<Page>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<Table>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED
BY RULE 14A-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
</Table>
<Table>
ENCHIRA BIOTECHNOLOGY CORPORATION
- ----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
(1) Title of each class of securities to which transaction
applies:
------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by
/ / Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------
</Table>
<Page>
ENCHIRA BIOTECHNOLOGY CORPORATION
4200 Research Forest Drive
The Woodlands, Texas 77381
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER , 2002
------------------------
A special meeting of the stockholders of Enchira Biotechnology Corporation
will be held at the offices of our counsel, Andrews & Kurth L.L.P., 10001
Woodloch Forest Drive, Suite 200, The Woodlands, Texas 77380, on December ,
2002 at 10:00 a.m., local time, for the following purposes:
1. To approve and adopt a plan of complete liquidation and dissolution
pursuant to which we would liquidate and dissolve the company; and
2. To act upon such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record at the close of business on November , 2002
are entitled to receive notice of, and to vote at, the meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING OF
STOCKHOLDERS REGARDLESS OF THE SIZE OF YOUR HOLDINGS OR WHETHER YOU PLAN TO
ATTEND THE MEETING. THEREFORE, PLEASE MARK, SIGN, DATE, AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY. IF YOU ARE PRESENT AT THE MEETING, AND WISH TO DO SO, YOU
MAY REVOKE THE PROXY AND VOTE IN PERSON.
By Order of the Board of Directors
Paul G. Brown, III
PRESIDENT
November __, 2002
The Woodlands, Texas
<Page>
ENCHIRA BIOTECHNOLOGY CORPORATION
4200 Research Forest Drive
The Woodlands, Texas 77381
------------------------
PROXY STATEMENT
------------------------
TABLE OF CONTENTS
<Table>
<Caption>
GENERAL INFORMATION......................................... 1
FORWARD-LOOKING STATEMENTS.................................. 6
RISK FACTORS RELATING TO THE PLAN OF LIQUIDATION............ 7
BACKGROUND TO AND REASONS FOR THE PLAN OF COMPLETE
LIQUIDATION AND DISSOLUTION............................... 9
Background.............................................. 9
Reasons for the Liquidation and Dissolution;
Recommendation of our Board of Directors............... 12
Interests of Our Directors and Executive Officers in the
Liquidation and Dissolution............................ 12
THE PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION UNDER
DELAWARE LAW.............................................. 13
DESCRIPTION OF THE PLAN OF COMPLETE LIQUIDATION AND
DISSOLUTION............................................... 13
Our Activities Following Adoption of the Plan of
Liquidation............................................ 13
Sales of our Assets..................................... 13
Payment of Liabilities and Obligations, Contingency
Reserve and Liquidating Trust.......................... 14
Liquidating Distributions, Nature, Amount, Timing....... 16
Abandonment, Amendment.................................. 17
Final Record Date....................................... 17
Certificate of Dissolution.............................. 18
Trading of Common Stock and Interests in the Liquidating
Trust or Trusts........................................ 18
Absence of Appraisal Rights............................. 18
Reporting Requirements.................................. 18
Regulatory Approvals.................................... 19
Certain Federal Income Tax Consequences................. 19
VOTE REQUIRED TO APPROVE PLAN OF LIQUIDATION; RECOMMENDATION
BY THE BOARD OF DIRECTORS................................. 21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 22
WHERE YOU CAN FIND MORE INFORMATION......................... 23
</Table>
<Page>
This proxy statement is furnished in connection with the solicitation on
behalf of our board of directors of proxies to be used at a special meeting of
our stockholders, to be held at the offices of Andrews & Kurth L.L.P., 10001
Woodloch Forest Drive, Suite 200, The Woodlands, Texas, 77380 on ,
December , 2002, at 10:00 a.m. local time, and all adjournments of the
meeting.
Our headquarters are located at 4200 Research Forest Drive, The Woodlands,
Texas 77381. The accompanying notice of meeting and this proxy statement are
first being mailed to our stockholders on or about November , 2002.
GENERAL INFORMATION
WHAT IS THE PURPOSE OF THE SPECIAL MEETING?
- At the special meeting, stockholders will consider and vote on a proposal
to approve the plan of complete liquidation and dissolution attached as
Exhibit A.
WHO IS ENTITLED TO VOTE?
- The record date for the special meeting is November , 2002. Only
stockholders of record at the close of business on that date are entitled
to notice of and to vote at the special meeting. At the close of business
on the record date there were 15,310,771 shares of common stock issued and
outstanding and 51,200 shares of Series B Preferred Stock issued and
outstanding. Except as otherwise required by law, the holders of shares of
our common stock (and holders of our Series B Preferred Stock on an
as-converted basis) vote together as a single class on all matters
presented to the stockholders. In addition, the Series B Convertible
Preferred Stock Purchase Agreement between us and the purchasers of our
Series B Preferred Stock requires that we obtain the consent of the
holders of a majority of the Series B Preferred Stock in order to
liquidate the company. Each registered holder of common stock of record on
November , 2002 is entitled to one vote per share on each matter to be
voted on at the special meeting and each holder of Series B Preferred
Stock of record on November , 2002 is entitled to [2.9833] votes per
share on each matter.
- The authorization and approval of the plan of liquidation requires the
affirmative vote of the holders of a majority of the outstanding shares of
our voting stock, voting as a single class, and the consent of the holders
of a majority of the outstanding shares of our Series B Preferred Stock
pursuant to their purchase agreement.
WHAT IF MY SHARES ARE HELD IN "STREET NAME" BY A BROKER?
- If you are the beneficial owner of shares held in "street name" by a
broker, your broker, as the record holder of the shares, is required to
vote those shares in accordance with your instructions. If you do not give
instructions to your broker, your broker will not be permitted to vote
your shares with respect to the plan of liquidation.
HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING?
- A quorum must be present at the meeting for any business to be conducted.
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of voting stock outstanding on the record date will
constitute a quorum. Proxies received but marked as abstentions or broker
non-votes will be included in the calculation of the number of shares
considered to be present at the meeting. While we do not need any specific
number of shares of Series B Preferred Stock to be present at the meeting,
we are required under the Series B purchase agreement to obtain the
consent of a majority of the holders of the Series B Preferred Stock.
1
<Page>
WHAT IF A QUORUM IS NOT PRESENT AT THE MEETING?
- If a quorum is not present at the scheduled time of the meeting, the
stockholders who are represented may adjourn the meeting until a quorum is
present. The time and place of the adjourned meeting will be announced at
the time the adjournment is taken, and no other notice will be given. An
adjournment will have no effect on the business that may be conducted at
the meeting.
HOW DO I VOTE?
- You may vote by mail. If you properly complete and sign the accompanying
proxy card and return it in the enclosed envelope, it will be voted in
accordance with your instructions. The enclosed envelope requires no
additional postage if mailed in the United States. If your shares are held
in "street name" by a broker or other nominee, you should check the voting
form used by that firm to determine whether you will be able to vote by
telephone or on the Internet.
- You may vote in person at the meeting. If you plan to attend the special
meeting and wish to vote in person, we will give you a ballot at the
special meeting. However, if your shares are held in the name of your
broker, bank or other nominee, you will need to obtain a proxy form from
the institution that holds your shares indicating that you were the
beneficial owner of our common stock on November , 2002, the record
date for voting at the special meeting.
CAN I CHANGE MY VOTE AFTER I SUBMIT MY PROXY?
- Yes, you may revoke your proxy and change your vote at any time before the
polls close at the meeting by:
- signing another proxy with a later date;
- giving written notice of the revocation of your proxy to our corporate
secretary prior to the special meeting; or
- voting in person at the special meeting.
WHAT IF I DO NOT SPECIFY HOW MY SHARES ARE TO BE VOTED?
- If you submit an executed proxy but do not indicate any voting
instructions, your shares will be voted FOR the proposal to authorize and
approve the plan of liquidation.
WHAT IF I CHOOSE NOT TO SUBMIT A PROXY OR TO VOTE OR ABSTAIN?
- If you do not submit a proxy or vote at the special meeting, it will have
the same effect as a vote against the approval of the proposed plan of
liquidation. Similarly, if you vote to "abstain" on the proposed plan of
liquidation, it will have the same effect as if you voted against this
proposal.
WILL ANY OTHER BUSINESS BE CONDUCTED AT THE SPECIAL MEETING?
- Our board of directors knows of no other business that will be presented
at the meeting. If any other proposal properly comes before the
stockholders for a vote at the meeting, however, the proxy holders will
vote your shares in accordance with their best judgment.
2
<Page>
HOW MANY VOTES ARE REQUIRED TO AUTHORIZE AND APPROVE THE PLAN OF LIQUIDATION?
- The authorization and approval of the plan of liquidation requires the
affirmative vote of the holders of a majority of the outstanding shares of
voting stock, voting as a single class. We are also required to obtain the
consent of holders of a majority of the outstanding shares of Series B
Preferred Stock under their purchase agreement.
HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE ON THE PROPOSAL?
- Our board of directors recommends that you vote "FOR" the authorization
and approval of the plan of liquidation (see page 20).
WHY HAS THE BOARD OF DIRECTORS DECIDED TO LIQUIDATE THE COMPANY?
- Our board of directors has decided that it is in the best interests of the
company, its stockholders and creditors to sell the remaining assets and
to liquidate the company as soon as practicable. In 2000, we switched the
focus of our company from the development of products for use in the
energy industry through our proprietary process known as
biodesulfurization to a gene shuffling process that could be utilized to
pursue pharmaceutical and biotechnological products. In 2001, we were
found to have breached a joint development and license agreement with a
former corporate partner and as a result, we lost our rights to such
technology relating to the gene shuffling process. Although we have
developed certain other technology relating to the treatment of cancer,
which we feel is very promising, we believe that the stigma associated
with the prior litigation surrounding the gene shuffling technology
severely hampered our ability to raise additional capital in either the
public or private markets or to align ourselves with a strategic partner.
Further, we have never had revenues from a commercial product. Without
additional capital or other funding, we would be forced to liquidate the
company under the protection of the federal bankruptcy laws. For these
reasons, among other, the board of directors believes that a sale of our
remaining assets followed by a liquidation is in the best interests of the
company, its stockholders and creditors.
WHAT WILL HAPPEN IF THE PLAN OF LIQUIDATION IS APPROVED?
- If the plan of liquidation is approved, we will liquidate our remaining
assets and use the proceeds from the sale to pay or make arrangements, to
the extent possible, for our remaining liabilities and obligations
(including payment of approximately $ million liquidation preference
payable to the holders of our Series B Preferred Stock as of ,
2002). We do not expect that there will be sufficient funds for
distribution to our holders of Series B Preferred Stock in full
satisfaction of their liquidation preference and as such, holders of
Series B Preferred Stock will receive any distributions to which they are
entitled on a pro rata basis. As a result of insufficient funds for
distribution to our holders of Series B Preferred Stock, our common
stockholders will not receive any proceeds from our dissolution in all
likelihood.
