Exhibit 10.4

MAXYGEN, INC.

2006 EQUITY INCENTIVE PLAN

(Effective as of May 30, 2006)

1. Purposes of the Plan. The purposes of this 2006 Equity Incentive Plan are to
attract and retain the services of qualified employees, officers, directors and
consultants and provide additional incentives to such persons to devote their
utmost effort and skill to the success of the Company’s business.

Awards granted hereunder may be either Incentive Stock Options, Nonstatutory
Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock
Units, Performance Shares, Performance Units or Dividend Equivalents, at the
discretion of the Administrator and as reflected in the terms of the Award
Agreement.

2. Definitions. As used herein, the following definitions shall apply:

(a) “Administrator” means the Board or any of its Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.

(b) “Annual Revenue” means the Company’s or a business unit’s total revenues for
the Fiscal Year, determined in accordance with generally accepted accounting
principles.

(c) “Applicable Laws” means the legal requirements relating to the
administration of equity compensation plans under state and federal corporate
and securities laws and the Code.

(d) “Award” means, individually or collectively, a grant under the Plan of
Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units,
Performance Shares, Performance Units or Dividend Equivalents.

(e) “Award Agreement” means the written or electronic agreement setting forth
the terms and provisions applicable to each Award granted under the Plan. The
Award Agreement is subject to the terms and conditions of the Plan.

(f) “Awarded Stock” means the Common Stock subject to an Award.

(g) “Board” means the Board of Directors of the Company.

(h) “Cash Burn” or “Cash Utilization” means the Company’s non-GAAP net loss
excluding depreciation but adjusted to include capital expenditures. Non-GAAP
net loss is equal to net loss applicable to common stockholders excluding
(i) stock compensation expense, (ii) amortization of intangible assets and
(iii) subsidiary preferred stock accretion.

(i) “Cash Position” means the Company’s level of cash and cash equivalents.

 

-1-

--------------------------------------------------------------------------------

(j) “Code” means the Internal Revenue Code of 1986, as amended.

(k) “Committee” means the Committee appointed by the Board of Directors in
accordance with paragraph (a) of Section 4 of the Plan, if one is appointed.

(l) “Common Stock” means the Common Stock of the Company.

(m) “Company” means Maxygen, Inc., a Delaware corporation.

(n) “Consultant” means any person, including an advisor, engaged by the Company
or a Parent or Subsidiary to render services and who is compensated for such
services, provided that the term “Consultant” shall not include Directors who
are paid only a director’s fee by the Company or who are not compensated by the
Company for their services as Directors.

(o) “Director” means a member of the Board.

(p) “Disability” means total and permanent disability as defined in
Section 22(e)(3) of the Code.

(q) “Dividend Equivalent” means a credit, payable in cash, made at the
discretion of the Administrator, to the account of a Participant in an amount
equal to the cash dividends paid on one Share for each Share represented by an
Award held by such Participant. Dividend Equivalents may be subject to the same
vesting restrictions as the related Shares subject to an Award, at the
discretion of the Administrator.

(r) “Earnings Per Share” means, as to any Fiscal Year, the Company’s or a
business unit’s Net Income, divided by a weighted average number of common
shares outstanding and dilutive common equivalent shares deemed outstanding,
determined in accordance with generally accepted accounting principles.

(s) “Employee” means any person, including officers and directors, employed by
the Company or any Parent or Subsidiary of the Company; provided that the
payment of a director’s fee by the Company shall not be sufficient to constitute
“employment” by the Company.

(t) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(u) “Fair Market Value” means, as of any date, the value of Common Stock
determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq National Market
of the National Association of Securities Dealers, Inc. Automated Quotation
(“Nasdaq”) System, the Fair Market Value of a Share of Common Stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the date of determination or, if
the date of determination is not a trading day, the immediately preceding
trading day, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable;

 

-2-

--------------------------------------------------------------------------------

(ii) If the Common Stock is quoted on the Nasdaq System (but not on the Nasdaq
National Market thereof) or is regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value of a Share of
Common Stock shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination,
as reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or

(iii) In the absence of an established market for the Common Stock, the Fair
Market Value shall be determined in good faith by the Administrator.

(v) “Fiscal Year” means a fiscal year of the Company.

(w) “Incentive Stock Option” means an Option intended to qualify as an incentive
stock option within the meaning of Section 422 of the Code.

(x) “Net Income” means as to any Fiscal Year, the income (loss) applicable to
common stockholders after taxes of the Company for the Fiscal Year determined in
accordance with generally accepted accounting principles.

(y) “Nonstatutory Stock Option” means an Option not intended to qualify as an
Incentive Stock Option.

(z) “Notice of Grant” means a written or electronic notice evidencing certain
terms and conditions of an individual Award. The Notice of Grant is part of the
Award Agreement.

(aa) “Officer” means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(bb) “Operating Cash Flow” means the Company’s or a business unit’s sum of Net
Income, adjusted for extraordinary items, plus depreciation and amortization
plus changes in working capital comprised of accounts receivable, inventories,
other current assets, trade accounts payable, accrued expenses, deferred
revenue, product warranty, advance payments from customers and long-term accrued
expenses, determined in accordance with generally acceptable accounting
principles.

(cc) “Operating Income” means the Company’s or a business unit’s income from
operations determined in accordance with generally accepted accounting
principles.

(dd) “Option” means a stock option granted pursuant to the Plan.

(ee) “Outside Director” means a Director who is not an Employee.

 

-3-

--------------------------------------------------------------------------------

(ff) “Parent” means a “parent corporation”, whether now or hereafter existing,
as defined in Section 424(e) of the Code.

(gg) “Participant” means the holder of an outstanding Award granted under the
Plan.

