<PAGE>

                                                                    Exhibit 10.1
                                                                    ------------

                            1997 STOCK OPTION PLAN
                                      OF
                                 MAXYGEN, INC.
                         (amended as of March 1, 2001)

     1.   PURPOSES OF THE PLAN
          --------------------

     The purposes of the 1997 Stock Option Plan (the "Plan") of Maxygen, Inc., a
Delaware corporation (the "Company"), are to:

          (a) Encourage selected employees, directors and consultants to improve
operations and increase profits of the Company;

          (b) Encourage selected employees, directors and consultants to accept
or continue employment or association with the Company or its Affiliates; and

          (c) Increase the interest of selected employees, directors and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company (the "Common Stock").

     Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonstatutory
options" ("NSOs").

     2.   ELIGIBLE PERSONS
          ----------------

     Every person who at the date of grant of an Option is an employee of the
Company or of any Affiliate (as defined below) of the Company is eligible to
receive NSOs or ISOs under this Plan.  Every person who at the date of grant is
a consultant to, or nonemployee director of, the Company or any Affiliate (as
defined below) of the Company is eligible to receive NSOs under this Plan.  The
term "Affiliate" as used in the Plan means a parent or subsidiary corporation as
defined in the applicable provisions of the Code.  The term "employee" includes
an officer or director who is an employee, of the Company.  The term
"consultant" includes persons employed by, or otherwise affiliated with, a
consultant.

     3.   STOCK SUBJECT TO THIS PLAN
          --------------------------

     Subject to the provisions of Section 6.1.1 of the Plan, the total number of
shares of stock which may be issued under options granted pursuant to this Plan
shall be 9,000,000 shares of Common Stock plus an annual increase to be added on
the first day of the Company's fiscal year beginning in fiscal year 2001, equal
to the lesser of (i) 1,500,000 shares, (ii) 4% of the outstanding shares of
capital stock on such date or (iii) an amount
<PAGE>

determined by the Board. The shares covered by the portion of any grant under
the Plan that expire unexercised shall become available again for grants under
the Plan.

     4.   ADMINISTRATION
          --------------

          4.1  General.  This Plan shall be administered by the Board of
               -------
Directors of the Company (the "Board") or, by a committee (the "Committee") of
at least two Board members to which administration of the Plan, or of part of
the Plan, is delegated (in either case, the "Administrator").  The Committee
shall consist of Board members who are "non-employee directors" as defined under
Rule 16b-3 promulgated by the Securities and Exchange Commission ("Rule 16b-3"),
or any successor rule thereto.  To the extent that the Administrator determines
it to be desirable to qualify Options granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the Plan shall
be administered by a Committee of two of more "outside directors" within the
meaning of Section 162(m) of the Code.

          4.2  Authority of Administrator.  Subject to the other provisions of
               --------------------------
this Plan, the Administrator shall have the authority, in its discretion: (i) to
grant Options; (ii) to determine the fair market value of the Common Stock
subject to Options; (iii) to determine the exercise price of Options granted;
(iv) to determine the persons to whom, and the time or times at which, Options
shall be granted, and the number of shares subject to each Option; (v) to
interpret this Plan; (vi) to prescribe, amend, and rescind rules and regulations
relating to this Plan; (vii) to determine the terms and provisions of each
Option granted (which need not be identical), including but not limited to, the
time or times at which Options shall be exercisable; (viii) with the consent of
the optionee for any adverse amendment, to modify or amend any Option; (ix) to
accelerate the exercise date of any Option; (x) to authorize any person to
execute on behalf of the Company any instrument evidencing the grant of an
Option; and (xi) to make all other determinations deemed necessary or advisable
for the administration of this Plan.  The Administrator may delegate
nondiscretionary administrative duties to such employees of the Company as it
deems proper.

          4.3  Interpretation by Administrator.  All questions of
               -------------------------------
interpretation, implementation, and application of this Plan shall be determined
in its absolute discretion by the Administrator.  Such determinations shall be
final and binding on all persons.

