MAXY Maxygen, Inc. (MM)

Compensation Discussion and Analysis

This compensation discussion describes the principles underlying our executive compensation policies and programs. It provides qualitative information regarding the manner and context in which compensation is awarded to and earned by our named executive officers and places in perspective the data presented in the tables and other quantitative information that follows this section.

Executive Summary

Over the past several years, we have focused our efforts on maximizing stockholder value through sales, distributions and other arrangements involving our various assets. In September 2012, we distributed approximately $100.0 million in cash to our stockholders by way of a pro rata special distribution that was primarily classified as a return of capital to our stockholders for U.S. Federal income tax purposes. In May 2012, we received a final $30.0 million payment from Bayer HealthCare LLC, or Bayer, in connection with our sale of certain hematology assets to Bayer in July 2008. In May 2011, a subsidiary of Astellas Pharma Inc., or Astellas, acquired all of our interests in Perseid Therapeutics LLC, or Perseid, a former majority-owned subsidiary that included substantially all of our research and development operations and personnel, for $76.0 million in cash. In December 2010, we distributed substantially all of the shares of Codexis, Inc., or Codexis, common stock we held, together with approximately $30.0 million in cash, to our stockholders by way of pro rata special distributions that were classified as a return of capital to our stockholders for U.S. Federal income tax purposes. In October 2010, we sold the patents and other intellectual property rights associated with the Molecular Breeding™ directed evolution platform to Codexis, for $20.0 million in cash. In January 2010, we sold our vaccine related assets, including the related government grants, to Altravax, Inc., a privately-held biopharmaceutical company, for payments totaling approximately $1.6 million. From December 2009 through December 31, 2012, we repurchased approximately 12.5 million shares of our common stock at an aggregate cost of approximately $67.9 million. Through these stock repurchases and our distributions of cash and Codexis common stock, we have returned over $250.0 million in cash and property to our stockholders since 2009.

We currently have four employees, including two executive officers, all of whom are engaged in general and administrative activities, and we retain all rights to our MAXY-G34 program for development of all therapeutic areas, including the chemotherapy-induced neutropenia and acute radiation syndrome, or ARS, indications. Our current focus is to create value from this program for our stockholders, either through the potential further development of the product candidate, or through a sale, licensing, partnering or other transaction involving the program. We also continue to evaluate potential strategic options for our company as a whole, including a strategic business combination, other transaction or a wind down and dissolution of the company.

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Accordingly, the primary objective of the Compensation Committee and our Board of Directors during this period, including for 2012 and 2013, has been to implement and complete this strategic process and provide appropriate retention incentives intended to ensure the success of such process. In addition, given our small executive team, the Compensation Committee and our Board of Directors have also focused on tailoring each executive officer’s compensation in order to retain that executive.

For 2012, our named executive officers were as follows:

Key compensation matters in 2012 and 2013 for the named executive officers include the following:

Compensation Philosophy and Objectives

As noted above, many of the executive compensation decisions made by the Compensation Committee and our Board of Directors for 2012 and 2013 were made in order to implement and complete our strategic plans, to provide appropriate retention incentives intended to ensure the continued success of such plans, and to recognize accomplishments made during such year, including, in 2012, the receipt of the $30.0 million payment from Bayer and our distribution of approximately $100.0 million in cash to our stockholders.

While the Compensation Committee considers all elements of compensation and our compensation philosophy when determining individual components of pay and total compensation, it views total cash compensation (consisting of base salary and bonus amounts) as an essential part of achieving the objectives discussed above. As a result, the Compensation Committee sets both salary and bonus targets at a level that it believes are necessary to accomplish these objectives. However, the Compensation Committee does not follow any principles in a mechanical fashion; rather, the members use their experience and judgment in determining the compensation for each individual.

In addition, we conducted our annual advisory vote on executive compensation last year at our 2012 annual meeting of stockholders and our compensation program for our named executive officers was supported by over 97% of the votes cast by stockholders on the advisory vote. Based on the success of our compensation program and after consideration of last year’s advisory vote, we made no material modifications to our executive compensation program for 2012 or 2013.

Components of Executive Compensation

The principal elements of our executive compensation program include:

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Our goal is to position the individual elements of our compensation program, as well as the aggregate of these elements, at a level that is commensurate with our performance, and is competitive in the biotechnology industry and our geographic area.

Base Salary

The Compensation Committee views base salary as a critical element of executive compensation because it provides executive officers with a base level of monthly income. Base salary will typically be used to recognize the experience, skills, knowledge and responsibilities required of each executive officer, as well as competitive market conditions. We set the base salary of each of our executive officers at a level we believe enables us to hire and retain individuals in a competitive environment and rewards satisfactory individual performance and a satisfactory level of contribution to our overall business goals. The base salaries of our executive officers are reviewed on an annual basis and adjustments are sometimes made to reflect a cost-of-living increase, performance-based factors, as well as competitive conditions. Generally, executive salaries are adjusted effective January 1 of each year.

Annual Cash Bonus

We maintain an annual cash bonus plan for executive officers and certain other officers designed to ensure that a significant portion of each executive officer’s compensation is placed at risk and linked to the accomplishment of specific results that are expected to lead to the creation of value for our stockholders from both the short-term and long-term perspectives.

