Exhibit 10.6

MAXYGEN, INC.

2006 EQUITY INCENTIVE PLAN

FORM OF NOTICE OF GRANT OF CONTINGENT PERFORMANCE UNITS

Unless otherwise defined herein, the terms defined in the Maxygen, Inc. 2006
Equity Incentive Plan (the “Plan”) or the Contingent Performance Unit Award
Agreement attached hereto as Exhibit A-1 (the “Agreement”) shall have the same
defined meanings in this Notice of Grant of Contingent Performance Units (this
“Notice of Grant”).

Name: [                            ] (referred to herein as “Participant” or
“you”)

Address: [                                             ]

You have been granted, pursuant to Section 11 of the Plan, the number of
contingent performance units (“CPUs”) set forth below, subject to the terms and
conditions of the Plan and the Agreement, as well as the terms and conditions
set forth in this Notice of Grant. The CPUs are defined in further detail in
Section 1 of the Agreement.

 

Date of Grant (the “Grant Date”):

   [                            ]

Total Number of CPUs Granted:

   [                            ]

Payment: No payment is required for the CPUs.

Vesting Schedule: The CPUs awarded by this Agreement shall vest on the
Settlement Date (as defined below) in accordance with the following terms:

Time of Vesting: CPUs shall become vested upon the earliest to occur of (i) a
Change of Control (as defined herein) of the Company, (ii) a corporate
dissolution or liquidation of the Company, whether voluntary or involuntary, or
(iii) the fourth anniversary of the Grant Date (the “Settlement Date”);
provided, however, that the Participant has remained in continuous service as an
Employee, Director or Consultant from the Grant Date through and including the
Settlement Date.

Aggregate Vested Value: The aggregate vested value of the CPUs is intended to
account for a diminution in the value of the Participant’s unexercised Options
as a result of any Cash Dividend or Property Distribution made to stockholders
of the Company following the Grant Date. In order to implement that principle,
the aggregate vested value of the CPUs shall be equal to the sum of (A) with
respect each unexercised Option and any unexercised portion of an Option as of
the Settlement Date, the sum of (x) the Fair Market Value of a Share of Common
Stock on the Settlement Date multiplied by the number of Shares of Common Stock
underlying such unexercised Option or such unexercised portion of an Option
(“Unexercised Shares”), plus (y) the fair market value of all Cash Dividends (as
defined in the Agreement) and Property Distributions (as defined in the
Agreement) made to stockholders of the Company after the Grant Date on a per
Share basis multiplied by the number of Unexercised Shares, minus (z) the number

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of Unexercised Shares multiplied by the greater of (i) the Fair Market Value of
a Share of Common Stock on the Settlement Date, or (ii) the exercise price for
such Option or such unexercised portion of the Option; provided, however, that
the sum of (x), (y) and (z) above for a given Option or unexercised portion of
an Option as of the Settlement Date shall not be less than zero; plus (B) any
amounts described in the following paragraph in the event that the Participant
exercises any Options during the period commencing on the Grant Date and ending
on the Settlement Date. The result of this calculation shall be referred to as
the “Aggregate Vested Value”.

In the event the Participant exercises any Options during the period commencing
on the Grant Date and ending on the Settlement Date, the Aggregate Vested Value
shall be increased as referred to in (B) above, which increase for each such
exercise of Options shall be equal to the sum of (a) the Fair Market Value of a
Share of Common Stock on the date such Options are exercised (the “Exercise
Date”) multiplied by the number of Options exercised on such date (“Exercised
Shares”), plus (b) the fair market value of all Cash Dividends and Property
Distributions made to stockholders of the Company prior to the Exercise Date
multiplied by the number of Exercised Shares, and minus (c) the number of
Exercised Shares multiplied by the greater of (i) the Fair Market Value of a
Share of Common Stock on the Exercise Date, or (ii) the exercise price for such
Options.

Number of Vested CPUs: The number of CPUs that shall vest on the Settlement Date
shall be equal to the Aggregate Vested Value divided by the fair market value of
a single CPU on the Settlement Date. The fair market value of a single CPU on
the Settlement Date shall be equal to the sum of (a) the Fair Market Value of a
Share of Common Stock on the Settlement Date, plus (b) the fair market value of
all Cash Dividends and Property Distributions made to stockholders of the
Company after the Grant Date on a per Share basis.