          4.4  Rule 16b-3.  With respect to persons subject to Section 16 of the
               ----------
Exchange Act of 1934, as amended (the "Exchange Act"), if any, transactions
under this Plan are intended to comply with the applicable conditions of Rule
16b-3, or any successor rule thereto.  To the extent a transaction under this
Plan or action by the Administrator fails to so comply, it shall, to the extent
deemed advisable by the Administrator, be modified to comply with Rule 16b-3.
Notwithstanding the above, it

                                       2
<PAGE>

shall be the responsibility of such persons, not of the Company or the
Administrator, to comply with the requirements of Section 16 of the Exchange
Act; and neither the Company nor the Administrator shall be liable if this Plan
or any transaction under this Plan fails to comply with the applicable
conditions of Rule 16b-3 or any successor rule thereto, or if any such person
incurs any liability under Section 16 of the Exchange Act.

     5.   GRANTING OF OPTIONS; OPTION AGREEMENT
          -------------------------------------

          5.1  No Options shall be granted under this Plan after ten years from
the date of adoption of this Plan by the Board.

          5.2  Each Option shall be evidenced by a stock option agreement (the
"Option Agreement"), in form satisfactory to the Company, executed by the
Company and the person to whom such Option is granted.  However, the failure by
the Company or the optionee to execute the Option Agreement shall not invalidate
the granting of an Option.  The vesting of the Option shall nevertheless be
subject to Section 6.1.3.  For the purposes of this Section 5.2, execution of an
Option Agreement shall include electronic acceptance of an electronic version of
the Option Agreement.

          5.3  The Option Agreement shall specify whether each Option it
evidences is an NSO or an ISO.

          5.4  Subject to Section 6.3.3 with respect to ISOs, the Administrator
may approve the grant of Options under this Plan to persons who are expected to
become employees, directors or consultants of the Company, but are not
employees, directors or consultants at the date of approval.

     6.   TERMS AND CONDITIONS OF OPTIONS
          -------------------------------

     Each Option granted under this Plan shall be subject to the terms and
conditions set forth in Section 6.1.  NSOs shall be also subject to the terms
and conditions set forth in Section 6.2, but not those set forth in Section 6.3.
ISOs shall also be subject to the terms and conditions set forth in Section 6.3,
but not those set forth in Section 6.2.

          6.1  Terms and Conditions to Which All Options Are Subject.  Options
               -----------------------------------------------------
granted under this Plan shall be subject to the following terms and conditions:

               6.1.1     Changes in Capital. Subject to Section 6.1.2, if the
                         ------------------
stock of the Company is changed by reason of a stock split, reverse stock split,
stock dividend, or recapitalization, combination or reclassification,
appropriate adjustments shall be made by the Board in (a) the number and class
of shares of stock subject to this Plan and each Option outstanding under this
Plan, and (b) the exercise price of each outstanding Option; provided, however,
that the Company shall not be required to issue fractional shares as a

                                       3
<PAGE>

result of any such adjustments. Each such adjustment shall be subject to
approval by the Board in its absolute discretion.

               6.1.2     Corporate Transactions.  In the event of the proposed
                         ----------------------
dissolution or liquidation of the Company, the Administrator shall notify each
optionee at least 15 days before consummation of the proposed action.  To the
extent not previously exercised, all Options will terminate immediately before
the consummation of the proposed action.  In the event of a merger or
consolidation of the Company with or into another entity in which the Company is
not a surviving entity or in which the stockholders of the Company just before
that transaction do not, by virtue of those holdings, own securities
representing at least 50 percent of the ordinary voting power of the Company
immediately after that transaction, or in the event of a sale of all or
substantially all of the assets of the Company in which the stockholders of the
Company receive securities of the acquiring entity or an affiliate thereof:  (a)
if the successor entity so chooses, it shall assume the Options or issue
equivalent options when the transaction is consummated or (b) if the successor
entity chooses not to do that, then the Options shall be fully vested and
exercisable for a period of 15 days after the date notice is given under this
Section 6.1.2 and shall terminate upon expiration of that 15-day period.

