Document:

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                                                                   EXHIBIT 10.16

January 28, 2000

Joseph A. Affholter, Ph.D.
17440 Lakeview Drive
Morgan Hill, CA 95037

Re:  Separation from Employment

Dear Joe:

     This letter, upon your signature, will constitute the agreement between you
and Maxygen, Inc. on the terms of your separation from employment with Maxygen.

     1.       Your employment with Maxygen will end effective January 28, 2000.

     2.       You will be paid your base salary through the effective date of
your separation, plus all accrued and unused FTO time, less customary payroll
deductions.

     3.       Within thirty days of your separation, you will return to Maxygen
any and all information and materials you have that are or relate to Maxygen's
Confidential Information, as that term is defined in the Confidential
Information, Secrecy and Inventions Agreement you signed with Maxygen on April
29, 1998 (the "CI Agreement"), whether in hard copy, electronic form or in any
other format. You further agree to continue to be bound by the terms of the CI
Agreement.

              Notwithstanding the foregoing, it is understood that, by virtue of
your former employment with Maxygen and your ongoing consultancy with Maxygen as
described below, you will continue to have in your possession Confidential
Information of Maxygen. You agree to treat such information as provided in the
CI Agreement.

     4.       Upon approval of the Maxygen Board of Directors, Maxygen agrees to
accelerate the vesting of 20,675 stock options granted to you on June 19, 1998,
under the terms of the Maxygen 1997 Stock Option Plan.  Those shares will vest
as of your separation date at an exercise price of $0.30 per share.  An
additional 6,875 stock options granted to you on June 19, 1998, under the terms
of the Maxygen 1997 Stock Option Plan will vest on June 30, 2001, pursuant to
the terms of the Exclusive Consulting Agreement attached hereto ("the Consulting
Agreement"), which you agree to sign and which is incorporated into this letter
by this reference.  Except as provided in this Paragraph 4, Paragraph 5 below
and the Exclusive Consulting Agreement, all other non-vested Maxygen stock
options granted to you will be cancelled as of your separation date.
<PAGE>

Joseph A. Affholter
January 28, 2000
Page 2

     5.       Maxygen also agrees that you will continue to be eligible to
participate in the Maxygen Bonus Plan for 1998-1999, as follows.  Maxygen
acknowledges that you currently have 16,875 unvested Incentive Stock Options in
the bonus plan at an exercise price of $0.75.  The Board, in its sole
discretion, has the right to determine whether to approve accelerated vesting of
a percentage of unvested bonus options for the members of Maxygen's senior
management team.  Maxygen agrees that if the Board approves accelerated vesting
of a percentage of bonus shares for other members of Maxygen's senior management
team, you will receive accelerating of the same percentage under the same terms.
Any additional unvested shares remaining in the bonus plan for which the Board
does not approve accelerated vesting will be forfeited as of your separation
date.

     6.       Within 10 business days following the execution of this letter
and the Consulting Agreement, Maxygen agrees to provide you with a mutually
acceptable letter of recommendation from the President and Chief Executive
Officer of Maxygen focusing on your professional strengths and contributions
to Maxygen.  Maxygen also agrees to work with you to develop a mutually
acceptable public statement describing your departure from Maxygen. You agree
to direct any questions regarding the reasons for your separation from Maxygen
to the Vice President, Human Resources of Maxygen. On behalf of Maxygen, we
will respond by stating only your dates of employment and job title and by
reiterating information contained in the letter. Maxygen agrees to keep
confidential all other aspects of the reasons for your separation from
employment with Maxygen.

     7.       Maxygen further agrees to modify the housing loans provided to
you by Maxygen in March 1998 and April 1999 (which loans currently have a total
outstanding principal balance of $150,000), to a personal loan for $150,000,
with interest calculated semi-annually from February 1, 2001 at 5.59%, and to
defer payment of such loan until April 1, 2003 with respect to $72,500 of the
principal and until March 30, 2004 with respect to $77,500 of the principal. You
agree that the personal loan will be secured by a pledge of vested shares of
Maxygen stock valued at $300,000 as of the date your loans are converted, upon
your execution of the loan documents attached hereto. Maxygen further to defer
repayment of the loan provided to you in connection with your early exercise of
Incentive Stock Options on October 9, 1999 to June 30, 2002, provided that the
Consulting Agreement has not been terminated before June 30, 2001 (a) for cause
by Maxygen, or (b) for any reason by you.

