**Exhibit 10.1****SEPARATION AGREEMENT AND RELEASE**     This Separation Agreement and Release (the “Agreement”) is dated July 6, 2006 and is effectiveon the date described in Section 15. This Agreement is made as a mutually agreed compromisebetween the Parties (as defined below) for the complete and final settlement of all claims,differences, and alleged causes of action existing between them as of the Effective Date.**PARTIES**     The Parties to this Agreement are Encysive Pharmaceuticals Inc. (the “Company”) and TerranceC. Coyne, M.D. (“Executive”). The Company and Executive are referred to collectively as the“Parties.”**PREAMBLE**     WHEREAS, Executive was previously employed as the Chief Medical Officer of the Company,pursuant to that certain Termination Agreement dated September 10, 2003, as amended from time totime (the “Termination Agreement”);     WHEREAS, the Parties intend to terminate the Termination Agreement as of the Effective Date(except with respect to Executive’s and the Company’s continuing obligations under Sections 8, 9,10, 12 and 13.8 thereof) and enter into this Agreement;     WHEREAS, the Parties intend that this Agreement shall operate as a complete and finalsettlement of all claims, differences and alleged causes of action existing between them as of theEffective Date of this Agreement;     WHEREAS, Executive has had at least 21 days to consider this Agreement;     WHEREAS, the Company has advised Executive in writing to consult with independent counselrespecting this Agreement;     WHEREAS, Executive has had an opportunity to consult with independent counsel with respect tothe terms, meaning and effect of this Agreement; and     WHEREAS, Executive understands that the Company regards the above representations as materialand that the Company is relying on these representations in entering into this Agreement.     NOW, THEREFORE, in consideration of the mutual promises and obligations contained andexchanged in this Agreement and other good and valuable consideration, the receipt and sufficiencyof which is hereby acknowledged, the Parties agree as follows:
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     1. Definitions.     1.1 “Base Salary” means the Executive’s base salary in effect on the date of this Agreement.     1.2 “Company and/or its Affiliates” means and includes the Company, its Affiliates, and all oftheir predecessors, successors and assigns and parents, subsidiaries, divisions or other affiliatedcompanies, partners, partnerships, present and former officers, directors, employees, stockholders,agents, employee benefit plans or programs and their fiduciaries, whether in their individual orofficial capacities and all of the successors and assigns of the foregoing. “Affiliates” alsoincludes a person or entity who, directly or indirectly through one or more intermediaries,controls, is controlled by, or is under common control with, the Company.     1.3 “Date of Termination” means June 26, 2006.     Other defined terms are defined as provided herein.2. Termination of the Termination Agreement. The Parties agree that the TerminationAgreement is hereby terminated and of no further force and effect as of the Effective Date, exceptwith respect to Executive’s and Company’s obligations under Section 8, Executive’s ConfidentialityObligation; Section 9, Disclosure of Information Ideas, Concepts, Improvements, Discoveries andInventions; Section 10, Ownership of Information, Ideas, Concepts, Improvements, Discoveries, andInventions and all Original Works of Authorship; Section 12, Executive’s Non-CompetitionObligation; and Section 13.8, Defense of Claims.3. Pay Through Date of Termination. Executive acknowledges that he has received allsalary, wages and other compensation earned on or before the Date of Termination.4. Resignation by Executive. Effective as of the Date of Termination, Executive shallresign all positions he holds with the Company and/or its Affiliates.5. Payments to Executive. In accordance with Section 6.3 of the Termination Agreement, andsubject to Executive’s execution of this Agreement containing a release from liability and waiverof right to sue the Company and/or its Affiliates, the Company agrees to pay Executive payments asfollows:          a. The Company shall, promptly upon submission by the Executive of supporting documentation,pay or reimburse to the Executive any unreimbursed costs and expenses paid or incurred by theExecutive prior to the Date of Termination which would have been payable under Section 4.6 of theTermination Agreement if the Executive’s employment had not terminated.          b. During the 12-month period commencing on the Date of Termination, the Company shallcontinue benefits (other than disability benefits), at the Company’s expense, to the Executiveand/or the Executive’s family at least equal to those which would have been provided to them underSection 4.5 of the Termination Agreement if the Executive’s employment had not been terminated.Benefits otherwise receivable by the Executive pursuant to this Section shall be reduced to theextent substantially similar benefits are actually received
