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                                                                    EXHIBIT 10.3

                    AMERICAN PHARMACEUTICAL PARTNERS, INC.
                           2001 STOCK INCENTIVE PLAN

     1. Purposes of the Plan. The purposes of this Stock Incentive Plan are to
        --------------------
attract and retain the best available personnel, to provide additional incentive
to Employees, Directors and Consultants and to promote the success of the
Company's business.

     2. Definitions.  As used herein, the following definitions shall apply:
        -----------

          (a) "Administrator" means the Board or any of the Committees
               -------------
appointed to administer the Plan.

          (b) "Affiliate" and "Associate" shall have the respective meanings
               ---------       ---------
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.

          (c) "Applicable Laws" means the legal requirements relating to the
               ---------------
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.

          (d) "Assumed" means that (i) pursuant to a Corporate Transaction
               -------
defined in Section 2(q)(i), 2(q)(ii) or 2(q)(iii) or a Related Entity
Disposition, the contractual obligations represented by the Award are assumed by
the successor entity or its Parent in connection with the Corporate Transaction
or Related Entity Disposition or (ii) pursuant to a Corporate Transaction
defined in Section 2(q)(iv) or 2(q)(v), the Award is affirmed by the Company.
The Award shall not be deemed "Assumed" for purposes of terminating the Award
(in the case of a Corporate Transaction) and the termination of the Continuous
Service of the Grantee (in the case of a Related Entity Disposition) if pursuant
to a Corporate Transaction or a Related Entity Disposition the Award is replaced
with a comparable award with respect to shares of capital stock of the successor
entity of its Parent. However, for purposes of determining whether the vesting
of the Award accelerates, the Award shall be deemed "Assumed" if the Award is
replaced with such a comparable stock award or the Award is replaced with a cash
incentive program of the successor entity or Parent thereof which preserves the
compensation element of such Award existing at the time of the Corporate
Transaction or Related Entity Disposition and provides for subsequent payout in
accordance with the same vesting schedule applicable to such Award. The
determination of Award comparability shall be made by the Administrator and its
determination shall be final, binding and conclusive.

          (e) "Award" means the grant of an Option, Restricted Stock or other
               -----
right or benefit under the Plan.

          (f) "Award Agreement" means the written agreement evidencing the grant
               ---------------
of an Award executed by the Company and the Grantee, including any amendments
thereto.

                                       1
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          (g) "Board" means the Board of Directors of the Company.
               -----

          (h) "Cause" means, with respect to the termination by the Company or a
               -----
Related Entity of the Grantee's Continuous Service, that such termination is for
"Cause" as such term is expressly defined in a then-effective written agreement
between the Grantee and the Company or such Related Entity, or in the absence of
such then-effective written agreement and definition, is based on, in the
determination of the Administrator, the Grantee's: (i) performance of any act or
failure to perform any act in bad faith and to the detriment of the Company or a
Related Entity; (ii) dishonesty, intentional misconduct or material breach of
any agreement with the Company or a Related Entity; or (iii) commission of a
crime involving dishonesty, breach of trust, or physical or emotional harm to
any person.

          (i) "Change in Control" means a change in ownership or control of the
               -----------------
Company effected through either of the following transactions:

                 (i)   the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which a
majority of the Continuing Directors who are not Affiliates or Associates of the
offeror do not recommend such stockholders accept, or

                 (ii)  a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who are
Continuing Directors.

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

          (k)  "Committee" means any committee appointed by the Board to
                ---------
administer the Plan.


          (l)  "Common Stock" means the common stock of the Company.
                ------------

          (m)  "Company" means American Pharmaceutical Partners, Inc., a
                -------
California corporation.

          (n)  "Consultant" means any person (other than an Employee or a
                ----------
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.

          (o)  "Continuing Directors" means members of the Board who either (i)
                --------------------
have been Board members continuously for a period of at least thirty-six (36)
months or (ii) have been

                                       2
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Board members for less than thirty-six (36) months and were elected or nominated
for election as Board members by at least a majority of the Board members
described in clause (i) who were still in office at the time such election or
nomination was approved by the Board.

          (p)  "Continuous Service" means that the provision of services to the
                ------------------
Company or a Related Entity in any capacity of Employee, Director or Consultant,
is not interrupted or terminated. Continuous Service shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
among the Company, any Related Entity, or any successor, in any capacity of
Employee, Director or Consultant, or (iii) any change in status as long as the
individual remains in the service of the Company or a Related Entity in any
capacity of Employee, Director or Consultant (except as otherwise provided in
the Award Agreement). An approved leave of absence shall include sick leave,
military leave, or any other authorized personal leave. For purposes of each
Incentive Stock Option granted under the Plan, if such leave exceeds ninety (90)
days, and reemployment upon expiration of such leave is not guaranteed by
statute or contract, then the Incentive Stock Option shall be treated as a Non-
Qualified Stock Option on the day three (3) months and one (1) day following the
expiration of such ninety (90) day period.

          (q)  "Corporate Transaction" means any of the following transactions:
                ---------------------

                    (i)    a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated;

                    (ii)   the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations);

                    (iii)  approval by the Company's shareholders of any plan or
proposal for the complete liquidation or dissolution of the Company;

                    (iv)   any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger; or

                    (v)    acquisition by any person or related group of persons
(other than the Company or by a Company-sponsored employee benefit plan) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities (whether or not in a transaction
also constituting a Change in Control) but excluding any such transaction that
the Administrator determines shall not be a Corporate Transaction.

          (r)    "Covered Employee" means an Employee who is a "covered
                  ----------------
employee" under Section 162(m)(3) of the Code.

                                       3
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                    (s)    "Director" means a member of the Board or the board
                            --------
of directors of any Related Entity.


                    (t)    "Disability" means as defined under the long-term
                            ----------
disability policy of the Company or the Related Entity to which the Grantee
provides services regardless of whether the Grantee is covered by such policy.
If the Company or the Related Entity to which the Grantee provides service does
not have a long-term disability plan in place, "Disability" means that a Grantee
is unable to carry out the responsibilities and functions of the position held
by the Grantee by reason of any medically determinable physical or mental
impairment. A Grantee will not be considered to have incurred a Disability
unless he or she furnishes proof of such impairment sufficient to satisfy the
Administrator in its discretion.

                    (u)    "Employee" means any person, including an Officer or
                            --------
Director, who is an employee of the Company or any Related Entity. The payment
of a director's fee by the Company or a Related Entity shall not be sufficient
to constitute "employment" by the Company .

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

                    (w)    "Fair Market Value" means, as of any date, the value
                            -----------------
of Common Stock determined as follows:

                              (i)  Where there exists a public market for the
Common Stock, the Fair Market Value shall be (A) the closing price for a Share
on the date of the determination (or, if no closing price was reported on that
date, on the last trading date on which a closing price was reported) on the
stock exchange determined by the Administrator to be the primary market for the
Common Stock or the Nasdaq National Market, whichever is applicable or (B) if
the Common Stock is not traded on any such exchange or national market system,
the average of the closing bid and asked prices of a Share on the Nasdaq Small
Cap Market on the date of the determination (or, if no such prices were reported
on that date, on the last date on which such prices were reported), in each
case, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable; or

                              (ii) In the absence of an established market for
the Common Stock of the type described in (i), above, the Fair Market Value
thereof shall be determined by the Administrator in good faith.

                         (x) "Grantee" means an Employee, Director or Consultant
                              -------
who receives an Award under the Plan.

                         (y) "Immediate Family" means any child, stepchild,
                              ----------------
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling,
niece, nephew, mother-in-law, father-in-law, son-in law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships, any person
sharing the Grantee's household (other than a tenant or employee), a trust in
which these persons (or the Grantee) have more than fifty percent (50%) of the
beneficial interest, a foundation in which these persons (or the Grantee)
control the management of assets,

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and any other entity in which these persons (or the Grantee) own more than fifty
percent (50%) of the voting interests.

                         (z) "Incentive Stock Option" means an Option intended
                              ----------------------
to qualify as an incentive stock option within the meaning of Section 422 of the
Code

                         (aa)   "Non-Qualified Stock Option" means an Option not
                                 --------------------------
intended to qualify as an Incentive Stock Option.

                         (bb)   "Officer" means a person who is an officer of
                                 -------
the Company or a Related Entity within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.

                         (cc)   "Option" means an option to purchase Shares
                                 ------
pursuant to an Award Agreement granted under the Plan.

                         (dd)   "Parent" means a "parent corporation," whether
                                 ------
now or hereafter existing, as defined in Section 424(e) of the Code.

                         (ee)   "Performance-Based Compensation" means
                                 ------------------------------
compensation qualifying as "performance-based compensation" under Section 162(m)
of the Code.

                         (ff)   "Plan" means this 2001 Stock Incentive Plan.
                                 ----

                         (gg)   "Registration Date" means the first to occur of
                                 -----------------
(i) the closing of the first sale to the general public pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission under the Securities Act of 1933, as amended, of (A) the
Common Stock or (B) the same class of securities of a successor corporation (or
its Parent) issued pursuant to a Corporate Transaction in exchange for or in
substitution of the Common Stock; and (ii) in the event of a Corporate
Transaction, the date of the consummation of the Corporate Transaction if the
same class of securities of the successor corporation (or its Parent) issuable
in such Corporate Transaction shall have been sold to the general public
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
on or prior to the date of consummation of such Corporate Transaction.

                         (hh)   "Related Entity" means any Parent or Subsidiary
                                 --------------
of the Company and any business, corporation, partnership, limited liability
company or other entity in which the Company, a Parent or a Subsidiary of the
Company holds a substantial ownership interest, directly or indirectly.

                         (ii)   "Related Entity Disposition" means the sale,
                                 --------------------------
distribution or other disposition by the Company or a Parent or a Subsidiary of
the Company of all or substantially all of the interests of the Company or a
Parent or a Subsidiary of the Company in any Related Entity effected by a sale,
merger or consolidation or other transaction involving that Related Entity or
the sale of all or substantially all of the assets of that Related Entity, other
than any Related Entity Disposition to the Company or a Parent or a Subsidiary
of the Company.