     8.       In consideration of all the above, you, for yourself, your
representatives, heirs, successors and assigns, waive and release and promise
never to assert any and all claims that you have or might have as of the date
you sign this letter, whether known or unknown, against Maxygen, and its current
and former officers, directors, shareholders, agents, attorneys, employees,
successors, assigns, parents, affiliates and subsidiaries, arising from or
related to your employment with Maxygen, and/or the termination of your
employment with Maxygen.
<PAGE>

Joseph A. Affholter
January 28, 2000
Page 3

               These claims include, but are not limited to, claims arising
under federal, state and local statutory or common law, such as Title VII of
the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the
Americans with Disabilities Act, the Family and Medical Leave Act, the
California Fair Employment and Housing Act, the California Family Rights Act,
and the law of contract and tort.

     9.        You, for yourself, your representatives, heirs, successors and
assigns, waive, release and promise never to assert any such claims, even if
you do not believe that you presently have such claims. You therefore waive
your rights under section 1542 of the California Civil Code, which states:

          A general release does not extend to claims which the creditor
          does not know or suspect to exist in his favor at the time of
          executing the release, which if known to him must have materially
          affected his settlement with the debtor.

     10.       Unless required by law, you will use your best efforts not to
disclose to others any information regarding:

          (a) any Confidential Information of Maxygen, as that term is defined
          in the CI Agreement;

          (b) the terms and nature of this separation letter and the benefit
          being paid under it.  However, you may disclose this information to
          your spouse and immediate family, and to your attorney(s),
          accountant(s) or tax expert(s), investment or other advisor(s) to
          whom you believe you must make the disclosure in order for them to
          render professional services to you.  You will require them, however,
          to maintain the confidentiality of this information just as you must.

     11.       In the event that you breach any of your obligations under this
separation letter or as otherwise imposed by law, Maxygen will be entitled to
recover the benefit paid under the agreement and to obtain all other relief
provided by law or equity.  Notwithstanding the foregoing, in the event of any
breach of the provisions of Paragraph 10(b) above, Maxygen's ability to recover
the benefits paid to you under this letter will be reduced by 25% upon each
successive anniversary of the date on which you sign this letter.
<PAGE>

Joseph A. Affholter
January 28, 2000
Page 4

          Joe, I am pleased that we were able to end your employment with
Maxygen on these amicable terms.  Maxygen and I thank you for your service to
the Company and wish you every success in your future endeavors.

          Sincerely,

          /s/ Russell Howard

          Russell Howard
          President and Chief Executive Officer
          Maxygen, Inc.

By signing this letter, I acknowledge that I have had the opportunity to review
this separation letter carefully; that I have read and understand the terms of
the letter and that I voluntarily agree to them; and that I have been advised
that I may consult with an attorney prior to signing this letter and the release
contained herein.

                                     /s/ Joseph A. Affholter
Dated:  January 28, 2000.          __________________________
                                    Joseph A. Affholter, Ph.D.<PAGE>

                                                                   EXHIBIT 10.17

                        EXCLUSIVE CONSULTING AGREEMENT
                        ------------------------------

     This Exclusive Consulting Agreement ("Agreement") entered into by and
between Maxygen, Inc. (hereinafter "Maxygen"), a Delaware corporation, and
Joseph A. Affholter, Ph.D. (hereinafter "Consultant"), an individual.

     In consideration of the promises set forth below, the parties agree as
follows.

     1.   Term of this Agreement.  This Agreement will be effective as of the
date set forth below and will continue in effect until June 30, 2001, unless it
is terminated in accordance with the provisions of Paragraph 8, below ("Contract
Term").

     2.   Services to be Performed by Consultant.  Consultant agrees to provide
those services specified in Exhibit A to this Agreement.  Written requests or
approvals for services to be conducted by Consultant under this Agreement may be
given by:  Maxygen's CEO, President, General Counsel, VP of Business
Development, Intellectual Property Counsel and/or chemical business management.
Such requests may be received by e-mail, fax or written letter.