               6.1.3     Time of Option Exercise. Subject to Section 5 and
                         -----------------------
Section 6.3.4, Options granted under this Plan shall be exercisable (a)
immediately as of the effective date of the Option Agreement granting the
Option, or (b) in accordance with a schedule related to the date of the grant of
the Option, the date of first employment, or such other date as may be set by
the Administrator (in any case, the "Vesting Base Date") and specified in the
Option Agreement relating to such Option. Options granted hereunder may vest,
subject to reasonable conditions such as continued employment, at any time or
during any period established by the Board or the Administrator in accordance
with the Plan.

               6.1.4     Option Grant Date. Except in the case of advance
                         -----------------
approvals described in Section 5.4, the date of grant of an Option under this
Plan shall be the date as of which the Administrator approves the grant.

               6.1.5     Nonassignability of Option Rights. Except as otherwise
                         ---------------------------------
determined by the Administrator and expressly set forth in the Option Agreement,
no Option granted under this Plan shall be assignable or otherwise transferable
by the optionee except by will or by the laws of descent and distribution.
During the life of the optionee, except as otherwise determined by the
Administrator and expressly set forth in the Option Agreement, an Option shall
be exercisable only by the optionee.

               6.1.6     Payment.  Except as provided below, payment in full, in
                         -------
cash, shall be made for all stock purchased at the time written notice of
exercise of an Option is

                                       4
<PAGE>

given to the Company, and proceeds of any payment shall constitute general funds
of the Company. At the time an Option is granted or exercised, the
Administrator, in the exercise of its absolute discretion after considering any
tax or accounting consequences, may authorize any one or more additional methods
of payment that are permitted by applicable law including one or more of the
following additional methods of payment:

                         (a)  Acceptance of the optionee's full recourse
promissory note for all or part of the Option price, payable on such terms and
bearing such interest rate as determined by the Administrator (but in no event
less than the minimum interest rate required for the Company to avoid incurring
a financial accounting charge with respect to the Option and in no event more
than the maximum interest rate allowed under applicable usury laws), which
promissory note may be either secured or unsecured in such manner as the
Administrator shall approve (including, without limitation, by a security
interest in the shares of the Company); and

                         (b)  Delivery by the optionee of Common Stock already
owned by the optionee for all or part of the Option price, provided the value
(determined as set forth in Section 6.1.11) of such Common Stock is equal on the
date of exercise to the Option price, or such portion thereof as the optionee is
authorized to pay by delivery of such stock; provided, however, that if an
optionee has exercised any portion of any Option granted by the Company by
delivery of Common Stock, the optionee may not, within six months following such
exercise, exercise any Option granted under this Plan by delivery of Common
Stock without the consent of the Administrator.

               6.1.7     Termination of Employment.
                         -------------------------

                         (a)  If, for any reason other than death, disability or
"cause" (as defined below), an optionee ceases to be employed by the Company or
any of its Affiliates (such event being called a "Termination"), Options held at
the date of Termination (to the extent then exercisable) may be exercised in
whole or in part at any time within 90 days of the date of such Termination, or
such other period of not less than 30 days after the date of such Termination as
is specified in the Option Agreement (but in no event after the Expiration
Date).

                         (b)  If an optionee dies or becomes disabled (within
the meaning of Section 22(c)(3) of the Code) while employed by the Company or an
Affiliate or within the period that the Option remains exercisable after
Termination, Options then held (to the extent then exercisable) may be
exercised, in whole or in part, by the optionee, by the optionee's personal
representative or by the person to whom the Option is transferred by devise or
the laws of descent and distribution, at any time within 12 months after the
death or 12 months after the disability of the optionee, or such other

                                       5
<PAGE>

period of not less than six months from the date of Termination as is specified
in the Option Agreement (but in no event after the Expiration Date).

