Document:

MEMORANDUM OF UNDERSTANDING

               This MEMORANDUM OF UNDERSTANDING  (this "Memorandum") dated as of
November 1, 1999, sets forth the mutual and binding  understanding of Michael J.
Kelly (the "Executive")  regarding the material terms of employment of Executive
by Nebraska Book  Company,  Inc.  (the  "Company").  For good and fair value and
consideration, the parties agree as follows:

o       POSITION:

        Executive shall be employed as VP of e-Commerce of the Company.

o       TERM:

        The term of Executive's  employment hereunder (the "Term") shall be from
        the date hereof to March 31, 2001, unless extended or earlier terminated
        in  accordance  with this  Memorandum  or  otherwise by agreement of the
        parties. The Term shall be automatically extended for additional periods
        of one year  each  unless  either  party  gives at least  120 day  prior
        written   notice  to  the  other  of  the  intention  to  terminate  the
        Executive's employment hereunder at the end of the then current Term.

o       BASE SALARY:

        Executive  will be paid a base salary at the rate of $150,000 per annum.
        Increases in base salary for Executive  shall be determined by the Board
        of Directors of the Company (the "Board") after due consideration of the
        recommendation  of the  Chief  Executive  Officer  of the  Company  (the
        "CEO"). Increases in base salary thereafter shall be determined annually
        in the same manner.

o       SIGNING BONUS:

        Executive shall receive a Signing Bonus of $25,000.

o       INCENTIVE BONUSES:

        Executive  shall be afforded the  opportunity to earn an Incentive Bonus
        with  respect  to each of  fiscal  years  2000 and 2001  based  upon the
        attainment  of  financial  objectives  established  by the  Board  (or a
        committee thereof), following consideration of the recommendation of the
        CEO.

o       STOCK OWNERSHIP:

        Executive   shall  purchase  2,621  shares  of  the  Common  Stock  (the
        "Purchased  Shares") of NBC Acquisition  Corp. ("NBC  Acquisition")  for
        $137,516.58.  The  Executive  shall  pay for  the  Purchased  Shares  by
        delivery of  $13,751.66 to NBC  Acquisition  and a Note in the principal
        amount of $123,764.93 in the form attached hereto as Appendix.

                                      -1-
<PAGE>

o       STOCK OPTIONS:

        Executive shall be granted options (the "Original  Options") to purchase
        5,241  shares  of the  Common  Stock of NBC  Acquisition.  The  Original
        Options  shall  have an  exercise  price of  $52.46722  per  share.  The
        Original  Options shall be  exercisable  as to 25% of the shares covered
        thereby  on  February  1,  2000,  and  shall  be  exercisable  as  to an
        additional 25% of the shares covered thereby on each November 1st, 2000,
        2001 and 2002,  subject to  Executive's  continued  employment  with the
        Company on such anniversary dates.  Customary terms and conditions shall
        apply to the Original Options.

        For each of fiscal  years  2000 and  2001,  Executive  shall be  granted
        additional  options to acquire a number of shares of Common Stock of NBC
        Acquisition to be determined by the Board, subject to the achievement by
        the  Company  of annual  performance  targets to be  established  by the
        Board. The additional  options shall have an exercise price equal to the
        fair  market  value per share as of the date of grant.  Each  additional
        option shall be exercisable  as to 25% of the shares covered  thereby on
        the date of grant and shall become  exercisable  as to an additional 25%
        of the shares covered  thereby on each of the first three  anniversaries
        of the date of grant of such option,  subject to  Executive's  continued
        employment with the Company on such anniversary  dates.  Customary terms
        and conditions shall apply to such additional options.

o       TAG-ALONG AND DRAG-ALONG RIGHTS:

        In the  event  of a sale of the  majority  of the  common  stock  of NBC
        Acquisition,  all  shares of Common  Stock of NBC  Acquisition  owned by
        Executive  (including  shares  hereafter  acquired)  shall be subject to
        tag-along and drag-along rights,  entitling and obligating  Executive to
        sell his shares  ratably with,  and on the same terms and conditions as,
        other selling shareholders.

o       NON-TRANSFERABILITY OF STOCK:

        Other than the sale described above, Executive shall not sell, transfer,
        pledge or convey any Common  Stock or options of NBC  Acquisition  other
        than (i) for  estate  planning  purposes,  to a family  trust or  family
        partnership  for the  benefit of  immediate  members of the  Executive's
        family,  (ii)  upon  Executive's  death,  to  his  estate,   (iii)  upon
        Executive's  disability  or (iv) after an  initial  public  offering  of
        Common Stock of NBC Acquisition, subject in each case (except iv) to the
        tag-along  and  drag-along   provisions  of  the  immediately  preceding
        paragraph.

                                      -2-
<PAGE>

o       TERMINATION OF EMPLOYMENT PRIOR TO THE EXPIRATION OF TERM:

        -TERMINATION BY THE COMPANY WITHOUT "CAUSE":  Executive  entitled to (i)
        continued  payment  of  base  salary  for 12  months,  (ii)  payment  of
        Incentive  Bonus when  otherwise due in respect of year of  termination,
        prorated  through date of  termination,  and (iii)  continuation  for 12
        months of any health,  life insurance and disability  insurance benefits
        provided to the Executive immediately before such termination.

        -DEATH/DISABILITY:  Executive  entitled  to (i)  payment of base  salary
        through the date of termination  plus an additional six (6) months,  and
        (ii) payment of Incentive Bonus when otherwise due in respect of year of
        termination, prorated through date of termination.  -EXECUTIVE VOLUNTARY
        RESIGNATION OR TERMINATION BY COMPANY FOR "CAUSE": Executive entitled to
        payment of base salary through date of termination.

        -CAUSE DEFINED:  "Cause" shall mean the Executive willfully neglects his
        duties  hereunder,  is convicted of any felony or misdemeanor  involving
        moral  turpitude,  is guilty of gross  misconduct in connection with the
        performance of his duties hereunder,  or materially breaches affirmative
        or  negative  covenants  or  undertakings   hereunder  (including  under
        Appendix A).

o       NON-COMPETITION AND CONFIDENTIALITY AGREEMENTS:

        Executive  agrees  to be bound by the terms of the  Non-Competition  and
        Confidentiality  Agreement  attached  as  Appendix  B,  which is  hereby
        incorporated by reference.

o       FRINGE BENEFITS AND EMPLOYEE BENEFITS:

        Customary fringe benefit plans and entitlements as currently provided by
        the Company to its senior executives.

o       COUNTERPARTS AND ADDITIONAL DOCUMENTATION:

        This  Memorandum  may be executed in two or more  counterparts,  each of
        which  shall be  deemed an  original,  but all of which  together  shall
        constitute one and the same  instrument,  and the signature of any party
        to any  counterpart  shall be deemed a signature to, and may be appended
        to, any other counterpart.

                                          NEBRASKA BOOK COMPANY, INC.

                                          By /s/  Mark W. Oppegard
                                          --------------------------------
                                          Its:  President

                                          EXECUTIVE

                                          /s/ Michael J. Kelly
                                          --------------------------------

                                      -3-
<PAGE>

                                                                      Appendix A

                             SECURED PROMISSORY NOTE

$123,764.93                                                   January  ___, 2000

        FOR VALUE RECEIVED, the undersigned, Michael J. Kelly, (the "Borrower"),
hereby promises to pay to NBC  Acquisition  Corp., a Delaware  corporation  (the
"Payee"),  the principal sum of One Hundred Twenty-three  Thousand Seven Hundred
Sixty-four Dollars and ninety-three cents ($123,764.93),  together with interest
on the unpaid balance of such principal amount from the date hereof at a rate of
interest  equal to 5.25%  per annum  payable  on or before  January  ___,  2010.
Payment of interest  shall  commence  on December  31, 2000 and shall be payable
thereafter annually on December 31 of each year.

        Payments  of  principal  and  interest on this Note shall be paid to the
Payee at its principal office in Lincoln, Nebraska (or where otherwise specified
by the Payee), by certified or official bank check or personal check (subject to
collection)  payable to the Payee.  If the date set for any payment of principal
or interest o this Note is a Saturday,  Sunday or legal  holiday,  such  payment
shall be due on the next succeeding business day.

        As of the date  hereof,  the  Borrower  has  purchased  from Payee 2,621
shares of its common stock, $0.01 par value per share,  $123,764.93 of which was
paid in the form of this  Note.  This Note  shall be  secured by a pledge of the
Collateral (as defined in the Pledge and Security  Agreement (as defined below))
by the  Borrower  to Payee as  provided  in that  certain  Pledge  and  Security
Agreement (the "Security  Agreement"),  dated as of the date hereof, between the
Payee and the Borrower.

        In the event that the Borrower fails to make complete payment of accrued
principal or interest when due under this Note,  the Payee may  accelerate  this
Note and may,  by written  notice to the  Borrower,  declare  the entire  unpaid
principal  amount  and all  such  accrued  and  unpaid  interest  therein  to be
immediately due and payable and, thereupon,  the unpaid principal amount and all
such accrued and unpaid  interest shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are expressly waived by the Borrower;  PROVIDED,  HOWEVER,  the Payee shall only
have recourse  against the Borrower for payment of One Hundred  Thousand Dollars
($100,000) of the principal owing under this Note.

        In  case  this  Note  shall  become  mutilated,  defaced  or  apparently
destroyed,  lost or stolen,  upon the written request of the Payee, the Borrower
shall  issue  and  execute  a new  Note in  exchange  and  substitution  for the
mutilated  or  defaced  Note  or in  lieu of and  substitution  for the  note so
apparently  destroyed,  lost or stolen.  Thereafter,  no amount shall be due and

<PAGE>

payable or owing under the mutilated,  defaced or apparently destroyed,  lost or
stolen Note.

        This Note may be  prepaid  in whole or in part  (principal  amount to be
prepaid,  plus accrued  interest thereon through date of prepayment) at any time
without penalty.

        This Note may be assigned by the Payee to any of his affiliates, members
of his immediate family or trusts,  partnerships or limited liability  companies
established for their benefit.

        The  provisions  of this Note  shall be  governed  by and  construed  in
accordance with the internal laws of the State of New York without regard to the
conflicts of law rules thereof.

        IN WITNESS  WHEREOF,  this Note has been duly  executed and delivered by
Borrower on the date first above written.

                                    BORROWER

                                    /s/ Michael J. Kelly
                                    --------------------------------
                                        Michael J. Kelly

<PAGE>

                                                                      Appendix B

                  NON-COMPETITION AND CONFIDENTIALITY AGREEMENT

Capitalized  terms used  herein  without  definition  shall have the  respective
meanings  specified in the Memorandum of  Understanding  dated as of November 1,
1999 between Nebraska Book Company,  Inc., and Michael J. Kelly (the "Memorandum
of Understanding").

        I. Executive acknowledges that (i) the principal business of the Company
is the wholesale  distribution  of used college  textbooks and the ownership (or
management) of college  bookstores (the "Company  Business");  (ii) he is one of
the limited number of persons who will develop such business; (iii) the business
of the Company is national and international in scope; and (iv) his work for the
Company will bring him into close  contact  with  confidential  information  not
readily available to the public. Executive covenants and agrees that:

               A. NON-COMPETITION.  During the term of Executive's employment by
the Company or any of its affiliates  and for a period of three years  following
the termination (whether for cause or otherwise) of Executive's  employment with
the Company and all of its affiliates (the "Restricted Period"), Executive shall
not in the United  States of  America or in any  foreign  country,  directly  or
indirectly,  (i) engage in the Company Business for his own account;  (ii) enter
the employ of, or render any services to, any person engaged in such activities;
or (iii)  become  interested  in any  person  engaged in the  Company  Business,
directly  or  indirectly,  as  an  individual,  partner,  shareholder,  officer,
director,  principal,  agent,  employee,  trustee,  consultant  or in any  other
relationship or capacity;  provided, however, that Executive may work for or own
a college bookstore, if the annual sales of the company that owns such bookstore
do not exceed $10,000,000, and Executive may own, directly or indirectly, solely
as an  investment,  securities  of any person  which are traded on any  national
securities exchange if Executive (a) is not a controlling person of, or a member
of a group which controls, such person and (b) does not, directly or indirectly,
own 1% or more of any class of securities of such person.

               B.  CONFIDENTIAL  INFORMATION.  During  the  term of  Executive's
employment  by the Company or any of its  affiliates  and during the  Restricted
Period,  Executive  shall keep secret and retain in  strictest  confidence,  and
shall not use for the benefit of himself or others except in connection with the
business and affairs of the Company, all confidential matters of the Company and
its  affiliates,  including,  without  limitation,  trade  "know-how,"  secrets,
consultant contracts,  customer lists, subscription lists, details of consultant
contracts, pricing policies, operational methods, marketing plans or strategies,
product  development  techniques  or  plans,  business  acquisition  plans,  new
personnel  acquisition  plans,  methods  of  manufacture,  technical  processes,
designs and design projects, inventions and research projects and other business
affairs of the Company and its  affiliates  learned by Executive  heretofore  or
hereafter,  and shall not disclose them to anyone outside of the Company and its
affiliates,  either  during or after  employment  by the  Company  or any of its
affiliates, except (i) as required in the course of performing duties hereunder,
(ii) with the Company's express written consent, (iii) if such information is or
becomes  generally known by the public other than as a result of a breach hereof
or of a  similar  Non-Competition  and  Confidentiality  Agreement,  or  (iv) as
required by law or judicial or administrative process.

                                       -1-
<PAGE>

               C. PROPERTY OF THE COMPANY. All memoranda,  notes, lists, records
and other  documents  (and all copies  thereof) made or compiled by Executive or
made available to Executive concerning the business of the Company or any of its
affiliates shall be the Company's property and shall be delivered to the Company
promptly upon the termination of Executive's  employment with the Company or any
of its affiliates or at any other time on request.

               D.  EMPLOYEES  OF THE  COMPANY.  During  the  Restricted  Period,
Executive shall not, directly or indirectly, hire, solicit or encourage to leave
the  employment  of the Company or any of its  affiliates,  any  employee of the
Company or its  affiliates or hire any such employee who has left the employment
of the Company or any of its  affiliates  within one year of the  termination of
such employee's employment with the Company and all of its affiliates.

               E.  CONSULTANTS  OF THE COMPANY.  During the  Restricted  Period,
Executive shall not, directly or indirectly, hire, solicit or encourage to cease
to work with the Company or any of its  affiliates  any  consultant who provides
consulting  services  material to the  operation of the Company  Business,  then
under contract with the Company or any of its affiliates.

       II. RIGHTS AND REMEDIES UPON BREACH. If Executive breaches,  or threatens
to commit a breach of, any of the  provisions  of Paragraph I (the  "Restrictive
Covenants"),  the Company shall have the following rights and remedies,  each of
which  rights  and  remedies  shall be  independent  of the other and  severally
enforceable,  and all of which rights and remedies  shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:

               A.  SPECIFIC  PERFORMANCE.  The  right  and  remedy  to have  the
Restrictive   Covenants   specifically  enforced  by  any  court  having  equity
jurisdiction,  it  being  acknowledged  and  agreed  that  any  such  breach  or
threatened  breach will cause  irreparable  injury to the Company and that money
damages will not provide an adequate remedy to the Company.

               B.  ACCOUNTING.  The right and  remedy to  require  Executive  to
account  for and pay over to the  Company  all  compensation,  profits,  monies,
accruals,  increments or other benefits  (collectively,  "Benefits")  derived or
received by Executive as the result of any transactions constituting a breach of
any of the Restrictive  Covenants,  and Executive shall account for and pay over
such Benefits to the Company.
               C. DISCONTINUANCE OF PAYMENT. The right and remedy to discontinue
the payment of any amounts owing under the Memorandum of Understanding.

      III.  SEVERABILITY OF COVENANTS.  If any court  determines that any of the
Restrictive  Covenants,  or any part thereof,  is invalid or unenforceable,  the
remainder of the  Restrictive  Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions.

       IV.  BLUE-PENCILLING.  If any  court  construes  any  of the  Restrictive
Covenants,  or any part thereof, to be unenforceable  because of the duration of
such provision or the area covered  thereby,  such court shall have the power to
reduce the duration or area of such  provision  and, in its reduced  form,  such
provision shall then be enforceable and shall be enforced.

