MAXY Maxygen, Inc. (MM)

PROPOSAL 1: APPROVAL OF PLAN OF DISSOLUTION

General

Our Board of Directors is presenting the Plan of Dissolution for approval by our stockholders at the Annual Meeting. The Plan of Dissolution was approved by the Board of Directors, subject to stockholder approval, on May 30, 2013. A copy of the Plan of Dissolution is attached as Appendix A to this proxy statement. All material features of the Plan of Dissolution are summarized below. We encourage you to read the Plan of Dissolution in its entirety.

Summary of the Plan of Dissolution and Dissolution Process

After stockholder approval of the Plan of Dissolution, our activities will be limited to:

Delaware law provides that, following the approval of the Plan of Dissolution by our stockholders, the Board of Directors may take such actions as it deems necessary in furtherance of the dissolution of the Company and the winding up of its operations and affairs.

As of March 31, 2013, we had approximately $81.1 million in cash, cash equivalents and marketable securities. We currently estimate that we will reserve between $11.5 million and $12.9 million, which will be used to pay all expenses (including operating expenses incurred from April 1, 2013 to date, the cash settlement value of various equity awards, the payout of employee severance arrangements and estimated operating expenses through the dissolution and wind-down process) and other known, non-contingent liabilities. This reserve also includes reasonable provision for expenses of liquidation and contingent and unknown liabilities as required by Delaware law. Based on this estimated reserve, we currently estimate that the aggregate amount of an initial liquidating distribution to stockholders will be between $68.2 million and $69.6 million, or between $2.45 and $2.50 per share (based on 27,792,520 shares outstanding as of May 31, 2013). We currently estimate that the aggregate amount ultimately distributed to our stockholders (inclusive of the initial distribution) will be in the range of approximately $2.45 to $2.59 per share, inclusive of the initial liquidating distribution. We intend to make the initial distribution as soon as practicable following the effective date of the filing of the Certificate of

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Dissolution, however, we are unable to predict the precise amount or timing of the initial distribution or of any additional liquidating distributions following the initial liquidating distribution. The timing and amount of the initial distribution and any such additional liquidating distributions will depend upon the actual expenses incurred, the timing of the resolution of matters for which we have established the reserve, the amount to be paid in satisfaction of any contingencies, as well as our ability to convert our remaining assets to cash. Any liquidating distributions from us will be made to stockholders according to their holdings of common stock as of the Final Record Date, which we expect to be the date on which we close our stock transfer books and discontinue recording transfers of our common stock except for transfers by will, intestate succession or operation of law.

In addition to the satisfaction of liabilities, we have used and anticipate continuing to use cash in the next several months for a number of items, including, but not limited to, the following:

We may, at any time, choose to implement the Plan of Dissolution through a liquidating trust, which, if adopted, would succeed to all of our assets, liabilities and obligations. Our Board of Directors may appoint one or more of its members, one or more of our officers, or a third party to act as trustee or trustees of such liquidating trust. If all of our assets are not distributed within three years after the date our dissolution and a judicial extension of this deadline has not been sought or received, we expect to transfer our remaining assets to a liquidating trust at such time.

During the liquidation of our assets, we may pay our officers, directors, employees and agents, or any of them, compensation for services rendered in connection with the implementation of the Plan of Dissolution. See “Interests of Directors and Executive Officers in Approval of the Plan of Dissolution.” Such compensation is not expected to be materially different from the compensation that would be paid to an outside party for similar services.

Background to the Proposed Dissolution and Liquidation

We began operations in 1997 to commercialize technologies originally conceived at Affymax Research Institute, then a subsidiary of what is now GlaxoSmithKline plc. Our operations were originally focused on the application of the MolecularBreeding™ directed evolution platform and other technologies to the development of multiple products in a broad range of industries, including human therapeutics, chemicals and agriculture. Beginning in 2002, we shifted our primary focus to the development of protein pharmaceuticals.

By 2006, our Board of Directors determined that operation as a profitable stand-alone biotechnology company would be increasingly challenging without substantial financial capital, significant economies of scale and sufficient breadth and depth of product portfolio. Accordingly, in October 2006, we retained Lazard Frères & Co. LLC, or Lazard, to provide investment banking services and assist us in exploring a broad range of strategic alternatives, focused primarily on a sale of Maxygen or a merger. For the remainder of 2006 and during 2007, Lazard and our senior management contacted approximately 50 parties regarding a potential transaction, but received limited interest in a merger transaction or a sale of Maxygen it its entirety. During this time, in order to reduce costs and increase overall operational efficiency, our Board of Directors also approved a plan to consolidate the Company’s research and development activities at its U.S. facilities, which resulted in the closure of Maxygen ApS, the Company’s wholly owned subsidiary in Denmark, and the elimination of all employment positions at that site.

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As a result of our inability to find an acquirer for Maxygen as a whole, we refocused our efforts to realize greater stockholder value through asset sales, licenses and strategic partnerships or joint ventures, which we believed was more likely to maximize the potential return to stockholders. In 2008 and the first six months of 2009, we completed a number of strategic partnering arrangements, asset sales and license arrangements designed to increase stockholder value, including the following:

In October 2008, while we were still pursuing a number of strategic partnering and similar arrangements such as those described above, we once again retained Lazard to assist us in further exploring our strategic options, including a sale or disposition of one or more of our assets, as well as the sale of Maxygen in its entirety. At this time, our Board of Directors also made the decision to suspend clinical development of our MAXY-G34 program and initiate a restructuring plan that resulted in a 30% reduction in our workforce.

From October 2008 through the first half of 2009, Lazard and our management approached approximately 90 parties, including several large pharmaceutical and biotechnology companies, regarding a potential strategic transaction with us. As during our previous exploratory process, we received limited interest in a sale of Maxygen as a whole.

As a result of this strategic process, in June 2009, we entered into a joint venture agreement with Astellas pursuant to which we contributed substantially all of our programs and technology assets in protein pharmaceuticals to Perseid Therapeutics LLC, a newly formed, majority owned subsidiary. Under the arrangement, Astellas was granted an option to acquire all of our ownership interest in Perseid at specified exercise prices that increased each quarter over the term of the buy-out option, which was scheduled to expire in September 2012. The transaction was approved by our stockholders and completed in September 2009.

From September 2009 through March 2011, we focused our efforts on the continued research and development operations of Perseid under our joint venture arrangement with Astellas. We also continued to explore ways to maximize stockholder value through sales, distributions, stock repurchases and other arrangements involving our remaining assets. The key component of this strategy was to create value from the MAXY-G34 program, either through the potential further development of the product candidate or through a sale, licensing arrangement, partnership or other transaction involving the program. In addition to pursuing opportunities for the development of this program for the chemotherapy-induced neutropenia indication, in the latter half of 2010, we began to evaluate plans for the development of the product candidate as a potential medical countermeasure for acute radiation syndrome, or ARS, primarily through potential funding from the Biomedical Advanced Research and Development Authority, a government agency, or BARDA.

In furtherance of our strategy of enhancing stockholder value, we also completed the following transactions during this period:

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In March 2011, Astellas exercised its option to acquire all of our interests in Perseid for $76.0 million in cash. The acquisition was completed in May 2011 and, from May 2011 through the end of 2011, the Company focused much of its efforts on separating the operations of Perseid from the Company and on providing continued administrative and transition services to Perseid in accordance with a transition services agreement between the parties.