WHAT WILL HAPPEN IF THE PLAN OF LIQUIDATION IS NOT APPROVED?
- If the plan of liquidation is not authorized and approved by the
stockholders, our board of directors will in all likelihood immediately
seek protection from our creditors under the federal bankruptcy laws.
3
<Page>
WHEN WILL STOCKHOLDERS RECEIVE PAYMENT OF ANY AVAILABLE LIQUIDATION PROCEEDS?
- We are currently unable to predict the precise timing of any distributions
pursuant to the plan of liquidation. The timing of any distributions will
be determined by our board of directors and will depend in part upon our
ability to convert our remaining assets into cash and pay and settle our
significant remaining liabilities and obligations, including contingent
claims.
- In addition, the existence of contingent claims could delay the making of
any distributions in connection with the plan of liquidation.
WHAT WILL STOCKHOLDERS RECEIVE IN THE LIQUIDATION?
- Before distributing any assets to our stockholders, we will pay and
discharge, or make provision reasonably likely to provide sufficient
compensation for, all of our claims and obligations, including claims that
are contingent, conditional, unmatured, pending or that have not yet
arisen but are likely to arise within the next three years. As of
, 2002, we owe an aggregate of $ million to holders of our
Series B Preferred Stock upon the occurrence of a liquidating event, such
as the plan of complete liquidation and dissolution, in payment of their
liquidation preference.
- Only after adequate provision has been made for payment of all of our
claims and obligations (including payment of the full liquidation
preference to the holders of our Series B Preferred Stock), any of our
remaining assets will be distributed to holders of our common stock in one
or more liquidating distributions. Uncertainties as to the net value of
our assets and the ultimate amount of our liabilities make it impossible
to predict the amount, if any, that will be distributed to shareholders or
the timing of any distributions that might be made. Given the amount of
the liquidation preference owed to holders of our Series B Preferred
Stock, it is unlikely that any of our stockholders will receive any
distributions, other than holders of our Series B Preferred Stock in
partial payment of their liquidation preference. Further, it is unlikely
we will have sufficient funds to fully satisfy this liquidation preference
and as such, any distributions made to holders of our Series B Preferred
Stock will be on a pro rata basis.
DO DIRECTORS AND OFFICERS HAVE INTERESTS IN THE PLAN OF LIQUIDATION THAT DIFFER
FROM MINE?
- All of our executive officers and directors own shares of our common stock
and/or options to purchase shares of our common stock. If we make any
liquidating distributions, they will receive the same per share
distribution as our other shareholders. None of our executive officers or
directors own any shares of Series B Preferred Stock; therefore, none of
them will likely receive any distributions under the plan of liquidation.
WHAT WOULD I RECEIVE IF THE COMPANY WAS LIQUIDATED IN A FEDERAL BANKRUPTCY
PROCEEDING?
- If the company was liquidated in bankruptcy, it is unlikely that any of
our stockholders will receive any distributions for any shares of the
common stock or preferred stock they own.
CAN I STILL SELL MY SHARES?
- Although our common stock was delisted from Nasdaq on October 22, 2002,
you can continue to sell your shares at this time on the over-the-counter
market in the so-called "pink sheets" or on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. Because of
4
<Page>
such delisting, stockholders may find it more difficult to dispose of, or
to obtain accurate quotations as to the price of, our common stock; the
liquidity of our stock may be reduced, making it difficult for a
stockholder to buy or sell our stock at competitive market prices, or at
all; and we may lose support from institutional investors, brokerage firms
and market makers that currently buy and sell our stock and provide
information to investors about us. It is likely that we will close our
stock transfer books and restrict transfers of our common stock after
filing the certificate of dissolution with the State of Delaware.
WHAT ARE THE TAX CONSEQUENCES OF THE LIQUIDATION?
- We anticipate that all distributions stockholders receive upon
liquidation, if any, will be treated for federal income tax purposes as
full payment in exchange for their shares. Therefore, each stockholder
will be taxed only to the extent the amounts such stockholder receives
exceed the stockholder's adjusted tax basis in his or her shares. A
stockholder's tax basis in his or her shares will depend upon various
factors, including the stockholder's cost and the amount and nature of any
distributions received with respect thereto. We expect that this gain or
loss will be treated as a capital gain or loss if the shares have been
held for more than one year or as short-term capital gain or loss taxed at
ordinary income tax rates if the shares have not been held for more than
one year. If a stockholder is a corporation, we expect that all of the
stockholder's income from liquidating distributions will be subject to tax
at the same federal income tax rate as the stockholder's other income. Any
loss will generally be recognized only when the final distribution from us
has been received, which may be as long as three years after the date that
the plan of liquidation is adopted.
- See page 18 for a brief summary of the material federal income tax
consequences of the plan of liquidation. Tax consequences to stockholders
may differ depending on their circumstances. You should consult your tax
advisor as to the tax effect of your particular circumstances.
DO I HAVE DISSENTERS' APPRAISAL RIGHTS?
- No. Under Delaware law, stockholders will not have dissenters' appraisal
rights in connection with the plan of liquidation.
WHAT DO STOCKHOLDERS NEED TO DO NOW?
- After carefully reading and considering the information contained in this
proxy statement, each stockholder should complete and sign his or her
proxy and return it in the enclosed return envelope as soon as possible so
that his or her shares may be represented at the meeting. A majority of
shares entitled to vote must be represented at the meeting to enable us to
conduct business at the meeting.
WHO CAN HELP ANSWER QUESTIONS?
- If you have any additional questions about the proposed plan of
liquidation or if you need additional copies of this proxy statement or
any public filings referred to in this proxy statement, you should contact
our corporate secretary at (281) 419-7000. You may also access our public
filings at www.sec.gov.
5
<Page>
FORWARD-LOOKING STATEMENTS
This proxy statement contains "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These
statements appear in a number of places in this proxy statement and include all
statements that are not historical statements of fact regarding our current
intent, beliefs, assumptions and expectations with respect to, among other
things:
- the liquidation and dissolution of the company pursuant to the terms of
the plan of liquidation; and
- the amount of any liquidating distributions and the timing of any
liquidating distributions.
The words "may," "would," "could," "continue," "will," "expect," "estimate,"
"anticipate," "believe," "hope," "intend," "plan," "approximate" and similar
expressions are intended to identify forward-looking statements.
We believe that the expectations reflected in our forward-looking statements
are reasonable. However, forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, many of which we cannot
control. Our actual results may differ materially from those projected in our
forward-looking statements. In evaluating forward-looking statements, you should
carefully consider various factors, including the risks outlined in "Risk
Factors" beginning on the following page.
6
<Page>
RISK FACTORS RELATING TO THE PLAN OF LIQUIDATION
There are many factors that stockholders should consider when deciding
whether to vote to approve the plan of liquidation. These factors include those
set forth in our filings with the Securities and Exchange Commission, as well as
those factors set forth below.
ANTICIPATED TIMING OF LIQUIDATION MAY NOT BE ACHIEVED.
Immediately after the special meeting, if the plan of liquidation is
approved by stockholders, we intend to proceed with the orderly sale of our
assets and file a certificate of dissolution with the Secretary of State of the
State of Delaware. Although we anticipate that we will substantially complete
the sale of our assets within the near future, our board of directors may
determine that it is in the best interests of our stockholders that some assets
be placed into a liquidating trust, which could delay the receipt by
stockholders of the final proceeds of the liquidation.
WE WILL LIKELY IMMEDIATELY SEEK PROTECTION UNDER FEDERAL BANKRUPTCY LAWS IF THE
PLAN OF LIQUIDATION IS NOT APPROVED.
In the event the plan is not approved, we would likely immediately seek
protection under federal bankruptcy laws.
STOCKHOLDERS MAY NOT BE ABLE TO RECOGNIZE A LOSS FOR FEDERAL INCOME TAX PURPOSES
UNTIL THEY RECEIVE A FINAL DISTRIBUTION FROM US, WHICH MAY BE AS LONG AS THREE
YEARS.
We anticipate that all distributions stockholders receive upon liquidation,
if any, will be treated for federal income tax purposes as full payment in
exchange for their shares. Therefore, each stockholder will be taxed only to the
extent the amounts such stockholder receives exceed the stockholder's adjusted
tax basis in his or her shares. A stockholder's tax basis in his or her shares
will depend upon various factors, including the stockholder's cost and the
amount and nature of any distributions received with respect thereto. We expect
that this gain or loss will be treated as a capital gain or loss if the shares
have been held for more than one year or as short-term capital gain or loss
taxed at ordinary income tax rates if the shares have not been held for more
than one year. If a stockholder is a corporation, we expect that all of the
stockholder's income from liquidating distributions will be subject to tax at
the same federal income tax rate as the stockholder's other income. Any loss
will generally be recognized only when the final distribution from us has been
received, which may be as long as three years after the date that the plan of
liquidation is adopted.
OUR STOCK TRANSFER BOOKS WILL CLOSE ON THE FINAL RECORD DATE, AFTER WHICH IT
WILL NOT BE POSSIBLE FOR STOCKHOLDERS TO PUBLICLY TRADE IN OUR STOCK.
We intend to close our stock transfer books and discontinue recording
transfers of common stock at the close of business on the final record date, the
date fixed by our board of directors for filing the certificate of dissolution.
Thereafter, certificates representing the common stock shall not be assignable
or transferable on our books except by will, intestate succession or operation
of law. As such, trading of our common stock on the over-the-counter market in
the so-called "pink sheets" or on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. will no longer be possible. The
proportionate interests of all of our stockholders shall be fixed on the basis
of their respective stock holdings at the close of business on the final record
date, and, after the final record date, any distributions made by us shall be
made solely to the stockholders of record at the close of business on the final
record date, except as may be necessary to reflect subsequent transfers recorded
on our books as a result of any assignments by will, intestate succession or
operation of law.
7
<Page>
NO FURTHER STOCKHOLDER APPROVAL WILL BE REQUIRED.
The approval of the plan of liquidation requires the affirmative vote of the
holders of a majority of all shares of our voting stock outstanding and entitled
to vote as well as the consent of holders of a majority of our Series B
Preferred Stock pursuant to their purchase agreement. If our stockholders
approve the plan of liquidation, we will be authorized to dispose of our
remaining assets without further approval of our stockholders.
The authorization and approval of the plan of liquidation requires the
affirmative vote of the holders of a majority of the outstanding shares of our
common stock.