     3.   Relationship of the Parties.

          a.  The parties intend to create an independent contractor and
principal relationship by this Agreement. Consultant will not represent himself
as an agent, employee, joint venturer or partner of Maxygen. Notwithstanding the
above, Maxygen acknowledges Consultant as an expert in the field of directed
molecular evolution and recognizes Consultant's right to use data in the public
domain (which Consultant does not otherwise have an obligation to maintain in
confidence) to highlight the relevance of directed molecular evolution
technologies in multiple industries.

          b.  The conduct and control of the work performed pursuant to this
Agreement will lie with Consultant.  However, Consultant will perform this work
at the specific direction (though not control) of Maxygen.

          c.  (i)   During the first six (6) months of the Contract Term,
subject to Consultant's obligations under Paragraph 7 of the Agreement,
Consultant may perform services for other clients, persons or companies as
Consultant sees fit, except that Consultant may not knowingly accept employment
with, perform services for, become a founder of, or engage in any conduct, role
or capacity in which the Consultant would provide to any business entity any
technical or business advice or information related to the development or use of
(x) technologies commonly referred to as "gene shuffling" or "molecular
breeding" in any format including, without limitation, single gene, gene family,
or whole genome-based formats, or (y) other novel methods for generating high-
quality genetic diversity via directed evolution of genetic materials.

              (ii)  During the portion of the Contract Term after the date six
(6) months from the start of the Contract Term, subject to Consultant's
obligations under Paragraph
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7 of the Agreement, Consultant may perform services for other clients, persons
or companies as Consultant sees fit, except that Consultant may not knowingly
accept employment with, perform services for, become a founder of, or engage in
any conduct, role or capacity in which the Consultant would provide to any
business entity any technical advice or information related to the development
or use of in vitro or in vivo recombination-based methods for directed molecular
          -- -----    -- ----
evolution, without limitation those commonly referred to as "gene shuffling" or
"molecular breeding," in any format; however, during such period Consultant may
(provided he does not disclose or use any Confidential Information of Maxygen)
provide advice regarding targets to which directed molecular evolution could be
applied to develop commercial products or processes, without providing technical
advice or information on how to accomplish the same.

              (iii) Notwithstanding Paragraphs 3.C(i) and (ii) above, Consultant
may (x) conduct the activities described therein (without any disclosure or use
of Maxygen Confidential Information) to the extent that Consultant can
reasonably demonstrate that he could have done so prior to his employment with
Maxygen, and (y) Consultant may comment generally on benefits of using Maxygen
technology by reference to information then within the public domain.

              (iv)  If during the Contract Term Consultant wishes to conduct any
activity which he believes may fall within the scope of the then-prohibited
activities described in Paragraphs 3.C(i) or (ii) above, he shall provide to
Maxygen notice describing in writing the activities he wishes to conduct, but
shall have no obligation to disclose to Maxygen the confidential information of
third parties.  Maxygen shall within ten (10) business days of receipt of such
notice and information notify Consultant in writing whether or not he may
conduct such activities for such third party; provided, such time period shall
not apply if the Consultant has failed to provide Maxygen sufficient detail
regarding the proposed activities to reasonably allow it to evaluate the impact
of Consultant's proposed activities on Maxygen.  In the event Maxygen declines
to permit Consultant to perform the proposed activities, it will summarize in
brief written form the basis for its denial and, where feasible, provide
positive guidance as to changes in the proposed activities which could make the
proposed activity acceptable, provided Maxygen has no obligation to approve any
activities which are not expressly permitted by Paragraphs 3.C(i) or (ii) above.
Unless agreed to otherwise by the Parties in writing, a failure of Maxygen to
provide a response within the specified 10 business day period, shall constitute
approval of the proposed activity.

     4.   Benefits.  Consultant will not be eligible for, nor will participate
in, any health, pension, or other employee benefit plan sponsored or established
by Maxygen for the benefit of its employees.