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by or made available to the Executive by any other employer during the same time period forwhich such benefits would be provided pursuant to this Section at a cost to the Executive that iscommensurate with the cost incurred by the Executive immediately prior to the Date of Termination;provided, however, that if the Executive becomes employed by a new employer which maintains amedical plan that either (i) does not cover the Executive or a family member or dependent withrespect to a preexisting condition which was covered under the applicable Company medical plan, or(ii) does not cover the Executive or a family member or dependent for a designated waiting period,the Executive’s coverage under the applicable Company medical plan shall continue (but shall belimited in the event of noncoverage due to a preexisting condition, to such preexisting condition)until the earlier of the end of the applicable period of noncoverage under the new employer’s planor the first anniversary of the Date of Termination. The Executive agrees to report to the Companyany coverage and benefits actually received by the Executive or made available to the Executivefrom such other employer(s). The Executive shall be entitled to elect to change his level ofcoverage and/or his choice of coverage options (such as Executive only or family medical coverage)with respect to the benefits to be provided by the Company to the Executive to the same extent thatactively employed senior executive officers of the Company are permitted to make such changes;provided, however, that in the event of any such changes the Executive shall pay the amount of anycost increase that would actually be paid by an actively employed senior executive officer of theCompany by reason of making the same change in his level of coverage or coverage options.          c. During the 12-month period following the Date of Termination, the Company shall pay to theExecutive, in equal semi-monthly installments, the Executive’s Base Salary (as in effect on theDate of Termination).          d. During the 12-month period after the Date of Termination, all stock options and restrictedstock held by the Executive will continue to vest and be exercisable in accordance with their termsin effect on the Date of Termination. On the conclusion of said 12-month period, all unexpired,unexercised options will be fully vested and all restricted stock will be fully vested.Thereafter, all such fully vested stock options will be exercisable by the Executive until theearlier to occur of the expiration of the term of each stock option or 12 months after the datethey become fully vested.          e. Executive’s participation in all other employee benefit plans and programs maintained bythe Company and/or its Affiliates shall cease on the Date of Termination.     Notwithstanding any of the above to the contrary, Executive will not be entitled to any of thebenefits or payments provided in this Section 5 if Executive breaches this Agreement or theprovisions of Sections 8, 9, 10, 12 or 13.8 of the Termination Agreement.
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6. Additional Payment to Executive. In addition to the payments required pursuant toSection 6.3 of the Termination Agreement, the Company shall continue the benefits specified inSection 5.b for an additional six-month period following the first anniversary of the Date ofTermination so that the Executive shall receive such benefits for a total of 18 months. TheCompany will also provide the Executive with a three month executive outplacement program with LeeHecht Harrison.7. Release by Executive. Executive unconditionally, fully and forever waives, releases,discharges, agrees to hold harmless, and promises not to sue the Company and/or its Affiliates,from and for any claim, action or right of any sort, known or unknown, arising on or before theEffective Date.     7.1 This release includes, but is not limited to, any claim arising out of or related to thefollowing: any claim for any wages, salary, compensation, sick time, vacation time, paid leave orother remuneration of any kind; any claim for additional or different compensation or benefits ofany sort, including any participation in any severance pay plan; any claim of discrimination orretaliation on the basis of age, race, sex, religion, marital status, sexual preference, nationalorigin, handicap or disability, veteran status, or special disabled veteran status; any claimarising under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the AgeDiscrimination in Employment Act of 1967, the Employee Retirement Income Security Act of 1974, theAmericans with Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act of1938, the Texas Commission on Human Rights Act, Chapter 451 of the Texas Labor Code, or the TexasPayday Law, as such statutes may be amended from time to time; any other claim based on anystatutory prohibition; any claim arising out of or related to an express or implied employmentcontract, any other contract affecting terms and conditions of employment, or a covenant of goodfaith and fair dealing; any tort claim or other claim for personal injury, death or property damageor loss; any claim for fraud or misrepresentation; and any personal gain with respect to any claimarising under any whistleblower or *qui tam*provisions of any state or federal law.     7.2 Executive represents that Executive has read and understands this release provision andthat (i) rights and claims under the Age Discrimination in Employment Act of 1967 are among therights and claims against the Company that Executive is releasing and (ii) Executive is notreleasing any rights or claims arising after the Date of Termination.8. Consideration. As consideration for the Executive’s execution and performance of hisobligations under this Agreement, the Company will perform its remaining obligations pursuant tothis Agreement and provide Executive with the additional six months of benefits as described inSection 6 above. Executive agrees that all of this consideration is in addition to anything ofvalue to which he already is entitled from the Company.9. Future Employment. Executive agrees not to seek or accept employment with the Companyand/or its Affiliates and acknowledges that the Company and/or its Affiliates are not obligated tooffer employment to Executive, now or in the future.10. No Other Claims. Executive represents that Executive has not filed or authorized thefiling of any complaints, charges or lawsuits against the Company and/or its Affiliates with any