(hh) “Performance Goals” means the goal(s) (or combined goal(s)) determined by
the Administrator (in its discretion) to be applicable to a Participant with
respect to an Award. As determined by the Administrator, the Performance Goals
applicable to an Award may provide for a targeted level or levels of achievement
using one or more of the following measures: (a) Annual Revenue, (b) Cash
Utilization, (c) Cash Position, (d) Earnings Per Share, (e) Net Income,
(f) Operating Cash Flow, (g) Operating Income, (h) Return on Assets, (i) Return
on Equity, (j) Return on Sales and (k) Total Stockholder Return. For Awards not
intended to qualify for treatment under Section 162(m) of the Code, there may be
additional Performance Goals set by the Board. The Performance Goals may differ
from Participant to Participant and from Award to Award. The Administrator shall
appropriately adjust any evaluation of performance under a Performance Goal to
exclude (i) any extraordinary non-recurring items as described in Accounting
Principles Board Opinion No. 30 and/or in management’s discussion and analysis
of financial conditions and results of operations appearing in the Company’s
annual report to stockholders for the applicable year, or (ii) the effect of any
changes in accounting principles affecting the Company’s or a business units’
reported results.

(ii) “Performance Share” means a performance share Award granted to a
Participant pursuant to Section 12.

(jj) “Performance Unit” means a performance unit Award granted to a Participant
pursuant to Section 13.

(kk) “Plan” means this 2006 Equity Incentive Plan, as amended.

(ll) “Restricted Stock” means a restricted stock Award granted to a Participant
pursuant to Section 10.

(mm) “Restricted Stock Unit” means a bookkeeping entry representing an amount
equal to the Fair Market Value of one Share, granted pursuant to Section 11.
Each Restricted Stock Unit represents an unfunded and unsecured obligation of
the Company.

(nn) “Return on Assets” means the percentage equal to the Company’s or a
business unit’s Operating Income before incentive compensation, divided by
average net assets of the Company or business unit, as applicable, determined in
accordance with generally accepted accounting principles.

(oo) “Return on Equity” means the percentage equal to the Company’s Net Income
divided by average stockholder’s equity, determined in accordance with generally
accepted accounting principles.

 

-4-

--------------------------------------------------------------------------------

(pp) “Return on Sales” means the percentage equal to the Company’s or a business
unit’s Operating Income before incentive compensation, divided by the Company’s
or the business unit’s, as applicable, revenue, determined in accordance with
generally accepted accounting principles.

(qq) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule
16b-3, as in effect when discretion is being exercised with respect to the Plan.

(rr) “Section 16(b)” means Section 16(b) of the Exchange Act.

(ss) “Share” means a share of the Common Stock, as adjusted in accordance with
Section 18 of the Plan.

(tt) “Stock Appreciation Right” or “SAR” means a stock appreciation right
granted pursuant to Section 8 below.

(uu) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter
existing, as defined in Section 424(f) of the Code.

(vv) “Total Stockholder Return” means the total return (change in share price
plus reinvestment of any dividends) of a Share.

3. Shares Subject to the Plan. Subject to the provisions of Section 18 of the
Plan, the maximum aggregate number of Shares which may be issued under the Plan
is 6,037,824 Shares (which is the number of Shares remaining available for
issuance under the Company’s 1997 Stock Option Plan as of April 3, 2006), minus
any Shares subject to stock options granted under the Company’s 1997 Stock
Option Plan in the period commencing on April 3, 2006 and ending on May 30,
2006, plus any Shares subject to stock options that are outstanding under the
Company’s 1997 Stock Option Plan on May 30, 2006 that subsequently expire
unexercised, up to a maximum of an additional 5,000,000 Shares. All of the
Shares issuable under the Plan may be authorized, but unissued, or reacquired
Common Stock.

Any Shares subject to Awards granted hereunder shall be counted against the
numerical limits of this Section 3 as one Share for every Share subject thereto.

If an Award expires or becomes unexercisable without having been exercised in
full, or, with respect to Restricted Stock, Performance Shares or Restricted
Stock Units, is forfeited to or repurchased by the Company at its original
purchase price due to such Award failing to vest, the unpurchased Shares (or for
Awards other than Options and SARs, the forfeited or repurchased shares) which
were subject thereto shall become available for future grant or sale under the
Plan (unless the Plan has terminated). With respect to SARs, when an SAR is
exercised, only the shares issued to the Participant exercising the SAR shall be
counted against the numerical limits of this Section 3, (i.e., shares withheld
to satisfy the exercise price of an SAR or to satisfy the statutory minimum
required tax withholding upon exercise of an SAR shall remain available for
issuance under the Plan). Shares that have actually been issued under the Plan
under any Award shall not be returned to the Plan and shall not become available
for future distribution under the Plan; provided,

 

-5-

--------------------------------------------------------------------------------

however, that if Shares of Restricted Stock, Performance Shares or Restricted
Stock Units are repurchased by the Company at their original purchase price or
are forfeited to the Company due to such Awards failing to vest, such Shares
shall become available for future grant under the Plan. Shares used to pay the
exercise price of an Option upon a net exercise shall remain available for
future grant or sale under the Plan. Shares used to satisfy tax withholding
obligations shall remain available for future grant or sale under the Plan. To
the extent an Award under the Plan is paid out in cash rather than stock, such
cash payment shall not reduce the number of Shares available for issuance under
the Plan. Any payout of Dividend Equivalents or Performance Units, because they
are payable only in cash, shall not reduce the number of Shares available for
issuance under the Plan. Conversely, any forfeiture of Dividend Equivalents or
Performance Units shall not increase the number of Shares available for issuance
under the Plan.

4. Administration of the Plan.

(a) Procedure.

(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the Plan may be
administered by different bodies with respect to Directors, Officers who are not
Directors, and Employees who are neither Directors nor Officers.