For the purposes of this Notice of Grant, “Change of Control” means the
occurrence of any of the following dates:

(i) Change in Ownership of the Company. The date that any one person, or more
than one person acting as a Group (as defined herein), acquires ownership of
stock of the Company that, together with stock held by such person or Group,
constitutes more than 50% of the total Fair Market Value or total voting power
of the stock of the Company; or

(ii) Change in Effective Control of the Company. Either (a) the date any one
person, or more than one person acting as a Group, acquires (or has acquired
during the 12-month period ending on the date of the most recent acquisition by
such person or persons) ownership of stock of the Company possessing 35% or more
of the total voting power of the stock of the Company, or (b) the date a
majority of the members of the Board is replaced during any 12-month period by
directors whose appointment or election is not endorsed by a majority of the
members of the Board before the date of any such appointment or election; or

(iii) Change in Ownership of a Substantial Portion of the Company’s Assets. The
date that any one person, or more than one person acting as a Group, acquires
(or has acquired during the 12-month period ending on the date of the most
recent acquisition by such person or persons) assets from the Company having a
total gross fair market value equal to or more than 80% of the total gross fair
market value of all of the assets of the Company immediately before such
acquisition or acquisitions.

 

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For the purposes of this Notice of Grant, “Group” means a group as such term is
defined in Treasury Regulation

§1.409A-3(i)(5)(vi)(B).

 

PARTICIPANT:     MAXYGEN, INC.:    

515 Galveston Drive

Redwood City, California 94063

 

   

 

 

 

(Print Name)

   

 

(Print Name and Title)

 

(Date)

   

 

(Date)

 

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EXHIBIT A-1

MAXYGEN, INC.

2006 EQUITY INCENTIVE PLAN

FORM OF CONTINGENT PERFORMANCE UNIT AWARD AGREEMENT

Unless otherwise defined herein, the terms defined in the Maxygen, Inc. 2006
Equity Incentive Plan (the “Plan”) or the Notice of Grant (as defined below)
shall have the same defined meanings in this Contingent Performance Unit Award
Agreement (this “Agreement”).

WHEREAS, in connection with the ongoing corporate strategy of the Company to
realize value for its stockholders through one or more potential strategic
transactions, the Company may elect to make one or more distributions to
stockholders of the Company, some of which may have the effect of reducing the
Share price of Common Stock, which could negatively affect outstanding Options
held by Board members and employees of the Company; and

WHEREAS, pursuant to Section 11 of the Plan, the Administrator has the authority
to grant Restricted Stock Units to Employees, Directors and Consultants with
vesting based on any criteria determined by the Administrator in its discretion;
and

WHEREAS, the Participant named in the Notice of Grant to which this Agreement is
attached as an exhibit (the “Notice of Grant”), is an Employee, Director, or
Consultant; and

WHEREAS, in order to realign long-term incentives so as to maintain the
Participant’s continued service with the Company (including any Parent or
Subsidiary), it is considered to be in the best interests of the Company to
grant to the Participant an Award of contingent performance units (“CPUs”)
pursuant to Section 11 of the Plan, subject to the terms and conditions of this
Agreement, the Plan and the Notice of Grant, all of which are incorporated
herein by reference.

NOW, THEREFORE, the parties agree as follows:

1. Grant of Contingent Performance Units. The Company hereby grants to the
Participant named in the Notice of Grant an Award of CPUs, as set forth in the
Notice of Grant and subject to the terms and conditions of this Agreement and
the Plan. Each CPU is a Restricted Stock Unit, as described in Section 11 of the
Plan, together with the right to participate in dividends and distributions to
the Company’s stockholders made during the period commencing on the Grant Date
and ending on the Settlement Date, as described further in Section 4 below. The
CPUs awarded by this Agreement are intended to qualify as “performance-based
compensation” under Section 162(m) of the Code.

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2. Payment; Tax Withholding. No cash payment is required for the CPUs granted by
this Agreement, although the Participant will be required to tender payment in a
form of consideration acceptable to the Company for the amount of any
withholding taxes due, including but not limited to those due as a result of the
Award or vesting of the CPUs granted hereby. The tax withholding obligations of
the Participant will be satisfied in accordance with any of the following
methods:

