EVALUATION AGREEMENT





    This EVALUATION AGREEMENT (the "Agreement") is made and entered into as

of March 1st, 1998 (the "Effective Date"), by and between KOSAN Biosciences,

Inc., a California corporation with offices at 3832 Bay Center Place,

Hayward, CA 94545 ("KOSAN") and SAVIA S.A. de C.V., a Mexican corporation

with offices at Plaza Commercial Las Villas, Rio Caura # 358 Ote. (Altos),

Col. Del. Valle, Garza Garcia, N.L. Mexico 66220 ("SAVIA"), and its affiliate

DNA Plant Technology Corporation ("DNAP") with offices at 6701 San Pablo

Avenue, Oakland, CA 94608-1239.



                                     BACKGROUND



    A. KOSAN has expertise relating to the biosynthesis of polyketides and

owns and controls certain patent rights, know-how, and other intellectual

property relating thereto.



    B. SAVIA and DNAP have expertise relating to plant genetic engineering

and own and Control certain patent rights, know-how, and other intellectual

property relating thereto.



    C. KOSAN and SAVIA desire to evaluate the feasibility of heterologous

polyketide synthesis in plants, on the terms and conditions herein.



    D. KOSAN and SAVIA desire to provide for the formation of a limited

liability company (the "Company") to conduct research and to commercialize

products based on that research and the above referenced intellectual

property.



    Now, therefore, in consideration of the mutual promises contained herein,

the parties agree as follows:





                                      ARTICLE 1

                                     DEFINITIONS





1.1 "BACKGROUND TECHNOLOGY" means all Patent Rights and Know-How that

KOSAN, DNAP, or SAVIA owns or Controls, by assignment or otherwise, on the

Effective Date which is necessary or useful for the conduct of the Evaluation

Program to the extent that KOSAN, DNAP, or SAVIA, as the case may be, has the

right to license or sublicense such rights for the conduct of the Evaluation

Program and subject to any limitations under the terms of the applicable

agreement(s), if any, pursuant to which KOSAN, DNAP, or SAVIA acquired such

rights.



1.2 "CONTROLS" or "CONTROLLED" means possession (other than by virtue of this

Agreement and the licenses granted herein) of the ability to grant licenses

or sublicenses to the other party hereto





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without violating the terms of any agreement or other arrangement with, or

the rights of, any third party.



1.3 "EVALUATION PROGRAM" means the activities conducted pursuant to the

Evaluation Plan described in Section 2.1(a).



1.4 "FIELD" means the development of transgenic plants that make polyketides

and applications of such plants.



1.5 "INVENTION" means any invention or discovery conceived or reduced to

practice by or on behalf of KOSAN, DNAP, or SAVIA in connection with and

during the Evaluation Program solely by KOSAN, DNAP, or SAVIA or jointly by

KOSAN, DNAP, and SAVIA.



1.6 "KNOW-HOW" means all ideas, inventions, data, instructions, biological

materials, processes, formulas, expert opinions and information not generally

known or available to the public, including, without limitation, biological,

chemical, pharmacological, toxicological, pharmaceutical, physical,

analytical, clinical, safety, efficacy, manufacturing, and quality control

information, materials, methods, processes, techniques, and data.



1.7 "MATERIALS" means the materials (including without limitation biological

materials transferred from either party to the other pursuant to this

Agreement or to that certain Materials Transfer Agreement between KOSAN and

DNAP having an Effective Date of 1 March 1998 ("MTA").



1.8 "PATENT RIGHTS" means patent applications disclosing and claiming

inventions filed in any country worldwide, including provisionals,

continuations (in whole or in part), divisionals, reissues, reexaminations

and foreign counterparts thereof, and patents issued on such applications.



1.9 "PROGRAM TECHNOLOGY" means all Patent Rights and Know-How which are

conceived or reduced to practice or otherwise developed by or on behalf of

KOSAN, DNAP, or SAVIA, or jointly by KOSAN, DNAP, and SAVIA in the

performance of the Evaluation Program.



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





                                       ARTICLE 2

                                   EVALUATION PROGRAM





2.1 EVALUATION PROGRAM.



    (a) EVALUATION PLAN. The parties will conduct the Evaluation Program for

the development of intellectual property and technology for use in the Field

in accordance with an agreed plan and budget (the "Evaluation Plan"). The

purpose of the Evaluation Program is to





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produce a polyketide(s) in plants. The Evaluation Plan shall establish: (i)

the scope of the research activities which will be performed; (ii) research

objectives, work plan activities, and time schedules with respect to the

Evaluation Program; and (iii) the respective obligations of the parties with

respect to the Evaluation Program. The Research Committee established

pursuant to Section 2.2 shall review the Evaluation Plan on an ongoing basis

and may make changes to the Evaluation Plan then in effect.