(ii) Section 162(m). To the extent that the Administrator determines it to be
desirable to qualify Awards granted hereunder as “performance-based
compensation” within the meaning of Section 162(m) of the Code, the Plan shall
be administered by a Committee consisting solely of two or more “outside
directors” within the meaning of Section 162(m) of the Code.

(iii) Administration With Respect to Directors and Officers Subject to
Section 16(b). With respect to Awards granted to Employees who are also Officers
or Directors subject to Section 16(b) of the Exchange Act, the Plan shall be
administered by (A) the Board, if the Board may administer the Plan in
compliance with Rule 16b-3, or (B) a committee designated by the Board to
administer the Plan, which committee shall be constituted to comply with
Rule 16b-3. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Rule 16b-3.

(iv) Administration With Respect to Other Persons. With respect to Awards
granted to Employees or Consultants who are neither Directors nor Officers of
the Company, the Plan shall be administered by (A) the Board or (B) a committee
designated by (1) the Board or (2) a committee designated by the Board, which
committee, in each case, shall be constituted to satisfy Applicable Laws. Once
appointed, such Committee shall serve in its designated capacity until otherwise
directed by the Board. The Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by Applicable Laws.

 

-6-

--------------------------------------------------------------------------------

(b) Powers of the Administrator. Subject to the provisions of the Plan, and in
the case of a Committee, subject to the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:

(i) to determine the Fair Market Value in accordance with Section 2(u) of the
Plan;

(ii) to select the Employees, Consultants and Directors to whom Awards may be
granted hereunder;

(iii) to determine whether and to what extent Awards are granted hereunder;

(iv) to determine the number of Shares to be covered by each Award granted
hereunder;

(v) to approve forms of agreement for use under the Plan;

(vi) to determine the terms and conditions, not inconsistent with the terms of
the Plan, of any Award granted hereunder. Such terms and conditions include, but
are not limited to, the exercise price, the time or times when Awards may be
exercised (which may be based on performance or other criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Award or the Shares relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;

(vii) to construe and interpret the terms of the Plan and Awards granted
pursuant to the Plan;

(viii) to prescribe, amend and rescind rules and regulations relating to the
Plan;

(ix) to modify or amend each Award, subject to Section 21(c) hereof; provided,
however, that the exercise price for an Option or SAR may not be reduced without
the consent of the Company’s stockholders. This shall include, without
limitation, a repricing of the Option or SAR as well as pursuant to an Option or
SAR exchange program whereby the Participant agrees to cancel an existing Option
or SAR in exchange for an Option, SAR or other Award. Notwithstanding the
foregoing, the Administrator shall be permitted to offer Participants the right
to cancel outstanding Options or SARs in exchange for a cash payment without
obtaining the consent of the Company’s stockholders;

(x) to authorize any person to execute on behalf of the Company any instrument
required to effect the grant of an Award previously granted by the
Administrator;

(xi) to determine the terms and restrictions applicable to Awards;

 

-7-

--------------------------------------------------------------------------------

(xii) to determine whether Awards will be adjusted for Dividend Equivalents and
whether such Dividend Equivalents shall be subject to vesting;

(xiii) to extend the post-termination exercise period of any SAR or Option,
consistent with Code Section 409A and subject to Plan Section 21(c); and

(xiv) to make all other determinations deemed necessary or advisable for
administering the Plan.

(c) Effect of Administrator’s Decision. All decisions, determinations and
interpretations of the Administrator shall be final and binding on all
Participants and any other holders of any Awards granted under the Plan.

5. Eligibility. Awards may be granted only to Employees, Consultants and
Directors. Incentive Stock Options may be granted only to Employees. An
Employee, Consultant or Director who has been granted an Award may, if he or she
is otherwise eligible, be granted an additional Award or Awards.

6. Code Section 162(m) Provisions.

(a) Option and SAR Annual Share Limit. No Participant shall be granted, in any
Fiscal Year, Options and Stock Appreciation Rights to purchase more than
1,000,000 Shares; provided, however, that such limit shall be 2,000,000 Shares
in the Participant’s first Fiscal Year of Company service.

(b) Restricted Stock, Performance Share and Restricted Stock Unit Annual Limit.
No Participant shall be granted, in any Fiscal Year, more than 500,000 Shares in
the aggregate of the following: (i) Restricted Stock, (ii) Performance Shares,
or (iii) Restricted Stock Units; provided, however, that such limit shall be
1,000,000 Shares in the Participant’s first Fiscal Year of Company service.

(c) Performance Units Annual Limit. No Participant shall receive Performance
Units, in any Fiscal Year, having an initial value greater than $1,000,000,
provided, however, that such limit shall be $2,000,000 in the Participant’s
first Fiscal Year of Company service.

(d) Section 162(m) Performance Restrictions. For purposes of qualifying grants
of Restricted Stock, Performance Shares, Performance Units or Restricted Stock
Units as “performance-based compensation” under Section 162(m) of the Code, the
Administrator, in its discretion, may set restrictions based upon the
achievement of Performance Goals. The Performance Goals shall be set by the
Administrator on or before the latest date permissible to enable the Restricted
Stock, Performance Shares, Performance Units or Restricted Stock Units to
qualify as “performance-based compensation” under Section 162(m) of the Code. In
granting Restricted Stock, Performance Shares, Performance Units or Restricted
Stock Units which are intended to qualify under Section 162(m) of the Code, the
Administrator shall follow any procedures determined by it from time to time to
be necessary or appropriate to ensure qualification of the Award under
Section 162(m) of the Code (e.g., in determining the Performance Goals).

 

-8-

--------------------------------------------------------------------------------

(e) Changes in Capitalization. The numerical limitations in Sections 6(a) and
(b) shall be adjusted proportionately in connection with any change in the
Company’s capitalization as described in Section 18(a).

