Document:

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EXHIBIT 10.21

                           ALLIS-CHALMERS CORPORATION

                         NOTICE OF GRANT OF STOCK OPTION

Notice is hereby given of the following stock option grant (the "Option") to
purchase shares of the common stock of Allis-Chalmers Corporation (the
"Corporation"). The named Optionee understands and agrees that the Option is
granted subject to and in accordance with the terms of the Allis-Chalmers
Corporation 2002 Incentive Stock Plan (the "Plan"). The Optionee further agrees
to be bound by the terms of the Plan and the terms of the Option as set forth in
the Stock Option Agreement attached hereto. Optionee hereby acknowledges receipt
of a copy of the Plan. If the spousal consent below is not signed, the Optionee
represents and warrants that he or she is not married.

    Optionee:

    Grant Date:

    Expiration Date:

    Option Shares:

    Exercise Price:

    Type of Option:    [  ] Incentive Stock Option
                       [  ] Non-Qualified Stock Option

    Vesting Schedule:  The Option shall be vested and become exercisable as
                       follows:

ALLIS-CHALMERS CORPORATION,                          OPTIONEE
A Delaware corporation

--------------------------                           ----------------------
By:
Title:   President                                   Address:

                                                     -----------------------
                                                     -----------------------
                                                     -----------------------

         By his or her signature below, the spouse of the Optionee acknowledges
that he or she has read the Agreement and the Plan and agrees to be bound by all
their terms and conditions.

----------------------------                       -----------------------------
Spouse                                                        Date

                                       1
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                           ALLIS-CHALMERS CORPORATION

                             STOCK OPTION AGREEMENT

                                    RECITALS
                                    --------

A. The Board has adopted the 2002 Stock Incentive Plan (the "Plan") for the
purpose of retaining the services of selected Employees, non-employee members of
the Board or of the board of directors of any Parent or Subsidiary and
consultants and other independent advisors who provide services to the
Corporation or any Parent or Subsidiary. (All capitalized terms in this
Agreement shall have the meaning assigned to them in the attached Appendix.)

B. Optionee is to render valuable services to the Corporation (or a Parent or
Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Corporation's grant
of an option to Optionee.

                                    AGREEMENT
                                    ---------

         NOW, THEREFORE, it is hereby agreed as follows:

         1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.

         2. OPTION TERM. This option shall have a maximum term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.

         3. LIMITED TRANSFERABILITY. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may be transferred,
without consideration, during Optionee's lifetime to a Permitted Transferee. The
transferred portion shall be exercisable only by the person or persons who
acquire a proprietary interest in the option pursuant to such transfer. The
terms applicable to the transferred portion shall be the same as those in effect
for this option immediately prior to such transfer.

         4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.

         5. CESSATION OF SERVICE. The option term specified in Paragraph 2 shall
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:

                                       2
<PAGE>

                  (a) Should Optionee cease to remain in Service for any reason
(other than death, Permanent Disability or Misconduct) while holding this
option, then Optionee shall have a period of three (3) months (commencing with
the date of such cessation of Service) during which to exercise this option, but
in no event shall this option be exercisable at any time after the Expiration
Date.

                  (b) Should Optionee die while holding this option, then the
personal representative of Optionee's estate or the person or persons to whom
the option is transferred pursuant to Optionee's will or in accordance with the
laws of inheritance shall have the right to exercise this option. Such right
shall lapse, and this option shall cease to be outstanding, upon the earlier of:
(i) the expiration of the twelve (12) month period measured from the date of
Optionee's death; or (ii) the Expiration Date.

                  (c) Should Optionee cease to remain in Service by reason of
Permanent Disability while holding this option, then Optionee shall have a
period of twelve (12) months (commencing with the date of such cessation of
Service) during which to exercise this option. In no event shall this option be
exercisable at any time after the Expiration Date.

                  (d) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number of
vested Option Shares for which the option is exercisable at the time of
Optionee's cessation of Service. Upon the expiration of such limited exercise
period or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding for any vested Option Shares for which the option has
not been exercised. However, this option shall, immediately upon Optionee's
cessation of Service for any reason, terminate and cease to be outstanding with
respect to any Option Shares in which Optionee is not otherwise at that time
vested or for which this option is not otherwise at that time exercisable.

