<PAGE>
                                                               EXHIBIT 10.29

                                  EVALUATION AGREEMENT


    This EVALUATION AGREEMENT (the "Agreement") is made and entered into as
of March 1st, 1998 (the "Effective Date"), by and between KOSAN Biosciences,
Inc., a California corporation with offices at 3832 Bay Center Place,
Hayward, CA 94545 ("KOSAN") and SAVIA S.A. de C.V., a Mexican corporation
with offices at Plaza Commercial Las Villas, Rio Caura # 358 Ote. (Altos),
Col. Del. Valle, Garza Garcia, N.L. Mexico 66220 ("SAVIA"), and its affiliate
DNA Plant Technology Corporation ("DNAP") with offices at 6701 San Pablo
Avenue, Oakland, CA 94608-1239.

                                     BACKGROUND

    A. KOSAN has expertise relating to the biosynthesis of polyketides and
owns and controls certain patent rights, know-how, and other intellectual
property relating thereto.

    B. SAVIA and DNAP have expertise relating to plant genetic engineering
and own and Control certain patent rights, know-how, and other intellectual
property relating thereto.

    C. KOSAN and SAVIA desire to evaluate the feasibility of heterologous
polyketide synthesis in plants, on the terms and conditions herein.

    D. KOSAN and SAVIA desire to provide for the formation of a limited
liability company (the "Company") to conduct research and to commercialize
products based on that research and the above referenced intellectual
property.

    Now, therefore, in consideration of the mutual promises contained herein,
the parties agree as follows:


                                      ARTICLE 1
                                     DEFINITIONS


1.1 "BACKGROUND TECHNOLOGY" means all Patent Rights and Know-How that
KOSAN, DNAP, or SAVIA owns or Controls, by assignment or otherwise, on the
Effective Date which is necessary or useful for the conduct of the Evaluation
Program to the extent that KOSAN, DNAP, or SAVIA, as the case may be, has the
right to license or sublicense such rights for the conduct of the Evaluation
Program and subject to any limitations under the terms of the applicable
agreement(s), if any, pursuant to which KOSAN, DNAP, or SAVIA acquired such
rights.

1.2 "CONTROLS" or "CONTROLLED" means possession (other than by virtue of this
Agreement and the licenses granted herein) of the ability to grant licenses
or sublicenses to the other party hereto


<PAGE>

without violating the terms of any agreement or other arrangement with, or
the rights of, any third party.

1.3 "EVALUATION PROGRAM" means the activities conducted pursuant to the
Evaluation Plan described in Section 2.1(a).

1.4 "FIELD" means the development of transgenic plants that make polyketides
and applications of such plants.

1.5 "INVENTION" means any invention or discovery conceived or reduced to
practice by or on behalf of KOSAN, DNAP, or SAVIA in connection with and
during the Evaluation Program solely by KOSAN, DNAP, or SAVIA or jointly by
KOSAN, DNAP, and SAVIA.

1.6 "KNOW-HOW" means all ideas, inventions, data, instructions, biological
materials, processes, formulas, expert opinions and information not generally
known or available to the public, including, without limitation, biological,
chemical, pharmacological, toxicological, pharmaceutical, physical,
analytical, clinical, safety, efficacy, manufacturing, and quality control
information, materials, methods, processes, techniques, and data.

1.7 "MATERIALS" means the materials (including without limitation biological
materials transferred from either party to the other pursuant to this
Agreement or to that certain Materials Transfer Agreement between KOSAN and
DNAP having an Effective Date of 1 March 1998 ("MTA").

1.8 "PATENT RIGHTS" means patent applications disclosing and claiming
inventions filed in any country worldwide, including provisionals,
continuations (in whole or in part), divisionals, reissues, reexaminations
and foreign counterparts thereof, and patents issued on such applications.

1.9 "PROGRAM TECHNOLOGY" means all Patent Rights and Know-How which are
conceived or reduced to practice or otherwise developed by or on behalf of
KOSAN, DNAP, or SAVIA, or jointly by KOSAN, DNAP, and SAVIA in the
performance of the Evaluation Program.

1.10 "TERM SHEET" means the term sheet attached hereto as Exhibit A.


                                       ARTICLE 2
                                   EVALUATION PROGRAM


2.1 EVALUATION PROGRAM.

    (a) EVALUATION PLAN. The parties will conduct the Evaluation Program for
the development of intellectual property and technology for use in the Field
in accordance with an agreed plan and budget (the "Evaluation Plan"). The
purpose of the Evaluation Program is to


                                       2
<PAGE>

produce a polyketide(s) in plants. The Evaluation Plan shall establish: (i)
the scope of the research activities which will be performed; (ii) research
objectives, work plan activities, and time schedules with respect to the
Evaluation Program; and (iii) the respective obligations of the parties with
respect to the Evaluation Program. The Research Committee established
pursuant to Section 2.2 shall review the Evaluation Plan on an ongoing basis
and may make changes to the Evaluation Plan then in effect.

    (b) EFFORTS. KOSAN shall use reasonable efforts to conduct the Evaluation
Program by conducting research activities and providing Materials to SAVIA in
accordance with the Evaluation Plan and within the time schedules
contemplated therein. SAVIA and DNAP shall use reasonable efforts to conduct
the Evaluation Program by conducting research activities and providing
Materials to KOSAN in accordance with the Evaluation Plan and within the time
schedules contemplated therein.

    (c) CONDUCT OF EVALUATION PROGRAM. During the term of the Evaluation
Program, DNAP will conduct the required plant genetic engineering research
activities for SAVIA, KOSAN, DNAP, and SAVIA will provide research assistance
and supervision from their scientists with respect to the technology licensed
by each party to the other for purposes of conducting the Evaluation Program.
Fees for all research assistance and supervision (including research
performed by affiliates of the parties) will be determined on an arms-length
basis.

    (d) FUNDING. SAVIA shall be responsible for providing funding for the
performance of the Evaluation Program. SAVIA will expend four hundred
seventy-six thousand one hundred and thirty-two U.S. dollars ($476,132) in
funding KOSAN and DNAP scientists to conduct the Evaluation Program during
the term of this Agreement, but shall have no obligation to expend more than
such amount. Ninety thousand U.S. dollars ($90,000) of such amount will be
paid by SAVIA to KOSAN on signing this Agreement in reimbursement of
personnel expense to carry out the Evaluation Program over the term of this
Agreement, and three hundred eighty-six thousand one hundred and thirty-two
U.S. dollars ($386,132) will be paid by SAVIA to DNAP in reimbursement of
personnel expense to carry out the Evaluation Program over the term of this
Agreement.

    (e) MATERIALS. Materials provided by one party to another pursuant to the
Evaluation Plan will be used by the receiving party solely for the purpose of
conducting the Evaluation Program. The receiving party agrees not to use
Materials provided to it by the other party for any other purpose, including
any research that is subject to consulting, licensing, assignment, or similar
obligations to any third party without the prior written consent of the party
providing such Materials. Neither party shall transfer Materials received
from the other party hereto to any third party without the other party's prior
written consent. Unless otherwise agreed by the parties, each party agrees to
return any remaining Materials received from the other party hereto to the
providing party upon the expiration or termination of this Agreement. The
parties acknowledge that the Materials are experimental in nature and may
have unknown characteristics and therefore agree to use prudence and
reasonable care in the use, handling, storage,


                                       3

<PAGE>

transportation, disposition, and containment of the Materials. This Agreement
supercedes the MTA entered into by KOSAN and DNAP, in its entirety.

     (f)  TERM OF EVALUATION PROGRAM. The Evaluation Program shall commence
on the Effective Date and terminate upon the earlier of (i) the termination
of this Agreement pursuant to Article 7, (ii) the expenditure of four hundred
seventy-six thousand one hundred and thirty-two U.S. dollars ($476,132) by
SAVIA under 2.1(d) above, (iii) the date of formation of the Company, (iv)
May 1, 1999, or (v) such other date as the parties agree in writing.

     (g)  THIRD PARTY LICENSES. In the event that the Research Committee
determines that it is necessary to acquire a license from any third party
specifically for the conduct of the Evaluation Program, the parties shall
discuss which party shall acquire such license and how the costs thereof
shall be shared.