                                       5
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                         (jj) "Restricted Stock" means Shares issued under the
                               ----------------
Plan to the Grantee for such consideration, if any, and subject to such
restrictions on transfer, rights of first refusal, repurchase provisions,
forfeiture provisions, and other terms and conditions as established by the
Administrator.

                         (kk) "Rule 16b-3" means Rule 16b-3 promulgated under
                               ----------
the Exchange Act or any successor thereto.

                         (ll) "Share" means a share of the Common Stock.
                               -----

                         (mm) "Subsidiary" means a "subsidiary corporation,"
                               ----------
whether now or hereafter existing, as defined in Section 424(f) of the Code.

     3.   Stock Subject to the Plan.
          -------------------------

               (a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards (including
Incentive Stock Options) is [NUMBER (_______)] Shares, increased by (i) any
Shares available for future Awards under the Company's 1997 Stock Option Plan as
of the Registration Date, (ii) any Shares that are represented by Awards under
the Company's 1997 Stock Option Plan that are forfeited, expire or are cancelled
without delivery of the Shares or which result in forfeiture of the Shares back
to the Company on or after the Registration Date and (iii) an annual increase to
be added on the first day of the Company's fiscal year beginning in 2002 equal
to [____ percent (___%)] of the number of Shares outstanding as of such date or
a lesser number of Shares determined by the Administrator. Notwithstanding the
foregoing, subject to the provisions of Section 10, below, of the number of
Shares specified above, the maximum aggregate number of Shares available for
grant of Incentive Stock Options shall be [NUMBER (_______)] Shares, plus an
annual increase to be added on the first day of the Company's fiscal year
beginning in 2002 equal to the lesser of (x) [____ percent (___%)] of the number
of Shares outstanding as of such date, (y) [NUMBER (_______)] Shares, or (z) a
lesser number of Shares determined by the Administrator. The Shares to be issued
pursuant to Awards may be authorized, but unissued, or reacquired Common Stock.

               (b) Any Shares covered by an Award (or portion of an Award) which
is forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. Shares that actually have been issued
under the Plan pursuant to an Award shall not be returned to the Plan and shall
not become available for future issuance under the Plan, except that if unvested
Shares are forfeited, or repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.

     4.   Administration of the Plan.
          --------------------------

               (a) Plan Administrator.
                   ------------------

                    (i)    Administration with Respect to Directors and
                           --------------------------------------------
Officers. With respect to grants of Awards to Directors or Employees who are
--------
also Officers or Directors of the

                                       6
<PAGE>

Company, the Plan shall be administered by (A) the Board or (B) a Committee
designated by the Board, which Committee shall be constituted in such a manner
as to satisfy the Applicable Laws and to permit such grants and related
transactions under the Plan to be exempt from Section 16(b) of the Exchange Act
in accordance with Rule 16b-3. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board.

                    (ii)   Administration With Respect to Consultants and Other
                           ----------------------------------------------------
Employees. With respect to grants of Awards to Employees or Consultants who are
---------
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorize one or more
Officers to grant such Awards and may limit such authority as the Board
determines from time to time.

                    (iii)  Administration With Respect to Covered Employees.
                           ------------------------------------------------
Notwithstanding the foregoing, as of and after the date that the exemption for
the Plan under Section 162(m) of the Code expires, as set forth in Section 18
herein, grants of Awards to any Covered Employee intended to qualify as
Performance-Based Compensation shall be made only by a Committee (or
subcommittee of a Committee) which is comprised solely of two or more Directors
eligible to serve on a committee making Awards qualifying as Performance-Based
Compensation. In the case of such Awards granted to Covered Employees,
references to the "Administrator" or to a "Committee" shall be deemed to be
references to such Committee or subcommittee.

                    (iv)   Administration Errors. In the event an Award is
                           ---------------------
granted in a manner inconsistent with the provisions of this subsection (a),
such Award shall be presumptively valid as of its grant date to the extent
permitted by the Applicable Laws.

               (b) Powers of the Administrator. Subject to Applicable Laws and
                   ---------------------------
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:

                    (i)    to select the Employees, Directors and Consultants
to whom Awards may be granted from time to time hereunder;

                    (ii)   to determine whether and to what extent Awards are
granted hereunder;

                    (iii)  to determine the number of Shares or the amount of
other consideration to be covered by each Award granted hereunder;

                    (iv)   to approve forms of Award Agreements for use under
the Plan;

                    (v)    to determine the terms and conditions of any Award
granted hereunder;

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                    (vi)   to amend the terms of any outstanding Award granted
under the Plan, provided that any amendment that would adversely affect the
Grantee's rights under an outstanding Award shall not be made without the
Grantee's written consent;

                    (vii)  to construe and interpret the terms of the Plan and
Awards, including without limitation, any notice of award or Award Agreement,
granted pursuant to the Plan;

                    (viii) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such rules or laws; provided,
however, that no Award shall be granted under any such additional terms,
conditions, rules or procedures with terms or conditions which are inconsistent
with the provisions of the Plan; and

                    (ix)   to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.

     5.   Eligibility. Awards other than Incentive Stock Options may be granted
          -----------
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company or a Parent or a Subsidiary of the Company. An
Employee, Director or Consultant who has been granted an Award may, if otherwise
eligible, be granted additional Awards. Awards may be granted to such Employees,
Directors or Consultants who are residing in foreign jurisdictions as the
Administrator may determine from time to time.

     6.   Terms and Conditions of Awards.
          ------------------------------

               (a)  Type of Awards. The Administrator is authorized under the
                    --------------
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an Option or similar
right with a fixed or variable price related to the Fair Market Value of the
Shares and with an exercise or conversion privilege related to the passage of
time, the occurrence of one or more events, or the satisfaction of performance
criteria or other conditions, or (iii) any other security with the value derived
from the value of the Shares. Such awards include, without limitation, Options
or sales or bonuses of Restricted Stock, and an Award may consist of one such
security or benefit, or two (2) or more of them in any combination or
alternative.

               (b)  Designation of Award. Each Award shall be designated in the
                    --------------------
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken

                                       8
<PAGE>

into account in the order in which they were granted, and the Fair Market Value
of the Shares shall be determined as of the grant date of the relevant Option.

          (c)  Conditions of Award.  Subject to the terms of the Plan, the
               -------------------
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.

          (d)  Acquisitions and Other Transactions.  The Administrator may
               -----------------------------------
issue Awards under the Plan in settlement, assumption or substitution for,
outstanding awards or obligations to grant future awards in connection with the
Company or a Related Entity acquiring another entity, an interest in another
entity or an additional interest in a Related Entity whether by merger, stock
purchase, asset purchase or other form of transaction.

          (e)  Separate Programs.  The Administrator may establish one or more
               -----------------
separate programs under the Plan for the purpose of issuing particular forms of
Awards to one or more classes of Grantees on such terms and conditions as
determined by the Administrator from time to time.

          (f)  Individual Option Limit.  Following the date that the exemption
               -----------------------
from application of Section 162(m) of the Code described in Section 18 (or any
exemption having similar effect) ceases to apply to Awards, the maximum number
of Shares with respect to which Options may be granted to any Grantee in any
fiscal year of the Company shall be [NUMBER (_______)]. [In connection with a
Grantee's commencement of Continuous Service, a Grantee may be granted Options
for up to an additional [NUMBER (____________)] Shares which shall not count
against the limit set forth in the previous sentence.] The foregoing
limitation[s] shall be adjusted proportionately in connection with any change in
the Company's capitalization pursuant to Section 10, below. To the extent
required by Section 162(m) of the Code or the regulations thereunder, in
applying the foregoing limitation[s] with respect to a Grantee, if any Option is
canceled, the canceled Option shall continue to count against the maximum number
of Shares with respect to which Options may be granted to the Grantee. For this
purpose, the repricing of an Option shall be treated as the cancellation of the
existing Option and the grant of a new Option.

          (g)  Early Exercise.  The Award Agreement may, but need not, include
               --------------
a provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Award prior to full
vesting of the Award. Any unvested Shares received pursuant to such exercise may
be subject to a repurchase right in favor of the Company or a Related Entity or
to any other restriction the Administrator determines to be appropriate.

                                       9
<PAGE>

          (h)  Term of Award.  The term of each Award shall be the term stated
               -------------
in the Award Agreement, provided, however, that the term of an Incentive Stock
Option shall be no more than ten (10) years from the date of grant thereof.
However, in the case of an Incentive Stock Option granted to a Grantee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Incentive Stock Option shall be five (5) years
from the date of grant thereof or such shorter term as may be provided in the
Award Agreement.

          (i)  Transferability of Awards.  Incentive Stock Options may not be
               -------------------------
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee; provided,
however, that the Grantee may designate a beneficiary of the Grantee's Incentive
Stock Option in the event of the Grantee's death on a beneficiary designation
form provided by the Administrator. Other Awards shall be transferred by will
and by the laws of descent and distribution, and during the lifetime of the
Grantee, by gift and or pursuant to a domestic relations order to members of the
Grantee's Immediate Family to the extent and in the manner determined by the
Administrator.

          (j)  Time of Granting Awards.  The date of grant of an Award shall
               -----------------------
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.

     7.   Award Exercise or Purchase Price, Consideration and Taxes.
          ---------------------------------------------------------

          (a)  Exercise or Purchase Price.  The exercise or purchase price, if
               --------------------------
any, for an Award shall be as follows:

               (i)  In the case of an Incentive Stock Option:

                    (A)  granted to an Employee who, at the time of the grant of
such Incentive Stock Option owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant; or

                    (B)  granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.

               (ii) In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant unless otherwise determined by the
Administrator.

                                       10
<PAGE>

               (iii)  In the case of Awards intended to qualify as Performance-
Based Compensation, the exercise or purchase price, if any, shall be not less
than one hundred percent (100%) of the Fair Market Value per Share on the date
of grant.

