APPLIED MOLECULAR EVOLUTION, INC.

                        2000 EMPLOYEE STOCK PURCHASE PLAN

                     (Adopted by the Board on June 20, 2000)


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                                Table of Contents


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SECTION 1    Purpose Of The Plan........................................            1

SECTION 2    Definitions................................................            1
          (a)"Accumulation Period"......................................            1
          (b)"Board"....................................................            1
          (c)"Code".....................................................            1
          (d)"Committee"................................................            1
          (e)"Company"..................................................            1
          (f)"Compensation".............................................            1
          (g)"Corporate Reorganization".................................            2
          (h)"Employee".................................................            2
          (i)"Eligible Employee"........................................            2
          (j)"Exchange Act".............................................            2
          (k)"Fair Market Value"........................................            2
          (l)"IPO"......................................................            3
          (m)"Offering Period"..........................................            3
          (n)"Participant"..............................................            3
          (o)"Participating Company"....................................            3
          (p)"Plan".....................................................            3
          (q)"Plan Account".............................................            3
          (r)"Purchase Price"...........................................            3
          (s)"Stock"....................................................            3
          (t)"Subsidiary"...............................................            3

SECTION 3    Administration Of The Plan.................................            4
          (a)Committee Composition......................................            4
          (b)Committee Responsibilities.................................            4

SECTION 4    Enrollment And Participation...............................            4
          (a)Offering Periods...........................................            4
          (b)Accumulation Periods.......................................            4
          (c)Enrollment.................................................            4
          (d)Duration of Participation..................................            4
          (e)Applicable Offering Period.................................            5

SECTION 5    Employee Contributions.....................................            5
          (a)Frequency of Payroll Deductions............................            5
          (b)Amount of Payroll Deductions...............................            5
          (c)Changing Withholding Rate..................................            5
          (d)Discontinuing Payroll Deductions...........................            6
          (e)Limit on Number of Elections...............................            6

SECTION 6    Withdrawal From The Plan...................................            6
          (a)Withdrawal.................................................            6
          (b)Re-enrollment After Withdrawal.............................            6
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SECTION 7    Change In Employment Status................................            6
          (a)Termination of Employment..................................            6
          (b)Leave of Absence...........................................            6
          (c)Death......................................................            7

SECTION 8    Plan Accounts And Purchase Of Shares.......................            7
          (a)Plan Accounts..............................................            7
          (b)Purchase Price.............................................            7
          (c)Number of Shares Purchased.................................            7
          (d)Available Shares Insufficient..............................            8
          (e)Issuance of Stock..........................................            8
          (f)Unused Cash Balances.......................................            8
          (g)Stockholder Approval.......................................            8

SECTION 9    Limitations On Stock Ownership.............................            8
          (a)Five Percent Limit.........................................            8
          (b)Dollar Limit...............................................            9

SECTION 10       Rights Not Transferable................................            9

SECTION 11       No Rights As An Employee...............................            9

SECTION 12       No Rights As A Stockholder.............................            9

SECTION 13       Securities Law Requirements............................           10

SECTION 14       Stock Offered Under The Plan...........................           10
          (a)Authorized Shares..........................................           10
          (b)Antidilution Adjustments...................................           10
          (c)Reorganizations............................................           10

SECTION 15       Amendment Or Discontinuance............................           10

SECTION 16       Execution..............................................           11
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                        APPLIED MOLECULAR EVOLUTION, INC.

                        2000 EMPLOYEE STOCK PURCHASE PLAN



SECTION 1 Purpose Of The Plan.

        The Plan was adopted by the Board on June 20, 2000, effective as of the
date of the IPO. The purpose of the Plan is to provide Eligible Employees with
an opportunity to increase their proprietary interest in the success of the
Company by purchasing Stock from the Company on favorable terms and to pay for
such purchases through payroll deductions. The Plan is intended to qualify under
section 423 of the Code.

SECTION 2 Definitions.

        (a) "Accumulation Period" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 4(b).

        (b) "Board" means the Board of Directors of the Company, as constituted
from time to time.

        (c) "Code" means the Internal Revenue Code of 1986, as amended.

        (d) "Committee" means a committee of the Board, as described in Section
3.

        (e) "Company" means Applied Molecular Evolution, Inc., a Delaware
Corporation.

        (f) "Compensation" means (i) the total compensation paid in cash to a
Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.