                  (e) Should Optionee's Service be terminated for Misconduct,
then this option shall terminate immediately and cease to remain outstanding.

         6. SPECIAL ACCELERATION OF OPTION.

                  (a) This option, to the extent outstanding at the time of a
Change in Control but not otherwise fully exercisable, shall automatically
accelerate so that such option shall, immediately prior to the effective date of
that Change in Control, become fully exercisable for all the shares of Common
Stock at the time subject to this option and may be exercised for any or all of
those shares as fully vested shares.

                  (b) Immediately following the Change in Control, this option
shall terminate and cease to be outstanding, except to the extent this option is
to continue in full force and effect pursuant to the terms of the Change in
Control transaction.

                  (c) This Agreement shall not in any way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.

         7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the Common
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.

                                       3
<PAGE>

         8. SHAREHOLDER RIGHTS. The holder of this option shall not have any
shareholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.

         9. MANNER OF EXERCISING OPTION.

                  (a) In order to exercise this option with respect to all or
any part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:

                           (i) Execute and deliver to the Corporation a Notice
of Exercise for the Option Shares for which the option is exercised.

                           (ii) Pay the aggregate Exercise Price for the
purchased shares in cash or check made payable to the Corporation, or, to the
extent authorized by the Plan Administrator, in one or more of the following
forms:

                                (A) a promissory note payable to the
Corporation, but only to the extent authorized by the Plan Administrator in
accordance with Paragraph 13;

                                (B) shares of Common Stock held by Optionee (or
any other person or persons exercising the option) for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date; or

                                (C) through a special sale and remittance
procedure pursuant to which Optionee (or any other person or persons exercising
the option) shall concurrently provide irrevocable instructions (I) to a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (II) to the Corporation to deliver
the certificates for the purchased shares directly to such brokerage firm in
order to complete the sale. Except to the extent the sale and remittance
procedure is utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to the
Corporation in connection with the option exercise.

                           (iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if other than
Optionee) have the right to exercise this option.

                           (iv) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.

                  (b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.

                  (c) In no event may this option be exercised for any
fractional shares.

                                       4
<PAGE>

         10. COMPLIANCE WITH LAWS AND REGULATIONS; SHAREHOLDER APPROVAL.

                  (a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto (including,
but not limited to, the Securities Act of 1933, the Securities Exchange Act of
1934, any applicable state securities laws and any rules and regulations
promulgated thereunder) and with all applicable regulations of any stock
exchange (or the Nasdaq National Market, if applicable) on which the Common
Stock may be listed for trading at the time of such exercise and issuance.

                  (b) The inability of the Corporation to obtain approval from
any regulatory body having authority deemed by the Corporation to be necessary
to the lawful issuance and sale of any Common Stock pursuant to this option
shall relieve the Corporation of any liability with respect to the non-issuance
or sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.

                  (c) The stock option grant hereunder is subject to the
Corporation obtaining approval from its shareholders. In the event that the
shareholders fail to approve the Plan within twelve (12) months after its
adoption by the Board, this Agreement and the stock option granted hereunder
shall be null and void.

         11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 3, the provisions of this Agreement shall inure to the benefit of, and
be binding upon, the Corporation and its successors and assigns and Optionee,
Optionee's assigns and the legal representatives, heirs and legatees of
Optionee's estate.

         12. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.

         13. FINANCING. The Plan Administrator may, in its absolute discretion
and without any obligation to do so, permit Optionee to pay the Exercise Price
for the purchased Option Shares by delivering a full-recourse, interest-bearing
promissory note payable to the Corporation. The terms of any such promissory
note (including the interest rate, the requirements for collateral and the terms
of repayment) shall be established by the Plan Administrator in its sole
discretion.

         14. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. The Plan Administrator shall have the
discretionary authority to interpret and construe any term or provision of the
Plan or this Agreement, and such interpretation shall be binding on all persons
having an interest in this option.

         15. GOVERNING LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of Delaware without
resort to that State's conflict-of-laws rules.