    (b) EFFORTS. KOSAN shall use reasonable efforts to conduct the Evaluation

Program by conducting research activities and providing Materials to SAVIA in

accordance with the Evaluation Plan and within the time schedules

contemplated therein. SAVIA and DNAP shall use reasonable efforts to conduct

the Evaluation Program by conducting research activities and providing

Materials to KOSAN in accordance with the Evaluation Plan and within the time

schedules contemplated therein.



    (c) CONDUCT OF EVALUATION PROGRAM. During the term of the Evaluation

Program, DNAP will conduct the required plant genetic engineering research

activities for SAVIA, KOSAN, DNAP, and SAVIA will provide research assistance

and supervision from their scientists with respect to the technology licensed

by each party to the other for purposes of conducting the Evaluation Program.

Fees for all research assistance and supervision (including research

performed by affiliates of the parties) will be determined on an arms-length

basis.



    (d) FUNDING. SAVIA shall be responsible for providing funding for the

performance of the Evaluation Program. SAVIA will expend four hundred

seventy-six thousand one hundred and thirty-two U.S. dollars ($476,132) in

funding KOSAN and DNAP scientists to conduct the Evaluation Program during

the term of this Agreement, but shall have no obligation to expend more than

such amount. Ninety thousand U.S. dollars ($90,000) of such amount will be

paid by SAVIA to KOSAN on signing this Agreement in reimbursement of

personnel expense to carry out the Evaluation Program over the term of this

Agreement, and three hundred eighty-six thousand one hundred and thirty-two

U.S. dollars ($386,132) will be paid by SAVIA to DNAP in reimbursement of

personnel expense to carry out the Evaluation Program over the term of this

Agreement.



    (e) MATERIALS. Materials provided by one party to another pursuant to the

Evaluation Plan will be used by the receiving party solely for the purpose of

conducting the Evaluation Program. The receiving party agrees not to use

Materials provided to it by the other party for any other purpose, including

any research that is subject to consulting, licensing, assignment, or similar

obligations to any third party without the prior written consent of the party

providing such Materials. Neither party shall transfer Materials received

from the other party hereto to any third party without the other party's prior

written consent. Unless otherwise agreed by the parties, each party agrees to

return any remaining Materials received from the other party hereto to the

providing party upon the expiration or termination of this Agreement. The

parties acknowledge that the Materials are experimental in nature and may

have unknown characteristics and therefore agree to use prudence and

reasonable care in the use, handling, storage,





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transportation, disposition, and containment of the Materials. This Agreement

supercedes the MTA entered into by KOSAN and DNAP, in its entirety.



     (f)  TERM OF EVALUATION PROGRAM. The Evaluation Program shall commence

on the Effective Date and terminate upon the earlier of (i) the termination

of this Agreement pursuant to Article 7, (ii) the expenditure of four hundred

seventy-six thousand one hundred and thirty-two U.S. dollars ($476,132) by

SAVIA under 2.1(d) above, (iii) the date of formation of the Company, (iv)

May 1, 1999, or (v) such other date as the parties agree in writing.



     (g)  THIRD PARTY LICENSES. In the event that the Research Committee

determines that it is necessary to acquire a license from any third party

specifically for the conduct of the Evaluation Program, the parties shall

discuss which party shall acquire such license and how the costs thereof

shall be shared.



2.2  RESEARCH COMMITTEE.



     (a)  RESPONSIBILITIES. SAVIA, DNAP, and KOSAN will establish a Research

Committee to oversee, review and recommend direction of the Evaluation

Program. The responsibilities of the Research Committee shall include: (i)

monitoring and overseeing research progress of the Evaluation Program and

ensuring open and frequent exchange between the parties, and (ii) approving

revisions to the Evaluation Plan.



     (b)  MEMBERSHIP; DECISIONS. The Research Committee shall be comprised

of four (4) members: two (2) representing SAVIA and DNAP and two (2)

representing KOSAN. Each party may replace its Research Committee

representatives at any time, with written notice to the other party. Each

member shall have one vote on the Research Committee, which vote may be cast

by proxy. In the event of any deadlock at the Research Committee, the parties

shall continue to perform under the last Evaluation Plan approved by the

Research Committee, or if such Evaluation Plan is no longer applicable, then

either party may terminate this Agreement pursuant to Section 7.4.