     5.   Billings.  Consultant agrees to submit to the Controller of Maxygen,
Inc., at 515 Galveston Drive, Redwood City, California 94063, by the tenth day
of each calendar month, in a form reasonably acceptable to Maxygen, a written
invoice or facsimile that sets forth (i) the number of hours worked by
Consultant each day, together with a detailed description of the services
performed, including time and expenses for agreed-upon travel, and (ii) the
total compensation owed for the month.
<PAGE>

     6.   Compensation to Consultant.  Maxygen will pay Consultant for services
requested by Maxygen and actually performed by Consultant, at the rate of $250
per hour, but in no event fewer than forty hours per month for the months of
February, March, April and May 2000, twenty-five hours per month for the months
of June and July 2000, and five hours per month thereafter for the remainder of
the Contract Term (the "Consulting Fees").  Consultant is not expected to be
available on an "on-call" basis, but will be available for business meetings and
travel at agreed-upon times, and will be given notice of upcoming travel and
Maxygen's consulting needs as far in advance as reasonably practical (generally
ten business days or more).  Nothing herein shall be interpreted as requiring
Consultant to provide more than the above-described minimum number of consulting
hours per month.  Maxygen agrees to make Payment no later than 30 days after
receipt of the invoice in the form described in Paragraph 5 above.  No payments
will be made to Consultant as reimbursement for travel and other business
expenses unless agreed in advance in writing by Maxygen.  In addition, upon
approval of the Board of Directors of Maxygen, on June 30, 2001, Maxygen will
vest in Consultant 6,875 Stock Options at an exercise price of $0.30, which
options otherwise would have vested had Consultant been an employee of Maxygen
on April 29, 2000, provided that this Agreement has not been terminated prior to
June 30, 2001 pursuant to Paragraph 8 of this Agreement either (i) for cause by
Maxygen, or (ii) for any reason by Consultant.  Consultant understands and
agrees that because of his separation from employment with Maxygen, his
continuing option will become a Non-statutory Option and will no longer be an
Incentive Stock Option.  Consultant further understands and agrees that the only
option that will continue to vest during the Contract Term will be for the
aforesaid 6,875 options.

     7.   Confidential Information.

          a.  Maxygen has and will develop, compile, and own certain proprietary
techniques and confidential information ("Confidential Information") that have
great value in its business.  Consultant acknowledges and agrees that
Confidential Information includes information Consultant learns or acquires in
connection with the performance of services under this Agreement.  Confidential
Information includes all information that has or could have commercial value or
other utility in the business in which Maxygen is engaged, or in which it
contemplates engaging, or that Maxygen has acquired in confidence from third
parties.  Confidential Information also includes all other non-public
information of Maxygen or third parties disclosed to Maxygen in confidence, the
unauthorized disclosure of which could be detrimental to the interests of
Maxygen, whether or not this information is identified as Confidential
Information.  Confidential Information also includes all information that
Consultant may have learned about Maxygen's business, operations or plans during
the negotiation of this Agreement or during his prior employment with Maxygen.
Confidential Information also includes all information defined as "Confidential
Information" in the Maxygen Confidential Information, Secrecy and Inventions
Agreement signed by Consultant on April 29, 1998 ("the CI Agreement").
Consultant agrees to continue to be bound by the CI Agreement, including but not
limited to the Inventions portion thereof, and acknowledges that the CI
Agreement remains in all respects valid and in force, throughout and after the
Contract Term.

          b.  By example and without limitation, Confidential Information
includes any and all information concerning Maxygen's research programs, product
development, biological materials, research methods, related products,
technology, inventions, patent applications, trade
<PAGE>

secrets or other products and any other information of value relating to the
business affairs and/or fields of interest of Maxygen, whether communicated
orally or in writing, including without limitation, concepts, techniques,
processes, designs, biological materials, methods for developing or identifying
novel products, software, databases, cost data, and other technical know-how,
financial, research, marketing and personnel information, and other business
information including information with respect to which Maxygen is under an
obligation of confidentiality with any third party. Confidential Information
does not include information: (i) generally known in the relevant trade or
industry; or (ii) known to and freely usable by Consultant before entering into
this Agreement with Maxygen; but Confidential Information shall not be deemed to
be generally known (x) merely because it is embraced by more general information
subject to the above, or (y) merely because it is published in general terms
without description of the specific Confidential Information subject to this
section.

