<PAGE>   1
                                                                   EXHIBIT 10.21


                           AMARILLO BIOSCIENCES, INC.
                 OUTSIDE DIRECTOR AND ADVISOR STOCK OPTION PLAN

                           AMENDED AND RESTATED AS OF
                                  MAY 13, 1997

                              ARTICLE I -- GENERAL

1.01.  PURPOSES.

                 The purposes of this Outside Director and Advisor Stock Option
Plan (the "Plan") are to: (1) closely associate the interests of the Outside
Directors and Scientific Advisors of AMARILLO BIOSCIENCES, INC. ("ABI") and its
Subsidiaries and Affiliates (collectively referred to as the "Company") with
the shareholders by reinforcing the relationship between participants' rewards
and shareholder gains; (2) provide ABI's Outside Directors and Scientific
Advisors with an equity ownership in the Company commensurate with Company
performance, as reflected in increased shareholder value; and (3) provide an
incentive to Outside Directors and Scientific Advisors for continuous
association with the Company.  The Plan is not an incentive stock option plan
within the meaning of Section 422 of the Internal Revenue Code of 1986 (the
"Code").

1.02.  ADMINISTRATION OF THE PLAN.

                 (a)      The Plan shall be administered by a Committee of
persons appointed by the Board of Directors of ABI (the "Committee"), as
constituted from time to time.  The Committee shall consist of at least two
members of the Board.

                 (b)      The Committee shall have the authority, in its sole
discretion and from time to time, to:

                          (i)     designate the Directors and Advisors eligible
                                  to participate in the Plan;

                         (ii)     grant awards provided in the Plan in such
                                  form and amount as the Committee shall
                                  determine;

                        (iii)     impose such limitations, restrictions and
                                  conditions upon any such awards as the
                                  Committee shall deem appropriate; and

                         (iv)     interpret the Plan, adopt, amend and
                                  rescind rules and regulations relating to the
                                  Plan, and make all other determinations and
                                  take all other action necessary or advisable
                                  for the implementation and administration of
                                  the Plan.


                                     -1-
<PAGE>   2
                 (c)      Decisions and determinations of the Committee on all
matters relating to the Plan shall be conclusive.  No member of the Committee
shall be liable for any action taken or decision made in good faith relating to
the Plan or any award thereunder.

                 (d)      With respect to persons subject to Section 16 of the
1934 Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successor under the 1934 Act.  To
the extent any provision of the Plan or action by the Board of Directors or the
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Board of Directors or the
Committee, as applicable.

                 (e)      All usual and reasonable expenses of the Committee
shall be paid by the Company, and no member shall receive compensation with
respect to his services for the Committee except as may be authorized by the
Board of Directors.  The Board of Directors and the Committee may employ
attorneys, consultants, accountants or other persons, and the Board of
Directors, the Committee, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the Board
of Directors or the Committee in good faith shall be final and binding upon all
person who have received awards, and upon the Company and all other interested
persons.  No member of Board of Directors or the Committee shall be personally
liable for any action, determination, or interpretation taken or made in good
faith with respect to the Plan or awards made thereunder, and the Company shall
indemnify and hold harmless each member of the Board of Directors or the
Committee against all loss, cost, expenses or damages, occasioned by any act or
omission to act in connection with any such action, determination or
interpretation under or of the Plan, consistent with the Company's certificate
of incorporation and bylaws.

1.03.  AWARDS UNDER PLAN.

                 Each award under the Plan will include both:

                          (i)     Stock Options, as described in Article II;
                                  and

                         (ii)     Limited Rights, as described in Article III.





                                      -2-
<PAGE>   3
1.04.  AGGREGATE LIMITATION ON AWARDS.

                 (a)      Shares of stock which may be issued under the Plan
shall be authorized and unissued or treasury shares of Common Stock of ABI
("Common Stock").  The maximum number of shares of Common Stock which may be
issued under the Plan shall be one hundred fifty thousand (150,000) shares.

                 (b)      In addition to shares of Common Stock actually issued
pursuant to the exercise of Stock Options, there shall be deemed to have been
issued a number of shares equal to the number of shares of Common Stock in
respect of which Limited Rights (as described in Article III) shall have been
exercised.