                                       -2-<PAGE>
                                                                   EXHIBIT 10.15

                                              Confidential Treatment Requested
                                           Under 17 C.F.R. (S)(S) 200.80 (b) (4)
                                                    200.83 and 230.406

                               LICENSE AGREEMENT

                                    BETWEEN

                           THE DOW CHEMICAL COMPANY

                                      AND

                              DIVERSA CORPORATION

                                               *Confidential Treatment Requested

                                       1
<PAGE>

<TABLE>
<CAPTION>
      ARTICLE                                  TITLE                                  PAGE NUMBER
-------------------------------------------------------------------------------------------------
<C>                                         <S>                                              <C>
 I                                          DEFINITIONS                                         1
-------------------------------------------------------------------------------------------------
 II                                     PATENT LICENSE GRANT                                    4
-------------------------------------------------------------------------------------------------
 III                                          PAYMENTS                                          6
-------------------------------------------------------------------------------------------------
 IV                                        PATENT RIGHTS                                        9
-------------------------------------------------------------------------------------------------
 V                                        CONFIDENTIALITY                                      11
-------------------------------------------------------------------------------------------------
 VI                                          ASSIGNMENT                                        12
-------------------------------------------------------------------------------------------------
 VII                              THIRD PARTY INFRINGEMENT CLAIMS                              12
-------------------------------------------------------------------------------------------------
 VIII                             PATENT ENFORCEMENT & LITIGATION                              13
-------------------------------------------------------------------------------------------------
 IX                         U.S. EXPORT CONTROL AND GOVERNMENT LICENSES                        14
-------------------------------------------------------------------------------------------------
 X                             PRODUCT LIABILITY AND INDEMNIFICATION                           15
-------------------------------------------------------------------------------------------------
 XI                                    WARRANTY & DISCLAIMER,                                  16
-------------------------------------------------------------------------------------------------
 XII                                    TERM AND TERMINATION                                   17
-------------------------------------------------------------------------------------------------
 XIII                                      FORCE MAJEURE                                       18
-------------------------------------------------------------------------------------------------
 XIV                                     DISPUTE RESOLUTION                                    19
-------------------------------------------------------------------------------------------------
 XV                                           NOTICES                                          20
-------------------------------------------------------------------------------------------------
 XVI                                  MISCELLANEOUS PROVISIONS                                 21
-------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
        APPENDIX                                TITLE                                        PAGE
-------------------------------------------------------------------------------------------------
 <C>                                         <S>                                            <C>
 A                                         PATENT RIGHTS                                       A
-------------------------------------------------------------------------------------------------
 A-1                                   DIVERSA PATENT RIGHTS                                  A-1
-------------------------------------------------------------------------------------------------
 A-2                               DIVERSA PATENT RIGHTS [****]                               A-2
-------------------------------------------------------------------------------------------------
</TABLE>

                                       i

<PAGE>
<TABLE>
<CAPTION>
                                                ROYALTY BEARING PRODUCTS
--------------------------------------------------------------------------------------------------------------------
<C>                                                 <S>                                                   <C>
 A-3                                            DIVERSA PATENT RIGHT [****]                               A-3
--------------------------------------------------------------------------------------------------------------------
 B                                                  JOINT PATENT RIGHTS                                   B-1
--------------------------------------------------------------------------------------------------------------------
 C                                                   LICENSED PRODUCT                                     C-1
--------------------------------------------------------------------------------------------------------------------
 D                                                ROYALTY BEARING PRODUCT                                 D-1
--------------------------------------------------------------------------------------------------------------------
 E                                        ROYALTY BEARING PRODUCT CLASSIFICATION                          E-1
--------------------------------------------------------------------------------------------------------------------
 F                                                   ROYALTY SCHEDULE                                     F-1
--------------------------------------------------------------------------------------------------------------------
 G                                                   OPTION AGREEMENT                                     G-1
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      ii

<PAGE>

     This LICENSE AGREEMENT (including the Appendices hereto, the "License") is
by and between THE DOW CHEMICAL COMPANY, a corporation duly formed and existing
under the laws of the State of Delaware, having a place of business at 2030 Dow
Center, Midland, Michigan 48674, United States of America ("DOW" or a "Party"),
and DIVERSA CORPORATION, a corporation duly formed and existing under the laws
of the State of Delaware, having a place of business at 10665 Sorrento Valley
Road, San Diego, California 92121, United States of America ("DIVERSA" or a
"Party").

                                R E C I T A L S

A.   DIVERSA has discovered and developed enzymes and has expertise in the
     rearrangement of DNA to produce and discover genes utilizing proprietary
     technologies for the rapid discovery, development and optimization of
     enzymes.

B.   DOW has expertise in the discovery, development and production of chemical
     compounds.

C.   DOW and DIVERSA are concurrently with this License entering into a separate
     Collaborative Research and Development Agreement ("Agreement") in order to
     perform research together to discover and optimize the function of new
     genes, processes and products resulting thereupon that can be used by DOW
     to produce certain, desired commercial chemical compounds.

D.   DIVERSA represents that it has Patent Rights and Know-How that pertain to
     this License.

E.   DOW is desirous of obtaining, and DIVERSA wishes to grant to DOW, a
     worldwide, exclusive royalty-bearing license to use Patent Rights and
     Licensed Products in Research Target Processes.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and
for other good and valuable consideration, the Parties hereby agree as follows:

                                   ARTICLE I

                                  DEFINITIONS
                                  -----------

When used in this License, the following terms shall have the meanings set out
below, unless the context requires otherwise.  The singular shall be interpreted
as including the plural and vice versa, unless the context clearly indicates
otherwise.

                                       1
<PAGE>

1.1  "Affiliate" means any corporation, firm, limited liability company,
     partnership or other entity that directly or indirectly controls or is
     controlled by or is under common control with a Party to this License.
     Control for this purpose means ownership, directly or through one or more
     affiliated entities, of 50 percent (50%) or more of the shares of stock
     entitled to vote for the election of directors in the case of a
     corporation, or 50 percent (50%) or more of the equity interests in the
     case of any other type of legal entity, or any other arrangement whereby a
     Party controls or has the right to control the board of directors or
     equivalent governing body of a corporation or other entity.

1.2  "Agreement" means the Collaborative Research Agreement between DOW and
     DIVERSA, executed concurrently with this License.

1.3  "Areas of Interest" means the development of Improved Enzymes (as defined
     below) for use in the following [****] specific areas:
     (a)   [****]
     (b)   [****]
     (c)   [****]

1.4  "Confidential Information" means all information, Know-How, scientific,
     technical, or non-technical data, samples and Materials, business plans,
     and marketing and sales information disclosed by one Party to the other
     under this License, and including information disclosed under the Agreement
     regarding Licensed Products, whether disclosed or provided in oral, written
     (including but not limited to electronic, facsimile, paper or other means),
     graphic, photographic or any other form, except to the extent that such
     information:
           (a)   as of the date of disclosure is known to the receiving Party as
                 shown by written documentation, other than by virtue of a prior
                 confidential disclosure from the disclosing Party to the
                 receiving Party;
           (b)   as of the date of disclosure is in, or subsequently enters, the
                 public domain through no fault or omission of the receiving
                 Party;
           (c)   as of the date of disclosure or thereafter is obtained from a
                 Third Party free from any obligation of confidentiality; or
           (d)   as of the date of disclosure or thereafter is developed by the
                 receiving Party independent of the disclosure by the disclosing
                 Party as evidenced by written documentation.

1.5  "Controls" or "Controlled" means, with respect to intellectual property,
     possession by DIVERSA (other than by virtue of this License) of the ability
     to grant licenses or sublicenses to DOW without violating the terms of any
     agreement or other arrangement with any Third Party and to the reasonable,
     good faith knowledge and belief of DIVERSA, without violating the rights of
     a Third Party.

                                               *Confidential Treatment Requested
                                       2
<PAGE>

1.6  [****] means a [****] that is not [****] whereupon the [****] shall be
     [****] on the [****] and [****] of the [****] including a [****] of [****]
     an [****].

1.7  "Effective Date" means the date of last signature of the Parties at the end
     of this License.

1.8  "Field" means [****]

1.9  "Improved Enzyme" means an enzyme or enzymes, either ex vivo or in vivo,
     provided to DOW by DIVERSA which is within the claims of Patent Rights or
     Joint Patent Rights or that incorporates, is derived from, or is
     identified, discovered, developed or made through the use of Know-How,
     which is developed in the Areas of Interest under the Agreement.

1.10 "Joint Patent Rights" means patent rights, which are jointly developed or
     invented by both Parties under the Agreement in accordance with its terms,
     as shown in Appendix B, which Appendix B-1 may be modified to include joint
     patent rights obtained during the Research Term under the Agreement, and
     which rights pertain to a Licensed Product. Joint Patent Rights concern
     only the scope of the claims that have not been held invalid or
     unenforceable after all appeals have been exhausted. Claims shall be deemed
     valid unless held otherwise.

1.11 "Know-How" means all Research Results, as defined and obtained under the
     Agreement, and all know-how, nonpatented inventions, improvements,
     discoveries, data, instructions, processes, formulas, sequences,
     information (including, without limitation, chemical, physical and
     analytical, safety, manufacturing and quality control data and
     information), procedures, devices, methods and trade secrets which are
     conceived, discovered or invented during the term of the Agreement, and
     which are necessary or appropriate to develop and commercialize Licensed
     Products. (Know-How does not include inventions within the Patent Rights or
     Joint Patent Rights.)

1.12 "Licensed Product" means (i) any Improved Enzyme which is used to convert a
     Research Target (as defined in the Agreement) into a product using a
     Research Target Process, or (ii) any Improved Enzyme which is based on or
     incorporates or is identified, discovered, or developed under the
     Agreement, for which both (i) and (ii) are designated by the RMC, and
     encompassed

                                               *Confidential Treatment Requested
                                       3
<PAGE>

     within DIVERSA Patent Rights or Joint Patent Rights and listed on Appendix
     C, which is attached hereto and made a part hereof and which is identical
     to Appendix G of the Agreement.

1.13 "Material" means the original, tangible materials of any type provided by
     DOW or DIVERSA to the other Party in order that the recipient can perform
     its obligations under this License.

1.14 "Net Sales" means the amount invoiced on sales of Royalty Bearing Product
     by DOW and its Affiliates to a Third Party, less the following deductions
     to the extent included in the amounts invoiced:
           (a)  [****] and
           (b)  [****] and
           (c)  [****] and
           (d)  [****] and
           (e)  [****]

     Net Sales shall not include sales between or among DOW and its Affiliates.

1.15 "Patent Rights" means patent and patent applications Controlled solely by
     DIVERSA as shown in Appendix A, including:
     (a)   all patents and patent applications which are conceived of under the
           Agreement, and which are necessary (but for this License DOW would
           infringe these patents) for DOW to make, use or sell the Royalty
           Bearing Products; and are listed on Appendix A-1, attached hereto and
           made a part hereof, which Appendix A-1 may be modified to include
           Patent Rights obtained during this License;
     (b)   the patents and patent applications listed on Appendix A-2, attached
           hereto and made a part hereof, are patent rights of DIVERSA that
           [****] and
     (c)   any divisions, continuations, continuations-in-part, reissues,
           reexaminations, extensions or other governmental actions which extend
           any of the subject matter of the patent applications or patents in

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           (i) or (ii) above, and any substitutions, confirmations, patents-of-
           addition, registrations or revalidations of any of the foregoing,
           which Patent Rights are necessary (but for this License DOW would
           infringe these patents) for DOW to make, use or sell the Royalty
           Bearing Products, which shall be listed on Appendix A-1 or A-2,
           respectively;
     (d)   [****]

     in each case, which are Controlled by DIVERSA. All patents and patent
     applications subject to this definition are listed on Appendix A or will be
     included on Appendix A as they are developed or obtained under the
     Agreement and this License. Patent Rights concern only the scope of the
     claims that have not been held invalid or unenforceable after all appeals
     have been exhausted. Claims shall be deemed valid unless held otherwise.

1.16 "Royalty Bearing Product" means the material resulting from the application
     of a Licensed Product or a Licensed Product in a Research Target Process
     (defined in the Agreement), which shall be classified by its Royalty
     Bearing Product Classification and listed in Appendix D, attached hereto
     and made a part hereof. (If DIVERSA manufactures for DOW a Licensed Product
     using an in vivo Improved Enzyme, it shall be subject to a separate
     agreement.)

1.17 "Royalty Bearing Product Classification" means the [****] in accord with
     Appendix E, as attached hereto and made a part hereof. The Royalty Bearing
     Product [****]

1.18 "Royalty Schedule" means the [****] Royalty Bearing Product, as determined
     by the [****] read from the [****] on Appendix F, attached hereto and made
     a part hereof.

1.19 "Territory" means the world.

1.20 "Third Party" means anyone other than DOW or DIVERSA, or their respective
     Affiliates.

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                                  ARTICLE II

                             PATENT LICENSE GRANT
                             --------------------

2.1  Grant of License to DOW - Subject to the terms and conditions of this
     License, DIVERSA hereby grants to DOW, and DOW hereby accepts:
     (a)   an a exclusive, royalty-bearing, worldwide license, including the
           right to grant sublicenses pursuant to Section 2.4, under the DIVERSA
           Patent Rights and Joint Patent Rights to make, have made, import,
           have imported, use, have used, sell, have sold and otherwise exploit
           Royalty Bearing Products;
     (b)   an exclusive, world-wide license, including the right to grant
           sublicenses pursuant to Section 2.4, under DIVERSA's enzymes [****]
           to use enzymes to convert Research Target(s) into products via
           Research Target Processes (Research Target and Research Target
           Processes are defined as in the Agreement). The royalty for this
           grant is obtained by DIVERSA under (a);
     (c)   a non-exclusive, royalty-bearing, world-wide license to [****] and
     (d)   a royalty-free license to any Know-How required to exploit the rights
           granted under (a), (b), and (c), and for DOW or its Affiliates to
           perform research on any Improved Enzyme.

2.2  Grant of Right to DIVERSA - If DOW desires that any Licensed Product be
     further modified after DIVERSA supplies it to DOW under the terms of the
     Agreement, then DOW may request that:
     (a)   DIVERSA perform such added modification under the Agreement, if it is
           still in effect; or
     (b)   if the Agreement is no longer in effect, then using good faith, the
           Parties shall negotiate terms consistent with the intent of obtaining
           a Licensed Product; or
     (c)   if DIVERSA declines to do such modification within thirty (30) days
           or an agreement is not reached within three (3) months having terms
           similar to the Agreement and providing for the work to commence
           within thirty (30) days of the signature date, [****]

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     Notwithstanding the above, [****] if (i) a transfer or sale of
     substantially all of the business of DIVERSA to which this License relates
     occurs, whether by merger, sale of stock, sale of assets or otherwise, to a
     [****] or (ii) bankruptcy, insolvency, dissolution or winding up of DIVERSA
     (other than dissolution or winding up for the purposes of reconstruction or
     amalgamation). [****].  DOW would continue to pay DIVERSA for any Royalty
     Bearing Product under this License.

2.3  Grant of Rights to Use Licensed Products for New Research Targets within
     the Field after Termination of the Agreement - In the event DOW desires to
     obtain exclusive or non-exclusive rights to Licensed Products to make, have
     made, use, sell, offer for sale and import products in new Research Targets
     within the Field, DIVERSA and DOW agree to negotiate such rights in good
     faith, subject to any prior obligations DIVERSA has regarding the granting
     of said rights. If DIVERSA becomes aware of new Research Targets for
     Licensed Products within the Field, then DIVERSA shall notify DOW of such
     Licensed Product application, and [****]. If DOW declines to negotiate a
     license and DIVERSA and a Third Party desire to use a Licensed Product for
     a new Research Target, DIVERSA and DOW agree to negotiate for DIVERSA to
     pay DOW royalties on net sales of such Licensed Product in such Research
     Target consistent with the royalties DOW pays to DIVERSA under this License
     as indicated in Table 1 of Appendix F attached hereto.

2.4  Sublicensing - The exclusive license granted under Section 2.1(a) to DOW
     includes the right to sublicense Third Parties, whether or not Affiliates
     of DOW, including the right to enter into distributor contracts,
     manufacturing contracts, or other commercial transactions, including but
     not limited to sublicensing a competitor of DOW. DOW will be responsible
     for all payments due to DIVERSA as a result of any sublicensee and
     Affiliate Net Sales in the Field in the Territory. DOW will be responsible
     for the observance by all sublicensees of all applicable provisions of this
     License and will use its reasonable good faith efforts to cause all
     sublicensees to observe the covenants in this License (i.e., regarding
     confidentiality, maintaining records, reporting Net Sales, and governmental
     regulations). All sublicenses, other than a label license for DOW Net
     Sales, shall be in writing. DOW shall notify DIVERSA in writing within
     thirty (30) days of the grant of any

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     sublicense hereunder. Notwithstanding the foregoing, DOW shall have no
     right under any circumstances to sublicense any rights to the DIVERSA
     Patent Rights listed on Appendix A-3, and licensed to DOW hereunder.

2.5  Reservations by DOW - DOW reserves the right to work with Third Parties
     outside the Areas of Interest, or after the Agreement terminates within the
     Areas of Interest, or to conduct its own research within the Areas of
     Interest.