               (iv)   In the case of other Awards, such price as is determined
by the Administrator.

               (v)    Notwithstanding the foregoing provisions of this Section
7(a), in the case of an Award issued pursuant to Section 6(d), above, the
exercise or purchase price for the Award shall be determined in accordance with
the principles of Section 424(a) of the Code.

          (b)  Consideration.  Subject to Applicable Laws, the consideration to
               -------------
be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following:

               (i)    cash;

               (ii)   check;

               (iii)  delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator determines as
appropriate;

               (iv)   surrender of Shares or delivery of a properly executed
form of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Award) which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate exercise price of the Shares as to which said Award shall
be exercised (but only to the extent that such exercise of the Award would not
result in an accounting compensation charge with respect to the Shares used to
pay the exercise price unless otherwise determined by the Administrator);

               (v)    with respect to Options, payment through a broker-dealer
sale and remittance procedure pursuant to which the Grantee (A) shall provide
written instructions to a Company designated brokerage firm to effect the
immediate sale of some or all of the purchased Shares and remit to the Company,
out of the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased Shares and (B)
shall provide written directives to the Company to deliver the certificates for
the purchased Shares directly to such brokerage firm in order to complete the
sale transaction; or

               (vi)   any combination of the foregoing methods of payment.

          (c)  Taxes.  No Shares shall be delivered under the Plan to any
               -----
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of

                                       11
<PAGE>

Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of an Award the Company shall withhold or
collect from Grantee an amount sufficient to satisfy such tax obligations.

     8.   Exercise of Award.
          -----------------

               (a)  Procedure for Exercise; Rights as a Stockholder.
                    -----------------------------------------------

                         (i)   Any Award granted hereunder shall be exercisable
at such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement.

                         (ii)  An Award shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Award by the person entitled to exercise the Award and full
payment for the Shares with respect to which the Award is exercised, including,
to the extent selected, use of the broker-dealer sale and remittance procedure
to pay the purchase price as provided in Section 7(b)(v). Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to Shares subject to an Award,
notwithstanding the exercise of an Option or other Award. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Award. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in the Award Agreement or Section 10, below.

          (b)  Exercise of Award Following Termination of Continuous Service.
               -------------------------------------------------------------

                         (i)   An Award may not be exercised after the
termination date of such Award set forth in the Award Agreement and may be
exercised following the termination of a Grantee's Continuous Service only to
the extent provided in the Award Agreement.

                         (ii)  Where the Award Agreement permits a Grantee to
exercise an Award following the termination of the Grantee's Continuous Service
for a specified period, the Award shall terminate to the extent not exercised on
the last day of the specified period or the last day of the original term of the
Award, whichever occurs first.

                         (iii) Any Award designated as an Incentive Stock Option
to the extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Service shall convert automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent exercisable by its terms
for the period specified in the Award Agreement.

          9.   Conditions Upon Issuance of Shares.
               ----------------------------------

                    (a)  Shares shall not be issued pursuant to the exercise of
an Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall

                                       12
<PAGE>

comply with all Applicable Laws, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

          (b)  As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.

     10.  Adjustments Upon Changes in Capitalization.  Subject to any required
          ------------------------------------------
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, the maximum number of Shares with respect to which Options
may be granted to any Grantee in any fiscal year of the Company, as well as any
other terms that the Administrator determines require adjustment shall be
proportionately adjusted for (i) any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Shares, or similar transaction affecting
the Shares, (ii) any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Company, or (iii) as the
Administrator may determine in its discretion, any other transaction with
respect to Common Stock to which Section 424(a) of the Code applies or a similar
transaction; provided, however that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Administrator and its
determination shall be final, binding and conclusive. Except as the
Administrator determines, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.

     11.  Corporate Transactions/Changes in Control/Related Entity Dispositions.
          ---------------------------------------------------------------------

               (a)  Termination of Award to Extent Not Assumed
                    ------------------------------------------

                         (i)   Corporate Transaction.  Effective upon the
                               ---------------------
consummation of a Corporate Transaction, all outstanding Awards under the Plan
shall terminate. However, all such Awards shall not terminate to the extent they
are Assumed in connection with the Corporate Transaction.

                         (ii)  Related Entity Disposition.  Effective upon the
                               --------------------------
consummation of a Related Entity Disposition, for purposes of the Plan and all
Awards, there shall be a deemed termination of Continuous Service of each
Grantee who is at the time engaged primarily in service to the Related Entity
involved in such Related Entity Disposition and each Award of such Grantee which
is at the time outstanding under the Plan shall be exercisable in accordance
with the terms of the Award Agreement evidencing such Award. However, such
Continuous Service shall not be deemed to terminate as to the portion of any
such award that is Assumed.

                                       13
<PAGE>

          (b)  Acceleration of Award Upon Corporate Transaction/Change in
               ----------------------------------------------------------
Control/Related Entity Disposition.  Except as provided otherwise in an
----------------------------------
individual Award Agreement, in the event of any Corporate Transaction, Change in
Control or Related Entity Disposition, there will not be any acceleration of
vesting or exercisability of any Award.

     12.  Effective Date and Term of Plan.  The Plan shall become effective
          -------------------------------
upon the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company.  It shall continue in effect for a term of ten (10)
years unless sooner terminated.  Subject to Section 17, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.

     13.  Amendment, Suspension or Termination of the Plan.
          ------------------------------------------------

               (a)  The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.

               (b)  No Award may be granted during any suspension of the Plan or
after termination of the Plan.

               (c)  Any amendment, suspension or termination of the Plan
(including termination of the Plan under Section 12, above) shall not affect
Awards already granted, and such Awards shall remain in full force and effect as
if the Plan had not been amended, suspended or terminated, unless mutually
agreed otherwise between the Grantee and the Administrator, which agreement must
be in writing and signed by the Grantee and the Company.

     14.  Reservation of Shares.
          ---------------------

               (a)  The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.

               (b)  The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.

     15.  No Effect on Terms of Employment/Consulting Relationship.  The Plan
          --------------------------------------------------------
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the Company's right to terminate the Grantee's Continuous Service at any time,
with or without Cause, and with or without notice. The Company's ability to
terminate the employment of a Grantee who is employed at will is in no way
affected by its determination that the Grantee's Continuous Service has been
terminated for Cause for the purposes of this Plan.

     16.  No Effect on Retirement and Other Benefit Plans.  Except as
          -----------------------------------------------
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement

                                       14
<PAGE>

plan of the Company or a Related Entity, and shall not affect any benefits under
any other benefit plan of any kind or any benefit plan subsequently instituted
under which the availability or amount of benefits is related to level of
compensation. The Plan is not a "Retirement Plan" or "Welfare Plan" under the
Employee Retirement Income Security Act of 1974, as amended.

     17.  Stockholder Approval.  The grant of Incentive Stock Options under the
          --------------------
Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted excluding
Incentive Stock Options issued in substitution for outstanding Incentive Stock
Options pursuant to Section 424(a) of the Code. Such stockholder approval shall
be obtained in the degree and manner required under Applicable Laws. The
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be exercisable. In the event that stockholder approval is not
obtained within the twelve (12) month period provided above, all Incentive Stock
Options previously granted under the Plan shall be exercisable as Non-Qualified
Stock Options.

Effect of Section 162(m) of the Code.  The Plan, and all Awards issued
------------------------------------
thereunder, are intended to be exempt from the application of Section 162(m) of
the Code, which restricts under certain circumstances the Federal income tax
deduction for compensation paid by a public company to named executives in
excess of $1 million per year.  The exemption is based on Treasury Regulation
Section 1.162-27(f), in the form existing on the effective date of the Plan,
with the understanding that such regulation generally exempts from the
application of Section 162(m) of the Code compensation paid pursuant to a plan
that existed before a company becomes publicly held.  Under such Treasury
Regulation, this exemption is available to the Plan for the duration of the
period that lasts until the earlier of (i) the expiration of the Plan, (ii) the
material modification of the Plan, (iii) the exhaustion of the maximum number of
shares of Common Stock available for Awards under the Plan, as set forth in
Section 3(a), (iv) the first meeting of shareholders at which directors are to
be elected that occurs after the close of the third calendar year following the
calendar year in which the Company first becomes subject to the reporting
obligations of Section 12 of the Exchange Act, or (v) such other date required
by Section 162(m) of the Code and the rules and regulations promulgated
thereunder.  The Committee may, without shareholder approval, amend the Plan
retroactively and/or prospectively to the extent it determines necessary in
order to comply with any subsequent clarification of Section 162(m) of the Code
required to preserve the Company's Federal income tax deduction for compensation
paid pursuant to the Plan.  To the extent that the Administrator determines as
of the date of grant of an Award that (i) the Award is intended to qualify as
Performance-Based Compensation and (ii) the exemption described above is no
longer available with respect to such Award, such Award shall not be effective
until any stockholder approval required under Section 162(m) of the Code has
been obtained.

                                       15
<PAGE>

                    AMERICAN PHARMACEUTICAL PARTNERS, INC.

                           2001 STOCK INCENTIVE PLAN

                         NOTICE OF STOCK OPTION AWARD
                         ----------------------------

     Grantee's Name and Address:        ________________________________________

                                        ________________________________________

                                        ________________________________________


     You have been granted an option to purchase shares of Common Stock, subject
to the terms and conditions of this Notice of Stock Option Award (the "Notice"),
the American Pharmaceutical Partners, Inc. 2001 Stock Incentive Plan, as amended
from time to time (the "Plan") and the Stock Option Award Agreement (the "Option
Agreement") attached hereto, as follows. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Notice.