2.2  RESEARCH COMMITTEE.

     (a)  RESPONSIBILITIES. SAVIA, DNAP, and KOSAN will establish a Research
Committee to oversee, review and recommend direction of the Evaluation
Program. The responsibilities of the Research Committee shall include: (i)
monitoring and overseeing research progress of the Evaluation Program and
ensuring open and frequent exchange between the parties, and (ii) approving
revisions to the Evaluation Plan.

     (b)  MEMBERSHIP; DECISIONS. The Research Committee shall be comprised
of four (4) members: two (2) representing SAVIA and DNAP and two (2)
representing KOSAN. Each party may replace its Research Committee
representatives at any time, with written notice to the other party. Each
member shall have one vote on the Research Committee, which vote may be cast
by proxy. In the event of any deadlock at the Research Committee, the parties
shall continue to perform under the last Evaluation Plan approved by the
Research Committee, or if such Evaluation Plan is no longer applicable, then
either party may terminate this Agreement pursuant to Section 7.4.

      (c)  MEETINGS. During the term of this Agreement the Research Committee
shall meet quarterly or as the Research Committee may otherwise agree to
discharge its responsibilities. The first meeting of the Research Committee
shall occur within thirty (30) days of the Effective Date. Such meetings
shall alternate between Burlingame or Hayward and Oakland in California or
such other locations as the parties agree. Representatives of the parties
that are not members of the Research Committee, and, with the consent of the
parties, representatives of third parties may attend Research Committee
meetings as nonvoting observers. Each party will be responsible for paying
its own expenses in connection with the meetings of the Research Committee.
The Research Committee shall prepare a written record of all Research
Committee decisions, whether made at a Research Committee meeting or
otherwise.


                                      4

<PAGE>

      (d)  REVIEW OF PROGRAM RESULTS. No less than quarterly during the
Evaluation Program and within ten (10) days after the end of the Evaluation
Program, the Research Committee shall meet to review the results of the
Evaluation Program to determine whether any of the following were achieved in
connection with the performance of the Evaluation Program:

           (i)    demonstration of production of a functional fungal,
      iterative polyketide synthase in plant cells which results in production
      of a polyketide in the plant cells;

           (ii)   demonstration of production of a functional modular
      polyketide synthase in plant cells which has activity (i.e., which is
      capable of producing a polyketide in plant cells in the presence of an
      endogenous or provided precursor);

           (iii)  demonstration of a phenotype in plant cells attributable to
      the presence of a transgenic polyketide synthase gene in such plant cells.

The Evaluation Program shall be deemed successful if any of (i) - (iii) above
is achieved in connection therewith.

      (e)  EFFECT OF PROGRAM RESULTS.

           (i)    If the Evaluation Program is successful and the parties
      have created the Company, the documents governing the Company and its
      operation (the "Company Documents") shall thereafter govern the rights
      and obligations of the parties.

           (ii)   If the Evaluation Program is successful and the parties
      have not created the Company, the parties shall form the Company in
      accordance with Article 6.

           (iii)  If the Evaluation Program is not successful and the parties
      have created the Company, the Company Documents shall govern the rights
      and obligations of the parties.

           (iv)   If the Evaluation Program is not successful and the parties
      have not created the Company, then (x) this Agreement shall terminate
      pursuant to Section 7.4 and the parties shall have no further obligation
      to enter into any further agreement, (y) each party will retain all
      rights to any Background Technology owned by it, and (z) the license
      provided to KOSAN by Section 3.5(a) shall become irrevocable.

2.3   RECORDS; EXCHANGE OF INFORMATION.

      (a)  RECORDS. The parties shall maintain scientific records of the
activities conducted hereunder in sufficient detail and good scientific
manner as will properly reflect all work done and results achieved in the
performance of the Evaluation Plan (including all data in the form required
under any applicable governmental regulations). During the term of this
Agreement, and for three


                                      5

<PAGE>

(3) years thereafter, the parties shall provide each other reasonable access
to such records, upon request, during ordinary business hours.

      (b)  REPORTS. Upon reasonable request, the parties shall give each
other a detailed report of their respective activities and results obtained
pursuant to this Agreement. Each party shall provide a final written report
summarizing its activities during the Evaluation Program and the results
thereof within thirty (30) days after the end of the Evaluation Program.

2.4 EVALUATION PROGRAM CROSS LICENSE.

    (a) KOSAN hereby grants SAVIA and DNAP a nonexclusive, nontransferable,
worldwide, royalty free license under the Background Technology, Materials,
and KOSAN's interest in the Program Technology solely to perform those acts
that are reasonably necessary to enable SAVIA and DNAP to conduct the
Evaluation Program.

    (b) SAVIA and DNAP hereby grant KOSAN a nonexclusive, nontransferable,
worldwide, royalty free license under the Background Technology, Materials
and SAVIA's and DNAP's interest in the Program Technology solely to perform
those acts that are reasonably necessary to enable KOSAN to conduct the
Evaluation Program.

    (c) Neither party shall have the right to sell or otherwise distribute
any products by virtue of the licenses set forth in this Section 2.4, and no
such sale or distribution right shall be implied. Neither party may
sublicense any of the rights granted to it under this Section 2.4. The
licenses set forth in Sections 2.4(a) and 2.4(b) shall expire immediately
upon completion or earlier termination of the Evaluation Program.


                                       ARTICLE 3
                                 INTELLECTUAL PROPERTY


3.1 OWNERSHIP OF INVENTIONS.

    (a) OWNERSHIP. All Inventions and other Program Technology shall be owned
by the party that invents such Invention or other Program Technology, and
Inventions and other Program Technology that are jointly invented or created
by employees of SAVIA, DNAP, and KOSAN shall be jointly owned by SAVIA, DNAP,
and KOSAN, except in each case, as provided in Section 3.1(b) below.

    (b) KOSAN OWNERSHIP. KOSAN will own provisional patent application Serial
No. 60/052,211, filed 10 July 1997 by KOSAN entitled "Transformed Plants and
Plants Cells that Express Polyketide Synthase;" U.S. patent application
Serial No. 09/114,083, filed 10 July 1998; PCT patent application No.
US98/14570, filed 10 July 1998; and any patent or patent application claiming
priority to any of the foregoing.


                                       6




<PAGE>

3.2      CONFIDENTIALITY OF RESULTS. During the term of the Evaluation Program
and for twelve (12) months thereafter, unless otherwise superceded by the
Company Documents, neither party to this Agreement shall disclose the results or
data from the activities conducted pursuant to this Agreement without the prior
written approval of the other party hereto except pursuant to a confidentiality
agreement requiring the recipient to maintain such results and/or data in
confidence, provided, however, that this Section shall not preclude the
inclusion by a party of such results or data in one or more patent applications,
prosecution documents relating thereto, and patents issuing thereon.

3.3      FILING PATENT APPLICATIONS.

         (a)      During the term of the Evaluation Program and for twelve (12)
months thereafter, unless otherwise superseded by the Company Documents, either
party hereto that desires to file a patent application claiming an Invention
will provide prompt notice to the other party, such notice to include a draft of
the application to be filed, and may within twenty (20) days thereafter file
such patent application, giving due consideration to the comments on such draft
provided by the other party.

         (b)      SAVIA, DNAP, and KOSAN shall jointly prepare, file, prosecute
and maintain the patent applications and patents claiming Inventions that are
jointly invented by SAVIA, DNAP, and KOSAN in such countries as they mutually
determine, using patent counsel agreed by the parties, and shall jointly conduct
any interferences, reexaminations, reissues, oppositions or requests for patent
term extensions relating thereto. Unless otherwise agreed, the parties shall
equally share the costs thereof. SAVIA, DNAP, and KOSAN shall keep the other
fully informed as to the status of Patent Rights within the Program Technology,
including without limitation, by providing the other the opportunity to review
and comment fully on any documents relating to each joint Invention which will
be filed in any patent office at least thirty (30) days before such filing, and
providing the other party copies of any documents that such party receives from
such patent offices promptly after receipt including notice of all
interferences, reissues, reexaminations, oppositions or requests for patent term
extensions. SAVIA, DNAP, and KOSAN shall each reasonably cooperate with and
assist the other at its own expense in connection with such activities, at the
other party's request.

         (c)      In the event that either party wishes to seek patent
protection with respect to any Invention in any country outside the United
States, it shall notify the other party hereto. If only one party wishes to seek
patent protection with respect to an Invention in any such country or countries,
it may file, prosecute and maintain patent applications and patents with respect
thereto, at its own expense. In any such case, the party declining to
participate in such activities shall not grant any third party a license under
its interest in the applicable patent application and/or patent without the
prior written consent of the other party.