Under the cash bonus plan, annual bonus amounts are based on a percentage of the executive officer’s base salary, subject to a specific bonus range and bonus target. Bonus awards are determined based on the achievement of certain corporate and/or individual performance objectives, such as financial and strategic objectives. Under the bonus plan, no specific percentage allocation is generally established among the various objectives in order to provide discretion to the Compensation Committee to account for the quality of accomplishments and the degree to which a specific goal was accomplished. Typically, the Compensation Committee will establish a company-wide bonus pool percentage based on the achievement of corporate objectives and an individual performance factor for each employee, including executive officers, and will apply these percentages to the target bonus amount. The specific bonus ranges, bonus targets and performance objectives are generally reviewed by the Compensation Committee on an annual basis. Bonus payments are typically paid in one payment not later than February 15 following the year to which the performance relates, subject to the executive officer’s continued employment on the payment date.

Under our bonus plan for 2012, Mr. Sulat was eligible for an annual cash bonus of up to 100% of his base salary, with a target level of 50% of base salary. Mr. Borkholder was eligible for an annual cash bonus of up to 35% of his base salary, with a target level of 25% of his base salary. For 2012, our corporate goals included (i) achievements related to our strategy to create value from our MAXY-G34 program for our stockholders, either through the potential further development of the product candidate, or through a sale, licensing, partnering or other transaction involving the program; (ii) the management of our other remaining assets and arrangements, including the potential contingent payment from Bayer HealthCare LLC; (iii) achievements related to the evaluation and/or implementation of potential strategic options for our company as a whole; (iv) achievements related to the evaluation and/or implementation of tax minimization arrangements and return of capital transactions; and (v) achievements related to financial reporting and corporate governance.

For 2013, the Compensation Committee established corporate goals that will be used to evaluate the performance of, and determine annual bonus awards for, all employees, including executive officers. For 2013, the bonus range and bonus target for each of Mr. Sulat and Mr. Borkholder remain unchanged from 2012. For 2013, the corporate goals are substantially similar to the goals established for 2012 and include (i) achievements related to our strategy to create value from our MAXY-G34 program for our stockholders, either through the potential further development of the product candidate, or through a sale, licensing, partnering or other transaction involving the program; (ii) achievements related to the evaluation and/or implementation of potential strategic options for our company as a whole; (iii) achievements related to the successful management of our current or future tax audit; (iv) evaluation and/or implementation of tax minimization arrangements and return of capital transactions; and (v) achievements related to financial reporting and corporate governance.

Equity Incentive Program

The Compensation Committee believes that long-term performance is achieved through an ownership culture that encourages such performance by our executive officers, as well as other employees, through the use of equity-based awards. Our equity compensation plans have been established to provide certain of our employees, including our executive officers, with incentives to reward long-term performance and enhance the link between the creation of stockholder value and long-term compensation.

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In addition to our compensation philosophy and the other factors described above, in determining whether to grant equity awards to an executive and the size of such award, if any, the Compensation Committee generally evaluates the fair value of the grant in accordance with applicable accounting standards, the number of equity award shares granted by position, total annual run rates and total equity awards granted on average per employee. The Compensation Committee also gives serious consideration to the amount of equity overhang and potential stockholder dilution caused by grants of equity compensation and makes its decisions with these factors in mind.

Prior to 2008, the Compensation Committee used stock options as the primary component of equity compensation. Executive officers, as well as other employees, were generally eligible to receive annual merit-based grants of stock options pursuant to our equity compensation plans, which are administered by the Compensation Committee. Beginning in 2009, the Compensation Committee eliminated annual merit-based grants of stock options to all employees, including executive officers. This decision was made in order to provide the Compensation Committee with additional flexibility in the design and use of various equity awards, including options, restricted stock, restricted stock units and other equity awards, in order to provide our employees, including executive officers, with appropriate retention incentives intended to ensure the continued success of our strategic plans.

In connection with the consummation of our joint venture arrangement with Astellas in September 2009, the Compensation Committee approved one-time grants of equity awards to all remaining Maxygen employees, including Mr. Sulat and Mr. Borkholder, consisting of an equal number of stock options and shares of restricted stock. The Compensation Committee also approved the grant of CPUs to all holders of stock options, including executive officers. Together, these awards were intended to establish a new long term incentive plan focused on retaining and motivating continuing employees through the four-year vesting period of these awards. While we have granted such awards to newly hired employees and in connection with promotions, such as the equity awards granted to Mr. Borkholder in connection with his promotion to General Counsel in 2011, the Compensation Committee is not currently expecting to otherwise grant additional equity awards to existing employees, including Mr. Sulat and Mr. Borkholder, during the vesting period of the initial awards. However, the Compensation Committee may elect to provide our executive officers with additional equity awards if it determines that doing so is in our best interests.