     Award Number                       ________________________________________

     Date of Award                      ________________________________________

     Vesting Commencement Date          ________________________________________

     Exercise Price per Share           $_______________________________________

     Total Number of Shares Subject
     to the Option (the "Shares")       ________________________________________

     Total Exercise Price               $_______________________________________

     Type of Option:                    __________    Incentive Stock Option

                                        __________    Non-Qualified Stock Option

     Expiration Date:                   ________________________________________

     Post-Termination Exercise Period:  Three (3) Months

Vesting Schedule:
----------------

     Subject to Grantee's Continuous Service and other limitations set forth in
this Notice, the Plan and the Option Agreement, the Option may be exercised, in
whole or in part, in accordance with the following schedule:

     25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and an additional 25% of the Shares subject to the
Option shall vest on each yearly anniversary of the Vesting Commencement Date
thereafter.

     During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall be suspended after the leave of absence exceeds
a period of ninety (90) days. Vesting of the Option shall resume upon the
Grantee's termination of the leave of absence and

                                       1
<PAGE>

return to service to the Company or a Related Entity. The Vesting Schedule of
the Option shall be extended by the length of the suspension.

     In the event of the Grantee's change in status from Employee to Consultant
or from an Employee whose customary employment is 20 hours or more per week to
an Employee whose customary employment is fewer than 20 hours per week, vesting
of the Option shall continue only to the extent determined by the Administrator
as of such change in status.

     In the event of termination of the Grantee's Continuous Service for Cause,
the Grantee's right to exercise the Option shall terminate concurrently with the
termination of the Grantee's Continuous Service, except as otherwise determined
by the Administrator.

     IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice
and agree that the Option is to be governed by the terms and conditions of this
Notice, the Plan, and the Option Agreement.

                              American Pharmaceutical Partners, Inc.,
                              a California corporation

                              By: ______________________________________________

                              Title: ___________________________________________

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES
HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY
RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF GRANTEE'S CONTINUOUS
SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT
OF THE GRANTEE'S EMPLOYER TO TERMINATE GRANTEE'S CONTINUOUS SERVICE, WITH OR
WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS
THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY,
GRANTEE'S STATUS IS AT WILL.

     The Grantee acknowledges receipt of a copy of the Plan and the Option
Agreement, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts the Option subject to all of the terms
and provisions hereof and thereof. The Grantee has reviewed this Notice, the
Plan, and the Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Notice, and fully
understands all provisions of this Notice, the Plan and the Option Agreement.
The Grantee hereby agrees that all disputes arising out of or relating to this
Notice, the Plan and the Option Agreement shall be resolved in accordance with
Section 14 of the Option Agreement. The Grantee further agrees to notify the
Company upon any change in the residence address indicated in this Notice.


Dated: ______________________       Signed: ____________________________________
                                                            Grantee

                                       2
<PAGE>

                                                      Award Number: ____________

       AMERICAN PHARMACEUTICAL PARTNERS, INC. 2001 STOCK INCENTIVE PLAN

                         STOCK OPTION AWARD AGREEMENT
                         ----------------------------

     1.   Grant of Option.  American Pharmaceutical Partners, Inc., a California
          ---------------
corporation (the "Company"), hereby grants to the Grantee (the "Grantee") named
in the Notice of Stock Option Award (the "Notice"), an option (the "Option") to
purchase the Total Number of Shares of Common Stock subject to the Option (the
"Shares") set forth in the Notice, at the Exercise Price per Share set forth in
the Notice (the "Exercise Price") subject to the terms and provisions of the
Notice, this Stock Option Award Agreement (the "Option Agreement") and the
Company's 2001 Stock Incentive Plan, as amended from time to time (the "Plan"),
which are incorporated herein by reference. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Option
Agreement.

     If designated in the Notice as an Incentive Stock Option, the Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by the Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is awarded.

     2.   Exercise of Option.
          ------------------

          (a)  Right to Exercise. The Option shall be exercisable during its
               -----------------
term in accordance with the Vesting Schedule set out in the Notice and with the
applicable provisions of the Plan and this Option Agreement. The Option shall be
subject to the provisions of Section 11 of the Plan and Section 3 of the Option
Agreement relating to the exercisability or termination of the Option in the
event of a Corporate Transaction, Change in Control or Related Entity
Disposition. The Grantee shall be subject to reasonable limitations on the
number of requested exercises during any monthly or weekly period as determined
by the Administrator. In no event shall the Company issue fractional Shares.

          (b)  Method of Exercise. The Option shall be exercisable only by
               ------------------
delivery of an exercise notice (in the form (including electronic exercise
methods) determined by the Administrator from time to time) which shall state
the election to exercise the Option, the whole number of Shares in respect of
which the Option is being exercised, and such other provisions as may be
required by the Administrator. The Option shall be deemed to be exercised upon
receipt by the Company of the exercise notice accompanied by the Exercise Price,
which, to the extent


                                       1
<PAGE>

selected, shall be deemed to be satisfied by use of the broker-dealer sale and
remittance procedure to pay the Exercise Price provided in Section 4(d), below.

          (c)  Taxes. No Shares will be delivered to the Grantee or other person
               -----
pursuant to the exercise of the Option until the Grantee or other person has
made arrangements acceptable to the Administrator for the satisfaction of
applicable income tax, employment tax, and social security tax withholding
obligations, including, without limitation, such other tax obligations of the
Grantee incident to the receipt of Shares or the disqualifying disposition of
Shares received on exercise of an Incentive Stock Option. Upon exercise of the
Option, the Company or the Grantee's employer may offset or withhold (from any
amount owed by the Company or the Grantee's employer to the Grantee) or collect
from the Grantee or other person an amount sufficient to satisfy such tax
obligations and/or the employer's withholding obligations.

     3.   Acceleration of Option Vesting Schedule Upon Corporate
          ------------------------------------------------------
Transaction/Change in Control/Related Entity Disposition.
--------------------------------------------------------

          (a)  Corporate Transaction. In the event of a Corporate Transaction,
               ---------------------
the Option shall become fully vested and exercisable and be released from any
repurchase or forfeiture rights (other than repurchase rights exercisable at
fair market value), immediately prior to the specified effective date of such
Corporate Transaction, for all of the Shares at the time represented by the
Option, irrespective of whether the Option is Assumed.

          (b)  Change in Control. In the event of a Change in Control (other
               -----------------
than a Change in Control which also is a Corporate Transaction), the Option
shall become fully vested and exercisable and be released from any repurchase or
forfeiture rights (other than repurchase rights exercisable at fair market
value), immediately prior to the specified effective date of such Change in
Control, for all of the Shares at the time represented by the Option.

          (c)  Related Entity Disposition. Effective upon the consummation of a
               --------------------------
Related Entity Disposition, if the Continuous Service of the Grantee (who is at
the time engaged primarily in service to the Related Entity involved in such
Related Entity Disposition) shall be deemed terminated as set forth in Section
11(a) of the Plan, the Option shall become fully vested and exercisable and be
released from any repurchase or forfeiture rights (other than repurchase rights
exercisable at fair market value) for all of the Shares at the time represented
by the Option, irrespective of whether the Option is Assumed.

     4.   Method of Payment. Payment of the Exercise Price shall be made by any
          -----------------
of the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law:

          (a)  cash;

          (b)  check;

          (c)  surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Administrator may require (including
withholding of Shares


                                       2
<PAGE>

otherwise deliverable upon exercise of the Option) which have a Fair Market
Value on the date of surrender or attestation equal to the aggregate Exercise
Price of the Shares as to which the Option is being exercised (but only to the
extent that such exercise of the Option would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price);

          (d)  payment through a broker-dealer sale and remittance procedure
pursuant to which the Grantee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased Shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale transaction; or

          (e)  provided that the aggregate Exercise Price for the number of
Shares being purchased exceeds [_________] thousand dollars [($___,000)],
payment pursuant to a promissory note as described below.

               (i)    The promissory note shall have a term of [_____ (_)] years
          with principal and interest payable in [_______ (_)] equal annual
          installments;

               (ii)   The promissory note shall bear interest at a market rate
          based on the rate environment at the date the Option is exercised and
          take into account the credit standing of the Grantee. Further, such
          market rate shall be determined so as not to (i) be less than the
          minimum rate required by the federal tax laws to avoid the imputation
          of interest income to the Company and compensation income to the
          Grantee and (ii) result in an accounting compensation charge to the
          Company;

               (iii)  The Grantee shall be personally liable for payment of the
          promissory note and the promissory note shall be secured by the Shares
          purchased upon delivery of the promissory note, or such other
          collateral of equal or greater value, in a manner satisfactory to the
          Administrator with such documentation as the Administrator may
          request; and

               (iv)   The promissory note shall become due and payable upon the
          occurrence of any or all of the following events: (A) the sale or
          transfer of the Shares purchased with the promissory note; (B)
          termination of the Grantee's Continuous Service for any reason other
          than death or Disability; or (C) the first anniversary of the
          termination of the Grantee's Continuous Service due to death or
          Disability.]

     5.   Restrictions on Exercise. The Option may not be exercised if the
          ------------------------
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws.

     6.   Termination or Change of Continuous Service. In the event the
          -------------------------------------------
Grantee's Continuous Service terminates, other than for Cause, the Grantee may,
to the extent otherwise so


                                       3

<PAGE>

entitled at the date of such termination (the "Termination Date"), exercise the
Option during the Post-Termination Exercise Period. In the event of termination
of the Grantee's Continuous Service for Cause, the Grantee's right to exercise
the Option shall, except as otherwise determined by the Administrator, terminate
concurrently with the termination of the Grantee's Continuous Service. In no
event shall the Option be exercised later than the Expiration Date set forth in
the Notice. In the event of the Grantee's change in status from Employee,
Director or Consultant to any other status of Employee, Director or Consultant,
the Option shall remain in effect and, except to the extent otherwise determined
by the Administrator, continue to vest; provided, however, that with respect to
any Incentive Stock Option that shall remain in effect after a change in status
from Employee to Director or Consultant, such Incentive Stock Option shall cease
to be treated as an Incentive Stock Option and shall be treated as a Non-
Qualified Stock Option on the day three (3) months and one (1) day following
such change in status. Except as provided in Sections 7 and 8 below, to the
extent that the Grantee is not entitled to exercise the Option on the
Termination Date, or if the Grantee does not exercise the Option within the
Post-Termination Exercise Period, the Option shall terminate.

