<PAGE>


                                                                     EXHIBIT 4.1

                         AMERICAN TECHNOLOGY CORPORATION

                      INDUCEMENT STOCK OPTION GRANT NOTICE

         AMERICAN TECHNOLOGY CORPORATION (the "Company") hereby grants to the
Optionee named below, an employee of the Company, as an inducement material to
the Optionee's entering into employment with the Company, a stock option to
purchase the number of shares of the Company's common stock set forth below.
This option is subject to all of the terms and conditions as set forth herein
and the Stock Option Agreement (attached hereto) which is incorporated herein in
its entirety.

Optionee:
Grant No:
Date of Grant:
Shares Subject to Option:
Exercise Price Per Share:                              $__________(1)
Expiration Date:
Intended to be Incentive Stock Option:                 No


VESTING SCHEDULE:
Vesting Start Date                  Vesting Schedule
------------------                  ----------------


ADDITIONAL TERMS/ACKNOWLEDGMENTS: The undersigned Optionee acknowledges receipt
of, and represents that the Optionee has read, understands, accepts and agrees
to the terms of this Grant Notice and the Stock Option Agreement. Optionee
hereby accepts the Option subject to all of its terms and conditions and further
acknowledges that as of the Date of Grant, this Grant Notice and the Stock
Option Agreement set forth the entire understanding between Optionee and the
Company regarding the acquisition of stock in the Company and supersede all
prior oral and written agreements pertaining to this particular option.




_________________

(1) The closing price reported on Nasdaq on the trading day prior to the Date of
    Grant.
<PAGE>


NOTE: THE OPTIONEE IS SOLELY RESPONSIBLE FOR ANY ELECTION TO EXERCISE THE
OPTION, AND THE COMPANY SHALL HAVE NO OBLIGATION WHATSOEVER TO PROVIDE NOTICE TO
THE OPTIONEE OF ANY MATTER, INCLUDING, BUT NOT LIMITED TO, THE DATE THE OPTION
TERMINATES.



AMERICAN TECHNOLOGY CORPORATION:            OPTIONEE:


By:                                         By:
   ----------------------------                 ----------------------------
   Name:
   Title:                                   Date:
Dated:


<PAGE>


                         AMERICAN TECHNOLOGY CORPORATION
                        INDUCEMENT STOCK OPTION AGREEMENT

Pursuant to the Grant Notice and this Stock Option Agreement ("Agreement"),
American Technology Corporation (the "Company") has granted to the Optionee
named in the Grant Notice ("YOU" or the "OPTIONEE") an Option to purchase the
number of shares of the Company's common stock ("Stock") indicated in the Grant
Notice at the exercise price indicated in the Grant Notice.

                  The details of this Option are as follows:

         1. DEFINITIONS AND CONSTRUCTION.

             1.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:

                  (a) "AFFILIATE" means (i) an entity, other than a Parent
Corporation, that directly, or indirectly through one or more intermediary
entities, controls the Company or (ii) an entity, other than a Subsidiary
Corporation, that is controlled by the Company directly, or indirectly through
one or more intermediary entities, or (iii) an entity which the Board designates
as an Affiliate. For this purpose, the term "control" (including the term
"controlled by") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of the relevant
entity, whether through the ownership of voting securities, by contract or
otherwise; or shall have such other meaning assigned such term for the purposes
of registration on Form S-8 under the Securities Act.

                  (b) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer
outstanding stock options, "BOARD" also means such Committee(s).

                  (c) A "CHANGE IN CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, a "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting securities of the Company or, in the case of a Transaction
described in Section 1.1(q)(iii), the corporation or other business entity to
which the assets of the Company were transferred (the "TRANSFEREE"), as the case
may be. The Board shall determine in its discretion whether multiple sales or
exchanges of the voting securities of the Company or multiple Ownership Change
Events are related. Notwithstanding the preceding sentence, a Change in Control
shall not include a Spinoff Transaction.

                  (d) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.

                  (e) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer this Agreement and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein.


<PAGE>

                  (f) "COMPANY" means American Technology Corporation, a
Delaware corporation, or any Successor.