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federal, state or local court, governmental agency, or administrative agency, and that if,unbeknownst to Executive, any such complaint has been filed on Executive’s behalf, Executive willuse Executive’s best efforts to cause it to be withdrawn immediately and dismissed with prejudice.11. Confidentiality and Defense of Claims.          11.1 Both Parties shall keep strictly confidential all the terms and conditions, includingamounts payable, in the Agreement and shall not disclose them to any person other than legal and/orfinancial advisors, government officials who seek such information in the course of their officialduties, individuals at the Company responsible for implementing the Agreement, and Executive’sspouse, unless compelled to do so by law or regulation, or business necessity (including therequirement to file this Agreement with the Securities and Exchange Commission or tax reportingobligations). Nothing in this Section is intended to prevent Executive from disclosing the factthat he was employed by the Company or from describing his employment duties.          11.2 The Executive agrees that from the Effective Date until two (2) years after the Date ofTermination, upon request from the Company, he will reasonably cooperate with the Company and/orits Affiliates in the defense of any claims or actions that may be made by or against the Companyand/or its Affiliates that affect his prior areas of responsibility, except if the Executive’sreasonable interests are adverse to the Company and/or its Affiliates in such claim or action. Tothe extent travel is required to comply with the requirements of this Section 11.2, the Companyshall, to the extent possible, provide the Executive with notice at least 10 days prior to the dateon which such travel would be required. The Company agrees to promptly pay or reimburse theExecutive upon demand for all of his reasonable travel and other direct expenses incurred, or to bereasonably incurred, to comply with his obligations under this Section 11.2.12. Consultation With Counsel. The Company advises Executive to consult with independentcounsel prior to executing this Agreement, and Executive acknowledges being given that advice.13. No Defamatory Statements. Executive agrees that he will refrain from making anyrepresentation, statement, comment or any other form of communication (hereinafter collectivelyreferred to as “representation”), whether written or oral, to any person or entity, including butnot limited to the principals, officers, directors, employees, advisors, agents, customers,suppliers and competitors of Company and/or its Affiliates, which representation has the effect ortendency to disparage, denigrate, or otherwise reflect negatively on Company and/or its Affiliatesand/or their business, officers, directors, shareholders, employees, agents, advisors or investors.The Company agrees to give Executive an opportunity to review and make comments on any pressreleases the Company may issue describing Executive’s departure from the Company. The Companyagrees that its senior management will not disparage Executive. The Company likewise agrees thatit will make no disparaging statements regarding Executive in any official corporate (1)publication; (2) broadcast; (3) telecast; or (4) presentation. Executive agrees to advise anyprospective employers to contact the Director of Human Resources at the Company if they needinformation regarding the circumstances of Executive’s departure from the Company. In response toany such inquiry, the Director of Human Resources will respond
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only that Executive’s departure from the Company was without cause and not the result of anymalfeasance on Executive’s part.14. Return of Company Materials. Executive agrees to deliver to the Company promptly afterthe Date of Termination all originals and copies of Company materials and all other property of theCompany and/or its Affiliates in the Executive’s possession, custody or control.15. Revocation of Agreement; Effective Date. Executive, at Executive’s sole discretion,may revoke this Agreement on or before the expiration of seven calendar days after signing it.Revocation shall be in writing and effective upon dispatch to the following: Paul S. Manierre,General Counsel, Encysive Pharmaceuticals Inc., 4848 Loop Central Drive, 7th Floor,Houston, Texas 77081. If Executive elects to revoke the Agreement, all of the provisions of theAgreement shall be void and unenforceable. If Executive does not so elect, the Agreement shallbecome effective at the expiration of the revocation period (i.e., on the eighth day afterExecutive signs the Agreement) (the “Effective Date”).16. Miscellaneous.     