Our Board of Directors also began to once again evaluate the remaining opportunities available to the Company for enhancing stockholder value, including but not limited to, continued execution of the Company’s business plan, the payment of one or more cash dividends to the Company’s stockholders, further repurchases by the Company of shares of its capital stock, the sale or spin-off of Company assets, partnering or other collaboration agreements, a merger, reverse merger, sale or liquidation of, or acquisition by, the Company and other strategic transactions. During this time, our Board of Directors further developed specific objectives to be used by management in assessing potential transactions. These objectives were intended to yield a potential transaction which our Board of Directors viewed as reasonably likely to provide greater value to the Company’s stockholders than the complete dissolution and liquidation of the Company, and included obtaining value for the MAXY-G34 program in the short-term, limiting the use of Maxygen’s cash in any transaction and preserving a substantial portion of our cash reserves for our stockholders.

As part of this process, our management and members of our Board of Directors directly contacted approximately 75 parties, including many companies with operations or assets in the biodefense industry, regarding a potential transaction involving our MAXY-G34 program or a transaction involving the Company it its entirety. None of our discussions with potential acquirers resulted in any proposals for a transaction that met our Board of Directors’ stated objectives.

In May 2011, we submitted a formal proposal to BARDA for the development of our MAXY-G34 product candidate as a potential medical countermeasure for ARS and, between May and November 2011, the Company’s management, together with its consultants and advisors, devoted substantial time and effort in developing comprehensive plans for continuing the operations of the Company in connection with a potential BARDA contract.

In November 2011, BARDA advised us that our proposal would not be considered for a contract award, primarily due to BARDA’s lack of available funding. Shortly after the receipt of this BARDA notice, our Board of Directors held a regular meeting during which it concluded that the full range of strategic alternatives, including a potential liquidation and dissolution, should be reevaluated in light of the decision by BARDA. The risks of such continued evaluation were also considered, including the further use of existing cash and lack of interest by third parties in a strategic transaction with the Company that met the Board of Directors’ objectives.

During 2012, the Board of Directors met nine times by telephone and in person. During each of these meetings, the Company’s management provided updates on the status of discussions with potential strategic counterparties and the Board of Directors considered various alternative transactions.

During this period, our Board of Directors also reviewed and discussed advice from management and its legal counsel on the process of dissolution and liquidation of the Company if our Board of Directors were to determine such course to be in the best interests of the Company and its stockholders. As part of its evaluation, our Board of Directors regularly reviewed the estimated financial aspects of a liquidation analysis prepared by

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management reflecting the net assets that management believed would be available for distribution to stockholders pursuant to a plan of liquidation. Also included in our Board of Directors’ consideration of a potential voluntary dissolution and liquidation was a careful analysis of the Company’s obligation pursuant to the DGCL to make reasonable provision, if a dissolution and liquidation were pursued, for outstanding, contingent and unknown obligations.

Our Board of Directors also evaluated the possibility of making a significant cash distribution to stockholders and, on August 6, 2012, authorized a special pro rata distribution of $3.60 per share of common stock, equal to approximately $100.0 million in the aggregate, which was paid in September 2012. In considering the special cash distribution, our Board of Directors evaluated a number of factors, including the likely effects on our ability to fund our limited future operational requirements, our ability to pursue our on-going strategic evaluation, the adequacy of our reserves for potential future liabilities, the potential tax treatment of the distribution and uncertainties regarding potential future increases in the tax rates in 2013 applicable to the distribution.

For the remainder of 2012 and early 2013, the Company’s management entered into preliminary discussions with approximately 40 parties regarding a potential business combination or other transaction. Most of these discussions did not proceed past the preliminary stages or result in any specific proposal for a transaction. While our management entered into more detailed discussions with several of these parties regarding the proposed terms of a potential transaction, such discussions did not result in agreement on the key terms of such transaction, including the structure of such transaction, factors that could affect valuation, the timing and certainty of closing, and the amount of the Company’s cash or other financing required by the counterparty to complete such transaction.

Our Board of Directors met twice in March 2013 to once again review the process the Company had undertaken in connection with its review of the Company’s strategic alternatives. Our Board of Directors also reviewed an updated estimate prepared by management of the net assets that would be available for distribution to stockholders pursuant to a plan of liquidation, as well as the estimated reserves that would reasonably be required for continued operating expenses and outstanding, contingent and unknown obligations. Based on these considerations, our Board of Directors directed our senior management to proceed with preparations for the potential dissolution and liquidation of the Company. Accordingly, the Company’s management, in consultation with its advisors and with the Executive Chairman of our Board of Directors, began to finalize its plans for a dissolution and liquidation of the Company to present to our Board of Directors for approval.

On May 30, 2013, our Board of Directors met for the purpose of considering the liquidation and dissolution of the Company and other alternatives available to the Company. Also present at this meeting, in person or by telephone, were members of management and representatives of Wilson Sonsini Goodrich & Rosati P.C. and Morris, Nichols, Arsht & Tunnell LLP, the Company’s legal counsel. At this meeting, management presented its analysis of the alternatives available to the Company and our Board of Directors once again reviewed the financial aspects of a liquidation analysis prepared by management reflecting estimates of the Company’s assets and potential liabilities, including the net assets available for distribution to stockholders pursuant to a plan of liquidation after the reserve of amounts reasonably necessary to pay or provide for all known, unknown and contingent claims. Our Board of Directors weighed liquidating Maxygen against the potential for an acquisition or other strategic transaction that would provide significant value to Maxygen’s stockholders in excess of management’s estimated liquidation value.

At this meeting, representatives of both Wilson Sonsini Goodrich & Rosati and Morris, Nichols, Arsht & Tunnell also reviewed with our Board of Directors the results of the extensive process the Company had undertaken in connection with its review of strategic alternatives, the fiduciary duties of our Board of Directors, and the terms of the proposed plan of liquidation. As a result of these considerations and other factors, our Board of Directors adopted the Plan of Dissolution and recommended approval of the Plan of Dissolution to our stockholders. It was noted that the Plan of Dissolution could be abandoned by our Board of Directors if a more attractive transaction became available to the Company.

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Reasons for Dissolution and Liquidation

In arriving at its determination that the Plan of Dissolution is advisable and in our best interests and the best interests of our stockholders and is the preferred strategic option for Maxygen, our Board of Directors carefully considered the terms of the Plan of Dissolution and the dissolution process under Delaware law, as well as other available strategic alternatives. As part of our evaluation process, our Board of Directors considered the risks and timing of each alternative available to Maxygen, as well as management’s financial projections, and consulted with management and our legal advisors. In approving the Plan of Dissolution, our Board of Directors considered several of the factors set out above as well as the following factors:

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Our Board of Directors also considered the following negative factors in arriving at its conclusion that dissolving and liquidating Maxygen is in our best interests and the best interests of our stockholders:

Our Board of Directors also considered the other factors described in the section entitled “Risk Factors to be Considered by Stockholders in Deciding Whether to Approve the Plan of Dissolution” in this proxy statement and in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, as amended, and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 in deciding to approve, and recommend that our stockholders approve, the Plan of Dissolution.

In view of the variety of factors considered in connection with its evaluation of the Plan of Dissolution, our Board of Directors did not find it practical, and did not quantify or otherwise attempt, to assign relative weight to the specific factors considered in reaching its conclusions. In addition, our Board of Directors did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to its ultimate determination, but rather conducted an overall analysis of the factors described above. In considering the factors described above, individual members of our Board of Directors may have given different weight to different factors.