                  (g) "CONSULTANT" means a person engaged to provide consulting
or advisory services (other than as an Employee or a Director) to a
Participating Company.

                  (h) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.

                  (i) "DISABILITY" means the Optionee has been determined by the
long-term disability insurer of the Participating Company Group as eligible for
disability benefits under the long-term disability plan of the Participating
Company Group or the Optionee has been determined eligible for Supplemental
Security Income benefits by the Social Security Administration of the United
States of America.

                  (j) "EMPLOYEE" means any person treated as an employee
(including an Officer or a Director who is also treated as an employee) in the
records of a Participating Company. The Company shall determine in good faith
and in the exercise of its discretion whether the Optionee has become or has
ceased to be an Employee and the effective date of the Optionee's employment or
termination of employment, as the case may be.

                  (k) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.

                  (l) "FAIR MARKET VALUE" means, as of any date, the value of
the Stock determined as follows:

                       (i) If the Stock is listed on any established stock
exchange or traded on the Nasdaq Stock Market or the Nasdaq SmallCap Market, the
Fair Market Value of a share of Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such exchange
or market (or if the stock is traded on more than one exchange or market, the
exchange or market with the greatest volume of trading in the Stock) on the last
market trading day prior to the day of determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable.

                       (ii) If the common stock is quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the bid and asked prices for
the common stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable.

                       (iii) In the absence of such markets for the Stock, the
Fair Market Value shall be determined in good faith by the Board.

                  (m) "INCENTIVE STOCK OPTION" means an Option intended to be
(as set forth in the Option Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.

                  (n) "INSIDER" means an Officer, a Director of the Company or
other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.


<PAGE>

                  (o) "NON-CONTROL AFFILIATE" means any entity in which any
Participating Company has an ownership interest and which the Board shall
designate as a Non-Control Affiliate.

                  (p) "OFFICER" means any person designated by the Board as an
officer of the Company.

                  (q) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all, as determined by the Board in its discretion, of the assets
of the Company; or (iv) a liquidation or dissolution of the Company.

                  (r) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.

                  (s) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation or Affiliate.

                  (t) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all entities collectively which are then Participating Companies.

                  (u) "RULE 16B-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.

                  (v) "SECURITIES ACT" means the Securities Act of 1933, as
amended.

                  (w) "SERVICE" means

                       (i) the Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. Furthermore, only to such extent as
may be provided by the Company's leave policy, the Optionee's Service with the
Participating Company Group shall not be deemed to have terminated if the
Optionee takes any military leave, sick leave, or other leave of absence
approved by the Company. Notwithstanding the foregoing, a leave of absence shall
be treated as Service for purposes of vesting only to such extent as may be
provided by the Company's leave policy. The Optionee's Service shall be deemed
to have terminated either upon an actual termination of Service or upon the
entity for which the Optionee performs Service ceasing to be a Participating
Company; except that if the entity for which Optionee performs Service is a
Subsidiary Corporation and ceases to be a Participating Company as a result of
the distribution of the voting stock of such Subsidiary Corporation to the
stockholders of the Company, Service shall not be deemed to have terminated as a
result of such distribution. Subject to the foregoing, the Company, in its
discretion, shall determine whether the Optionee's Service has terminated and
the effective date of such termination.

                       (ii) Notwithstanding any other provision of this Section,
an Optionee's Service shall not be deemed to have terminated merely because the
Participating Company for which the Optionee renders Service ceases to be a
member of the Participating Company Group by reason of a Spinoff Transaction,

<PAGE>

nor shall Service be deemed to have terminated upon resumption of Service from
the Spinoff Company to a Participating Company. For all purposes under this
Agreement, the Optionee's Service shall include Service, whether in the capacity
of an Employee, Director or a Consultant, for the Spinoff Company provided the
Optionee was employed by the Participating Company Group immediately prior to
the Spinoff Transaction. Notwithstanding the foregoing, if the Company's
auditors determine that the provisions or operation of the preceding two
sentences would cause the Company to incur a compensation expense and provided
further that in the absence of the preceding two sentences no such compensation
expense would be incurred, then the two preceding sentences shall be without
force or effect, and the vesting and exercisability of each outstanding Option
and any shares acquired upon the exercise thereof shall be determined under any
other applicable provision of this Agreement.