7. Stock Options

(a) Type of Option. Each Option shall be designated in the Award Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Shares subject to a Participant’s Incentive Stock Options granted by
the Company, any Parent or Subsidiary, that become exercisable for the first
time during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 7(a), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the time of grant.

(b) Term of Option. The term of each Option shall be stated in the Notice of
Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to a Participant who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.

(c) Exercise Price and Consideration.

(i) The per Share exercise price for the Shares to be issued pursuant to
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:

(A) In the case of an Incentive Stock Option

(1) granted to an Employee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant.

(2) granted to any Employee, the per Share exercise price shall be no less than
100% of the Fair Market Value per Share on the date of grant.

 

-9-

--------------------------------------------------------------------------------

(B) In the case of a Nonstatutory Stock Option, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.

(ii) The consideration to be paid for the Shares to be issued upon exercise of
an Option, including the method of payment, shall be determined by the
Administrator and may consist entirely of cash; check; promissory note; other
Shares (including by means of net exercise) which have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised; delivery of a properly executed exercise
notice together with such other documentation as the Committee and the broker,
if applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required; or any combination of such
methods of payment, or such other consideration and method of payment for the
issuance of Shares to the extent permitted under Applicable Law.

8. Stock Appreciation Rights.

(a) Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be
granted to Participants at any time and from time to time as shall be determined
by the Administrator, in its sole discretion. Subject to Section 6(a) hereof,
the Administrator shall have complete discretion to determine the number of SARs
granted to any Participant.

(b) Exercise Price and other Terms. The per share exercise price for the Shares
to be issued pursuant to exercise of an SAR shall be determined by the
Administrator and shall be no less than 100% of the Fair Market Value per share
on the date of grant. Otherwise, subject to Section 6(a) of the Plan, the
Administrator, subject to the provisions of the Plan, shall have complete
discretion to determine the terms and conditions of SARs granted under the Plan;
provided, however, that no SAR may have a term of more than ten (10) years from
the date of grant.

(c) Payment of SAR Amount. Upon exercise of a SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:

(i) The difference between the Fair Market Value of a Share on the date of
exercise over the exercise price; times

(ii) The number of Shares with respect to which the SAR is exercised.

(d) Payment upon Exercise of SAR. The payment upon SAR exercise may only be in
Shares of equivalent value (rounded down to the nearest whole Share).

(e) SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that
shall specify the exercise price, the term of the SAR, the conditions of
exercise and such other terms and conditions as the Administrator, in its sole
discretion, shall determine.

(f) Expiration of SARs. A SAR granted under the Plan shall expire upon the date
determined by the Administrator, in its sole discretion, and set forth in the
Award Agreement; provided that no SAR may have a term of more than ten
(10) years.

 

-10-

--------------------------------------------------------------------------------

9. Exercise of Option or SAR.

(a) Procedure for Exercise; Rights as a Stockholder. Any Option or SAR granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Participant, and as shall be permissible under the terms
of the Plan.

An Option or SAR may not be exercised for a fraction of a Share.

An Option or SAR shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option or SAR by the person entitled to exercise the Option or SAR and, with
respect to Options only, full payment for the Shares with respect to which the
Option is exercised has been received by the Company. With respect to Options
only, full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 7(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Common Stock
subject to an Option or SAR, notwithstanding the exercise of the Option or SAR.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as provided in
Section 18 of the Plan.

(b) Termination of Status as an Employee, Consultant or Director. If a
Participant ceases to be an Employee, Consultant or Director, other than upon
the Participant’s death or Disability, the Participant may exercise his or her
Option or SAR within such period of time as is specified in the applicable Award
Agreement to the extent that the Option or SAR is vested on the date of
termination (but in no event later than the expiration of the term of such
Option or SAR as set forth in the Award Agreement). In the absence of a
specified time in the Award Agreement, the Option or SAR shall remain
exercisable for ninety (90) days following the Participant’s termination. If, on
the date of termination, the Participant is not vested as to his or her entire
Option or SAR, the Shares covered by the unvested portion of the Option or SAR
shall revert to the Plan. If, after termination, the Participant does not
exercise his or her Option or SAR within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
or SAR shall revert to the Plan. Notwithstanding the foregoing, a Participant’s
status as an Employee, Consultant or Director shall not be considered terminated
in the case of: (i) any leave of absence approved by the Administrator,
including sick leave, military leave, or any other personal leave; provided,
however, that for purposes of Incentive Stock Options, any such leave may not
exceed ninety (90) days, unless reemployment upon the expiration of such leave
is guaranteed by contract or statute; (ii) transfers between locations of the
Company or between the Company, its Parent, its Subsidiaries or its successor;
or (iii) any change of a Participant’s status as an Employee to that of a
Consultant or Director or a change of a Participant’s status as a Consultant to
that of an Employee or Director or a change of status from a Director to an
Employee or Consultant.

 

-11-

--------------------------------------------------------------------------------

(c) Disability of Participant. Notwithstanding the provisions of
Section 9(b) above, in the event an Employee, Consultant or Director is unable
to continue his or her employment, consulting or Director relationship with the
Company as a result of his or her Disability, he or she may, but only within six
(6) months (or such other period of time as is determined by the
Administrator) from the date of termination, exercise his or her Option or SAR
to the extent he or she was entitled to exercise it at the date of such
termination (or to such greater extent as the Administrator may provide). To the
extent that he or she was not entitled to exercise the Option or SAR at the date
of termination, or if he or she does not exercise such Option or SAR (which he
or she was entitled to exercise) within the time specified herein, the Option or
SAR shall terminate.