STOCKHOLDERS COULD BE LIABLE TO THE EXTENT OF LIQUIDATING DISTRIBUTIONS RECEIVED
IF CONTINGENT RESERVES ARE INSUFFICIENT TO SATISFY THE COMPANY'S LIABILITIES.
If we fail to create an adequate contingency reserve for payment of our
expenses and liabilities, or if we transfer our remaining assets to a
liquidating trust and the contingency reserve and the assets held by the
liquidating trust are less than the amount ultimately found payable in respect
of expenses and liabilities, each stockholder could be held liable for the
payment to creditors of such stockholder's pro rata portion of the excess,
limited to the amounts previously received by the stockholder in distributions
from us or the liquidating trust.
If a court holds at any time that we have failed to make adequate provision
for our expenses and liabilities or if the amount ultimately required to be paid
in respect of such liabilities exceeds the amount available from the contingency
reserve and the assets of the liquidating trust, our creditors could seek an
injunction against the making of distributions under the plan of liquidation on
the grounds that the amounts to be distributed are needed to provide for the
payment of our expenses and liabilities. Any such action could delay or
substantially diminish the cash distributions to be made to stockholders and/or
holders of beneficial interests of the liquidating trust under the plan of
liquidation. See "Payment of Liabilities and Obligations, Contingency Reserve
and Liquidating Trust."
8
<Page>
BACKGROUND TO AND REASONS FOR THE PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
BACKGROUND
From our inception in 1989 until 2000, we developed products for use in the
energy industry as Energy BioSystems Corporation with our proprietary process
known as biodesulfurization, or BDS, a method which allows a petroleum refiner
to reduce the amount of sulfur present in its petroleum products through the use
of microbes and other biological agents. At that time, this business had great
potential because of the federal standards being implemented requiring a reduced
amount of sulfur in petroleum products. However, as the federal standards became
more strict, it became clear that we would need additional resources to develop
BDS sufficiently to become a commercially viable process for energy companies to
reduce sulfur in their products.
Since 2000 under our current name of Enchira Biotechnology Corporation, we
have aggressively pursued other technologies about which we obtained a core
knowledge as a result of our work in the BDS field. We initiated this shift in
our focus with RACHITT, a gene-shuffling process that could be used to pursue
pharmaceutical and biotechnological products. However, as we have disclosed in
prior filings with the SEC, Maxygen, Inc., a former corporate partner, sued us
in 2000 for breach of a joint development and license agreement relating to our
BDS technology that was terminated in 1999. To this day, we vehemently deny
Maxygen's allegations.
Maxygen's claim was argued and decided through a binding arbitration
proceeding as required by the license agreement. In 2001, the arbitrator awarded
Maxygen the rights to the RACHITT technology and enjoined us from using,
practicing, licensing, selling or offering to sell or license the RACHITT
technology until May 19, 2017. Further, the arbitrator enjoined us for a period
of three years from using, practicing, licensing, selling or offering to sell or
license certain of Maxygen's high throughput screening technology and also
ordered us to pay a certain amount of Maxygen's expenses. However, during the
arbitration process, we had begun developing our Anti Cancer Ligand, or ACL,
technology as well as our Drug Candidate Optimization Platform, or DCOP, as a
novel cancer treatment.
Since our inception, we have raised capital from public and private equity
financings and milestone and royalty payments from collaborations with corporate
partners. We have never had revenues from a commercial product. While we believe
that our ACL and DCOP technologies demonstrate substantial promise in the field
of cancer treatment, we have been unable to raise additional capital in either
the public or private markets since September 2000 primarily as a result of the
stigma associated with the Maxygen arbitration. In addition, we expended
substantial amounts of our remaining capital in our defense of the arbitration.
Mr. Brown, then our Chief Financial Officer, began attempting to raise
additional capital in the public and private equity markets in August 2001. He
was unable to generate interest from any potential investors for several
reasons, including but not limited to:
- investors were apprehensive about our future after the arbitrator's
ruling in the Maxygen proceeding, especially as a result of the public
disclosure released by Maxygen which we believed was misleading and
further damaged our stock price; and
- the possibility first of the conversion of, and later the redemption
of, our Series B Preferred Stock (including the payment of accrued but
unpaid dividends in shares of our common stock which was necessary
given our cash position) at very low market prices of our common stock
which would substantially dilute the holdings of any then existing
holders of our common stock.
By May 2002, we recognized that, because we were unable to obtain either a
new source for capital infusion or a strategic partner for the development of
the ACL technology, we needed to begin
9
<Page>
looking at other alternatives for the use of our assets. In May, we hired the
investment banking firm of Howard, Frazier, Barker and Elliott to investigate
the possibilities of either raising additional capital or redeploying our assets
in the best manner possible. At the same time, our then President and CEO and
Vice President of Business Development resigned and we terminated all but two
employees and two officers to cut expenses to the bare minimum necessary to
allow additional time to redeploy our assets.
Our board of directors met on May 7, 2002 to discuss the above developments.
At this meeting, the board approved our reduction in force and approved the
hiring of Howard, Frazier for the purposes described above. The board met again
on May 14, 2002 at which time a representative from Howard, Frazier described
the process he would undertake to attempt to obtain the best value for our
assets. The board also discussed its situation with Nasdaq.
The board met on June 19, 2002 at which time the Howard, Frazier
representative discussed the parties he was contacting on our behalf to gauge
their interest in our assets. Howard, Frazier discussed many potential acquirors
that it was contacting and the relative strengths and weaknesses of each party.
The board again met on July 19, 2002 with its legal counsel and
representatives of Howard, Frazier present. Howard, Frazier gave a detailed
discussion of the parties expressing interest in our ACL technology. Members of
management discussed potential acquirors of our BDS technology as well as
arrangements that had been made to auction all of the physical assets remaining
at our corporate headquarters, consisting mainly of equipment. Management also
discussed the leads it had in connection with subleasing our corporate
headquarters in The Woodlands. Our outside counsel then discussed the merits of
our remaining courses of action, which were either to file for protection under
the bankruptcy laws or undertake a corporate dissolution through a plan of
dissolution. The board of directors at that time approved the drafting of a
proxy statement to solicit proxies for the liquidation and dissolution of our
company and the related sale of all of our assets for the best possible price.
The board approved an auction to take place on August 22, 2002 at which all of
our physical assets at our corporate headquarters would be auctioned by a
professional auction company.
The board met on August 12, 2002 along with its legal counsel, a
representative of Howard, Frazier and Mr. Brown, president of the company.
Howard, Frazier and Dr. Monticello, a director and vice president of the
company, made a presentation to the board regarding their efforts in trying to
sell company assets to various potential buyers, including the sale of the BDS
technology. The board approved the sale of the BDS technology to a third party
for $200,000, which represented the best offer received by the company. The sale
of the BDS technology was ultimately completed on September 20, 2002. At the
time of the board meeting on August 12, 2002, no potential buyer had expressed
any interest in our ACL technology. During the meeting, Mr. Brown discussed his
efforts in subleasing certain office space at our corporate headquarters. The
board also discussed the possibility of filing a proxy statement to solicit the
proxies of our stockholders to approve our dissolution, but decided to delay
such action until a later time.
On August 14, 2002, we received a letter from Nasdaq notifying us that our
common stock would be delisted on August 22, 2002 because we had not regained
compliance with the minimum $1.00 bid price per share requirement and we were
not eligible for an extension of time in which to meet such requirement. On
August 16, 2002, our outside counsel submitted a request on our behalf for a
written hearing regarding our delisting.
On August 22, 2002, the auction occurred at our corporate headquarters at
which we were able to sell all of our physical assets for a net price (after the
expenses of the auction) of $____________.
During August and September 2002, we received a preliminary, informal
indication of interest from a third party relating to a potential merger
transaction and we initiated a similar preliminary, informal indication of
interest relating to a potential merger transaction with respect to a third
party. Informal discussions with each followed.
10
<Page>
On September 3, 2002, we received a letter from Nasdaq notifying us that a
written hearing had been granted regarding our delisting. Such hearing was held
on September 20, 2002. In connection with the hearing, we submitted written
materials to Nasdaq which outlined our plan for regaining compliance with the
listing requirements of The Nasdaq SmallCap Market and requested an extension of
the delisting decision and/or an exception therefrom. In support of our ability
to achieve near term compliance with the listing requirements, we described
certain negotiations we were engaged in with two different privately held
biotech companies regarding a potential merger transaction. Although no formal
letter of intent was entered into with either party as of the date we submitted
the written materials to Nasdaq, we advised Nasdaq that a potential merger with
either candidate would be contingent on our maintaining our current listing on
The Nasdaq SmallCap Market.
The board met on October 15, 2002 along with its legal counsel and
Mr. Brown. The board discussed the current status of potential merger
candidates, including a third such candidate brought to its attention by Howard,
Frazier. Since a merger with two of the three candidates was not viable at this
time, the remaining candidate changed the proposed deal terms to terms more
unfavorable to us, and efforts to complete a merger would not be feasible in the
event that Nasdaq determined that our stock should be delisted, the board
decided to cease negotiations relating to a proposed merger pending the outcome
of the Nasdaq hearing. At the meeting, the board approved a new arrangement with
Dr. Monticello whereby Dr. Monticello's full-time employment with the company
would cease; however, Dr. Monticello would remain with the company as vice
president in a part time capacity. Dr. Monticello expressed his interest in the
ACL technology and the board agreed to consider a proposal from
Dr. Monticello's new employer regarding an offer for such technology.
On October 22, 2002, we were informed by Nasdaq that the Listing
Qualifications Panel declined our request for additional time to regain
compliance with The Nasdaq SmallCap Market listing requirements. Accordingly,
our common stock was delisted from the Nasdaq Stock Market effective
October 22, 2002. We issued a press release in connection with same which press
release further summarized our efforts thus far to preserve working capital,
redeploy our assets and seek merger or acquisition partners or additional
funding sources. The press release indicated that in all likelihood we would
proceed with the dissolution plan outlined in our Quarterly Report on Form 10-Q
filed for the fiscal quarter ended June 30, 2002.