                  (x) "SPINOFF COMPANY" means a Participating Company which
ceases to be such as a result of a Spinoff Transaction.

                  (y) "SPINOFF TRANSACTION" means a transaction in which the
voting stock of an entity in the Participating Company Group is distributed to
the shareholders of a parent corporation as defined by Section 424(e) of the
Code, of such entity.

                  (z) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.

                  (aa) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.

                  (bb) "SUCCESSOR" means a corporation into or with which the
Company is merged or consolidated or which acquires all or substantially all of
the assets of the Company and which is designated by the Board as a Successor
for purposes of this Agreement.

             1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Agreement. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.

         2. VESTING. Except as otherwise provided in this Agreement, this option
will vest as provided in the Grant Notice.

         3. EXERCISE OF THE OPTION.

             3.1 METHOD OF EXERCISE. You may exercise the vested portion of this
Option at any time prior to the expiration of the Option by delivering a notice
of exercise in such form as may be designated by the Company from time to time
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours and
prior to the expiration of the Option, together with such additional documents
as the Company may then require.

             3.2 METHOD OF PAYMENT. Payment of the exercise price may be by cash
(or check), or pursuant to a program developed under Regulation T as promulgated
by the Federal Reserve Board which, prior to the issuance of Stock, results in
either the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to a broker which provides for the payment of the

<PAGE>

aggregate exercise price to the Company, or a combination of the above methods,
as the Company may designate from time to time. The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.

             3.3 TAX WITHHOLDING. By exercising this Option you agree that as a
condition to any exercise of this Option, the Company may withhold from your pay
and any other amounts payable to you, or require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of this Option;
or (2) the disposition of Stock acquired upon such exercise.

             3.4 RESPONSIBILITY FOR EXERCISE. You are responsible for taking any
and all actions as may be required to exercise this Option in a timely manner
and for properly executing any such documents as may be required for exercise in
accordance with such rules and procedures as may be established from time to
time. By signing this Agreement you acknowledge that information regarding the
procedures and requirements for this exercise of the Option is available to you
on request. The Company shall have no duty or obligation to notify you of the
expiration date of this Option.

         4. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this Option may not be exercised unless the Stock issuable
upon exercise of this Option is then registered under the Securities Act or, if
such Stock is not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.

         5. TERMINATION OF THE OPTION. The term of this Option commences on the
Date of Grant (as specified in the Grant Notice) and expires and shall no longer
be exercisable upon the earliest of:

             5.1 the Expiration Date indicated in the Grant Notice;

             5.2 the last day for exercising the Option following termination of
your Service as described in Section 6 below; or

             5.3 a Change of Control, to the extent provided in Section 7 below.

         6. EFFECT OF TERMINATION OF SERVICE.

             6.1 OPTION EXERCISABILITY. Subject to earlier termination of the
Option as otherwise provided herein, the Option shall be exercisable after the
Optionee's termination of Service only during the applicable time period
determined in accordance with this Section 6 and thereafter shall terminate.

                  (a) DISABILITY. If the Optionee's Service terminates because
of the Disability of the Optionee, the Option shall continue for the period of
such Disability and may be exercised by the Optionee at any time during the
period of Disability but in any event no later than the Expiration Date.


<PAGE>

                  (b) DEATH. If the Optionee's Service terminates because of the
death or because of the Disability of the Optionee and such termination is
subsequently followed by the death of the Optionee, (A) the exercisability and
vesting of the Option shall be accelerated effective upon the Optionee's death,
and (B) the Option, to the extent unexercised and exercisable on the date of the
Optionee's death, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
the date of the Optionee's death, but in any event no later than the Expiration
Date.