2.6  Ex vivo Improved Enzyme Production - If DOW chooses not to exclusively
     manufacture a Licensed Product, DIVERSA shall be given a right of first
     refusal to manufacture such Licensed Product. DIVERSA must submit a bid
     which is competitive with any other Third Party supplier. Any bid received
     by DIVERSA shall be held confidential by DOW. If DIVERSA is the lowest
     cost, most effective producer of the Licensed Product, DOW and DIVERSA
     shall negotiate in good faith a separate manufacturing agreement for
     DIVERSA to provide the relevant Licensed Product to or on behalf of DOW.
     Such agreement may include the development of additional technology for
     such production. If such an agreement is negotiated, it shall contain at a
     minimum terms for a worldwide, non-exclusive license for the Know-How and
     any Patent Rights required (whether under this License in Appendix B-2 or
     developed separately). This [****].

2.7  Prior Option Agreement - DOW exercised its rights under a prior Option
     (copy attached for reference as Appendix H) for a license to a precursor
     for an Improved Enzyme and paid DIVERSA the exercise fee. This License
     shall also be a grant to the technology and the precursor Improved
     Enzyme(s) developed under that Option in the same manner for a Licensed
     Product.

                                  ARTICLE III

                                   PAYMENTS
                                   --------

3.1  Milestone Payment for Option under Section 2.7 - To meet the milestone
     payment due DIVERSA under the Option in accord with Section 2.7, DOW shall
     pay DIVERSA Two Hundred Thousand Dollars ($200,000) within thirty (30) days
     from the Effective Date. This License shall suffice for the exercise of the
     Option for a license.

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3.2  License Product Nomination - When an Improved Enzyme is identified by the
     RMC under the Agreement as being adequately developed for
     commercialization, then DOW must inform DIVERSA in writing within sixty
     (60) days whether such Improved Enzyme shall become a Licensed Product
     under this License. If DOW desires to designate an Improved Enzyme as a
     Licensed Product, then it shall be listed on either Appendix C or D under
     the terms of this License and classified by DOW under the Royalty Bearing
     Product Classification of Appendix E as to which Royalty Schedule applies
     in accord with Appendix F. Up to three (3) Improved Enzymes per Royalty
     Bearing Product can be designated as Licensed Product(s). Within [****] of
     designation of more than one Improved Enzyme as a Licensed Product, DOW
     will select [****] Licensed Product for each Royalty Bearing Product, and
     all other Licensed Product(s) shall revert to Improved Enzyme status. If
     DOW does not designate an Improved Enzyme as a Licensed Product, then
     DIVERSA may license such Improved Enzyme to a Third Party for other than
     any Research Target without further obligation to DOW, unless Section 3.8
     applies.

3.3  License Fees - Within thirty (30) days of the identification by the RMC of
     a Licensed Product in accordance with Section 3.2, DOW shall pay to DIVERSA
     a license fee of [****] dollars. Only [****].

3.4  Commercialization Fees - Within thirty (30) days of the first commercial
     sale by DOW of each Royalty Bearing Product from a commercial scale plant,
     DOW shall pay to DIVERSA [****] dollars. Only [****].

3.5  Royalty Payments - Royalties owed for each Royalty Bearing Product are
     subject to Section 4.8 and shall vary according to Table 1 in the Royalty
     Schedule set forth on Appendix F. Upon pilot plant evaluation for each
     Royalty Bearing Product, DOW will propose to DIVERSA the Royalty Bearing
     Product Classification and specific royalty from Table 1 in the Royalty
     Schedule in Appendix F. DIVERSA and DOW shall discuss the proposal. The
     proposal shall be subject to DIVERSA approval, which shall not be
     unreasonably withheld. In the [****].

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3.6  Method of Payment - All payments due under this License shall be made in
     with the respective sections of Article III by check or by bank wire
     transfer in immediately available funds to a bank account designated in
     writing to DOW by DIVERSA. In the event that the due date of any payment
     subject to this Article III hereof is a Saturday, Sunday or national
     holiday, such payment may be paid on the following business day. Any late
     payments shall bear interest, to the extent permitted by applicable law, at
     the prime rate (as reported by the Bank of America, San Francisco,
     California or its successor bank) on the date such payment is due plus two
     (2%) percent, calculated on the number of days such payment is delinquent.
     The rights provided in this Section 3.6 shall in no way limit any other
     remedies available to DIVERSA hereunder.

3.7  Sublicense Payments - Any sublicense agreement for Royalty Bearing Product
     shall contain royalty provisions that at a minimum provide for the payment
     of the same running royalty as would similarly be paid to DIVERSA by DOW in
     accord with Section 3.5. DOW will be responsible for any auditing for
     performance for similar terms and conditions by a sublicensee.

3.8  [****].

3.9  [****].

3.10 Exchange Rate and Payment - Royalty payments shall be paid to DIVERSA in US
     dollars in funds to be deposited in a US account as instructed in writing
     by DIVERSA in accordance with Section 3.6. If DOW receives payment on
     Royalty Bearing Products in currency other than US dollars, such payments
     shall be converted to US dollars on the last day of the calendar quarter
     using an exchange rate established by a leading New York bank, such as
     CitiBank, and published in The Wall Street Journal, but are not due for
     sixty (60) days from the last day of each calendar quarter for each Royalty
     Bearing Product.

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     If DOW receives payment in a form other than a currency, it shall be
     estimated at its fair market value and converted to U.S. dollars.

3.11 Quarterly Royalty Reports and Payments - Within sixty (60) days after the
     close of each calendar quarter, DOW shall submit a report on the Net Sales
     on Royalty Bearing Product for the Territory in sufficient detail to enable
     a calculation of the royalty due in accord with Article III and payment of
     the royalty (if any) due. The quarterly reports will also specify the
     calculations based on Sections 3.7 and 3.10, Royalty Bearing Product
     Classifications made, the royalty rate from Table 1 of the Royalty Schedule
     in Appendix F for a given Royalty Bearing Product, and identification of
     any Licensed Products that are returned as Improved Enzymes.

3.12 Books of Account - DOW shall maintain true and complete books of account
     containing an accurate record of all data necessary for the proper
     computation of royalty payments due from it or on behalf of any Affiliate.
     Such records shall be maintained for at least five (5) years after the date
     of the pertinent royalty payment.

3.13 Audit Right - DIVERSA shall have the right through a firm of independent
     public accountants to whom DOW has no reasonable objection, to examine the
     books of account of DOW at reasonable times within three (3) years after
     the end of the calendar year to which they relate (but not more than once
     in each calendar year) for the purpose of verifying the correctness of any
     report concerning payment of royalties under Article III. Such examination
     shall be made during normal business hours at the place of business of DOW.
     The information provided as a result of any such examination shall be
     maintained in confidence on the terms specified in Article V. The fees and
     expenses of such an audit shall be borne by DIVERSA, unless such audit
     discloses an underpayment of more than five percent (5%) of the amount due
     under this License. In such case, DOW shall bear the full cost of such
     audit. If any such audit shows any underpayment or overcharge, a correcting
     payment or credit against future royalties shall be made. Any payment
     required from DOW to DIVERSA from such audit shall be made within thirty
     (30) days of DIVERSA's receipt of the auditors' statement. DOW shall be
     subject to a penalty as if the payment were deemed late in accord with
     Section 3.6.

3.14 Withholding Tax Payments - If any taxes for DIVERSA's account, withholding
     or otherwise, are levied by any taxing authority in the Territory in
     connection with the receipt by DIVERSA of any amounts payable under Article
     III of this License according to any tax treaty or agreement between the
     United States and any country in the Territory, then DOW shall have the

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     right to pay such taxes to the local tax authorities and the payment to
     DIVERSA shall be the net amount due after reduction by the amount of such
     taxes, together with
           (a)   evidence of payment of such taxes and a translation thereof
                 into English,
           (b)   indication of the amount of such tax paid, and
           (c)   indication of the country in the TERRITORY and the authority to
                 whom it was paid, and
           (d)   other information required for DOW to comply with DOW's royalty
                 reporting obligations under this License.

                                  ARTICLE IV

                                 PATENT RIGHTS
                                 -------------

4.1  DIVERSA to Maintain Patent Rights - DIVERSA shall have the obligation and
     be responsible at its own cost and expense for prosecuting the patent
     applications in Patent Rights for maintaining and extending those Patent
     Rights for the term of this License. DIVERSA shall use good faith efforts
     to prosecute, issue and maintain all Patent Rights.

     DIVERSA shall supply DOW with a copy of all Patent Rights applications,
     their published texts, and issued patents. Where available a translation
     into English shall be provided.

4.2   Joint Patent Rights -
      In those instances where joint inventors (as defined by 35 U.S.C. et seq.)
      between DOW (or its Affiliate) and DIVERSA (or its Affiliate) result in a
      patentable invention, then DOW and DIVERSA shall mutually determine, using
      their good faith efforts:
           (a)   whether DOW or DIVERSA shall file a patent application;

           (b)   whether the patent application has joint ownership and joint
                 claim structure; and

           (c)   which Party should prosecute the patent application and pay the
                 annuities.

     Thus DOW shall have joint ownership rights to such Joint Patent Rights in
     accord with Article II. If either Party desires exclusive rights to Joint
     Patent Rights, then such Party must notify the other and both Parties shall
     negotiate in good faith. Should such joint inventorship arise, then the
     Parties shall discuss in good faith how the costs are shared, which Party
     should file the Joint Patent Rights, where the Joint Patent Rights should
     be

                                       12
<PAGE>

     filed, and, if term extension or restoration is available, who should
     extend the patent. DIVERSA shall use its reasonable good faith efforts to
     obtain the Joint Patent Rights and secure the broadest scope reasonably
     possible in view of the commercial intent of DOW.

     Each Party shall supply the other Party with a copy of all joint patent
     applications, their published texts, and issued patents included in the
     Joint Patent Rights under its control and their official actions and shall
     advise the other Party on the content of any responses. Where available a
     translation into English shall be provided.

4.3  Notice of Patent Lapse of Patent Rights and Joint Patent Rights -DIVERSA
     shall promptly advise DOW of the grant, lapse, nullification, revocation,
     surrender, or invalidation of any of the Patent Rights and Joint Patent
     Rights under its control at least in advance of any abandonment to enable
     DOW to assume that prosecution, at DOW's expense, should DOW not agree to
     such abandonment. If under these facts, DOW succeeds in issuing the Patent,
     then patent costs shall be credited against royalty payments. DOW shall
     promptly advise DIVERSA of the grant, lapse, nullification, revocation,
     surrender, or invalidation of any of the Joint Patent Rights under its
     control at least in advance of any abandonment to enable DIVERSA to assume
     that prosecution, at DIVERSA's expense, should DIVERSA not agree to such
     abandonment.

4.4  Validity, Non-Infringement - DIVERSA does not warrant that the manufacture,
     use and sale of Licensed Products do not fall within the scope of Third
     Party patents or the industrial property rights of a Third Party. However,
     to the best of DIVERSA's knowledge, information and belief, that as of the
     Royalty Bearing Product Classification, the [****] for the [****] does not
     fall within the scope of Third Party patents which are not owned or
     licensed by DIVERSA.

4.5  Disclaimer of Warranties as to Patent Rights - Other than as stated in
     Section 4.4, DIVERSA makes no representation that the inventions covered in
     any Patent Rights are patentable or that the Patent Rights are or will be
     valid or enforceable, nor does DIVERSA warrant or represent that the
     exercise of the rights licensed hereunder is free of infringement of patent
     rights of Third Parties.

4.6  Hold Harmless - [****] agrees to hold [****] harmless for patent
     infringement under [****]

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                                       13
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     which may be [****] under this License so long as this License is in effect
     and is not terminated.

4.7  Cooperation - DIVERSA and DOW shall use good faith efforts to cooperate
     with respect to any issues that concern the development of the Licensed
     Product under this License. DOW is aware that competition in the Territory
     is likely if no Patent Rights or Joint Patent Rights exist or are obtained,
     and DOW accepts this License with that knowledge. DIVERSA shall promptly
     inform DOW of any references of which DIVERSA becomes aware which might
     significantly impact the scope of the Patent Rights or Joint Patent Rights
     or dominate Patent Rights or Joint Patent Rights.

4.8  Patent Rights Issues - DOW [****] owes DIVERSA under Article III for
     Royalty Bearing Products made using Licensed Products [****] DIVERSA agrees
     that it [****]

4.9  Country list for Global Filing Issues - DIVERSA shall file all Patent
     Rights at least in the US and PCT [****]

4.10 DOW technology and patents - DOW may develop and patent technology in the
     Field or Areas of Interest during this License. DOW does not need to pay
     any royalty to DIVERSA on such technology or patents unless it is dominated
     by any DIVERSA patents. [****]

                                   ARTICLE V

                                CONFIDENTIALITY
                                ---------------

5.1  Efforts - Each Party shall use good faith efforts to retain in confidence
     and not disclose to any Third Party each other's Confidential Information

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     disclosed pursuant to the terms of this License. Such "good faith efforts"
     shall mean the same degree of care, but no less than a reasonable degree of
     care, as the receiving Party uses to protect its own Confidential
     Information of a like nature. All Confidential Information initially
     received in a non-written form shall be reduced to writing within thirty
     (30) days by the disclosing Party and such writing provided to the
     receiving Party. The receiving Party shall not be obligated if such writing
     is not received timely. DOW shall continue to use the same good faith
     efforts with respect to the DIVERSA Confidential Information already in its
     possession under the Agreement. Each Party may use Confidential Information
     of the other Party only to the extent required to accomplish the purposes
     of this License.

5.2  Notwithstanding the provisions of Section 5.1, if the receiving Party
     becomes legally compelled to disclose any of the disclosing Party's
     Confidential Information, the receiving Party shall promptly advise the
     disclosing Party of such required disclosure in order that the disclosing
     Party may seek a protective order confidential treatment or such other
     remedy as the disclosing Party may consider appropriate in the
     circumstances. The receiving Party shall disclose only that portion of the
     Confidential Information which it is legally required to disclose. Such a
     disclosure shall not release the receiving Party with respect to the
     Confidential Information so disclosed except to the extent of permitting
     the required disclosure.

5.3  Disclosure to Affiliates, Contractors - DOW may disclose Confidential
     Information to its Affiliates, sublicensees, consultants, contractors
     (parties under contract with DOW for the custom manufacturing or shipping
     of Royalty Bearing Product or obtention of registration in the Territory),
     as may be necessary to exercise the rights granted hereunder and to
     register and prepare for commercialization of Royalty Bearing Product, and
     to commercialize Royalty Bearing Product under this License, under
     conditions of confidentiality at least as stringent as those set out in
     Article V.

5.4  Survival of Confidentiality - Termination of this License for any reason
     shall not relieve the Parties of their obligations under Article V. The
     provisions of Article V shall survive termination of this License for ten
     (10) years.

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                                  ARTICLE VI

                                  ASSIGNMENT
                                  ----------

6.1  DOW - DOW shall have the right to assign its rights in this License (or any
     part hereof) to an Affiliate: provided, however, that DOW shall continue to
     be responsible for the obligations of any such Affiliate. DOW may assign
     its rights hereunder in connection with the transfer or sale of all or
     substantially all of the business of DOW to which this License relates,
     whether by merger, sale of stock, sale of assets or otherwise.

6.2  DIVERSA - DIVERSA shall have the right to assign its rights in this License
     (or any part hereof) to an Affiliate: provided, however, that DIVERSA shall
     continue to be responsible, using its reasonable best efforts, for the
     obligations of any such Affiliate, including honoring the terms of this
     License. DIVERSA may assign its rights hereunder in connection with the
     transfer or sale of all or substantially all of the business of DIVERSA to
     which this License relates, whether by merger, sale of stock, sale of
     assets or otherwise.

                                  ARTICLE VII

                        THIRD PARTY INFRINGEMENT CLAIMS
                        -------------------------------

7.1  Defense of Third Party Patent Claims - If a claim is brought by a Third
     Party that the manufacture, use or the sale of a Royalty Bearing Product in
     the Territory (regardless of use) infringes a patent of such Third Party,
     DOW will give prompt written notice to DIVERSA of such claim if it concerns
     Patent Rights or Joint Patent Rights. The Parties shall confer in accord
     with Section 7.2.

7.2  Mutual Decisions - From the Effective Date and using their good faith
     efforts, DIVERSA and DOW shall discuss any claim or suit brought by a Third
     Party for patent infringement and mutually evaluate whether that Third
     Party's patent is infringed by the manufacture, use or sale of Royalty
     Bearing Product by DOW or its Affiliates in the Territory. Specifically,
     DIVERSA and DOW shall mutually try to agree on:

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           (a)   the strategy for such suit or claim, e.g. whether to negotiate
                 a settlement, sue or withdraw selling Royalty Bearing Product
                 from the country in the Territory in which infringement is
                 claimed;

           (b)   the basis to be determined for sharing the costs of litigation,
                 damages awarded, and royalty to be paid to the Third Party.
                 [****].