The board met on November , 2002 along with its legal counsel and
Mr. Brown. At such meeting, the board approved the sale of the ACL technology to
Molecular Logix, Incorporated, a newly formed, privately held biotech company
located in Houston, Texas which is affiliated with the technology transfer
division of Baylor College of Medicine. Molecular Logix was organized to
commercialize certain technology developed by one of Baylor's faculty members
and expressed an interest in the ACL technology to facilitate its efforts in
developing such technology. In exchange for the ACL technology, we expect to
receive a maximum of 45,000 shares of common stock in Molecular Logix,
representing approximately 4.3% of their outstanding shares of common stock. The
actual number of shares we receive in Molecular Logix is subject to reduction
depending upon how long it takes to complete the sale and transfer of the ACL
technology to Molecular Logix. Because of the time sensitive nature of the ACL
technology sale and in an effort to maximize the value received for the ACL
technology, the board approved the sale of the ACL technology prior to
submitting approval of such sale to our stockholders. As the board never
received any other offers for the ACL technology, for cash or otherwise, after
diligently seeking same, the board believed that the sale of the ACL technology
to Molecular Logix for 45,000 shares of its common stock represented the highest
value we could obtain for the sale of such assets. Because Dr. Monticello is
presently negotiating employment arrangements with Molecular Logix, he abstained
from voting on and approving the sale of the ACL technology to Molecular Logix
at the November __, 2002 board meeting.
Also at the November , 2002 meeting, the board of directors approved the
plan of complete liquidation and dissolution in the form attached as Exhibit A
to this proxy statement and approved the
11
<Page>
form of notice of special meeting and proxy statement to be delivered to the
stockholders for approval of the plan.
REASONS FOR THE LIQUIDATION AND DISSOLUTION; RECOMMENDATION OF OUR BOARD OF
DIRECTORS
In the course of reaching its decision to recommend that our company
liquidate and dissolve, the board of directors consulted with our management,
our legal advisors and representatives of Howard, Frazier. The board of
directors considered many factors when making its decision, including:
- Our remaining cash and the probability that we could not raise any more
capital on a timely basis;
- The continuing nature of our operating losses and the likelihood that such
losses would continue in the future;
- The belief that we had thoroughly explored the market interest in various
strategic transactions and that the alternatives to liquidation were
either not feasible or not reasonably likely to provide equal or greater
value to our shareholders in a reasonable period of time; and
- The merits and disadvantages of seeking protection under federal
bankruptcy laws and the ramifications of allowing the company to become a
shell corporation by selling its assets but keeping it in existence.
The board of directors also identified and considered potentially negative
factors in their deliberations concerning the plan of liquidation, including:
- There could be no assurance that we would be successful in disposing of
our assets for values equal to or exceeding those currently estimated or
that these dispositions would occur when we expected;
- The possibility that the liquidation would not yield distributions as
great as or greater than the recent market prices of our common stock and
any distributions might not be made for a long time;
- The likelihood that the liquidation will result in distributions being
made only to holders of our Series B Preferred Stock in partial
satisfaction of their liquidation preference; and
- The likelihood that the liquidity of our shares would decrease if we paid
distributions to our shareholders.
The discussion above of the factors considered and the reasons given for the
approval of the plan of liquidation, while not exhaustive, addresses all of the
material factors our board considered. In view of the wide variety of factors
considered and the overwhelming belief by the board that the proposed
alternative is in the best interest of the shareholders, the board of directors
neither quantified nor assigned relative weights to the factors above. Rather
the board of directors based its recommendation on the totality of the
information presented to and considered by it.
AFTER CAREFULLY EVALUATING EACH OF THESE FACTORS, BOTH POSITIVE AND
NEGATIVE, OUR BOARD OF DIRECTORS UNANIMOUSLY DECIDED THAT THE BEST METHOD TO
MAXIMIZE SHAREHOLDER VALUE WAS TO LIQUIDATE AND DISSOLVE OUR COMPANY.
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS IN THE LIQUIDATION AND
DISSOLUTION
All of our executive officers and directors own shares of our common stock
and/or options to purchase shares of our common stock. If we make any
liquidating distributions to holders of our common stock following satisfaction
of the liquidation preference payable to holders of the Series B Preferred
Stock, they will receive the same per share distribution as our other
shareholders.
12
<Page>
THE PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION UNDER DELAWARE LAW
Section 275 of the Delaware General Corporation Law provides that a
corporation may dissolve upon either (a) a majority vote of the board of
directors of the corporation followed by a majority vote of its stockholders; or
(b) a unanimous stockholder consent. Following such approval, the dissolution is
effected by filing a certificate of dissolution with the Secretary of State of
the State of Delaware. Once a corporation is dissolved, its existence is
automatically continued for a term of three years, but solely for the purpose of
winding up its business. The process of winding up includes:
- the prosecution and defense of lawsuits, if any;
- the settling and closing of any business;
- the disposition and conveyance of any property;
- the discharge of any liabilities; and
- the distribution of any remaining assets to the stockholders of the
corporation.
If any action, suit or proceeding is commenced by or against the corporation
before or within the winding up period, the corporation will, solely for the
purpose of such action, suit or proceeding, automatically continue to exist
beyond the three-year period until any judgments, orders or decrees are fully
executed.
DESCRIPTION OF THE PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
The following is a brief summary of the plan of liquidation. It is qualified
in its entirety by reference to the full text of the plan of liquidation
attached hereto as Exhibit A and incorporated herein by reference. You should
read the plan of liquidation carefully.
OUR ACTIVITIES FOLLOWING ADOPTION OF THE PLAN OF LIQUIDATION
Following adoption and approval of the plan of liquidation by our
stockholders, we will cease our business and not engage in any business
activities except for the purposes of selling any of our remaining assets,
distributing our assets in accordance with the plan of liquidation, establishing
a contingency reserve for payment of our expenses and liabilities, including
liabilities incurred but not paid or settled prior to authorization of the plan
of liquidation, paying, satisfying and discharging any of our remaining
commercial agreements, relationships or outstanding obligations (or making
provisions for payment thereof), and doing all other acts required to liquidate
and wind up our business and affairs.
Following the adoption and approval of the plan of liquidation by our
stockholders, we will continue to indemnify our officers, directors, employees
and agents in accordance with our restated certificate of incorporation, as
amended, and bylaws, including for actions taken in connection with the plan of
liquidation and the winding up of our affairs. Our obligation to indemnify these
persons may be satisfied out of the assets of any liquidating trust. Our board
of directors and the trustees of any liquidating trust may obtain and maintain
insurance to cover our indemnification obligations under the plan of
liquidation.
SALES OF OUR ASSETS
The plan of liquidation gives our board of directors the authority to sell
all of our remaining assets. As of August 22, 2002, we had completed the sale of
our physical assets at our corporate headquarters in a publicly marketed
auction. Further, as of September 20, 2002, we had completed the sale of our BDS
technology and as of November , 2002, we had approved the sale of our ACL
technology. Sales of our remaining assets, if any, will be made on such terms as
are approved by our board of directors and may be conducted by either
competitive bidding, public sales or privately
13
<Page>
negotiated sales. Such sales will be concluded prior to the third anniversary of
the filing of the certificate of dissolution with the Delaware Secretary of
State. We do not anticipate that any further stockholder votes will be solicited
with respect to the approval of the specific terms of any particular sales of
assets approved by our board of directors. We do not anticipate amending or
supplementing the proxy statement to reflect any such agreement or sale, unless
required by applicable law. The prices at which we will be able to sell our
various assets depends largely on factors beyond our control, including, without
limitation, the condition of financial markets, the availability of financing to
prospective purchasers of the assets, United States and foreign regulatory
approvals, public market perceptions, and limitations on transferability of
certain assets. In addition, we may not obtain as high a price for a particular
asset as we might secure if we were not in liquidation. The sales of certain of
our assets thus far has resulted in sufficient proceeds to satisfy all of our
creditors and to pay all of our expenses, and we believe that we will have a
sufficient amount left over to provide some amount to holders of our Series B
Preferred Stock in partial satisfaction of their liquidation preference;
however, in all likelihood, we will not have funds left over to distribute to
our common stockholders.
Our sale of an appreciated asset will result in the recognition of taxable
gain by us to the extent the fair market value of such asset exceeds our tax
basis in such asset.
PAYMENT OF LIABILITIES AND OBLIGATIONS, CONTINGENCY RESERVE AND LIQUIDATING
TRUST
Under Delaware law, we are required, in connection with our dissolution, to
pay or provide for payment of all of our liabilities and obligations, including
all contingent, conditional or unmatured contractual claims known to us, and all
claims which are known to us but for which the identity of the claimant is
unknown. Following the authorization and approval of the plan of liquidation by
our stockholders, we will pay all expenses and fixed and other known
liabilities, or set aside as a contingency reserve cash and other assets which
we believe to be sufficient, based on factors known to us, to satisfy such
liabilities and other claims that might arise. We are currently unable to
estimate with precision the amount of any contingency reserve which may be
required, but that amount (in addition to any cash contributed to a liquidating
trust, if one is utilized) will be deducted before the determination of amounts
available for distribution to stockholders.
We may incur additional liabilities arising out of contingent claims, such
as the claims described below, that are not yet reflected on our balance sheet.
We are unable at this time to predict what amount, if any, may be paid on these
contingent claims.
The actual amount of the contingency reserve will be based upon estimates
and opinions of management and our board of directors and derived from
consultations with outside experts and review of our estimated operating
expenses and future estimated liabilities, including, without limitation,
anticipated compensation payments, estimated legal and accounting fees,
operating lease expenses, payroll and other taxes payable, miscellaneous office
expenses, expenses accrued in our financial statements, and reserves for
litigation expenses. There can be no assurance that the contingency reserve in
fact will be sufficient. We have not made any specific provision for an increase
in the amount of the contingency reserve. Subsequent to the establishment of the
contingency reserve, we will distribute to our stockholders any portions of the
contingency reserve which are deemed no longer to be required. After the
liabilities, expenses and obligations for which the contingency reserve had been
established have been satisfied in full, we will distribute to our stockholders
any remaining portion of the contingency reserve.
If deemed necessary, appropriate or desirable by our board of directors for
any reason, we may, from time to time, transfer any of our unsold assets to one
or more liquidating trusts, or other structure it deems appropriate, established
for the benefit of our stockholders, which assets would thereafter be sold or
distributed on terms approved by its trustees. Our board of directors and
management may determine to transfer assets to a liquidating trust in
circumstances where the nature of an asset is not susceptible to distribution
(for example, interests in intangibles) or where our board
14
<Page>
of directors determines that it would not be in the best interests of our
business and our stockholders for such assets to be distributed directly to the
stockholders at that time. If all of our assets (other then the contingency
reserve) are not sold or distributed prior to the third anniversary of the
effectiveness of our dissolution, we must transfer in final distribution those
remaining assets to a liquidating trust. Our board of directors may also elect
in its discretion to transfer the contingency reserve, if any, to such a
liquidating trust. The purpose of a liquidating trust would be to distribute
such property or to sell such property on terms satisfactory to the liquidating
trustees, and distribute the proceeds of such sale after paying our liabilities,
if any, assumed by the trust, to our stockholders. Any liquidating trust
acquiring all of our unsold assets will assume all of our liabilities and
obligations and will be obligated to pay any of our expenses and liabilities
which remain unsatisfied. If the contingency reserve transferred to the
liquidating trust is exhausted, such expenses and liabilities will be satisfied
out of the liquidating trust's other unsold assets.