(a) By Sale of Shares. At any time not less than 5 business days before any tax
withholding obligation arises, the Participant may authorize and instruct the
Company, and any brokerage firm determined acceptable to the Company for such
purpose, to sell on the Participant’s behalf from any of the vested Shares, a
whole number of Shares as the Company determines to be appropriate to generate
cash proceeds sufficient to satisfy the minimum applicable tax withholding
obligation. Such Shares will be sold on the day such tax withholding obligation
arises or as soon thereafter as practicable. Such sale may be structured by the
Participant so as to satisfy the requirements of Rule 10b5-1(c) promulgated
under the Exchange Act. The Participant will be responsible for all broker’s
fees and other costs of sale, and the Participant agrees to indemnify and hold
the Company harmless from any losses, costs, damages, or expenses relating to
any such sale. Notwithstanding the foregoing, no Shares shall be withheld with a
value exceeding the minimum amount of tax required to be withheld by law. The
Participant acknowledges that neither the Company nor its designee is under any
obligation to arrange for such sale at any particular price, and that the
proceeds of any such sale may not be sufficient to satisfy the minimum tax
withholding obligation. Accordingly, the Participant agrees to pay to the
Company as soon as practicable, including through additional payroll
withholding, any amount of the tax withholding obligation that is not satisfied
by such sale of Shares.

(b) By Cash, Check or Other Means. At any time not less than 5 business days
before any tax withholding obligation arises, the Participant may elect to
satisfy the tax withholding obligation by delivering to the Company an amount
that the Company determines is sufficient to satisfy Participant’s tax
withholding obligation. Such amount may be delivered to the Company by
(x) tender of cash, (y) delivery of a certified check payable to the Company, or
(z) such other means as specified from time to time by the Company.

(c) Right to Retain Shares and/or Cash. Notwithstanding anything in Section 2(a)
and Section 2(b) hereof to the contrary, to the maximum extent permitted by law,
the Company has the right to retain without notice from the Shares, any
dividends or distributions paid or deemed to be paid thereon, or from salary or
other amounts payable to the Participant, shares or cash having a value
sufficient to satisfy the tax withholding obligation and the Participant hereby
authorizes such withholding. Unless and until the tax withholding obligations of
the Company, if any, are satisfied, the Company shall have no obligation to
release the Shares from any vesting or other restrictions provided for herein,
notwithstanding the vesting schedule set forth in the Notice of Grant or
Section 3 of this Agreement.

3. Vesting Criteria. Subject to Section 5 of this Agreement and any relevant
Plan provisions, the CPUs awarded by this Agreement will vest in the Participant
according to the vesting criteria specified in the Notice of Grant, which
vesting criteria are intended to satisfy the definition of Total Stockholder
Return (as defined in the Plan) from the Grant Date until and including the
Settlement Date. All unvested CPUs as of the Settlement Date shall expire

 

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immediately. Notwithstanding any contrary provision of this Agreement or the
Notice of Grant, if the Participant’s continuous service as an Employee,
Director or Consultant terminates for any or no reason prior to vesting, or in
the event the Board grants to the Participant any other Award intended to
account for a diminution in the value of the Participant’s unexercised Options
as a result of any Cash Dividend or Property Distribution made to stockholders
of the Company following the Grant Date, all of the Participant’s CPUs shall
expire immediately, subject to the authority of the Administrator, in its sole
discretion, to determine whether or not to permit some or all of the
Participant’s CPUs to remain outstanding and the terms and conditions under
which they may remain outstanding. Notwithstanding any contrary provision of
this Agreement or the Notice of Grant, in the event the Board makes any
adjustments to the Participant’s unexercised Options to account for any Cash
Dividends or Property Distributions made to stockholders of the Company from the
Grant Date until and including the Settlement Date, the Board expressly reserves
the right to adjust the vesting terms and conditions of the CPUs awarded by this
Agreement under such circumstances.

4. Credit for Dividend Payments and Other Distributions. From the Grant Date
until and including the Settlement Date, if the Company declares and pays a cash
dividend to holders of Common Stock (a “Cash Dividend”) or if the Company
distributes any securities (other than Shares) or other Company property to
holders of Common Stock (a “Property Distribution”), then the Participant shall
receive for each CPU held by the Participant as of the record date of such Cash
Dividend or Property Distribution (i) a credit for any Cash Dividend equal to
the per Share Cash Dividend, and (ii) a credit for any Property Distribution
equal to the per Share Property Distribution. All such credits shall be made to
a notional account established for the Participant. With respect to any Property
Distribution (or any portion thereof), in lieu of crediting such notional
account with the securities or other property comprising such Property
Distribution (or portion thereof), the Administrator may, in its sole
discretion, credit the Participant’s notional account with a cash amount equal
to the fair market value, as determined in the Administrator’s sole discretion,
of such Property Distribution (or portion thereof) attributable to the
Participant’s CPUs. Any credit for Cash Dividends or Property Distributions
payable hereunder shall be subject to the same vesting and forfeiture
restrictions and conditions applicable to the underlying CPUs as specified in
Section 3 of this Agreement and in the Notice of Grant, and shall only be paid
or settled only to the extent that the underlying CPUs vest. Any credit for Cash
Dividends or Property Distributions may be paid by the Company in cash, Shares,
the securities or other property comprising such Property Distribution, or any
combination thereof, in such form or forms and in such proportions as shall be
determined by the Plan Administrator in its sole discretion.