     7.   Disability of Grantee. In the event the Grantee's Continuous Service
          ---------------------
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months from the Termination Date (and in no event later than
the Expiration Date), exercise the Option to the extent he or she was otherwise
entitled to exercise it on the Termination Date; provided, however, that if such
Disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code and the Option is an Incentive Stock Option, such Incentive Stock
Option shall cease to be treated as an Incentive Stock Option and shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the Termination Date. To the extent that the Grantee is not
entitled to exercise the Option on the Termination Date, or if the Grantee does
not exercise the Option to the extent so entitled within the time specified
herein, the Option shall terminate.

     8.   Death of Grantee.  In the event of the termination of the Grantee's
          ----------------
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the Grantee's estate, or a person who acquired
the right to exercise the Option by bequest or inheritance, may exercise the
Option, but only to the extent the Grantee could exercise the Option at the date
of termination, within twelve (12) months from the date of death (but in no
event later than the Expiration Date). To the extent that the Grantee is not
entitled to exercise the Option on the date of death, or if the Option is not
exercised to the extent so entitled within the time specified herein, the Option
shall terminate.

     9.   Transferability of Option. The Option, if an Incentive Stock Option,
          -------------------------
may not be transferred in any manner other than by will or by the laws of
descent and distribution and may be exercised during the lifetime of the Grantee
only by the Grantee; provided, however, that the Grantee may designate a
beneficiary of the Grantee's Incentive Stock Option in the event of the
Grantee's death on a beneficiary designation form provided by the Administrator.
The Option, if a Non-Qualified Stock Option, may be transferred to any person by
will and by the laws of descent and distribution. Non-Qualified Stock Options
also may be transferred during the lifetime of the Grantee by gift and pursuant
to a domestic relations order to members of the Grantee's


                                       4
<PAGE>

Immediate Family to the extent and in the manner determined by the
Administrator. The terms of the Option shall be binding upon the executors,
administrators, heirs, successors and transferees of the Grantee.

     10.  Term of Option. The Option may be exercised no later than the
          --------------
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.

     11.  Tax Consequences. Set forth below is a brief summary as of the date of
          ----------------
this Option Agreement of some of the federal tax consequences of exercise of the
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE GRANTEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.

          (a)  Exercise of Incentive Stock Option. If the Option qualifies as an
               ----------------------------------
Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as income for purposes of the alternative minimum tax for federal tax
purposes and may subject the Grantee to the alternative minimum tax in the year
of exercise.

          (b)  Exercise of Incentive Stock Option Following Disability. If the
               -------------------------------------------------------
Grantee's Continuous Service terminates as a result of Disability that is not
total and permanent disability as defined in Section 22(e)(3) of the Code, to
the extent permitted on the date of termination, the Grantee must exercise an
Incentive Stock Option within three (3) months of such termination for the
Incentive Stock Option to be qualified as an Incentive Stock Option.

          (c)  Exercise of Non-Qualified Stock Option. On exercise of a Non-
               --------------------------------------
Qualified Stock Option, the Grantee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If the Grantee is an Employee or a former Employee, the Company
will be required to withhold from the Grantee's compensation or collect from the
Grantee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.

          (d)  Disposition of Shares. In the case of a Non-Qualified Stock
               ---------------------
Option, if Shares are held for more than one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum rate of 20%. In the case of
an Incentive Stock Option, if Shares transferred pursuant to the Option are held
for more than one year after receipt of the Shares and are disposed more than
two years after the Date of Award, any gain realized on disposition of the
Shares also will be treated as capital gain for federal income tax purposes and
subject to the same tax rates and holding periods that apply to Shares acquired
upon exercise of a Non-Qualified Stock Option. If Shares purchased under an
Incentive Stock Option are disposed of prior to the expiration of such


                                       5
<PAGE>

one-year or two-year periods, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the difference between the Exercise Price and the lesser of (i) the Fair
Market Value of the Shares on the date of exercise, or (ii) the sale price of
the Shares.

     12.  Entire Agreement: Governing Law. The Notice, the Plan and this Option
          -------------------------------
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan and this Option Agreement (except as expressly provided therein) is
intended to confer any rights or remedies on any persons other than the parties.
The Notice, the Plan and this Option Agreement are to be construed in accordance
with and governed by the internal laws of the State of California (as permitted
by Section 1646.5 of the California Civil Code, or any similar successor
provision) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties. Should any
provision of the Notice, the Plan or this Option Agreement be determined by a
court of law to be illegal or unenforceable, such provision shall be enforced to
the fullest extent allowed by law and the other provisions shall nevertheless
remain effective and shall remain enforceable.

     13.  Headings. The captions used in the Notice and this Option Agreement
          --------
are inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation.

     14.  Dispute Resolution The provisions of this Section 14 shall be the
          ------------------
exclusive means of resolving disputes arising out of or relating to the Notice,
the Plan and this Option Agreement. The Company, the Grantee, and the Grantee's
assignees (the "parties") shall attempt in good faith to resolve any disputes
arising out of or relating to the Notice, the Plan and this Option Agreement by
negotiation between individuals who have authority to settle the controversy.
Negotiations shall be commenced by either party by notice of a written statement
of the party's position and the name and title of the individual who will
represent the party. Within thirty (30) days of the written notification, the
parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, to resolve the dispute. If the dispute
has not been resolved by negotiation, the parties agree that any suit, action,
or proceeding arising out of or relating to the Notice, the Plan or this Option
Agreement shall be brought in the United States District Court for the Central
District of California (or should such court lack jurisdiction to hear such
action, suit or proceeding, in a California state court in the County of Los
Angeles) and that the parties shall submit to the jurisdiction of such court.
The parties irrevocably waive, to the fullest extent permitted by law, any
objection the party may have to the laying of venue for any such suit, action or
proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT
THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If
any one or more provisions of this Section 14 shall for any reason be held
invalid or unenforceable, it is the specific intent of the parties that such
provisions shall be modified to the minimum extent necessary to make it or its
application valid and enforceable.


                                       6
<PAGE>

     15.  Notices. Any notice required or permitted hereunder shall be given in
          -------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice), with
postage and fees prepaid, addressed to the other party at its address as shown
beneath its signature in the Notice, or to such other address as such party may
designate in writing from time to time to the other party.


                                       7
<PAGE>

                    AMERICAN PHARMACEUTICAL PARTNERS, INC.

                           2001 STOCK INCENTIVE PLAN

                         NOTICE OF STOCK OPTION AWARD
                         ----------------------------


     Grantee's Name and Address:    ____________________________
                                    ____________________________
                                    ____________________________

     You have been granted an option to purchase shares of Common Stock, subject
to the terms and conditions of this Notice of Stock Option Award (the "Notice"),
the American Pharmaceutical Partners, Inc. 2001 Stock Incentive Plan, as amended
from time to time (the "Plan") and the Stock Option Award Agreement (the "Option
Agreement") attached hereto, as follows.  Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Notice.

     Award Number                   ____________________________

     Date of Award                  ____________________________

     Vesting Commencement Date      ____________________________

     Exercise Price per Share       $___________________________

     Total Number of Shares Subject

     to the Option (the "Shares")   ____________________________

     Total Exercise Price           $___________________________

     Type of Option:                _____ Incentive Stock Option

                                    _____  Non-Qualified Stock Option

     Expiration Date:               ____________________________

     Post-Termination Exercise Period:   Three (3) Months

Vesting Schedule:
----------------

     Subject to Grantee's Continuous Service and other limitations set forth in
this Notice, the Plan and the Option Agreement, the Option may be exercised, in
whole or in part, in accordance with the following schedule:

     25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and an additional 25% of the Shares subject to the
Option shall vest on each yearly anniversary of the Vesting Commencement Date
thereafter.

                                       1
<PAGE>

     During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall be suspended after the leave of absence exceeds
a period of ninety (90) days.  Vesting of the Option shall resume upon the
Grantee's termination of the leave of absence and return to service to the
Company or a Related Entity.  The Vesting Schedule of the Option shall be
extended by the length of the suspension.

     In the event of the Grantee's change in status from Employee to Consultant
or from an Employee whose customary employment is 20 hours or more per week to
an Employee whose customary employment is fewer than 20 hours per week, vesting
of the Option shall continue only to the extent determined by the Administrator
as of such change in status.

     In the event of termination of the Grantee's Continuous Service for Cause,
the Grantee's right to exercise the Option shall terminate concurrently with the
termination of the Grantee's Continuous Service, except as otherwise determined
by the Administrator.

     IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice
and agree that the Option is to be governed by the terms and conditions of this
Notice, the Plan, and the Option Agreement.

                              American Pharmaceutical Partners, Inc.,
                              a California corporation

                              By:_______________________________________

                              Title:____________________________________

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES
HEREUNDER).  THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY
RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF GRANTEE'S CONTINUOUS
SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT
OF THE GRANTEE'S EMPLOYER TO TERMINATE GRANTEE'S CONTINUOUS SERVICE, WITH OR
WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE.  THE GRANTEE ACKNOWLEDGES THAT UNLESS
THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY,
GRANTEE'S STATUS IS AT WILL.

     The Grantee acknowledges receipt of a copy of the Plan and the Option
Agreement, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts the Option subject to all of the terms
and provisions hereof and thereof.  The Grantee has reviewed this Notice, the
Plan, and the Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Notice, and fully
understands all provisions of this Notice, the Plan and the Option Agreement.
The Grantee hereby agrees that all disputes arising out of or relating to this
Notice, the Plan and the Option Agreement shall be resolved in

                                       2
<PAGE>

accordance with Section 13 of the Option Agreement. The Grantee further agrees
to notify the Company upon any change in the residence address indicated in this
Notice.