                         (c)  If an optionee is terminated for "cause," all
Options then held shall terminate and no longer be exercisable as of the date of
Termination.

                         (d)  For purposes of this Section 6.1.7, "employment"
includes service as a director or as a consultant.

                         (e)  For purposes of this Section 6.1.7, an optionee's
employment shall not be deemed to terminate by reason of sick leave, military
leave or other leave of absence approved by the Administrator, if the period of
any such leave does not exceed 90 days or, if longer, if the optionee's right to
reemployment by the Company or any Affiliate is guaranteed either contractually
or by statute.

                         (f)  For purposes of this Section 6.1.7, "cause" shall
mean Termination (i) by reason of optionee's commission of a felony, misdemeanor
or other illegal conduct involving dishonesty, fraud or other matters of moral
turpitude, (ii) by reason of optionee's dishonesty towards, fraud upon, or
deliberate injury or attempted injury to the Company or any of its Affiliates,
or (iii) by reason of optionee's willfully engaging in misconduct which is
materially and demonstrably injurious to the Company or any of its Affiliates.

               6.1.8     Repurchase of Stock. At the option of the
                         -------------------
Administrator, the stock to be delivered pursuant to the exercise of any
unvested Option previously granted to an employee, director or consultant under
this Plan may be subject to a right of repurchase in favor of the Company with
respect to any employee, or director or consultant whose employment, or director
or consulting relationship with the Company is terminated. Such right of
repurchase shall be exercisable as the Administrator may determine in the grant
of option at the Option exercise price and shall lapse at the applicable vesting
rate and must be exercised for cash or cancellation of purchase money
indebtedness within 90 days after such termination of employment (or in the case
of securities issued upon exercise of options after the date of termination,
within 90 days after the date of the exercise).

     In addition to the restrictions set forth above, the shares held by an
officer, director or consultant of the issuer or an affiliate of the issuer may
be subject to additional or greater restrictions, at the absolute discretion of
the Administrator and as specified in the applicable option agreement.

               6.1.9     Withholding and Employment Taxes. At the time of
                         --------------------------------
exercise of an Option or at such other time as the amount of such obligations
becomes determinable (the "Tax Date"), the optionee shall remit to the Company
in cash all

                                       6
<PAGE>

applicable federal and state withholding and employment taxes. If authorized by
the Administrator in its absolute discretion, after considering any tax or
accounting consequences, an optionee may elect to (i) deliver a full recourse
promissory note on such terms as the Administrator deems appropriate, (ii)
tender to the Company previously owned shares of Stock or other securities of
the Company, or (iii) have shares of Common Stock which are acquired upon
exercise of the Option withheld by the Company to pay some or all of the amount
of tax that is required by law to be withheld by the Company as a result of the
exercise of such Option, but only up to the minimum amount required to be
withheld, and in no event any more. Any election pursuant to clause (ii) above,
where the optionee is tendering Common Stock issued pursuant to the exercise of
an Option, shall require that such shares have been held at least six months
prior to the Tax Date. Any securities tendered or withheld in accordance with
this Section 6.1.9 shall be valued by the Company as of the Tax Date.

               6.1.10    Other Provisions. Each Option granted under this Plan
                         ----------------
may contain such other terms, provisions, and conditions not inconsistent with
this Plan as may be determined by the Administrator, and each ISO granted under
this Plan shall include such provisions and conditions as are necessary to
qualify the Option as an "incentive stock option" within the meaning of Section
422 of the Code.