                 (c)      Any shares of Common Stock subject to a Stock Option
which for any reason is terminated unexercised or expires shall again be
available for issuance under the Plan, but shares subject to a Stock Option
which are not issued as a result of the exercise of Limited Rights shall not
again be available for issuance under the Plan.

1.05.  EFFECTIVE DATE AND TERM OF PLAN.

                 (a)      The Plan shall become effective on the date approved
by the holders of a majority of the shares of Common Stock present in person or
by proxy and entitled to vote at the 1996 Annual Meeting of Shareholders of
ABI.

                 (b)      No awards shall be made under the Plan after the last
day of the Company's 2001 fiscal year provided, however, that the Plan and all
awards made under the Plan prior to such date shall remain in effect until such
awards have been satisfied or terminated in accordance with the Plan and the
terms of such awards.

                          ARTICLE II -- STOCK OPTIONS

2.01.  AWARD OF STOCK OPTIONS.

                 (a)      The Committee may, from time to time and subject to
the provisions of the Plan and such other terms and conditions as the Committee
may prescribe, grant to any participant in the Plan one or more non-qualified
stock options ("Options") to purchase for cash the number of shares of Common
Stock allotted by the Committee.

                 (b)      Each Outside Director shall be automatically granted
an Option to purchase ten thousand (10,000) shares on the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the





                                      -3-
<PAGE>   4
Company or appointment by the Board to fill a vacancy.  The foregoing
notwithstanding, any Outside Director who has previously received an Option
award as a Scientific Advisor under Section 2.01(c), below, shall be
automatically awarded, in his capacity as an Outside Director, an option to
purchase only five thousand (5,000) shares, instead of ten thousand (10,000)
shares, although additional Options may be awarded by the Committee.

                 (c)      Each Scientific Advisor who is not also serving as an
Outside Director shall be automatically granted an Option to purchase five
thousand (5,000) shares on the date on which such person first becomes a
Scientific Advisor.  The foregoing notwithstanding, any Scientific Advisor who
has previously received an Option award as an Outside Director shall not
automatically be awarded any additional Options as a Scientific Advisor,
although additional Options may be awarded by the Committee.

                 (d)      In the event any Option granted under the Plan would
cause the number of shares subject to outstanding Options plus the number of
shares previously purchased under Options to exceed the total number of shares
available for issuance under the Plan, then the remaining Options shall be
granted to persons qualifying for same, on a pro rata basis, and no further
grants shall be made until such time, if any, as additional shares become
available for grant under the Plan through action of the shareholders to
increase the number of shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.

                 (e)      Options may be granted only to Outside Directors
and/or Scientific Advisors.

                 (f)      Options granted under the Plan shall comply with the
applicable provisions of Rule 16b-3 promulgated under the 1934 Act, or any
successor provisions thereto, and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the 1934 Act with respect to Plan transactions.

2.02.  STOCK OPTION AGREEMENTS.

                 The grant of a Stock Option shall be evidenced by a written
Stock Option Agreement, executed by the Company and the holder of a Stock
Option (the "Optionee"), stating the number of shares of Common Stock subject
to the Stock Option evidenced thereby, and in such form as the Committee may
from time to time determine.





                                      -4-
<PAGE>   5
2.03.  STOCK OPTION PRICE.

                 The Option Price per share of Common Stock deliverable upon
the exercise of a Stock Option shall be 100% of the Fair Market Value of a
share of Common Stock on the date the Stock Option is granted.

2.04.  TERM AND EXERCISE.

                 Each Stock Option may be exercised during a period of ten
years from the date of grant thereof (the "Option Term"), subject to the
vesting schedule set forth below.  No Stock Option shall be exercisable after
the expiration of its Option Term.

                 VESTING SCHEDULE.  Options awarded shall be exercisable,
subject to the other terms and conditions of the Plan, only upon the expiration
of the designated number of years of active association with the Company as an
Outside Director or Scientific Advisor, from date of award, as provided below:

                           20% of Options awarded - 1 year
                           40% of Options awarded - 2 years
                           60% of Options awarded - 3 years
                           80% of Options awarded - 4 years
                          100% of Options awarded - 5 years

2.05.  MANNER OF PAYMENT.

                 Each Stock Option Agreement shall set forth the procedure
governing the exercise of the Stock Option granted thereunder, and shall
provide that, upon such exercise in respect of any shares of Common Stock
subject thereto, the Optionee shall pay to the Company, in full, the Option
Price for such shares with cash or in shares of the Common Stock, valued at the
Fair Market Value per Share on the date of exercise.