Dated: ______________________    Signed:_______________________
                                               Grantee

                                       3
<PAGE>

                                                      Award Number:  ___________


       AMERICAN PHARMACEUTICAL PARTNERS, INC. 2001 STOCK INCENTIVE PLAN

                         STOCK OPTION AWARD AGREEMENT
                         ----------------------------

     1.   Grant of Option.  American Pharmaceutical Partners, Inc., a California
          ---------------
corporation (the "Company"), hereby grants to the Grantee (the "Grantee") named
in the Notice of Stock Option Award (the "Notice"), an option (the "Option") to
purchase the Total Number of Shares of Common Stock subject to the Option (the
"Shares") set forth in the Notice, at the Exercise Price per Share set forth in
the Notice (the "Exercise Price") subject to the terms and provisions of the
Notice, this Stock Option Award Agreement (the "Option Agreement") and the
Company's 2001 Stock Incentive Plan, as amended from time to time (the "Plan"),
which are incorporated herein by reference.  Unless otherwise defined herein,
the terms defined in the Plan shall have the same defined meanings in this
Option Agreement.

     If designated in the Notice as an Incentive Stock Option, the Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by the Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is awarded.

     2.   Exercise of Option.
          ------------------

          (a)  Right to Exercise. The Option shall be exercisable during its
               -----------------
term in accordance with the Vesting Schedule set out in the Notice and with the
applicable provisions of the Plan and this Option Agreement. The Option shall be
subject to the provisions of Section 11 of the Plan relating to the
exercisability or termination of the Option in the event of a Corporate
Transaction, Change in Control or Related Entity Disposition. The Grantee shall
be subject to reasonable limitations on the number of requested exercises during
any monthly or weekly period as determined by the Administrator. In no event
shall the Company issue fractional Shares.

          (b)  Method of Exercise. The Option shall be exercisable only by
               ------------------
delivery of an exercise notice (in the form (including electronic exercise
methods) determined by the Administrator from time to time) which shall state
the election to exercise the Option, the whole number of Shares in respect of
which the Option is being exercised, and such other provisions as may be
required by the Administrator. The Option shall be deemed to be exercised upon
receipt by the Company of the exercise notice accompanied by the Exercise Price,
which, to the extent selected, shall be deemed to be satisfied by use of the
broker-dealer sale and remittance procedure to pay the Exercise Price provided
in Section 3(d), below.

                                       1
<PAGE>

          (c)  Taxes. No Shares will be delivered to the Grantee or other person
               -----
pursuant to the exercise of the Option until the Grantee or other person has
made arrangements acceptable to the Administrator for the satisfaction of
applicable income tax, employment tax, and social security tax withholding
obligations, including, without limitation, such other tax obligations of the
Grantee incident to the receipt of Shares or the disqualifying disposition of
Shares received on exercise of an Incentive Stock Option. Upon exercise of the
Option, the Company or the Grantee's employer may offset or withhold (from any
amount owed by the Company or the Grantee's employer to the Grantee) or collect
from the Grantee or other person an amount sufficient to satisfy such tax
obligations and/or the employer's withholding obligations.

     3.   Method of Payment. Payment of the Exercise Price shall be made by any
          -----------------
of the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law:

          (a)  cash;

          (b)  check;

          (c)  surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Administrator may require (including
withholding of Shares otherwise deliverable upon exercise of the Option) which
have a Fair Market Value on the date of surrender or attestation equal to the
aggregate Exercise Price of the Shares as to which the Option is being exercised
(but only to the extent that such exercise of the Option would not result in an
accounting compensation charge with respect to the Shares used to pay the
exercise price); or

          (d)  payment through a broker-dealer sale and remittance procedure
pursuant to which the Grantee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased Shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale transaction.

     4.   Restrictions on Exercise. The Option may not be exercised if the
          ------------------------
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws.

     5.   Termination or Change of Continuous Service. In the event the
          -------------------------------------------
Grantee's Continuous Service terminates, other than for Cause, the Grantee may,
to the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise the Option during the Post-Termination Exercise
Period. In the event of termination of the Grantee's Continuous Service for
Cause, the Grantee's right to exercise the Option shall, except as otherwise
determined by the Administrator, terminate concurrently with the termination of
the Grantee's Continuous Service. In no event shall the Option be exercised
later than the Expiration Date set forth in the

                                       2
<PAGE>

Notice. In the event of the Grantee's change in status from Employee, Director
or Consultant to any other status of Employee, Director or Consultant, the
Option shall remain in effect and, except to the extent otherwise determined by
the Administrator, continue to vest; provided, however, that with respect to any
Incentive Stock Option that shall remain in effect after a change in status from
Employee to Director or Consultant, such Incentive Stock Option shall cease to
be treated as an Incentive Stock Option and shall be treated as a Non-Qualified
Stock Option on the day three (3) months and one (1) day following such change
in status. Except as provided in Sections 6 and 7 below, to the extent that the
Grantee is not entitled to exercise the Option on the Termination Date, or if
the Grantee does not exercise the Option within the Post-Termination Exercise
Period, the Option shall terminate.

     6.   Disability of Grantee. In the event the Grantee's Continuous Service
          ---------------------
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months from the Termination Date (and in no event later than
the Expiration Date), exercise the Option to the extent he or she was otherwise
entitled to exercise it on the Termination Date; provided, however, that if such
Disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code and the Option is an Incentive Stock Option, such Incentive Stock
Option shall cease to be treated as an Incentive Stock Option and shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the Termination Date. To the extent that the Grantee is not
entitled to exercise the Option on the Termination Date, or if the Grantee does
not exercise the Option to the extent so entitled within the time specified
herein, the Option shall terminate .

     7.   Death of Grantee. In the event of the termination of the Grantee's
          ----------------
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the Grantee's estate, or a person who acquired
the right to exercise the Option by bequest or inheritance, may exercise the
Option, but only to the extent the Grantee could exercise the Option at the date
of termination, within twelve (12) months from the date of death (but in no
event later than the Expiration Date). To the extent that the Grantee is not
entitled to exercise the Option on the date of death, or if the Option is not
exercised to the extent so entitled within the time specified herein, the Option
shall terminate.

     8.   Transferability of Option. The Option, if an Incentive Stock Option,
          -------------------------
may not be transferred in any manner other than by will or by the laws of
descent and distribution and may be exercised during the lifetime of the Grantee
only by the Grantee; provided, however, that the Grantee may designate a
beneficiary of the Grantee's Incentive Stock Option in the event of the
Grantee's death on a beneficiary designation form provided by the Administrator.
The Option, if a Non-Qualified Stock Option, may be transferred to any person by
will and by the laws of descent and distribution. Non-Qualified Stock Options
also may be transferred during the lifetime of the Grantee by gift and pursuant
to a domestic relations order to members of the Grantee's Immediate Family to
the extent and in the manner determined by the Administrator. The terms of the
Option shall be binding upon the executors, administrators, heirs, successors
and transferees of the Grantee.

                                       3
<PAGE>

      9.  Term of Option. The Option may be exercised no later than the
          --------------
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.

     10.  Tax Consequences. Set forth below is a brief summary as of the date of
          ----------------
this Option Agreement of some of the federal tax consequences of exercise of the
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE GRANTEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.

          (a)  Exercise of Incentive Stock Option. If the Option qualifies as an
               ----------------------------------
Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as income for purposes of the alternative minimum tax for federal tax
purposes and may subject the Grantee to the alternative minimum tax in the year
of exercise.

          (b)  Exercise of Incentive Stock Option Following Disability. If the
               -------------------------------------------------------
Grantee's Continuous Service terminates as a result of Disability that is not
total and permanent disability as defined in Section 22(e)(3) of the Code, to
the extent permitted on the date of termination, the Grantee must exercise an
Incentive Stock Option within three (3) months of such termination for the
Incentive Stock Option to be qualified as an Incentive Stock Option.

          (c)  Exercise of Non-Qualified Stock Option. On exercise of a Non-
               --------------------------------------
Qualified Stock Option, the Grantee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If the Grantee is an Employee or a former Employee, the Company
will be required to withhold from the Grantee's compensation or collect from the
Grantee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.

          (d)  Disposition of Shares. In the case of a Non-Qualified Stock
               ---------------------
Option, if Shares are held for more than one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum rate of 20%. In the case of
an Incentive Stock Option, if Shares transferred pursuant to the Option are held
for more than one year after receipt of the Shares and are disposed more than
two years after the Date of Award, any gain realized on disposition of the
Shares also will be treated as capital gain for federal income tax purposes and
subject to the same tax rates and holding periods that apply to Shares acquired
upon exercise of a Non-Qualified Stock Option. If Shares purchased under an
Incentive Stock Option are disposed of prior to the expiration of such one-year
or two-year periods, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (i) the Fair Market
Value of the Shares on the date of exercise, or (ii) the sale price of the
Shares.

                                       4
<PAGE>

     11.  Entire Agreement: Governing Law. The Notice, the Plan and this Option
          -------------------------------
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan and this Option Agreement (except as expressly provided therein) is
intended to confer any rights or remedies on any persons other than the parties.
The Notice, the Plan and this Option Agreement are to be construed in accordance
with and governed by the internal laws of the State of California (as permitted
by Section 1646.5 of the California Civil Code, or any similar successor
provision) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties. Should any
provision of the Notice, the Plan or this Option Agreement be determined by a
court of law to be illegal or unenforceable, such provision shall be enforced to
the fullest extent allowed by law and the other provisions shall nevertheless
remain effective and shall remain enforceable.

     12.  Headings. The captions used in the Notice and this Option Agreement
          --------
are inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation.