                                       7
<PAGE>

3.4      ASSIGNMENT.

        SAVIA and DNAP hereby assign to KOSAN SAVIA's and DNAP's entire
interest in all right, title and interest in and to provisional patent
application Serial No. 60/052,211, filed 10 July 1997 and entitled
"Transformed Plants and Plant Cells that Express Polyketide Synthase;" U.S.
patent application Serial No. 09,114,083, filed 10 July 1998; PCT patent
application No. US98/14570, filed 10 July 1998; and any patent or patent
application claiming priority to any of the foregoing and agree to execute
(or cause to be executed) such application, oaths, documents and instruments
as KOSAN may request in order to perfect, confirm, or protect KOSAN's right
and interest in and to the same.

3.5      LICENSE RIGHTS.

(a)      SAVIA and DNAP hereby grant to KOSAN an exclusive, worldwide, royalty
         free, fully paid-up license with respect to SAVIA's and DNAP's interest
         in the Program Technology for use in the area of polyketides, the
         production of polyketides in cells or systems other than transgenic
         plant cells, and the use of polyketides to make, have made, use,
         import, have imported, sell, and offer for sale human health care
         products and agree to execute (or cause to be executed) such
         applications, oaths, documents, and instruments as KOSAN may request to
         perfect, confirm or protect KOSAN's right and interest in and to such
         Program Technology.

(b)      KOSAN hereby grants to SAVIA an exclusive, worldwide, royalty free,
         fully paid-up license with respect to KOSAN's interest in the Program
         Technology for use in the area of production, use and commercialization
         of plants that do not produce transgenically encoded polyketides and
         agrees to execute (or cause to be executed) such applications, oaths,
         documents, and instruments as SAVIA may request to perfect, confirm or
         protect SAVIA's right and interest in and to such Program Technology.

3.6      EMPLOYEE OBLIGATIONS. KOSAN, DNAP, and SAVIA shall ensure that all of
their respective employees, officers, researchers, any employee that conducts
research in the Evaluation Program, independent contractors, and consultants
have legal obligations, whether imposed by agreement or law, requiring
assignment or licensing to KOSAN, DNAP, or SAVIA, as appropriate, of all (i)
Background Technology owned by such party, and (ii) Inventions and other Program
Technology.

3.7     PATENT AND KNOW-HOW ENFORCEMENT.

         (a)      SOLELY OWNED PATENTS AND KNOW-HOW. Each party shall have the
right, but not the obligation, at its expense, for enforcing and defending any
Patent Rights and Know-How in the Background Technology or the Program
Technology owned solely by it.


                                       8
<PAGE>

         (b)      JOINTLY OWNED PATENTS AND KNOW-HOW. The parties shall be
jointly responsible for enforcing and defending any jointly owned Patent Rights
and Know-How in the Program Technology. Unless otherwise agreed in advance in
writing by the parties, if either party is notified of possible infringement of
jointly owned Program Technology, it shall promptly notify the other party, and
thereafter the parties shall promptly confer in good faith to determine (i) what
steps, if any, should be taken to abate any infringement or misappropriation,
(ii) which party shall be responsible for conducting such activities, (iii) the
respective costs the parties will bear with regard to such activities, and (iv)
the allocation between the parties of damages, if any, awarded with respect to
such activities. In the event the parties are unable to agree on the foregoing
within three (3) months after notice of an infringement or misappropriation is
provided as described above, either party may, at its own expense, initiate a
proceeding to abate such infringement or misappropriation with respect to the
pertinent joint Patent Rights or joint Know-How, and the other party will
cooperate with the initiating party, at its request and expense, including
without limitation, by joining such proceeding as a party if required by
applicable law.

         (c)      NOTICE. In the event a party to this Agreement acquires
information that a third party may by infringing one or more of the Patent
Rights or Know-How within the Program Technology, the party acquiring such
information shall promptly notify the other party to the Agreement in writing of
such infringement.

3.8      REVIEW OF PUBLICATIONS. Any manuscript or presentation by KOSAN,
DNAP, or SAVIA describing the results of the Evaluation Program to be
published or presented during the term of this Agreement or within one (1)
year thereafter shall be subject to the prior review of the other party at
least sixty (60) days prior to its submission for publication. Further, to
avoid loss of patent rights as a result of premature public disclosure of
patentable information, the receiving party shall notify the disclosing party
in writing within thirty (30) days after receipt of any disclosure whether
the receiving party desires to file a patent application on any Invention
disclosed in such disclosure. In the event that KOSAN, DNAP, or SAVIA
determines on receipt of such disclosure that it desires to file such a
patent application, the disclosing party shall withhold publication or
disclosure of such document until the earlier of (i) the date a patent
application is filed thereon, or (ii) the parties determine after
consultation that no patentable Invention exists, or (iii) the date
forty-five (45) days after receipt by the disclosing party of the receiving
party's written notice of the receiving party's desire to file such patent
application, or such other longer period as is reasonable for seeking patent
protection. Further, if such document contains the confidential information
of KOSAN, DNAP, or SAVIA that is subject to use and nondisclosure
restrictions under Section 4.1, or if the parties determine after
consultation that the document contains Know-How that is or will be protected
as a trade secret by either party, the disclosing party agrees to remove such
information of the other party from the proposed publication or presentation.

                                       9

<PAGE>
                                    ARTICLE 4
                                CONFIDENTIALITY

4.1    CONFIDENTIAL INFORMATION AND MATERIALS. Except as expressly provided
herein, the parties agree that, for the Term of this Agreement and for five
(5) years thereafter, the receiving party shall not publish or otherwise
disclose and shall not use for any purpose, any information or Materials
furnished to it by the other party hereto, which, if disclosed in tangible
form, is marked "Confidential" or with other similar designation to indicate
its confidential or proprietary nature, or, if disclosed orally, is confirmed
as confidential or proprietary by the party disclosing such information at
the time of such disclosure or within thirty (30) days thereafter
("Confidential Information").  Oral communications between scientists
conducting research under the Evaluation Plan shall be presumed to be
confidential disclosures.  Notwithstanding the foregoing, it is understood
and agreed that Confidential Information shall not include information or
material that, in each case demonstrated by written documentation:

       (a)    was already known to the receiving party, other than under an
obligation of confidentiality, at the time of disclosure;

       (b)    was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving party;

       (c)    became generally available to the public or otherwise
part of the public domain after its disclosure and other than through any act
or omission of the receiving party in breach of this Agreement;

       (d)    is independently developed without the use of the Confidential
Information of the other party; or

       (e)    was subsequently lawfully disclosed to the receiving party by a
person other than a party hereto or developed by the receiving party without
reference to any Confidential Information disclosed by the disclosing party.

4.2    PERMITTED DISCLOSURES.  Notwithstanding the provisions of Section 4.1,
each party hereto may disclose the other's Confidential Information to the
extent such disclosure is reasonably necessary in conducting its obligations
under the Evaluation Program, preparing or prosecuting patent applications,
prosecuting or defending litigation, complying with applicable governmental
law, regulations, or court order, or submitting information to governmental
authorities, provided, however, that if a party is required to make any such
disclosure of another party's Confidential Information, then, to the extent
it may legally do so, it will give reasonable advance written notice to the
other party of such disclosure and will use its reasonable efforts to secure
confidential treatment of such Confidential Information prior to its
disclosure (whether through protective orders or otherwise).  If the parties
have not established the Company during the term of this Agreement, KOSAN may
disclose to third parties the Confidential Information relating to the

                                      10

<PAGE>

Program Technology assigned or licensed to KOSAN hereunder in connection with
negotiating or entering into agreements regarding such Program Technology.
If the party whose Confidential Information is to be disclosed has not filed
a patent application with respect to such Confidential Information, it may
require the other party to delay the proposed disclosure (to the extent the
disclosing party may legally do so), for up to forty-five (45) days after
receipt of written notice from the disclosing party of its intent to
disclose, to allow for the filing of such an application.