                  (c) TERMINATION UPON TRANSFER TO NON-CONTROL AFFILIATE. If at
the request of the Company, the Optionee transfers Service to a Non-Control
Affiliate and the Optionee's Service ceases as a result, then, subject to the
Optionee's execution of a general release of claims form reasonably satisfactory
to the Company, the Option, to the extent unexercised and exercisable on the
date on which the Optionee's Service terminated, may be exercised by the
Optionee (or the Optionee's guardian or legal representative) at any time prior
to the expiration of twelve (12) months after the date on which the Optionee's
Service terminated, but in any event no later than the Expiration Date.

                  (d) TERMINATION AFTER CHANGE IN CONTROL. If the Optionee's
Service ceases as a result of Termination After Change in Control (as defined
below), then (A) the exercisability and vesting of the Option shall be
accelerated effective as of the date on which the Optionee's Service terminated,
and (B) the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Expiration Date.

                  (e) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason except
Disability, death, Transfer to a Non-Control Affiliate, or Termination after
Change in Control, the Option, to the extent unexercised and exercisable by the
Optionee on the date on which the Optionee's Service terminates, may be
exercised by the Optionee at any time prior to the expiration of thirty (30)
days after the date on which the Optionee's Service terminates, but in any event
no later than the Expiration Date.

             6.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, other than termination for Cause, if the exercise of an Option within
the applicable time periods set forth in Section 6.1 is prevented by the
provisions of Section 4 above, the Option shall remain exercisable until three
(3) months after the date the Optionee is notified by the Company that the
Option is exercisable, but in any event no later than the Expiration Date.

             6.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B). Notwithstanding
the foregoing, other than termination for Cause, if a sale within the applicable
time periods set forth in Section 6.1 of shares acquired upon the exercise of
the Option would subject the Optionee to suit under Section 16(b) of the
Exchange Act, the Option shall remain exercisable until the earliest to occur of
(i) the tenth (10th) day following the date on which a sale of such shares by
the Optionee would no longer be subject to such suit, (ii) the one hundred and
ninetieth (190th) day after the Optionee's termination of Service, or (iii) the
Expiration Date.

             6.4 CERTAIN DEFINITIONS.

                  (a) "CAUSE" shall mean any of the following: (1) the
Optionee's theft, dishonesty, or falsification of any Participating Company
documents or records; (2) the Optionee's improper use or disclosure of a

<PAGE>

Participating Company's confidential or proprietary information; (3) any action
by the Optionee which has a detrimental effect on a Participating Company's
reputation or business; (4) the Optionee's failure or inability to perform any
reasonable assigned duties after written notice from a Participating Company of,
and a reasonable opportunity to cure, such failure or inability; (5) any
material breach by the Optionee of any employment or service agreement between
the Optionee and a Participating Company, which breach is not cured pursuant to
the terms of such agreement; (6) the Optionee's conviction (including any plea
of guilty or nolo contendere) of any criminal act which impairs the Optionee's
ability to perform his duties with a Participating Company; or (7) violation of
a material Company policy.

                  (b) "GOOD REASON" shall mean any one or more of the following:

                       (i) without the Optionee's express written consent, the
assignment to the Optionee of any duties, or any limitation of the Optionee's
responsibilities, substantially inconsistent with the Optionee's positions,
duties, responsibilities and status with the Participating Company Group
immediately prior to the date of the Change in Control;

                       (ii) without the Optionee's express written consent, the
relocation of the principal place of the Optionee's employment or service to a
location that is more than fifty (50) miles from the Optionee's principal place
of employment or service immediately prior to the date of the Change in Control,
or the imposition of travel requirements substantially more demanding of the
Optionee than such travel requirements existing immediately prior to the date of
the Change in Control;

                       (iii) any failure by the Participating Company Group to
pay, or any material reduction by the Participating Company Group of, (A) the
Optionee's base salary in effect immediately prior to the date of the Change in
Control (unless reductions comparable in amount and duration are concurrently
made for all other employees of the Participating Company Group with
responsibilities, organizational level and title comparable to the Optionee's),
or (B) the Optionee's bonus compensation, if any, in effect immediately prior to
the date of the Change in Control (subject to applicable performance
requirements with respect to the actual amount of bonus compensation earned by
the Optionee);

