Maxygen distributes Codexis's shares to its stockholders for U.S. Federal income tax purposes

Maxygen, Inc., a biotechnology company focused on the development of improved protein drugs, today announced that its distributions of Codexis, Inc. common stock and cash in December 2010 will be classified as a return of capital to its stockholders for U.S. Federal income tax purposes.

As previously announced, on December 16, 2010, Maxygen completed the distribution of substantially all of the shares of Codexis, Inc. common stock owned by the company to its stockholders. In addition, on December 28, 2010, Maxygen distributed approximately $30.0 million in cash to its stockholders.

As a result of the distributions, each Maxygen stockholder received (i) 0.187039 of a share of Codexis common stock for each outstanding share of Maxygen common stock such shareholder held as of 2:30 p.m. Pacific Time on December 3, 2010, subject to a due bill process for shares of Maxygen common stock traded between the record date and the December 15, 2010 ex-dividend date; and (ii) $1.00 in cash for each outstanding share of Maxygen common stock such shareholder held as of 2:30 p.m. Pacific Time on December 17, 2010. Maxygen stockholders also received cash in lieu of any fraction of a Codexis share that they would have otherwise received in the distribution.

Maxygen has been advised by tax counsel that the entire portion of each distribution will be treated as a tax-free distribution to Maxygen's stockholders for U.S. Federal income tax purposes, based on the determination that Maxygen did not have any current or cumulative "earnings and profits" in 2010. As a result, the distributions have reduced the U.S. Federal tax basis in each Maxygen share that received the distributions, as discussed further below.

The table below summarizes the U.S. Federal income tax treatment for the 2010 distributions for the common stock of Maxygen:

Maxygen believes the fair market value of the Codexis common stock received by each Maxygen stockholder in the distribution is equal to the closing price of the Codexis common stock as reported on Nasdaq on December 14, 2010, the distribution date, and this is the value Maxygen has reported to the IRS and as part of the Form 1099 process. The closing price of the Codexis common stock on December 14, 2010 was $9.75 per share.

Accordingly, as a result of the distributions, the U.S. Federal tax basis in each Maxygen share that received the distributions has been reduced by $2.82363 (plus any cash received in respect of fractional shares of Codexis common stock). This amount is derived by multiplying the 0.187039 of a share of Codexis common stock received for each share of Maxygen common stock by the $9.75 fair market value of the Codexis common stock, which equals $1.82363, and then adding the $1.00 per share cash distribution. The U.S. Federal tax basis in the Codexis shares received in the distribution is equal to the $9.75 fair market value of the Codexis common stock on the date of distribution. There is no assurance that the IRS or the courts will agree that this is the correct fair market value of the Codexis shares for tax purposes.