4.3    PUBLICITY; USE OF NAME. Except as required by law or expressly
permitted under this Agreement, neither party shall use the name, trademark,
or symbol of the other party or of any of its trustees, officers, employees,
or agents, or reveal the existence of, or the terms of, this Agreement to any
third party or in any promotional material or other public announcement or
disclosure without the prior oral or written consent of the other party,
provided, however, that once a particular disclosure has been approved,
either party may make disclosures that do not materially differ therefrom
without obtaining further approvals from the other party.  The foregoing
notwithstanding, each party has the right to disclose such information
without the consent of the other (i) in any prospectus, offering
memorandum, or other document or filing required by applicable securities
laws or other application law or regulation, and (ii) to potential investors
under a nondisclosure obligation.

                                    ARTICLE 5
                                 INDEMNIFICATION

5.1    INDEMNIFICATION OF SAVIA. KOSAN shall indemnify, defend, and hold
harmless SAVIA and its affiliates, including but not limited to DNAP, the
directors, officers, and employees of SAVIA and its affiliates, and the
successors and assigns of any of the foregoing (the "SAVIA Indemnitee(s)")
from and against all claims, losses, costs, and liabilities (including,
without limitation, payment of reasonable attorneys' fees and other expenses
of litigation), and shall pay any damages (including settlement amounts)
finally awarded, with respect to any claim, suit, or proceeding (any of the
foregoing, a "Claim") brought by third party against an SAVIA Indemnitee,
caused by (a) a material breach by KOSAN of its obligations under this
Agreement, (b) KOSAN's conduct in performance of the Evaluation Program, or
(c) the negligence or willful misconduct of KOSAN, except, in each case, to
the extent caused by the negligence or willful misconduct of a SAVIA
Indemnitee.

5.2    INDEMNIFICATION OF KOSAN. SAVIA and DNAP, individually and not
jointly, shall indemnify, defend, and hold harmless KOSAN and its affiliates,
the directors, officers, and employees of KOSAN and its affiliates, the
President and Fellows of Harvard College, and the Board of Trustees of Leland
Stanford Jr. University, Stanford Health Services, Brown University, BURD,
and their respective trustees, officers, employees, students and agents, and
the successors and assigns of any of the foregoing (the "KOSAN Indemnitee(s)")
from and against all claims, losses, costs, and liabilities (including
without limitation, payment of reasonable attorneys' fees and other expenses
of litigation) and shall pay any damages (including settlement amounts)
finally awarded, with respect to any claim, suit, or proceeding (any of the

                                      11

<PAGE>

foregoing, also a "Claim") brought by a third party against a KOSAN
Indemnitee, arising out of or relating to  (a) a material breach by SAVIA and
its affiliates, including DNAP, of its obligations under this Agreement; or
(b) SAVIA's and its affiliates', including DNAP's, conduct in performance of
the Evaluation Program, or (c) the negligence or willful misconduct of SAVIA
and its affiliates, including DNAP, except, in each case, to the extent due
to the negligence or willful misconduct of a KOSAN Indemnitee.

5.3    INDEMNIFICATION PROCEDURES. An Indemnitee that intends to claim
indemnification under this Article 5 shall promptly notify the other party
(the "Indemnitor") in writing of any claim in respect of which the Indemnitee
intends to claim such indemnification, and the Indemnitor shall have sole
control of the defense and/or settlement thereof, provided, however, that the
Indemnitee may participate in any such proceeding with counsel of it choice,
at its own expense.  The indemnity agreement in this Article 5 shall not
apply to amounts paid in settlement of any Claim if such settlement is
effected without the consent of the Indemnitor, which consent shall not be
withheld unreasonably.  The failure to deliver written notice to the
Indemnitor within a reasonable time after the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve
such Indemnitor of any liability to the Indemnitee under this Article 5.
The Indemnitee, its employees, and its agents shall cooperate fully with the
Indemnitor and its legal representatives and provide full information in the
investigation of any Claim.

                                    ARTICLE 6
                              COMPANY FORMATION

       The Term Sheet attached hereto as Exhibit A sets forth the material
terms agreed to by the parties for the formation of the Company and the
commercialization by the Company of the Program Technology.  The parties
agree that, in the event the Evaluation Program is successful, as defined in
Section 2.2(d) hereof, the Company shall be formed as soon as possible on
terms consistent with those set forth in the Term Sheet, and this Agreement
shall continue to control the rights and obligations of the parties until the
Company is formed.  Notwithstanding the foregoing, the parties may agree to
form the Company prior to determination of the success of the Evaluation
Program, in which event all sums agreed to be expended by a party in
connection with the Evaluation Program shall be paid, as needed, to the
Company as a contribution to the capital of the Company. In the event the
Company is formed as provided in this Article 6, the Company Documents shall
take precedence in the event of any conflict with the terms of this
Agreement.  The Company Documents will include procedures for appointing
arbitrators, consequences of a party's failure to act, deadlines for
conducting the arbitration, and other customary arbitration provisions.

                                      12


<PAGE>


                                       ARTICLE 7
                                 TERM AND TERMINATION


7.1 TERM OF THE AGREEMENT. The term of this Agreement shall commence on the
Effective Date and continue in full force and effect until formation of the
Company, unless terminated earlier pursuant to this Article 7.

7.2 TERMINATION FOR CAUSE. Either KOSAN or SAVIA may terminate this Agreement
by written notice stating such party's intent to terminate in the event the
other shall have breached or defaulted in the performance of any of its
material obligations hereunder, and such default shall have continued for
sixty (60) days after written notice thereof was provided to the breaching
party by the nonbreaching party.

7.3 TERMINATION FOR BANKRUPTCY. Either party may terminate this Agreement
effective upon written notice to the other party in the event the other party
declares bankruptcy or becomes the subject of any voluntary or involuntary
proceeding under the U.S. Bankruptcy Code or state insolvency proceeding, and
such proceeding is not terminated within one hundred twenty (120) days of its
commencement.

7.4 TERMINATION FOR DEADLOCK. If the parties have not yet created the Company,
and the Research Committee is unable to agree on the conduct of research not
covered by an agreed Evaluation Plan, then either party may terminate the
Agreement with thirty (30) days notice to the other party hereto.

7.5 EFFECT OF TERMINATION.

    (a) RIGHTS AND OBLIGATIONS. Termination of this Agreement for any reason
shall neither release any party hereto from any liability which, at the time
of such termination, has already accrued to the other party or which is
attributable to a period prior to such termination nor preclude either party
from pursuing all rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement.

    (b) RETURN OF CONFIDENTIAL INFORMATION MATERIALS. Upon any termination of
this Agreement other than pursuant to Section 7.1, SAVIA, DNAP, and KOSAN
shall promptly return to the other party all Confidential Information
received from the other party (except one copy of which may be retained for
archival purposes). Upon termination of this Agreement other than pursuant to
Section 7.1, each party shall promptly return or destroy Materials provided
by the other party at the other party's discretion, and all plants, plant
parts, and seeds containing such Materials shall be destroyed, and an officer
of each party shall provide the other party with a written certification of
such return or destruction within thirty (30) days of effective date of such
termination.


                                       13

<PAGE>

    (c) LICENSES. Upon termination of this Agreement, all licenses granted in
Section 2.4 shall terminate. Upon termination of this Agreement pursuant to
Section 2.2(e)(iv), 7.2, 7.3, or 7.4, the licenses provided under Section 3.5
shall become irrevocable.

7.6 SURVIVAL. The provisions of Sections 2.2(e)(iv), 2.3(a), 3.1, 3.2, 3.3,
3.4, 3.5, 3.7(b), 3.8, 7.5, and 7.6, and Articles 4, 5, 8, and 9 shall
survive the expiration or termination of this Agreement for any reason,
except as provided to the contrary in the Company Documents in the event of
formation of the Company.

                                        ARTICLE 8
                                   DISPUTE RESOLUTION


8.1 MEDIATION. If a dispute arises out of or relates to this Agreement or the
breach thereof, and if said dispute cannot be settled through negotiation,
then the parties agree first to try in good faith to settle the dispute by
mediation under the Commercial Mediation Rules of the American Arbitration
Association before resorting to arbitration, litigation, or some other
dispute resolution procedures.

