement to waive any rights or fail to act in any other instance, whether or not similar.

11.6Severability. In the event that any provision of this Agreement shall, for any reason, be held to be invalid or unenforceable in any respect, such invalidity or unenforceability shall not affect any other provision hereof, and the Parties shall negotiate in good faith to modify the Agreement to preserve (to the extent possible) their original intent.

11.7Third Parties. Nothing in this Agreement, express or implied, is intended to confer upon any party, including Petro Star, other than the Parties hereto and their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

11.8Entire Agreement. Subject to any applicable provisions of the mutual Confidential Disclosure Agreement between the Parties executed on February 13, 1996 (which agreement references the former names of [  **  ] and Enchira, namely, Recombinant Biocatalysis, Inc. and Energy Biosystems Corp., respectively) and the mutual Confidentiality and Non-Disclosure Agreement between Enchira, [  **  ], and Petro Star executed on February 21, 2001, that do not contradict the terms of this Agreement, this Agreement and the exhibits hereto constitute the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior and contemporaneous agreements, representations, and understandings of the Parties. No Party hereto shall be liable or bound to the other in any manner by any warranties, representations or covenants with respect to the subject matter hereof except as specifically set forth herein.

11.9Counterparts. This Agreement may be executed via facsimile and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and shall become effective when there exist copies hereof which, when taken together, bear the authorized signatures of each of the Parties hereto. Only one such counterpart signed by the Party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

11.10Titles and Subtitles; Form of Pronouns; Construction and Definitions. The titles of the sections and paragraphs of this Agreement are for convenience only and are not to be considered in construing this Agreement. All pronouns used in this Agreement shall be deemed to include masculine, feminine and neuter forms, the singular number

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includes the plural and the plural number includes the singular. Unless the context otherwise requires, the term “including” shall mean “including, without limitation.”

11.11No Assignment; Binding Effect. Except as expressly permitted herein, neither Party may assign any of its rights, duties and obligations under this Agreement without the express written consent of the other Party, which may be given or withheld, as the case may be, in the other Party’s sole and absolute discretion, except a Party may make such an assignment without such consent to a successor to substantially all of the business of such Party to which this Agreement pertains, whether in merger, sale of stock, sale of assets or other transaction; provided that in event of such transaction, intellectual property rights of a party to such transaction other than one of the Parties shall not be included in the technology sublicensed hereunder. This Agreement and all rights and obligations hereunder shall inure to the benefit of and be binding upon the Parties, their affiliates, and their respective lawful successors and assigns (including, without limitation, any successor to a Party upon a change of control).

(signature page follows)

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IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as a sealed instrument effective as of the date first above written.

[  **  ]
By:		[  **  ]
Name:			[  **  ]
Title: President and Chief Executive Officer
ENCHIRA BIOTECHNOLOGY CORPORATION
By:	/s/  Daniel J. Monticello
Name: Daniel J. Monticello
Title: Vice President, Research & Development

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16

EX-10.2

Exhibit 10.2

CONSULTING AGREEMENT

This CONSULTING AGREEMENT (this “Agreement”) is entered into as of the 16^th day of August, 2002 (the “Effective Date”) by and between ENCHIRA BIOTECHNOLOGY CORPORATION, a Delaware corporation (the “Company”), and Paul G. Brown, III (“Consultant” or “Mr. Brown”).

WHEREAS, the Company and Mr. Brown entered into that certain Employment Agreement dated July 18, 1995, as amended by that certain First Amendment to Employment Agreement dated April 18, 2000, as further amended by that certain Second Amendment to Employment Agreement dated April 2, 2002, to be effective as of January 1, 2002 (collectively, the “Employment Agreement”); and

WHEREAS, the Company and Mr. Brown entered into that certain Settlement and Release Agreement (the “Original Release”) dated May 7, 2002 whereby in exchange for certain retention payments by the Company to Mr. Brown, which Mr. Brown accepted, Mr. Brown agreed to, among other things, forgo certain severance obligations set forth in his Employment Agreement; and

WHEREAS, concurrently with the execution of the Original Release, the Company paid to Mr. Brown an initial payment of $75,000 and deposited with the Southwest Bank of Texas, N.A., a Texas banking corporation, a second payment in the amount of $75,000 to be held in escrow (the “Second Payment”) payable to Mr. Brown under certain conditions as set forth in Section 1B. of the Original Release, including, but not limited to, the termination of the Employment Agreement and the execution of a settlement and release agreement containing terms substantially similar to those provided in the Original Release (the “Settlement and Release Agreement”); and

WHEREAS, the Company and Mr. Brown entered into the Settlement and Release Agreement dated of even date herewith which waives the requirement of Mr. Brown’s resignation as an officer and/or director of the Company as a condition to his receipt of the Second Payment, and instead, the Company desires to engage Mr. Brown as a consultant, and Mr. Brown desires to accept such engagement as a consultant in accordance with the terms of this Agreement;

NOW, THEREFORE, the Company and Consultant hereby agree as follows:

1.Consulting Services.  Consultant is hereby engaged by the Company as an independent contractor, and not as an employee, to carry out the project specified in the Description of Work attached hereto as Exhibit A, on the terms and conditions set forth in such Description of Work.

2.Term.  This Agreement shall commence on the Effective Date, and continue until terminated by the Company or Consultant.  This Agreement may be terminated by Consultant or Company, with or without “cause” (as defined below), by giving ten (10) days advance written

notice thereof to the other party hereto.  In addition, this Agreement may be terminated by the Company immediately for “cause.”  For purposes of this Agreement, “cause” shall be deemed to exist for termination of this Agreement by the Company in the event (i) Consultant is not performing in compliance with the Description of Work, (ii) Consultant has engaged in personal conduct which (in the good faith determination of the Company) would materially injure the goodwill or reputation of the Company or otherwise materially adversely affect the interests of the Company or (iii) of any breach by Consultant of the obligations contained in this Agreement or any other agreement between the Company and Consultant.