        (g) "Corporate Reorganization" means:

                (i) The consummation of a merger or consolidation of the Company
        with or into another entity, or any other corporate reorganization; or

                (ii) The sale, transfer or other disposition of all or
        substantially all of the Company's assets or the complete liquidation or
        dissolution of the Company.


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<PAGE>   5
        (h) "Employee" means an individual paid in a manner which results in the
issuance of a Form W-2 by the Company, a Parent or a Subsidiary, and with
respect to whom the Company, a Parent or a Subsidiary has withheld income and
employment taxes from that individual's compensation. An individual who has not
been treated as an Employee by the Company (or Parent or Subsidiary, as
applicable) in a particular period shall not be eligible to participate in the
Plan for that period, even if a government agency, court of law or any person
later determines that such individual is or was a common-law employee during all
or any portion of that period.

        (i) "Eligible Employee"(i) means any employee of a Participating Company
whose customary employment is for more than five months per calendar year and
for more than 20 hours per week.

        The foregoing notwithstanding, an individual shall not be considered an
Eligible Employee if his or her participation in the Plan is prohibited by the
law of any country which has jurisdiction over him or her or if he or she is
subject to a collective bargaining agreement that does not provide for
participation in the Plan.

        (j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

        (k) "Fair Market Value" means the market price of Stock, determined by
the Committee as follows:

                (i) If Stock was traded on The Nasdaq National Market on the
        date in question, then the Fair Market Value shall be equal to the
        last-transaction price quoted for such date by The Nasdaq National
        Market;

                (ii) If Stock was traded on a stock exchange on the date in
        question, then the Fair Market Value shall be equal to the closing price
        reported by the applicable composite transactions report for such date;
        or

                (iii) If none of the foregoing provisions is applicable, then
        the Fair Market Value shall be determined by the Committee in good faith
        on such basis as it deems appropriate.

        Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in the Wall Street Journal or as
reported directly to the Company by Nasdaq or a stock exchange. Such
determination shall be conclusive and binding on all persons.

        (l) "IPO" means the initial offering of Stock to the public pursuant to
a registration statement filed by the Company with the Securities and Exchange
Commission.

        (m) "Offering Period" means a 12- or 24-month period with respect to
which the right to purchase Stock may be granted under the Plan, as determined
pursuant to Section 4(a).

        (n) "Participant" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 4(c).


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<PAGE>   6
        (o) "Participating Company" means (i) the Company and (ii) each present
or future Subsidiary designated by the Committee as a Participating Company.

        (p) "Plan" means this Applied Molecular Evolution, Inc. 2000 Employee
Stock Purchase Plan, as it may be amended from time to time.

        (q) "Plan Account" means the account established for each Participant
pursuant to Section 8(a).

        (r) "Purchase Price" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 8(b).

        (s) "Stock" means the Common Stock of the Company.

        (t) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

SECTION 3 Administration Of The Plan.

        (a) Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Company, who shall be appointed by the Board.

        (b) Committee Responsibilities. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.

SECTION 4 Enrollment And Participation.

        (a) Offering Periods. While the Plan is in effect, two Offering Periods
shall commence in each calendar year. The Offering Periods shall consist of the
24-month periods commencing on each January 1 and July 1, except that the first
Offering Period shall commence on the first day of the month that is at least 30
days after the date of the IPO and shall end on December 31, 2001.

        (b) Accumulation Periods. While the Plan is in effect, two Accumulation
Periods shall commence in each calendar year. The Accumulation Periods shall
consist of the six month periods commencing on January 1 and July 1, except that
the first Accumulation Period shall commence on the first day of the month that
is at least 30 days after the date of the IPO and shall end on December 31,
2000.

        (c) Enrollment. Any individual who, on the day preceding the first day
of an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the


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<PAGE>   7
Committee. The enrollment form shall be filed with the Company at the prescribed
location not later than 15 days prior to the commencement of such Offering
Period.

        (d) Duration of Participation. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Offering Period in which his or her employee contributions were
discontinued under Section 5(d) or 9(b). A Participant who discontinued employee
contributions under Section 5(d) or 9(b) or withdrew from the Plan under Section
6(a) may again become a Participant, if he or she then is an Eligible Employee,
by following the procedure described in Subsection (c) above. A Participant
whose employee contributions were discontinued automatically under Section 9(b)
shall automatically resume participation at the beginning of the earliest
Offering Period ending in the next calendar year, if he or she then is an
Eligible Employee.