We cannot offer any assurance that the liquidation value per share of our common stock will equal or exceed the price or prices at which such shares recently have traded or could trade in the future. However, our Board of Directors believes that it is in our best interests and the best interests of our stockholders to distribute to the stockholders our net assets pursuant to the Plan of Dissolution. If our stockholders do not approve the Plan of Dissolution, our Board of Directors will explore what, if any, alternatives are available. in light of our limited business activities and the possible difficulty in rehiring employees and recommencing operations.

Possible alternatives include selling all of our stock or assets, changing our business focus, continuing our efforts to identify a merger partner or a reverse merger partner, or seeking voluntary dissolution at a later time and with diminished assets. At this time, our Board of Directors has considered all of these options and has determined that it is in our best interests and in the best interests of our stockholders to dissolve Maxygen and return the cash to our stockholders. The Board of Directors, however, retains the right to consider other alternatives and abandon the Plan of Dissolution prior to the effective time of the dissolution should a superior offer arise before the effective date of the filing of the Certificate of Dissolution with the Delaware Secretary of State. See “Risk Factors to be Considered by Stockholders in Deciding Whether to Approve the Plan of Dissolution.”

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Dissolution Under Delaware Law

Section 275 of the DGCL provides that a corporation may dissolve upon the approval of a corporation’s board of directors followed by a majority vote of its stockholders, or by unanimous stockholder consent. Following such approval, the dissolution is effected by filing a Certificate of Dissolution with the Delaware Secretary of State. The corporation is dissolved upon the effective date of its Certificate of Dissolution.

Section 278 of the DGCL provides that once a corporation is dissolved, it continues its corporate existence for three years, but may not carry on any business except that appropriate to wind up and liquidate its business and affairs. The process of winding up includes:

If any action, suit or proceeding is commenced by or against the corporation before or within the three-year winding up period (or any extension thereof granted by a court), the corporation will, solely for the purpose of such action, suit or proceeding, automatically continue to exist beyond the three-year period until any judgments, orders or decrees are fully executed.

Description of the Plan of Dissolution and Dissolution Process

This section of the proxy statement describes material aspects of the proposed Plan of Dissolution. While we believe that the description covers the material terms of the Plan of Dissolution, this summary may not contain all of the information that is important to you. You should carefully read this entire proxy statement, including the Plan of Dissolution attached as Appendix A to this proxy statement, and the other documents delivered with this proxy statement for a more complete understanding of the Plan of Dissolution.

Approval of Plan of Dissolution

To become effective, the Plan of Dissolution must be approved by the affirmative vote of a majority of the outstanding shares of our common stock. The approval of the Plan of Dissolution by the requisite vote of the holders of our common stock will constitute adoption of the Plan of Dissolution and a grant of full and complete authority for our Board of Directors and officers, without further stockholder action, to proceed with the dissolution and liquidation of the Company in accordance with any applicable provision of the Delaware law, including the authority to dispose of all of our remaining non-cash assets.

Dissolution and Liquidation

If the dissolution is approved by the requisite vote of our stockholders, the steps set forth below will be completed at such times as our Board of Directors, in its discretion and in accordance with the DGCL, deems necessary, appropriate or advisable in our best interests and the best interests of our stockholders:

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Liquidating Distributions; Amount; Timing

It is our current intention to make an initial liquidating distribution to our stockholders of record as of the Final Record Date as soon as practicable following the effective date of the filing of the Certificate of Dissolution with the Delaware Secretary of State. The DGCL requires that, prior to making an initial liquidating distribution, we pay or provide for payment of all of our liabilities and obligations, including contingent liabilities. In determining whether adequate provision is being made for any outstanding liabilities or wind down costs, the Board of Directors may consider a variety of factors. For example, in the case of outstanding disputed or contingent liabilities, considerations may include the estimated maximum amount of the claim and the likelihood that the claim will be resolved in the claimant’s favor or that the contingency will occur. Further, our ability to make a liquidating distribution could be adversely affected if any unanticipated liabilities or claims arise prior to the anticipated distribution.

Uncertainties as to the amount of liabilities make it impossible to predict precisely the aggregate amount that will ultimately be available for distribution. We will continue to incur claims, liabilities and expenses (including operating costs, salaries, income taxes, payroll and local taxes, legal and accounting fees and miscellaneous office expenses) following the approval of the dissolution and liquidation of the Company pursuant to the Plan of Dissolution. These claims, liabilities and expenses will reduce the amount of cash and assets available for ultimate distribution to our stockholders.

Based on the assumptions set forth below, among others, we estimate that the amount available for the initial liquidating distribution to our stockholders will be approximately between $68.2 million and $69.6 million, or between $2.45 and $2.50 per share (based on 27,792,520 shares outstanding as of May 31, 2013). We currently estimate that the aggregate amount ultimately distributed to our stockholders will be in the range of approximately $2.45 to $2.59 per share, inclusive of the initial liquidating distribution. This estimate of the amount that may be available for distribution assumes, among other things:

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Any one or more of these assumptions may prove to be wrong, which could reduce the amount available to distribute to our stockholders.

The following table sets forth the basis for our estimate of the initial liquidating distribution. The following table is based upon, among other things, the assumptions set forth above and estimates of certain liabilities. If our assumptions or estimates contained therein prove to be incorrect, our stockholders may ultimately receive substantially more or less than the amounts estimated here. We do not plan to resolicit stockholder approval for the dissolution and liquidation of the Company pursuant to the Plan of Dissolution even if the amount ultimately distributed to our stockholders changes significantly from the estimates set forth in this proxy statement.

The amount of cash ultimately distributed to our stockholders in the initial liquidating distribution depends on the accuracy of the assumptions and estimates set forth above and other factors. We have attempted to make reasonable estimates and assumptions, however, if any of such estimates or assumptions are inaccurate, the

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amount we initially distribute to our stockholders may be substantially less than the amount we currently estimate. See “Risk Factors to be Considered by Stockholders in Deciding Whether to Approve the Plan of Dissolution—The amount we distribute to our stockholders in the initial liquidating distribution may be substantially less than the amount we currently estimate as set forth in this proxy statement.”

Based on the foregoing, we currently estimate that the aggregate amount ultimately distributed to our stockholders will be in the range of approximately $2.45 to $2.59 per share of Maxygen common stock, inclusive of the initial liquidating distribution. The foregoing estimates are not guarantees and they do not reflect the total range of possible outcomes. You may receive substantially less than the amount of liquidating distributions we currently estimate, or you may not receive any liquidating distributions at all. We are unable to predict the precise amount or timing of any additional liquidating distributions following the initial liquidating distribution. The timing and amount of any such additional liquidating distributions will depend upon the actual expenses incurred, the timing of the resolution of matters for which we have established the reserve, the amount to be paid in satisfaction of contingencies as well as our ability to convert our remaining assets to cash. Although our Board of Directors has not established a firm timetable for the liquidating distributions, subject to contingencies inherent in winding up our business, the Board of Directors intends to make such distributions as promptly as practicable. Subject to the requirements of Delaware law, we expect to make a final distribution on or prior to the third anniversary of our dissolution. See “Risk Factors to be Considered by Stockholders in Deciding Whether to Approve the Plan of Dissolution—We cannot assure you of the exact amount or timing of any additional liquidating distributions to our stockholders under the Plan of Dissolution, and any such distributions may be substantially less than the estimates set forth in this proxy statement.”

Final Record Date

We anticipate that the Final Record Date will be the effective date of the filing of the Certificate of Dissolution with the Delaware Secretary of State. We intend to close our stock transfer books and discontinue recording transfers of shares of our common stock on the Final Record Date, and thereafter certificates representing shares of our common stock will not be assignable or transferable on our books except by will, intestate succession or operation of law. After the Final Record Date, we will not issue any new stock certificates, other than replacement certificates. It is anticipated that no further trading of our shares will occur after the Final Record Date. See “—Description of the Plan of Dissolution and Dissolution Process—Listing and Trading of the Common Stock and Interests in the Liquidating Trust or Trusts.”