8.2 ARBITRATION. If the parties are unable to resolve any dispute,
controversy, or claim between them arising out of or relating to the
validity, construction, enforceability, or performance of this Agreement,
including disputes relating to alleged breach or termination of this
Agreement (each, a "Dispute"), the Dispute shall be settled by binding
arbitration conducted in San Francisco, California, pursuant to the
Commercial Arbitration Rules of the American Arbitration Association then in
effect by one (1) arbitrator appointed in accordance with such rules. If a
disagreement between the parties relates to the proposed modification of the
Evaluation Program, and cannot be resolved through negotiation, then the
parties will conduct the Evaluation Program according to the most recent
Evaluation Plan. If the disagreement cannot be resolved through negotiation
and relates to any other material aspect of this Agreement, then the
disagreement will be submitted to an independent arbitrator selected by the
parties who has expertise in the areas of biotechnology and joint ventures.
While the arbitration is pending, (i) the obligations of the parties to form
the Company will be suspended, and (ii) the Evaluation Program will continue
to conclusion. The decision and/or award rendered by the arbitrator shall be
written (specifically stating the arbitrator's findings of facts as well as
the reasons upon which the arbitrator's decision is based), final, and
nonappealable, (except for an alleged act of corruption or fraud on the part
of the arbitrator) and may be entered in any court of competent jurisdiction.
The parties agree that, any provision of applicable law notwithstanding, they
will not request, and the arbitrator shall have no authority to award,
punitive or exemplary damages against any party. The arbitrator shall have
the authority to grant injunctive relief and order specific performance. The
arbitrator shall determine what discovery will be permitted, consistent with
the goal of limiting the cost and time that the parties must expend for
discovery, provided, however, that the arbitrator shall permit such discovery
as it deems necessary to permit an equitable resolution of the dispute.
Evidence need not be obtained in the presence of the arbitrator. At the
arbitration hearing, each party may make written and oral presentations to the

                                       14

<PAGE>

arbitrator, present testimony and written evidence, and examine witnesses.
The costs of any arbitration, including administrative fees and fees of the
arbitrator, shall be shared equally by the parties. Each party shall bear the
cost of its own attorneys' fees and expert fees relating to the arbitration.
The parties and the arbitrator shall use their best efforts to complete any
such arbitration within one (1) year after appointment of the arbitrator,
unless a party can demonstrate to the arbitrator that the complexity of the
issues or other reasons warrant the extension of the time. In such case, the
arbitrator may extend such timetable as reasonably required. The arbitrator
shall, in rendering its decision, apply the substantive law of the State of
California, without regard to its conflict of laws provisions, except that
the interpretation of and enforcement of this Section 8.2 shall be governed
by the U.S. Federal Arbitration Act. Pending the selection of the arbitrator
or pending the arbitrator's determination of the merits of the controversy,
either party may seek from a court of competent jurisdiction any interim or
provisional relief that may be necessary to protect the rights or property of
that party.

                                        ARTICLE 9
                                      MISCELLANEOUS


9.1 GOVERNING LAW. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be
governed, construed, and interpreted in accordance with the laws of the State
of California, without reference to rules of conflicts or choice of laws.

9.2 OTHER ACTIVITIES. Each party shall have the right to conduct other
research or development activities outside the Evaluation Program, alone and
with third parties, during the term of this Agreement and thereafter.

9.3 NOTICES. Any notice required or permitted by this Agreement shall be in
writing and shall be sent by prepaid registered or certified mail, return
receipt requested, internationally recognized courier or personal delivery,
or by fax with confirming letter mailed under the conditions described above
in each case addressed to the other party at the address shown below or at
such other address for which such party gives notice hereunder. Such notice
shall be deemed to have been given when delivered:

If to SAVIA or DNAP:           SAVIA, S.A. de C.V.
                               Plaza Commercial Las Villas
                               Rio Caura # 358 Ote. (Altos)
                               Col. Del. Valle, Garza Garcia, N.L.
                               New Mexico 66220

                               with a copy to:



                                       15

<PAGE>

                                     Joe A. Rudberg, Esq.
                                     Thompson & Knight
                                     1700 Pacific Avenue
                                     Suite 3300
                                     Dallas, TX 75201

                                     and a copy to:

                                     Jorge Fenyvesi
                                     DNA Plant Technology Corporation
                                     6701 San Pablo Avenue
                                     Oakland, CA 94608-1239

If to KOSAN:                         KOSAN Biosciences, Inc.
                                     3832 Bay Center Place
                                     Hayward, CA 94545
                                     Attn: Chief Executive Officer

9.4    FORCE MAJEURE. Neither party shall lose any rights hereunder or be
liable to the other party for damages or losses (except for payment
obligations) on account of failure of performance by the defaulting party if
the failure is occasioned by war, strike, fire, Act of God, earthquake,
flood, lockout, embargo, governmental acts or orders or restrictions,
failure of suppliers, or any other reason where failure to perform is beyond
the reasonable control and not caused by the negligence, intentional conduct
or misconduct of the nonperforming party, and the nonperforming party has
exerted all reasonable efforts to avoid or remedy such force majeure,
provided, however, that in no event shall a party be required to settle any
labor dispute or disturbance.

9.5    NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL A PARTY HERETO BE LIABLE
FOR SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS
AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER, INCLUDING WITHOUT
LIMITATION LOST PROFITS ARISING FROM OR RELATING TO ANY BREACH OF THIS
AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES.

9.6    DISCLAIMER. The parties acknowledge that the research activities
contemplated hereunder are experimental and that the Evaluation Program may
not be successful.  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, KOSAN AND SAVIA MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES
OF ANY KIND REGARDING THE CONFIDENTIAL INFORMATION, PROGRAM TECHNOLOGY,
AND/OR BACKGROUND TECHNOLOGY, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NONINFRINGEMENT, AND VALIDITY OF


                                     16
<PAGE>

TECHNOLOGY OR PATENT CLAIMS, ISSUED OR PENDING.  ALL MATERIALS PROVIDED AS
PART OF THE EVALUATION PROGRAM UNDER THIS AGREEMENT ARE PROVIDED "AS IS," AND
EACH PARTY SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF NONINFRINGEMENT
OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO SUCH MATERIALS.

9.7    NO IMPLIED RIGHTS. Only the rights granted pursuant to the express
terms of this Agreement shall be of any legal force or effect.  No other
rights shall be created by implication, estoppel, or otherwise.

9.8    ASSIGNMENT. This Agreement shall not be assignable by either party to
any third party hereto without the written consent of the other party hereto,
except either party may assign this Agreement without such consent to an
entity that acquires all or substantially all of the business or assets of
such party to which this Agreement pertains, whether by merger,
reorganization, acquisition, sale, or otherwise.

9.9    PARTIAL INVALIDITY. If any provision of this Agreement is held to be
invalid by a court of competent jurisdiction, then the remaining provisions
shall remain, nevertheless, in full force and effect.  The parties agree to
renegotiate in good faith any provision held invalid and to be bound by the
mutually agreed substitute provision to give the most approximate effect
originally intended by the parties.

9.10   ADVICE OF COUNSEL. KOSAN, DNAP, and SAVIA have each consulted counsel
of their choice regarding this Agreement, and each acknowledges and agrees
that this Agreement shall not be deemed to have been drafted by one party or
the other and will be construed accordingly.

9.11   INDEPENDENT CONTRACTORS. The relationship of KOSAN, DNAP, and SAVIA
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give any party the
power to direct or control the day-to-day activities of the other, (ii)
constitute the parties as partners, joint venturers, co-owners, or otherwise
as participant in a joint or common undertaking, or (iii) allow a party to
create or assume any obligation on behalf of the other party for any purpose
whatsoever.

9.12   NO WAIVER. No waiver of any term or condition of this Agreement shall
be valid or binding on either party unless agreed in writing by the party to
be charged.  The failure of either party to enforce at any time any of the
provisions of the Agreement or the failure to require at any time performance
by the other party of any of the provisions of this Agreement, shall in no
way be construed to be a present or future waiver of such provisions, nor in
any way affect the validity of either party to enforce each and every such
provision thereafter.

9.13   FURTHER ASSURANCES. At any time following the Effective Date, at the
request of the other party hereto, each party shall (i) deliver to the other
party such documents consistent with the


                                      17
<PAGE>

provisions of this Agreement, and (ii) execute and deliver or cause to be
delivered all such assignments, consents, documents, or further instruments,
and (iii) take or cause to be taken all such other actions as the requesting
party may reasonably deem necessary or desirable for the requesting party to
obtain the full benefit of this Agreement.

9.14   COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one (1) instrument.

9.15   EXECUTION BY DNAP. DNAP is executing this agreement solely with
respect to the rights and obligations specifically set forth herein as to
DNAP.  DNAP shall not be liable for any obligations of SAVIA set forth herein.