2.06.  ISSUANCE OF SHARES.

                 As soon as practicable after receipt of payment, the Company
shall deliver to the Optionee a certificate or certificates for such shares of
Common Stock.  The Optionee shall become a shareholder of the Company with
respect to Common Stock represented by share certificates so issued and as such
shall be fully entitled to receive dividends, to vote and to exercise all other
rights of a shareholder.





                                      -5-
<PAGE>   6
2.07.  DEATH OF OPTIONEE.

                 (a)      Upon the death of the Optionee, any rights to the
extent exercisable on the date of death may be exercised by the Optionee's
estate, or by a person who acquires the right to exercise such Stock Option by
bequest or inheritance or by reason of the death of the Optionee, provided that
such exercise occurs within both the remaining effective term of the Stock
Option and one year after the Optionee's death.

                 (b)      The provisions of this Section shall apply
notwithstanding the fact that the Optionee's association may have terminated
prior to death, but only to the extent of any rights exercisable on the date of
death.

2.08.  DISABILITY.

                 Upon termination of the Optionee's association by reason of
permanent disability (as defined herein), the Optionee may, within 36 months
from the date of termination, exercise any Stock Options to the extent such
Options are exercisable during such 36-month period.  Notwithstanding the
foregoing, the tax treatment available pursuant to Section 422 of the Code upon
the exercise of an Incentive Stock Option will not be available to an Optionee
who exercises any Incentive Stock Options more than (i) 12 months after the
date of termination of employment due to permanent disability or (ii) three
months after the date of termination of employment due to retirement.  For
purposes hereof, "permanent disability" shall have the meaning set forth in
Section 22(e)(3) of the Code or any successor provision thereto.

2.09.  TERMINATION FOR OTHER REASONS.

                 Except as provided in Sections 2.07 and 2.08, or except as
otherwise determined by the Committee, all Stock Options shall terminate upon
the termination of the Optionee's association with the Company as an Outside
Director or Scientific Advisor; provided, however, that if the Optionee's
association was involuntarily terminated (with or without cause), Optionee may
exercise, during a 90-day period commencing with date of termination, all
Options theretofore vested, or which vest during said 90-day period, under the
Vesting Schedule set forth in Paragraph 2.04, above.  At the end of the 90-day
period, all rights of such Optionee under any then outstanding option or right
shall terminate and shall be forfeited immediately as to any unexercised
portion thereof.





                                      -6-
<PAGE>   7
2.10.  EFFECT OF EXERCISE.

                 The exercise of any Stock Option shall cancel that number of
related Limited Rights, if any, which is equal to the number of shares of
Common Stock purchased pursuant to said Option.

2.11.  RULE 16b-3 EXEMPTION.

                 Options granted under the Plan shall comply with the
applicable provisions of Rule 16b-3 promulgated under the 1934 Act, or any
successor provisions thereto, and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the 1934 Act with respect to Plan transactions.

                         ARTICLE III -- LIMITED RIGHTS

3.01.  AWARD OF LIMITED RIGHTS.

                 Concurrently with the award of each Stock Option, there shall
automatically be awarded to the Optionee, with respect to each Option, a
related limited right permitting the Optionee, during a specified limited time
period, to be paid the appreciation on the Common Stock in lieu of exercising
the Option ("Limited Right").

3.02.  LIMITED RIGHTS AGREEMENT.

                 Limited Rights granted under the Plan shall be evidenced by
written agreements in such form as the Committee may from time to time
determine.

3.03.  EXERCISE PERIOD.

                 Limited Rights shall (and must) be exercised immediately
preceding or simultaneous with the date of a Change in Control of ABI (the
"Exercise Period"), and all Limited Rights held by the Optionee shall be
exercised during such Exercise Period, without regard to the Vesting Schedule
set forth in Paragraph 2.04; provided, however, that if a Change in Control
shall have occurred without notice or opportunity for exercise of Limited
Rights, then the Limited Rights shall be exercised as soon as practicable after
a determination has been made that a "Change in Control" has occurred, or has
been deemed to have occurred.