All liquidating distributions from us or a liquidating trust on or after the Final Record Date, if any, will be made to stockholders of record as of the Final Record Date according to their holdings of common stock as of the Final Record Date. Subsequent to the Final Record Date, we may at our election require stockholders to surrender certificates representing their shares of common stock in order to receive subsequent distributions. Stockholders should not forward their stock certificates before receiving instructions to do so. If surrender of stock certificates should be required, all distributions otherwise payable by us or the liquidating trust, if any, to stockholders who have not surrendered their stock certificates may be held in trust for such stockholders, without interest, until the surrender of their certificates (subject to escheat pursuant to the laws relating to unclaimed property). If a stockholder’s certificate evidencing the common stock has been lost, stolen or destroyed, the stockholder may be required to furnish us with satisfactory evidence of the loss, theft or destruction thereof, together with a surety bond or other indemnity, as a condition to the receipt of any distribution.

Sale of Our Remaining Assets

The Plan of Dissolution contemplates the sale of all of our remaining non-cash assets, primarily consisting of our MAXY-G34 program and related intellectual property rights, if and at such time as the Board of Directors may, in its sole discretion, deem to be expedient and in the best interests of the Company and its stockholders. The Plan of Dissolution does not specify the manner in which we may sell our assets. Such sales could take the form of sales of individual assets, sales of groups of assets organized by type of asset or otherwise, a single sale

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of all or substantially all of our assets, or some other form of sale. Sales of our assets will be made on such terms as are approved by the Board of Directors in its sole discretion. The assets may be sold to one or more purchasers in one or more transactions over a period of time.

It is not anticipated that any further stockholder votes will be solicited with respect to the approval of the specific terms of any particular sales of assets approved by the Board of Directors. We do not anticipate amending or supplementing this proxy statement to reflect any such agreement or sale, unless required by applicable law. The prices at which we will be able to sell our various assets will depend largely on factors beyond our control, including, without limitation, the condition of financial markets, the availability of financing to prospective purchasers of the assets, United States and foreign regulatory approvals, public market perceptions, and limitations on transferability of certain assets. In addition, we may not obtain as high a price for a particular asset as we might secure if we were not in liquidation. See “Risk Factors to be Considered by Stockholders in Deciding Whether to Approve the Plan of Dissolution—If we are unable to sell our remaining non-cash assets, including our MAXY-G34 program, or if such sales take longer than expected, our stockholders may be unable to realize any value for these assets or receive any additional liquidating distributions related to such assets.”

Contingent Liabilities; Reserve

Under the DGCL, we are required, in connection with our dissolution and liquidation, to pay or make reasonable provision for payment of all of our liabilities and obligations. Following the approval of the Plan of Dissolution by our stockholders, we will pay all known, non-contingent liabilities. We currently estimate that we will reserve between $11.5 million and $12.9 million, which will be used to pay all expenses (including operating expenses incurred from April 1, 2013 to date and estimated operating expenses to be incurred throughout the dissolution and wind-down process) and other known, non-contingent liabilities. We currently estimate that $2.5 million of this reserve will be set aside to satisfy any unknown or contingent liabilities as required by Delaware law.

The estimated amount of the reserve is based upon estimates and opinions of management and the Board of Directors and derived from consultations with outside experts and a review of our estimated operating expenses and future estimated liabilities, including, without limitation, estimated legal, accounting and consulting fees, estimated operating lease expenses, estimated payroll and other taxes payable, estimated miscellaneous office expenses, and accrued expenses reflected in our financial statements. There can be no assurance that the reserve will be sufficient. If any of our estimates, including estimates relating to the costs of the liquidation process and of satisfying outstanding obligations, liabilities and claims during the liquidation process, are inaccurate, we may be required to increase the amount of the reserve. After the liabilities, expenses and obligations for which the reserve is established have been satisfied in full (or determined not to be owed), we will distribute to our stockholders any remaining portion of the reserve.

Under the DGCL, in the event we fail to create an adequate reserve for payment of our expenses and liabilities, or should such reserve and the assets held by any liquidating trust or trusts be exceeded by the amount ultimately found payable in respect of expenses and liabilities, each stockholder could be held liable for the repayment to creditors, out of the amounts theretofore received by such stockholder from us or from any liquidating trust or trusts, of such stockholder’s pro rata share of such excess.

If we were held by a court to have failed to make adequate provision for our expenses and liabilities or if the amount required to be paid in respect of such liabilities exceeded the amount available from the reserve and any assets of the liquidating trust or trusts, a creditor of ours could seek an injunction against the making of liquidating distributions under the Plan of Dissolution on the grounds that the amounts to be distributed were needed to provide for the payment of our expenses and liabilities. Any such action could delay or substantially diminish the cash distributions to be made to stockholders under the Plan of Dissolution.

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Liquidating Trust

If deemed necessary, appropriate or desirable by the Board of Directors for any reason, we may, from time to time, transfer any of our unsold assets and any portion of our reserve to one or more liquidating trusts established for the benefit of our stockholders, which property would thereafter be sold or distributed on terms approved by its trustee(s). Our Board of Directors may determine to transfer assets to a liquidating trust in circumstances where the nature of an asset is not susceptible to distribution (for example, interests in intangibles) or where our Board of Directors determines that it would not be in the best interests of us and our stockholders for such assets to be distributed directly to the stockholders at such time. If all of our assets (other than the reserve) are not sold or distributed prior to the third anniversary of the effectiveness of the dissolution, we would expect either to seek an extension of the three year winding up period from a Delaware court or to transfer in final distribution such remaining assets to a liquidating trust. Our Board of Directors may also elect in its discretion, as applicable, to transfer the reserve, if any, or any portion thereof, to such a liquidating trust.

The purpose of a liquidating trust would be to distribute such property, or to sell such property on terms satisfactory to the liquidating trustee(s) and distribute the proceeds of such sale, after paying our liabilities, if any, assumed by the trust, to our stockholders, based on their proportionate ownership interest in the trust. Any liquidating trust acquiring all of our unsold assets will assume all of our liabilities and obligations and will be obligated to pay any of our expenses and liabilities that remain unsatisfied. If the reserve transferred to the liquidating trust is exhausted, such expenses and liabilities will be satisfied out of the liquidating trust’s other unsold assets.

The Plan of Dissolution authorizes our Board of Directors to appoint one or more individuals, who may include persons who are also officers or directors of the Company, or entities to act as trustee or trustees of the liquidating trust or trusts and to cause us to enter into a liquidating trust agreement or agreements with such trustee or trustees on such terms and conditions as may be approved by our Board of Directors. It is anticipated that our Board of Directors will select such trustee or trustees on the basis of the experience of such individual or entity in administering and disposing of assets and discharging liabilities of the kind to be held by the liquidating trust or trusts and the ability of such individual or entity to serve the best interests of our stockholders.

The trust would be evidenced by a trust agreement between the Company and the trustees. Pursuant to the trust agreement, the trust property would be transferred to the trustees immediately prior to the distribution of interests in the trust to our stockholders, to be held in trust for the benefit of the stockholder beneficiaries subject to the terms of the trust agreement. It is anticipated that the interests would be evidenced only by the records of the trust, there would be no certificates or other tangible evidence of such interests and no holder of our common stock would be required to pay any cash or other consideration for the interests to be received in the distribution or to surrender or exchange shares of our common stock in order to receive the interests.