5. Company’s Obligation. As soon as practicable on or following the Settlement
Date, the Company (or the Company’s successor, if applicable) shall be obligated
to settle all vested CPUs of the Participant as of the Settlement Date. The
value of each CPU shall be equal to (i) the price per Share of Common Stock as
of the Settlement Date (“Share Value”) plus (ii) the aggregate value of all
credits made to the notional account of the Participant in connection with any
eligible Cash Dividend or Property Distribution on a per Share basis
(“Distribution Value”). The Share Value of any CPU will be settled in Shares of
Common Stock. The Distribution Value of any CPU will be settled in accordance
with the terms of Section 4 above.

 

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6. Securities Laws. Upon the vesting or settlement of any CPUs, the Participant
will make or enter into such written representations, warranties and agreements
as the Company may reasonably request from time to time in order to comply with
applicable securities laws or with this Agreement.

7. Adjustments for Changes in Capitalization. All references herein to the
number of Shares shall be appropriately adjusted to reflect any stock split,
stock dividend or other change in the Shares which may be made by the Company
after the date of this Agreement, pursuant to the provisions of Section 18 of
the Plan.

8. Payments after Death. Any distribution or delivery to be made to the
Participant under this Agreement will, if the Participant is then deceased, be
made to the administrator or executor of the Participant’s estate, or if the
Participant has completed a beneficiary designation, to the Participant’s
beneficiaries. Any such administrator or executor or beneficiary must furnish
the Company with (a) written evidence of his or her status as transferee, and
(b) evidence satisfactory to the Company to establish the validity of the
transfer and compliance with any laws or regulations pertaining to such
transfer.

9. Rights as Stockholder. Except as provided in Section 4 of this Agreement,
neither the Participant nor any person claiming under or through the Participant
will have any of the rights or privileges of a stockholder of the Company in
respect of any Shares deliverable hereunder unless and until certificates
representing such Shares will have been issued, recorded on the records of the
Company or its transfer agents or registrars, and delivered to the Participant
or the Participant’s broker.

10. No Effect on Employment. The Participant’s employment with the Company and
its Subsidiaries, if applicable, is on an at-will basis only. Accordingly, the
terms of the Participant’s employment with the Company and its Subsidiaries will
be determined from time to time by the Company or the Subsidiary employing the
Participant, and the Company or such Subsidiary will have the right, which is
hereby expressly reserved, to terminate or change the terms of the Participant’s
employment with the Company at any time for any reason whatsoever, with or
without good cause or notice.

11. Notices. All notices and other communications under this Agreement shall be
in writing or posted electronically on the E*TRADE Securities LLC website.
Unless and until Participant is notified in writing to the contrary, all
notices, communications, and documents directed to the Company and related to
the Agreement shall be delivered to Maxygen, Inc., 515 Galveston Drive, Redwood
City, CA 94063, Attention: Stock Administration. Unless and until the Company is
notified in writing to the contrary, all notices, communications, and documents
directed to the Participant and related to this Agreement shall be mailed to the
Participant’s last known address as shown on the Company’s books or posted
electronically on the E*TRADE Securities LLC website. All notices and
communications related to this Agreement shall be delivered by hand, mailed by
first class mail, postage prepaid, sent by reputable overnight courier or posted
electronically on the E*TRADE Securities LLC website. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery, 2 business days after mailing, if by mail, the
next business day after being sent by reputable overnight courier, or 30 days
after the date of posting for notices posted electronically on the E*TRADE
Securities LLC website.

 

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12. Grant is Not Transferable. Except to the limited extent provided in
Section 8 of this Agreement, this Award of CPUs and the rights and privileges
conferred hereby, including rights to credits for any Cash Dividends or Property
Distributions, shall not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) and shall not be subject to
sale under execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this Award of
CPUs, or any right or privilege conferred hereby, or upon any attempted sale
under any execution, attachment or similar process, this Award of CPUs and the
rights and privileges conferred hereby shall immediately become null and void.