           (c)   which Party should conduct the defense or if both DIVERSA and
                 DOW should jointly defend; and the consequences of such
                 decisions, such as amendment to this License with regard to
                 royalties due to DIVERSA.

7.3  Third Party License - The Parties shall use their good faith efforts
     (either individually or together) to [****]. As of the Royalty Bearing
     Product Classification, DIVERSA is not aware of the need for any such Third
     Party license.

                                 ARTICLE VIII

                        PATENT ENFORCEMENT & LITIGATION
                        -------------------------------

8.1  Prosecution by DIVERSA -

     8.1.1  DIVERSA, at its sole discretion, may take action on its own behalf
            and expense to institute any action or proceeding by reason of
            infringement of any of the Patent Rights related to a Royalty
            Bearing Product. If either Party learns of any infringement of
            Patent Rights by a Third Party, it shall promptly notify the other
            Party. DIVERSA shall have the first right, at its own expense, to
            prosecute all litigation against a Third Party infringer. DOW shall
            provide all reasonable cooperation, including any necessary use of
            its name required to prosecute such litigation. DOW shall be
            consulted concerning the litigation. DIVERSA gets to [****].

     8.1.2  If the possible infringement concerns a Licensed Product for the
            Research Target that is [****] then DIVERSA shall [****] and removal
            from the market place of all infringing

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            Third Party products. DIVERSA will bear the costs and shall be
            entitled to any recovery obtained from such litigation, settlement
            or compromise thereof. If DIVERSA elects not to take action for such
            infringement, then DOW may do so at DOW's expense and shall be
            entitled to any recovery obtained from such litigation, settlement
            or comprise thereof and DOW retains all damages received.

     8.1.3  If the infringement of the Licensed Product is in areas that are
            [****] then DIVERSA shall [****]

     8.1.4  If a Patent Right is finally declared invalid or unenforceable in a
            judicial or administrative proceeding from which no appeal is or can
            be taken, then from and after that date with respect to that Patent
            Right in that country of the Territory, [****] If no other Patent
            Right is providing protection in that country of the Territory, then
            [****]

8.2  Neither Party Defends - If neither DIVERSA nor DOW will defend the Patent
     Rights in a particular country in the Territory, then for that Patent
     Rights in that country the royalty under Article III is [****] upon that
     decision.

8.3  Joint Patent Rights Suits - If the litigation concerns Joint Patent Rights,
     then both DIVERSA and DOW shall mutually work together and divide equally
     any recovery, but each shall pay their own costs.

8.4  Settlement - Any settlement of an infringement suit, whether brought by DOW
     or by DIVERSA, shall be subject to the consent of both Parties, which
     consent shall not be unreasonably withheld.

8.5  Cooperation - Each Party shall cooperate with the other Party to the extent
     reasonably requested in any legal action:
     (i)    brought by a Third Party against one Party; or
     (ii)   brought by a Third Party against both Parties; or
     (iii)  taken against a Third Party by either Party regarding Patent Rights
            or Joint Patent Rights in the Field in the Territory, and each Party
            shall have the right to participate in any defense, compromise or
            settlement to the extent that, in its judgment, it may be prejudiced
            thereby.

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     In addition, DOW shall not settle any claim or suit in any manner that
     shall adversely affect any Patent Rights or Joint Patent Rights, require
     any payment by DIVERSA or reduce the royalty due to DIVERSA hereunder
     without the prior written consent of DIVERSA.

                                  ARTICLE IX

                   EXPORT CONTROL AND GOVERNMENT REGULATIONS
                   -----------------------------------------

9.1  Compliance by DIVERSA - DIVERSA agrees to comply with all governmental
     regulations for shipping Improved Enzyme, whether in vivo or in vitro, to
     DOW or any regulation for safety of the culture.

9.2  Compliance by DOW - DOW agrees to comply with all necessary United States,
     European and other country's governmental regulations in the Territory with
     respect to export of Know-How and any Royalty Bearing Product. DOW agrees
     to not export or re-export any Know-How or Royalty Bearing Product received
     from DIVERSA or the direct products of such technology to any prohibited
     country listed in the U.S. Export Administration Regulations (15 C.F.R.
     (S)700 et seq.) unless properly authorized by the U.S. Government.

9.3  Clearances - DOW agrees to obtain all necessary clearances from any
     government in the Territory for export or re-export with respect to the
     Know-How or Royalty Bearing Product.

                                   ARTICLE X

                     PRODUCT LIABILITY AND INDEMNIFICATION
                     -------------------------------------

10.1 Indemnity by DIVERSA - DIVERSA shall indemnify and hold DOW, its agents,
     directors, officers, employees and Affiliates harmless from and against any
     and all liabilities, claims, demands, damages, costs, expenses or money
     judgments (including reasonable attorneys' fees and expenses) incurred by
     or rendered against any of them for personal injury, sickness, disease or
     death or property damage which directly arise out of:
     (a)   the intentional misconduct or negligence of DIVERSA; or

                                       19
<PAGE>

     (b)   the breach by DIVERSA of its representations, warranties or
           agreements given in this License; or
     (c)   any activity carried out with Licensed Product by DIVERSA other than
           through DOW and its Affiliates under this License or other written
           agreements between the Parties;
     provided, however, that DOW shall give DIVERSA notice in writing as soon as
     practicable of any such claim or lawsuit and shall permit DIVERSA to
     undertake the defense thereof (including the right to settle the claim
     solely for monetary consideration)at DIVERSA's expense.  However,
           (i)   DOW will cooperate in such defense by providing access to
                 witnesses and evidence available to it. DOW shall have the
                 right to participate in any defense to the extent that in its
                 judgment, DOW may be prejudiced thereby; and
           (ii)  in any claim or suit in which DOW seeks indemnification by
                 DIVERSA, DOW shall not settle, offer to settle or admit
                 liability or damages in any such claim or suit without the
                 prior written consent of DIVERSA.

10.2 Indemnity by DOW - DOW shall defend, indemnify and hold DIVERSA and its
     Affiliates, and their respective agents, directors, officers, and employees
     harmless from and against any and all losses, liabilities, claims, demands,
     damages, costs, expenses or money judgments (including reasonable
     attorneys' fees and expenses) incurred by or rendered against any of them
     for personal injury, sickness, disease or death or property damage which
     arise out of
     (i)   the [****] of Royalty Bearing Product by DOW or its Affiliates,
           except for those instances provided in Section 10.1 for which DIVERSA
           is obligated to indemnify DOW; or
     (ii)  the breach by DOW of any of its representations, warranties or
           covenants contained in this License or any agreement contemplated by
           the terms of this License; or
     (iii) the intentional misconduct or gross negligence of DOW;

     provided, however, that DIVERSA shall give DOW notice in writing in accord
     with Article XV as soon as practicable of any such claim or lawsuit and
     shall permit DOW to undertake the defense thereof at DOW's expense.
     However,
     (i)   DIVERSA will cooperate in such defense by providing access to
           witnesses and evidence available to it. DIVERSA shall have the right
           to participate in any defense to the extent that in its judgment,
           DIVERSA may be prejudiced thereby; and
     (ii)  In any claim or suit in which DIVERSA seeks indemnification by DOW,
           DIVERSA shall not settle, offer to settle or admit liability or
           damages in any such claim or suit without the prior written consent
           of DOW.

                                               *Confidential Treatment Requested

                                       20
<PAGE>

                                  ARTICLE XI

                            WARRANTY AND DISCLAIMER
                            -----------------------

11.1 Belief of Accuracy - DIVERSA represents that the [****] and any [****]
     transferred or provided to DOW hereunder are believed to be accurate and
     complete as of their then current status at DIVERSA at the date when the
     Licensed Product is added to Appendix C or D or as of the Effective Date
     and that DIVERSA's interpretations and conclusions drawn therefrom were
     made in good faith and in the exercise of DIVERSA's scientific judgment as
     of the dates of the documents contained therein, and that to the best of
     DIVERSA's knowledge, data subject to regulations is in compliance with such
     regulations.

11.2 Reliance - DOW represents that it will be solely relying on its own
     evaluation of the Licensed Product and the other Confidential Information
     transferred or provided to it hereunder and on its scientific expertise in
     using the same in its development and commercialization of Royalty Bearing
     Product.

11.3 Mutual Representations - DIVERSA and DOW each represents and warrants as
     follows:

     11.3.1  Organization - It is a corporation duly organized, validly existing
             and is in good standing under the laws of the jurisdiction of its
             incorporation, is qualified to do business and in good standing as
             a foreign corporation in each jurisdiction in which the performance
             of its obligations hereunder requires such qualification and has
             all requisite power and authority, corporate or otherwise, to
             conduct its business as now being conducted, to own, lease and
             operate its properties and to execute, deliver and perform this
             License.

     11.3.2  Authorization - The execution, delivery and performance by it of
             this License have been duly authorized by all necessary corporate
             action and do not and will not: (a) require any consent or approval
             of its stockholders or (b) violate any provision of any law, rule,
             regulation, order, writ, judgment, injunction, decree,
             determination or award presently in effect having applicability to
             it or any provision of its charter documents.

     11.3.3  Binding Agreement - This Agreement is a legal, valid and binding
             obligation of it, enforceable against it in accordance with its
             terms and conditions.

                                               *Confidential Treatment Requested

                                      21
<PAGE>

     11.3.4  Warranty Disclaimer - EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
             THIS License, NEITHER Party MAKES ANY REPRESENTATION OR WARRANTY OF
             ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO ANY Confidential
             Information, Patent Rights, Know-How, Improved Enzymes, Licensed
             Products, OR OTHER TECHNOLOGY, GOODS, SERVICES, RIGHTS OR OTHER
             SUBJECT MATTER OF THIS License AND HEREBY DISCLAIMS ANY WARRANTY OF
             MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-
             INFRINGEMENT, OR VALIDITY OF TECHNOLOGY OR PATENT CLAIMS, ISSUED OR
             PENDING, WITH RESPECT TO ANY AND ALL OF THE FOREGOING.

     11.3.5  Limited Liability - EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER
             DIVERSA NOR DOW WILL BE LIABLE TO THE OTHER PARTY WITH RESPECT TO
             ANY SUBJECT MATTER OF THIS License UNDER ANY CONTRACT, NEGLIGENCE,
             STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (i) ANY
             SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR
             LOST PROFITS OR (ii) COST OF PROCUREMENT OF SUBSTITUTE GOODS,
             TECHNOLOGY OR SERVICES.

                                  ARTICLE XII

                              TERM AND TERMINATION
                              --------------------

12.1 Term - Unless terminated under the provisions of this Article XII, this
     License shall continue in full force and effect until the expiration of the
     last to expire Patent Rights and Joint Patent Rights listed on Appendices A
     and B, subject to the survivorship clause Section 12.7.

12.2 [****]

                                               *Confidential Treatment Requested

                                       22
<PAGE>

12.3  Termination by DOW - DOW may surrender and terminate this License on three
      (3) months written notice to DIVERSA, either for specific Royalty Bearing
      Products or this License as a whole. DOW will disclose to DIVERSA its
      reasons for any such termination. It is understood that upon evaluation
      for commercialization some Royalty Bearing Products may be re-designated
      as Licensed Products and also that some Licensed Products may be re-
      designated as Improved Enzymes.

12.4  Termination by DIVERSA - DIVERSA shall have the further right to terminate
      this License immediately, but separately on each Royalty Bearing Product,
      on written notice to DOW if:
      (a)  DOW shall cease to carry on business or a receiver shall be
           appointed to DOW's assets; or
      (b)  DOW fails to meet any of its payments in accord with Article III;
           however, DOW shall be entitled to a period of sixty (60) days from
           the delivery of a notice of failure to pay in which to remedy or to
           undertake to remedy the same; or
      (c)  DOW breaches any material provision (e.g., Sections 2.2 and 2.4) of
           this License and has not cured such breach within thirty (30) days
           after written notice thereof by DIVERSA.

12.5  On Termination - DOW shall, upon termination of this License by DIVERSA
      under Section 12.4, termination by DOW under Section 12.3, or termination
      by either Party under Section 12.8:
      (a)  pay to DIVERSA all payments and royalties due or accrued at the
           termination date within thirty (30) days after termination; and
      (b)  make no further use of any kind of any and all Know-How and
           Confidential Information of DIVERSA disclosed hereunder by DIVERSA,
           except to the extent such information has become public knowledge
           other than through fault of DOW, and make no further use of the
           surviving Patent Rights.

12.6  Effect of Termination.
      (a)  Upon termination of this License, all rights to the DIVERSA
           Intellectual Property as defined in the Agreement shall revert to
           DIVERSA; and
       (b) Within thirty (30) days following the termination of this License,
           but separately on each Royalty Bearing Product, each party shall
           return to the other Party, or destroy, upon the written request of
           the other Party, any and all Confidential Information of the other
           Party in its possession; and
      (c)  Expiration or termination of this License shall not relieve the
           Parties of any obligation accruing prior to such expiration or
           termination.

                                       23
<PAGE>

12.7  Survival of [****] - On termination of this License: the obligations of
      confidentiality set forth in Article V shall survive for the time stated
      therein; Export Control compliance set forth in Article IX shall survive;
      and the indemnification obligations set forth in Article X and third party
      infringement claims set forth in Article VII shall also survive as to all
      claims or actions arising from events which occurred before termination.
      Article XIV shall survive termination of this License so long as any
      disputes arising prior to such termination exist.

12.8  Bankruptcy - If either Party (the "Insolvent Party") files for protection
      under bankruptcy laws, makes an assignment for the benefit of creditors,
      appoints or suffers appointment of a receiver or trustee over its
      property, files a voluntary petition under any bankruptcy or insolvency
      act or has any such petition filed against it which is not discharged
      within 60 days of the filing thereof, then the other Party may, at its
      sole election upon notice to the Insolvent Party, terminate this License
      by written notice under Section 15.1.

      All rights and licenses granted under or pursuant to this License shall be
      deemed to be, for purposes of Section 365(n) of the US Bankruptcy Code,
      licenses or rights to "intellectual property" as defined under Section
      101(52) of the US Bankruptcy Code. The Parties agree that each Party, as a
      licensee of such rights under this License, shall retain and may fully
      exercise all of its rights and elections under the US Bankruptcy Code,
      subject to performance by the licensee of its preexisting obligations
      under this License.

                                  ARTICLE XIII

                                 FORCE MAJEURE
                                 -------------

13.1  Event of Force Majeure - In the event that performance under this License,
      or any obligation hereunder, is hindered, delayed or prevented by reason
      of acts of God, strikes, lockouts, labor troubles, intervention of any
      governmental authority, fire, riots, insurrections, invasions, war or
      other reason of similar nature beyond the reasonable control of the Party
      and are without its fault or negligence, then performance of that act
      shall be excused for the period of the delay and the period for the
      performance of that act shall be extended for an equivalent period.

13.2  Notification. Upon occurrence of an event of force majeure, the affected
      Party shall promptly notify the other Party in writing, setting forth the
      nature of the occurrence, its expected duration and how that Party's
      performance is affected.

                                               *Confidential Treatment Requested

                                       24
<PAGE>

      The affected Party shall resume the performance of its obligations as soon
      as practicable after the force majeure event ceases.

                                  ARTICLE XIV

                               DISPUTE RESOLUTION
                               ------------------

14.1  Choice of Law - This License shall be governed by the laws of the State of
      Delaware, excepting its conflict of laws principles, in all respects of
      validity, construction and performance, except that all questions
      concerning the construction, validity, coverage or infringement of Patent
      Rights or Joint Patent Rights shall be decided in accordance with the
      patent law of the country where the patent was granted.