               6.1.11    Determination of Value. For purposes of the Plan, the
                         ----------------------
value of Common Stock or other securities of the Company shall be determined as
follows:

                         (a)  If the stock of the Company 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 System, its fair market value 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 largest such exchange) for the date
the value is to be determined (or if there are no sales for such date, then for
the last preceding business day on which there were sales), as reported in the
Wall Street Journal or similar publication.
-------------------

                         (b)  If the stock of the Company is regularly quoted by
a recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
stock on the date the value is to be determined (or if there are no quoted
prices for the date of grant, then for the last preceding business day on which
there were quoted prices).

                         (c)  In the absence of an established market for the
stock, the fair market value thereof shall be determined in good faith by the
Administrator, by consideration of such factors as the Administrator in its
discretion deems appropriate among the recent issue price of other securities of
the Company, the Company's net

                                       7
<PAGE>

worth, prospective earning power, dividend-paying capacity, and other relevant
factors, including the goodwill of the Company, the economic outlook in the
Company's industry, the Company's position in the industry and its management,
and the values of stock of other corporations in the same or a similar line of
business.

               6.1.12    Option Term. Subject to Section 6.3.5, no Option shall
                         -----------
be exercisable more than ten years after the date of grant, or such lesser
period of time as is set forth in the stock option agreement (the end of the
maximum exercise period stated in the Option Agreement is referred to in this
Plan as the "Expiration Date").

          6.2  Terms and Conditions to Which Only NSOs Are Subject.  Except as
               ---------------------------------------------------
set forth in Section 6.1.13, the exercise price of a NSO shall be not less than
85% of the fair market value (determined in accordance with Section 6.1.11) of
the stock subject to the Option on the date of grant.

          6.3  Terms and Conditions to Which Only ISOs Are Subject. Options
               ---------------------------------------------------
granted under this Plan that are designated as ISOs shall be subject to the
following terms and conditions:

               6.3.1     Exercise Price. The exercise price of any ISO granted
                         --------------
to any person who owns, directly or by attribution under the Code (currently
Section 424(d)), stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or of any Affiliate (a "Ten
Percent Stockholder") shall in no event be less than 110% of the fair market
value (determined in accordance with Section 6.1.11) of the stock covered by the
Option at the time the Option is granted.

               6.3.2     Disqualifying Dispositions. If stock acquired by
                         --------------------------
exercise of an ISO granted pursuant to this Plan is disposed of in a
"disqualifying disposition" within the meaning of Section 422 of the Code, the
holder of the stock immediately before the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall provide
such other information regarding the Option as the Company may reasonably
require.

               6.3.3     Grant Date.  If an ISO is granted in anticipation of
                         ----------
employment as provided in Section 5.4, the Option shall be deemed granted,
without further approval, on the date the grantee assumes the employment
relationship forming the basis for such grant, and, in addition, satisfies all
requirements of this Plan for Options granted on that date.

               6.3.4     Vesting. Notwithstanding any other provision of this
                         -------
Plan, ISOs granted under all incentive stock option plans of the Company and its
subsidiaries may not "vest" for more than $100,000 in fair market value of stock
(measured on the grant dates(s)) in any calendar year. For purposes of the
preceding sentence, an option

                                       8
<PAGE>

"vests" when it first becomes exercisable. If, by their terms, such ISOs taken
together would vest to a greater extent in a calendar year, and unless otherwise
provided by the Administrator, ISOs with lower exercise prices shall vest before
ISOs with higher exercise prices, regardless of the grant date.

               6.3.5     Term. Notwithstanding Section 6.1.12, no ISO granted to
                         ----
any Ten Percent Stockholder shall be exercisable more than five years after the
date of grant.

     7.   MANNER OF EXERCISE
          ------------------

          7.1  An optionee wishing to exercise an Option shall give written
notice to the Company at its principal executive office, to the attention of the
officer of the Company designated by the Administrator, accompanied by payment
of the exercise price as provided in Section 6.1.6.  The date the Company
receives written notice of an exercise hereunder accompanied by payment of the
exercise price will be considered as the date such Option was exercised.