          c.  Consultant acknowledges and agrees that Confidential Information
is proprietary, constitutes a valuable asset of Maxygen, and is the sole
property of Maxygen. Consultant agrees that at all times during and after the
Contract Term, he will hold in trust, keep confidential, and not disclose to any
third party, or make any use of, the Confidential Information of Maxygen, except
as is strictly required to perform services under this Agreement and with the
prior written approval of Maxygen. Consultant further agrees not to disclose, or
to cause the transmission, removal, or transport of, Confidential Information
from Maxygen's principal place of business at 515 Galveston Drive, Redwood City,
California 94063, or any other place of business; provided, Consultant may
communicate freely with Maxygen.

          d.  Consultant acknowledges that all documents, whether in hard copy,
electronic for or any other format, including, but not limited to, laboratory
and other notebooks, software, computer programs, tapes, printouts, records,
databases, manuals, letters, email messages, reports, blueprints, drawings,
customer lists, and other evidence of Confidential Information and other
information concerning the business, operation, or plans of Maxygen, including
copies, that come into the possession of Consultant, whether produced by
Consultant or others are and will remain the property of Maxygen, and will be
treated as Confidential Information.

          e.  Consultant acknowledges that the unauthorized use or disclosure of
Maxygen's Confidential Information by Consultant may lead to immediate
termination of this Agreement under Paragraph 8, and can lead to legal action by
Maxygen.

          f.  Notwithstanding the foregoing, it is understood that, by virtue of
his former employment with Maxygen and his ongoing consultancy with Maxygen
under this Agreement, Consultant will continue to have in his possession
Confidential Information of Maxygen. Consultant agrees to treat such information
as provided in the CI Agreement.

     8.   Termination of this Agreement.

          a.  On Written Notice. Either party may terminate this Agreement,
without cause, by giving thirty (30) days' notice to the other party. In the
event of such termination, the parties agree to act toward each other in good
faith during the notice period. In the event of such termination by Maxygen, the
stock options referred to in Paragraph 6 shall vest as of the
<PAGE>

effective date of termination. If this Agreement is terminated by Maxygen for
any reason other than for cause or for any reason by Consultant prior to July 1,
2000, Maxygen agrees to pay the minimal Consulting Fees that would have been
payable through July 31, 2000.

          b.  For Cause. Either party may terminate this Agreement for cause,
effective immediately, upon written notice of termination for cause to the other
party. In the event of such termination by Maxygen, the stock options referred
to in Paragraph 6 shall be forfeited. For purposes of this Agreement, "cause"
includes but is not limited to:

              1)    Any material breach of this Agreement, including but not
limited to inducing or assisting infringement of any Maxygen patent or copyright
misappropriation of any Maxygen trade secret; and

              2)    Any act by one party that exposes the other to potential
liability to others for, among other things, personal injury, property damage,
patent infringement or trade secret misappropriation.

          c.  In the event of termination of this Agreement, Maxygen agrees to
pay for all services provided under this Agreement to the effective date of the
termination.

     9.   Indemnification.

          a.  Consultant will indemnify, defend, and hold harmless Maxygen, its
directors, officers, employees, agents and assigns against any and all liability
imposed or claimed, including attorneys' fees and other legal expenses, arising
directly or indirectly from any act or failure to act by Consultant in
connection with the performance of services under this Agreement.

          b.  Consultant will indemnify, defend and hold Maxygen harmless
against any and all liability imposed or claimed, including attorneys' fees and
other legal expenses, arising directly or indirectly from any violation of
federal, state or local law by Consultant in connection with the performance of
services under this Agreement, including but not limited to, the California Fair
Employment and Housing Act, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, and the Americans with Disabilities Act.

          c.  Maxygen will have no duty to indemnify or defend Consultant.

     10.  Severability. Whenever possible, each provision of this Agreement will
be interpreted in such a manner as to be effective and valid under applicable
law. If any provision of this Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remaining provisions
will nevertheless continue in full force without being impaired or invalidated
in any way.

     11.  Governing Law. This Agreement will be construed in accordance with the
law of the State of California without reference to principles of conflicts of
laws.
<PAGE>

     12.  Waiver. The waiver by either party of a breach of any provision of
this Agreement will not operate, or be construed, as a waiver of any subsequent
breach by the other party.