14.2  Disputes - Both Parties shall make good faith efforts to resolve any
      questions concerning construction and performance under this License,
      excluding Patent Rights and antitrust issues, by:

      14.2.1  Notice, contact and negotiation, all proceedings and documents in
              English, between the Parties listed under Article 15.1 within one
              hundred twenty (120) days from the date of the notice by
              negotiation either by telephone or by meeting in Denver, CO; and

      14.2.2  If unsuccessful under Article 14.2.1, then senior executive
              management with settlement authority and counsel of DOW and
              DIVERSA shall meet at a mutually agreeable location within sixty
              (60) days from a date of notice that Article 14.2.1 failed to
              resolve the issues. Counsel shall present the legal and factual
              arguments to such executives in English, with supporting evidence
              if necessary, and resolution by these executives is expected
              within ten (10) days, which may be reduced to writing in English
              as an amendment to this License; and

      14.2.3  If such executives have not met or resolved the issues under
              Article 14.2.2, then within seventy five (75) days from the date
              of the notice under Article 14.2.1, the Parties shall submit the
              issues to mediation in Chicago, IL, in English, in accordance with
              the Rules of the American Arbitration Association ("AAA"), which
              may be modified by the Parties, and judgment shall not be binding.
              The Parties agree that the following procedures shall be adhered
              to even though they may, in part, not be in full conformance with
              said Rules:

              (a)  Three Mediators shall be selected from a list of at least 20
                   arbitrators selected by the AAA composed of counsel with

                                       25
<PAGE>

           chemistry, molecular biology or pharmaceutical expertise who are
           practicing or retired partners in law firms or in-house corporate
           counsel not affiliated with the Parties with at least 15 years of
           experience in law and knowledge of the pertinent laws of any country
           relevant to the dispute. The mediation proceedings and reports shall
           be in English. The time from the beginning of submission for
           mediation and conclusion of any oral or written proceedings shall not
           exceed six (6) months; and
      (b)  Limited discovery to only that which each Party has a substantial,
           demonstrable need, and shall be conducted in the most expeditious and
           cost-effective manner. The Mediators shall resolve any issues with
           regard to the discovery. Decision by the Mediators shall be given in
           writing within thirty (30) days from the end of oral proceedings; and
      (c)  The decision by the Mediators is binding, but should either Party
           then need to have a Court of competent jurisdiction for the Parties
           enforce the decision, either Party may introduce into court the
           decision reached by Mediation with its supporting evidence.

                                  ARTICLE XV

                                    NOTICES
                                    -------

15.1  Official -Any notice, request or communication specifically provided for
      or permitted to be given under this License must be in writing and may be
      delivered by hand delivery, overnight courier service, or electronic
      transmission such as facsimile, and shall be deemed effective as of the
      time of actual delivery thereof to the addressee.  For purposes of notice
      the addresses of the Parties shall be as follows:

      If to DIVERSA:

                Diversa Corporation
                10665 Sorrento Valley Road
                San Diego, California  92121

                        Attention:  Jay M. Short, PhD
                                    Chief Executive Officer

                                       26
<PAGE>

                                Telephone:  619-623-5135
                                Facsimile:  619-623-5180

      With a copy to:

           Diversa Corporation
           10665 Sorrento Valley Road
           San Diego, California  92121

                 Attention:     Carolyn Erickson
                                Director, Intellectual Property
                                Telephone:  619-623-5104
                                Facsimile:  619-453-9133

      If to DOW:

           The Dow Chemical Company
           Patent Department
           1790 Building, Washington Street
           Midland, Michigan  48674

                 Attention:     Karen L. Kimble
                                Senior Counsel

                                [****]

                                               *Confidential Treatment Requested

                                       27
<PAGE>

15.2  Development Issues - For purposes of commercial development reporting, the
      addresses of the Parties shall be as follows:

      If to DIVERSA:

              Diversa Corporation
              10665 Sorrento Valley Road
              San Diego, California  92121

                   Attention:  Jay M. Short, PhD
                               Chief Executive Officer

                               Telephone:  619-623-5135
                               Facsimile:  619-623-5180

      If to DOW:

              The Dow Chemical Company
              1707 Building, Washington Street
              Midland, Michigan 48674

                   Attention:  William Dowd
                               Biomaterials Platform Director

                               [****]

                                  ARTICLE XVI

                           MISCELLANEOUS PROVISIONS
                           ------------------------

16.1  Amendments - This License may be amended only in writing executed by both
      Parties.

16.2  Entirety of Agreement - This License together with the Agreement sets
      forth the entire agreement and understanding between the Parties hereto
      with respect to the commercialization of Royalty Bearing Products in the
      Territory.

16.3  Severability - If any term or provision under this License is deemed
      invalid under the laws of a particular country or jurisdiction, the
      invalidity shall not invalidate

                                               *Confidential Treatment Requested

                                       28
<PAGE>

      the whole License but it shall be construed as if not containing that
      particular term or provision and the rights and obligations of the Parties
      shall be construed and enforced accordingly. The Parties shall negotiate
      in good faith a substitute provision in compliance with the law to as
      nearly as possible retain the Parties intent in legally valid language.

16.4  Waivers, Cumulative Remedies - A waiver by either Party of any term or
      condition of this License in any one instance shall not be deemed
      construed to be a waiver of such term or condition for any similar
      instance in the future or of any subsequent breach hereof. All rights,
      remedies, undertakings, obligations and agreements contained in this
      License shall be cumulative and none of them shall be a limitation of any
      other remedy, right, undertaking, obligation or agreement of either Party.

16.5  Headings - Headings in this License are included herein for ease of
      reference and shall not affect the meaning of the provisions of this
      License, nor shall they have any other legal effect.

16.6  Other Documents - Each Party agrees to execute such additional papers or
      documents in customary legal form and to make such governmental filings or
      applications as may be necessary or desirable to effect the purposes of
      this License and carry out its provisions.

16.7  Publicity - Neither DOW nor DIVERSA shall make the financial terms of this
      License public, except as required by law or by mutual consent. Either
      Party may make such disclosure of the existence of this License to its
      attorneys, advisors, investors, prospective investors, leaders and other
      financing sources, under circumstances that reasonably ensure
      confidentiality. In the event that a filing of a copy of this License with
      the US Securities and Exchange Commission is required, then DIVERSA shall
      seek confidential treatment of information considered confidential by DOW
      and shall redact the financial and as much other information as possible.

      Any press release or publicity of this License shall be reviewed and
      approved by both Parties prior to any release. It is expected that a Q&A
      outline for use in responding to inquires about this License shall be
      prepared and used by both Parties. Thereafter both Parties may disclose
      the information contained in such press release and Q&A outline without
      the need for further approval. In no event shall the financial terms of
      this License be publicly disclosed, except as note in the first paragraph
      of Section 16.7.

                                      29
<PAGE>

      In addition, DIVERSA may make public statements regarding the Licensed
      Products by announcing in general terms that DOW has exercised its license
      to them.

16.8  Interpretation - DOW and DIVERSA acknowledge and agree that: (i) each
      Party and its counsel reviewed and negotiated the terms and provisions of
      this License and have contributed to its revision; (ii) the rule of
      construction to the effect that any ambiguities are resolved against the
      drafting Party shall not be employed in the interpretation of this
      License; and (iii) the terms and provisions of the License shall be
      construed fairly as to all Parties hereto and not in favor of or against
      any Party, regardless of which Party was generally responsible for the
      preparation of this License.

16.9  Counterparts - This License may be executed simultaneously in two (2) or
      more counterparts, each of which shall be deemed an original.

16.10 No Agency or Partnership - Nothing contained in this License shall give
      either Party the right to bind the other Party, or be deemed to constitute
      either Party as an agent for the other Party or as a partner with the
      other Party or any Third Party.

                                      30
<PAGE>

IN WITNESS WHEREOF, the Parties have caused this License to be executed in
duplicate originals as of the last signature date below, by their duly
authorized representatives. This License is intended to be signed concurrently
with the Agreement and shall not be effective until the Agreement has also been
executed by both Parties. Such License may be subject to management and/or Board
approval by each Party. Upon signature such Board approval is indicated to have
been obtained.

DIVERSA CORPORATION                          THE DOW CHEMICAL COMPANY

By ________________________                  By_________________________________

Name   Jay M. Short, PhD                     Name  Fernand Kaufmann

Title  Chief Executive Officer                      Title  Vice President
                                                    New Businesses and
                                                    Strategic Development

Date__________________________               Date______________________________

                                      31
<PAGE>

                                  Appendix A-3
                                  ------------

                    Diversa Patent Rights [****]

                                    [****]

                                               *Confidential Treatment Requested
<PAGE>

                                   Appendix E

                     Royalty Bearing Product Classification

Product Classifications:

The Royalty Bearing Product shall be classified according to the following
definitions:

       .  [****]

       .  [****]

       .  [****]

                                               *Confidential Treatment Requested
<PAGE>

                                   Appendix F
                                   ----------

Royalty Schedule

[****]

[****]

[****]

[****]

[****]

[****]

                                               *Confidential Treatment Requested
<PAGE>

[****]

[****]

[****]

[****]

<PAGE>

                               OPTION AGREEMENT

THIS option agreement (hereinafter "OPTION") is made between THE DOW CHEMICAL
COMPANY (hereinafter "DOW" or a "Party"), a corporation duly formed and existing
under the laws of the State of Delaware, having a place of business at 2030 Dow
Center, Midland, Michigan 48674, United States of America, and Recombinant
BioCatalysis Inc. (hereinafter "RBI" or a "Party"), a corporation duly formed
and existing under the laws of Delaware, having a place of business at 10665
Sorrento Valley Road, San Diego, CA 92121;

WITNESSETH:

WHEREAS, DOW possess an enzyme for use in a recycle process or with a reaction
coproduct produced by DOW; and

WHEREAS, DOW has proprietary rights in this enzyme and desires that the enzyme
be improved; and

WHEREAS, RBI desires to undertake the further evaluation of this enzyme under
the terms of this OPTION and, if RBI is able to improve on this enzyme, RBI is
willing to grant DOW an exclusive or non-exclusive license to such improvements;

WHEREAS, DOW desires to obtain an exclusive or non-exclusive, global license to
this improved enzyme; and

WHEREAS, RBI desires to supply DOW with such improved enzyme.

NOW, THEREFORE, DOW and RBI, in consideration of the mutual covenants contained
herein, agree as follows:

ARTICLE 1 - DEFINITIONS

When used in this OPTION, the following terms shall have the meanings set out
below, unless the context requires otherwise. The singular shall be interpreted
as including the plural and vice versa, unless the context clearly indicates
otherwise.

1.1  "AFFILIATE" means a corporation or any other entity that at any time during
     the term of this OPTION directly or indirectly through one or more
     intermediaries is CONTROLLED by the designated Party, but only for so long
     as the relationship exists. A corporation or other entity shall no longer
     be an AFFILIATE when through loss, divestment, dilution or other reduction
     of a Party's ownership, the Party loses CONTROL of such corporation or
     other entity.

1.2  "CANDIDATE ENZYMES" means those ENZYMES which meet the criteria of
     exhibiting initial hydrolysis rates (Vmax) significantly higher than the
     wild type (wt) recombinant ENZYME [*****].

                                               *Confidential Treatment Requested
<PAGE>

     [****]

1.3  "CDA" means a Confidential Disclosure Agreement between the Parties
     effective August 27, 1996, a copy attached hereto as Appendix E.

1.4  "CONFIDENTIAL INFORMATION" means any proprietary information of a Party
     that is submitted to the other Party hereunder, including, but not limited
     to PATENTS, JOINT PATENTS, ENZYME, sample of ENZYME, TECHNOLOGY, the FIELD,
     financial terms of this OPTION, business information of RBI or DOW and
     business development plans for an ENZYME.

1.5  "CONTROL" or "CONTROLLED" shall mean, in the case of a corporation,
     ownership or control, directly or indirectly, of more than fifty percent
     (50%) of the shares of stock entitled to vote for the election of directors
     and, in the case of an entity other than a corporation, ownership or
     control, directly or indirectly, of more than 50% of the assets or the
     ability in the case of either a corporate or non-corporate entity to direct
     the management and affairs of such entity.

1.6  "EFFECTIVE DATE" means June 30,1997.

1.7  "ENZYME" means any enzyme supplied by DOW to RBI for use under this OPTION
     in the FIELD, including TECHNOLOGY such as its amino acid or DNA sequence,
     or expression system; and any improvements to such enzyme (e.g., where the
     productivity of the enzyme is increased and/or where the product inhibition
     is lowered) when done by RBI.

1.8  "EVOLVED ENZYMES" means those ENZYMES which meet the criteria of exhibiting
     initial hydrolysis rates at least 6-fold that of the wild type (wt)
     recombinant ENZYME for a multiply halogenated organic molecule in aqueous
     buffer in the presence of the product as an inhibitor. Kinetically, an
     EVOLVED ENZYME is characterized as having a Vmax (at 100 mM of product) >
                                                                             -
     6.0 times Vmax (recombinant ENZYME at 0 mM of product).

1.9  "FIELD" means the use of ENZYME in a recycle process or with a reaction
     coproduct produced by DOW where the ENZYME [*****].

1.10 "IMPROVED ENZYMES" means those ENZYMES which meet the criteria of [*****].

1.11 "LETTER OF INTENT" means the agreement signed between DOW and RBI,
     effective May 27, 1997, a copy attached hereto for reference as Appendix A.

                                               *Confidential Treatment Requested
<PAGE>

1.12 "LICENSE" means a license agreement contemplated under Section 5.2 to be
     granted by RBI to DOW if, by no later than the end of the OPTION TERM, DOW
     notifies RBI in writing of its desire to exercise its rights to obtain a
     license.

1.13 "JOINT PATENTS" means those PATENTS in the FIELD which are jointly owned by
     and have claims present by employees of both DOW and RBI during the term of
     this OPTION and, if they exist, shall be listed in Appendix B, which shall
     be reviewed and updated [*****], to be attached hereto and made a part
     hereof.

1.14 "OPTION TERM" means until December 1, 1998 for an exclusive LICENSE and
     until January 31, 1999 for a non-exclusive LICENSE, unless extended in
     writing by the Parties.

1.15 "PATENTS" means all patent applications and patents to which RBI has rights
     which claim improvements to the ENZYME made by RBI (or other inventions,
     including but not limited to, apparatus, made by RBI in the course of
     performing work under the RESEARCH PLAN) during this OPTION TERM, together
     with any continuations, continuations-in-part, divisions, reissues,
     registrations, confirmations, patents-of -addition, and extensions of the
     foregoing, which claims cover the preparation, use or per se ENZYME in the
     TERRITORY, which shall be listed in Appendix C (such patents to be mutually
     agreed upon to be listed if regarding other inventions), to be attached
     hereto and made a part hereof, and reviewed and updated annually as of the
     EFFECTIVE DATE.

1.16 "PRODUCTIVITY ENZYMES" means those ENZYMES which meet the criteria of
     exhibiting at least [*****].

1.17 "RESEARCH PLAN" means a mutually agreed upon plan for RBI to perform
     research activities to improve ENZYME for commercial use to achieve TARGET
     ACTIVITY in the FIELD during the OPTION TERM in accord with Appendix D,
     attached hereto and made a part hereof.

1.18 "SIGNATURE DATE" means the date of the last signature of the Parties to
     this OPTION.

1.19 "TARGET ACTIVITY" refers to the Milestone [*****] target for the [*****].
     It is determined at the [*****] and projected from the Milestone 2 data to
     be sufficient for a [*****]. It is defined in terms of [*****].

                                               *Confidential Treatment Requested
<PAGE>

1.20 "TECHNOLOGY" means data for ENZYME, including for example physical
     properties, DNA sequence, Vmax and Ki and process to make them

1.21 "TERRITORY" means the world.

ARTICLE 2 - GRANT OF OPTION

2.1  Grant of OPTION - RBI hereby grants to DOW, and DOW hereby accepts either:

     (1)  an exclusive right during the OPTION TERM to acquire an exclusive
          LICENSE to make, have made, use, sell, import and have sold ENZYME(S)
          for the FIELD in the TERRITORY under the PATENTS, JOINT PATENTS and
          TECHNOLOGY and subject to Section 5.3; or

     (2)  a non-exclusive right during the OPTION TERM to acquire a nonexclusive
          LICENSE to make, have made, use, sell, import and have sold ENZYME(S)
          for the FIELD in the TERRITORY under the PATENTS, JOINT PATENTS and
          TECHNOLOGY and subject to Section 5.3.

Whether (1) or (2) above is selected is solely DOW's choice during the OPTION
TERM.

2.2  Reservation - DOW reserves for itself and its AFFILIATES the right to do
     internal research on ENZYMES (excluding any improvements to the ENZYMES
     made by RBI) within the FIELD during the OPTION TERM.

2.3  Expansion of FIELD - In the event that DOW wishes to expand the FIELD at
     the time of exercise of the LICENSE, the Parties agree to discuss in good
     faith the proposed expansion of the FIELD and the terms therefore.

2.4  Exercise of OPTION for LICENSE - DOW may exercise its rights under Section
     2.1 by providing written notice to RBI of its election under Section 2.1
     (1) or (2) on or before the last day of the OPTION TERM.

ARTICLE 3 - OPTION PAYMENTS

3.1  Initial Payment for OPTION - Within fifteen (15) business days from the
     EFFECTIVE DATE, DOW shall pay RBI [*****].