     13.  Dispute Resolution  The provisions of this Section 13 shall be the
          ------------------
exclusive means of resolving disputes arising out of or relating to the Notice,
the Plan and this Option Agreement. The Company, the Grantee, and the Grantee's
assignees (the "parties") shall attempt in good faith to resolve any disputes
arising out of or relating to the Notice, the Plan and this Option Agreement by
negotiation between individuals who have authority to settle the controversy.
Negotiations shall be commenced by either party by notice of a written statement
of the party's position and the name and title of the individual who will
represent the party. Within thirty (30) days of the written notification, the
parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, to resolve the dispute. If the dispute
has not been resolved by negotiation, the parties agree that any suit, action,
or proceeding arising out of or relating to the Notice, the Plan or this Option
Agreement shall be brought in the United States District Court for the Central
District of California (or should such court lack jurisdiction to hear such
action, suit or proceeding, in a California state court in the County of Los
Angeles) and that the parties shall submit to the jurisdiction of such court.
The parties irrevocably waive, to the fullest extent permitted by law, any
objection the party may have to the laying of venue for any such suit, action or
proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT
THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If
any one or more provisions of this Section 13 shall for any reason be held
invalid or unenforceable, it is the specific intent of the parties that such
provisions shall be modified to the minimum extent necessary to make it or its
application valid and enforceable.

     14.  Notices. Any notice required or permitted hereunder shall be given in
          -------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice), with

                                       5
<PAGE>

postage and fees prepaid, addressed to the other party at its address as shown
beneath its signature in the Notice, or to such other address as such party may
designate in writing from time to time to the other party.

                                       6
<PAGE>

                    AMERICAN PHARMACEUTICAL PARTNERS, INC.

                           2001 STOCK INCENTIVE PLAN

                         NOTICE OF STOCK OPTION AWARD

     Grantee's Name and Address: _________________________________________

                                 _________________________________________

                                 _________________________________________


     You have been granted an option to purchase shares of Common Stock, subject
to the terms and conditions of this Notice of Stock Option Award (the "Notice"),
the American Pharmaceutical Partners, Inc. 2001 Stock Incentive Plan, as amended
from time to time (the "Plan") and the Stock Option Award Agreement (the "Option
Agreement") attached hereto, as follows. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Notice.

         Award Number                      _____________________________________

         Date of Award                     _____________________________________

         Vesting Commencement Date         _____________________________________

         Exercise Price per Share          $____________________________________

         Total Number of Shares Subject
         to the Option (the "Shares")      _____________________________________

         Total Exercise Price              $____________________________________

         Type of Option:                   _________  Incentive Stock Option

                                           _________  Non-Qualified Stock Option

         Expiration Date:                  _____________________________________

         Post-Termination Exercise Period: Three (3) Months

Vesting Schedule:
----------------

     Subject to Grantee's Continuous Service and other limitations set forth in
this Notice, the Plan and the Option Agreement, the Option may be exercised, in
whole or in part, in accordance with the following schedule:

     25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and an additional 25% of the Shares subject to the
Option shall vest on each yearly anniversary of the Vesting Commencement Date
thereafter.

     During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall be suspended after the leave of absence exceeds
a period of ninety (90) days. Vesting of the Option shall resume upon the
Grantee's termination of the leave of absence and

                                       1
<PAGE>

return to service to the Company or a Related Entity. The Vesting Schedule of
the Option shall be extended by the length of the suspension.

     In the event of the Grantee's change in status from Employee to Consultant
or from an Employee whose customary employment is 20 hours or more per week to
an Employee whose customary employment is fewer than 20 hours per week, vesting
of the Option shall continue only to the extent determined by the Administrator
as of such change in status.

     In the event of termination of the Grantee's Continuous Service for Cause,
the Grantee's right to exercise the Option shall terminate concurrently with the
termination of the Grantee's Continuous Service, except as otherwise determined
by the Administrator.

     IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice
and agree that the Option is to be governed by the terms and conditions of this
Notice, the Plan, and the Option Agreement.

                                         American Pharmaceutical Partners, Inc.,
                                         a California corporation

                                         By:__________________________________

                                         Title: ______________________________

     THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION
SHALL VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS
SERVICE (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR
ACQUIRING SHARES HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE
GRANTEE ANY RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF GRANTEE'S
CONTINUOUS SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT
OR THE RIGHT OF THE GRANTEE'S EMPLOYER TO TERMINATE GRANTEE'S CONTINUOUS
SERVICE, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE
ACKNOWLEDGES THAT UNLESS THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE
COMPANY TO THE CONTRARY, GRANTEE'S STATUS IS AT WILL.

     The Grantee acknowledges receipt of a copy of the Plan and the Option
Agreement, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts the Option subject to all of the terms
and provisions hereof and thereof. The Grantee has reviewed this Notice, the
Plan, and the Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Notice, and fully
understands all provisions of this Notice, the Plan and the Option Agreement.
The Grantee hereby agrees that all disputes arising out of or relating to this
Notice, the Plan and the Option Agreement shall be resolved in accordance with
Section 14 of the Option Agreement. The Grantee further agrees to notify the
Company upon any change in the residence address indicated in this Notice.

                                       2
<PAGE>

Dated: ______________________                Signed: _________________________
                                                             Grantee

                                       3
<PAGE>

                                                      Award Number:  ___________

       AMERICAN PHARMACEUTICAL PARTNERS, INC. 2001 STOCK INCENTIVE PLAN

                         STOCK OPTION AWARD AGREEMENT
                         ----------------------------

     1. Grant of Option. American Pharmaceutical Partners, Inc., a California
        ---------------
corporation (the "Company"), hereby grants to the Grantee (the "Grantee") named
in the Notice of Stock Option Award (the "Notice"), an option (the "Option") to
purchase the Total Number of Shares of Common Stock subject to the Option (the
"Shares") set forth in the Notice, at the Exercise Price per Share set forth in
the Notice (the "Exercise Price") subject to the terms and provisions of the
Notice, this Stock Option Award Agreement (the "Option Agreement") and the
Company's 2001 Stock Incentive Plan, as amended from time to time (the "Plan"),
which are incorporated herein by reference. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Option
Agreement.

     If designated in the Notice as an Incentive Stock Option, the Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by the Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is awarded.

     2. Exercise of Option.
        ------------------

        (a) Right to Exercise. The Option shall be exercisable during its term
            -----------------
in accordance with the Vesting Schedule set out in the Notice and with the
applicable provisions of the Plan and this Option Agreement. The Option shall be
subject to the provisions of Section 11 of the Plan and Section 3 of the Option
Agreement relating to the exercisability or termination of the Option in the
event of a Corporate Transaction, Change in Control or Related Entity
Disposition. The Grantee shall be subject to reasonable limitations on the
number of requested exercises during any monthly or weekly period as determined
by the Administrator. In no event shall the Company issue fractional Shares.

        (b) Method of Exercise. The Option shall be exercisable only by delivery
            ------------------
of an exercise notice (in the form (including electronic exercise methods)
determined by the Administrator from time to time) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, and such other provisions as may be required by
the Administrator. The Option shall be deemed to be exercised upon receipt by
the Company of the exercise notice accompanied by the Exercise Price, which, to
the extent

                                       1
<PAGE>

selected, shall be deemed to be satisfied by use of the broker-dealer sale and
remittance procedure to pay the Exercise Price provided in Section 4(d), below.

          (c) Taxes. No Shares will be delivered to the Grantee or other person
              -----
pursuant to the exercise of the Option until the Grantee or other person has
made arrangements acceptable to the Administrator for the satisfaction of
applicable income tax, employment tax, and social security tax withholding
obligations, including, without limitation, such other tax obligations of the
Grantee incident to the receipt of Shares or the disqualifying disposition of
Shares received on exercise of an Incentive Stock Option. Upon exercise of the
Option, the Company or the Grantee's employer may offset or withhold (from any
amount owed by the Company or the Grantee's employer to the Grantee) or collect
from the Grantee or other person an amount sufficient to satisfy such tax
obligations and/or the employer's withholding obligations.

     3.   Acceleration of the Option Vesting Schedule Upon Corporate
          ----------------------------------------------------------
Transaction/Change in Control/Related Entity Disposition.
--------------------------------------------------------

          (a) Corporate Transaction.  In the event of a Corporate Transaction
              ---------------------
and:

              (i)  for the portion of the Option that is Assumed, then the
Option (if assumed), the replacement Option (if replaced), or the cash incentive
program automatically shall become fully vested, exercisable and payable and be
released from any repurchase or forfeiture rights (other than repurchase rights
exercisable at fair market value) for all of the Shares at the time represented
by such Assumed portion of the Option, immediately upon termination of the
Grantee's Continuous Service (substituting the successor employer corporation,
if any, for "Company or Related Entity" in the definition of "Continuous
Service") if such Continuous Service is terminated by the successor company or
the Company without Cause or voluntarily by the Grantee with Good Reason (as
defined below) within twelve (12) months of the Corporate Transaction; and

              (ii) for the portion of the Option that is not Assumed, such
portion of the Option shall automatically become fully vested and exercisable
and be released from any repurchase or forfeiture rights (other than repurchase
rights exercisable at fair market value) for all of the Shares at the time
represented by such portion of the Option, immediately prior to the specified
effective date of such Corporate Transaction.

          (b) Change in Control. Following a Change in Control (other than a
              -----------------
Change in Control which also is a Corporate Transaction) and upon the
termination of the Grantee's Continuous Service if such Continuous Service is
terminated by the Company or Related Entity without Cause or voluntarily by the
Grantee with Good Reason within twelve (12) months of a Change in Control, the
Option automatically shall become fully vested and exercisable and be released
from any repurchase or forfeiture rights (other than repurchase rights
exercisable at fair market value) for all of the Shares at the time represented
by the Option, immediately upon such termination of the Grantee's Continuous
Service.