In the event of any termination of this Agreement prior to completion of the term of this Agreement pursuant to the above provisions (whether with or without “cause”), the Company’s sole liability thereupon will be to pay Consultant any unpaid balance due for work performed up to and including the date of termination, if applicable.

3.Independent Contractor.  It is agreed that Consultant’s services are made available to the Company on the basis that Consultant will retain Consultant’s individual professional status and that Consultant’s relationship with the Company is that of an independent contractor and not that of an employee.  Consultant will not be eligible for any employee benefits, nor will the Company make deductions from its fees to Consultant for taxes, insurance, bonds or any other subscription of any kind.  Consultant will use Consultant’s own discretion in performing the tasks assigned, within the scope of work specified by the Company.  Consultant agrees to indemnify and hold the Company harmless from and against any claim made by any third party against the Company based in whole or in part upon any action by Consultant or any of Consultant’s employees, associates, consultants, agents, representatives, assignees or successors in interest, which occurs pursuant to or in connection with this Agreement or the relationship or relationships contemplated by this Agreement.

4.Confidential Information.  Consultant agrees that he shall keep in strictest confidence all information relating to the products, materials, programs, algorithms, designs, trade secrets, secret processes, techniques, structures, formulas, data and know-how, improvements, inventions, strategies, forecasts, equipment, patent position, sources of supply, customers, marketing plans and markets of the Company and all other confidential knowledge, data and information related to the business or affairs of the Company or any of its clients, customers, consultants, licensors, licensees or affiliates (collectively, “Confidential Information”) that may be acquired pursuant to or in connection with this Agreement or the relationship or  relationships contemplated by this Agreement.  During and after the term of this Agreement, Consultant will not, without the prior written consent of an officer of the Company, publish, communicate, disclose or use for any purpose any of such Confidential Information.  Upon termination of this Agreement, Consultant will return to the Company all records, data, notes, reports, printouts, sketches, material, equipment and other documents or property, and all reproductions of any of the foregoing, furnished by the Company or developed or prepared pursuant to the relationship hereunder.

Notwithstanding the foregoing, it is agreed that Confidential Information shall not include (i) any information which is or becomes through no fault of Consultant generally known to the public, and (ii) Consultant’s skill, knowledge, know-how and experience.

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5.Assignment of Intellectual Property.  Consultant agrees to transfer and assign and hereby does transfer and assign to the Company the entire right, title and interest for the entire world in and to all data, materials, software, designs, models, algorithms, writings, drawings, notebooks, documents, photographs, inventions and discoveries (collectively, “Inventions”) made or conceived or reduced to practice by Consultant (i) in the course of accomplishing the work described on the Description of Work attached as Exhibit A hereto, (ii) in the course of accomplishing other work performed pursuant to the relationship established by this Agreement, or (iii) with the use of materials or facilities of the Company.

Consultant agrees that he will sign, execute and acknowledge, or cause to be signed, executed and acknowledged, at the expense of the Company, any and all documents, and will perform any and all acts, as may be necessary, useful or convenient for the purpose of securing to the Company or its nominee patent, trademark or copyright protection throughout the world upon all such Inventions.

6.License Rights.  In the event that Consultant recommends to the Company that the Company make use of devices and/or processes covered by patents and/or patent applications which Consultant may own or control, Consultant will then so inform the Company, and in the event that the Company shall follow Consultant’s recommendation and Consultant has the right to grant a license under such patents and/or patent applications, then Consultant will grant to the Company a license on reasonable terms which are no less favorable than those granted by Consultant to any other licensee.

7.Representations of Consultant and the Company.

(a)Consultant represents and warrants to the Company that (i) this Agreement is a valid and binding obligation of Consultant, enforceable against Consultant in accordance with its terms, and (ii) his execution and delivery of, and performance of his services and other obligations under, this Agreement will not result in the breach or violation of applicable law or any agreement to which he is a party.

(b)The Company represents and warrants to Consultant that (i) this Agreement has been duly and validly authorized by the Company and is a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, and (ii) its execution and delivery of, and performance of its obligations under, this Agreement will not result in the breach or violation of applicable law or any agreement to which it is a party.

8.Miscellaneous.

(a)Effective Date.  This Agreement shall be effective as of the effective date specified in the introductory paragraph, and it is expressly agreed to by Consultant and the Company that all the provisions hereof shall apply as if this Agreement had been entered into on such date.

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(b)Survival of Terms.  The provisions of paragraphs 4, 5 and 6 hereof shall survive termination of this Agreement.

(c)Successors and Assigns. This Agreement may not be assigned by Consultant without the written consent of the Company.  This Agreement shall be binding on all of Consultant’s heirs, executors, administrators and legal representatives and all of Consultant’s successors in interest and assigns, and shall be for the benefit of the Company, its successors and its assigns.

(d)Governing Law.  This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas as they apply to contracts entered into and wholly to be performed in Texas.

(e)Severability.  If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect.

(f)Amendment.  Neither this Agreement nor the Description of Work may be amended except by a written agreement modifying the appropriate document duly executed by Consultant and an officer of the Company.

(g)Entire Agreement.  This Agreement, together with the Description of Work attached hereto and any other confidentiality agreement previously or subsequently entered into by the Company and Consultant, constitute the sole and complete agreement of the parties with respect to the matters included herein, and supersedes any previous oral or written agreement, if any, relating to the subject matters included herein.

(h)No Conflict.  Consultant represents and warrants that this Agreement does not conflict with any other agreement or term of employment applicable to or binding upon the Consultant as of the date hereof and that Consultant will promptly notify the Company in the event that any such conflict does arise during the term hereof.

(i)Construction.  Each party to this Agreement has had the opportunity to review this Agreement with legal counsel.  This Agreement shall not be construed or interpreted against any party on the basis that such party drafted or authored a particular provision, parts of or the entirety of this Agreement.

(j)Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which, taken together, constitute one and the same instrument.

[Remainder of page left blank intentionally.]

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IN WITNESS WHEREOF, this Agreement has been executed to be effective as of the Effective Date.