(d) Death of Participant. In the event a Participant ceases to remain as an
Employee, Consultant or Director due to the death of a Participant, the entire
Option or SAR may be exercised at any time within twelve (12) months following
the date of death (but in no event later than the expiration of the term of such
Option or SAR as set forth in the Notice of Grant) by the Participant’s estate
or by a person who acquired the right to exercise the Option or SAR by bequest
or inheritance, but only to the extent the Option or SAR was vested on the date
of death (or to such greater extent as the Administrator may provide). If, after
death, the Participant’s estate or a person who acquired the right to exercise
the vested Option or SAR by bequest or inheritance does not exercise the Option
or SAR within the time specified herein, the Option or SAR shall terminate, and
the Shares covered by such Option or SAR shall revert to the Plan.

10. Restricted Stock.

(a) Grant of Restricted Stock. Subject to the terms and conditions of the Plan,
Restricted Stock may be granted to Participants at any time as shall be
determined by the Administrator, in its sole discretion. Subject to Section 6(b)
hereof, the Administrator shall have complete discretion to determine (i) the
number of Shares subject to a Restricted Stock Award granted to any Participant,
and (ii) the conditions that must be satisfied, which typically will be based
principally or solely on continued provision of services but may include a
performance-based component, upon which is conditioned the grant, vesting or
issuance of Restricted Stock.

(b) Other Terms. The Administrator, subject to the provisions of the Plan, shall
have complete discretion to determine the terms and conditions of Restricted
Stock granted under the Plan. Restricted Stock grants shall be subject to the
terms, conditions, and restrictions determined by the Administrator at the time
the stock or the restricted stock unit is awarded. The Administrator may require
the recipient to sign a Restricted Stock Award agreement as a condition of the
Award. Any certificates representing the Shares of stock awarded shall bear such
legends as shall be determined by the Administrator.

(c) Restricted Stock Award Agreement. Each Restricted Stock grant shall be
evidenced by an agreement that shall specify the purchase price (if any) and
such other terms and conditions as the Administrator, in its sole discretion,
shall determine; provided; however, that if the Restricted Stock grant has a
purchase price, such purchase price must be paid no more than ten (10) years
following the date of grant.

 

-12-

--------------------------------------------------------------------------------

11. Restricted Stock Units.

(a) Grant. Restricted Stock Units may be granted at any time and from time to
time as determined by the Administrator. After the Administrator determines that
it will grant Restricted Stock Units under the Plan, it shall advise the
Participant in writing or electronically of the terms, conditions, and
restrictions related to the grant, including, subject to Section 6(b) hereof,
the number of Restricted Stock Units.

(b) Vesting Criteria and Other Terms. The Administrator shall set vesting
criteria in its discretion, which, depending on the extent to which the criteria
are met, will determine the number of Restricted Stock Units that will be paid
out to the Participant. The Administrator may set vesting criteria based upon
the achievement of Company-wide, business unit, or individual goals (including,
but not limited to, continued employment), or any other basis determined by the
Administrator in its discretion.

(c) Earning Restricted Stock Units. Upon meeting the applicable vesting
criteria, the Participant shall be entitled to receive a payout as specified in
the Restricted Stock Unit Award Agreement. Notwithstanding the foregoing, at any
time after the grant of Restricted Stock Units, the Administrator, in its sole
discretion, may reduce or waive any vesting criteria that must be met to receive
a payout.

(d) Form and Timing of Payment. Payment of earned Restricted Stock Units shall
be made as soon as practicable after the date(s) set forth in the Restricted
Stock Unit Award Agreement. Restricted Stock Units shall only be settled in
Shares.

(e) Cancellation. On the date set forth in the Restricted Stock Unit Award
Agreement, all unearned Restricted Stock Units shall be forfeited to the
Company.

12. Performance Shares.

(a) Grant of Performance Shares. Subject to the terms and conditions of the
Plan, Performance Shares may be granted to Participants at any time as shall be
determined by the Administrator, in its sole discretion. Subject to Section 6(b)
hereof, the Administrator shall have complete discretion to determine (i) the
number of Shares subject to a Performance Share Award granted to any
Participant, and (ii) the conditions that must be satisfied, which typically
will be based principally or solely on achievement of performance milestones but
may include a service-based component, upon which is conditioned the grant or
vesting of Performance Shares. Performance Shares shall be granted in the form
of units to acquire Shares. Each such unit shall be the equivalent of one Share
for purposes of determining the number of Shares subject to an Award. Until the
Shares are issued, no right to vote or receive dividends or any other rights as
a stockholder shall exist with respect to the units to acquire Shares.

(b) Other Terms. The Administrator, subject to the provisions of the Plan, shall
have complete discretion to determine the terms and conditions of Performance
Shares granted under the Plan. Performance Share grants shall be subject to the
terms, conditions, and restrictions

 

-13-

--------------------------------------------------------------------------------

determined by the Administrator at the time the stock is awarded, which may
include such performance-based milestones as are determined appropriate by the
Administrator. The Administrator may require the recipient to sign a Performance
Shares Award Agreement as a condition of the Award. Any certificates
representing the Shares of stock awarded shall bear such legends as shall be
determined by the Administrator.

(c) Performance Share Award Agreement. Each Performance Share grant shall be
evidenced by an Award Agreement that shall specify such other terms and
conditions as the Administrator, in its sole discretion, shall determine.

13. Performance Units.

(a) Grant of Performance Units. Performance Units are similar to Performance
Shares, except that they shall be settled in a cash equivalent to the Fair
Market Value of the underlying Shares, determined as of the vesting date.
Subject to the terms and conditions of the Plan, Performance Units may be
granted to Participants at any time and from time to time as shall be determined
by the Administrator, in its sole discretion. The Administrator shall have
complete discretion to determine the conditions that must be satisfied, which
typically will be based principally or solely on achievement of performance
milestones but may include a service-based component, upon which is conditioned
the grant or vesting of Performance Units. Performance Units shall be granted in
the form of units to acquire Shares. Each such unit shall be the cash equivalent
of one Share of Common Stock. No right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to Performance Units or the
cash payable thereunder.