13. Binding Agreement. Subject to the limitation on the transferability of this
Award of CPUs contained in Section 12 of this Agreement, this Agreement shall be
binding upon and inure to the benefit of the heirs, legatees, legal
representatives, successors and assigns of the parties hereto.

14. Additional Conditions to Issuance of Stock. If at any time the Company
determines, in its discretion, that the listing, registration or qualification
of the Shares upon any securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory authority is necessary or
desirable as a condition to the issuance or delivery to the Participant (or his
or her estate or beneficiaries) of Shares or any securities or other property
comprising any Property Distribution, such issuance or delivery shall not occur
unless and until such listing, registration, qualification, consent or approval
will have been effected or obtained free of any conditions not acceptable to the
Company. The Company will make all reasonable efforts to meet the requirements
of any such law or securities exchange and to obtain any such consent or
approval of any such governmental authority.

15. Plan Governs. This Agreement and the Notice of Grant are subject to all
terms and provisions of the Plan. In the event of a conflict between one or more
provisions of this Agreement or the Notice of Grant and one or more provisions
of the Plan, the provisions of the Plan will govern.

16. Administrator Authority. The Administrator will have the power to interpret
the Plan, the Notice of Grant and this Agreement and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret or revoke any such rules (including, but not limited
to, the determination of whether or not any CPUs have vested). All actions taken
and all interpretations and determinations made by the Administrator in good
faith will be final and binding upon Participant, the Company and all other
interested persons. No member of the Administrator will be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or this Agreement.

17. Choice of Law; Venue. This Agreement shall be governed by the internal
substantive laws, but not the choice of law rules, of the State of
[California][Delaware]. The Participant hereby submits to the jurisdiction and
venue of the courts of the State of California and the Federal Courts of the
United States of America located within the County of Santa Clara

 

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for all actions or proceedings relating to the CPUs granted hereby, the Notice
of Grant, this Agreement, or the Plan. The Participant further agrees that
service upon the Participant in any such action or proceeding may be made by
first class mail, certified or registered, to the Participant’s address as last
appearing on the records of the Company or by personal service on the
Participant.

18. No Waiver. Either party’s failure to enforce any provision of this Agreement
shall neither be construed as a waiver of any such provision in any way, nor
shall it prevent such party from thereafter enforcing any other provision of
this Agreement. The rights granted both parties hereunder are cumulative and
shall not constitute a waiver of either party’s right to assert any other legal
remedy available to it.

19. Further Assurances. The Participant agrees upon request to execute any
further documents or instruments necessary or desirable to carry out the
purposes or intent of this Agreement.

20. THE PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF CPUs PURSUANT TO
SECTION 3 HEREOF AND THE NOTICE OF GRANT IS EARNED ONLY BY THE PARTICIPANT’S
CONTINUOUS SERVICE TO THE COMPANY AND THE ACHIEVEMENT OF THE TOTAL STOCKHOLDER
RETURN PERFORMANCE GOAL AS DESCRIBED IN THIS AGREEMENT AND THE NOTICE OF GRANT
(AND NOT THROUGH THE ACT OF BEING HIRED OR ACQUIRING SHARES HEREUNDER). THE
PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN
EMPLOYEE, DIRECTOR, OR CONSULTANT OF THE COMPANY FOR THE VESTING PERIOD, FOR ANY
PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH THE PARTICIPANT’S RIGHT OR THE
COMPANY’S RIGHT TO TERMINATE THE PARTICIPANT’S RELATIONSHIP (I) AS AN EMPLOYEE
AT ANY TIME, FOR ANY REASON OR NO REASON, WITH OR WITHOUT CAUSE; (II) AS A
CONSULTANT PURSUANT TO THE TERMS OF THE PARTICIPANT’S AGREEMENT WITH THE COMPANY
OR AN AFFILIATE; OR (III) AS A DIRECTOR PURSUANT TO THE BYLAWS OF THE COMPANY
AND ANY APPLICABLE PROVISIONS OF THE CORPORATE LAW OF THE STATE OR OTHER
JURISDICTION IN WHICH THE COMPANY IS DOMICILED, AS THE CASE MAY BE.

By the Participant’s signature in the Notice of Grant, Participant represents
that he or she is familiar with the terms and provisions of the Plan, and hereby
accepts this Agreement subject to all of the terms and provisions thereof. The
Participant has reviewed the Plan, this Agreement and the Notice of Grant in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing the Notice of Grant and fully understands all provisions of the Plan,
this Agreement and the Notice of Grant. The Participant agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement. The
Participant further agrees to notify the Company upon any change in the
residence indicated in the Notice of Grant.

 

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