Consultant:		Company:
Paul G. Brown, III		Enchira Biotechnology Corporation
/s/ Paul G. Brown, III		By:	/s/ William E. Nasser
(Signature)						(Signature)
		Name:			William E. Nasser
		Title:		Chairman of the Board
Date:	August 16, 2002	Date:		August 16, 2002

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EXHIBIT A

ENCHIRA BIOTECHNOLOGY CORPORATION

DESCRIPTION OF WORK

(Consulting Agreement Dated Effective August 16, 2002)

1.DETAILED DESCRIPTION OF WORK:

Consultant will perform the following duties under this Agreement:  All duties associated with the position of President and Chief Financial Officer that are necessary to sell the assets and wind up the affairs and liquidate the Company (a “Sale”).

2.START DATE:  August 16, 2002

COMPLETION DATE: The first to occur of (i) a Sale of the Company or (ii) termination of the Agreement by either the Company or Consultant.

3.PERSON(S) WHO ARE TO PERFORM THE WORK: Paul G. Brown, III

4.AUTHORIZED REPRESENTATIVE OF THE COMPANY:

The character of Consultant’s services shall be subject to the assignment and direction of William E. Nasser, Chairman of the Board, who will be designated as the “Director.”  Further, the character and scope of Consultant’s services may be revised by mutual agreement between Consultant and the Company and such revision will be evidenced by a formal bilateral modification to the Consulting Agreement or this Description of Work signed between Consultant and an authorized officer of the Company.  The Director and the Chief Executive Officer of the Company shall be the only individuals authorized to designate any project to be covered by this Agreement, sign any modification or addendum to this Agreement or the Description of Work, and direct the activities of Consultant under this Agreement.

5.SCHEDULE PERFORMANCE:

If at any time during the performance of this contract any phase of the required tasks appear to be impossible of execution or if any phase cannot be completed on schedule, it is agreed that Consultant will notify the Company within one (1) day of such determination.  At the time of such notification Consultant shall explain to the Company why a particular task is impossible to complete and propose alternative procedures for achieving the desired result.

6.REPORT SCHEDULE:

Reports, if any, to be as specified in an addendum to this Agreement.

7.PAYMENT:

As consideration for all services to be rendered and performed under this Agreement and for assigning the rights to inventions, designs, patents, trademarks, and copyrights as provided in the

Consulting Agreement, Consultant will be paid a consulting fee of $93.00 per hour.  To enable the Company to determine the amount of compensation to be paid to Consultant, Consultant will provide the Company with statements outlining the services performed by Consultant under this Agreement and the number of hours spent by Consultant in providing such services, in reasonable and customary detail.

8.EXPENSES:

The Company agrees to reimburse Consultant for the following expenses incurred in connection with the performance of Consultant’s services under this Agreement:

		Yes	No
-	Routine out-of-pocket expense	ý
-	Local travel		ý
-	Long distance travel at the direction of the Director or President	ý
-	Other - as approved in advance	ý

Consultant:		Company:
Paul G. Brown, III		Enchira Biotechnology Corporation
/s/ Paul G. Brown, III		By:	/s/ William E. Nasser
(Signature)						(Signature)
Name:	Paul G. Brown, III	Name:			William E. Nasser
		Title:		Chairman of the Board
Date:	August 16, 2002	Date:		August 16, 2002
10 Los Encinos Court
Magnolia, Texas 77354
	(Address)

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EX-10.3

Exhibit 10.3

SETTLEMENT AND RELEASE AGREEMENT

This Settlement and Release Agreement (the “Settlement and Release Agreement”) is made this 16^th day of August, 2002 (the “Effective Date”), by and between Enchira Biotechnology Corporation, a Delaware corporation (the “Company”), and Paul G. Brown, III (“Brown”).

R E C I T A L S

WHEREAS, Brown and the Company entered into that certain Employment Agreement dated July 18, 1995, as amended by that certain First Amendment to Employment Agreement dated April 18, 2000, as further amended by that certain Second Amendment to Employment Agreement dated April 2, 2002, to be effective as of January 1, 2002 (collectively, the “Employment Agreement”); and

WHEREAS, Brown and the Company entered into that certain Settlement and Release Agreement (the “Original Release”) dated May 7, 2002 whereby in exchange for certain retention payments by the Company to Brown, which Brown accepted, Brown agreed to forgo certain severance obligations set forth in his Employment Agreement and further agreed to settle any claims that he may have had with the Company and release the Company from any liability he may claim as of May7, 2002; and

WHEREAS, concurrently with the execution of the Original Release, the Company paid to Brown an initial payment of $75,000 and deposited with Southwest Bank of Texas, N.A., a Texas banking corporation, a second payment in the amount of $75,000 to be held in escrow (the “Second Payment”) payable to Brown under certain conditions as set forth in Section 1B. of the Original Release, including, but not limited to, the termination of the Employment Agreement and the execution of this Settlement and Release Agreement; and

WHEREAS, the Company desires to engage Brown as a consultant, and Brown desires to accept such engagement as a consultant of the Company.

NOW, THEREFORE, in consideration of the execution, delivery and performance of this Settlement and Release Agreement, and for other good and valuable consideration, the parties hereto intending to be legally bound, mutually agree as follows:

1.             Termination, Resignation and Payment.

A.            Termination of Employment Agreement.  As of the date hereof, the parties hereby terminate the Employment Agreement and except as provided in B. below, the Company hereby releases Brown from any and all further obligations arising under the Employment Agreement.  Brown hereby acknowledges termination of the Employment Agreement and releases the Company from any and all further obligations arising under the Employment

Agreement including, without limitation, the provisions thereof providing for the Company’s payment of severance to Brown.

B.            Termination of Non-Competition Provisions.  The Company agrees that upon expiration or termination of the Consulting Agreement, as defined below, other than for cause, it will release Brown from the provisions of Section 5.6 of the Employment Agreement and expressly agrees that Brown shall be permitted to engage in competitive activities following the date of such termination or expiration; provided, however, that the remaining nondisclosure, inventions and confidentiality provisions of Section 5 of the Employment Agreement or such similar provisions as are set forth in the Consulting Agreement (as defined below) shall continue to survive on the terms provided therein and Brown shall continue to be bound by the terms thereof.