        (e) Applicable Offering Period. For purposes of calculating the purchase
price under Section 8(b), the applicable Offering Period shall be determined as
follows:

                (i) Once a Participant is enrolled in the Plan for an Offering
        Period, such Offering Period shall continue to apply to him or her until
        the earliest of: (A) the end of such Offering Period; (B) the end of his
        or her participation under Subsection (d) above; or (C) re-enrollment in
        a subsequent Offering Period under Paragraph (ii) below.

                (ii) In the event that the Fair Market Value of Stock on the
        last trading day before the commencement of the Offering Period in which
        the Participant is enrolled is higher than on the last trading day
        before the commencement of any subsequent Offering Period, the
        Participant shall automatically be re-enrolled for such subsequent
        Offering Period.

                (iii) When a Participant reaches the end of an Offering Period
        but his or her participation is to continue, then such Participant shall
        automatically be re-enrolled for the Offering Period that commences
        immediately after the end of the prior Offering Period.

SECTION 5 Employee Contributions.

        (a) Frequency of Payroll Deductions. A Participant may purchase shares
of Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.

        (b) Amount of Payroll Deductions. An Eligible Employee shall designate
on the enrollment form the portion of his or her Compensation that he or she
elects to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.

        (c) Changing Withholding Rate. If a Participant wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Company at the prescribed location at any time. The new withholding
rate shall be effective as soon as


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<PAGE>   8
reasonably practicable after such form has been received by the Company. The new
withholding rate shall be a whole percentage of the Eligible Employee's
Compensation, but not less than 1% nor more than 15%.

        (d) Discontinuing Payroll Deductions. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Company at the prescribed location at any time. Payroll
withholding shall cease as soon as reasonably practicable after such form has
been received by the Company. In addition, employee contributions may be
discontinued automatically pursuant to Section 9(b). A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.

        (e) Limit on Number of Elections. No Participant shall make more than
four elections under Subsection (c) or (d) above per calendar year.

SECTION 6 Withdrawal From The Plan.

        (a) Withdrawal. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Company at the prescribed location at any
time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.

        (b) Re-enrollment After Withdrawal. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 4(c). Re-enrollment may be effective only at the
commencement of an Offering Period.

SECTION 7 Change In Employment Status.

        (a) Termination of Employment. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 6(a). Notwithstanding the foregoing in
this Section 7, a transfer from one Participating Company to another shall not
be treated as a termination of employment.

        (b) Leave of Absence. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of absence, if the leave was approved by the Company
in writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.

        (c) Death. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company at the
prescribed location before the Participant's death.


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SECTION 8 Plan Accounts And Purchase Of Shares.

        (a) Plan Accounts. The Company shall maintain a Plan Account on its
books in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust
funds and may be commingled with the Company's general assets and applied to
general corporate purposes. No interest shall be credited to Plan Accounts.

        (b) Purchase Price. The Purchase Price for each share of Stock purchased
at the close of an Accumulation Period shall be the lower of:

                (i) 85% of the Fair Market Value of such share on the last
        trading day in such Accumulation Period; or

                (ii) 85% of the Fair Market Value of such share on the last
        trading day before the commencement of the applicable Offering Period
        (as determined under Section 4(e)) or, in the case of the first Offering
        Period under the Plan, 85% of the price at which one share of Stock is
        offered to the public in the IPO.

        (c) Number of Shares Purchased. As of the last day of each Accumulation
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 6(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Company with the funds in the Participant's Plan Account. The foregoing
notwithstanding, no Participant shall purchase more than 12,500 shares of Stock
with respect to any Accumulation Period nor more than the amounts of Stock set
forth in Sections 9(b) and 14(a). The Committee may determine with respect to
all Participants that any fractional share, as calculated under this Subsection
(c), shall be (i) rounded down to the next lower whole share or (ii) credited as
a fractional share.

        (d) Available Shares Insufficient. In the event that the aggregate
number of shares that all Participants elect to purchase during an Accumulation
Period exceeds the maximum number of shares remaining available for issuance
under Section 14(a), then the number of shares to which each Participant is
entitled shall be determined by multiplying the number of shares available for
issuance by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.