(b) Number of Performance Units. Subject to Section 6(c) hereof, the
Administrator will have complete discretion in determining the number of
Performance Units granted to any Participant.

(c) Other Terms. The Administrator, subject to the provisions of the Plan, shall
have complete discretion to determine the terms and conditions of Performance
Units granted under the Plan. Performance Unit grants shall be subject to the
terms, conditions, and restrictions determined by the Administrator at the time
the grant is awarded, which may include such performance-based milestones as are
determined appropriate by the Administrator. The Administrator may require the
recipient to sign a Performance Unit agreement as a condition of the Award. Any
certificates representing the units awarded shall bear such legends as shall be
determined by the Administrator.

(d) Performance Unit Award Agreement. Each Performance Unit grant shall be
evidenced by an agreement that shall specify such terms and conditions as the
Administrator, in its sole discretion, shall determine.

14. Non-Transferability of Awards. Except as determined otherwise by the
Administrator in its sole discretion (but never a transfer in exchange for
value), Awards may not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the Participant, only
by the Participant, without the prior written consent of the Administrator.

 

-14-

--------------------------------------------------------------------------------

15. Leaves of Absence. Unless the Administrator provides otherwise or except as
otherwise required by Applicable Laws, vesting of Awards granted hereunder shall
cease commencing on the first day of any unpaid leave of absence and shall only
recommence upon return to active service.

16. Part-Time Service. Unless the Administrator provides otherwise or except as
otherwise required by Applicable Laws, any service-based vesting of Awards
granted hereunder shall be extended on a proportionate basis in the event (i) an
Employee transitions to a work schedule under which they are customarily
scheduled to work on less than a full-time basis, or if not on a full-time work
schedule, to a schedule requiring fewer hours of service or (ii) a Consultant
reduces the time commitment they are originally scheduled to provide to the
Company. Such vesting shall be proportionately re-adjusted prospectively in the
event that the Employee subsequently becomes regularly scheduled to work
additional hours of service; provided, however, that the vesting schedule shall
not accelerate to a rate faster than the original vesting schedule.

17. Withholding to Satisfy Withholding Tax Obligations. When a Participant
incurs tax liability in connection with the exercise, vesting or payout, as
applicable, of an Award, which tax liability is subject to tax withholding under
applicable tax laws, and the Participant is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Participant may
satisfy the withholding tax obligation by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option or SAR or the Shares to
be issued upon payout or vesting of the other Award, if any, that number of
Shares having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined (the “Tax Date”).

All elections by a Participant to have Shares withheld for this purpose shall be
made in writing in a form acceptable to the Administrator and shall be subject
to the following restrictions:

(a) the election must be made on or prior to the applicable Tax Date; and

(b) all elections shall be subject to the consent or disapproval of the
Administrator.

In the event the election to have Shares subject to an Award withheld is made by
a Participant and the Tax Date is deferred under Section 83 of the Code because
no election is filed under Section 83(b) of the Code, the Participant shall
receive the full number of Shares with respect to which the Option or SAR is
exercised or other Award is vested but such Participant shall be unconditionally
obligated to tender back to the Company the proper number of Shares on the Tax
Date.

18. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
Sale.

(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each outstanding
Award, and the number of Shares

 

-15-

--------------------------------------------------------------------------------

which have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or which have been returned to the Plan upon cancellation
or expiration of an Award, as well as the price per Share covered by each such
outstanding Award and the annual share limitations under Sections 6(a) and
(b) hereof, shall be proportionately adjusted for any increase or decrease in
the number of issued Shares resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
“effected without receipt of consideration.” Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to an Award.

(b) Dissolution or Liquidation. Except as otherwise set forth in the applicable
Award Agreement, in the event of the proposed dissolution or liquidation of the
Company, the Administrator shall notify each Participant as soon as practicable
prior to the effective date of such proposed transaction. The Administrator in
its discretion may provide for a Participant to have the right to exercise his
or her Option or SAR until fifteen (15) days prior to such transaction as to all
of the Awarded Stock covered thereby, including Shares as to which the Award
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option or forfeiture rights applicable to any Award
shall lapse 100%, and that any Award vesting shall accelerate 100%, provided the
proposed dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised (with respect
to Options and SARs) or vested (with respect to other Awards), an Award will
terminate immediately prior to the consummation of such proposed action.

(c) Merger or Asset Sale.

(i) Stock Options and SARs. Except as otherwise set forth in the applicable
Award Agreement, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding Option and SAR shall be assumed or an equivalent option or SAR
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option or SAR, the Participant shall fully vest in
and have the right to exercise the Option or SAR as to all of the Awarded Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or SAR becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or asset sale, the Administrator shall
notify the Participant in writing or electronically that the Option or SAR shall
be fully vested and exercisable for a period of thirty (30) days from the date
of such notice or such other longer period as is determined by the
Administrator, and the Option or SAR shall terminate upon the expiration of such
period. With respect to Options or SARs granted to Outside Directors, in the
event that the Outside Director is required to terminate his or her position as
an Outside Director at the request of the acquiring entity within 12 months
following such merger or asset sale,

 

-16-

--------------------------------------------------------------------------------

each outstanding Option or SAR held by such Outside Director shall become fully
vested and exercisable on the date of such termination, including as to Shares
as to which it would not otherwise be exercisable. For the purposes of this
paragraph, an Option or SAR shall be considered assumed if, following the merger
or asset sale, the award confers the right to purchase, for each Share subject
to the Award immediately prior to the merger or asset sale, the consideration
(whether stock, cash, or other securities or property) received in the merger or
asset sale by holders of the Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or
asset sale is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received, for each Share subject to the
Option or SAR to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of the Company’s common stock in the merger or asset sale.