C.            Consulting Agreement.  Notwithstanding Section 1B. of the Original Release which contemplates Brown’s resignation as an officer and/or director as a condition to Brown’s receipt of the Second Payment, the Company desires to engage Brown as a consultant, and Brown desires to accept such engagement as a consultant of the Company, in accordance with the terms of that certain Consulting Agreement between Brown and the Company dated of even date herewith (the “Consulting Agreement”), a form of which is attached hereto as Exhibit A.

D.            Payment by the Company.  The Company agrees to, and concurrently with the execution of this Settlement and Release Agreement and the Consulting Agreement does hereby, pay Brown a lump sum severance payment in the amount of the Second Payment, with such interest thereon, if any, (the “Severance Payment”) in consideration for Brown’s termination of the Employment Agreement, entering into the Consulting Agreement and for the releases contained herein, among other things.  The Severance Payment will be subject to all legally required taxes, deductions and withholdings.  The Severance Payment paid under this Settlement and Release Agreement is in lieu and amendment of any other severance benefits that may otherwise be payable to Brown (including, without limitation, those provided in the Employment Agreement), except for such benefits required to be provided by law.  The consideration represented by the Severance Payment is allocated among the waivers and releases contained in this Section 1.D. and Section 2 as follows:  (i) 5% of the Severance Payment ($3,750, with any interest thereon) shall be allocated to Brown’s waiver and release of any claims under the Age Discrimination Employment Act of 1967, as amended, and (ii) the remaining 95% of the Severance Payment ($71,250, with any interest thereon) shall be allocated to Brown’s amendment, waiver and release with respect to the severance benefits payable to Brown pursuant to the Employment Agreement as provided in this Section 1.D. and all other remaining claims described in Section 2.

2.             Waiver and Release by Brown.  Brown hereby waives any and all claims, charges, complaints, liabilities, obligations, promises, agreements, contracts, damages, actions, causes of action, suits, accrued benefits or other liabilities of any kind or character, whether known or hereafter discovered, arising in connection with or otherwise relating to the Employment Agreement, including, but not limited to, termination of same, and his relationship

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with the Company, that he has or may have against the Company, its officers, directors, shareholders, agents and employees and the successors and assigns of each, and all other persons, firms, partnerships, or corporations in control of, under the direction of, or in any way presently or formerly associated with the Company (the “Company Released Parties”) of any kind whatsoever, including, but not limited to, allegations of wrongful termination, breach of contract (other than in connection with this Settlement and Release Agreement), intentional infliction of emotional distress, negligent infliction of emotional distress, defamation, invasion of privacy, any action in tort or contract (including any action under the Company’s charter documents), any claims arising under and/or for any alleged violation of any federal, state, or local law (including, but not limited to, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq., the Civil Rights Act of 1866, 42 U.S.C. § 1981 et seq., the Equal Pay Act, 29 U.S.C. § 206; the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) 29 U.S.C. § 1001 et seq. (non-vested rights), the Americans with Disabilities Act, 42 U.S.C. § 12101 et seq., the Age Discrimination Employment Act of 1967, as amended (“ADEA”), 29 U.S.C. § 621 et seq., the Fair Labor Standards Act, as amended, 29 U.S.C. § 201 et seq., the National Labor Relations Act, 29 U.S.C. §§ 151 et seq., the Family and Medical Leave Act of 1993, 29 U.S.A. § 2601 et seq., the Worker Adjustment and Retraining Notification Act (WARN), 29 U.S.C., § 2101 et seq., the Occupational Safety and Health Act, as amended, the Texas Commission on Human Rights Act, Texas Labor Code § 21.001 et seq., the Texas Payday Act, Texas Labor Code, § 61.01 et seq., the Texas Workers’ Compensation Statute, Texas Labor Code § 451.0001 et seq., and any other employment or civil rights act) and any and all claims for severance pay, bonus payments and, except as provided by law, benefits under any compensation or employee benefit plan, program, policy, contract, agreement or other arrangement of the Company (including the Employment Agreement) and does hereby release and forever discharge all of the Company Released Parties of and from any and all debts, claims, demands, damages, actions, causes of action, or liabilities of any nature whatsoever arising in connection with or otherwise relating to the Employment Agreement, including, but not limited to, termination of same, and his relationship with the Company, that Brown shall or may have against any of the Company Released Parties.

3.             Confidentiality.  Each party agrees to hold and maintain confidential and not disclose to any third party the terms and conditions of this Settlement and Release Agreement including, without limitation, the consideration provided for by this Settlement and Release Agreement; provided, however, that the foregoing shall not apply to any disclosure: (i) that may be required to the extent compelled by legal process, a government agency or court order or otherwise required by applicable laws or regulations, (ii) that may be required to enforce either party’s rights hereunder or (iii) to either party’s attorneys, accountants and other professional advisors to whom disclosure is necessary to accomplish the professional purposes for which such party has consulted such professional advisors.  Each party understands and agrees that in the event such party breaches any of the terms of this Section 3, such party shall be liable to the other party for actual damages suffered by such other party caused by such breach.

4.             Company Representations and Warranties.  The Company has all requisite power, authority (corporate and other) and legal right to execute, deliver, enter into, consummate and perform this Settlement and Release Agreement.  The execution, delivery and performance of this Settlement and Release Agreement by the Company have been duly authorized by all

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required corporate and other actions.  The Company has duly executed and delivered this Settlement and Release Agreement.  This Settlement and Release Agreement constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to the rights of creditors generally and except that the enforceability of any indemnification provisions contained in this Settlement and Release Agreement may be subject to considerations of public policy.

5.             Effective Date.  Insofar as this Settlement and Release Agreement relates to the waiver and release of any claims under ADEA, such waiver and release will become effective on the next business day following seven (7) days from the date set forth above.  In all other respects, the terms and provisions of this Settlement and Release Agreement, including, without limitation, all other waivers and releases of Brown contained herein, are effective as of the date set forth above.

6.             Governing Law.  This Settlement and Release Agreement shall be governed by the laws of the State of Texas.