Long-Term Incentive Plan—Stock Options and Restricted Shares. Each of the stock option and restricted stock awards granted in September 2009 as part of the long-term incentive plan discussed above vested as to 10% of the shares subject to the award on the first anniversary of the grant date, and vested or vest quarterly thereafter until the second anniversary of the grant date as to 20% of the shares subject to the award, quarterly thereafter until the third anniversary of the grant date as to 45% of the shares subject to the award, and quarterly thereafter until the fourth anniversary of the grant date as to the remaining 25% of the shares subject to the award; provided, however, that all shares subject to the award will immediately vest upon the occurrence of a change in control or dissolution of our company. The stock option awards have an exercise price of $6.53, which was the closing price of our common stock on the Nasdaq Global Market on the date of grant, and expire ten years after the date of grant. For subsequent grants of restricted stock awards, the vesting schedule of these awards is typically modified to provide for vesting on the same vesting dates as the original awards. In addition, upon each vesting date for restricted stock awards granted prior to our December 2010 distributions of Codexis stock and cash to our stockholders, the holders of these awards, including Mr. Sulat and Mr. Borkholder, are eligible to receive their pro rata share of such distributions on a per share basis.

We believe that the stock option and restricted stock awards, together with the CPU awards described below, have contributed to the continued retention of our employees. Given that these awards generally vest in full in September 2013, the Compensation Committee may elect to provide our executive officers with additional equity awards or other incentives if it determines that doing so is in our best interests.

Long-Term Incentive Plan—Contingent Performance Units. As part of the long-term incentive plan discussed above, the board, based upon the recommendation of the Compensation Committee, also authorized and approved the grant of CPUs to all holders of Maxygen stock options who were then providing services to Maxygen, including executive officers. The board also awards CPUs in connection with new stock option awards granted to newly hired employees and upon promotions. The number of CPUs awarded is based on a formula applied uniformly to all CPU recipients based on the number of outstanding stock options held by (or granted to) the individual and the exercise price of such options.

The CPU awards are intended to protect the value of outstanding stock options and to realign long-term incentives in light of our ongoing corporate strategy, which has included, and may include in the future, one or more distributions to our stockholders of a portion of our cash resources or other assets in excess of our current and longer term operational requirements. Accordingly, the awards were designed based upon the Compensation Committee’s review of various equity award mechanisms and are intended to protect holders of our stock options against a reduction in the share price of our common stock resulting from any dividends or distributions to our stockholders made after the grant date of the CPUs, which could negatively affect the realizable value of outstanding options held by our option holders since the options would not otherwise participate in any potential future dividends or

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distributions to our stockholders. In designing the CPUs, the Compensation Committee also considered that the awards (i) utilize an existing type of equity award under our 2006 Equity Incentive Plan, or 2006 Plan, an equity plan previously authorized by stockholders, (ii) use a stock-based award rather than a variable cash-based fund, thereby avoiding the requirement to compensate only with cash, (iii) motivate continuing employees and board members to maximize stockholder returns by isolating past grants from losses due purely to dividends and other distributions, and (iv) retain employees through the four-year vesting period of these awards.

The value of a single CPU, which under the 2006 Plan is a type of restricted stock unit, will be determined at the time of settlement, and will be equal to the value of a single share of our common stock at that time plus the value of all dividend payments and other distributions made on a share of common stock following the grant date of the CPU award. CPUs will vest and be settled on the earliest to occur of (i) a change in control of the company, (ii) a corporate dissolution or liquidation of the company, (iii) an involuntary termination of employment; or (iv) the fourth anniversary of the grant date, generally so long as the holder continues to provide services for the company on a continuous basis from the grant date to the settlement date. The actual number of CPUs that will vest will be equal to any loss in value of an eligible holder’s stock options following the grant date of the CPU award, taking into consideration all dividend payments or other distributions made to our stockholders following the grant date of the CPUs, since the options will not participate in any potential future dividends and distributions. The earned value of any CPU will generally be settled in shares of our common stock. The value of any earned dividend payments or other distributions to shareholders that are attributable to CPUs will generally be settled in shares of our common stock and/or cash. All unvested CPUs remaining following the settlement date will expire immediately.

For illustrative purposes, we have included an estimated value of the CPU awards held by our executive officers in the discussion and compensation tables below, assuming the awards were settled on December 31, 2012.

Policies with Respect to Equity Compensation Awards. In advance of the actual grant of any equity award, we generally plan the award grant date and have the grants approved by the Compensation Committee, or its designee. We have typically granted equity awards upon the commencement of employment, following a promotion or significant change in job responsibilities and we previously granted equity awards annually as part of our merit-based annual grants. Newly hired or promoted employees, other than executive officers, have typically received their equity award on the first business day of the month following their start date or promotion. Newly hired executive officers who are eligible to receive equity awards are granted such awards on or after their date of hire based on the approval of the Compensation Committee. The exercise price of our stock options is the closing price of our common stock on the Nasdaq Global Market on the date of grant. For all equity award grants, the grant date is established when the Compensation Committee, or its designee, approves the grant and all key terms have been determined.

For administrative efficiency, our board has delegated authority to Mr. Sulat to approve equity grants for employees other than executive or other senior officers. Grants must be made in accordance with established guidelines for each grade level and are subject to an annual equity pool approved by our board, which for 2013 is 400,000 shares in the aggregate and 100,000 shares for any individual. Mr. Sulat is required to provide a quarterly update to our Compensation Committee regarding any equity grants.

Stock Ownership Requirements. We do not have any equity ownership guidelines or expectations and our equity compensation plans have provided the principal method for our executive officers to acquire equity or equity-linked interests in our company.