It is further anticipated that, pursuant to the trust agreements:

Listing and Trading of the Common Stock and Interests in the Liquidating Trust or Trusts

If our stockholders approve the Plan of Dissolution, we will initiate the process to delist our common stock from the NASDAQ Global Market promptly following our Annual Meeting. We anticipate that we will request that trading in our common stock be suspended on the NASDAQ Global Market at the close of business on the date that we file the Certificate of Dissolution with the Delaware Secretary of State or as soon thereafter as is

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reasonably practicable, and that we will close our stock transfer books and discontinue recording transfers and issuing stock certificates (other than replacement certificates) at that time. Accordingly, it is expected that trading in our shares of common stock will cease after the effective date of the filing of the Certificate of Dissolution with the Delaware Secretary of State.

After trading is suspended and the closing of our transfer books, our stockholders will not be able to transfer their shares. It is anticipated that the interests in any liquidating trust or trusts would not be transferable, although no determination has yet been made. Such determination will be made by our Board of Directors and management prior to the transfer of unsold assets to the liquidating trust and will be based on, among other things, our Board of Directors’ and management’s estimate of the value of the assets being transferred to the liquidating trust or trusts, tax matters and the impact of compliance with applicable securities laws.

Even if transferable, the interests are not expected to be listed on a national securities exchange or quoted through NASDAQ, and the extent of any trading market therein cannot be predicted. Moreover, the interests may not be accepted by commercial lenders as security for loans as readily as more conventional securities with established trading markets. As stockholders will be deemed to have received a liquidating distribution equal to their pro rata share of the value of the net assets distributed to an entity which is treated as a liquidating trust for tax purposes (see “Material United States Federal Income Tax Consequences of Our Dissolution and Liquidation”), the distribution of non-transferable interests could result in tax liability to the interest holders without their being readily able to realize the value of such interests to pay such taxes or otherwise.

Absence of Appraisal Rights

Under the DGCL, our stockholders are not entitled to appraisal rights for their shares of common stock in connection with the transactions contemplated by the Plan of Dissolution.

Reporting Requirements

Whether or not the Plan of Dissolution is approved, we have an obligation to continue to comply with the applicable reporting requirements of the Exchange Act. If the Plan of Dissolution is approved, in order to curtail expenses, we will, after the effective date of the filing of the Certificate of Dissolution, seek relief from the SEC from certain reporting requirements under the Exchange Act. However, the SEC may not grant any such relief, in which case we would be required to continue to bear the expense of complying with all applicable reporting requirements under the Exchange Act. The costs of compliance with such reporting requirements would reduce the amount which otherwise could be distributed to interest holders. See “Risk Factors to Be Considered by Stockholders in Deciding Whether to Approve the Plan of Dissolution—We expect to apply for relief from certain reporting requirements under the Exchange Act, which may substantially reduce publicly-available information about the Company.”

Treatment of Equity Awards and Employee Stock Purchase Plan

Restricted Stock Awards

As of May 31, 2013, there were 198,089 restricted shares of common stock that remained unvested under restricted stock awards (“RSAs”) granted by the Company, of which 54,568 shares will vest on or before June 22, 2013 in accordance with the standard vesting schedule of such awards. Most of the RSA awards that remain unvested will vest in full by September 22, 2013 in accordance with the standard vesting schedule of such awards. Based on the terms set forth in the Company’s 2006 Equity Incentive Plan (“2006 Plan”) under which the RSAs were issued, the unvested shares would participate in any distributions made pursuant to the Plan of Dissolution. In addition, pursuant to the terms of the 2006 Plan and related RSA agreements, any such unvested RSAs will accelerate in full upon the dissolution of the Company (to the extent not otherwise vested in accordance with the standard vesting schedule of such awards).

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CPUs

Each of our current employees and members of our Board of Directors hold unvested contingent performance unit (“CPU”) awards. The CPU awards were granted under the 2006 Plan and were designed to protect certain holders of our stock options against a reduction in the share price of our common stock resulting from dividends or distributions to our stockholders, which could negatively affect outstanding options held by our option holders since the options would not otherwise participate in any dividends or distributions to our stockholders. Most of the CPU awards vest on September 22, 2013 in accordance with the standard vesting schedule of such awards. In addition, pursuant to the terms of the 2006 Plan and related CPU award agreements, all unvested CPUs accelerate in full upon the dissolution of the Company. The Compensation Committee of the Board of Directors is also authorized to and has approved the settlement of such CPU awards entirely in cash. We currently estimate that the aggregate cash amount required to settle all vested CPU awards will be between $1.1 million and $1.3 million.

Stock Options

As of May 31, 2013, there were 4,307,665 options outstanding under the Company’s equity incentive plans, including 125,376 options that remained unvested as of such date. Under our equity incentive plans, the Compensation Committee of the Board of Directors is authorized to accelerate the vesting of these unvested options in its sole discretion and the Compensation Committee has approved the acceleration of the vesting of these options to the day immediately following the date that the proposed Plan of Dissolution of the Company is approved by stockholders. In accordance with our equity incentive plans, we will give notice to holders of outstanding stock options of our plans to dissolve and liquidate, and allow these holders to exercise their vested stock options prior to our dissolution. However, because none of the outstanding options have an exercise price less than $3.51, we do not expect any option holder to exercise any of their outstanding options. Unless and until an option is exercised and payment of the applicable exercise price is made, option holders are not entitled to any cash distributions payable under the Plan of Dissolution with respect to their options. Pursuant to the terms of our equity incentive plans, all outstanding options that remain unexercised will terminate immediately upon our dissolution.

We intend to terminate all of our equity incentive plans, including the 2006 Plan, effective upon our dissolution.

Employee Stock Purchase Plan

Effective September 1, 2009, we suspended all employee purchases of Company’s common stock under our 1999 Employee Stock Purchase Plan (the “ESPP”) and we intend to terminate the ESPP effective upon our dissolution.

Information regarding the treatment of the equity awards held by our executive officers is set forth under the heading “Interests of Directors and Executive Officers in Approval of the Plan of Dissolution.”

Authority of Officers and Directors

We expect that, if the Plan of Dissolution is approved, all of the members of our Board of Directors, other than Mr. Stein, will resign prior to or in connection with the filing of our Certificate of Dissolution. Mr. Stein is expected to remain as the sole member of our Board of Directors, and to act as Chief Executive Officer and Chief Financial Officer, throughout the wind-down and dissolution process.

Our Board of Directors may appoint officers, hire employees and retain independent contractors and agents in connection with the wind down process, and is authorized to pay compensation to or otherwise compensate our directors, officers, employees, independent contractors and agents above their regular compensation in

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recognition of the extraordinary efforts they may be required to undertake in connection with the successful implementation of the Plan of Dissolution. Adoption of the Plan of Dissolution by the requisite vote of our stockholders will constitute approval by our stockholders of any such compensation.

The approval of the Plan of Dissolution by our stockholders also will authorize, without further stockholder action, our Board of Directors to do and perform, or to cause our officers to do and perform, any and all acts and to make, execute, deliver or adopt any and all agreements, resolutions, conveyances, certificates and other documents of every kind that our Board of Directors deems necessary, appropriate or desirable, in the absolute discretion of the Board of Directors, to implement the Plan of Dissolution and the transactions contemplated thereby, including, without limitation, all filings or acts required by any state or federal law or regulation to wind down its affairs.