         16. MANDATORY ARBITRATION. ANY AND ALL DISPUTES OR CONTROVERSIES
BETWEEN OPTIONEE AND THE CORPORATION ARISING OUT OF, RELATING TO OR OTHERWISE
CONNECTED WITH THIS AGREEMENT OR THE OPTION EVIDENCED HEREBY OR THE VALIDITY,
CONSTRUCTION, PERFORMANCE OR TERMINATION OF THIS AGREEMENT SHALL BE SETTLED
EXCLUSIVELY BY BINDING ARBITRATION TO BE HELD IN THE COUNTY IN WHICH THE
OPTIONEE IS (OR HAS MOST RECENTLY BEEN) EMPLOYED BY THE CORPORATION (OR ANY

                                       5
<PAGE>

PARENT OR SUBSIDIARY) AT THE TIME OF SUCH ARBITRATION. THE ARBITRATION
PROCEEDINGS SHALL BE GOVERNED BY: (i) THE NATIONAL RULES FOR THE RESOLUTION OF
EMPLOYMENT DISPUTES THEN IN EFFECT OF THE AMERICAN ARBITRATION ASSOCIATION; AND
(ii) THE FEDERAL ARBITRATION ACT. THE ARBITRATOR SHALL HAVE THE SAME, BUT NO
GREATER, REMEDIAL AUTHORITY AS WOULD A COURT HEARING THE SAME DISPUTE. THE
DECISION OF THE ARBITRATOR SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES
TO THE ARBITRATION AND SHALL BE IN LIEU OF THE RIGHTS THOSE PARTIES MAY
OTHERWISE HAVE TO A JURY TRIAL; PROVIDED, HOWEVER, THAT SUCH DECISION SHALL BE
SUBJECT TO CORRECTION, CONFIRMATION OR VACATION IN ACCORDANCE WITH THE
PROVISIONS AND STANDARDS OF APPLICABLE LAW GOVERNING THE JUDICIAL REVIEW OF
ARBITRATION AWARDS. THE PREVAILING PARTY IN SUCH ARBITRATION, AS DETERMINED BY
THE ARBITRATOR, AND IN ANY ENFORCEMENT OR OTHER COURT PROCEEDINGS, SHALL BE
ENTITLED, TO THE EXTENT PERMITTED BY LAW, TO REIMBURSEMENT FROM THE OTHER PARTY
FOR ALL OF THE PREVAILING PARTY'S COSTS (INCLUDING BUT NOT LIMITED TO THE
ARBITRATOR'S COMPENSATION), EXPENSES AND ATTORNEY'S FEES. JUDGMENT SHALL BE
ENTERED ON THE ARBITRATOR'S DECISION IN ANY COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER OF SUCH DISPUTE OR CONTROVERSY. NOTWITHSTANDING THE FOREGOING,
EITHER PARTY MAY IN AN APPROPRIATE MATTER APPLY TO A COURT FOR PROVISIONAL
RELIEF, INCLUDING A TEMPORARY RESTRAINING ORDER OR A PRELIMINARY INJUNCTION. TO
THE EXTENT PERMITTED BY LAW, THE PROCEEDINGS AND RESULTS, INCLUDING THE
ARBITRATOR'S DECISION, SHALL BE KEPT CONFIDENTIAL.

         17. EXCESS SHARES. If the Option Shares covered by this Agreement
exceed, as of the Grant Date, the number of shares of Common Stock which may
without shareholder approval be issued under the Plan, then this option shall be
void with respect to those excess shares, unless shareholder approval of an
amendment sufficiently increasing the number of shares of Common Stock issuable
under the Plan is obtained in accordance with the provisions of the Plan.

         18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event
this option is designated an Incentive Stock Option in the Grant Notice, the
following terms and conditions shall also apply to the grant:

                  (a) No installment under this option shall qualify for
favorable tax treatment as an Incentive Stock Option if (and to the extent) the
aggregate Fair Market Value (determined at the Grant Date) of the Common Stock
for which such installment first becomes exercisable hereunder would, when added
to the aggregate value (determined as of the respective date or dates of grant)
of the Common Stock or other securities for which this option or any other
Incentive Stock Options granted to Optionee prior to the Grant Date (whether
under the Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first become exercisable during the same calendar year, exceed One
Hundred Thousand Dollars ($100,000) in the aggregate. Should such One Hundred
Thousand Dollar ($100,000) limitation be exceeded in any calendar year, this
option shall nevertheless become exercisable for the excess shares in such
calendar year as a Non-Statutory Option.