7.             Payment of Legal Fees.  If any party is required to engage in any proceedings, legal or otherwise, to defend or enforce its rights under this Settlement and Release Agreement, such party, if successful, shall be entitled to recover from the other party which is in breach of its duties hereunder, in addition to any other remedy or sums due, the reasonable attorneys’ fees and disbursements and costs of such proceeding incurred in connection therewith.

8.             Counterparts.  This Settlement and Release Agreement may be executed in more than one counterpart, each of which shall be an original, but all of which, taken together, shall be and remain one instrument.

9.             Headings.  The headings of the several sections of this Settlement and Release Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

10.           Severability.  If one or more of the provisions in this Settlement and Release Agreement are deemed void by law, then the remaining provisions will continue in full force and effect.

11.           Time for Review; Revocation.  Brown understands that insofar as it relates to the waiver and release of any claims under the ADEA, he has forty-five (45) days within which to consider this Settlement and Release Agreement and that the portion of this Settlement and Release Agreement relating to the waiver and release of any claims under the ADEA is revocable by him for a period of seven (7) days following the execution of this Settlement and Release Agreement, and if not so revoked, will become effective and enforceable after such period of seven (7) days.

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12.           Review by Brown and Counsel.  Brown expressly represents and warrants to the Company that he has completely read this Settlement and Release Agreement prior to executing it, has had an opportunity to review it with his counsel, has been offered forty-five (45) days within which to consider this Settlement and Release Agreement and to understand its terms, contents, conditions and effects and has entered into this Settlement and Release Agreement knowingly and voluntarily.

IN WITNESS WHEREOF, the parties hereto have caused this Settlement and Release Agreement to be executed as of the day and year set forth above.

ENCHIRA BIOTECHNOLOGY CORPORATION
By:	/s/ William E. Nasser
Name:			William E. Nasser
Title:		Chairman of the Board
BROWN
/s/ Paul G. Brown, III
Paul G. Brown, III

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Exhibit A

Form of Consulting Agreement

(See attached)

EX-10.4

EXHIBIT 10.4

FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT

This Fourth Amendment to Employment Agreement (the “Amendment”) is made and entered into by and between Enchira Biotechnology Corporation, a Delaware corporation (the “Company”), and Daniel J. Monticello (the “Employee”), as of this 15th day of August, 2002 (the “Effective Date”).

WHEREAS, the Employee and the Company entered into that certain Employment Agreement dated January 31, 1996, as amended by that certain First Amendment to Employment Agreement dated April 10, 1998, as further amended by that certain Second Amendment to Employment Agreement dated April 9, 2001, and as further amended by that certain Third Amendment to Employment Agreement dated April 2, 2002, to be effective as of January 1, 2002 (collectively, the “Agreement”), all of which are incorporated herein in their entirety by reference; and

WHEREAS, the Company and Employee entered into that certain Settlement and Release Agreement (the “Original Release”) dated May 7, 2002 whereby in exchange for certain retention payments by the Company to Employee, which Employee accepted, Employee agreed to, among other things, forgo certain severance obligations set forth in his Agreement; and

WHEREAS, concurrently with the execution of the Original Release, the Company paid to Employee an initial payment of $80,000 and deposited with the Southwest Bank of Texas, N.A., a Texas banking corporation, a second payment in the amount of $80,000 to be held in escrow (the “Second Payment”) payable to Employee under certain conditions as set forth in Section 1B. of the Original Release, including, but not limited to, the termination of the Agreement and the execution of a settlement and release agreement containing terms substantially similar to those provided in the Original Release (the “Settlement and Release Agreement”); and

WHEREAS, the Company and Employee entered into the Settlement and Release Agreement dated of even date herewith which waives the requirements that the Agreement be terminated and that Employee resign as an officer and/or director of the Company as conditions to Employee’s receipt of the Second Payment; and

WHEREAS, Employee and the Company desire to extend the term of the Agreement from its stated expiration date of August 15, 2002.

NOW, THEREFORE, for and in consideration of the mutual covenants and promises and representations contained herein, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged herein, the Company and Employee agree as follows:

1.Section 4.1 of the Agreement is hereby amended by deleting the section in its entirety and substituting the following in replacement thereof:

4.1The term of this Agreement shall commence on the Effective Date and shall continue on a month-to-month basis (i) unless earlier terminated as

hereinafter provided or (ii) until the completion of a sale, license or other disposition of all or substantially all of the assets of the Company.

2.Section 4.9 of the Agreement is hereby amended by deleting the section in its entirety and substituting the following in replacement thereof:

4.9In the event of Employee’s termination of employment from the Company pursuant to Sections 4.5 or 4.6 hereof, or in the event that Employee’s employment with the Company, or successor entity, is terminated within twelve months following a Change of Control, except for Cause, all outstanding options to purchase stock of the Company held by Employee and not previously vested (excluding any that have lapsed, terminated or expired) will vest automatically upon such termination, and Employee shall have a period of 90 days to exercise such options.

3.Company and Employee acknowledge that Employee has received his Second Payment of $80,000, with such interest thereon, if any, as contemplated by the Original Release and the Settlement and Release Agreement.

4.This Amendment shall be governed by the laws of the State of Texas.

5.This Agreement, as amended by this Amendment, and the Settlement and Release Agreement supersede any and all other agreements, either oral or in writing, between the Company and Employee with respect to the employment of Employee by the Company and contains all of the representations, covenants and agreements between the Company and the Employee with respect to such employment.  The Agreement, as amended hereby, may not be later modified except by a further writing signed by the Company and the Employee, and no term of this Agreement may be waived except by writing signed by the party waiving the benefit of such term.

6.Except as modified by this Amendment, all other terms of the Agreement shall continue in full force and effect without modification.

7.This Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which, taken together, constitute one and the same instrument.

[The remainder of this page left blank intentionally.]

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IN WITNESS WHEREOF, the parties have executed this Fifth Amendment to Employment Agreement in duplicate originals as of the date first above written.