          7.2  Promptly after receipt of written notice of exercise of an
Option, the Company shall, without stock issue or transfer taxes to the optionee
or other person entitled to exercise the Option, deliver to the optionee or such
other person a certificate or certificates for the requisite number of shares of
stock or, in lieu of a certificate, electronic or paper notification of share
ownership in a brokerage account.  An optionee or permitted transferee of an
optionee shall not have any privileges as a stockholder with respect to any
shares of stock covered by the Option until the date of issuance (as evidenced
by the appropriate entry on the books of the Company or a duly authorized
transfer agent) of such shares.

     8.   EMPLOYMENT OR CONSULTING RELATIONSHIP
          -------------------------------------

     Nothing in this Plan or any Option granted thereunder shall interfere with
or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.

     9.   CONDITIONS UPON ISSUANCE OF SHARES
          ----------------------------------

     Shares of Common Stock shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended (the
"Securities Act").

                                       9
<PAGE>

     10.  NONEXCLUSIVITY OF THE PLAN
          --------------------------

     The adoption of the Plan shall not be construed as creating any limitations
on the power of the Company to adopt such other incentive arrangements as it may
deem desirable, including, without limitation, the granting of stock options
other than under the Plan.

     11.  AMENDMENTS TO PLAN
          ------------------

     The Board may at any time amend, alter, suspend or discontinue this Plan.
Without the consent of an optionee, no amendment, alteration, suspension or
discontinuance may adversely affect outstanding Options except to conform this
Plan and ISOs granted under this Plan to the requirements of federal or other
tax laws relating to incentive stock options.  No amendment, alteration,
suspension or discontinuance shall require stockholder approval unless (a)
stockholder approval is required to preserve incentive stock option treatment
for federal income tax purposes, or (b) the Board otherwise concludes that
stockholder approval is advisable.

     12.  EFFECTIVE DATE OF PLAN
          ----------------------

     This Plan shall become effective upon adoption by the Board provided,
however, that no Option shall be exercisable unless and until written consent of
the stockholders of the Company, or approval of stockholders of the Company
voting at a validly called stockholders' meeting, is obtained within 12 months
after adoption by the Board. If such stockholder approval is not obtained within
such time, Options granted hereunder shall terminate and be of no force and
effect from and after expiration of such 12-month period. Options may be granted
and exercised under this Plan only after there has been compliance with all
applicable federal and state securities laws.


Plan adopted by the Board of Directors on March 1, 1997
Amendment to Plan approved by the Board of Directors on April 10, 2000
Amendment to Plan approved by the Board of Directors on March 1, 2001

Plan approved by Stockholders on March 30, 1997
Amendment to Plan approved by Stockholders on May 25, 2000

                                       10
<PAGE>

                                 MAXYGEN, INC.
                             1997 STOCK OPTION PLAN
                             STOCK OPTION AGREEMENT

          This document sets forth the terms of a Stock Option (the "Option")
granted by Maxygen, Inc., a Delaware corporation (the "Company"), pursuant to a
Certificate of Stock Option Grant (the "Certificate") displayed at the website
of AST StockPlan, Inc.  The Certificate, which specifies the person to whom the
Option is granted ("Optionee") and other specific details of the grant, and the
electronic acceptance of the Certificate at the website of AST StockPlan, Inc.,
are incorporated herein by reference.

          THE PARTIES AGREE AS FOLLOWS:

          1.  Grant of Option; Vesting Base Date.
              ----------------------------------

               1.1.  Grant.  The Company hereby grants to Optionee an
                     -----
opportunity to purchase shares of its Common Stock in accordance with the
Company's 1997 Stock Option Plan as amended (the "Plan") as hereinafter
provided.

               1.2.  Vesting Base Date.  The parties hereby establish the date
                     -----------------
set forth in the Certificate as the Vesting Base Date (as defined below).

               1.3.  Type of Option.  The Option shall be either an "incentive
                     --------------
stock option" or a "nonstatutory option" as set forth in the Certificate.