(ii) Restricted Stock, Restricted Stock Units, Performance Shares, Performance
Units and Dividend Equivalents. Except as otherwise set forth in the applicable
Award Agreement, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding Restricted Stock, Restricted Stock Unit, Performance Share and
Performance Unit award and any related Dividend Equivalent shall be assumed or
an equivalent Restricted Stock, Restricted Stock Unit, Performance Share, and
Performance Unit award and any related Dividend Equivalent substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation refuses to assume or substitute for the
Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit
award and any related Dividend Equivalent, the Participant shall fully vest in
the Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit
award and any related Dividend Equivalent, including as to Shares (or with
respect to Dividend Equivalents and Performance Units, the cash equivalent
thereof) which would not otherwise be vested. With respect to Restricted Stock,
Restricted Stock Unit, Performance Share, Performance Unit and any related
Dividend Equivalent Awards granted to Outside Directors, in the event that the
Outside Director is required to terminate his or her position as an Outside
Director at the request of the acquiring entity within 12 months following such
merger or asset sale, each such Award held by such Outside Director shall become
100% vested on the date of such termination. For the purposes of this paragraph,
a Restricted Stock, Restricted Stock Unit, Performance Share and Performance
Unit shall be considered assumed if, following the merger or asset sale, the
award confers the right to purchase or receive, for each Share (or with respect
to Dividend Equivalents and Performance Units, the cash equivalent thereof)
subject to the Award immediately prior to the merger or asset sale, the
consideration (whether stock, cash, or other securities or property) received in
the merger or asset sale by holders of the Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or asset sale is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation,

 

-17-

--------------------------------------------------------------------------------

provide for the consideration to be received, for each Share and each unit/right
to acquire a Share subject to the Award (other than Dividend Equivalents and
Performance Units) to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of the Company’s common stock in the merger or asset sale.

19. Time of Granting Awards. The date of grant of an Award shall, for all
purposes, be the date on which the Administrator makes the determination
granting such Award, or such other later date as is determined by the
Administrator. Notice of the determination shall be given to each Employee or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.

20. Term of Plan. The Plan shall continue in effect until February 7, 2016.

21. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend, alter, suspend
or terminate the Plan.

(b) Stockholder Approval. The Company shall obtain stockholder approval of any
Plan amendment to the extent necessary and desirable to comply with Rule 16b-3
or with Section 422 of the Code (or any successor rule or statute or other
applicable law, rule or regulation, including the requirements of any exchange
or quotation system on which the Common Stock is listed or quoted). Such
stockholder approval, if required, shall be obtained in such a manner and to
such a degree as is required by the applicable law, rule or regulation.

(c) Effect of Amendment or Termination. No amendment, alteration, suspension or
termination of the Plan shall impair the rights of any Participant, unless
mutually agreed otherwise between the Participant and the Administrator, which
agreement must be in writing and signed by the Participant and the Company.

22. Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act, the Exchange Act, the rules
and regulations promulgated thereunder, state securities laws, and the
requirements of any stock exchange or market system upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.

(b) Investment Representations. As a condition to the exercise or payout, as
applicable, of an Award, the Company may require the person exercising an Option
or SAR, or in the case of another Award (other than a Dividend Equivalent or
Performance Unit), the person receiving the Shares upon vesting, to render to
the Company a written statement containing such representations and warranties
as, in the opinion of counsel for the Company, may be required to ensure
compliance with any of the aforementioned relevant provisions of law, including
a representation that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required.

 

-18-

--------------------------------------------------------------------------------

23. Liability of Company. The inability of the Company to obtain authority from
any regulatory body having jurisdiction, which authority is deemed by the
Company’s counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not have
been obtained.

24. Reservation of Shares. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

 

-19-

--------------------------------------------------------------------------------

MAXYGEN, INC.

2006 EQUTY INCENTIVE PLAN

STOCK OPTION AGREEMENT

Unless otherwise defined herein, the terms defined in the Maxygen, Inc. 2006
Equity Incentive Plan (the “Plan”) shall have the same defined meanings in this
Stock Option Agreement (the “Option Agreement”).

I. NOTICE OF STOCK OPTION GRANT

Name / Address:

You have been granted an option to purchase Common Stock of the Company, subject
to the terms and conditions of the Plan and this Option Agreement, as follows:

 

Grant Number:

 

Date of Grant:

 

Vesting Commencement Date:

 

Exercise Price Per Share:

 

Total Number of Shares Granted:

Total Exercise Price:

 

Type of Option:

 

Term:

 

Expiration Date:

Vesting Schedule: This Option shall be exercisable, in whole or in part, in
accordance with the following schedule:

[Vesting Schedule]

Termination Period: This Option may be exercised for ninety (90) days after
Optionee ceases to be An Employee, Consultant or Director, as applicable. Upon
the death or Disability of the Optionee, this Option may be exercised for such
longer period as provided in the Plan. In the event of the Optionee’s change in
status as an Employee to that of a Consultant or Director or Optionee’s change
in status as a Consultant to that of an Employee or Director or Optionee’s
change in status as a Director to an Employee or Consultant, this Option
Agreement shall remain in effect. In no event shall this Option be exercised
later than the Term/Expiration Date as provided above.

 

- 1 -

--------------------------------------------------------------------------------

II. AGREEMENT

1. Grant of Option. The Administrator hereby grants to the Optionee named in the
Notice of the Grant attached as Part I of this Option Agreement (the
“Optionee”), an option (the “Option”) to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the “Exercise Price”), subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 21(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.

If designated in the Notice of Grant as an Incentive Stock Option, this Option
is intended to qualify as an Incentive Stock Option under Section 422 of the
Code. However, if this Option is intended to be an Incentive Stock Option, to
the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be
treated as a Nonstatutory Stock Option.