The plan of liquidation authorizes our board of directors to appoint one or
more individuals or entities to act as trustee or trustees of the liquidating
trust or trusts and to cause us to enter into a liquidating trust agreement or
agreements with such trustee or trustees on such terms and conditions as may be
approved by our board of directors. It is anticipated that our board of
directors will select such trustee or trustees on the basis of the experience of
such individual or entity in administering and disposing of assets and
discharging liabilities of the kind to be held by the liquidating trust or
trusts and the ability of such individual or entity to serve the best interests
of our stockholders. Approval of the plan of liquidation by the stockholders
will also constitute the approval by our stockholders of any such appointment
and any liquidating trust agreement or agreements.
We may decide to use a liquidating trust or trusts, and our board of
directors believes the flexibility provided by the plan of liquidation with
respect to the liquidating trusts to be advisable. The trust would be evidenced
by a trust agreement between us and the trustees. The purpose of the trust would
be to serve as a temporary repository for the trust property prior to its
disposition or distribution to our stockholders. The transfer to the trust and
distribution of interests therein to our stockholders would enable us to divest
the trust property and permit our stockholders to enjoy the economic benefits of
ownership thereof. Pursuant to the trust agreement, the trust property would be
transferred to the trustees immediately prior to the distribution of interests
in the trust to our stockholders, to be held in trust for the benefit of the
stockholder beneficiaries subject to the terms of the trust agreement. It is
anticipated that the interests would be evidenced only by the records of the
trust and there would be no certificates or other tangible evidence of such
interests and that no holder of common stock would be required to pay any cash
or other consideration for the interests to be received in the distribution or
to surrender or exchange shares of common stock in order to receive the
interests. It is further anticipated that pursuant to the trust agreements
(i) a majority of the trustees would be required to be independent of our
management; (ii) approval of a majority of the trustees would be required to
take any action; and (iii) the trust would be irrevocable and would terminate
after the earliest of (x) the trust property having been fully distributed, or
(y) a majority in interest of the beneficiaries of the trust, or a majority of
the trustees, having approved of such termination, or (z) a specified number of
years having elapsed after the creation of the trust.
UNDER DELAWARE LAW, IN THE EVENT WE FAIL TO CREATE AN ADEQUATE CONTINGENCY
RESERVE FOR PAYMENT OF OUR EXPENSES AND LIABILITIES, OR SHOULD SUCH CONTINGENCY
RESERVE AND THE ASSETS HELD BY THE LIQUIDATING TRUST OR TRUSTS BE EXCEEDED BY
THE AMOUNT ULTIMATELY FOUND PAYABLE IN RESPECT OF EXPENSES AND LIABILITIES, EACH
STOCKHOLDER COULD BE HELD LIABLE FOR THE PAYMENT TO CREDITORS OF SUCH
STOCKHOLDER'S PRO RATA SHARE OF SUCH EXCESS, LIMITED TO AMOUNTS THERETOFORE
RECEIVED BY SUCH STOCKHOLDER FROM US OR FROM THE LIQUIDATING TRUST OR TRUSTS.
If we were held by a court to have failed to make adequate provision for our
expenses and liabilities or if the amount ultimately required to be paid in
respect of such liabilities exceeded the amount available from the contingency
reserve and the assets of the liquidating trust or trusts, a
15
<Page>
creditor of ours could seek an injunction against the making of distributions
under the plan of liquidation on the ground that the amounts to be distributed
were needed to provide for the payment of our expenses and liabilities. Any such
action could delay or substantially diminish the cash distributions to be made
to stockholders and/or interest holders under the plan of liquidation.
LIQUIDATING DISTRIBUTIONS, NATURE, AMOUNT, TIMING
Although our board of directors has not established a firm timetable for
distributions to our stockholders if the plan of liquidation is authorized and
approved by the stockholders, our board of directors intends, subject to
contingencies inherent in winding up our business, to make such distributions as
promptly as practicable. The liquidation is expected to be concluded prior to
the third anniversary of the filing of the certificate of dissolution in
Delaware by a final liquidating distribution either directly to the stockholders
or to a liquidating trust. The proportionate interests of all of our
stockholders shall be fixed on the basis of their respective stock holdings at
the close of business on the final record date, and after that date, any
distributions made by us shall be made solely to stockholders of record on the
close of business on the final record date, except for permitted transfers.
However, we are currently unable to predict the precise nature, amount or timing
of any distributions pursuant to the plan of liquidation. The actual nature,
amount and timing of all distributions will be determined by our board of
directors, in its sole discretion, and will depend in part upon our ability to
convert our remaining assets into cash and pay and settle our significant
remaining liabilities and obligations, including payment of the liquidation
preference to holders of our Series B Preferred Stock.
We do not plan to satisfy all of our liabilities and obligations prior to
making distributions to stockholders, but instead will reserve assets deemed by
management and our board of directors to be adequate to provide for these
liabilities and obligations. See "Payment of Liabilities, Contingency Reserve
and Liquidating Trust." Management and our board of directors believe that we
have or will have sufficient cash to pay our current and accrued obligations,
not including the full liquidation preference payable to holders of our
Series B Preferred Stock, with the sale of all or substantially all of our
remaining assets.
Uncertainties as to the precise net value of our non-cash assets and the
ultimate amount of our liabilities make it impracticable to predict the
aggregate net value ultimately distributable to stockholders. Claims,
liabilities and expenses from operations (including operating costs, salaries,
income taxes, payroll and local taxes, legal and accounting fees and
miscellaneous office expenses), although currently declining, will continue to
be incurred following stockholder authorization and approval of the plan of
liquidation. These expenses will reduce the amount of assets available for
ultimate distribution to stockholders, and, while we do not believe that a
precise estimate of those expenses can currently be made, management and our
board of directors believe that available cash and amounts received on the sale
of remaining assets will be adequate to provide for our obligations,
liabilities, expenses and claims (including contingent liabilities, but
excluding the full liquidation preference payable to holders of our Series B
Preferred Stock as of , 2002, which is currently $ million).
Subject to the payment or the provision for payment of our indebtedness, we
intend to distribute to holders of our Series B Preferred Stock, on a pro rata
basis, any remaining cash, property or other assets, including shares of common
stock of Molecular Logix received in connection with the sale of the ACL
technology, which valuation for such non-cash property or assets shall be made
by the good faith determination of the board of directors. The board has
reviewed certain financial information relating to Molecular Logix and has made
a good faith determination that the value of the shares of Molecular Logix
common stock expected to be received in connection with the sale of the ACL
technology will be substantially less than the full liquidation preference owed
to holders of our Series B Preferred Stock. If, and only if, the holders of our
Series B Preferred Stock receive their full liquidation preference to which they
are entitled, then any remaining cash on hand, property or assets, together with
the cash
16
<Page>
proceeds of any sales of such property or assets, will be distributed from time
to time pro rata to the holders of our common stock. We believe, however, that
in all likelihood, we will only be able to make some distributions to holders of
our Series B Preferred Stock in partial satisfaction of their liquidation
preference. Therefore, as a result of this inability to fully satisfy the
liquidation preference owed to holders of our Series B Preferred Stock, it is
reasonably unlikely that we will be able to make any distributions to holders of
our common stock.
ABANDONMENT, AMENDMENT
Under the plan of liquidation, our board of directors may modify, amend or
abandon the plan of liquidation, notwithstanding stockholder authorization and
approval, to the extent permitted by Delaware law. We will not amend or modify
the plan of liquidation under circumstances that would require additional
stockholder approval under Delaware law or the federal securities laws without
complying with Delaware law and the federal securities laws.
FINAL RECORD DATE
We will close our stock transfer books and discontinue recording transfers
of shares of common stock and preferred stock on the earliest to occur of:
(i) the close of business on the record date fixed by our board of directors
for the final liquidating distribution,
(ii) the close of business on the date on which our remaining assets are
transferred to a liquidating trust, or
(iii) the final record date, the date fixed by our board of directors for
filing the certificate of dissolution,
and, thereafter, certificates representing shares of common stock and preferred
stock will not be assignable or transferable on our books except by will,
intestate succession or operation of law.
After the final record date, we will not issue any new stock certificates,
other than replacement certificates. Any person holding options, warrants or
other rights to purchase common stock or preferred stock must exercise such
instruments or rights prior to the final record date. See "Trading of the Common
Stock and Interests in the Liquidating Trust or Trusts" below.
All liquidating distributions from us or a liquidating trust on or after the
final record date will be made to stockholders according to their holdings of
capital stock as of the final record date. Subsequent to the final record date,
we may at our election require stockholders to surrender certificates
representing their shares of the capital stock in order to receive subsequent
distributions. Stockholders should not forward their stock certificates before
receiving instructions to do so. If surrender of stock certificates should be
required, all distributions otherwise payable by us or the liquidating trust, if
any, to stockholders who have not surrendered their stock certificates may be
held in trust for those stockholders, without interest, until the surrender of
their certificates (subject to escheat pursuant to the laws relating to
unclaimed property). If a stockholder's certificate evidencing the capital stock
has been lost, stolen or destroyed, the stockholder may be required to furnish
us with satisfactory evidence of the loss, theft or destruction thereof,
together with a surety bond or other indemnity, as a condition to the receipt of
any distribution.
CERTIFICATE OF DISSOLUTION
Following approval of the plan of liquidation by the stockholders, a
certificate of dissolution will be filed with the State of Delaware. After the
plan of liquidation becomes effective, we will, at such times as the board of
directors determines, obtain any certificates required by the Delaware tax
authorities and, upon obtaining such certificates and paying such taxes as may
be owing, we will file with the
17
<Page>
Delaware Secretary of State a certificate of dissolution. Our dissolution will
become effective, in accordance with Delaware law, upon proper filing of such
certificate of dissolution with the Secretary of State or upon such later date
as may be specified in the certificate of dissolution. Pursuant to Delaware law,
we will continue to exist for three years after the dissolution becomes
effective or for such longer period as the Delaware Court of Chancery shall
direct, for the purpose of prosecuting and defending suits, whether civil,
criminal or administrative, by or against us, and enabling us gradually to
settle and close our business, to dispose of and convey our property, to
discharge our liabilities and to distribute to our stockholders any remaining
assets, but not for the purpose of continuing the business for which we were
organized.