               1.4. Number of Option Shares.  The number of shares of Company
                    -----------------------
Common Stock underlying the Option (the "Option Shares") is as set forth in the
Certificate. However, if the Option is intended to be an incentive stock option,
to the extent that it exceeds the $100,000 rule of Section 422(d) of the
Internal Revenue Code it shall be treated as a nonstatutory stock option.

     2.   Exercise Price.  The exercise price for purchase of each share of
          --------------
Common Stock covered by this Option shall be the price set forth in the
Certificate.

     3.   Term.  Unless otherwise specified in the Certificate, this Option
          ----
shall expire as provided in Section 6.1.12 of the Plan.

     4.   Adjustment of Options.  The Company shall adjust the number and kind
          ---------------------
of shares and the exercise price thereof in certain circumstances in accordance
with the provisions of Section 6.1.1 and Section 6.1.2 of the Plan.

     5.   Exercise of Options.
          -------------------

          5.1. Vesting; Time of Exercise.  This option shall vest and be
               -------------------------
exercisable according to the schedule set forth in the Certificate.  Such
schedule shall commence as of the date set forth in the Certificate (the
"Vesting Base Date").

                                       1
<PAGE>

          5.2. Exercise After Termination of Status as an Employee, Director or
               ----------------------------------------------------------------
Consultant.  In the event of termination of Optionee's continuous status as an
----------
employee, director or consultant, this Option may be exercised only in
accordance with the provisions of Section 6.1.7 of the Plan.

          5.3. Manner of Exercise.  Optionee may exercise this Option, or any
               ------------------
portion of this Option, by giving written notice to the Company at its principal
executive office, to the attention of the officer of the Company designated by
the Plan Administrator, accompanied by payment of the exercise price and payment
of any applicable withholding or employment taxes.  The date the Company
receives written notice of an exercise hereunder accompanied by payment will be
considered as the date this Option was exercised.

          5.4. Payment.  Except as otherwise provided in the Certificate,
               -------
payment of the exercise price per share is due in full upon exercise of all or
any part of each installment that has accrued to Optionee.  Optionee may elect,
to the extent permitted by applicable statutes and regulations, to make payment
of the exercise price under one of the following alternatives: (i) payment of
the exercise price per share in cash (including check) at the time of exercise,
(ii) payment pursuant to a program developed under Regulation T as promulgated
by the Federal Reserve Board that, prior to the issuance of the Option Shares,
results in either the receipt of cash (or check) by the Company or the receipt
of irrevocable instructions to pay the aggregate exercise price to the Company
from the sales proceeds, (iii) provided that at the time of exercise the
Company's Common Stock is publicly traded and quoted regularly in the Wall
Street Journal, payment by delivery of already-owned shares of Common Stock,
held for the period required to avoid a charge to the Company's reported
earnings, and owned free and clear of any liens, claims, encumbrances or
security interests, which Common Stock shall be valued at its fair market value
on the date of exercise, or (iv) payment by a combination of the methods of
payment permitted by subparagraphs 5.4(i) through 5.4(iii) above.  The proceeds
of any payment shall constitute general funds of the Company.

          5.5. Delivery of Certificate/Notice of Share Ownership.  Promptly
               -------------------------------------------------
after receipt of written notice of exercise of the Option, the Company shall
instruct its transfer agent to deliver to Optionee a certificate or certificates
for the requisite number of Option Shares or, in lieu thereof, paper or
electronic notification of share ownership in Optionee's brokerage account.  The
Optionee shall not have any privileges as a stockholder of the Company with
respect to any Option Shares covered by the Option until the date of issuance of
the stock certificate or notice of share ownership for those Option Shares.

     6.   Nonassignability of Option.  This Option is not assignable or
          --------------------------
transferable by Optionee except by will or by the laws of descent and
distribution.  During the life of Optionee, the Option is exercisable only by
Optionee.  Any attempt to assign, pledge, transfer, hypothecate or otherwise
dispose of this Option in a manner not herein permitted, and any levy of
execution, attachment, or similar process on this Option, shall be null and
void.