9.16   ENTIRE AGREEMENT; AMENDMENT. This Agreement, including the Exhibits
attached hereto, constitutes the entire agreement of the parties with respect
to the subject matter hereof, and supercedes all prior or contemporaneous
understandings or agreements, whether written or oral, between KOSAN, DNAP,
and SAVIA with respect to such subject matter.

No amendment or modification hereof shall be valid or binding upon the
parties unless made in writing and signed by the duly authorized
representatives of the parties.

       IN WITNESS WHEREOF, the undersigned are duly authorized to execute
this Agreement on behalf of SAVIA, DNAP, and KOSAN, as applicable.

KOSAN BIOSCIENCES, INC.                   SAVIA, S.A. de C.V.


By: /s/ Daniel V. Santi                   By:  /s/ Bernardo Jimenez
   -------------------------------           ------------------------------

Name: Daniel V. Santi                    Name: Bernardo Jimenez
     -----------------------------             ----------------------------

Title: Chairman & CEO                     Title: Attorney In Fact
      ----------------------------              ---------------------------

DNA PLANT TECHNOLOGY CORPORATION


By: /s/ Jorge Fenyvesi
   -------------------------------

Name: Jorge Fenyvesi
     -----------------------------

Title: President
      ----------------------------


Exhibit A: Company Formation Term Sheet


                                      18

<PAGE>


                                  EXHIBIT A
                                 TERM SHEET

               PROPOSED FORMATION OF LIMITED LIABILITY COMPANY
                           BETWEEN SAVIA AND KOSAN

1.     PARTIES

SAVIA, S.A. de. C.V., and/or its designated Affiliate or Affiliates ("SAVIA")
and Kosan Biosciences Incorporated ("KOSAN")

2.     FORM OF ENTITY

After successful completion of Phase I, as described in the evaluation
Agreement, SAVIA and Kosan would form a limited liability company, either in
Delaware or Nevada (the "COMPANY"). Either SAVIA or Kosan may subsequently
request that the Company be converted to a "C" or other form of company
(subject to the Company's ability to maximize potential technology rights),
and the other party will not unreasonably refuse such request.

3.     CAPITAL STRUCTURE AND OWNERSHIP

The Company initially would have one class of ownership interest: common.
SAVIA would own fifty and one-tenth percent (50.1%) of the ownership
interests and Kosan would own forty-nine and nine-tenths percent (49.9%) of
the ownership interests.

4.     FIELD DEFINITIONS

4.1    "COMPANY FIELD" shall mean the production, use and commercialization of
plants (including plant parts, e.g. fruits, seeds, roots, etc.) that produce
transgenically encoded polyketides for purposes of commercialization in
either of the following two (2) areas:

     (a) commercialization of transgenic plants where the plants exhibit
        improved traits by expressing a polyketide other than a polyketide
        developed by Kosan on behalf of a third party where such development
        of a polyketide by Kosan begins prior to initiation of work by the
        Company on plants expressing such polyketide and where such third
        party is pursuing development or commercialization of such polyketide;
        and

     (b) commercialization of polyketide compounds extracted from transgenic
        plants, provided, that such polyketide compounds shall not include
        polyketide compounds which are either (i) disclosed and claimed in
        patents and patent applications controlled by Kosan, or (ii) developed
        by Kosan for itself or a third party where such development begins
        prior to initiation of work by the Company on plants expressing such
        polyketide compounds and where Kosan or such third party is pursuing
        development or commercialization of such compound.

4.2    "KOSAN FIELD" shall mean production, use and commercialization of
polyketides in areas not included in the Company Field.

4.3    "SAVIA FIELD" means production, use and commercialization of plants
that do not produce transgenically encoded polyketides.

5.     ENTITY MANAGEMENT

The Company would have four (4) managers, two (2) designated by SAVIA and two
(2) designated by Kosan (provided that one (1) of each party's two (2)
managers will have a


<PAGE>


scientific background and the other a business orientation). Notwithstanding
the ownership interests of Kosan and SAVIA, all principal decisions on behalf
of the Company will require the unanimous agreement of the managers
designated by SAVIA and Kosan. The President, Chief Financial Officer and
other officers of the Company would be appointed by unanimous agreement of
the managers designated by SAVIA and Kosan.

6.     BUSINESS PLAN As described below, the Company would conduct research
using certain technology available to SAVIA and DNA Plant Technology
Corporation and/or Kosan to develop applications of such technology in
plants. The business would be developed in three (3) phases.

6.1    PHASE I - The parties have entered into an Evaluation Agreement, to
which this Term Sheet is an Exhibit governing the first Phase, Phase I, of
the business plan identifying specific milestones.

6.2    PHASE II - DEVELOPMENT OF COMMERCIALIZABLE PRODUCT

Purpose:    Develop applications of the technology to plants that can be
exploited commercially through licensing, product sales, or other methods.
The initial activities to be undertaken by the parties in Phase II, and for
determining when such phase has been successfully completed and whether the
business should advance to the next phase ("MILESTONES") will be determined
by the parties prior to the formation of the Company.

Time Frame: Beginning with the formation of the Company and continuing for up
to three (3) years.

Budget:     Five million, five hundred and twenty-three thousand, eight
hundred and sixty-eight U.S. dollars ($5,523,868, the "PHASE II BUDGET").

6.3    PHASE III - COMMERCIALIZATION

Purpose:    To commercially exploit the technology developed by the Company in
the Company Field.

Time Frame:    Indefinite
Budget:     To be determined

7.     CAPITALIZATION AND FUNDING

7.1    At the time the Company is formed, Kosan would contribute in exchange
for its ownership interest and subject to any legal or contractual
restrictions and financial obligations owed to third parties, a
non-exclusive, worldwide, royalty free license (or royalty-bearing
sublicense, as applicable) to the intellectual property described on
Exhibit A-1 hereto. The Company shall pay any royalties and other payments
owed to third parties as a result of practice by the Company of such
technology licensed by Kosan hereunder.

7.2    At the time the Company is formed, SAVIA would contribute in exchange
for its ownership interest and subject to any legal or contractual
restrictions and financial obligations owed to third parties, a
non-exclusive, worldwide, royalty free license (or royalty-bearing sublicense
as applicable) to the intellectual property described on Exhibit A-2 hereto.
The Company shall pay any royalties and other payments owed to third parties
as a result of practice by the Company of such technology licensed by SAVIA
hereunder. In addition, SAVIA would agree to fund the Phase II Budget in
exchange for its ownership interest.


                                      2
<PAGE>


7.3    Upon Company formation the parties will initiate Phase II of the
business plan, which may be modified from time to time by unanimous agreement
of the Managers of the Company. SAVIA will contribute as consideration for
its ownership interest the Phase II Budget. This contribution will be made by
SAVIA on a calendar quarterly basis beginning May 1, 1999, paid one (1)
quarter in advance. If the actual expenditures under an approved budget are
for an amount in excess of the Phase II Budget, then the additional required
funding may be provided, with the approval of all of the managers of the
Company, (i) by SAVIA and Kosan based on their respective percentage
ownership interests, or (ii) if the Company is then a C corporation, such
funding may be raised from third parties and/or from SAVIA and/or Kosan. If
the parties proceed with Phase II, the licenses from each party to the
Company will be automatically extended for the duration of Phase II and
broadened to include product development in the Company Field.

7.4    If the parties determine to proceed to Phase III of the business plan,
it is anticipated that the Company will be self-funding. However, if
additional funding is required, pursuant to a mutually approved budget, with
the approval of all of the managers of the Company, (i) it may be provided by
SAVIA and Kosan, based on their respective percentage ownership interests, or
(ii) if the Company is then a C corporation, such funding may be raised from
third parties. If the parties determine to proceed to Phase III, the licenses
from each party to the Company pursuant to Phase II will be extended
automatically to include product commercialization for the duration of Phase
III or dissolution of the Company, whichever occurs earlier.

7.5    Provided that SAVIA has in the ordinary course of its business funds
available to loan, and that such loan would not cause a breach or violation
of any existing SAVIA loans or bank covenants, SAVIA will loan Kosan up to
two and one-half million U.S. dollars ($2,500,000) to enable Kosan to
contribute its share of the Company's additional funding needs. The loan will
bear interest at the cost of SAVIA debt, will be repayable within three (3)
years of issuance and will be secured by an appropriate amount of Kosan stock.