16.1 The Parties acknowledge that this Agreement is the result of a compromise and shall neverbe construed as, or said by either of them to be, an admission by the other of any liability,wrongdoing, or responsibility. The Parties expressly disclaim any such liability, wrongdoing,fault, or responsibility.     16.2 This Agreement constitutes the entire agreement between the Parties, except to the extentthat it expressly incorporates provisions of the Termination Agreement. This Agreement may beexecuted in identical counterparts, each of which shall constitute an original and both of whichshall constitute one and the same agreement. Except as expressly provided herein, this Agreementsupersedes the Termination Agreement and any severance benefit plan or program and any bonusprogram at the Company and/or its Affiliates.     16.3 The Parties understand and agree that any breach of the terms of this Agreement may giverise to liability for money damages and other legal or equitable relief.     16.4 The Parties warrant that no representations have been made other than those contained inthe written provisions of this Agreement, and that they do not rely on any representations notstated in this Agreement.     16.5 The Parties further warrant that they or their undersigned representatives are legallycompetent and fully authorized to execute and deliver this Agreement.     16.6 The Parties confirm they have had the opportunity to have this Agreement explained tothem by independent counsel of their choice, and that they execute this Agreement freely, knowinglyand voluntarily. The Company is relying on its own judgment and on the advice of its independentcounsel and not upon any recommendation of Executive or his agents, independent counsel or otherrepresentatives. Likewise, Executive is relying on his own judgment and on the advice of hisindependent counsel, and not upon any recommendation of the Company or its directors, officers,employees, agents, independent counsel or other representatives. By voluntarily executing thisAgreement, both Parties confirm their competence
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to understand and do hereby accept the terms of this Agreement as resolving fully alldifferences, disputes and claims that may exist within the scope of this Agreement.     16.7 This Agreement may not be modified or amended except by a writing signed by both Parties.No waiver of this Agreement or of any of the promises, obligations, terms, or conditions containedin it shall be valid unless it is in writing signed by the Party against whom the waiver is to beenforced. The waiver by either Party hereto of a breach of any provision of this Agreement shallneither operate nor be construed as a waiver of any subsequent breach by any Party. Except asexpressly provided for herein, the failure of either Party hereto to take any action by reason ofany breach will not deprive such Party of the right to take action at any time while such breachoccurs.     16.8 If any part or any provision of this Agreement shall be finally determined to be invalidor unenforceable under applicable law by a court of competent jurisdiction, that part shall beineffective to the extent of such invalidity or unenforceability only, without in any way affectingthe remaining parts of said provision or the remaining provisions of the Agreement.     16.9 The Parties have cooperated in the preparation of this Agreement. Hence, the Agreementshall not be interpreted or construed against or in favor of either Party by virtue of theidentity, interest, or affiliation of its preparer.     16.10 This Agreement is made and shall be enforced pursuant to the laws of the State of Texas,without regard to its law governing conflicts of law. All performance required by the terms ofthis Agreement shall take place in Harris County, Texas.     16.11 The amount of benefits payable under this Agreement shall be paid from the generalassets of the Company and there shall be no separate trust established to pay any benefits underthis Agreement. Executive’s status with respect to the payment of benefits under this Agreementshall be as a general unsecured creditor of the Company.     16.12 All payments and benefits payable under this Agreement shall be subject to allapplicable federal, state and local taxes and tax requirements and any elections by Executive forpayouts or deferrals under any Company benefit plan or program.     16.13 This Agreement shall be binding on and inure to the benefit of the successors andassigns of the Parties. No rights or obligations, benefits of or payments to Executive under thisAgreement may be subject to claims of Executive’s creditors, or in any manner may be assigned ortransferred by Executive other than his rights to compensation and benefits that are transferred bywill or to his estate by operation of law.     16.14 All notices and other communications required or permitted hereunder or necessary orconvenient in connection herewith shall be in writing and shall be deemed to have been given when(i) delivered by hand or sent by facsimile, or (ii) on the third business day following deposit inthe United States mail by registered or certified mail, return receipt requested, to the addressesas follows (provided that notice of change of address shall be deemed given only when received):
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If to the Company to:Encysive Pharmaceuticals Inc.