      (c)  MEETINGS. During the term of this Agreement the Research Committee

shall meet quarterly or as the Research Committee may otherwise agree to

discharge its responsibilities. The first meeting of the Research Committee

shall occur within thirty (30) days of the Effective Date. Such meetings

shall alternate between Burlingame or Hayward and Oakland in California or

such other locations as the parties agree. Representatives of the parties

that are not members of the Research Committee, and, with the consent of the

parties, representatives of third parties may attend Research Committee

meetings as nonvoting observers. Each party will be responsible for paying

its own expenses in connection with the meetings of the Research Committee.

The Research Committee shall prepare a written record of all Research

Committee decisions, whether made at a Research Committee meeting or

otherwise.





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      (d)  REVIEW OF PROGRAM RESULTS. No less than quarterly during the

Evaluation Program and within ten (10) days after the end of the Evaluation

Program, the Research Committee shall meet to review the results of the

Evaluation Program to determine whether any of the following were achieved in

connection with the performance of the Evaluation Program:



           (i)    demonstration of production of a functional fungal,

      iterative polyketide synthase in plant cells which results in production

      of a polyketide in the plant cells;



           (ii)   demonstration of production of a functional modular

      polyketide synthase in plant cells which has activity (i.e., which is

      capable of producing a polyketide in plant cells in the presence of an

      endogenous or provided precursor);



           (iii)  demonstration of a phenotype in plant cells attributable to

      the presence of a transgenic polyketide synthase gene in such plant cells.



The Evaluation Program shall be deemed successful if any of (i) - (iii) above

is achieved in connection therewith.



      (e)  EFFECT OF PROGRAM RESULTS.



           (i)    If the Evaluation Program is successful and the parties

      have created the Company, the documents governing the Company and its

      operation (the "Company Documents") shall thereafter govern the rights

      and obligations of the parties.



           (ii)   If the Evaluation Program is successful and the parties

      have not created the Company, the parties shall form the Company in

      accordance with Article 6.



           (iii)  If the Evaluation Program is not successful and the parties

      have created the Company, the Company Documents shall govern the rights

      and obligations of the parties.



           (iv)   If the Evaluation Program is not successful and the parties

      have not created the Company, then (x) this Agreement shall terminate

      pursuant to Section 7.4 and the parties shall have no further obligation

      to enter into any further agreement, (y) each party will retain all

      rights to any Background Technology owned by it, and (z) the license

      provided to KOSAN by Section 3.5(a) shall become irrevocable.



2.3   RECORDS; EXCHANGE OF INFORMATION.



      (a)  RECORDS. The parties shall maintain scientific records of the

activities conducted hereunder in sufficient detail and good scientific

manner as will properly reflect all work done and results achieved in the

performance of the Evaluation Plan (including all data in the form required

under any applicable governmental regulations). During the term of this

Agreement, and for three





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(3) years thereafter, the parties shall provide each other reasonable access

to such records, upon request, during ordinary business hours.



      (b)  REPORTS. Upon reasonable request, the parties shall give each

other a detailed report of their respective activities and results obtained

pursuant to this Agreement. Each party shall provide a final written report

summarizing its activities during the Evaluation Program and the results

thereof within thirty (30) days after the end of the Evaluation Program.



2.4 EVALUATION PROGRAM CROSS LICENSE.



    (a) KOSAN hereby grants SAVIA and DNAP a nonexclusive, nontransferable,

worldwide, royalty free license under the Background Technology, Materials,

and KOSAN's interest in the Program Technology solely to perform those acts

that are reasonably necessary to enable SAVIA and DNAP to conduct the

Evaluation Program.



    (b) SAVIA and DNAP hereby grant KOSAN a nonexclusive, nontransferable,

worldwide, royalty free license under the Background Technology, Materials

and SAVIA's and DNAP's interest in the Program Technology solely to perform

those acts that are reasonably necessary to enable KOSAN to conduct the

Evaluation Program.



    (c) Neither party shall have the right to sell or otherwise distribute

any products by virtue of the licenses set forth in this Section 2.4, and no

such sale or distribution right shall be implied. Neither party may

sublicense any of the rights granted to it under this Section 2.4. The

licenses set forth in Sections 2.4(a) and 2.4(b) shall expire immediately

upon completion or earlier termination of the Evaluation Program.





                                       ARTICLE 3

                                 INTELLECTUAL PROPERTY





3.1 OWNERSHIP OF INVENTIONS.



    (a) OWNERSHIP. All Inventions and other Program Technology shall be owned

by the party that invents such Invention or other Program Technology, and

Inventions and other Program Technology that are jointly invented or created

by employees of SAVIA, DNAP, and KOSAN shall be jointly owned by SAVIA, DNAP,

and KOSAN, except in each case, as provided in Section 3.1(b) below.



    (b) KOSAN OWNERSHIP. KOSAN will own provisional patent application Serial

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