3.2  Additional Payments during OPTION TERM - The further payments to RBI by DOW
     are tied to the achievement of milestone technical events in accord with
     Article 4. DOW shall be invoiced one (1) month prior to any payment due to
     RBI for each of these milestones. The payments for each milestone are:

     3.2.1  Milestone 1 - [*****] - [*****], if RBI is technically successful as
          defined in Article 4; plus [*****], if RBI accomplishes this Milestone
          1 in less than [*****] from the date of receipt by RBI of [*****] from
          DOW;

                                               *Confidential Treatment Requested
<PAGE>

     3.2.2  Milestone 2 - [*****] - [*****], payable within [*****] of receipt
            by DOW of the ENZYME [*****] by DOW that RBI has provided DOW with
            [*****] (DOW shall use its reasonable good faith efforts to conclude
            such evaluation within [*****] the CANDIDATE [*****]); plus [*****],
            if RBI provides DOW with [*****] CANDIDATE ENZYMES and/or [*****]
            ENZYME [*****]; and

     3.2.3  Milestone 3 - [*****]

            (A)  [*****] payable within [*****] of receipt by DOW of the ENZYME
                 [*****] by DOW that RBI has provided DOW [*****]; plus

            (B)  [*****] payable within [*****] of receipt by DOW of the ENZYME
                 [*****] by DOW that RBI has provided DOW [*****] ENZYME (for
                 both (A) and (B) of this Section 3.2.3 DOW shall use its
                 reasonable good faith efforts to conclude such evaluations
                 [*****] of the ENZYMES), plus a bonus of -

                 (i)   [*****] if either of the criteria for (B) [*****] are met
                       within [*****] from the EFFECTIVE DATE, plus
                 (ii)  [*****] if the [*****] exceeds [*****], plus
                 (iii) [*****] if the [*****] exceeds [*****].

     It is agreed that if any of these milestones categories in Section 3.2 is
     surpassed by an ENZYME providing performance at a higher category that the
     payments for those surpassed categories will still be made.

     The [*****].

     These payments are tied to performance under the RESEARCH PLAN described in
     Article 4.

3.3  Payments to RBI - All payments under this Article 3 are to be made to:
     Recombinant BioCatalysis, Inc. and sent by wire transfer to:

                                               *Confidential Treatment Requested
<PAGE>

     Account Name: [*****].

ARTICLE 4 - ENZYME USE AND RESEARCH PLAN

4.1  RBI Obligations - RBI shall maintain sole physical control of the ENZYME
     which shall be treated as CONFIDENTIAL INFORMATION under the terms of
     Article 7 of this OPTION. RBI shall use any information provided to it by
     DOW solely to improve ENZYME in the FIELD. RBI shall provide a written
     report with a summary of the data to DOW on a quarterly basis or at a
     milestone achievement in accord with Section 4.3 in a quarter, whichever
     occurs first. (If clarification of a report is requested by DOW to more
     fully understand such report, then a meeting of respective personnel is
     permitted.) A final written report shall be provided of the results
     obtained by RBI on its improvement efforts for the ENZYME, including its
     sequence, within thirty (30) days at the end of the OPTION TERM or within
     thirty (30) days upon termination.

4.2  Development Efforts - During the OPTION TERM, RBI shall perform research
     activities to improve the ENZYME to achieve TARGET ACTIVITY in the FIELD in
     a diligent manner as specified in Article 3 and described in detail in a
     RESEARCH PLAN. Such improvement can be met by any manner acceptable to the
     Parties. The ENZYME is to be improved for commercial use in a manner agreed
     upon between the Parties. The RESEARCH PLAN may be amended by mutual,
     written consent of the Parties. However, either Party may terminate the
     research and this OPTION at any technical milestone specified in Section
     4.3 for any reason; but if RBI terminates, then DOW has thirty (30) days to
     notify RBI whether DOW desires either an exclusive or nonexclusive LICENSE
     in accord with Section 2.1 for the ENZYME until that termination. If DOW
     terminates the research and this OPTION and any of the milestones beyond
     Milestone 1 have been achieved and completed in accord with each milestone
     requirement in accordance with Section 4.3, then RBI shall have the rights
     described in Section 5.2.3.

4.3  Milestones -

     4.3.1  Milestone 1

            DOW completes preliminary [*****] and defines general parameters for
            the ENZYME, [*****]

            RBI develops of a suitable [*****].

     4.3.2  Milestone 2

                                               *Confidential Treatment Requested
<PAGE>

            RBI [*****] ENZYME by [*****] to obtain CANDIDATE ENZYME, transfers
            to DOW the [*****] CANDIDATE ENZYMES and [*****] of each CANDIDATE
            ENZYME.

            DOW confirms [*****] CANDIDATE ENZYMES and evaluates their
            performance attributes [*****].

            (DOW and RBI scientists shall discuss the relationship between
            [*****] in performance of the [*****] CANDIDATE ENZYME and
            improvement in productivity of the CANDIDATE ENZYME as a supported
            catalyst. After such discussions, the Parties shall mutually agree
            on [*****] i.e. TARGET ACTIVITY, prior to starting Milestone 3.)

     4.3.3  Milestone 3

            (A)  RBI increases productivity as stated in Article 3 for [*****]
                 ENZYMES and transfers [*****] of all such ENZYMES to DOW
                 together with each ENZYME's [*****]. DOW confirms [*****]
                 ENZYMES and evaluates their performance attributes [*****]. If
                 [*****] ENZYME [*****], then part (B) below shall occur.

           (B)   RBI [*****]as stated in Article 3 for [*****] ENZYMES and
                 transfers [*****] of [*****] ENZYMES to DOW together with each
                 ENZYME's [*****]. DOW confirms [*****] ENZYMES and evaluates
                 their performance attributes [*****].

4.4  RESEARCH PLAN and Payments are tied - The events under Section 4.3 for
     performance under the RESEARCH PLAN are tied to payments under Article 3.

4.5  DOW Obligations - DOW shall provide the assay mentioned in Section 4.3.1,
     Milestone 1, analytical information or know-how, including evaluation of
     the modified ENZYME at DOW facilities, the identity of the gene for the
     host interaction desired, and the DNA sequence of the gene. All information
     supplied by DOW to RBI shall be treated as confidential under Article 7.

ARTICLE 5 - LICENSE TERMS

The following terms are contemplated by the Parties to be included in a LICENSE
if, by no later than the end of the OPTION TERM, DOW exercises its right to such
LICENSE.

                                               *Confidential Treatment Requested
<PAGE>

5.1  Exercise Payment - Upon exercise of the right to a LICENSE, a payment shall
     be due to RIBI depending upon whether DOW elects rights under Section 2.1
     (1) or (2) as follows. If DOW elects Section 2.1 (1) for an exclusive
     LICENSE, then a one time fee of Two Hundred Thousand Dollars (US$200,000)
     Dollars is payable within thirty (30) days from exercise of the exclusive
     LICENSE but no sooner than December 1, 1998. If DOW elects Section 2.1(2)
     for a non-exclusive LICENSE, then terms shall be negotiated using
     reasonable good faith efforts by the Parties by January 31, 1999.

5.2  Exercise for LICENSE - The OPTION TERM shall be for the term of the
     Research Plan, including any mutually agreed upon extensions. At present
     both Parties agree that the OPTION TERM for an exclusive LICENSE shall run
     from the EFFECTIVE DATE until December 1, 1998 and for a nonexclusive
     LICENSE until January 31, 1999. In addition, DOW has eighteen (18) months
     from its receipt by DOW to evaluate the TECHNOLOGY and improved ENZYME
     provided by RBI before execution of the LICENSE.

     5.2.1  By the end of the OPTION TERM, DOW, at its sole discretion, may
            negotiate an exclusive LICENSE to the ENZYME and gene coding for the
            ENZYME in the FIELD from RBI, or purchase the ENZYME or immobilized
            ENZYME from RBI or an alternate supplier in accord with Section 5.3.
            Upon execution of the LICENSE, manufacturing licenses and terms of
            sale for any ENZYME shall be on commercially reasonable terms,
            mutually agreed upon, and shall include, without limitation,
            royalties and minimum payments (as negotiated by the Parties in good
            faith taking into account the value created by the respective
            contributions of the Parties, e.g., monetary, scientific and capital
            contributions). If DOW exercises the OPTION for a nonexclusive
            LICENSE, RBI shall also have the non-exclusive right to make, have
            made, use, sell, import, and have sold ENZYME for the FIELD in the
            TERRITORY under the PATENTS, JOINT PATENTS and TECHNOLOGY.

     5.2.2  In the event that the ENZYME is improved and DOW has had eighteen
            (18) months from the time the TECHNOLOGY and improved ENZYME was
            delivered to DOW in accord with Milestone 3(B) of Section 3.2.3 to
            test it, and DOW then provides written notice to RBI in accord with
            Section 12.1 of DOW's lack of interest in commercial use of the
            improved ENZYME provided by RBI, then, RBI shall have the rights
            described in Section 5.2.3.

     5.2.3  RBI Rights - Under the circumstances described in Sections 4.2 and
            5.2.2 and in the event that RBI terminates the OPTION in accord with
            Section 10.2 upon material breach by DOW, DOW shall have no LICENSE
            (but shall have the right for internal research use of ENZYME,
            TECHNOLOGY, PATENTS and JOINT PATENTS) and RBI shall have all
            commercial rights to make, have made, use, sell, import and have
            sold ENZYME for the FIELD in the TERRITORY under the PATENTS, JOINT
            PATENTS and TECHNOLOGY by notifying DOW in writing in accord with
            Section 12.1 and making the following payments (at RBI's sole
            option):

<PAGE>

            (A)  RBI shall pay DOW as a [****] fee for DOW's total investment in
                 the ENZYME (which fee shall be computed from the time of such
                 request by RBI, but in no event would be less than [****] Such
                 payment would be due to DOW within thirty (30) days from
                 invoice by DOW; or

            (B)  RBI agrees to pay to DOW reasonable royalty and payments for
                 all income received from RBI's commercialization or sale of the
                 TECHNOLOGY or PATENTS using the ENZYME. Such payments shall be
                 negotiated as an agreement by the Parties using their good
                 faith efforts.

RBI must elect between (A) and (B) within one hundred and eighty (180) days from
DOW's written notification of lack of interest and convey their election in
writing to DOW in accord with Section 12.1.

Any payments to DOW under this Section 5.2.3 shall be made to. The Dow Chemical
Company, and be sent by wire transfer to:

[*****].

5.3  Supply of ENZYME - In the event that the ENZYME is improved and is of
     further interest to DOW and DOW exercises its rights to a LICENSE under
     Section 2.1, then DOW shall have [****] from the time the improved ENZYME
     is delivered in a practicable form to DOW in accord with Milestone 3(B)
     under Section 4.3.3 (B) to provide written notice under Section 12.1 to RBI
     of DOW's intent to either:

     (A)   have RBI supply the improved ENZYME commercially to DOW. If this
           course is mutually agreed upon then a commercial agreement shall be
           negotiated using reasonable good faith efforts by the Parties; or

     (B)   inform RBI that DOW will use an alternate supplier (not RBI) for the
           improved ENZYME. RBI agrees to provide to a qualified third party
           under appropriate, reasonable licensing terms for the industry, the
           information and rights required to supply the ENZYME to DOW; or

     (C)   If DOW does not desire any commercial supply of the improved ENZYME,
           then refer to Section 5.2.2.

5.4  DOW Evaluation - DOW has the right, during the OPTION TERM and the [*****]
     evaluation period, for its purposes of evaluation only, to produce
     sufficient ENZYME for its needs.

                                               *Confidential Treatment Requested
<PAGE>

5.5  Other terms - Other customary and negotiated terms are expected to be
     included in the LICENSE and are permitted.

ARTICLE 6 - PATENT RIGHTS

6.1  RBI to Maintain PATENTS - Any improvements to the ENZYME made by RBI during
     this OPTION TERM shall belong to RBI, if within the claimed scope of any
     PATENT. DOW shall be informed of all such PATENTS and be provided with a
     copy thereof, and provided with their publication numbers or patent numbers
     and each country where filing was done. If requested by DOW, a completed
     file wrapper for a given application or patent shall be provided to DOW. An
     annual status of the concerned PATENTS shall be provided to DOW until all
     have issued or are abandoned. If DOW exercises its rights for a LICENSE,
     then rights to any PATENTS shall be granted in the LICENSE for the FIELD
     for the TERRITORY. If RBI obtains rights under Section 5.2.3, then such
     rights shall include rights to any PATENTS for the FIELD for the TERRITORY.

6.2  Notice of Patent Lapse - RBI shall advise DOW of the grant, lapse,
     nullification, revocation, surrender, or invalidation of any of the PATENTS
     at the annual update of the PATENT listing for Appendix C.

6.3  JOINT PATENTS - Although unlikely to occur, in those instances where joint
     inventions between DOW and RBI result in a patentable invention, then DOW
     and RBI shall mutually determine, using their good faith efforts, whether
     the patent application has joint ownership and joint claim structure, and
     which Party should prosecute the patent application and pay the annuities.
     Both Parties shall elect any countries in which filing shall be done. If
     DOW exercises its rights for a LICENSE, then rights to any JOINT PATENTS
     shall be granted in the LICENSE for the FIELD for the TERRITORY. If RBI
     obtains rights under Section 5.2.3, then such rights shall include rights
     to JOINT PATENTS for the FIELD for the TERRITORY.

6.4  TECHNOLOGY - TECHNOLOGY developed during the OPTION TERM or known as of the
     LETTER OF INTENT by either Party shall remain that Party's property. Any
     use by one Party of the other's TECHNOLOGY shall be under the
     confidentiality provisions of Article 7.

6.5  DOW Patents - No rights are granted by DOW to RBI to use any DOW
     intellectual property rights including patents (such as sole DOW patents),
     trade secrets, confidential information and computer programs, except in
     providing the contemplated services under the RESEARCH PLAN. If Section
     5.2.3 pertains, then rights to commercial use of the JOINT PATENTS and
     ENZYME are granted by DOW to RBI.

ARTICLE 7 - CONFIDENTIALITY

7.1  Each Party shall use good faith efforts to retain in confidence and not
     disclose to any third party each other's CONFIDENTIAL INFORMATION.  Such
     "good faith efforts" shall mean the same degree of care, but no less than a
     reasonable degree of care, as the receiving Party uses to protect its own
     CONFIDENTIAL INFORMATION of a like nature. This obligation shall be
     effective from August 29, 1996 upon the SIGNATURE

<PAGE>

     DATE and shall cease five (5) years from termination of this OPTION. This
     OPTION shall supersede the CDA upon the SIGNATURE DATE.

7.2  Excepted from the obligation of confidentiality under Section 7.1 is that
     information which:

     (a)   is available, or becomes available, to the general public without
           fault of the receiving Party; or

     (b)   is obtained by the receiving Party without an obligation of
           confidence from a third party (other than a governmental agency) who
           is rightfully in possession of such information and is under no
           obligation of confidentiality to the disclosing Party concerning such
           information; or

     (c)   is released from confidentiality in writing by the disclosing Party;
           or

     (d)   is permitted to be disclosed by Section 7.4.

For the purpose of Section 7.1, a specific CONFIDENTIAL INFORMATION shall not be
deemed to be within the foregoing exceptions merely because it is embraced by
more general information in the public domain, or in the possession of the
receiving Party. In addition, any combination of features shall not be deemed to
be within the foregoing exceptions merely because individual features are in the
public domain or in the possession of the receiving Party, but only if the
combination itself and its principle of operation and process to make it are in
the public domain or in the possession of the receiving Party.

7.3  Notwithstanding the provisions of Section 7.1, if the receiving Party
     becomes legally compelled to disclose any of the disclosing Party's
     CONFIDENTIAL INFORMATION, the receiving Party shall promptly advise the
     disclosing Party of such required disclosure in order that the disclosing
     Party may seek a protective order or such other remedy as the disclosing
     Party may consider appropriate in the circumstances. The receiving Party
     shall disclose only that portion of the CONFIDENTIAL INFORMATION which it
     is legally required to disclose. Such a disclosure shall not release the
     receiving Party with respect to the CONFIDENTIAL INFORMATION so disclosed
     except to the extent of permitting the required disclosure. In addition,
     the receiving Party may disclose CONFIDENTIAL INFORMATION of the disclosing
     Party to the extent such disclosure is reasonably necessary in connection
     with the filing or prosecution of JOINT PATENTS. If DOW CONFIDENTIAL
     INFORMATION is reasonably necessary to be disclosed in connection with the
     filing or prosecution of PATENTS, then DOW's prior written consent must be
     obtained in accord with Section 12.1.

7.4  Disclosure to AFFILIATES - RBI or DOW may disclose CONFIDENTIAL INFORMATION
     to its AFFILIATES, and consultants as may be necessary to exercise the
     rights granted hereunder, but only under conditions of confidentiality at
     least as stringent as those set out in Sections 7.1, 7.2 and 7.3.