7.6    If either SAVIA or Kosan chooses not to contribute its share of
additional funding under 7.3(i) or 7.4(i), its percentage ownership interests
will be adjusted based on a formula to be specified in the Company Documents.

8.     RESEARCH CONTRACT & ASSISTANCE

SAVIA's Affiliate, DNA Plant Technology Corporation, will conduct required
plant genetic engineering research activities and Kosan will conduct required
polyketide research activities, in each case where the party has sufficient
capability to conduct the research within a reasonable time and at a
competitive cost. Both Kosan and SAVIA will provide research assistance and
supervision from their scientists with respect to the technology licensed to
the Company by each party. Fees for all research assistance and supervision
(including research performed by Affiliates of the parties) will be
determined on an arms-length basis.

9.     COVENANTS

So long as a party and its Affiliates collectively own a twenty percent (20%)
or greater ownership interest in the Company, such party and its Affiliates
agree to maintain the patents and/or intellectual property rights owned or
Controlled by such party and its Affiliates that are listed on Exhibits A-1
and A-2.

10.    NON-COMPETITION

So long as a party and its Affiliates collectively own a twenty percent (20%)
or greater


                                      3


<PAGE>

ownership interest in the Company, such party and its Affiliates will not:
(i) sell products in the Company Field except for activities conducted with
or on behalf of the Company; (ii) license technology to a third party
specifically and expressly for use in the Company Field; or (iii) engage in
research and development activities on behalf of itself or a third party
specifically and expressly directed to the development of transgenic
polyketide-producing plants for the commercial purpose of producing plants
exhibiting improved agronomic or quality traits. Notwithstanding the
foregoing: (i) Kosan may license to third parties technology to produce or
use polyketides in any cell or system, including plants, if such license is
in connection with a license relating to one or more specific polyketides;
(ii) Kosan shall be free to develop, sell products, and license technology in
the Kosan Field; and (iii) SAVIA shall be free  to develop, sell products, and
license technology in the SAVIA Field.

11.    OWNERSHIP OF INTELLECTUAL PROPERTY

The Company will own all technology, patent rights (including patent
applications and patents issued), know-how (including ideas, inventions, data
and other proprietary information) and other intellectual property that are
conceived or reduced to practice  or otherwise developed by or on behalf of
the Company in the course of Company-funded research ("COMPANY INTELLECTUAL
PROPERTY") provided that Kosan will own provisional patent application
Serial No. 60/052,211 filed 10 July 1997 by Kosan entitled "Transformed Plants
and Plant Cells that Express Polyketide Synthase"; U.S. patent application
Serial No. 09/114,080 filed 10 July 1998; PCT patent application No.
US98/14570 filed 10 July 1998 and any patent or patent application claiming
priority to any of the foregoing; and provided further that Kosan will own
inventions that are not separately patentable over inventions disclosed and
claimed in the patent applications identified above in this paragraph.

12.    LICENSES

12.1   ENABLING LICENSES TO THE COMPANY

Each of Kosan and SAVIA shall, to the extent free to do so, grant to the
Company a non-exclusive, non-transferable, worldwide royalty free (excluding
royalties and other payments owed to third parties) license to commercialize
products in the Company Field under the intellectual property listed on
Exhibits A-1 and A-2 respectively, which is owned or controlled by it at the
time of Company formation and, to the extent free to do so, under
Intellectual Property developed or acquired by it thereafter for so long as it
and its Affiliates collectively own at least a twenty percent (20%) interest
in the Company to conduct the Company's business in the Company Field. With
respect to Kosan Intellectual Property, no license will be granted to Kosan's
proprietary technology for creating novel polyketides by altering genes or
gene fragments that code for polyketide synthase or polyketide processing
enzymes. SAVIA will initiate a process whereby Kosan is able to evaluate any
SAVIA's license rights and corresponding obligations applicable to the
Company Field. Kosan shall not be bound to complete any transaction if it
determines, in its sole discretion, that such rights are insufficient to
enable the Company to carry on its intended business or such obligations make
doing so commercially unacceptable.

12.2   LICENSE TO KOSAN

The Company shall grant to Kosan an irrevocable, royalty bearing (not to
exceed two percent (2%)), worldwide exclusive license, with the right to
grant sublicenses, under Company intellectual property rights to make, have
made, use, have used, sell, and have sold polyketides for use in the Kosan
Field. If Kosan desires to produce polyketides in transgenic plants, then
Kosan shall grant the Company a right of first refusal to produce


                                      4
<PAGE>

such polyketides in transgenic plants for Kosan on commercially reasonable
terms. To the extent it has the power to do so, Kosan will use its
commercially reasonable best efforts to induce its partners and licensees who
desire to produce polyketides in plants to retain the Company in those areas
where the Company has worked with the class of polyketides in question or
otherwise has existing expertise.

12.3   LICENSE TO SAVIA

The Company shall grant to SAVIA an irrevocable, royalty bearing (not to
exceed two percent (2%)), worldwide exclusive license, with the right to
grant sublicenses, under Company intellectual property rights to make, have
made, use, have used, sell and have sold for any purpose non-polyketide
producing plants for use in the SAVIA Field.

13.    PATENT MATTERS

The Company shall be responsible for the preparation, filing, and prosecution
of patent applications of all Company owned Intellectual Property. Each party
will have the right to conduct, at its sole discretion and expense,
preparation, filing, and prosecution of patent applications disclosing or
claiming any solely owned inventions owned by it. Jointly made inventions
which are not Company owned Intellectual Property will be jointly owned,
enforced, prosecuted and maintained by the parties.

14.    TRANSFER OF OWNERSHIP INTERESTS

No transfer of an interest in the Company will be permitted until the earlier
of (i) funding of the Phase II Budget, or (ii) successful completion of Phase
II, unless such transfer is to an Affiliate of the transferring  party or as
otherwise provided herein. After commencement of Phase III, a party desiring
to sell, transfer, assign, pledge or otherwise dispose of or encumber its
ownership interest in the Company (other than to an Affiliate of such party)
may do so only to a Qualified Transferee pursuant to a BONA FIDE third party
offer after affording the other party a right of first refusal to acquire
such ownership interest on the same terms as the Qualified Transferee. As
used in this document, "AFFILIATE" means any person controlling, controlled
by or under common control with either of the parties. "CONTROL" means the
right to direct the management or policies of the person or to elect or
appoint a majority of its management body (such as the board of directors of
a corporation, the managers of a limited liability company, the general
partners of a partnership, the trustees of a trust, etc.), or
the ownership of more than fifty percent (50%) of the equity interests of the
person entitled to vote. "PERSON" means any individual, corporation, company,
partnership, trust, association or other legal entity. "QUALIFIED TRANSFEREE"
means a person who is not directly or indirectly via an Affiliate a
competitor of the other party, who is financially sound and who is of good
moral character.

15.    DEADLOCK

15.1   In the event of a disagreement between SAVIA and Kosan, the Managers
of the Company will attempt to resolve the disagreement through negotiation.
In the event the Managers cannot resolve the disagreement, the President or
CEO of Kosan and a representative of very upper management of SAVIA will
attempt to resolve the disagreement through negotiation. If the disagreement
cannot be resolved through negotiation and relates to any material aspect of
the Company or its actual or anticipated business, including the proposed
modification or determination of a budget, the Milestones or any other matter
related to the Company's business, then the disagreement will be submitted to
an independent arbitrator selected by the parties who has expertise in the
areas of biotechnology and joint ventures. The Company will conduct its
business according to the most recently approved business plan, budget and
Milestones for at least six (6) months


                                      5
<PAGE>

following appointment of the arbitrator and the parties will use best efforts
to conclude the arbitration within six (6) months. The decision of the
arbitrator will be binding.

15.2   The expenses of the arbitration will be recoverable by the prevailing
party (if the arbitrator determines that one party is the prevailing party)
unless the arbitrator determines otherwise.  The Company Documents will
include procedures for appointing arbitrator(s), consequences of a party's
failure to act, deadlines for conducting the arbitration and other customary
arbitration provisions.