                                       6
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                  (b) Should the exercisability of this option be accelerated
upon a Change in Control, then this option shall qualify for favorable tax
treatment as an Incentive Stock Option only to the extent the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock for which this
option first becomes exercisable in the calendar year in which the Change in
Control occurs does not, when added to the aggregate value (determined as of the
respective date or dates of grant) of the Common Stock or other securities for
which this option or one or more other Incentive Stock Options granted to
Optionee prior to the Grant Date (whether under the Plan or any other option
plan of the Corporation or any Parent or Subsidiary) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in
the aggregate. Should the applicable One Hundred Thousand Dollar ($100,000)
limitation be exceeded in the calendar year of such Change in Control, the
option may nevertheless be exercised for the excess shares in such calendar year
as a Non-Statutory Option.

                  (c) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Stock Options
shall be applied on the basis of the order in which such options are granted.

                                       7
<PAGE>

                                    EXHIBIT I
                               NOTICE OF EXERCISE

         I hereby notify Allis-Chalmers Corporation (the "Corporation") that I
elect to purchase _____________________ shares of the Corporation's Common Stock
(the "Purchased Shares") at the option exercise price of $_____________ per
share (the "Exercise Price") pursuant to that certain option (the "Option")
granted to me under the Corporation's 2002 Incentive Stock Plan.

         Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.

___________________________,   20____
Date

_______________________________________
Optionee

Address: ______________________________

_______________________________________

Print name in exact manner it is to appear on the stock certificate:

                                         _______________________________________

Address to which certificate is to be sent, if different from address above:

                                         _______________________________________

                                         _______________________________________

Social Security Number:
                                         _______________________________________

Employee Number:
                                         _______________________________________

                                       8
<PAGE>

                                    APPENDIX

         The following definitions shall be in effect under the Agreement:

A. AGREEMENT shall mean this Stock Option Agreement.

B. BOARD shall mean the Corporation's Board of Directors.

C. COMMON STOCK shall mean shares of the Corporation's common stock.

D. CODE shall mean the Internal Revenue Code of 1986, as amended.

E. CHANGE IN CONTROL shall mean:

         (a) The acquisition on or after March 6, 2003 by any individual, entity
         or group, or a Person (within the meaning of Section 13(d)(3) or
         14(d)(2) of the Exchange Act) other than an Excluded Person, of
         ownership of more than 50% of either: (i) the then outstanding shares
         of Common Stock ("Outstanding Common Stock"); or (ii) the combined
         voting power of the then outstanding voting securities of the
         Corporation entitled to vote generally in the election of directors
         ("Outstanding Voting Securities");

         (b) Individuals who, as of the date of approval of the Plan by the
         Board of Directors of the Corporation, constitute the Board of
         Directors of the Corporation ("Incumbent Board") cease for any reason
         to constitute at least a majority of the Board; provided, however, that
         any individual becoming a director subsequent to the date hereof whose
         election, or nomination for election by the Corporation's stockholders,
         was approved by a vote of at least a majority of the directors then
         comprising the Incumbent Board shall be considered as though such
         individual were a member of the Incumbent Board, but excluding, as a
         member of the Incumbent Board, any such individual whose initial
         assumption of office occurs as a result of either an actual or
         threatened election contest (as such terms are used in Rule 14a-11 of
         Regulation 14A promulgated under the Securities Exchange Act of 1934)
         or other actual or threatened solicitation of proxies or consents by or
         on behalf of a Person other than the Board; or

         (c) Approval by the stockholders of the Corporation of a
         reorganization, merger or consolidation, in each case, unless,
         following such reorganization, merger or consolidation, (i) more than
         50% of, respectively, the then outstanding shares of common stock of
         the corporation resulting from such reorganization, merger or
         consolidation and the combined voting power of the then outstanding
         voting securities of such corporation entitled to vote generally in the
         election of directors is then beneficially owned, directly or
         indirectly, by all or substantially all of the individuals and entities
         who were the beneficial owners, respectively, of the Outstanding Common
         Stock and Outstanding Voting Securities immediately prior to such
         reorganization, merger or consolidation, in substantially the same
         proportions as their ownership, immediately prior to such
         reorganization, merger or consolidation of the Outstanding Common Stock
         and Outstanding Voting Securities, as the case may be, or at least a
         majority of the members of the board of directors of the corporation
         resulting from such reorganization, merger or consolidation were
         members of the Incumbent Board at the time of the execution of the
         initial agreement providing for such reorganization, merger or
         consolidation; or