ENCHIRA BIOTECHNOLOGY CORPORATION
By:	/s/ Paul G. Brown, III
		Paul G. Brown, III, President
Daniel J. Monticello
Daniel J. Monticello

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EX-10.5

Exhibit 10.5

SETTLEMENT AND RELEASE AGREEMENT

This Settlement and Release Agreement (the “Settlement and Release Agreement”) is made this 15^th day of August, 2002 (the “Effective Date”), by and between Enchira Biotechnology Corporation, a Delaware corporation (the “Company”), and Daniel J. Monticello (“Monticello”).

R E C I T A L S

WHEREAS, Monticello and the Company entered into that certain Employment Agreement dated January 31, 1996, as amended by that certain First Amendment to Employment Agreement dated April 10, 1998, as further amended by that certain Second Amendment to Employment Agreement dated April 9, 2001, as further amended by that certain Third Amendment to Employment Agreement dated April 2, 2002, to be effective as of January 1, 2002, and as further amended by that certain Fourth Amendment to Employment Agreement dated August 15, 2002 (collectively, the “Employment Agreement”); and

WHEREAS, Monticello and the Company entered into that certain Settlement and Release Agreement (the “Original Release”) dated May 7, 2002 whereby in exchange for certain retention payments by the Company to Monticello, which Monticello accepted, Monticello agreed to forgo certain severance obligations set forth in his Employment Agreement and further agreed to settle any claims that he may have had with the Company and release the Company from any liability he may claim as of May7, 2002; and

WHEREAS, concurrently with the execution of the Original Release, the Company paid to Monticello an initial payment of $80,000 and deposited with Southwest Bank of Texas, N.A., a Texas banking corporation, a second payment in the amount of $80,000 to be held in escrow (the “Second Payment”) payable to Monticello under certain conditions as set forth in Section 1B. of the Original Release, including, but not limited to, the execution of this Settlement and Release Agreement; and

WHEREAS, the Company desires to retain Monticello as an employee of the Company, and Monticello desires to remain an employee of the Company.

NOW, THEREFORE, in consideration of the execution, delivery and performance of this Settlement and Release Agreement, and for other good and valuable consideration, the parties hereto intending to be legally bound, mutually agree as follows:

1.             Employment Agreement and Payment.

A.            Employment Agreement.  Notwithstanding Section 1B. of the Original Release which contemplates the termination of the Employment Agreement and Monticello’s resignation as an officer and/or director as conditions to Monticello’s receipt of the Second

Payment, the Company desires to retain Monticello as an officer and/or director of the Company, and Monticello desires to remain an officer and/or director of the Company, in accordance with the terms of his Employment Agreement; provided, however, Monticello agrees to release the Company from any all obligations arising under the Employment Agreement as they relate to payment of severance to Monticello.

B.            Termination of Non-Competition Provisions.  The Company agrees that upon expiration or termination of the Employment Agreement, other than for cause, it will release Monticello from the provisions of Section 5.6 of the Employment Agreement and expressly agrees that Monticello shall be permitted to engage in competitive activities following the date of such termination or expiration; provided, however, that the remaining nondisclosure, inventions and confidentiality provisions of Section 5 of the Employment Agreement shall continue to survive on the terms provided therein and Monticello shall continue to be bound by the terms thereof.

C.            Payment by the Company.  The Company agrees to, and concurrently with the execution of this Settlement and Release Agreement and the Fourth Amendment to Employment Agreement does hereby, pay Monticello a lump sum payment in the amount of the Second Payment, with such interest thereon, if any, in consideration for Monticello’s amendment to the Employment Agreement and for the releases contained herein, among other things.  The Second Payment will be subject to all legally required taxes, deductions and withholdings.  The Second Payment paid under this Settlement and Release Agreement is in lieu and amendment of any other severance benefits that may otherwise be payable to Monticello (including, without limitation, those provided in the Employment Agreement), except for such benefits required to be provided by law.  The consideration represented by the Second Payment is allocated among the waivers and releases contained in this Section 1.C. and Section 2 as follows:  (i) 5% of the Second Payment ($4,000, with any interest thereon) shall be allocated to Monticello’s waiver and release of any claims under the Age Discrimination Employment Act of 1967, as amended, and (ii) the remaining 95% of the Second Payment ($76,000, with any interest thereon) shall be allocated to Monticello’s amendment, waiver and release with respect to the severance benefits payable to Monticello pursuant to the Employment Agreement as provided in this Section 1.C. and all other remaining claims described in Section 2.

2.             Waiver and Release by Monticello.  Monticello hereby waives any and all claims, charges, complaints, liabilities, obligations, promises, agreements, contracts, damages, actions, causes of action, suits, accrued benefits or other liabilities of any kind or character, whether known or hereafter discovered, arising in connection with or otherwise relating to the Employment Agreement and his relationship with the Company, that he has or may have against the Company, its officers, directors, shareholders, agents and employees and the successors and assigns of each, and all other persons, firms, partnerships, or corporations in control of, under the direction of, or in any way presently or formerly associated with the Company (the “Company Released Parties”) of any kind whatsoever, including, but not limited to, allegations of wrongful termination, breach of contract (other than in connection with this Settlement and Release Agreement), intentional infliction of emotional distress, negligent infliction of emotional distress, defamation, invasion of privacy, any action in tort or contract (including any action