Employee Benefits

Benefits offered to executive officers serve a different purpose than do the other elements of total compensation. In general, they provide a safety net of protection against the financial catastrophes that can result from illness, disability or death. Benefits offered to executive officers are the same as those that are offered to the general employee population and include health and dental insurance, life insurance, short-and long-term disability, and participation in a 401(k) plan. In 2009, the board decided to eliminate matching contributions of common stock under our 401(k) plan as of December 31, 2009. However, effective January 1, 2012, the board reinstated matching contributions under the 401(k) plan, with such contributions made solely in cash. In 2009, the board also suspended employee purchases of common stock under our Employee Stock Purchase Plan.

The Compensation Committee believes that these benefits are consistent with those offered by other comparable companies and specifically with those companies with which we compete for employees. From time to time, our human resources staff obtains data to ensure that such benefit plans and programs remain competitive and reports its findings to the Compensation Committee if necessary.

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Process for Determining Executive Compensation

The processes used by our Compensation Committee and management for determining executive compensation are described below.

Annual Evaluation

Our Compensation Committee typically meets at the end of each year to perform a strategic review of our executive officers’ cash compensation, equity holdings and other benefits, evaluate the performance of the executive officers, determine their annual bonuses for the current year, set their base salaries for the following year, and consider and approve any grants to them of equity incentive compensation for the following year. Our Compensation Committee’s most recent annual evaluation occurred in December 2012. In general, the Compensation Committee evaluates performance through an informal process that takes into account a number of subjective and objective factors in light of company performance against the business plan and goals approved by the board for the year and the achievement of individual goals and objectives. This process allows the Compensation Committee to retain maximum discretion to adjust an executive officer’s compensation components upward or downward if it determines that such adjustment is appropriate and consistent with the objectives and principles of our executive compensation program and to reflect changes in business strategy, unforeseeable challenges or other events or developments not reflected in the business plan, performance measures and goals for the year.

In establishing our executive compensation policies, compensation programs and setting the specific components of compensation, the Compensation Committee generally considers several principal factors, including:

No specific weighting is applied to these factors. The Compensation Committee may also consider industry conditions and the overall effectiveness of our compensation program in achieving desired performance levels. The Compensation Committee believes these comparisons provide important additional context for determining the appropriate level of compensation for our executive officers.

Periodic Reviews

In addition to its annual evaluations, our Compensation Committee periodically reviews compensation levels and pay structure and other benefits for our executive officers to determine whether they provide adequate incentives and motivation to our executive officers and whether they adequately compensate our executive officers relative to comparable positions at other biotechnology companies. As part of its review of the compensation to be paid to the executive officers, as well as the compensation programs generally available to the all employees, the Compensation Committee explicitly and implicitly considers the riskiness of the compensation and compensation programs, and the management of these risks, in light of our overall business, strategy and objectives.

Role of Executive Officers in Compensation Decisions

Mr. Sulat, our Chief Executive Officer, plays a significant role in the compensation process. Mr. Sulat, together with our human resources staff, assists the Compensation Committee by providing annual recommendations regarding the compensation of all employees, including other executive and senior officers. Based on the information and recommendations provided by Mr. Sulat and our human resources staff, the Compensation Committee then performs its own evaluation and exercises its discretion in modifying any recommended compensation or awards to executive officers. Mr. Sulat does not participate in discussions with the Compensation Committee regarding his own compensation. Mr. Sulat and Mr. Borkholder also played a significant role in discussions with the Compensation Committee and our board to establish the corporate, financial and other strategic objectives that were used as performance goals in connection with the annual cash bonus plan. During the past few years, the Executive Chairman of the Board has also played a significant role in discussions with the Compensation Committee, its compensation consultant and our Board to establish compensation programs for all employees, including executive officers.

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Compensation Consultant

On a periodic basis, at the Compensation Committee’s request, we have engaged a compensation consultant as an independent adviser to the Compensation Committee on executive compensation matters. Neither we nor the Compensation Committee engaged a compensation consultant with respect to the compensation provided to our named executive officers in 2012 or 2013.

Benchmarking

The Compensation Committee and our management have utilized independent compensation surveys, including the Radford Global Life Sciences Survey and the BioWorld Executive Compensation Report, as well as publicly available information, to understand the compensation levels and pay structure at peer group companies. These surveys have been utilized to compare our compensation levels and pay structure to those of companies in the biotechnology industry with similar size and performance characteristics to ensure that we offer compensation that is competitive within that group of companies; however, the Compensation Committee uses its judgment to determine specific pay levels necessary to attract and retain executive talent. In exercising this judgment, the Compensation Committee looks beyond the market data and places significant weight on individual job performance and compensation history, future potential, internal pay equity, retention risk for individual executives, and, in the case of new hires, compensation at former employers.