Professional Fees and Expenses

It is specifically contemplated that we will obtain legal, tax and accounting advice and guidance from one or more law and accounting firms and tax advisors in implementing the Plan of Dissolution, and we will pay all fees and expenses reasonably incurred by us in connection with or arising out of the implementation of the Plan of Dissolution, including the prosecution, defense, settlement or other resolution of any claims or suits by or against us, the discharge, filing and disclosure of outstanding obligations, liabilities and claims, filing and resolution of claims with local, county, state and federal tax authorities, and the advancement and reimbursement of any fees and expenses payable by us pursuant to the indemnification we provide in our Certificate of Incorporation and Bylaws, the DGCL or otherwise. In addition, in connection with and for the purpose of implementing and assuring completion of the Plan of Dissolution, we may, in the absolute discretion of the Board of Directors, pay any brokerage, agency, professional and other fees and expenses of persons rendering services to us in connection with the collection, sale, exchange or other disposition of our property and assets and the implementation of the Plan of Dissolution.

Indemnification and Insurance

We will continue to indemnify our officers, directors, employees, agents and the liquidating trustee(s), if any, to the maximum extent required by applicable law, our Certificate of Incorporation and Bylaws, and any contractual arrangements, for actions taken in connection with the Plan of Dissolution and the winding up of our business and affairs. Our Board of Directors is authorized to obtain and maintain insurance as may be necessary, appropriate or advisable to cover such indemnification obligations, including seeking an extension in time and coverage of our insurance policies currently in effect.

Amendment, Modification or Revocation of Plan of Dissolution

Once the dissolution of Maxygen becomes effective, it cannot be revoked without stockholder approval. In general, however, the Plan of Dissolution, as the blueprint for the liquidation of Maxygen following its dissolution, is subject to alteration or revocation by the Board of Directors without stockholder approval. Thus, if for any reason our Board of Directors determines that such action would be in the best interest of Maxygen and its stockholders, our Board of Directors may, in its sole discretion and without requiring further stockholder approval, revoke the Plan of Dissolution and all action contemplated thereunder, to the extent permitted by the DGCL. Our Board of Directors may not amend or modify the Plan of Dissolution under circumstances that would require additional stockholder approval under the DGCL and federal securities laws without complying with such requirements. The Plan of Dissolution would be void upon the effective date of any such revocation.

Regulatory Approvals

Except for the filing of the Certificate of Dissolution with the Delaware Secretary of State and compliance with the DGCL, federal and state securities laws and the Internal Revenue Code, no United States federal or state regulatory requirements must be complied with or approvals obtained in connection with the liquidation.

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Interests of Directors and Executive Officers in Approval of the Plan of Dissolution

Members of our Board of Directors and our executive officers may have interests in the approval of the Plan of Dissolution that are different from, or are in addition to, the interests of our stockholders generally. Our Board of Directors was aware of these interests and considered them, among other matters, in approving the Plan of Dissolution.

Stock Ownership & Equity Awards

In connection with any liquidating distributions the members of our Board of Directors and our executive officers will be entitled to the same cash distributions as our stockholders based on their ownership of shares of our common stock, which is detailed below.

Members of our Board of Directors and our executive officers own, as of May 31, 2013, an aggregate of 1,496,467 shares of our outstanding common stock, including 174,875 unvested shares underlying RSAs which, based on the terms set forth in the 2006 Plan under which the RSAs were issued, would participate in any distributions made pursuant to the Plan of Dissolution. Most of the outstanding RSAs vest in full by September 22, 2013 in accordance with the standard vesting schedule of such awards. In addition, pursuant to the terms of the 2006 Plan and related RSA agreements, all unvested RSAs will accelerate in full upon the dissolution of the Company.

The table below sets forth the shares of our common stock, including unvested shares underlying RSAs held by each of member of our Board of Directors and our executive officers, as of May 31, 2013:

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CPUs

Members of our Board of Directors and our executive officers each hold unvested CPU awards. The majority of these CPU awards vest on September 22, 2013 in accordance with the standard vesting schedule of such awards. Pursuant to the terms of the 2006 Plan and related CPU award agreements, all unvested CPUs will accelerate in full upon the dissolution of the Company. The Compensation Committee of the Board of Directors is also authorized to and has approved the accelerated settlement of the CPUs entirely in cash. All unvested CPUs remaining following such settlement will expire immediately.

We currently estimate that the approximate cash amount to be received by each member of our Board of Directors and executive officer in settlement of the CPU awards in connection with our dissolution will be as follows:

Stock Options

As of May 31, 2013, members of our Board of Directors and our executive officers held approximately 1,405,500 options outstanding under the Company’s equity incentive plans, of which 104,875 options remained unvested as of such date. As indicated above, the Compensation Committee has approved the acceleration of the vesting of all unvested options, including those held by our executive officers and members of our Board of Directors, to the day immediately following the date that the proposed Plan of Dissolution of the Company is approved by stockholders. However, because none of the outstanding options have an exercise price of less than $3.51, we do not expect any executive officer or member of our Board of Directors to exercise any of their outstanding options. Unless and until an option is exercised and payment of the applicable exercise price is made, option holders are not entitled to any cash distributions payable under the Plan of Dissolution with respect to their options. Pursuant to the terms of our equity incentive plans, all outstanding options that remain unexercised will terminate immediately upon our dissolution.

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Compensation Arrangements

Isaac Stein, Executive Chairman of the Board of Directors

Mr. Stein currently serves as the Executive Chairman of our Board of Directors. In connection with the expected departure of Mr. Sulat, the Board of Directors has appointed Mr. Stein to serve as Chief Executive Officer and Chief Financial Officer of the Company, effective as of July 1, 2013. Mr. Stein will continue to serve as Executive Chairman of the Board of Directors, and to act as Chief Executive Officer and Chief Financial Officer throughout the wind-down and dissolution process. Except as otherwise described below, Mr. Stein will not receive any additional compensation for his services as Chief Executive Officer and Chief Financial Officer or for his continued service as a director.

Equity Awards

As noted above, Mr. Stein currently holds equity awards that will be subject to accelerated vesting immediately prior to the effectiveness of the dissolution (to the extent such awards do not otherwise vest in accordance with the original vesting schedule of such awards). Mr. Stein’s unvested equity awards include, as of May 31, 2013, (i) 25,000 shares of unvested restricted stock under an RSA granted on September 22, 2009 and scheduled to vest by September 22, 2013; (ii) a CPU award granted on September 22, 2009 and scheduled to vest on September 22, 2013; and (iii) 25,000 options that remain unvested under an option award granted on September 22, 2009 at an exercise price of $6.53 and scheduled to vest in full by September 22, 2013.

Waverley Consulting Agreement

We are party to a consulting agreement with Waverley Associates, Inc. (“Waverley”), a private investment firm for which Mr. Stein is the president and sole stockholder. The consulting agreement provides for consulting fees payable to Waverley of $50,000 per month and a two-year notice period for termination of the agreement by either party. We currently expect to provide Waverley with notice regarding the termination of this agreement on December 31, 2013, with termination effective as of December 31, 2015 (two years after notice of termination). Waverley will continue to provide consulting services to the Company and the Company will continue to pay consulting fees to Waverley in accordance with the consulting agreement until the effective date of such termination. The Company paid Waverley a total of $600,000 in consulting fees during 2012 and will continue to pay Waverley consulting fees at the current monthly rate for the remaining term of the consulting agreement, which is expected to terminate on December 31, 2015. In addition, until February 2013, the Company paid a portion of insurance premiums for medical, dental and vision coverage for the benefit of Mr. Stein under the Company’s group policies. The Company paid a total of $50,496 in respect of these insurance premiums during 2012.