                                       9
<PAGE>

         (d) Approval by the stockholders of the Corporation of (i) a complete
         liquidation or dissolution of the Corporation or (ii) the sale or other
         disposition of all or substantially all of the assets of the
         Corporation, other than to a corporation, with respect to which
         following such sale or other disposition, (1) more than 50% of,
         respectively, the then outstanding shares of common stock of such
         corporation and the combined voting power of the then outstanding
         voting securities of such corporation entitled to vote generally in the
         election for directors is then beneficially owned, directly or
         indirectly, by all or substantially all of the individuals and entities
         who were the beneficial owners, respectively, of the Outstanding Common
         Stock and Outstanding Voting Securities immediately prior to such sale
         or other disposition in substantially the same proportion as their
         ownership, immediately prior to such sale or other disposition, of the
         Outstanding Common Stock and Outstanding Voting Securities, as the case
         may be; or (2) at least a majority of the members of the board of
         directors of such corporation were members of the Incumbent Board at
         the time of the execution of the initial agreement or action of the
         Board providing for such sale or other disposition of assets of the
         Corporation.

F. CORPORATION shall mean Allis-Chalmers Corporation, a Delaware corporation.

G. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or
any Parent or Subsidiary), subject to the control and direction of the employer
entity as to both the work to be performed and the manner and method of
performance.

H. EXCLUDED PERSON means any Person who beneficially owns more than 10% of the
outstanding shares of the Corporation on the date hereof or at any time prior to
the first anniversary of the adoption of the Plan.

I. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.

J. EXERCISE PRICE shall mean the exercise price per Option Share as specified in
the Grant Notice.

K. EXPIRATION DATE shall mean the date on which the option expires as specified
in the Grant Notice.

L. GRANT DATE shall mean the date of grant of the option as specified in the
Grant Notice.

M. GRANT NOTICE shall mean the Notice of Grant of Stock Option accompanying the
Agreement, pursuant to which Optionee has been informed of the basic terms of
the option evidenced hereby.

N. INCENTIVE OPTION shall mean an option which satisfies the requirements of
Code Section 422.

O. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or
dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any Parent or Subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive of
all the acts or omissions which the Corporation (or any Parent or Subsidiary)
may consider as grounds for the dismissal or discharge of Optionee or any other
individual in the Service of the Corporation (or any Parent or Subsidiary).

P. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.

                                       10
<PAGE>

Q. NOTICE OF EXERCISE shall mean the notice of exercise in the form attached
hereto as Exhibit I.

R. OPTION SHARES shall mean the number of shares of Common Stock subject to the
option as specified in the Grant Notice.

S. OPTIONEE shall mean the person to whom the option is granted as specified in
the Grant Notice.

T. PARENT shall mean any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation, provided each corporation in
the unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

U. PERMANENT DISABILITY shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which is expected to result in death or has lasted or can be
expected to last for a continuous period of twelve (12) months or more.

V. PLAN shall mean the Corporation's 2002 Incentive Stock Plan.

W. PLAN ADMINISTRATOR shall mean either the Board or a committee of the Board
acting in its capacity as administrator of the Plan.

X. SERVICE shall mean the Optionee's performance of services for the Corporation
(or any Parent or Subsidiary) in the capacity of an Employee, a non-employee
member of the board of directors or a consultant or independent advisor.

Y. STOCK EXCHANGE shall mean the American Stock Exchange, the New York Stock
Exchange or any other exchange in which shares of the Corporation's common stock
is traded.

Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

                                       11<PAGE>

                                  CONFIDENTIAL

                                                                    Exhibit 10.1

================================================================================

================================================================================

                                  1st Amendment

                                 to the July 1st

                          LICENSE AND SUPPLY AGREEMENT

                            (hereinafter "Agreement")

                                     between

                            CombiMatrix Corporation.
                            6500 Harbour Heights Pkwy.
                            Mukilteo, WA 98275
                            USA

                            (hereinafter referred to as "CBMX")

                                               [SUPPLIER/LICENSOR]

                                       and

                            Roche Diagnostics GmbH
                            Sandhofer Stra(beta)e 116
                            68305 Mannheim

                            Germany

                            (hereinafter referred to as "RDG")

                                               [PURCHASER/LICENSEE]

<PAGE>

                                  CONFIDENTIAL

                                        2

THE FOLLOWING PARAGRAPHS AGREEMENT SHALL BE AMENDED AND CHANGED AS FOLLOWS:

2.1 LICENSE AND SUBLICENSE. Subject to the terms and conditions of this
Agreement, CBMX hereby grants to RDG a royalty-bearing world-wide and
non-exclusive (subject to Section 2.1.1 regarding Desk Top Synthesizers) license
to use the Technology only within the Field only for the purposes of (i)
developing Content for Catalogue Arrays and Catalogue Cassettes and (ii)
manufacturing the Hybridizer/Reader and marketing, distributing, selling and
having sold Licensed Products, in the Territory to End Users, together with a
non-exclusive right to sublicense RDG Affiliates (for as long as they remain RDG
Affiliates and provided that RDG remains responsible for all of its obligations
and those of its Affiliates under this Agreement); provided that as a condition
to marketing, distributing, selling, having sold, disposing or otherwise
transferring any applicable Licensed Product to any End User, RDG and its
Affiliates shall comply with the terms and conditions set forth elsewhere in
this Agreement. Section 3.2 (c) and 3.3 (f) provide under certain circumstances
for an additional limited license and manufacturing rights to be granted to RDG.
RDG will be free to determine its own resale and licensing prices of the
Licensed Products to End Users. RDG and its Sales Representatives shall not use,
market, sell, distribute, transfer or dispose of the Technology or Licensed
Products for any purpose not licensed or permitted by this Agreement provided
however that the use for any purpose of biochips by other manufacturers than
CBMX by RDG Customers on Hybridizer/Readers and Desk Top Synthesizers - if such
use is technically possible - is beyond RDG's reasonable control and shall
not be a violation of this Agreement unless such use is promoted or assisted by
RDG.

5.1.2. RUNNING ROYALTIES. In further consideration of the granting of the rights
hereunder, RDG shall on a quarterly basis (as described below) pay to CBMX a
running royalty, at a rate of * on Net Sales of Licensed Products, ** on Net
Sales of Hybridizer/Readers, and * on Net Sales of Desk Top Synthesizers,
purchased from or supplied by CBMX and Net Sales of Royalty bearing Reagents
sold in connection therewith ("Running Royalty"). In the event any Third Party
supplies such Royalty bearing Reagents and RDG or its Affiliates receive any
consideration in connection therewith, the Running Royalty shall apply to such
consideration. In the event that CBMX reverts the co-exclusive license to a
non-exclusive license under Section 2.1.1, the Running Royalty shall revert also
to * on Net Sales for Desk Top Synthesizers.

                                   PARAGRAPH 3
                           SUPPLY OF LICENSED PRODUCTS
                           ---------------------------

3.1 INITIAL PRODUCTS AND MILESTONE PAYMENTS. CBMX shall, as applicable, either
deliver and sell, or provide evidence of operational effectiveness, to RDG and

*  Provision subject to grant of confidential treatment.

** Provision subject to pending confidential treatment request.

<PAGE>

                                  CONFIDENTIAL

                                       3

RDG shall, according to the following schedule, take delivery of and pay CBMX
for the following prototypes (which shall not be required to meet the applicable
Specifications unless otherwise stated below), for evaluation purposes only (and
not for resale or transfer, or production of any products for sale or transfer,
to Third Parties) by RDG or its Affiliates, of Licensed Products, for the
following purchase prices:

HYBRIDIZER/READER AND CASSETTE DEVELOPMENT. On **, CBMX shall notify RDG that
CBMX has developed an operationally effective RDG (i) Hybridizer/Reader and (ii)
Cassette (I.E., a monocassette) ready for hybridization and containing one Array
synthesized with test capture probes selected by CBMX. Within thirty days of
such notice technical representatives of the Parties shall meet at CBMX
facilities for demonstration by CBMX of such operational effectiveness.
Operational effectiveness of the Hybridizer/Reader is demonstrated when a
Cassette containing an Array is inserted into the Hybridizer/Reader and there is
production of a spatial map of fluorescent density/intensity over a single
Array. Such map of fluorescent density/intensity produced by the hybridization
module of the functional model may also be produced on a separate imaging
device, if necessary.