The Compensation Committee initially established a peer group of companies in 2006. In 2010, the Compensation Committee substantially modified the peer group to better reflect the then current structure of the combined Maxygen and Perseid organizations. Although our operations were substantially reduced in 2011 as a result of the acquisition of Perseid by Astellas, our Compensation Committee continues to believe that the peer group of public biotechnology companies identified in 2010 is representative of the sector in which we operate based on each of the companies’ relative market capitalization, geographic location, therapeutic product focus on proteins and antibodies, and the fact that we would likely compete with these companies in connection with retaining our current executives and in the hiring of any new executives. The peer group established by the Compensation Committee in 2010 consisted of the following companies:

Although the Compensation Committee does not establish compensation levels primarily based on benchmarking, it does believe that information regarding compensation practices at other comparable biotechnology companies is useful to ensure that our compensation practices are competitive in the marketplace. However, the purpose of benchmarking surveys is not to supplant the analyses of the individual performance of the executive officers and internal pay equity that we consider when making compensation decisions and the Compensation Committee has discretion in determining the nature and extent of its use. Further, given the limitations associated with comparative pay information for setting individual executive compensation, the Compensation Committee may elect to not use the comparative compensation information at all in the course of making compensation decisions.

Tally Sheets

As part of its annual review, the Compensation Committee has in the past reviewed tally sheets setting forth all components of compensation, including salary, annual bonus and dollar amounts for perquisites and the value of unexercised or unvested equity awards, to assist it in balancing these elements. However, no specific weight was assigned to the tally sheets by the Compensation Committee and, except as otherwise described herein, our Compensation Committee has not adopted any formal or informal policies or guidelines for allocating compensation between short term and long-term compensation, between cash and equity-based compensation, or among different components of compensation. As noted above, due to the small size of our executive team and the lack of annual equity grants and material perquisites, the Committee did not review tally sheets in connection with its executive compensation decisions in 2012 and 2013.

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Internal Pay Equity

Our compensation policies and programs are generally designed, in part, to ensure compensation levels for our executive officers that are both externally competitive and internally equitable. While comparisons to compensation levels at companies in our peer group (discussed above) are helpful in assessing the overall competitiveness of our compensation program, we believe that our executive compensation program also must be internally consistent and equitable in order for us to achieve our corporate objectives.

Executive Compensation in 2012 & 2013

Compensation for Mr. Sulat

For 2012, the Compensation Committee approved an annual base salary of $558,600 for Mr. Sulat, reflecting an increase of approximately 3.25% over his 2011 base salary. In awarding the increase in base salary, the Compensation Committee primarily considered the fact that the increase was consistent with the overall salary pool increase for all other employees. The Compensation Committee also awarded Mr. Sulat a cash bonus of $223,440 for 2012, representing approximately 80% of Mr. Sulat’s target bonus. In determining Mr. Sulat’s bonus award, the Compensation Committee established a company-wide bonus pool percentage of 100% based on the accomplishment of specific goals under our bonus plan, including the receipt of the $30.0 million payment from Bayer and our distribution of approximately $100.0 million in cash to our stockholders, and a personal performance factor for Mr. Sulat of 80%.

For 2013, the Compensation Committee approved an annual base salary of $578,100 for Mr. Sulat, reflecting an increase of approximately 3.5% over his 2012 base salary. In awarding the increase in base salary, the Compensation Committee primarily considered the fact that the increase was consistent with the overall salary pool increase for all other employees. For 2013, Mr. Sulat also remains eligible for an annual bonus award under the 2013 bonus plan of between 0% and 100% of his base salary, with a target bonus of 50%.

As part of the long-term incentive plan we established in September 2009 and in connection with his appointment as our Chief Executive Officer and Chief Financial Officer, Mr. Sulat was granted a stock option and a restricted stock award, each covering 400,000 shares of common stock, and a CPU award covering 353,259 units. The vesting schedules of these awards are described above. In determining the equity component of Mr. Sulat’s compensation, the Compensation Committee evaluated the value of this equity compensation against our peer group and determined that Mr. Sulat’s equity award approximated the 63 ^rd percentile of the chief executive officers in our then current peer group. In awarding Mr. Sulat equity compensation above the 50th percentile of our peer group, the Compensation Committee considered, among other things, the fact that the stock options, shares of restricted stock and CPUs granted to Mr. Sulat were intended to represent a one-time grant of equity under the long-term incentive plan to provide appropriate retention incentives through the four-year vesting period of these awards. The Compensation Committee also considered the fact that Mr. Sulat assumed the dual responsibilities of Chief Executive Officer and Chief Financial Officer and that Mr. Sulat’s change of control agreement (described below) provides for significantly less severance benefits than the arrangements with our former executive officers and the comparable arrangements with chief executive officers in our peer group of companies. For illustrative purposes only, assuming a settlement of the CPU awards on December 31, 2012, the aggregate potential value of Mr. Sulat’s CPU award would have been approximately $419,185, which amount could have been settled in shares of Maxygen common stock and/or cash.

Mr. Sulat has not been granted any new equity awards since the 2009 grants and the Compensation Committee is not currently expecting to grant additional equity awards to Mr. Sulat during the vesting period of his current long-term incentive awards, but may do so if it determines it is in our best interests.