TRADING OF COMMON STOCK AND INTERESTS IN THE LIQUIDATING TRUST OR TRUSTS
Although our common stock is currently trading on the over-the-counter
market in the so-called "pink sheets" or on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc., we will close our stock
transfer books upon the filing of the certificate of dissolution. Thereafter,
stockholders will not be able to transfer their shares.
We anticipate that the interests in a liquidating trust or trusts will not
be transferable, although no determination has yet been made. This determination
will be made by our board of directors and management prior to the transfer of
unsold assets to the liquidating trust and will be based on, among other things,
our board of directors, and management's estimate of the value of the assets
being transferred to the liquidating trust or trusts, tax matters and the impact
of compliance with applicable securities laws. Should the interests be
transferable, we plan to distribute an information statement with respect to the
liquidating trust or trusts at the time of the transfer of assets and the
liquidating trust or trusts may be required to comply with the periodic
reporting and proxy requirements of the Exchange Act. The costs of compliance
with such requirements would reduce the amount which otherwise could be
distributed to interest holders. Even if transferable, the interests are not
expected to be listed on a national securities exchange or quoted through
Nasdaq, and the extent of any trading market therein cannot be predicted.
Moreover, the interests may not be accepted by commercial lenders as security
for loans as readily as more conventional securities with established trading
markets.
As stockholders will be deemed to have received a liquidating distribution
equal to their pro rata share of the value of the net assets distributed to an
entity which is treated as a liquidating trust for tax purposes (see "Certain
Federal Income Tax Consequences"), the distribution of non-transferable
interests could result in tax liability to the interest holders without their
being readily able to realize the value of such interests to pay such taxes or
otherwise.
ABSENCE OF APPRAISAL RIGHTS
Under Delaware law, our stockholders are not entitled to appraisal rights
for their shares of common stock or preferred stock in connection with the
transactions contemplated by the plan of liquidation.
REPORTING REQUIREMENTS
Whether or not the plan of liquidation is authorized and approved, we have
an obligation to continue to comply with the applicable reporting requirements
of the Securities Exchange Act of 1934, as amended, even though compliance with
such reporting requirements is economically burdensome. If the plan of
liquidation is authorized and approved, in order to curtail expenses, we will,
after filing our certificate of dissolution, seek relief from the SEC from these
reporting requirements. We anticipate that, if such relief is granted, we would
continue to file current reports on Form 8-K to disclose material events
relating to our liquidation and dissolution along with any other reports that
the SEC might require.
18
<Page>
REGULATORY APPROVALS
No United States federal or state regulatory requirements must be complied
with or approvals obtained in connection with the liquidation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material United States
federal income tax consequences affecting our stockholders that are anticipated
to result from our dissolution and liquidation. This discussion does not purport
to be a complete analysis of all the potential tax effects. Moreover, the
discussion does not address the tax consequences that may be relevant to
particular categories of investors subject to special treatment under certain
federal income tax laws (such as dealers in securities, banks, insurance
companies, tax-exempt organizations, mutual funds, foreign individuals and
entities, and persons who acquired their stock upon exercise of stock options or
in other compensatory transactions). It also does not address any tax
consequences arising under the laws of any state, local or foreign jurisdiction.
The discussion is based upon the Internal Revenue Code of 1986, as amended,
Treasury Regulations, rulings of the Internal Revenue Service, or IRS, and
judicial decisions now in effect, all of which are subject to change at any
time; any such changes may be applied retroactively. Distributions pursuant to
the plan of liquidation may occur at various times and in more than one tax
year. No assurance can be given that the tax treatment described herein will
remain unchanged at the time of such distributions.
The following discussion has no binding effect on the IRS or the courts and
assumes that we will liquidate in accordance with the plan of liquidation in all
material respects. No ruling has been requested from the IRS with respect to the
anticipated tax treatment of the plan of liquidation, and we will not seek an
opinion of counsel with respect to the anticipated tax treatment. If any of the
anticipated tax consequences described herein proves to be incorrect, the result
could be increased taxation at the corporate and/or stockholder level, thus
reducing the benefit to the stockholders and our business from the liquidation.
Tax considerations applicable to particular stockholders may vary with and be
contingent on the stockholder's individual circumstances. This discussion does
not constitute legal advice to any stockholder.
FEDERAL INCOME TAXATION OF THE COMPANY
After the approval of the plan of liquidation and until the liquidation is
completed, we will continue to be subject to federal income tax on our taxable
income, if any. We will recognize gain or loss on sales of our assets pursuant
to the plan of liquidation. Upon the distribution of any property, other than
cash, to stockholders pursuant to the plan of liquidation, we will recognize
gain or loss as if that property were sold to the stockholders at our fair
market value, unless certain exceptions to the recognition of loss apply. Any
losses and net operating loss carryforwards that we have may be available to
offset any gains recognized on sales or distribution of our assets. We will be
required to file Form 966 (Corporation Dissolution or Liquidation) with the IRS
within 30 days after the adoption of the plan of liquidation.
FEDERAL INCOME TAXATION OF STOCKHOLDERS
We anticipate that all distributions stockholders receive upon liquidation,
if any, will be treated for federal income tax purposes as full payment in
exchange for their shares and will thus be treated as a taxable sale. Thus, a
stockholder who is a United States resident or otherwise subject to United
States income taxes will be taxed only to the extent the amount of the balance
of the distribution exceeds his or her adjusted tax basis in such shares; if the
amount received is less than his or her adjusted tax basis in such shares, then
the stockholder will realize a loss. A stockholder's tax basis in his or her
shares will depend upon various factors, including the stockholder's cost and
the amount and nature of any distributions received with respect thereto. The
stockholder's gain or loss will generally be a capital
19
<Page>
gain or capital loss if such shares are held as capital assets. If shares that
are held as a capital asset have been held for more than one year, then any gain
or loss will generally constitute a long-term capital gain or long-term capital
loss, as the case may be, taxable to individual stockholders at a maximum rate
of 20%. If the stockholder has held the shares for not more than one year, any
gain or loss will be a short-term capital gain or loss and will be taxed at
ordinary income tax rates. Any loss will generally be recognized only when the
final distribution from us has been received, which may be as long as three
years after the date that the plan of liquidation is adopted. Corporate
stockholders should note that there is no preferential federal income tax rate
applicable to capital gains for corporations under the Internal Revenue Code.
Accordingly, all income recognized by a corporate stockholder pursuant to our
liquidation, regardless of its character as capital gains or ordinary income,
will be subject to tax at the same federal income tax rate.
Upon any distribution of property, the stockholder's tax basis in such
property immediately after the distribution will be the fair market value of
such property at the time of distribution. The gain or loss realized upon the
stockholder's future sale of that property will be measured by the difference
between the stockholder's tax basis in the property at the time of such sale and
the proceeds of such sale.
After the close of our taxable year, we will provide stockholders and the
IRS with a statement of the amount of cash distributed to the stockholders and
our best estimate as to the value of any property distributed to them during
that year. There is no assurance that the IRS will not challenge that valuation.
As a result of such a challenge, the amount of gain or loss recognized by
stockholders might be changed. Distributions of property other than cash to
stockholders could result in tax liability to any given stockholder exceeding
the amount of cash received, requiring the stockholder to meet the tax
obligations from other sources or by selling all or a portion of the assets
received.
It is possible that we will have liabilities not fully covered by our
contingency reserve for which the stockholders will be liable up to the extent
of any liquidating distributions they have received. (See "Contingent
Liabilities; Contingency Reserve; Liquidating Trust"). This liability could
require a stockholder to satisfy a portion of this liability out of prior
liquidating distributions received from us and the liquidating trust or trusts.
Payments by stockholders in satisfaction of these liabilities would commonly
produce a capital loss, which, in the hands of individual stockholders, could
not be carried back to prior years to offset capital gains realized from
liquidating distributions in those years. Stockholders should consult their tax
advisors with respect to the federal tax consequences of the plan of
liquidation.
LIQUIDATING TRUSTS
If we transfer assets to a liquidating trust or trusts, we intend to
structure such trust or trusts so that stockholders will be treated for tax
purposes as having received their pro rata share of the property transferred to
the liquidating trust or trusts, reduced by the amount of known liabilities
assumed by the liquidating trust or trusts or to which the property transferred
is subject. Assuming this treatment is achieved, assets transferred to a
liquidating trust will cause the stockholder to be treated in the same manner
for federal income tax purposes as if the stockholder had received a
distribution directly from us. The liquidating trust or trusts themselves should
not be subject to federal income tax, assuming that they are treated as
liquidating trusts for federal income tax purposes. After formation of the
liquidating trust or trusts, the stockholders must take into account for federal
income tax purposes their allocable portion of any income, gain or loss
recognized by the liquidating trust or trusts. As a result of the transfer of
property to the liquidating trust or trusts and the ongoing operations of the
liquidating trust or trusts, stockholders should be aware that they may be
subject to tax, whether or not they have received any actual distributions from
the liquidating trust or trusts with which to pay such tax. There can be no
assurance that the liquidating trust or trusts described in the plan of
liquidation will be treated as a liquidating trust or trusts for federal income
tax purposes.
20
<Page>
STATE AND LOCAL TAX
We may be subject to liability for state or local taxes with respect to the
sale of our assets. Stockholders may also be subject to state or local taxes,
including with respect to liquidating distributions received by them or paid to
a liquidating trust on their behalf, and with respect to any income derived by a
liquidating trust. Stockholders should consult their tax advisors with respect
to the state and local tax consequences of the plan of liquidation.
BACKUP WITHHOLDING
Unless a stockholder complies with certain reporting and/or certification
procedures or is an exempt recipient under applicable provisions of the Internal
Revenue Code and Treasury regulations promulgated under the Internal Revenue
Code, such stockholder may be subject to a 30% backup withholding tax with
respect to any payments received pursuant to the liquidation. Backup withholding
generally will not apply to payments made to certain exempt recipients such as a
corporation or financial institution or to a stockholder who furnishes a correct
taxpayer identification number or provides a certificate of foreign status and
provides certain other required information. If backup withholding applies, the
amount withheld is not an additional tax, but is credited against that
stockholder's U.S. federal income tax liability.
THE FOREGOING SUMMARY OF UNITED STATES FEDERAL, STATE AND LOCAL INCOME TAX
CONSIDERATIONS IS INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE
LEGAL ADVICE TO ANY STOCKHOLDER. THE TAX CONSEQUENCES OF THE PLAN OF LIQUIDATION
MAY VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF THE STOCKHOLDER. WE
RECOMMEND THAT EACH STOCKHOLDER CONSULT ITS OWN TAX ADVISOR REGARDING THE
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN OF LIQUIDATION AS WELL AS THE STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES.