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under the Company’s charter documents), any claims arising under and/or for any alleged violation of any federal, state, or local law (including, but not limited to, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq., the Civil Rights Act of 1866, 42 U.S.C. § 1981 et seq., the Equal Pay Act, 29 U.S.C. § 206; the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) 29 U.S.C. § 1001 et seq. (non-vested rights), the Americans with Disabilities Act, 42 U.S.C. § 12101 et seq., the Age Discrimination Employment Act of 1967, as amended (“ADEA”), 29 U.S.C. § 621 et seq., the Fair Labor Standards Act, as amended, 29 U.S.C. § 201 et seq., the National Labor Relations Act, 29 U.S.C. §§ 151 et seq., the Family and Medical Leave Act of 1993, 29 U.S.A. § 2601 et seq., the Worker Adjustment and Retraining Notification Act (WARN), 29 U.S.C., § 2101 et seq., the Occupational Safety and Health Act, as amended, the Texas Commission on Human Rights Act, Texas Labor Code § 21.001 et seq., the Texas Payday Act, Texas Labor Code, § 61.01 et seq., the Texas Workers’ Compensation Statute, Texas Labor Code § 451.0001 et seq., and any other employment or civil rights act) and any and all claims for severance pay, bonus payments and, except as provided by law, benefits under any compensation or employee benefit plan, program, policy, contract, agreement or other arrangement of the Company (including the Employment Agreement) occurring prior to the Effective Date hereof, and does hereby release and forever discharge all of the Company Released Parties of and from any and all debts, claims, demands, damages, actions, causes of action, or liabilities of any nature whatsoever arising in connection with or otherwise relating to the Employment Agreement and his relationship with the Company, occurring prior to the Effective Date hereof that Monticello shall or may have against any of the Company Released Parties.

3.             Confidentiality.  Each party agrees to hold and maintain confidential and not disclose to any third party the terms and conditions of this Settlement and Release Agreement including, without limitation, the consideration provided for by this Settlement and Release Agreement; provided, however, that the foregoing shall not apply to any disclosure: (i) that may be required to the extent compelled by legal process, a government agency or court order or otherwise required by applicable laws or regulations, (ii) that may be required to enforce either party’s rights hereunder or (iii) to either party’s attorneys, accountants and other professional advisors to whom disclosure is necessary to accomplish the professional purposes for which such party has consulted such professional advisors.  Each party understands and agrees that in the event such party breaches any of the terms of this Section 3, such party shall be liable to the other party for actual damages suffered by such other party caused by such breach.

4.             Company Representations and Warranties.  The Company has all requisite power, authority (corporate and other) and legal right to execute, deliver, enter into, consummate and perform this Settlement and Release Agreement.  The execution, delivery and performance of this Settlement and Release Agreement by the Company have been duly authorized by all required corporate and other actions.  The Company has duly executed and delivered this Settlement and Release Agreement.  This Settlement and Release Agreement constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to the rights of creditors generally and except that the enforceability of any indemnification provisions contained in this Settlement and Release Agreement may be subject to considerations of public policy.

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5.             Effective Date.  Insofar as this Settlement and Release Agreement relates to the waiver and release of any claims under ADEA, such waiver and release will become effective on the next business day following seven (7) days from the date set forth above.  In all other respects, the terms and provisions of this Settlement and Release Agreement, including, without limitation, all other waivers and releases of Monticello contained herein, are effective as of the date set forth above.

6.             Governing Law.  This Settlement and Release Agreement shall be governed by the laws of the State of Texas.

7.             Payment of Legal Fees.  If any party is required to engage in any proceedings, legal or otherwise, to defend or enforce its rights under this Settlement and Release Agreement, such party, if successful, shall be entitled to recover from the other party which is in breach of its duties hereunder, in addition to any other remedy or sums due, the reasonable attorneys’ fees and disbursements and costs of such proceeding incurred in connection therewith.

8.             Counterparts.  This Settlement and Release Agreement may be executed in more than one counterpart, each of which shall be an original, but all of which, taken together, shall be and remain one instrument.

9.             Headings.  The headings of the several sections of this Settlement and Release Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

10.           Severability.  If one or more of the provisions in this Settlement and Release Agreement are deemed void by law, then the remaining provisions will continue in full force and effect.

11.           Time for Review; Revocation.  Monticello understands that insofar as it relates to the waiver and release of any claims under the ADEA, he has forty-five (45) days within which to consider this Settlement and Release Agreement and that the portion of this Settlement and Release Agreement relating to the waiver and release of any claims under the ADEA is revocable by him for a period of seven (7) days following the execution of this Settlement and Release Agreement, and if not so revoked, will become effective and enforceable after such period of seven (7) days.

12.           Review by Monticello and Counsel.  Monticello expressly represents and warrants to the Company that he has completely read this Settlement and Release Agreement prior to executing it, has had an opportunity to review it with his counsel, has been offered forty-five (45) days within which to consider this Settlement and Release Agreement and to understand its terms, contents, conditions and effects and has entered into this Settlement and Release Agreement knowingly and voluntarily.

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IN WITNESS WHEREOF, the parties hereto have caused this Settlement and Release Agreement to be executed as of the day and year set forth above.

ENCHIRA BIOTECHNOLOGY CORPORATION
By:	/s/ Paul G. Brown, III
Name:			Paul G. Brown, III
Title:		President
MONTICELLO
/s/ Daniel J. Monticello
Daniel J. Monticello

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EX-10.6

Exhibit 10.6

October 15, 2002

Daniel J. Monticello, Ph.D.

152 N. Mill Trace

The Woodlands, TX 77381

Re:          Termination of Employment Agreement

Dear Dr. Monticello:

This letter (the “Letter”) will reflect our agreement relative to the termination of your employment agreement with Enchira Biotechnology Corporation (the “Company”) and outline a number of practical administrative issues resulting therefrom as well as the potential sale of certain assets of the Company to you.

1.             Effective October 15, 2002, your Employment Agreement dated January 31, 1996, as amended by that certain First Amendment to Employment Agreement dated April 10, 1998, as further amended by that certain Second Amendment to Employment Agreement dated April 9, 2001, as further amended by that certain Third Amendment to Employment Agreement dated April 2, 2002, to be effective as of January 1, 2002, and as further amended by that certain Fourth Amendment to Employment Agreement dated August 15, 2002 (collectively, the “Employment Agreement”) is hereby terminated.

2.             Notwithstanding the termination of the Employment Agreement, you have agreed to remain a part-time employee of the Company on an as-needed basis in the same capacity until the first to occur of (i) a Sale (as defined below) or (ii) a Dissolution (as defined below).  Your duties shall include, but not be limited to, evaluating proposals relating to a merger or sale of all or substantially all of the remaining assets or capital stock of the Company (a “Sale”) and assisting with the dissolution and liquidation of the Company (a “Dissolution”), as well as certain administrative duties including, but not limited to, answering the Company’s telephone, collecting and processing the Company’s mail, and monitoring and responding to the Company’s e-mail.