                 As used in the Plan, a "Change in Control" shall be deemed to
have occurred if





                                      -7-
<PAGE>   8
                 (a)      individuals who were directors of ABI immediately
prior to a Control Transaction shall cease, within one year of such Control
Transaction, to constitute a majority of the Board of Directors of ABI (or of
the Board of Directors of any successor to ABI or to all or substantially all
of its assets), or

                 (b)      any entity, person or Group other than ABI or a
Subsidiary of ABI or Hayashibara Biochemical Laboratories, Inc. or an Affiliate
thereof acquires shares of ABI in a transaction or series of transactions that
result in such entity, person or Group directly or indirectly owning
beneficially fifty-one percent (51%) or more of the outstanding shares.

                 As used herein, "Control Transaction" shall be

                          (i)     any tender offer for or acquisition of
                                  capital stock of ABI,

                         (ii)     any merger, consolidation, or sale of all or
                                  substantially all of the assets of ABI which
                                  has been approved by the shareholders,

                        (iii)     any contested election of directors of ABI, or

                         (iv)     any combination of the foregoing;

which results in a change in voting power sufficient to elect a majority of the
Board of Directors of ABI.  As used herein, "Group" shall mean persons who act
in concert as described in Sections 13(d)(3) and/or 14(d)(2) of the 1934 Act,
as amended.

3.04.  AMOUNT OF PAYMENT.

                 The amount of payment to which an Optionee shall be entitled
upon the exercise of each Limited Right shall be equal to 100% of the amount,
if any, which is equal to the difference between the Fair Market Value per
share of Common Stock covered by the related Option on the date the Option was
granted and the Market Price of a share of such Common Stock.  Market Price is
defined to be the greater of (i) the highest price per share of the Company's
Common Stock paid in connection with any Change in Control and (ii) the highest
price per share of the Company's Common Stock paid pursuant to an unsolicited
brokerage transaction during the 60-day period prior to the Change in Control.





                                      -8-
<PAGE>   9
3.05.  FORM OF PAYMENT.

                 Payment of the amount to which an Optionee is entitled upon
the exercise of Limited Rights, as determined pursuant to Section 3.04, shall
be made solely in cash.

3.06.  EFFECT OF EXERCISE.

                 If Limited Rights are exercised, the Stock Options related to
such Limited Rights cease to be exercisable to the extent of the number of
shares with respect to which the Limited Rights were exercised.  Upon the
exercise or termination of the Options related to such Limited Rights, the
Limited Rights granted with respect thereto terminate to the extent of the
number of shares as to which the related Options were exercised or terminated.

3.07.  DISABILITY.

                 Upon termination of the Optionee's association with the
Company as either an Outside Director or Scientific Advisor by reason of
permanent disability (as determined by the Committee), the Optionee may, within
36 months from the date of termination, exercise any Limited Right to the
extent such Limited Right is otherwise exercisable during such 36-month period.

3.08.  DEATH OF OPTIONEE OR TERMINATION FOR OTHER REASONS.

                 Except as provided in Section 3.07, or except as otherwise
determined by the Committee, all Limited Rights granted under the Plan shall
terminate upon the termination of the Optionee's association with the Company
as either an Outside Director or Scientific Advisor or upon the death of the
Optionee.

                          ARTICLE IV -- MISCELLANEOUS

4.01.  GENERAL RESTRICTION.

                 Each award under the Plan shall be subject to the requirement
that, if at any time the Committee shall determine that (i) the listing,
registration or qualification of the shares of Common Stock subject or related
thereto upon any securities exchange or under any state or federal law, or (ii)
the consent or approval of any government regulatory body, or (iii) an
agreement by the grantee of an award with respect to the disposition of shares
of Common Stock, is necessary or desirable as a condition of, or in connection
with, the granting of such award or the issue or purchase of shares of Common
Stock thereunder, such award may not be consummated in





                                      -9-
<PAGE>   10
whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.