James Sulat, Chief Executive Officer and Chief Financial Officer

Severance Arrangements

Mr. Sulat currently serves as the Company’s Chief Executive Officer, Chief Financial Officer and as a member of the Board of Directors. In connection with the approval of the Plan of Dissolution by the Board of Directors on May 30, 2013, Mr. Sulat made the decision to step down as Chief Executive Officer, Chief Financial Officer and as a member of the Board of Directors, with such departure to take effect on June 30, 2013.

In connection with his departure, the Compensation Committee of the Board of Directors approved severance arrangements for Mr. Sulat that will provide him with the payments and benefits otherwise provided under his change of control agreement. See “Proposal No. 5: Advisory Resolution to Approve Executive Compensation—Executive Compensation—Potential Payments Upon Termination or Change of Control—Change of Control Agreements.” Accordingly, upon the effective date of his resignation and subject to his execution of a release of claims, Mr. Sulat will be entitled to receive (i) a lump sum payment equal to his current

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base salary of $578,100; (ii) the payment of his target bonus amount for 2013, equal to $289,050; (iii) the acceleration of all of Mr. Sulat’s outstanding and unvested equity awards, which include, as of May 31, 2013, (i) 50,000 shares of unvested restricted stock under an RSA granted on September 22, 2009 and scheduled to vest by September 22, 2013; (ii) a CPU award granted on September 22, 2009 and scheduled to vest on September 22, 2013; (iii) 50,000 options that remain unvested under an option award granted on September 22, 2009 at an exercise price of $6.53 and scheduled to vest by September 22, 2013; and (iv) continuation of his health benefits for up to 12 months.

In addition, following his departure, Mr. Sulat will enter into a consulting agreement with the Company to provide his continued consulting services on an as-needed hourly basis at a rate of $300 per hour. The consulting agreement will have a term of one year and be terminable by the Company at any time upon prior notice.

John Borkholder, General Counsel

Post-Dissolution Compensation and Severance Arrangements

Mr. Borkholder currently serves as our General Counsel and Secretary will remain employed by the Company at his current salary and benefits at least through December 31, 2013 and may be retained as an employee or consultant thereafter. Upon the termination of his employment, Mr. Borkholder will remain eligible to receive the payments and benefits provided for under his change of control agreement. See “Proposal No. 5: Advisory Resolution to Approve Executive Compensation—Executive Compensation—Potential Payments Upon Termination or Change of Control—Change of Control Agreements.”

Equity Awards

As noted above, Mr. Borkholder currently holds equity awards will be subject to accelerated vesting immediately prior to the effectiveness of the dissolution (to the extent such awards do not otherwise vest in accordance with the original vesting schedule of such awards). Mr. Borkholder’s unvested equity awards include, as of May 31, 2013, (i) 8,125 shares of unvested restricted stock under an RSA granted on September 22, 2009 and scheduled to vest by September 22, 2013; (ii) 11,750 shares of unvested restricted stock under an RSA granted on January 3, 2011 and scheduled to vest in full by January 1, 2015; (iii) a CPU award granted on September 22, 2009 and scheduled to vest on September 22, 2013; (iv) a CPU award granted on January 3, 2011 and scheduled to vest on January 1, 2015; (v) 8,125 options that remain unvested under an option award granted on September 22, 2009 at an exercise price of $6.53 and scheduled to vest by September 22, 2013; and (vi) 11,750 options that remain unvested under an option award granted on January 3, 2011 at an exercise price of $4.04 and scheduled to vest in full by January 1, 2015.

Retention Bonus

Our Board of Directors, based on the recommendation of the Compensation Committee, also approved the payment of retention bonuses to certain of the Company’s remaining employees, including Mr. Borkholder, contingent upon stockholder approval of the dissolution and liquidation of the Company pursuant to the Plan of Dissolution. Accordingly, Mr. Borkholder will be eligible to receive a cash payment of $120,000 on the day immediately after the date on which our stockholders approve the Plan of Dissolution, subject to his continued employment through such date.

Board Compensation

Pursuant to our compensation policy for non-employee directors, non-employee directors of the Company are paid (i) an annual retainer fee of $40,000; (ii) an annual retainer fee of $20,000 for service as chairperson of the Audit Committee of the Board of Directors, if applicable; (iii) an annual retainer fee of $15,000 for service as chairperson of any committee of the Board of Directors other than the Audit Committee, if applicable; (iv) an

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annual retainer fee of $5,000 for service as a member (but not the chairperson) of any committee of the Board of Directors, if and as applicable; (v) a meeting fee of $5,000 per meeting of the Board of Directors; (vi) a meeting fee of $1,000 per special or telephonic meeting of the Board of Directors of limited duration; and (vii) a meeting fee of $1,000 per meeting of a committee of the Board of Directors (including meetings of any special or ad hoc committee of the Board of Directors).

Non-employee members of the Board of Directors also receive nondiscretionary, automatic grants of 15,000 restricted shares of common stock of the Company on the date that the Board of Directors member first is appointed or elected to the Board of Directors. In addition, non-employee members of the Board of Directors receive nondiscretionary, automatic grants of 10,000 restricted shares of common stock of the Company each year on the date of the first meeting of the Board of Directors immediately following each annual meeting of stockholders of the Company (even if held on the same day as any such annual meeting of stockholders of the Company); provided, however, that the Board of Directors member is not an employee of the Company as of any such date. As discussed below, the Board of Directors approved a special cash award to each non-employee board member in lieu of such annual restricted share award with respect to 2013.

It is expected that non-employee members of the Board of Directors will continue to be paid any unpaid portion of their annual retainers for 2013, as well as meeting fees for any meetings that take place prior to our dissolution. It is currently anticipated that our compensation policy for non-employee directors will cease and be terminated as of the effective date of the dissolution, provided that the Company may adopt a new cash-based director compensation policy if necessary to take effect for non-employee directors performing services for the remainder of 2013 and beyond.

In addition, in connection with the Board’s approval of the Plan of Dissolution, the Board, based on the recommendation of the Compensation Committee, canceled the automatic annual RSAs granted to non-employee board members and approved a special cash award of $60,000 to each non-employee board member in lieu of the annual equity award. The cash payment will be paid shortly after, and will be contingent upon, the filing of the Certificate of Dissolution.

For additional information concerning the compensation of the members of our Board of Directors, see “Proposal 3: Election of Directors—Director Compensation.”

Indemnification and Insurance

In connection with the dissolution and liquidation of the Company pursuant to the Plan of Dissolution, we will continue to indemnify our directors and officers to the maximum extent permitted in accordance with applicable law, our Certificate of Incorporation and Bylaws, and any contractual arrangements, for actions taken in connection with the Plan of Dissolution and the winding up of our business and affairs. Our Board of Directors is authorized to obtain and maintain insurance as may be necessary, appropriate or advisable to cover such indemnification obligations, including seeking an extension in time and coverage of our insurance policies currently in effect.

As a result of these benefits, our directors and executive officers generally could be more likely to vote to approve the Plan of Dissolution, including the dissolution and liquidation of the Company contemplated thereby, than our other stockholders.

Other than as set forth above, it is not currently anticipated that our dissolution and liquidation will result in any material benefit to any of our executive officers or to directors who participated in the vote to adopt the Plan of Dissolution.