2. Exercise of Option.

(a) Right to Exercise. This Option is exercisable during its term in accordance
with the Vesting Schedule set out in the Notice of Grant and the applicable
provisions of the Plan and this Option Agreement. In the event of Optionee’s
death, Disability or other termination of Optionee’s relationship as an
Employee, Consultant or Director, as applicable, the exercisability of the
Option is governed by the applicable provisions of the Plan and this Option
Agreement.

(b) Method of Exercise. This Option is exercisable by delivery of an exercise
notice, in the form attached as Exhibit A (the “Exercise Notice”), or in written
or electronic form as designated by the Company, which shall state the election
to exercise the Option, the number of Shares in respect of which the Option is
being exercised (the “Exercised Shares”), and such other representations and
agreements as may be required by the Company pursuant to the provisions of the
Plan. The Exercise Notice shall be completed by the Optionee and delivered to
the Stock Administrator of the Company. The Exercise Notice shall be accompanied
by payment of the aggregate Exercise Price as to all Exercised Shares. This
Option shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by such aggregate Exercise Price.

No Shares shall be issued pursuant to the exercise of this Option unless such
issuance and exercise complies with all Applicable Laws and the requirements of
any stock exchange or quotation service upon which the Shares are then listed.
Assuming such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.

3. Method of Payment. Payment of the aggregate Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:

 

  (a) cash;

 

  (b) check; or

 

  (c)

to the extent permitted by the Administrator, (i) a promissory note; (ii) the
surrender of other Shares (including by means of net exercise) which have a Fair
Market Value on the date of

 

-2-

--------------------------------------------------------------------------------

 

surrender equal to the aggregate Exercise Price of the Exercised Shares; or
(iii) delivery of a properly executed exercise notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Option and delivery to the Company of the sale
proceeds required to pay the exercise price.

4. Non-Transferability of Option. Except as determined otherwise by the
Administrator in its sole discretion, this Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee, without the prior written
consent of the Administrator. The terms of the Plan and this Option Agreement
shall be binding upon the executors, administrators, heirs, successors and
assigns of the Optionee. If the Administrator makes this Option transferable,
such Option shall contain this additional terms and conditions as the
Administrator deems appropriate.

5. Term of Option. This Option may be exercised only within the term set out in
the Notice of Grant, and may be exercised during such term only in accordance
with the Plan and the terms of this Option Agreement.

6. Tax Consequences. Some of the federal tax consequences relating to this
Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.

(a) Exercising the Option.

(i) Nonstatutory Stock Option. The Optionee may incur regular federal income tax
liability upon exercise of a Nonstatutory Stock Option. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee, the Company will be required to withhold from his or
her compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.

(ii) Incentive Stock Option. If this Option qualifies as an Incentive Stock
Option, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to the alternative minimum tax for federal tax purposes
and may subject the Optionee to alternative minimum tax in the year of exercise.
In the event that the Optionee undergoes a change of status from Employee to
Consultant or Director, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option on the ninety-first
(91st) day following such change of status.

(b) Disposition of Shares.

(i) Nonstatutory Stock Option. If the Optionee holds Nonstatutory Stock Option
Shares for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal income tax purposes.

 

-3-

--------------------------------------------------------------------------------

(ii) Incentive Stock Option. If the Optionee holds Incentive Stock Option Shares
for at least one year after exercise and two years after the grant date, any
gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes. If the Optionee disposes of Incentive
Stock Option Shares within one year after exercise or two years after the grant
date, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the excess, if any,
of the lesser of (A) the difference between the Fair Market Value of the Shares
acquired on the date of exercise and the aggregate Exercise Price, or (B) the
difference between the sale price of such Shares and the aggregate Exercise
Price.

(c) Notice of Disqualifying Disposition of Incentive Stock Option Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an Incentive Stock Option on or before the later of (i) two years after the
grant date, or (ii) one year after the exercise date, the Optionee shall
immediately notify the Company in writing of such disposition.

By your signature and the signature of the Company’s representative below, you
and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.

 

OPTIONEE:     MAXYGEN, INC.

 

    By:  

 

Signature      

 

    Title:  

 

Print Name      

 

      Residence Address      

 

     

 

     

 

-4-

--------------------------------------------------------------------------------

EXHIBIT A

MAXYGEN, INC.

2006 EQUITY INCENTIVE PLAN

EXERCISE NOTICE

Maxygen, Inc.

515 Galveston Drive

Redwood City, CA 94063

Attention: Stock Administrator

1. Exercise of Option. Effective as of today,                     , the
undersigned (“Purchaser”) hereby elects to purchase                      shares
(the “Shares”) of the Common Stock of                      (the “Company”) under
and pursuant to the 2006 Equity Incentive Plan (the “Plan”) and the Stock Option
Agreement dated                     , (the “Option Agreement”). The purchase
price for the Shares shall be $                    , as required by the Option
Agreement.

2. Delivery of Payment. Purchaser herewith delivers to the Company the full
purchase price for the Shares.

3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.

4. Rights as Stockholder. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with respect
to the Shares, notwithstanding the exercise of the Option. A share certificate
for the number of Shares so acquired shall be issued to the Optionee as soon as
practicable after exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 18 of the Plan.

5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser’s purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted with any tax consultants
Purchaser deems advisable in connection with the purchase or disposition of the
Shares and that Purchaser is not relying on the Company for any tax advice.

6. Entire Agreement: Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Exercise Notice, the Plan and the Option
Agreement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Purchaser with
respect to the subject matter hereof, and such agreement is governed by
California law except for that body of law pertaining to conflict of laws.

 

A-1

--------------------------------------------------------------------------------

Submitted by:     Accepted by: PURCHASER:     MAXYGEN, INC.

 

    By:  

 

Signature      

 

    Title:  

 

Print Name      

 

    515 Galveston Drive Residence Address     Redwood City, CA 94063

 

     

 

     

 

A-2