4.02.  NON-ASSIGNABILITY.

                 Unless otherwise provided in the agreement with the Optionee,
Options shall not be assignable or transferable by the recipient thereof,
except by will or by the laws of descent and distribution, and during the life
of the recipient, such award shall be exercisable only by such person or by
such person's guardian or legal representative.  If provided in the agreement
with the Optionee, Options and rights may be transferred by the holder to
Permitted Transferees, provided that there cannot be any consideration for the
transfer.  "Permitted Transferee" means a member of a holder's immediate
family, trusts for the benefit of such immediate family members, and
partnerships in which the holder and such immediate family members are the only
partners.  An immediate family member shall include a holder's descendants,
spouse, and spouses of descendants.

4.03.  RIGHT TO TERMINATE ASSOCIATION.

                 Nothing in the Plan or in any agreement entered into pursuant
to the Plan shall confer upon any participant the right to continue in
association with the Company or affect any right which the Company or the
shareholders of the Company may have to terminate the association of such
participant.

4.04.  RIGHTS AS A SHAREHOLDER.

                 The recipient of any award under the Plan shall have no rights
as a shareholder with respect thereto unless and until certificates for shares
of Common Stock are issued to him.

4.05.  DEFINITIONS.

                 In this Plan the following definitions (along with other
definitions elsewhere set forth in the Plan) shall apply:

                 (a)      "Affiliate" means any person or entity which
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with ABI.

                 (b)      "Board" means the Board of Directors of ABI.





                                      -10-
<PAGE>   11
                 (c)      "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:

                          (i)     If the Common Stock is listed on any
                                  established stock exchange or a national
                                  market system, including without limitation
                                  the National Market System of the National
                                  Association of Securities Dealers, Inc.
                                  Automated Quotation ("NASDAQ") System, the
                                  Fair Market Value of a Share of Common Stock
                                  shall be the closing sales price for such
                                  stock (or the closing bid, if no sales were
                                  reported) as quoted on such system or
                                  exchange (or the exchange with the greatest
                                  volume of trading in Common Stock) on the
                                  date of grant, as reported in The Wall Street
                                  Journal or such other source as the Board
                                  deems reliable;

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

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

                 (d)      "Option" or "Stock Option" means all or any Options
granted under the Plan.

                 (e)      "Option Price" means the purchase price per share of
Common Stock deliverable upon the exercise of a Stock Option.

                 (f)      "Outside Director" means a director of ABI, who is
not an employee of the Company.

                 (g)      "Scientific Advisor" means a person named by the
Board of Directors of ABI to serve on the Company's Board of Scientific
Advisors.





                                      -11-
<PAGE>   12
                 (h)      "Shares" or "shares," unless otherwise specified,
shall mean shares of Common Stock.

                 (i)      "Subsidiary" means any corporation of which, at the
time, more than 50% of the shares entitled to vote generally in an election of
directors are owned directly or indirectly by ABI or any Subsidiary thereof.

4.06.  ADJUSTMENTS.

                 In the event of any change in the outstanding Common Stock by
reason of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, the
Committee shall appropriately adjust the number of shares of Common Stock which
may be issued under the Plan, the number of shares of Common Stock subject to
Options theretofore granted under the Plan, the Option Price of Options
theretofore granted under the Plan, the amount and terms of any Limited Rights
theretofore awarded under the Plan, and any and all other matters deemed
appropriate by the Committee.

4.07.  AMENDMENT OF THE PLAN.

                 (a)      Subject to subsection (b), the Committee may, without
further action by the shareholders and without receiving further consideration
from the participants, amend this Plan or condition or modify awards under this
Plan in response to changes in securities or other laws or rules, regulations
or regulatory interpretations thereof applicable to this Plan or to comply with
stock exchange rules or requirements.

                 (b)      The Committee may at any time and from time to time
terminate or modify or amend the Plan in any respect, except that without
shareholder approval the Committee may not extend the term of the Plan.  ABI
shall seek and obtain shareholder approval of any amendment to increase the
number of shares of Common Stock which may be issued under the Plan or for any
other amendment to the Plan to the extent that such increase or other amendment
requires shareholder approval under the requirements of the stock exchange or
market system under which shares of Common Stock of the Company are then listed
or the Internal Revenue Code of 1986 or other laws then in effect and
applicable to the Company and the Plan. The termination or any modification or
amendment of the Plan, except as provided in subsection (a), shall not without
the consent of a participant affect his rights under an award previously
granted to him.





                                      -12-