                                       2
<PAGE>

          (c) Related Entity Disposition. In the event of a Related Entity
              --------------------------
Disposition and the Grantee is at the time engaged primarily in service to the
Related Entity involved in such Related Entity Disposition, then:

              (i) for the portion of the Option that is Assumed, then the Option
(if assumed), the replacement Option (if replaced), or the cash incentive
program automatically shall become vested, exercisable and payable and be
released from any repurchase or forfeiture rights (other than repurchase rights
exercisable at fair market value) for all of the Shares at the time represented
by such Assumed portion of the Option, immediately upon termination of the
Grantee's Continuous Service (substituting the successor employer corporation,
if any, for "Company or Related Entity" for the definition of "Continuous
Service") if such Continuous Service is terminated by the successor company
without Cause or voluntarily by the Grantee with Good Reason within twelve (12)
months of the Related Entity Disposition; and

              (ii) for the portion of the Option that is not Assumed, such
portion of the Option automatically shall become fully vested and exercisable
and be released from any repurchase or forfeiture rights (other than repurchase
rights exercisable at fair market value) for all of the Shares at the time
represented by such portion of the Option, immediately prior to the specified
effective date of such Related Entity Disposition.

          (d) Definition of "Good Reason." For purposes of this Section 3 of the
              --------------------------
Option Agreement, "Good Reason" means the occurrence after a Corporate
Transaction, Change in Control or Related Entity Disposition of any of the
following events or conditions unless consented to by the Grantee (and the
Grantee shall be deemed to have consented to any such event or condition unless
the Grantee provides written notice of the Grantee's non-acquiescence within 30
days of the effective time of such event or condition):

              (i) a change in the Grantee's responsibilities or duties which
represents a material and substantial diminution in the Grantee's
responsibilities or duties as in effect immediately preceding the consummation
of a Corporate Transaction, Change in Control or Related Entity Disposition;

              (ii) a reduction in the Grantee's base salary to a level below
that in effect at any time within six (6) months preceding the consummation of a
Corporate Transaction, Change in Control or Related Entity Disposition, or at
any time thereafter; or

              (iii) requiring the Grantee to be based at any place outside a
[75-mile radius] from the Grantee's job location or residence prior to the
Corporate Transaction, Change in Control or Related Entity Disposition, except
for reasonably required travel on business which is not materially greater than
such travel requirements prior to the Corporate Transaction, Change in Control
or Related Entity Disposition.

     4. Method of Payment. Payment of the Exercise Price shall be made by any of
        -----------------
the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law:

                                       3
<PAGE>

        (a) cash;

        (b) check;

        (c) surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Administrator may require (including
withholding of Shares otherwise deliverable upon exercise of the Option) which
have a Fair Market Value on the date of surrender or attestation equal to the
aggregate Exercise Price of the Shares as to which the Option is being exercised
(but only to the extent that such exercise of the Option would not result in an
accounting compensation charge with respect to the Shares used to pay the
exercise price); or

        (d) payment through a broker-dealer sale and remittance procedure
pursuant to which the Grantee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased Shares and (ii) shall provide written
directives to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale transaction.

     5. Restrictions on Exercise. The Option may not be exercised if the
        ------------------------
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws.

     6. Termination or Change of Continuous Service. In the event the Grantee's
        -------------------------------------------
Continuous Service terminates, other than for Cause, the Grantee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise the Option during the Post-Termination Exercise Period. In the
event of termination of the Grantee's Continuous Service for Cause, the
Grantee's right to exercise the Option shall, except as otherwise determined by
the Administrator, terminate concurrently with the termination of the Grantee's
Continuous Service. In no event shall the Option be exercised later than the
Expiration Date set forth in the Notice. In the event of the Grantee's change in
status from Employee, Director or Consultant to any other status of Employee,
Director or Consultant, the Option shall remain in effect and, except to the
extent otherwise determined by the Administrator, continue to vest; provided,
however, that with respect to any Incentive Stock Option that shall remain in
effect after a change in status from Employee to Director or Consultant, such
Incentive Stock Option shall cease to be treated as an Incentive Stock Option
and shall be treated as a Non-Qualified Stock Option on the day three (3) months
and one (1) day following such change in status. Except as provided in Sections
7 and 8 below, to the extent that the Grantee is not entitled to exercise the
Option on the Termination Date, or if the Grantee does not exercise the Option
within the Post-Termination Exercise Period, the Option shall terminate.

     7. Disability of Grantee. In the event the Grantee's Continuous Service
        ---------------------
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months from the Termination Date (and in no event later than
the Expiration Date), exercise the Option to the extent he or she was otherwise
entitled to exercise it on the Termination Date; provided, however,

                                       4
<PAGE>

that if such Disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code and the Option is an Incentive Stock Option, such Incentive
Stock Option shall cease to be treated as an Incentive Stock Option and shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the Termination Date. To the extent that the Grantee is not
entitled to exercise the Option on the Termination Date, or if the Grantee does
not exercise the Option to the extent so entitled within the time specified
herein, the Option shall terminate.

     8. Death of Grantee. In the event of the termination of the Grantee's
        ----------------
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the Grantee's estate, or a person who acquired
the right to exercise the Option by bequest or inheritance, may exercise the
Option, but only to the extent the Grantee could exercise the Option at the date
of termination, within twelve (12) months from the date of death (but in no
event later than the Expiration Date). To the extent that the Grantee is not
entitled to exercise the Option on the date of death, or if the Option is not
exercised to the extent so entitled within the time specified herein, the Option
shall terminate.

     9. Transferability of Option. The Option, if an Incentive Stock Option, may
        -------------------------
not be transferred in any manner other than by will or by the laws of descent
and distribution and may be exercised during the lifetime of the Grantee only by
the Grantee; provided, however, that the Grantee may designate a beneficiary of
the Grantee's Incentive Stock Option in the event of the Grantee's death on a
beneficiary designation form provided by the Administrator. The Option, if a
Non-Qualified Stock Option, may be transferred to any person by will and by the
laws of descent and distribution. Non-Qualified Stock Options also may be
transferred during the lifetime of the Grantee by gift and pursuant to a
domestic relations order to members of the Grantee's Immediate Family to the
extent and in the manner determined by the Administrator. The terms of the
Option shall be binding upon the executors, administrators, heirs, successors
and transferees of the Grantee.

     10. Term of Option. The Option may be exercised no later than the
         --------------
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.

     11. Tax Consequences. Set forth below is a brief summary as of the date of
         ----------------
this Option Agreement of some of the federal tax consequences of exercise of the
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE GRANTEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.

         (a) Exercise of Incentive Stock Option. If the Option qualifies as an
Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as income for purposes of the alternative minimum tax for federal tax
purposes and may subject the Grantee to the alternative minimum tax in the year
of exercise.

                                       5
<PAGE>

          (b) Exercise of Incentive Stock Option Following Disability. If the
              -------------------------------------------------------
Grantee's Continuous Service terminates as a result of Disability that is not
total and permanent disability as defined in Section 22(e)(3) of the Code, to
the extent permitted on the date of termination, the Grantee must exercise an
Incentive Stock Option within three (3) months of such termination for the
Incentive Stock Option to be qualified as an Incentive Stock Option.

          (c) Exercise of Non-Qualified Stock Option. On exercise of a Non-
              --------------------------------------
Qualified Stock Option, the Grantee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If the Grantee is an Employee or a former Employee, the Company
will be required to withhold from the Grantee's compensation or collect from the
Grantee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.

          (d) Disposition of Shares. In the case of a Non-Qualified Stock
              ---------------------
Option, if Shares are held for more than one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum rate of 20%. In the case of
an Incentive Stock Option, if Shares transferred pursuant to the Option are held
for more than one year after receipt of the Shares and are disposed more than
two years after the Date of Award, any gain realized on disposition of the
Shares also will be treated as capital gain for federal income tax purposes and
subject to the same tax rates and holding periods that apply to Shares acquired
upon exercise of a Non-Qualified Stock Option. If Shares purchased under an
Incentive Stock Option are disposed of prior to the expiration of such one-year
or two-year periods, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (i) the Fair Market
Value of the Shares on the date of exercise, or (ii) the sale price of the
Shares.

     12.  Entire Agreement: Governing Law. The Notice, the Plan and this Option
          -------------------------------
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan and this Option Agreement (except as expressly provided therein) is
intended to confer any rights or remedies on any persons other than the parties.
The Notice, the Plan and this Option Agreement are to be construed in accordance
with and governed by the internal laws of the State of California (as permitted
by Section 1646.5 of the California Civil Code, or any similar successor
provision) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties. Should any
provision of the Notice, the Plan or this Option Agreement be determined by a
court of law to be illegal or unenforceable, such provision shall be enforced to
the fullest extent allowed by law and the other provisions shall nevertheless
remain effective and shall remain enforceable.

                                       6
<PAGE>

     13. Headings. The captions used in the Notice and this Option Agreement are
         --------
inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation.

     14. Dispute Resolution The provisions of this Section 14 shall be the
         ------------------
exclusive means of resolving disputes arising out of or relating to the Notice,
the Plan and this Option Agreement. The Company, the Grantee, and the Grantee's
assignees (the "parties") shall attempt in good faith to resolve any disputes
arising out of or relating to the Notice, the Plan and this Option Agreement by
negotiation between individuals who have authority to settle the controversy.
Negotiations shall be commenced by either party by notice of a written statement
of the party's position and the name and title of the individual who will
represent the party. Within thirty (30) days of the written notification, the
parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, to resolve the dispute. If the dispute
has not been resolved by negotiation, the parties agree that any suit, action,
or proceeding arising out of or relating to the Notice, the Plan or this Option
Agreement shall be brought in the United States District Court for the Central
District of California (or should such court lack jurisdiction to hear such
action, suit or proceeding, in a California state court in the County of Los
Angeles) and that the parties shall submit to the jurisdiction of such court.
The parties irrevocably waive, to the fullest extent permitted by law, any
objection the party may have to the laying of venue for any such suit, action or
proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT
THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If
any one or more provisions of this Section 14 shall for any reason be held
invalid or unenforceable, it is the specific intent of the parties that such
provisions shall be modified to the minimum extent necessary to make it or its
application valid and enforceable.

     15. Notices. Any notice required or permitted hereunder shall be given in
         -------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice), with
postage and fees prepaid, addressed to the other party at its address as shown
beneath its signature in the Notice, or to such other address as such party may
designate in writing from time to time to the other party.