7.5  Document Return - In the event of termination of this OPTION under Article
     10, without exercise of a LICENSE, then:

<PAGE>

     (a)   RBI will cease its use of the ENZYMES in accord with Section 10.3,

     and

     (b)   each Party will cease its use of all CONFIDENTIAL INFORMATION of the
           other Party provided hereunder and, on the disclosing Party's
           request, within sixty (60) days either return all such CONFIDENTIAL
           INFORMATION, including any copies thereof, ENZYMES in whatever media
           or form, or will promptly destroy the same and certify such
           destruction to the disclosing Party.

     Notwithstanding the above, a Party may retain one copy of any CONFIDENTIAL
INFORMATION of the other Party in its legal files, but shall return or destroy
any DOW samples of ENZYME or ENZYME provided by the other Party.  The foregoing
provisions shall not apply to RBI to the extent it exercises its rights under
Section 5.2.3.

ARTICLE 8 - U.S. EXPORT CONTROL AND GOVERNMENT LICENSES

8.1  Compliance - Both Parties agree to comply, at their expense, with all
     necessary United States governmental regulations with respect to export of
     ENZYMES and TECHNOLOGY in the TERRITORY. Both Parties agree to not export
     or re-export any ENZYME or TECHNOLOGY received from the other or the direct
     products of such TECHNOLOGY to any prohibited country listed in the U.S.
     Export Administration Regulations unless properly authorized by the U.S.
     Government. Each Party shall be responsible for the acts of its AFFILIATES,
     contractors, and consultants and assumes all liability if it or its
     AFFILIATES, fails to obtain any of the necessary licenses or commits any
     violations of the United States Export Laws or Regulations (15 C.F.R.
     (S)700 et seq.). Each Party shall indemnify the other for its acts and for
     any breach of compliance.

8.2  Licenses and Clearances - Both Parties agree to obtain all necessary
     licenses or clearances, at its expense, and to comply with all applicable
     regulations of agencies in the TERRITORY.

ARTICLE 9 - WARRANTY, DISCLAIMER, GUARANTEE

9.1  Belief of Accuracy - Each Party represent that ENZYME, TECHNOLOGY and any
     other CONFIDENTIAL INFORMATION transferred or provided to the other Party
     hereunder are believed to be accurate and complete as of their current
     status on the EFFECTIVE DATE and that each Party's interpretations and
     conclusions drawn therefrom were made in good faith and in the exercise of
     its scientific judgment as of the dates of the documents contained therein.
     However, neither Party warrants or represents that such information is or
     will be sufficient to market ENZYME or to commercially produce ENZYME, or
     to commercialize ENZYME in the TERRITORY or that DOW or RBI shall be free
     to practice or sell any ENZYME.

9.2  DOW Representation - DOW will be solely relying on its own evaluation of
     ENZYME, TECHNOLOGY and the other CONFIDENTIAL INFORMATION transferred or
     provided to it hereunder and on its own scientific expertise in using the
     same in its development and evaluation of ENZYME.

<PAGE>

9.3  Validity, Non-Infringement - No warranty is provided that the manufacture,
     use and sale of ENZYME falls outside the scope of third party patents or
     the industrial property rights of a third party.

9.4  Disclaimer of Warranties as to PATENTS - RBI makes no representation that
     the inventions covered in any PATENTS are patentable or that the PATENTS
     are or will be valid or enforceable, nor does RBI warrant or represent that
     the exercise of the rights hereunder is free from infringement of patent
     rights of third parties.

ARTICLE 10 - TERM AND TERMINATION

10.1 Term - Unless terminated under the provisions of this Article 10, this
     OPTION shall continue in effect until the end of the OPTION TERM, unless
     mutually agreed upon in writing by the Parties to be extended.

10.2 Termination for Breach - In the event of a material breach by either DOW or
     RBI of any of the obligations contained in this OPTION, the other Party
     shall be entitled to terminate this OPTION by notice in writing under
     Section 12.1, provided that such notice shall specify the breach or
     breaches. If the said breach or breaches are capable of remedy, the Party
     committing such breach or breaches shall be entitled to a period of sixty
     (60) days from the delivery of such notice in which to remedy or to
     undertake to remedy the same. In the case the defaulting Party shall fail
     to remedy the breach or to undertake to remedy the breach to the
     satisfaction of the injured Party, the injured Party shall have the right
     to cancel this OPTION in whole or only terminate those rights and
     obligations relating to the particular breach by simple notification to the
     Party in default. Failure of a Party to exercise its rights under this
     Section 10.2 shall not be construed as a waiver as to future breaches
     whether or not they are similar.

10.3 Termination by RBI or DOW - Either Party may terminate this OPTION at the
     end of any Milestone in Section 4.3 by written notice to the other. Each
     will disclose to the other its reasons for any such termination. Upon such
     termination, both Parties shall refrain from further use of CONFIDENTIAL
     INFORMATION received from the other Party, including ENZYME, except that
     this provision shall not apply to RBI if it exercises its rights under
     Section 5.2.3.

10.4 Termination by DOW - DOW shall have the further right to terminate this
     OPTION immediately on written notice to RBI if:

     (a)   RBI shall cease to carry on business or shall go into liquidation or
           a receiver shall be appointed to RBI's assets; or

     (b)   RBI shall become bankrupt or insolvent or unable to meet any of its
           performance obligations; or

     (c)   RBI fails to conduct testing on the ENZYMES for more than sixty (60)
           days from any Milestone.

10.5 On Termination - DOW shall, upon termination of this OPTION under Article
     10:

<PAGE>

     (a)   pay to RBI all payments due or accrued at the termination date within
           thirty (30) days after termination; and

     (b)   make no further use of, or permit any use by any third party of any
           kind of any and all ENZYMES disclosed hereunder by RBI, and make no
           further use of the surviving PATENTS in the FIELD.

10.6 Survival of Certain Obligations - On termination of this OPTION: the
     obligations of confidentiality set forth in Article 7 shall survive for the
     time stated therein; payments due under Article 3 shall survive for the
     terms specified; and Export Control compliance set forth in Article 8 shall
     survive indefinitely.

ARTICLE 11 - FORCE MAJEURE

11.1 Event of Force Majeure - In the event that performance under this OPTION,
     or any obligation hereunder, is hindered, delayed or prevented by reason of
     acts of God, strikes, lockouts, labor troubles, intervention of any
     governmental authority, fire, riots, insurrections, invasions, war or other
     reason of similar nature beyond the reasonable control of the Party and are
     without its fault or negligence, then performance of that act shall be
     excused for the period of the delay and the period for the performance of
     that act shall be extended for an equivalent period.

11.2 Notification. Upon occurrence of an event of force majeure, the affected
     Party shall promptly notify the other Party in writing, setting forth the
     nature of the occurrence, its expected duration and how that Party's
     performance is affected. The affected Party shall resume the performance of
     its obligations as soon as practicable after the force majeure event
     ceases.

ARTICLE 12 - NOTICES

12.1 Official -Any notice, request or communication specifically provided for
     or permitted to be given under this OPTION must be in writing and may be
     delivered by hand delivery, courier service, or electronic transmission
     such as telex, facsimile, or telegram, and shall be deemed effective as of
     the time of actual delivery thereof to the addressee. For purposes of
     notice the addresses of the Parties shall be as follows:

     DOW:
               The Dow Chemical Company
               2030 Dow Center
               Midland, Michigan
               48674
               USA

               Attention:  William Dowd
                           Director
                           Biocatalysis Laboratory

               [*****]

                                               *Confidential Treatment Requested
<PAGE>

     with a copy to:
               The Dow Chemical Company
               Patent Department
               1790 Building, Washington Street
               Midland, Michigan 48674
               USA
               Attention:  Karen L. Kimble, JD
                           Senior Counsel

               [*****]
     RBI:
               Recombinant BioCatalysis, Inc.
               10665 Sorrento Valley Road
               San Diego, CA 92121
               USA
               Attention:  Donald C. Garaventi
                           President

               [*****]

12.2 For purposes of scientific reporting, the Parties designate as their
     respective principle contacts:

     DOW:
               The Dow Chemical Company
               Building 1707
               Washington Street
               Midland, MI 48674
               USA

               Attention:  Joseph Affholter, PhD
                           Research Leader

               [*****]

     RBI:
               Recombinant BioCatalysis, Inc.
               10665 Sorrento Valley Road
               San Diego, CA 92121
               USA

               Attention:  Dan Robertson, PhD
                           Director of Enzymologys

                                               *Confidential Treatment Requested
<PAGE>

               [*****]

12.3 Each Party may change its address and its representative for notice by the
     giving of notice thereof in the manner provided in Section 12.1.

ARTICLE 13 - ASSIGNMENT

13.1 Assignment - Neither Party to this OPTION shall assign or sublicense any
     rights hereunder without the prior written consent of the other Party, such
     consent not to be unreasonably withheld. It being agreed, however, that
     without such consent being required from RBI, DOW may assign to its
     AFFILIATES, but RBI must be notified in writing in accord with Section
     12.1.

13.2 Consolidation, Reorganization or Merger - Should RBI be consolidated,
     reorganized or merged with another entity, this OPTION and all rights and
     obligations arising under this OPTION may be assigned to the successor
     entity or the assignee of all or substantially all of RBI's business and
     assets without DOW's prior written consent. However, RBI shall promptly
     notify DOW prior to such action in accord with Section 12.1.

Effect on Successors and Assignees - This OPTION shall inure to the benefit of
and be binding upon such successors and permitted assignees.

ARTICLE 14 - LIABILITY

14.1 DOW Liability to RBI - Neither DOW, any of its AFFILIATES, nor the
     respective agents, servants, officers, directors, and employees of each
     shall be liable to RBI, or RBI's employees, directors, officers, agents or
     legal heirs, for any personal injury, death, or property damage that occurs
     while RBI is performing under this OPTION, except to the extent such
     injury, death, or property damage is caused by the sole negligence of DOW.

14.2 RBI Liability to DOW - Neither RBI, any of its subsidiaries, nor the
     respective agents, servants, officers, directors, and employees of each
     shall be liable to DOW, or DOW's employees, directors, officers, agents or
     legal heirs, for any personal injury, death, or property damage that occurs
     while DOW is performing under the OPTION, except to the extent such injury,
     death, or property damage is caused by the sole negligence of RBI.

14.3 Safety by RBI - RBI personnel agree to observe the same safety and other
     rules required of DOW employees while RBI is on premises owned, operated,
     leased or under the control of DOW.

14.4 Safety by DOW - DOW personnel agree to observe the same safety and other
     rules required of RBI employees while LOW is on premises owned, operated,
     leased or under the control of RBI.

ARTICLE 15 - MISCELLANEOUS PROVISIONS

                                               *Confidential Treatment Requested
<PAGE>

15.1 Amendments - This OPTION may be amended only in writing executed by both
     Parties.

15.2 Disputes - Both Parties shall make good faith efforts to resolve any
     questions concerning construction and performance under this OPTION

15.3 Entirety of Agreement - This OPTION sets forth the entire agreement and
     understanding between the Parties hereto with respect to ENZYME for its
     evaluation in the TERRITORY for use in the FIELD. This OPTION shall be
     deemed to be in compliance with the LETTER OF INTENT and should any
     differences exist, this OPTION shall control.

15.4 Severability - If any term or provision under this OPTION is deemed
     invalid under the laws by a United States court of competent jurisdiction,
     the invalidity shall not invalidate the whole OPTION but it shall be
     construed as if not containing that particular term or provision for that
     particular country or jurisdiction and the rights and obligations of the
     Parties shall be construed and enforced accordingly. The Parties shall
     negotiate in good faith a substitute provision as an addendum to this
     OPTION for that particular country or jurisdiction in compliance with the
     law to as nearly as possible retain the Parties intent in legally valid
     language.

15.5 Waivers, Cumulative Remedies - A waiver by either Party of any term or
     condition of this OPTION in any one instance shall not be deemed construed
     to be a waiver of such term or condition for any similar instance in the
     future or of any subsequent breach hereof. All rights, remedies,
     undertakings, obligations and agreements contained in this OPTION shall be
     cumulative and none of them shall be a limitation of any other remedy,
     right, undertaking, obligation or agreement of either Party.

15.6 Publicity - Neither DOW nor RBI shall make the financial terms of this
     OPTION public, except as required by law. In the event that a filing of a
     copy of this OPTION with the US Securities and Exchange Commission is
     required, then RBI shall seek confidential treatment of information
     considered confidential by DOW. Any press release or publicity of this
     OPTION shall be reviewed and approved by both Parties prior to any release.

15.7 Choice of Law - This OPTION shall be governed by the laws of the State of
     Michigan, excepting its conflict of laws principles, in all respects of
     validity, construction and performance; except that all questions
     concerning the construction, validity, coverage or infringement of PATENTS
     or JOINT PATENTS shall be decided in accordance with the patent law of the
     country where the PATENT or JOINT PATENT was granted.

15.8 Headings - Headings in this OPTION are included herein for ease of
     reference and shall not affect the meaning of the provisions of this
     OPTION, nor shall they have any other legal effect.

15.9 Cooperation - RBI and DOW shall use good faith efforts to cooperate with
     respect to any issues that concern the development of the ENZYME under this
     OPTION.

<PAGE>

15.10 RBI's Status - RBI's status hereunder is that of an independent
      contractor, and not that of an agent of DOW. As such RBI is responsible of
      all Income Tax withholding and the payment of any other appropriate taxes
      on all payments to RBI by DOW.

IN WITNESS WHEREOF, the Parties have duly executed duplicate originals of this
OPTION by their appropriate authorized representative. Such OPTION may be
subject to management and/or Board approval by each Party. Separate signature
pages are acceptable in facsimile form and shall be accepted in lieu of original
signatures, provided each Party receives a dated, signed, legible facsimile
indicating the signator for the other Party. Upon the SIGNATURE DATE, this
OPTION shall be effective as of the EFFECTIVE DATE. If requested by either
Party, duplicate originals, bearing the same date as the facsimile signature or
in lieu of facsimile signatures may be provided.

THE DOW CHEMICAL COMPANY                RECOMBINANT BIOCATALYSIS, INC.

By:__________________________________   By:___________________________________
Name:  R.J. Pangborn                    Name:     T.J. Bruggeman
Title: Vice President                   Title:    CEO
       Central & New Businesses R & D

Date:________________________________   Date:_________________________________

<PAGE>

                                  APPENDIX A

May 27, 1997

Donald C. Garaventi
President
Recombinant BioCatalysis, Inc.
10665 Sorrento Valley Road
San Diego, CA 92121
USA

LETTER OF INTENT

Dear Mr. Garaventi:

The purpose of this Letter of Intent is to summarize the present arrangements
and intent between The Dow Chemical Company ("DOW") and Recombinant BioCatalysis
Inc. ("RBI") for use of an enzyme provided by DOW. The Parties intend to
negotiate an option agreement ("Option") encompassing this intent.

RBI and DOW shall negotiate in good faith to result in an Option having at least
the following terms and conditions:

1.   Option Territory - The Option shall be for the world.

2.   Permitted Use by RBI - RBI shall use any information provided to it by DOW
     solely to improve an enzyme identified by DOW for use in recycle process or
     with a reaction coproduct produced by DOW [*****]. [This enzyme and any
     improvements thereto (e.g., where the productivity of the enzyme is
     increased and/or where the product inhibition is lowered) are referred to
     as "Enzyme".]

3.   Option Grant - The Option, if DOW requests an exclusive grant for the Field
     to make, have made, use, sell, import and have sold the Enzyme for the
     Field in the Territory, shall include the patents and technology on the
     Enzyme in the Field subject to the terms of the Option and any
     manufacturing license agreement. The fee for this exclusive Option is a one
     time fee of [*****] payable no sooner than December 1, 1998.

If DOW requests a non-exclusive grant for the Field to make, have made, use,
sell, import and have sold the Enzyme for the Field in the Territory, including
the patents and technology on the Enzyme In the Field, then the terms shall be
negotiated using reasonable good faith efforts by the Parties by January 31,
1999.

In either event the Option shall be executed by the Parties no later than
December 1, 1998 if exclusive or January 31, 1999 if non-exclusive.

                                               *Confidential Treatment Requested

                                       1.
<PAGE>

4.   Option Term - The Option term shall be for the term of the research plan
     ("Plan"), including any mutually agreed upon extensions ("Term"). At
     present both Parties agree that the Term for an exclusive license shall run
     from the letterhead date of this Letter of Intent until December 1, 1998
     and for a nonexclusive until January 31, 1999. By the end of the Term DOW,
     at its sole discretion, may negotiate an exclusive license to the Enzyme
     and gene coding for the Enzyme in the Field from RBI, or purchase the
     Enzyme or immobilized Enzyme from RBI or an alternate supplier in accord
     with Paragraph 8. Upon exercise of the license, manufacturing licenses and
     terms of sale for any Enzyme shall be on commercially reasonable terms,
     mutually agreed upon, and shall include, without limitation, royalties and
     minimum payments.

