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Outside Director & Advisor Stock Option Plan

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


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 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.


(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) The foregoing provisions of this Section 1.02 notwithstanding, all Options granted under this Plan shall be automatic and non-discretionary, shall be made as set forth in Article II ("Stock Options"), and neither the Committee nor the Board of Directors of the Company nor any other person shall have any discretion to select which Outside Directors and/or Scientific Advisors shall be granted Options, or to


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determine the number of shares to be covered by Options granted to such persons.


(e) 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.


(f) 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.


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


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shares of Common Stock which may be issued under the Plan shall be one hundred thousand (100,000) 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.


All grants of Stock Options to Outside Directors and/or Scientific Advisors under the Plan shall be automatic and non-discretionary and shall be made strictly in accordance with the following provisions:


(a) No person shall have any discretion to select which Outside Directors and/or Scientific Advisors shall be granted Stock Options or to determine the number of shares to be covered by Options granted to such persons.


(b) Each person serving as an Outside Director on the date the Plan becomes effective pursuant to Section 1.05(a) above, shall be awarded an Option to purchase ten thousand (10,000) shares. The effective date of such awards shall be the first business day following the acceleration of effectiveness of ABI's 1996 registration statement, under the


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Securities Act of 1933, registering 2,000,000 shares of Common Stock for sale to the public. Each Outside Director not so serving on the date the Plan becomes effective 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 Company or appointment by the Board to fill a vacancy; provided, however, that if such Outside Director assumes such position prior to the effective date of ABI's registration statement described above, the effective date of the award shall be the first business day following the acceleration of effectiveness of such registration statement. 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 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.


(c) Each person serving as an Scientific Advisor on the date the Plan becomes effective pursuant to Section 1.05(a) above, who is not also serving as an Outside Director, shall be awarded an Option to purchase five thousand (5,000) shares. The effective date of such awards shall be the first business day following the acceleration of effectiveness of ABI's 1996 registration statement, under the Securities act of 1933, registering 2,000,000 shares of Common Stock for sale to the public. Each Scientific Advisor not so serving on the date the Plan becomes effective 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; provided, however, that if such Scientific Advisor assumes such position prior to the effective date of ABI's registration statement described above, the effective date of the award shall be the first business day following the acceleration of effectiveness of such registration statement. The foregoing notwithstanding, any Scientific Advisor who has previously received an Option award as an Outside Director shall not be awarded any additional Options as a Scientific Advisor.


(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


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shares which may be issued under the
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