        (e) Issuance of Stock. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Accumulation Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.


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<PAGE>   10
        (f) Unused Cash Balances. An amount remaining in the Participant's Plan
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above, Section 9(b) or Section 14(a) shall be refunded to the
Participant in cash, without interest.

        (g) Stockholder Approval. Any other provision of the Plan
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Company's stockholders have approved the adoption of the Plan.

SECTION 9 Limitations On Stock Ownership.

        (a) Five Percent Limit. Any other provision of the Plan notwithstanding,
no Participant shall be granted a right to purchase Stock under the Plan if such
Participant, immediately after his or her election to purchase such Stock, would
own stock possessing more than 5% of the total combined voting power or value of
all classes of stock of the Company or any parent or Subsidiary of the Company.
For purposes of this Subsection (a), the following rules shall apply:

                (i) Ownership of stock shall be determined after applying the
        attribution rules of section 424(d) of the Code;

                (ii) Each Participant shall be deemed to own any stock that he
        or she has a right or option to purchase under this or any other plan;
        and

                (iii) Each Participant shall be deemed to have the right to
        purchase 1,200 shares of Stock under this Plan with respect to each
        Accumulation Period.

        (b) Dollar Limit. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:

        Any other provision of the Plan notwithstanding, no Participant shall
purchase Stock with a Fair Market Value in excess of $25,000 per calendar year
(under this Plan and all other employee stock purchase plans of the Company or
any parent or Subsidiary of the Company).

        For purposes of this Subsection (b), the Fair Market Value of Stock
shall be determined in each case as of the beginning of the Offering Period in
which such Stock is purchased. Employee stock purchase plans not described in
section 423 of the Code shall be disregarded. If a Participant is precluded by
this Subsection (b) from purchasing additional Stock under the Plan, then his or
her employee contributions shall automatically be discontinued and shall resume
at the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).

SECTION 10 Rights Not Transferable.

        The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary


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<PAGE>   11
or involuntary assignment or by operation of law, or in any other manner other
than by beneficiary designation or the laws of descent and distribution. If a
Participant in any manner attempts to transfer, assign or otherwise encumber his
or her rights or interest under the Plan, other than by beneficiary designation
or the laws of descent and distribution, then such act shall be treated as an
election by the Participant to withdraw from the Plan under Section 6(a).

SECTION 11 No Rights As An Employee

        Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.

SECTION 12 No Rights As A Stockholder.

        A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Offering
Period.

SECTION 13 Securities Law Requirements.

        Shares of Stock shall not be issued under the Plan unless the issuance
and delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.

SECTION 14 Stock Offered Under The Plan.

        (a) Authorized Shares. The maximum aggregate number of shares of Stock
available for purchase under the Plan is seven hundred fifty thousand (750,000),
plus an annual increase to be added on the first day of the Company's fiscal
year beginning in 2001 equal to the lesser of (i) 5% of the fully diluted
outstanding shares of Stock of the Company on such date or (ii) a lesser amount
determined by the Board. The aggregate number of Shares available for purchase
under the Plan shall at all times be subject to adjustment pursuant to Section
14.

        (b) Antidilution Adjustments. The aggregate number of shares of Stock
offered under the Plan, the 12,500 share limitation described in Section 8(c)
and the price of shares that any Participant has elected to purchase shall be
adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
stockholders or a similar event.

        (c) Reorganizations. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period then in progress shall terminate and shares shall be purchased
pursuant to Section 8, unless the Plan is assumed


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<PAGE>   12
by the surviving corporation or its parent corporation pursuant to the plan of
merger or consolidation. The Plan shall in no event be construed to restrict in
any way the Company's right to undertake a dissolution, liquidation, merger,
consolidation or other reorganization.

SECTION 15 Amendment Or Discontinuance.

        The Board shall have the right to amend, suspend or terminate the Plan
at any time and without notice. Except as provided in Section 14, any increase
in the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Company to the extent required by an applicable law or
regulation.

SECTION 16 Execution.

        To record the adoption of the Plan by the Board on June 20, 2000, the
Company has caused its authorized officer to execute the same.



                                Applied Molecular Evolution, Inc.



                                By:  /s/ William D. Huse
                                   -------------------------------------
                                         William D. Huse, M.D., Ph.D.
                                   President and Chief Executive Officer


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Source: OneCLE Business Contracts.