In the event that the Enzyme is improved and DOW has had [*****] from the time
the technology and improved Enzyme is delivered to DOW in accord with Milestone
3(B) to test it, and DOW then provides written notice to RBI of DOW's lack of
interest in commercial use of the improved Enzyme provided by RBI, then, at
RBI's sole option, either:

(a)  RBI shall pay DOW as a one time fee for DOW's total investment in the
     Enzyme (which fee shall be computed from the time of such request by RBI,
     but in no event would be less than [*****]). Such payment would be due to
     DOW within thirty (30) days from invoice by DOW; or
(b)  RBI agrees to pay to DOW reasonable royalty and payments for all income
     received from RBI's commercialization or sale of the technology or patents
     using the Enzyme. Such payments shall be negotiated as an agreement by the
     Parties using good faith efforts.

RBI must elect between (a) and (b) within [*****] from DOW's written
notification of lack of interest and convey their election in writing to DOW.

DOW has the right, during the Term and the eighteen (18) month evaluation
period, for purposes of evaluation only, to produce sufficient Enzyme for its
needs.

5.   Payments - Within fifteen (15) days from execution of the Option DOW shall
     pay RBI [*****]. For subsequent payments DOW shall be invoiced one (1)
     month prior to any payment due to RBI. The further payments are tied to
     achievement of milestone technical events.  The technical events for each
     milestone payment are described in Paragraph 6. The payments for each
     milestone are:

Milestone 1 - [*****]

[*****] if RBI is technically successful as defined in Paragraph 6; plus [*****]
if RBI accomplishes this Milestone 1 in less than [*****] days from the date on
which RBI receives the assay from DOW;

Milestone 2 - Productivity Calibration Definitions for Milestone 2:

"Candidate Enzymes" are those which meet the criteria of exhibiting initial
hydrolysis rates (Vmax) significantly higher than the wild type (wt) recombinant
enzyme toward a [*****].

                                               *Confidential Treatment Requested

                                       2.
<PAGE>

Kinetically, a Candidate Enzyme that is significantly
higher is characterized as having a Vmax [*****].

"Evolved Enzymes" are those which meet the criteria of exhibiting [*****].

Payments for Milestone2:

[*****] payable within thirty (30) days of receipt by DOW of the Enzyme
sequences and validation by DOW that RBI has provided DOW with at least [*****]:
and

Milestone 3 - Productivity Enhancement Definitions for Milestone 3:

"Improved Enzymes" are those which meet the criteria of, exhibiting at least;
plus [****] if RBI provides DOW with at least [*****].

"Productivity Enzymes" are those which meet the criteria of exhibiting at least
[*****].

"Target Activity" refers to the Milestone 3 improvement target for the initial
hydrolysis rate (Target Vmax) toward a [*****]. It is determined at the
conclusion of Milestone 2 and projected from the Milestone 2 data to be
sufficient for a commercial catalyst. It is defined in terms of fold-improvement
over the wild-type (wt) recombinant Enzyme activity under [*****].

Payments for Milestone 3:

(A) [*****] payable within thirty (30) days of receipt by DOW of the Enzyme
sequence and validation by DOW that RBI has provided DOW with at least [*****]
plus (B) [*****] payable within thirty (30) days of receipt by DOW of the Enzyme
sequence and validation by DOW that RBI has provided DOW with at least [*****]

                                               *Confidential Treatment Requested

                                       3.
<PAGE>

[****]

(i)   [*****]

(ii)  [*****]

(iii) [*****]

[*****]

[*****]

These payments are tied to performance under the Plan described in Paragraph 6.

6.   Plan - During the Term, RBI shall perform research activities to improve
     the Enzyme to achieve Target Activity in the Field in a diligent manner as
     specified in Paragraph 5 and described in detail in a protocol attached to
     the Option. Such improvement can be met by any manner acceptable to the
     Parties. The Enzyme is to be improved for commercial use in a manner agreed
     upon between the Parties. The protocol may be amended by written consent of
     the Parties. However, either Party may terminate the research and the
     Option at any technical milestone specified below for any reason; but if
     RBI terminates, then DOW has thirty (30) days to notify RBI whether DOW
     desires either an exclusive or non-exclusive license for the Enzyme until
     that termination.

     .     Milestone 1 = [*****].

     .     Milestone 2 = [*****].

                                       4.
<PAGE>

           [****]

     .     Milestone 3 = [*****].

     (B)   RBI increases productivity as stated in Paragraph 5 for Productivity
           Enzymes and transfers as UCA [*****] DOW confirms [****].

These events for performance under the Plan are tied to payments under Paragraph
5.

7.   Patents - Any improvements to the Enzyme made by RBI during the Option
     shall belong to RBI, if within the claimed scope of an issued RBI patent or
     pending patent application. DOW shall be informed of all such patents or
     pending applications and be provided with a copy thereof, and provided with
     their publication numbers or patent numbers and each country where filing
     was done. If requested by DOW, a completed file wrapper for a given
     application or patent shall be provided to DOW. An annual status of the
     concerned patents shall be provided to DOW until all have issued or are
     abandoned.

Although unlikely to occur, in any instance where a Joint patent between DOW and
RBI results in a patentable invention, then DOW and RBI shall mutually
determine, using good faith efforts, whether DOW or RBI shall file and prosecute
the patent application and pay the annuities. If DOW exercises its Option for
exclusive rights for the joint patent shall be granted in the Option to DOW for
the Field for the Territory.

Know-how developed under the Option or known as of the Letter of Intent by
either Party shall remain that Party's property. Any use by one Party of the
other's know-how shall be under the confidentiality provisions of Paragraph 14.

8.   [*****] - In the event that the Enzyme is improved and is of further
     interest to DOW and DOW exercises its Option, then DOW shall have [*****]
     from the time the improved Enzyme is delivered in a practicable form to DOW
     in accord with Milestone 3(B) to provide by written notice to RBI of DOW's
     intent to either:

                                               *Confidential Treatment Requested

                                       5.
<PAGE>

(a)  [*****].  If this course is mutually agreed upon then a commercial
     agreement shall be negotiated using reasonable good faith efforts by the
     Parties;
or

(b)  inform RBI that DOW will use an alternate supplier (not RBI) for the
     improved Enzyme. RBI agrees to provide to a qualified third party under
     appropriate, reasonable licensing terms for the industry, the information
     and rights required to supply the Enzyme to DOW.

If DOW does not desire any commercial supply of the improved Enzyme, then refer
to Paragraph 4.

9.   RBI Obligations - RBI shall provide a written report with a summary of the
     data to DOW on a quarterly basis or at a milestone achievement in a
     quarter, whichever occurs first. (If clarification of a report is requested
     by DOW to more fully understand such report, then a meeting of respective
     personnel permitted.) A final written report shall be provided of the
     results obtained by RBI on its improvement efforts for the Enzyme,
     including its sequence, within thirty (30) days at the end of the Term or
     within thirty (30) days upon termination, and [*****].

10.  DOW Obligations - DOW shall provide the [*****].

11.  Safety - RBI personnel agree to observe the same safety and other rules
     required of DOW employees while RBI is on premises owned, operated, leased
     or under the control of DOW.

     DOW personnel agree to observe the same safety and other rules required of
     RBI employees while DOW is on premises owned, operated, leased or under the
     control of RB1.

12.  Liability - Neither DOW, any of its subsidiaries, nor the respective
     agents, servants, and employees of each shall be liable to RBI or RBI's
     employees, directors, agents or legal heirs, for any personal injury,
     death, or property damage that occurs while RBI is performing under the
     Option, except to the extent such injury, death, or property damage is
     caused by the sole negligence of Dow.

     Neither RBI, any of its subsidiaries, nor the respective agents, servants,
     and employees of each shall be liable to DOW, or DOW's employees,
     directors, agents or legal heirs, for any personal injury, death, or
     property damage that occurs while DOW is performing under the Option,
     except to the extent such injury, death, or property damage is caused by
     the sole negligence of RBI.

                                               *Confidential Treatment Requested

                                       6.
<PAGE>

13.  RBI's Status - RBI's status hereunder is that of an independent contractor,
     and not that of an agent of DOW. As such RBI is responsible of all Income
     Tax withholding and the payment of any other appropriate taxes on all
     payment to RBI by DOW.

14.  Confidentiality - The Parties agree to maintain confidential all
     discussions and information obtained from the other regarding the Enzyme,
     the Field, business information of RBI or DOW since August 29, 1996, and to
     maintain confidential any discussions on terms for the Option, except for
     information:

(a)  which was known to RBI prior to receipt or development hereunder;

(b)  which is, or without fault of RBI becomes, generally known to the public;
     or

(c)  which is acquired by RBI, without an obligation of confidence, from a third
     party having a legal right to make such disclosure.

     No rights are granted by DOW to RBI to use any DOW intellectual property
     rights including patents, trade secrets, confidential information and
     computer programs, except in providing the contemplated Plan services. Each
     Party's obligations for confidentiality shall cease five (5) years from
     termination of this Letter of Intent or Option, which ever time is later.
     Confidentiality terms and conditions shall also be included and continued
     in the Option.

15.  Publicity - Neither DOW nor RBI shall make public the financial terms of
     this Letter of Intent. Any press release or publicity concerning this
     Letter of Intent shall be reviewed and approved by both Parties prior to
     any release.

16.  Entire Agreement - This Letter of Intent document contains the entire
     agreement between the Parties and supersedes all preexisting agreements
     between them respecting its subject matter. Modification of this Letter of
     Intent shall only be binding if made in writing and signed by both Parties.

17.  Choice of Law - This Agreement shall be subject to the laws of the State of
     Michigan, excepting its conflict of laws provisions.

18.  Other Items - Other customary terms and conditions in the Option are also
     expected and modifications of this Letter of Intent that form a part of the
     Option are permitted.

     Upon signature by both Parties, the letterhead date is the effective date
     for this Letter of Intent.  This Letter of Intent shall be void ab initio
     if not signed by both Parties no later than June 16, 1997. The negotiations
     for the Option shall then begin, using good faith efforts, to complete the
     Option no later than forty-five (45) days from this letterhead date. Such
     Option is subject to management and/or Board approval by each Party, which
     shall be secured by each Party prior to exercise of and/or signing the
     Option, if required. Should the Parties fail to reach agreement for the
     Option by that date, then either the date may be extended by mutual written
     consent or the negotiations may be terminated.

                                       7.
<PAGE>

Sincerely,

Fred P. Carson
Vice President
Research and Development

AGREED TO AND ACCEPTED BY:
Recombinant BioCatalysis Inc.

_______________________________
Donald G. Garaventi
President

Date________________

                                       8.
<PAGE>

                       This Appendix is blank as of the

                     SIGNATURE DATE.  Additions during the

                           OPTION TERM are possible.

                                       1.
<PAGE>

                       This Appendix is blank as of the

                     SIGNATURE DATE.  Additions during the

                           OPTION TERM are possible.

                                      1.
<PAGE>

                                  APPENDIX D

                     [DOW PARTNERSHIP PROJECT SPREADSHEET]

                                       1.
<PAGE>
                                  APPENDIX E

CONFIDENTIALITY AGREEMENT                                       August 27, 1996

In order to protect certain proprietary, confidential information (Information)
which may be exchanged between them, The Dow Chemical Company (DOW), having an
address of:  Patent Department, P.O. Box 1967, 1790 Building, Midland, Michigan
48641-1967, Attn:  Karen L. Kimble; and Recombinant Biocatalysis, Inc., Elmwood
Court Two, 512 Elmwood Avenue, Sharon Hill, PA  19079-1005 (RBI), and together
hereafter called the Parties, agree that:

1.  The effective date of this Agreement is August 27, 1996.
2.  The Discloser(s) of Information is (are):  Both Parties.
3.  The Recipient(s) of Information is (are):  Both Parties.

4.  The Information disclosed under this Agreement is: any and all information
    including but not limited to, data, know-how, any and all subject matter
    (whether patentable or not) pertaining to the Parties research, inventions,
    development, materials, technology, businesses plans, processes, protocols,
    enzymes, expression systems, the commercial applications of enzymes which
    the parties consider to be of value, and all information generated by RBI as
    a result of carrying out the purpose set forth in paragraph 5.

5.  The purpose for disclosing Information is to see if RBI's proprietary
    technology might be used to improve performance of Dow proprietary [****]
    enzymes, or if RBI's proprietary collection of enzymes contains any enzymes
    of commercial interest to DOW, or if RBI and DOW should enter into a
    relationship to identify novel enzymes of commercial interest to DOW.

6.  This Agreement covers only Information disclosed between Effective Date and
    August 27, 1997. Recipient's obligations shall expire on August 27, 1999.

7.  Recipient agrees to maintain Information in confidence and not disclose
    Information to any third party except as expressly provided in this
    Agreement. Recipient will not use Information except as provided for in
    Paragraph 5. Recipient shall use the same degree of care, but no less than a
    reasonable degree of care, as the Recipient uses to protect its own
    confidential information of a like nature to prevent disclosure of
    Information to third parties. Third parties include all governmental patent
    offices.

8.  Recipient's obligations will apply only to Information that is: (a)
    disclosed in tangible form clearly identified as confidential at the time of
    disclosure; (b) disclosed initially in non-tangible form and identified as
    confidential at the time of disclosure and, within thirty (30) days of the
    initial disclosure, is summarized and designated as confidential in writing
    and delivered to Recipient; or (c) generated by Recipient as set forth in
    Paragraph 4.

                                               *Confidential Treatment Requested

                                      1.
<PAGE>

9.   Recipient has no obligation with respect to any Information disclosed
     hereunder which: (a) was in Recipient's possession before receipt from
     Discloser; (b) is or becomes a matter of general public knowledge through
     no fault of Recipient; (c) is rightfully received by Recipient from a third
     party without an obligation of confidence; (d) is disclosed by Discloser to
     a third party without an obligation of confidence on the third party; (e)
     is independently developed by Recipient's representatives who have not had
     access to such Information; or (f) is disclosed without obligation of
     confidence under operation of law, governmental regulation, or court order,
     provided Recipient first gives Discloser notice and uses all reasonable
     effort to secure confidential protection of such Information. Specific
     confidential Information shall not be considered to fall within the above
     exceptions merely because it is within the scope of more general
     information within an exception. A combination of features shall not be
     considered to fall within the above exceptions unless the combination
     itself, including its principles of operation, are within the exceptions.

10.  All Information shall be provided at the sole discretion of Discloser. With
     respect to Information, DISCLOSER MAKES NO WARRANTIES OF ACCURACY,
     RELIABILITY, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PURPOSE.
     INFORMATION IS PROVIDED ON AN "AS-IS" BASIS AND DISCLOSER EXPRESSLY
     DISCLAIMS ANY WARRANTIES WITH RESPECT TO THE INFORMATION. Discloser shall
     not be liable for any consequential, punitive, exemplary or incidental
     damages arising out of the evaluation or use of Information by Recipient.

11.  Neither Party transfers any rights in Information. No rights are granted
     under any intellectual property rights of either Party. This Agreement does
     not create any other obligations, including agency or partnership
     obligations, between the parties. This Agreement does not constitute an
     offer to sell Information. Results obtained by Recipient upon evaluation of
     Information shall be disclosed to Discloser. Copyrights on reports of
     results transferred to Discloser generated by Recipient based on the
     evaluation of Information shall be owned by Discloser.

12.  Recipient will not knowingly export or reexport any Information or software
     received from Discloser or the direct products of such Information or
     software to any country or entity or for any use prohibited by the U.S.
     Export Administration Regulations unless properly authorized by the U.S.
     Government.

13.  The parties may disclose Information received from Discloser to their
     Affiliates, consultants or third-party contractors on a need-to-know basis,
     subject to confidentiality terms consistent with this Agreement. The
     Parties warrant that their Affiliates, consultants or third-party
     contractors will comply with the terms of this Agreement. Affiliates means
     companies wherein either Party owns or controls, directly or indirectly,
     greater than fifty percent of the equity interest of the company or in
     which a Party has management control.

14.  This Agreement can only be changed by a written document signed by all
     parties. The terms of this Agreement shall become effective upon the
     Effective Date when executed
                                      2.
<PAGE>

       by all parties. This Agreement shall become voidable upon written notice
       by DOW in the event it is not executed by all parties within 120 days of
       the date first written above. This Agreement shall be governed according
       to the laws of the State of Michigan. The parties have caused this
       Agreement to be executed in duplicate and this Agreement may be signed in
       separate counterparts.

THE DOW CHEMICAL COMPANY  RECOMBINANT BIOCATALYSIS, INC.

By: ___________________________       By: _____________________________

Name: _________________________       Name: ___________________________

Title: ________________________       Title: __________________________

Date: _________________________       Date: ___________________________

                                      3.

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