Compensation for Mr. Borkholder

For 2012, the Compensation Committee approved an annual base salary of $264,000 for Mr. Borkholder, reflecting an increase of approximately 3.25% over his 2011 base salary. In awarding the increased salary, the Compensation Committee primarily considered the fact that the increase was consistent with the overall salary pool increase for all other employees. The Compensation Committee also considered available data from our peer group reflecting that Mr. Borkholder’s 2011 base salary was consistent with the salaries of the general counsels in our peer group. The Compensation Committee also awarded Mr. Borkholder a cash bonus of $66,000 for 2012, representing 100% of Mr. Borkholder’s target bonus. In determining Mr. Borkholder’s bonus award, the Compensation Committee established a company-wide bonus pool percentage of 100%, based on the accomplishment of specific goals under our bonus plan, including the receipt of the $30.0 million payment from Bayer and our distribution of approximately $100.0 million in cash to our stockholders, and a personal performance factor for Mr. Borkholder of 100%.

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For 2013, the Compensation Committee approved an annual base salary of $273,250 for Mr. Borkholder, reflecting an increase of approximately 3.5% over his 2012 base salary. In awarding the increased salary, the Compensation Committee primarily considered the fact that the increase was consistent with the overall salary pool increase for all other employees. For 2013, Mr. Borkholder also remains eligible for an annual bonus award under the 2013 bonus plan of between 0% and 35% of his base salary, with a bonus target of 25%.

As part of the long-term incentive plan we established in September 2009, Mr. Borkholder was granted a stock option and a restricted stock award, each covering 65,000 shares of common stock, and a CPU award covering 119,217 units. In connection with his promotion to General Counsel in January 2011, the Compensation Committee also approved the grant to Mr. Borkholder of a stock option award and a restricted stock award, each covering 20,000 shares of common stock, and a CPU award covering 24,752 units. The stock option award has an exercise price of $4.04, which was the closing price of our common stock on the Nasdaq Global Market on the date of grant, and expires ten years after the date of grant. The vesting schedules of these awards are described above. For illustrative purposes only, assuming a settlement of the CPU awards on December 31, 2012, the aggregate potential value of Mr. Borkholder’s original CPU award would have been approximately $170,000, which amount could have been settled in shares of Maxygen common stock, the property distributed to stockholders (i.e., shares of Codexis common stock) and/or cash.

The Compensation Committee is not currently expecting to grant additional equity awards to Mr. Borkholder during the vesting period of his long-term incentive awards, but may do so if it determines it is in our best interests.

Employment and Change of Control Arrangements

We have entered into change of control agreements with Mr. Sulat and Mr. Borkholder. We also entered into a letter agreement with Mr. Sulat in connection with his initial employment as our Chief Executive Officer and Chief Financial Officer in September 2009.

The Compensation Committee periodically conducts a review of competitive data provided by internally prepared reports, as well as potential costs to us of change of control agreements under various potential termination scenarios. However, payments which an executive officer would be entitled to receive under the change of control agreements historically have not been considered by the Compensation Committee when making annual compensation decisions for the executive officers and generally do not factor into decisions made by the Compensation Committee regarding other compensation elements. Rather, these arrangements are stand-alone agreements designed to promote stability and continuity of senior management and to balance the need for an executive officer’s personal financial security with the need to act in the best interest of our stockholders in a situation involving a potential change of control of our company.

Employment Arrangement with Mr. Sulat. In connection with his appointment as our Chief Executive Officer and Chief Financial Officer, Mr. Sulat executed an offer letter from us on September 22, 2009 that outlined the initial terms of his employment, including his compensation package, which consisted of the following elements: (i) an initial annual base salary of $525,520 (which remained unchanged for 2010 and was increased by the Compensation Committee to $541,000 for 2011 and to $558,600 for 2012); (ii) an annual cash incentive bonus opportunity of up to 100% of annual base salary with a target level of 50% of base salary; (iii) equity awards consisting of a stock option to purchase 400,000 shares of our common stock, with an exercise price equal to $6.53 (the fair market value of our common stock on September 22, 2009), 400,000 shares of restricted stock; and 353,259 CPUs, each subject to the vesting schedules described above; (iv) certain relocation benefits of up to $100,000; and (v) employee benefits generally available to all employees. Mr. Sulat’s employment with us is on an at-will basis, and the term of employment is unspecified. Actual bonus amounts are determined by the Board, in its sole discretion, based on company and individual performance.

Change of Control Agreements . Our Board has approved the terms of a change of control agreement between us and each of Mr. Sulat and Mr. Borkholder. Under the change of control agreements, in the event of a termination of either officer’s employment without “cause” or a resignation by either officer with “good reason,” in each case within 18 months following a “change of control” (as each such term is defined in the change of control agreement), the individual will be entitled to receive (i) a lump sum payment equal to one year of his then-current base salary; (ii) continuation of health benefits for up to 12 months; and (iii) the payment of his target bonus amount for the year in which his employment is terminated.

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Additional information regarding the material terms and potential or actual payments under these employment and change of control arrangements referenced above is provided in the section titled “Potential Payments Upon Termination or Change of Control” on page 16.

Severance Arrangements

Except for the employment and change of control arrangements referenced above, neither of our current executive officers have any other arrangements that provide for payment of severance benefits or other benefits upon termination (except for accrued vacation and similar benefits otherwise payable to all employees upon a termination).

Nonqualified Deferred Compensation

None of our executive officers participate in non-qualified defined contribution plans or other deferred compensation plans maintained by us. However, our Compensation Committee may elect to provide our officers and other employees with non-qualified defined contribution or deferred compensation benefits if the Compensation Committee determines that doing so is in our best interests.