VOTE REQUIRED TO APPROVE PLAN OF LIQUIDATION; RECOMMENDATION BY THE BOARD OF
DIRECTORS
The authorization and approval of the plan of liquidation requires the
affirmative vote of the holders of a majority of the outstanding shares of our
voting stock, which includes holders of common stock and holders of Series B
Preferred Stock voting on an as-converted basis, voting as a single class. We
are also required to obtain the consent of the holders of a majority of the
outstanding shares of Series B Preferred Stock under their purchase agreement.
Under the plan of liquidation, the board of directors retains absolute
discretion as to whether to complete the liquidation process in the absence of
sufficient consents from holders of our Series B Preferred Stock. The board
could decide to legally affect the liquidation and dissolution without the
contractual consent required under the Series B purchase agreement.
OUR BOARD OF DIRECTORS BELIEVES THAT THE PLAN OF LIQUIDATION IS IN THE BEST
INTEREST OF OUR STOCKHOLDERS AND RECOMMENDS A VOTE FOR THIS PROPOSAL. IT IS
INTENDED THAT SHARES REPRESENTED BY THE ENCLOSED FORM OF PROXY WILL BE VOTED IN
FAVOR OF THIS PROPOSAL UNLESS OTHERWISE SPECIFIED IN SUCH PROXY.
21
<Page>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 1, 2002, certain information
with respect to the shares of common stock and Series B Preferred Stock
beneficially owned by (i) each person known by us to be the beneficial owner of
more than five percent of the common stock or the Series B Preferred Stock,
(ii) each of our directors, (iii) each of our executive officers and (iv) all
directors and executive officers as a group.
<Table>
<Caption>
AMOUNT
AMOUNT AND
AND NATURE
NATURE OF BENEFICIAL
OF BENEFICIAL OWNERSHIP OF
OWNERSHIP OF PERCENT SERIES B PERCENT
NAME OF BENEFICIAL OWNER COMMON STOCK(1)(2) OF CLASS PREFERRED STOCK(1) OF CLASS
- ------------------------ ------------------ -------- ------------------ --------
MillenCo, L.P........................................ 4,449,075(3) 29.1% -- --
c/o Millenium Management, L.L.C.
666 Fifth Avenue
New York, New York 10103
Kingdon Capital Management, LLC...................... 1,200,000(4) 7.8% -- --
152 West 57th Street
New York, New York 10019
Ethyl Corporation.................................... 1,064,742(5) 7.0% -- --
300 South Fourth Street
Richmond, Virginia 23217
Keystone, Inc........................................ -- -- 40,000 78.1%
201 Main Street, Suite 3100
Fort Worth, Texas 76102
William E. Nasser.................................... 80,742 * -- --
Daniel J. Monticello, Ph.D........................... 108,665 * -- --
Paul G. Brown, III................................... 106,731(6) * -- --
Thomas E. Messmore................................... 18,057 * -- --
William D. Young..................................... 21,371 * -- --
All directors and executive officers as a group (5 335,566 2.1% -- --
persons).............................................
</Table>
- --------------------------
* Represents less than 1% of the class.
(1) Unless otherwise indicated, each of the stockholders designated above has
sole voting and investment power with respect to the securities shown to be
owned by such stockholder.
(2) Includes the following amount of shares issuable upon exercise of options
exercisable within 60 days of November 1, 2002 for the following
individuals:
<Table>
<Caption>
AMOUNT OF SHARES
DIRECTOR OR OFFICER UNDERLYING OPTIONS
- ------------------- ------------------
William E. Nasser........................................... 80,742
Daniel J. Monticello, Ph.D.................................. 97,284
Paul G. Brown, III.......................................... 89,791
Thomas E. Messmore.......................................... 18,057
William D. Young............................................ 21,371
All officers and directors as a group....................... 307,245
</Table>
(3) Based upon information provided in a Schedule 13G filed on March 11, 2002,
MillenCo, L.P. has sole voting and dispositive power with respect to all of
the shares listed above. The Schedule 13G was also filed on behalf of
Millenium Management, L.L.C., the general partner of MillenCo, L.P., and its
managing member, Israel A. Englander, both of whom disclaim beneficial
ownership of such shares. MillenCo, L.P. is a registered broker-dealer under
Section 15 of the Securities Exchange Act of 1934, as amended.
(4) Based upon information provided in a Schedule 13G filed on February 23,
2000, Kingdon Capital Management LLC has sole voting and dispositive power
with respect to all of the shares listed above. Includes 200,000 shares
issuable upon exercise of a warrant.
(5) Based upon information provided in a Schedule 13D/A filed on December 11,
2001, Ethyl Corporation has sole voting and dispositive power with respect
to all of the shares listed above.
(6) Includes 3,000 shares held by a trust for the benefit of Mr. Brown's family
members and as to which Mr. Brown disclaims beneficial ownership.
22
<Page>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. Anything we file with the SEC may be read and copied
at the following locations of the SEC:
<Table>
Public Reference Room New York Regional Office Chicago Regional Office
Room 1024, Judiciary Plaza Woolworth Building 175 West Jackson Blvd.
450 Fifth Street, N.W. 233 Broadway Suite 900
Washington, D.C. 20549 New York, New York 10279 Chicago, Illinois 60604
</Table>
Please call the SEC at 1-800-732-0330 for further information on the public
reference rooms. Our SEC filings also should be available to the public from
commercial document retrieval services and at the web site the SEC maintains at
http://www.sec.gov.
The SEC allows us to incorporate by reference information into this proxy
statement, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this proxy statement, except
for any information superseded by information contained directly in, or
incorporated by reference in, this proxy statement. This proxy statement
incorporates by reference the documents set forth below that we previously filed
with the SEC (SEC File No. 0-21486) and that contain important information about
us:
- Annual Report on Form 10-K for the year ended December 31, 2001;
- Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2002;
and
- Quarterly Report on Form 10-Q filed for the fiscal quarter ended June 30,
2002.
We may be required to file other documents with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act between the
time this proxy statement is mailed and the date of the special meeting. Those
other documents will be deemed to be incorporated by reference into this proxy
statement and to be a part of it from the date they are filed with the SEC.
You may obtain any of the documents incorporated by reference through us,
the SEC or the SEC's web site as previously described. Documents incorporated by
reference are available from us without charge, excluding all exhibits unless we
have specifically incorporated by reference an exhibit in this proxy statement.
You may obtain documents incorporated by reference in this proxy statement by
requesting them in writing. If you would like to request documents from us,
please send a request to us promptly at the following address in order to
receive them before the special meeting:
Enchira Biotechnology Corporation
4200 Research Forest Drive
The Woodlands, Texas 77381
Attn.: Paul G. Brown, III, Corporate Secretary
In addition, if you and one or more of our other shareholders share an
address and are presently receiving multiple copies of our annual reports and
proxy statements at that address, please send written notice to us at the
address above if you would prefer to receive only one copy of these documents
for all shareholders at your address.
You should rely only on the information contained or incorporated by
reference in this proxy statement to vote on the plan of liquidation. We have
not authorized anyone to provide you with information that is different from
what is contained in this proxy statement. This proxy statement is dated
November , 2002. You should not assume that the information contained in this
proxy statement is accurate as of any date other than this date. Neither the
mailing of this proxy statement to
23
<Page>
our shareholders nor the completion of our liquidation and dissolution will
create any implication to the contrary.
By Order of the Board of Directors
Paul G. Brown III
SECRETARY
______________, 2002
The Woodlands, Texas
24
<Page>
EXHIBIT A
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
OF
ENCHIRA BIOTECHNOLOGY CORPORATION
This Plan of Complete Liquidation and Dissolution (the "Plan") is intended
to accomplish the complete liquidation and dissolution of Enchira Biotechnology
Corporation, a Delaware corporation (the "Company"), in accordance with the
Delaware General Corporation Law and Section 331 of the Internal Revenue Code of
1986, as amended (the "Code"), as follows:
1. The board of directors of the Company (the "Board of Directors") has
adopted this Plan and called a meeting (the "Meeting") of the holders of the
Company's voting stock to approve the Plan and ratify the Company's actions
taken to date on the Plan. If stockholders holding a majority of the Company's
voting stock vote for the adoption of this Plan at the Meeting, the Plan shall
constitute the adopted Plan of the Company as of the date of the Meeting, or
such later date on which the stockholders may approve the Plan if the Meeting is
adjourned to a later date (the "Adoption Date").
2. After the Adoption Date, the Company shall not engage in any business
activities except to the extent necessary to preserve the value of its assets,
wind up its business affairs, and distribute its assets in accordance with this
Plan. No later than thirty (30) days following the Adoption Date, the Company
shall file Form 966 with the Internal Revenue Service.
3. From and after the Adoption Date, the Company shall complete the
following corporate actions in the following order:
(a) The Company shall determine whether and when to (i) transfer the
Company's property and assets (other than cash, cash equivalents and
accounts receivable) to a liquidating trust (established pursuant to
Section 6 hereof), or (ii) collect, sell, exchange or otherwise dispose of
all of its property and assets in one or more transactions upon such terms
and conditions as the Board of Directors, in its absolute discretion, deems
expedient and in the best interests of the Company and the stockholders,
without any further vote or action by the Company's stockholders. It is
understood that the Company will be permitted to commence the sale and
disposition of its assets as soon as possible following the adoption of this
Plan by the Company's Board of Directors in order to attain the highest
value for such assets and maximize value for its stockholders. The Company's
assets and properties may be sold in bulk to one buyer or a small number of
buyers or on a piecemeal basis to numerous buyers. The Company will not be
required to obtain appraisals or other third party opinions as to the value
of its properties and assets in connection with the liquidation; rather, the
valuation for any non-cash property or assets shall be made by the good
faith determination of the board of directors. In connection with such
collection, sale, exchange and other disposition, the Company shall collect
or make provision for the collection of all accounts receivable, debts and
claims owing to the Company.
(b) The Company shall pay or, as determined by the Board of Directors,
make reasonable provision to pay, all claims and obligations of the Company,
including all contingent, conditional or unmatured claims known to the
Company and all claims which are known to the Company but for which the
identity of the claimant is unknown. Such claims and obligations shall be
paid in full and any such provision for payment made shall be made in full
if there are sufficient assets. If there are insufficient assets, such
claims and obligations shall be paid or provided for according to their
priority, ratably to the extent of assets legally available therefor.
(c) The Company shall distribute pro rata to holders of its Series B
Convertible Preferred Stock, par value $.01 per share ("Series B Preferred
Stock"), all available cash, property or assets, including the cash proceeds
of any sale, exchange or disposition thereof, up to the amount of the
A-1
<Page>
liquidation preference payable to holders of the Series B Preferred Stock on
the Adoption Date as set forth in the Company's Certificate of Designation,
Preferences and Rights of the Series B Convertible Preferred Stock.