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Material United States Federal Income Tax Consequences of Our Dissolution and Liquidation

The following is a summary of certain material United States federal income tax consequences of the Plan Dissolution that are applicable to our stockholders. This discussion is included for general information purposes only and does not constitute, and is not, a tax opinion or tax advice to any particular stockholder. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury Regulations promulgated thereunder, judicial decisions, administrative rulings and other legal authorities, all as of the date hereof and all of which are subject to change, possibly with retroactive effect. No ruling from the Internal Revenue Service (the “IRS”) and no opinion of counsel will be requested concerning the United States federal income tax consequences of the Plan of Dissolution. The tax consequences set forth in the following discussion are not binding on the IRS or the courts, and no assurance can be given that contrary positions will not be successfully asserted by the IRS or adopted by a court.

EACH COMPANY STOCKHOLDER SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISORS TO DETERMINE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO SUCH STOCKHOLDER AS A RESULT OF THE PLAN OF DISSOLUTION, AND ANY FEDERAL NON-INCOME, STATE, LOCAL OR NON-UNITED STATES TAX CONSEQUENCES RELEVANT TO SUCH STOCKHOLDER AS A RESULT OF THE MERGER.

The following discussion does not address all of the United States federal income tax consequences that may be relevant to our stockholders, including Company stockholders who, in light of their particular circumstances, may be subject to special rules, including, without limitation, holders that are not “United States persons” (as defined in the Code), mutual funds, retirement plans, financial institutions, tax-exempt organizations, insurance companies, regulated investment companies, real estate investment trusts, brokers or dealers in securities, traders who mark to market, stockholders who hold their shares as part of a straddle, hedge or conversion transaction, and stockholders that hold shares through a partnership or other pass-through entity. Furthermore, this discussion does not apply to holders of options or warrants or stockholders who acquired their shares by exercising options or warrants, nor does it apply to stockholders who received their shares in connection with the performance of services. This discussion assumes that stockholders hold their stock as capital assets within the meaning of Section 1221 of the Code. In addition, the discussion does not address any aspect of federal non-income, state, local or non-U.S. taxation that may be applicable to a particular stockholder.

Federal Income Taxation of our Stockholders

Amounts received by stockholders pursuant to the dissolution and liquidation will be treated as full payment in exchange for their shares of our common stock. As a result of our dissolution and liquidation, a stockholder generally will recognize gain or loss equal to the difference between (i) the amount of cash and the fair market value (at the time of distribution) of any other property distributed, less any known liabilities assumed by the stockholder or to which the distributed property is subject, and (ii) such stockholder’s tax basis in the shares of our common stock.

Amounts received by stockholders pursuant to the Plan of Dissolution will first be applied against and reduce a stockholder’s tax basis in his, her or its shares of stock. Gain will be recognized as a result of a liquidating distribution to the extent that the aggregate value of the distribution and any prior liquidating distributions received by a stockholder with respect to a share exceeds his or her tax basis for that share. If we make more than one liquidating distribution, each liquidating distribution will be allocated proportionately to each share of stock owned by a stockholder. Any loss will generally be recognized only when the final distribution from us has been received and then only if the aggregate value of all liquidating distributions with respect to a share is less than the stockholder’s tax basis for that share. Gain or loss recognized by a stockholder will be capital gain or loss provided the shares are held as capital assets, and will be long-term capital gain or loss if the stock has been held for more than one year.

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Although we currently do not intend to make distributions of property other than cash, in the event of a distribution of property, the stockholder’s tax basis in such property immediately after the distribution will be the fair market value of such property at the time of distribution.

After the close of our taxable year, we will provide stockholders and the Internal Revenue Service with a statement of the amount of cash distributed to our stockholders and our best estimate as to the value of any property distributed to them during that year. There is no assurance that the Internal Revenue Service will not challenge our valuation of any property. As a result of such a challenge, the amount of gain or loss recognized by stockholders might be changed. Distributions of property other than cash to stockholders could result in tax liability to any given stockholder exceeding the amount of cash received, requiring the stockholder to meet the tax obligations from other sources or by selling all or a portion of the assets received.

If a stockholder is required to satisfy any liability of ours not fully covered by our reserve (see “Description of the Plan of Dissolution and Dissolution Process—Contingent Liabilities; Reserve”), payments by stockholders in satisfaction of such liabilities would generally produce a capital loss in the year paid, which, in the hands of individual stockholders, could not be carried back to prior years to offset capital gains realized from liquidating distributions in those years.

Liquidating Trusts

If we transfer assets to a liquidating trust or trusts, we intend to structure such trust or trusts so that stockholders will be treated for tax purposes as having received their pro rata share of the property transferred to the liquidating trust or trusts, reduced by the amount of known liabilities assumed by the liquidating trust or trusts or to which the property transferred is subject. Assets transferred to a liquidating trust will cause the stockholder to be treated in the same manner for federal income tax purposes as if the stockholder had received a distribution directly from us at the time of the transfer. The liquidating trust or trusts themselves will not be subject to federal income tax. After formation of the liquidating trust or trusts, the stockholders must take into account for federal income tax purposes their allocable portion of any income, gain or loss recognized by the liquidating trust or trusts, whether or not the liquidating trust makes any actual distributions. As a result of the transfer of property to the liquidating trust or trusts and the ongoing operations of the liquidating trust or trusts, stockholders should be aware that they may be subject to tax, whether or not they have received any actual distributions from the liquidating trust or trusts with which to pay such tax.

Backup Withholding

In order to avoid “backup withholding” of U.S. federal income tax on payments to our stockholders, each stockholder must, unless an exception applies, provide such stockholder’s correct taxpayer identification number (“TIN”) on IRS Form W-9 (or, if appropriate, another withholding form) and certify under penalties of perjury that such number is correct and that such stockholder is not subject to backup withholding. If a Company stockholder fails to provide the correct TIN or certification, payments received may be subject to backup withholding at the then prevailing rate. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may generally be obtained from the IRS, provided that the required information is properly furnished in a timely manner to the IRS.

The tax consequences of the Plan of Dissolution may vary depending upon the particular circumstances of the stockholder. We recommend that each stockholder consult his, her or its own tax advisor regarding the federal income tax consequences of the Plan of Dissolution as well as the state, local and foreign tax consequences.

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Accounting Treatment

If our stockholders approve the dissolution and liquidation of the Company pursuant to the Plan of Dissolution, we will change our basis of accounting to the liquidation basis of accounting. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values, and liabilities are stated at their estimated settlement amounts. Recorded liabilities will include the estimated expenses associated with carrying out the Plan of Dissolution. For periodic reporting, a statement of net assets in liquidation will summarize the liquidation value per outstanding share of common stock. Valuations presented in the statement will represent management’s estimates, based on present facts and circumstances, of the net realizable values of assets, satisfaction amounts of liabilities, and expenses associated with carrying out the Plan of Dissolution based upon management assumptions.

The valuation of assets and liabilities will necessarily require many estimates and assumptions, and there will be substantial uncertainties in carrying out the provisions of the Plan of Dissolution. Ultimate values realized for our assets and ultimate amounts paid to satisfy our liabilities are expected to differ from estimates recorded in annual or interim financial statements.

Required Vote

The affirmative vote of the holders of a majority of our outstanding common stock entitled to vote is required for approval of the dissolution and liquidation of the Company pursuant to the Plan of Dissolution.

Recommendation of our Board of Directors

On May 30, 3013, our Board of Directors: (1) determined that the dissolution and liquidation of the Company, and the other transactions contemplated thereby, are advisable and in the best interests of us and our stockholders, (2) approved in all respects the Plan of Dissolution and the other transactions contemplated thereby, and (3) recommended that our stockholders vote FOR the approval of the dissolution and liquidation of the Company pursuant to the Plan of Dissolution.

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