Tax and Accounting Implications

Section 162(m) of the Internal Revenue Code. Section 162(m) of the Internal Revenue Code limits the tax deductibility by a corporation of compensation in excess of $1 million paid to its Chief Executive Officer and any other of its four most highly compensated executive officers. Certain compensation, including qualified performance-based compensation, will not be subject to the deduction limit if certain requirements are met. The Compensation Committee reviews the potential effect of Section 162(m) periodically and uses its judgment to authorize compensation payments that may be subject to the limit when the Compensation Committee believes such payments are appropriate and in the best interests of the company and its stockholders, after taking into consideration changing business conditions and the performance of its employees. Compensation paid to our executives has historically met the annual compensation limit of Section 162(m).

Section 409A of the Internal Revenue Code. Section 409A of the Internal Revenue Code imposes additional significant taxes in the event that a named executive officer, director or other service provider receives “deferred compensation” that does not satisfy the requirements of Section 409A. Although we do not maintain a traditional nonqualified deferred compensation plan, Section 409A applies to a variety of benefits plans and compensation arrangements. We intend to design and administer our compensation and benefits plans and arrangements for all of our employees, including executive officers, so that they are either exempt from, or satisfy the requirements of, Section 409A. With respect to our compensation and benefit plans that are subject to Section 409A, in accordance with Section 409A and regulatory guidance issued by the Internal Revenue Service, we are currently operating such plans in compliance with Section 409A of the Internal Revenue Code. Pursuant to that regulatory guidance, we have also amended our plans and arrangements to either make them exempt from, or have them comply with, Section 409A.

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See the section titled “Compensation Discussion and Analysis” above for a complete description of our compensation policies and plans pursuant to which the amounts listed under the Summary Compensation Table and Grants of Plan-Based Awards Table were paid or awarded and the criteria for such payment or award.

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Potential Payments Upon Termination or Change of Control

We have typically entered into change of control agreements with each of our executive officers. The change of control agreements provide the executive officers with protection of certain benefits in case of a termination of his or her employment with us in connection with a change of control of the Company (as defined in the change of control agreements).

Change of Control Agreements

We have entered into change of control agreements with Mr. Sulat and Mr. Borkholder. Under the change of control agreements, a change of control occurs upon:

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Under the change of control agreements, if a change of control occurs and, within eighteen (18) months following the change of control (except as described below), either (x) the company terminates the executive officer’s employment other than for cause, disability (as each term in defined in the change of control agreements) or death or (y) the executive officer terminates his employment with the company voluntarily with “good reason” (as defined in the change of control agreements), then in each case (subject to the executive officer entering into a release of claims in favor of the company), the executive officer is eligible to receive the following payments and benefits:

If a change of control occurs and, within eighteen (18) months following the change of control (except as described below), the executive officer’s employment with the company is terminated as a result of death or disability, then in each case:

For the purposes of the change of control agreements, “cause” means the executive officer’s: (i) willful and continued failure to substantially perform his duties; (ii) commission of a felony (other than a traffic-related offense) that in the written determination of the company is likely to cause or has caused material injury to the company’s business; (iii) dishonesty with respect to a significant matter relating to the company’s business; or (iv) an uncured material breach of any agreement by and between the executive officer and the company. For the purposes of the change of control agreement, “good reason” means: (i) any material reduction of the executive officer’s duties, authority or responsibilities relative to his duties, authority, or responsibilities as in effect immediately before such reduction; (ii) a material reduction by the company in the executive officer’s base compensation, as in effect immediately before such reduction; (iii) a material change in the geographic location at which the executive officer must perform his duties; or (iv) a material breach by the company of any provision of the change of control agreement.

The change of control agreements provide that in the event that the severance, acceleration of stock options and other benefits payable to the executive officer described above constitute “parachute payments” within the meaning of Section 280G (as it may be amended or replaced) of the Internal Revenue Code and would be subject to the excise tax imposed by Section 4999 (as it may be amended or replaced) of the Internal Revenue Code, then the executive officer’s benefits shall be either delivered in full, or delivered as to such lesser extent that would result in no portion of such benefits being subject to the excise tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax, results in the receipt by the executive officer on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the excise tax.

Prior to a change of control of the company, the right to receive benefits under the change of control agreement will automatically terminate on the date upon which the executive officer ceases to be an executive officer, for any reason or no reason, as evidenced by his written resignation, by action of the Board removing such executive officer as an executive officer or otherwise.

We intend these change of control and severance arrangements to comply with requirements of Section 409A of the Internal Revenue Code and have designed the agreements to ensure that the arrangements are either exempt from, or satisfy the requirements of, Section 409A.

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Estimated Potential Payments

The table below sets forth the estimated current value of potential payments and benefits to each of the named executive officers under the change of control and severance arrangements described above. In the case of Mr. Sulat and Mr. Borkholder, the amounts shown assume that the triggering events occurred on December 31, 2012. The amounts shown below do not include (i) benefits earned during the term of the named executive officer’s employment that are available to all employees, such as accrued vacation and (ii) benefits paid by insurance providers under life and disability policies. The actual amounts or value to be paid to or received by the executive officer can only be determined at the time of such executive officer’s separation from the company or the at the time of actual receipt of benefits.