     7.   Restriction on Issuance of Shares.
          ---------------------------------

          7.1. Legality of Issuance.  The Company shall not be obligated to sell
               --------------------
or issue any Option Shares pursuant to this Agreement if such sale or issuance,
in the opinion of the


                                       2
<PAGE>

Company or its counsel, might constitute a violation by the Company of any
provision of law, including without limitation the provisions of the Securities
Act of 1933, as amended (the "Securities Act").

          7.2. Compliance with Law.  The Company shall not be obligated to take
               -------------------
any affirmative action in order to cause the grant or exercise of this Option or
the issuance or sale of any Option Shares pursuant thereto to comply with any
law.

     8.   Restriction on Transfer.  Regardless of whether the sale of the Option
          -----------------------
Shares has been registered under the Securities Act or has been registered or
qualified under the securities laws of any state, the Company may impose
restrictions upon the sale, pledge or other transfer of Option Shares (including
the placement of appropriate legends on stock certificates) if, in the judgment
of the Company and the Company's counsel, such restrictions are necessary or
desirable in order to achieve compliance with the provisions of the Securities
Act, the securities laws of any state or any other law.

     9.   Stock Certificate.  Stock certificates evidencing Option Shares may
          -----------------
bear such restrictive legends as the Company and the Company's counsel deem
necessary or advisable under applicable law or pursuant to this Agreement.

     10.  Disqualifying Dispositions.  In the event that the Option is an
          --------------------------
incentive stock option as specified in the Certificate, if stock acquired by
exercise of the Option is disposed of within two years after the grant date (as
set forth in the Certificate) or within one year after date of such exercise (as
determined under Section 5.3 of this Agreement), Optionee immediately prior to
the disposition shall promptly notify the Company in writing of the date and
terms of the disposition and shall provide such other information regarding the
disposition as the Company may reasonably require.

     11.  Assignment; Binding Effect.  Subject to the limitations on assignment
          --------------------------
set forth in this Agreement, this Agreement shall be binding upon and inure to
the benefit of the executors, administrators, heirs, legal representatives, and
successors of the parties hereto.

     12.  Damages.  Optionee shall be liable to the Company for all costs and
          -------
damages, including incidental and consequential damages, resulting from a
disposition of Option Shares that is not in conformity with the provisions of
this Agreement.

     13.  Governing Law.  This Agreement shall be governed by, and construed in
          -------------
accordance with, the laws of the State of California excluding those laws that
direct the application of the laws of another jurisdiction.

                                       3
<PAGE>

     14.  Notices.  All notices and other communications under this Agreement
          -------
shall be in writing or posted electronically on the AST Stockplan website.
Unless and until Optionee is notified in writing to the contrary, all notices,
communications, and documents directed to the Company and related to the
Agreement shall be delivered to:

          Maxygen, Inc.
          515 Galveston Drive
          Redwood City, CA  94063
          Attention:  General Counsel

Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents directed to Optionee and related to this
Agreement shall be mailed to Optionee's last known address as shown on the
Company's books or posted electronically on the AST Stockplan website.  Notices
and communications shall be delivered by hand, mailed by first class mail,
postage prepaid, sent by reputable overnight courier or posted electronically on
the AST Stockplan website.  All mailings and deliveries related to this
Agreement shall be deemed received when actually received, if by hand delivery,
two business days after mailing, if by mail, the next business day after being
sent by reputable overnight courier, or 30 days after the date of posting for
notices posted electronically on the AST Stockplan website.

     IN WITNESS WHEREOF, the parties have entered into this Stock Option
Agreement as of the grant date set forth in the Certificate.

                              MAXYGEN, INC.

     Optionee accepts and agrees to be bound by all the terms and conditions of
this Agreement and the Plan.

                                       4