                       (iv) any failure by the Participating Company Group to
(A) continue to provide the Optionee with the opportunity to participate, on
terms no less favorable than those in effect for the benefit of any employee or
service provider group which customarily includes a person holding the
employment or service provider position or a comparable position with the
Participating Company Group then held by the Optionee, in any benefit or
compensation plans and programs, including, but not limited to, the
Participating Company Group's life, disability, health, dental, medical,
savings, profit sharing, stock purchase and retirement plans, if any, in which
the Optionee was participating immediately prior to the date of the Change in
Control, or their equivalent, or (B) provide the Optionee with all other fringe
benefits (or their equivalent) from time to time in effect for the benefit of
any employee group which customarily includes a person holding the employment or
service provider position or a comparable position with the Participating
Company Group then held by the Optionee;

                       (v) any breach by the Participating Company Group of any
material agreement between the Optionee and a Participating Company concerning
Optionee's employment; or


<PAGE>

                       (vi) any failure by the Company to obtain the assumption
of any material agreement between the Optionee and the Company concerning the
Optionee's employment by a successor or assign of the Company.

                  (c) "TERMINATION AFTER CHANGE IN CONTROL" shall mean either of
the following events occurring within twenty-four (24) months after a Change in
Control:

                       (i) termination by the Participating Company Group of the
Optionee's Service with the Participating Company Group for any reason other
than for Cause; or

                       (ii) the Optionee's resignation for Good Reason from all
capacities in which the Optionee is then rendering Service to the Participating
Company Group within a reasonable period of time following the event
constituting Good Reason.

Notwithstanding any provision herein to the contrary, Termination After Change
in Control shall not include any termination of the Optionee's Service with the
Participating Company Group which (1) is for Cause; (2) is a result of the
Optionee's death or Disability; (3) is a result of the Optionee's voluntary
termination of Service other than for Good Reason; or (4) occurs prior to the
effectiveness of a Change in Control.

         7. CHANGE IN CONTROL. In the event of a Change in Control, the
surviving, continuing, successor, or purchasing corporation or other business
entity or parent thereof, as the case may be (the "ACQUIRING CORPORATION"), may,
without the consent of the Optionee, either assume the Company's rights and
obligations the Option or substitute for the Option substantially equivalent
options for the Acquiring Corporation's stock. In the event the Acquiring
Corporation elects not to assume or substitute for the Option in connection with
a Change in Control, the exercisability and vesting of the Option shall be
accelerated, effective as of the date ten (10) days prior to the date of the
Change in Control. The exercise or vesting of this Option that was permissible
solely by reason of this Section shall be conditioned upon the consummation of
the Change in Control. To the extent this Option is neither assumed or
substituted for by the Acquiring Corporation in connection with the Change in
Control nor exercised as of the date of the Change in Control, it shall
terminate and cease to be outstanding effective as of the date of the Change in
Control. Notwithstanding the foregoing, shares acquired upon exercise of the
Option prior to the Change in Control and any consideration received pursuant to
the Change in Control with respect to such shares shall continue to be subject
to all applicable provisions of the Agreement. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 1.1(q)(i)
constituting a Change in Control is the surviving or continuing corporation and
immediately after such Ownership Change Event less than fifty percent (50%) of
the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate unless
the Board otherwise provides in its discretion.

         8. OPTION NOT A SERVICE CONTRACT. This Option is not an employment or
service contract and nothing in this Agreement or the Grant Notice shall be
deemed to create in any way whatsoever any obligation on your part to continue
in the service of the Company, or of the Company to continue your service with
the Company. In addition, nothing in your Option shall obligate the Company, its
stockholders, Board, Officers or Employees to continue any relationship which
you might have as a Director or Consultant for the Company.


<PAGE>

         9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Option and in the exercise price per share of the Option. If a majority
of the shares of Stock are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend this Agreement
to provide that the Option is exercisable for New Shares. In the event of any
such amendment, the number of shares subject to, and the exercise price per
share of, the Option shall be adjusted in a fair and equitable manner as
determined by the Board, in its discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section shall be
rounded down to the nearest whole number, and in no event may the exercise price
of the Option be decreased to an amount less than the par value, if any, of the
Stock subject to the Option.