Director Compensation

Non-employee directors of the Company are paid (i) an annual retainer fee of $40,000; (ii) an annual retainer fee of $20,000 for service as chairperson of the Audit Committee of the Board, if applicable; (iii) an annual retainer fee of $15,000 for service as chairperson of any committee of the Board other than the Audit Committee, if applicable; (iv) an annual retainer fee of $5,000 for service as a member (but not the chairperson) of any committee of the Board, if and as applicable; (v) a meeting fee of $5,000 per meeting of the Board; (vi) a meeting fee of $1,000 per special or telephonic meeting of the Board of limited duration; and (vii) a meeting fee of $1,000 per meeting of a committee of the Board (including meetings of any special or ad hoc committee of the Board).

Non-employee members of the Board also receive nondiscretionary, automatic grants of 15,000 restricted shares of common stock of the Company on the date that the Board member first is appointed or elected to the Board. In addition, non-employee members of the Board receive nondiscretionary, automatic grants of 10,000 restricted shares of common stock of the Company each year on the date of the first meeting of the Board immediately following each annual meeting of stockholders of the Company (even if held on the same day as any such annual meeting of stockholders of the Company); provided, however, that the Board member is not an employee of the Company as of any such date.

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Both the initial and annual awards of restricted shares of common stock of the Company to non-employee members of the Board are made under the Company’s 2006 Equity Incentive Plan, or 2006 Plan, and subject to the non-employee Board member’s continuous service to the Company, will vest as to 25% of the shares subject to the award each year on the first four anniversaries of the grant date; provided, however, that all shares subject to an award will immediately vest upon occurrence of a change in control or dissolution of the Company.

From time to time, the Board also approves the grant of additional equity awards to individual directors. In May 2008, the Board approved the grant of a restricted stock unit award covering 60,000 shares of Company common stock to Mr. Isaac Stein in his capacity as Chairman of the Board. This award was subject to the same terms and conditions applicable to the restricted stock unit awards granted to Company employees and became fully vested on November 30, 2009. In addition, on September 22, 2009, the Board authorized and approved special one-time grants of equity awards under the 2006 Plan to Mr. Stein and each non-employee member of the Board. Each non-employee member of the Board received (i) options to purchase 20,000 shares of common stock of the Company; (ii) 20,000 restricted shares of common stock of the Company; and (iii) contingent performance units, or CPUs, in the following amounts:

Mr. Stein was awarded (i) an option to purchase 200,000 shares of common stock of the Company, (ii) 200,000 restricted shares of common stock of the Company, and (iii) 290,813 CPUs. These awards are subject to the same terms and conditions applicable to the awards granted to Company employees on such date, with 10% of the shares subject to the option and restricted stock awards vesting on the first anniversary of the grant date, quarterly thereafter until the second anniversary of the grant date as to 20% of the shares subject to the awards, quarterly thereafter until the third anniversary of the grant date as to 45% of the shares subject to the awards, and quarterly thereafter until the fourth anniversary of the grant date as to the remaining 25% of the shares subject to the awards; provided, however, that all shares subject to the award will immediately vest upon occurrence of a change in control or dissolution of the Company. The stock options had an exercise price of $6.53, which was the closing price of our common stock on the Nasdaq Global Market on the date of grant, and expire ten years after the date of grant.

In addition to the compensation paid or awarded to Mr. Stein for his services as a member of the Board and Executive Chairman of the Board, in 2006 the Company entered into a consulting agreement with Waverley Associates, Inc., or Waverley, a private investment firm for which Mr. Stein is the president and sole stockholder. Under this consulting arrangement, the Company pays consulting fees to Waverley and granted Mr. Stein an option to purchase shares of the Company’s common stock. See “Related Party Transactions” included in Item 13 of this report. The amounts paid to Waverley in 2012 under the consulting agreement are included in the Director Compensation table below. Effective September 22, 2009, Mr. Stein no longer receives additional compensation for his service as a director.

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In addition, the compensation amounts above do not include any amounts attributable to the CPU awards granted to each director in September 2009. As the CPUs are accounted for as liability awards, the Company re-measures the fair value of such awards at each reporting date, and records compensation expense utilizing a straight-line attribution method. For illustrative purposes only, assuming a settlement of the CPUs on December 31, 2012, the aggregate potential value of the CPU awards granted to Messrs. Stein, Sulat, Lange, Lee, Mario and Ringold would have been approximately $219,000, $419,000, $59,000, $19,000, $49,000 and $49,000, respectively, which amounts could have been settled by the Company in shares of Maxygen common stock and/or cash. For additional information regarding the CPU awards, see “Compensation Discussion and Analysis—Components of Executive Compensation—Long-Term Equity Plan—Contingent Performance Units.”

Compensation Committee Interlocks and Insider Participation

During 2012, Ernest Mario, Louis Lange, Kenneth Lee and Gordon Ringold served as members of the Company’s Compensation Committee. They have no relationship with the Company other than as directors and stockholders. During 2012, no executive officer of the Company served as a director, or as a member of any compensation committee, of any other for-profit entity that had an executive officer that served on the Board of Directors or Compensation Committee of the Company.

Compensation Committee Report

We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Amendment No. 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

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