     13.  Assignment.  Consultant agrees that he will not assign this Agreement,
nor any duties or obligations under it, without the prior written consent of
Maxygen.  Maxygen shall have the right to assign this Agreement.

     14.  Notices.  All notices or other written communications provided for
under this Agreement will be in writing and will be deemed to have been given
either (i) upon personal delivery or confirmed facsimile transmission, (ii) one
day after deposit with a courier service for next day delivery, or (iii) five
days after deposit in the U.S. mail, registered mail--postage prepaid, to the
following addresses.

          a.  Joseph A. Affholter, Ph.D.
              17440 Lakeview Drive
              Morgan Hill, CA 95037

              Facsimile Number:  408/779-3580

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

              Facsimile Number: 650/298-5803

     Either party may change its or his address by giving notice to the other
party in accordance with this paragraph.

     15.  Entire Agreement.  Except as provided in Paragraph 7.a above and the
separation letter, this Agreement supercedes any and all other agreements, both
oral or written, between Consultant and Maxygen with respect to the subject
matter of this Agreement, and the Agreement contains all of the promises and
agreements between the parties with regard to its subject matter.  Both
Consultant and Maxygen acknowledge that no representations, inducements,
promises, or agreements, oral or otherwise, have been made by the other party,
or anyone acting on behalf of the party, that are not contained in this
Agreement.  The parties also acknowledge that no agreement, statement or promise
that is not referenced or contained in this Agreement will be valid or binding.
Any modification of this Agreement will be effective only if it is in writing
and signed by Consultant and an authorized representative of Maxygen.

     16.  Arbitration of Disputes.  The parties agree that any controversy or
claim arising out of this Agreement, or any alleged breach of this Agreement,
will be subject to good faith mediation between the parties on mutually
acceptable terms.  Any remaining claim or controversy will be arbitrated in San
Francisco, California, before a single arbitrator, in accordance with the
Commercial Dispute Resolution Rules of the American Arbitration
<PAGE>

Association then in effect. The arbitrator's decision will be final and binding
on both parties. The prevailing party will be entitled to reasonable costs and
attorneys' fees, including expert witness fees.

     17.  Injunctive Relief.  Notwithstanding Paragraph 16, Consultant agrees
that a breach by him of his obligations under Paragraph 7 of this Agreement
relating to Confidential Information will cause Maxygen irreparable injury and
damage.  Consultant agrees that Maxygen is entitled to injunctive and other
equitable relief to prevent a breach of Paragraph 7 of the Agreement or to
secure its enforcement.  A request for equitable relief by Maxygen shall not be
a waiver of any other rights or remedies Maxygen or Consultant may have.

     18.  Attorneys' Fees.  If any legal action is brought that arises out of or
relates to this Agreement, including an action for injunctive relief, the
prevailing party will be entitled to reasonable attorneys' fees, which may be
set by the court in the same action or in a separate action brought for that
purpose, in addition to any other relief to which that party may be entitled.

     Executed on the dates set forth below.

Dated: January 28, 2000             /S/ Joseph A. Affholter, Ph.D.
      ------------------------      ----------------------------

Dated: January 28, 2000             MAXYGEN, INC.
      -------------------------

                                    By /s/ Russell Howard
                                    -----------------------------------------
                                           Russell Howard
                                           President and Chief Executive Officer
<PAGE>

                                   Exhibit A

                               Contract Services
                               -----------------

1.   Advice regarding the development of technologies relating to directed
evolution, gene shuffling and Molecular Breeding directed molecular evolution
technologies, and the use of such technologies to develop products and processes
using such technologies for commercial uses.

2.   Transitioning to new leadership within Maxygen all existing partner
management responsibilities, projects, initiatives, and potential business
partner communications in which consultant was involved or engaged while an
employee of Maxygen.

3.   Assisting in establishing new collaborative relationships between Maxygen
and third parties.

4.   Cooperation with Maxygen and its counsel in connection with any
intellectual property disputes with third parties in which Maxygen may become
engaged, which cooperation shall include not providing advice or guidance to any
third party with respect to any intellectual property dispute involving any type
of directed molecular evolution without Maxygen's prior written consent.

5.   Other services to be determined at the parties' mutual written consent.

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