         10. REPRESENTATIONS. By executing this Agreement, you hereby warrant
and represent that you are acquiring this Option for your own account and that
you have no intention of distributing, transferring or selling all or any part
of this Option except in accordance with the terms of this Agreement and Section
25102(f) of the California Corporations Code. You also hereby warrant and
represent that you have either (i) preexisting personal or business
relationships with the Company or any of its officers, directors or controlling
persons, or (ii) the capacity to protect your own interests in connection with
the grant of this Option by virtue of the business or financial expertise of you
or any of your professional advisors who are unaffiliated with and who are not
compensated by the Company or any of its affiliates, directly or indirectly.

         11. NOTICES. Any notices provided for in this Agreement or the Grant
Notice shall be given in writing and shall be deemed effectively given upon
receipt or, in the case of notices delivered by the Company to you, five (5)
days after deposit in the United States mail, postage prepaid, addressed to you
at the last address you provided to the Company.

         12. TRANSFERABILITY. This Option shall not be transferable in any
manner (including without limitation, sale, alienation, anticipation, pledge,
encumbrance, or assignment) other than, (i) by will or by the laws of descent
and distribution, (ii) by written designation of a beneficiary, in a form
acceptable to the Company, with such designation taking effect upon the death of
the Optionee, (iii) by delivering written notice to the Company, in a form
acceptable to the Company (including such representations, warranties and
indemnifications as the Company shall require the Optionee to make to protect
the Company's interests and ensure that this Option has been transferred under
the circumstances approved by the Company), by gift to the Optionee's spouse,
former spouse, children, stepchildren, grandchildren, parent, stepparent,
grandparent, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, persons having one of the
foregoing types of relationship with the Optionee due to adoption, any person
sharing the Optionee's household (other than a tenant or employee), a foundation
in which these persons or the Optionee control the management of assets, and any
other entity in which these persons (or the Optionee) own more than fifty
percent of the voting interests. A transfer to an entity in which more than
fifty percent of the voting interests are owned by these persons (or the
Optionee) in exchange for an interest in that entity is specifically included as
a permissible type of transfer. In addition, a transfer to a trust created
solely for the benefit (i.e., the Optionee and/or any or all of the foregoing
persons hold more than 50 percent of the beneficial interest in the trust) of
the Optionee and/or any or all of the foregoing persons is also a permissible
transferee, or (iv) such other transferees as may be authorized by the Board in
its sole and absolute discretion. During the Optionee's life this Option is
exercisable only by the Optionee or a transferee satisfying the above
conditions. Except in the event of the Optionee's death, upon transfer of this
Option to any or all of the foregoing persons, the Optionee is liable for any
and all taxes due upon exercise of this transferred Option. At no time will a

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transferee who is considered an affiliate under Rule 144(a)(1) be able to sell
any or all such Stock without complying with Rule 144. The right of a transferee
to exercise the transferred portion of this Option shall terminate in accordance
with the Optionee's right of exercise under this Option and is further subject
to such representations, warranties and indemnifications from the transferee
that the Company requires the transferee to make to protect the Company's
interests and ensure that this Option has been transferred under the
circumstances approved by the Company. Once a portion of this Option is
transferred, no further transfer may be made of that portion of this Option.

         13. ARBITRATION. Any dispute or claim concerning the Option, the Grant
Notice or this Agreement shall be fully, finally and exclusively resolved by
binding arbitration conducted by the American Arbitration Association pursuant
to the commercial arbitration rules in San Diego, California. By accepting the
Option, the Optionee and the Company waive their respective rights to have any
such disputes or claims tried by a judge or jury.

         14. AMENDMENT. The Board may amend your Option at any time, provided no
such amendment may adversely affect the Option or any unexercised portion of
your Option, without your consent unless such amendment is necessary to comply
with any applicable law or government regulation. No amendment or addition to
this Agreement shall be effective unless in writing or, in such electronic form
as may be designated by the Company.