16.    PURCHASE OPTION

16.1   A purchase option will be triggered in the following circumstances:
(i) SAVIA or Kosan becomes the subject of a bankruptcy or similar proceeding
that is not dismissed within ninety (90) days; (ii) there is a change in
Control of SAVIA or Kosan (whether by merger, stock issuance, open market
stock purchases, or otherwise) and the Person acquiring Control is not a
Qualified Transferee, or either of them sells substantially all of its assets
to a Person other than a Qualified Transferee; or (iii) one party is in
material breach of the Company Documents after having been notified of the
breach and having had thirty (30) days from the notice date in which to cure
such breach and the matter is not disputed and not then the subject of an
arbitration as provided in the Deadlock provision above. The "TRIGGERING
PARTY" means the party that is the subject of the bankruptcy or similar
proceeding, the party that undergoes a change in control, or the party in
material breach of the Company Documents, as the case may be. The party that
is not the triggering party is the "NON-TRIGGERING PARTY."

16.2   If a purchase option triggering event occurs, the non-triggering party
will have the option to purchase all (or in the case of a change in Control,
any part) of the triggering party's ownership interest in the Company for a
cash price equal to the pro-rata portion of the appraised value of the
non-triggering party's interest purchased, less the cost of the appraisal.
The non-triggering party may exercise this option only by notifying the
triggering party within the first three (3) months following a triggering
event. The appraisal mechanism will be defined in the Company Documents.

16.3   In any purchase option situation and during the pendency of any
dispute or arbitration, the selling party will continue to license or
sublicense, (in either case to the extent of such party's right or obligation
to do so in light of its no longer having an ownership interest to the
Company any technology in existence at the time of purchase reasonably
necessary to facilitate the exploitation by the Company of product development
and commercialization or other business in the Company Field. Also, the
selling party will continue, if requested by the purchasing party for two (2)
years to provide advisory services and technical assistance to the Company as
to know-how and other matters facilitating the use of the selling party's
technology, and in exchange for such services would receive a two percent
(2%) royalty on commercialization of such technology.

17.    DISSOLUTION

17.1   Unless the parties otherwise agree, the Company will be dissolved (i)
if SAVIA fails to make a payment agreed to for funding the Phase II Budget,
(ii) if none of the Phase II Milestones are achieved after the expenditure of
the Phase II Budget or any amount in excess thereof approved by the parties,
or (iii) Kosan elects, without cause, not to perform the activities it agrees
to perform in Phase II, or (iv) for any other reasons specified in the
Company Documents.


                                      6









<PAGE>

17.2   Upon dissolution of the Company pursuant to Section 17.1(i), (x)
subject to licenses with third parties, rights will revert to each party for
any Intellectual Property in existence at the time of Company formation that
were licensed, sold or contributed by such party to the Company, (y) Company
Intellectual Property will be assigned to Kosan and (z) SAVIA will pay Kosan
five hundred thousand U.S. dollars ($500,000) plus an amount equal to the
Company's anticipated budget for the succeeding quarter.  Any licenses
entered into by the Company with the parties or third parties shall remain in
full force and effect, with Kosan assuming the rights and obligations of the
Company thereunder.

17.3   Upon dissolution of the Company pursuant to 17.1(ii), (x) subject to
licenses with third parties, rights will revert to each party for any
Intellectual Property in existence at the time of Company formation that were
licensed, sold or contributed by such party to the Company, (y) Company
Intellectual Property will be assigned to each party, SAVIA's rights to such
technology will be exclusive and royalty free in the SAVIA Field, and Kosan's
rights to such technology will be exclusive and royalty free in all other
fields; in each case with the right to sublicense.  Any licenses entered into
by the Company with the parties or third parties shall remain in full force
and effect, with SAVIA and Kosan, as applicable based on the field to which
the license pertains, assuming the rights and obligations of the Company
thereunder; revenues received from such licenses shall be divided between the
parties in accordance with their respective ownership interests in the
Company immediately prior to dissolution after any adjustment necessary to
compensate a party for assuming the obligations of such license.

17.4   Upon dissolution of the Company pursuant to 17.1(iii), (x) subject to
licenses with third parties, rights will revert to each party for any
Intellectual Property in existence at the time of Company formation that were
licensed, sold or contributed by such party to the Company, and (y) Company
Intellectual Property will be assigned to SAVIA.  Any licenses entered into
by the Company with the parties or third parties shall remain in full force
and effect, with SAVIA assuming the rights and obligations of the Company
thereunder.

17.5   After any dissolution, subject to any legal or contractual
restrictions, each party will provide advisory services (technical
assistance) and technology/intellectual property licenses to the other, on
commercially reasonable terms to be determined by the parties in good faith,
to the extent reasonably necessary to facilitate the exploitation by the
other party of the Company Intellectual Property distributed to it.

17.6   The distributions provided for in 17.2 through 17.4 above shall be the
sole and exclusive remedies of the parties in the event of a dissolution of
the Company.

18.    ASSUMPTIONS AND CONDITIONS

It is assumed as of the Closing Date that:

18.1   Both parties will be in full compliance with all applicable laws and
regulations.

18.2   The party licensing technology to the Company will either own such
technology directly or, if the parties agree, have the rights to such
technology under a license that permits sublicensing.  No such technology
will be subject to license rights granted to third parties by the person
licensing the technology to the Company, or, to the knowledge of the
licensing party, to any other claims of third parties, in relation to the
Company Field in a manner inconsistent with the grants herein.

18.3   There will have been no material adverse change after the date hereof
in the business or business prospects of either party or such party's
technology or the ownership thereof.

                                       7

<PAGE>

18.4   Any due diligence conducted by a party or its advisors in connection
with the joint venture will not have caused them to become aware of any
material facts adversely affecting the technology, related liabilities
or the financial condition of the other which, in such party's good faith
judgment makes it inadvisable to proceed with the joint venture.

Exhibit A-1   Kosan Intellectual Property
Exhibit A-2   SAVIA Intellectual Property

                                       8

<PAGE>
                                       EXHIBIT A-1
                                KOSAN INTELLECTUAL PROPERTY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
PRODUCTION OF POLYKETIDES IN BACTERIA AND YEASTS - BARR, SANTI, ASHLEY, ZIERMAN
<S><C>
        12 Dec 97       US97/23014      Pub. 98/27203 - 25 Jun 98 (NP 18 Jun 99)
        11 Dec 97       08/989,332      Pending
        18 Dec 96       60/033,193      Lapsed

-------------------------------------------------------------------------------------------
PLANTS THAT EXPRESS POLYKETIDE SYNTHETIC - BETLACH, GUTTERSON, KEALEY, RALSTON
        10 July 98      US98/14570      Pub. 99/02669 - 21 Jan 99 (NP 10 Jan 00)
        10 July 98      09/114,083      Pending
        10 July 97      60/052,211      Lapsed

-------------------------------------------------------------------------------------------
PHOSPHOPANTETHEINYL TRANSFERASES - LAMBALOT, GEHRING, REID, WALSH
        11 Oct 96       US96/16202      Pub No. 97/13845 - 17 Apr 97 (NP 15 Apr 98)
AUS                     74357/96        Pending
CAN                     2,232,230       Pending
EPO                     96936313.4      Pending
JAP                                     Pending
        11 Oct 96       08/728,742      Pending
        12 July 96      60/021,650      Lapsed
        13 Oct 95       60/005,152      Lapsed
Licensed from Harvard
-------------------------------------------------------------------------------------------
PRODUCTION OF NOVEL POLYKETIDES - KHOSLA, HOPWOOD, EBERT-KHOSLA, MCDANIEL, FU, KAO
        20 Sep 94       US94/10643      Pub. 95/08548 - 30 Mar 95 (NP 20 Mar 96)
AUS                     77317/94        Pat. No. 678058 - 4 Sep 97
CAN                     2171629 Pending
EPO                     94928169.5      Pub. 0725778 - 14 Aug 96
JAP                     7-509422        Pub. 9-505983 - 17 Jun 97
        5 Mar 99        09/263,184      Pending
        31 Mar 97       08/828,898      Iss Fee Pd 5 Apr 99
        31 Mar 97       08/829,244      U.S. Patent No. 5,843,718 - 1 Dec 98
        6 May 94        08/238,811      U.S. Patent No. 5,672,491 - 30 Sep 97
        8 Dec 93        08/164,301      Abandoned 30062-20001.20
        20 Sep 93       08/123,732      Abandoned 30062-20001.00
Licensed from Stanford
-------------------------------------------------------------------------------------------
</TABLE>
                                       9