3.             As contemplated by Section 1.B of that certain Settlement and Release Agreement dated August 15, 2002 between you and the Company, the Company hereby releases you from the provisions of Section 5.6 of the Employment Agreement and expressly agrees that you shall be permitted to engage in competitive activities as of the date hereof; provided, however, that except as provided in Paragraphs 4 and 5 below, the remaining nondisclosure, inventions and confidentiality provisions of Section 5 of the Employment Agreement shall continue to survive on the terms provided therein and you shall continue to be bound by the terms thereof.  You hereby release the Company from any and all further obligations arising under the Employment Agreement.

4.             As consideration for all services to be rendered and performed pursuant to this Letter, the Company agrees to assign or transfer to you those certain SBIR grant applications (as

more particularly described on Exhibit A hereto).  You acknowledge and agree that you will not be paid any monetary fees in connection with your services provided pursuant to this Letter.  Notwithstanding Paragraph 3 above, the Company hereby releases you from any nondisclosure, inventions and confidentiality provisions of Section 5 of the Employment Agreement applicable to the SBIR Grant applications.

5.             In addition to the above, the Company agrees to negotiate with you in good faith regarding the transfer or assignment of certain assets, intellectual property, technology and know-how relating to the Anti-Cancer Ligand (ACL) technology (specifically, IGF-I and EGF assays, enrichment and production methods, know how, customer/collaborator contact lists and the notebooks and reports (“bullets”) described on Exhibit B hereto) (the “Technology”) to you or to your subsequent employer (either one, the “Assignee”) on such terms as may be mutually acceptable to the Company and to Assignee.  Notwithstanding Paragraph 3 above, in the event the Company transfers and assigns the Technology to you, the Company agrees to release you from any nondisclosure, inventions and confidentiality provisions of Section 5 of the Employment Agreement applicable to the Technology.  Notwithstanding the above, such transfer of the Technology to Assignee shall not be required in the event that there is a Sale of the Company or a sale of such Technology to a third party which is approved by the Board of Directors of the Company.

6.             Nothing in this agreement shall be construed to grant you or your subsequent employer any rights, license or sublicense to any technology and/or materials that are subject to arbitration and/or litigation with Maxygen, Inc. or any order or ruling resulting therefrom.

Please sign below to acknowledge your receipt, understanding and agreement with all of the foregoing.

			Sincerely,
			Enchira Biotechnology Corporation
			By:	/s/ Paul G. Brown , III
			Name:	Paul G. Brown, III
			Title:	President
Acknowledged:
/s/ D. J. Monticello
Printed Name:		D. J. Monticello
Date:	11/01/02

Exhibit A

SBIR Grant Applications:

1.  Improving the activation of CPT-11 by hCE-2

NCI Grant #:  1 R43 CA96076

2. Creating clinically relevant EGFR antagonists

NCI Grant # 1 R43 CA095930-01

Exhibit B

Enchira Anti-Cancer Ligand Technology & Know How

1.             Enchira R&D 2001-2002 “Bullets” related to IGF-I and EGF enrichments, assays and production methods.

2.             Enchira laboratory notebooks:

340, 341, 343, 344, 346, 347, 348, 349, 350, 351, 352, 353, 355, 356, 358, 359, 360, 361, 363, 364, 365

EX-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.

BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED SEPTEMBER 30, 2001

Weighted Average Shares Outstanding:

TOTAL SHARES		# DAYS OUTSTANDING
9,278,711	x	38	=	352,591,018
9,280,821	x	37	=	343,390,377
10,170,739	x	17	=	172,902,563
		92	=	868,883,958
				868,883,958			/ 92	=	9,444,391
Loss Per Share:
Net Loss plus dividend accrual plus accretion of offering costs				$	(2,933,653	)		=	$	(0.31	)
Weighted Avg. Shares				9,444,391

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Weighted Average Shares Outstanding:

TOTAL SHARES		# DAYS OUTSTANDING
15,310,771	x		92	=	1,408,590,932
			92		1,408,590,932
					1,408,590,932			/ 92	=	15,310,771
Loss Per Share:
Net Loss plus dividend accrual  plus accretion of offering costs					$	(251,304	)			$	(0.02	)
Weighted Avg. Shares					15,310,771

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BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION

NINE MONTHS ENDED SEPTEMBER 30, 2001

Weighted Average Shares Outstanding:

TOTAL SHARES		# DAYS OUTSTANDING
9,067,700	x	5	=	45,338,500
9,077,338	x	2	=	18,154,676
9,078,463	x	10	=	90,784,630
9,078,888	x	22		199,735,536
9,079,313	x	53	=	481,203,589
9,267,993	x	45	=	417,059,685
9,278,711	x	82	=	760,854,302
9,280,821	x	37	=	343,390,377
10,170,739	x	17	=	172,902,563
		273		2,529,423,858
				2,529,423,858			/ 273	=	9,265,289
Loss Per Share:
Net Loss plus dividend accrual plus accretion of offering costs				$	(7,149,066	)	=		$	(0.77	)
Weighted Avg. Shares				9,265,289

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Weighted Average Shares Outstanding:

TOTAL SHARES		# DAYS OUTSTANDING
10,843,320	x	55	=	596,382,600
10,861,696	x	1	=	10,861,696
15,310,771	x	217	=	3,322,437,307
		273		3,929,681,603
				3,929,681,603			/ 273	=	14,394,438
Loss Per Share:
Net Loss plus dividend accrual  plus accretion of offering costs				$	(4,260,220	)		=	$	(0.30	)
Weighted Avg. Share				14,394,438

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EX-99.1

Exhibit 99.1

Certification Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of  the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Enchira Biotechnology Corporation (the “Company”) on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul G. Brown, III, President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.             The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.             The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  November 19, 2002	/s/ Paul G. Brown, III
	Paul G. Brown, III
	President and Chief Financial Officer
	Enchira Biotechnology Corporation