(d) The Company shall distribute pro rata to its holders of its Common
Stock all available cash including the cash proceeds of any sale, exchange
or disposition, except such cash, property or assets as are required for
paying or making reasonable provision for the claims and obligations of the
Company. Such distribution may occur in a single distribution or in a series
of distributions and shall be in cash or assets, in such amounts, and at
such time or times, as the Board of Directors or the Trustees (as defined in
Section 6 hereof), in their absolute discretion, may determine. If and to
the extent deemed necessary, appropriate or desirable by the Board of
Directors or the Trustees, in their absolute discretion, the Company may
establish and set aside a reasonable amount of cash and/or property (the
"Contingency Reserve") to satisfy claims against the Company, including,
without limitation, tax obligations, and all expenses of the sale of the
Company's property and assets, of the collection and defense of the
Company's property and assets, and the liquidation and dissolution provided
for in this Plan.
4. The distributions to the stockholders pursuant to Section 3 and 6 hereof
shall be in complete cancellation of all of the outstanding capital stock of the
Company. As a condition to receipt of any distribution to the Company's
stockholders, the Board of Directors or the Trustees, in their absolute
discretion, may require the stockholders to (i) surrender their certificates
evidencing the capital stock to the Company or its agents for recording of such
distributions thereon or (ii) furnish the Company with evidence satisfactory to
the Board of Directors or the Trustees of the loss, theft or destruction of
their certificates evidencing the capital stock, together with such surety bond
or other security or indemnity as may be required by and satisfactory to the
Board of Directors or the Trustees ("Satisfactory Evidence and Indemnity"). As a
condition to receipt of any final distribution to the Company's stockholders,
the Board of Directors or the Trustees, in their absolute discretion, may
require the stockholders to (i) surrender their certificates evidencing their
capital stock to the Company or its agent for cancellation or (ii) furnish the
Company with Satisfactory Evidence and Indemnity. The Company will finally close
its stock transfer books and discontinue recording transfers of capital stock on
the earliest to occur of (i) the close of business on the record date fixed by
the Board of Directors for the final liquidating distribution, (ii) the close of
business on the date on which the remaining assets of the Company are
transferred to the Trust or (iii) the date on which the Company files its
Certificate of Dissolution (defined below) under the Delaware General
Corporation Law, and thereafter certificates representing capital stock will not
be assignable or transferable on the books of the Company except by will,
intestate succession, or operation of law.
5. If any distribution to a stockholder cannot be made, whether because the
stockholder cannot be located, has not surrendered its certificates evidencing
capital stock as required hereunder or for any other reason, the distribution to
which such stockholder is entitled (unless transferred to the Trust established
pursuant to Section 6 hereof) shall be transferred, at such time as the final
liquidating distribution is made by the Company, to the official of such state
or other jurisdiction authorized by applicable law to receive the proceeds of
such distribution. The proceeds of such distribution shall thereafter be held
solely for the benefit of and for ultimate distribution to such stockholder as
the sole equitable owner thereof and shall be treated as abandoned property and
escheat to the applicable state or other jurisdiction in accordance with
applicable law. In no event shall the proceeds of any such distribution revert
to or become the property of the Company.
6. If deemed necessary, appropriate or desirable by the Board of Directors,
in its absolute discretion, in furtherance of the liquidation and distribution
of the Company's assets to the stockholders, as a final liquidating distribution
or from time to time, the Company shall transfer to one or more liquidating
trustees, for the benefit of its stockholders (the "Trustees"), under a
liquidating trust (the "Trust"), any assets of the Company which are not
reasonably susceptible to distribution to
A-2
<Page>
the stockholders, including without limitation non-cash assets and assets held
on behalf of the stockholders (a) who cannot be located or who do not tender
their certificates evidencing the capital stock to the Company or its agent as
herein above required or (b) to whom distributions may not be made based upon
restrictions under contract or law, including, without limitation, restrictions
of the federal securities laws and regulations promulgated thereunder, or
(ii) held as the Contingency Reserve. The Board of Directors is hereby
authorized to appoint one or more corporations, partnerships or other persons,
or any combination thereof, including, without limitation, any one or more
officers, directors, employees, agents or representatives of the Company, to act
as the initial Trustee or Trustees for the benefit of the stockholders and to
receive any assets of the Company. Any Trustees appointed as provided in the
preceding sentence shall succeed to all right, title and interest of the Company
of any kind and character with respect to such transferred assets and, to the
extent of the assets so transferred and solely in their capacity as Trustees,
shall assume all of the liabilities and obligations of the Company, including,
without limitation, any unsatisfied claims and unascertained or contingent
liabilities. Further, any conveyance of assets to the Trustees shall be deemed
to be a distribution of property and assets by the Company to the stockholders
for the purposes of Section 3 of this Plan. Any such conveyance to the Trustees
shall be in trust for the stockholders of the Company. The Company, subject to
this Section and as authorized by the Board of Directors, in its absolute
discretion, may enter into a liquidating trust agreement with the Trustees, on
such terms and conditions as the Board of Directors, in its absolute discretion,
may deem necessary, appropriate or desirable. Adoption of this Plan as set forth
in Section 8 hereof shall constitute the approval of the stockholders of any
such appointment, any such liquidating trust agreement and any transfer of
assets by the Company to the Trust as their act and as a part hereof as if
herein written.
7. After the Adoption Date, the officers of the Company shall, at such time
as the Board of Directors, in its absolute discretion, deems necessary,
appropriate or desirable, obtain any certificates required from the Delaware tax
authorities and, upon obtaining such certificates and paying such taxes as may
be owing, the Company shall file with the Secretary of State of the State of
Delaware a Certificate of Dissolution (the "Certificate of Dissolution") in
accordance with the Delaware General Corporation Law.
8. Adoption of this Plan by holders of a majority of the outstanding voting
stock, which includes holders of Common Stock and holders of Series B Preferred
Stock voting on an as-converted basis voting as single class, shall constitute
the approval of the stockholders of the sale, exchange or other disposition in
liquidation of all of the property and assets of the Company, whether such sale,
exchange or other disposition occurs in one transaction or a series of
transactions, and shall constitute ratification of all contracts for sale,
exchange or other disposition which are conditioned on adoption of this Plan.
The Board of Directors, in its sole discretion, may determine whether consent of
the holders of a majority of the Series B Preferred Stock is required for the
approval of this Plan. Such consent is required under a provision of the
Series B Convertible Stock Purchase Agreement dated February 27, 1997 between
the Company and the purchasers of the Series B Preferred Stock but is not
required under either the Delaware General Corporation Law or the Certificate of
Designation relating to the Series B Preferred Stock.
9. In connection with and for the purposes of implementing and assuring
completion of this Plan, the Company may, in the absolute discretion of the
Board of Directors, pay any brokerage, agency, professional and other fees and
expenses of persons rendering services to the Company in connection with the
collection, sale, exchange or other disposition of the Company's property and
assets and the implementation of this Plan.
10. In connection with and for the purpose of implementing and assuring
completion of this Plan, the Company may, in the absolute discretion of the
Board of Directors, pay the Company's officers, directors, employees, agents and
representatives, or any of them, compensation or additional compensation above
their regular compensation, in money or other property, as severance, bonus,
A-3
<Page>
acceleration of vesting of stock or stock options, or in any other form, in
recognition of the extraordinary efforts they, or any of them, will be required
to undertake, or actually undertake, in connection with the implementation of
this Plan. Adoption of this Plan as set forth in Section 8 hereof shall
constitute the approval of the Company's stockholders of the payment of any such
compensation.
11. The Company shall continue to indemnify its officers, directors,
employees, agents and representatives in accordance with its certificate of
incorporation, as amended, and by-laws and any contractual arrangements, for the
actions taken in connection with this Plan and the winding up of the affairs of
the Company. The Company's obligation to indemnify such persons may also be
satisfied out of the assets of the Trust. The Board of Directors and the
Trustees, in their absolute discretion, are authorized to obtain and maintain
insurance as may be necessary or appropriate to cover the Company's obligation
hereunder, including seeking an extension in time and coverage of the Company's
insurance policies currently in effect.
12. Notwithstanding authorization or consent to this Plan and the
transactions contemplated hereby by the Company's stockholders, the Board of
Directors may modify, amend or abandon this Plan and the transactions
contemplated hereby without further action by the stockholders to the extent
permitted by the Delaware General Corporation Law.
13. The Board of Directors of the Company is hereby authorized, without
further action by the Company's stockholders, to do and perform or cause the
officers of the Company, subject to approval of the Board of Directors, to do
and perform, any and all acts, and to make, execute, deliver or adopt any and
all agreements, resolutions, conveyances, certificates and other documents of
every kind which are deemed necessary, appropriate or desirable, in the absolute
discretion of the Board of Directors, to implement this Plan and the transaction
contemplated hereby, including, without limiting the foregoing, all filings or
acts required by any state or federal law or regulation to wind up its affairs.
A-4
<Page>
PRELIMINARY COPY
Every properly signed proxy will be voted in accordance with specifications
made on the reverse side of this card. If not otherwise specified, this proxy
will be voted for proposal 1. This proxy confers discretionary authority to the
persons named herein to vote, in their discretion, on any other matters properly
presented at the Special Meeting. All prior proxies are hereby revoked.
Dated:________________________________________
______________________________________________
Signature(s)
______________________________________________
Signature(s)
NOTE: Please sign exactly as name appears
hereon. Joint owners should each sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such.
Change of address:
______________________________________________
______________________________________________
______________________________________________
ENCHIRA BIOTECHNOLOGY CORPORATION
Proxy Solicited on Behalf of the Board of Directors of
the Company for the Special Meeting of Stockholders December ___, 2002
The undersigned hereby constitutes and appoints William E. Nasser, Paul G.
Brown, III and Daniel J. Monticello, and each of them, his true and lawful
attorneys and proxies with full power of substitution, for and in the name,
place and stead of the undersigned, to attend the Special Meeting of
Stockholders of Enchira Biotechnology Corporation to be held at the offices of
our counsel, Andrews & Kurth L.L.P., 10001 Woodloch Forest Drive, Suite 200, The
Woodlands, Texas 77380 on _________, December ___, 2002, at 10:00 a.m., central
daylight time, and any adjournment(s) thereof, with all powers the undersigned
would possess if personally present and to vote there at, as provided on the
reverse side of this card, the number of shares the undersigned would be
entitled to vote if personally present. In accordance with their discretion,
said attorneys and proxies are authorized to vote upon such other business as
may properly come before the meeting or any adjournment thereof.
1. Approval of the Plan of Complete Liquidation and Dissolution.
[ ] FOR [ ] AGAINST [ ] ABSTAIN