         (a) Operational effectiveness of the Cassette is demonstrated when an
Array within a Cassette with electric and fluidic connections is synthesized
with test Content as defined by RDG and CBMX jointly and the Array is hybridized
with test sample within the Cassette showing expected positive, negative and
null control results. Such image may also be produced on a separate imaging
device, if necessary. If such operational effectiveness of both the Cassette and
the Hybridizer/Reader is successfully demonstrated, RDG shall make to CBMX **

         (b) DELIVERY OF HYBRIDIZER/READERS. Upon delivery of ** operationally
effective (under Section 3.2 (a)) Functional Models of Hybridizer/Readers for
internal use by RDG and not for resale, which delivery shall not occur **, RDG
shall pay to CBMX **.

         (c) DELIVERY OF PROTOTYPES Upon delivery of ** Prototype
Hybridizer/Readers ready for commercial launch according to RDG's Design Control
and Commercialization Guidelines (hereinafter "DCCG" and attached to this
Agreement as ANNEX V) ** and when ** of these Prototypes have passed hardware
and functionality inspection according to DCCG, RDG will pay to CBMX **.

         (d) PHONE BOOTH SYNTHESIZER. Upon delivery, which delivery shall not
occur **, of prototype operationally effective synthesizers housed in one "phone
booth" like unit ("Phone Booth Synthesizer") Operational Effectiveness is
demonstrated when custom chips in cassettes can be synthesized by the Phone
Booth Synthesizer and be quality chips (I.E., subsequently hybridized in the
Hybridizer/Reader unit) and having a synthesis capacity of ** wherein each array
has an average probe length of **, and will be assessed by RDG technical
personnel at CBMX facilities, before delivery. Upon demonstration of operational
effectiveness at RDG's facilities, RDG shall **.

** Provision subject to pending confidential treatment request.

<PAGE>

                                  CONFIDENTIAL

                                       4

         (e) CUSTOM CASSETTES. CBMX shall between ** make available for delivery
to RDG, ** (for development by RDG of Content for Catalogue Arrays). For this
delivery RDG shall pay to CBMX a total of **, CBMX shall make available to RDG
200 test arrays (with or without Cassettes) for feasibility studies for an
amount of **.

         (f) DELAYED DELIVERIES. In the event CBMX fails to meet any of the
deadlines set forth in this Section 3.1 and RDG does not exercise * under this
Agreement, * that any such deadline is missed, the applicable payment otherwise
due and payable from RDG shall be reduced by *.

                                   PARAGRAPH 4
                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

4.1 CBMX. (a) CBMX represents and warrants that it has the corporate authority,
title and right to grant the license to RDG under the Technology, the Agreements
create legal, valid and binding obligations on it and are enforceable against it
in accordance with their respective terms; it is neither aware of the existence
of any lawsuits nor has received notice of any claims, either asserted or
implied, of CBMX Technology's infringement of a patent or other proprietary
right anywhere in the world other than the currently pending litigation between
CBMX and its employee Donald Montgomery on one side and Nanogen, Inc, of San
Diego, California on the other side at the United States District Court,
Southern District of California; Case No.: CV2369 JM RBB ("Nanogen Lawsuit"),
and it is not a party to any agreement, understanding or business relationship
that prevents it from carrying out its obligations under the Agreements.

5.1.1 MINIMUM ROYALTIES. Moreover, commencing ** shall on a quarterly basis (as
described below) pay to CBMX the greater of the (i) Running Royalty or (ii)
annual minimum royalties regardless of actual sales or revenues calculated as
follows and subject to adjustment only as set forth below: for the first, second
and third calendar year from and after ** (referred to as "Y1", "Y2" and "Y3",
respectively), the minimum annual royalty shall be * (or * of actual sales per
quarter and adjusted upward in the fourth quarter of Y1 if there is a shortfall
in Y1), * (or * per quarter) and * (or * per quarter), respectively ("Minimum
Royalties"). With respect to the Minimum Royalties for Y1, Y2 and Y3, RDG will
pay to CBMX, for each of the first three quarters of each year, a royalty that
is equal to the actual calculated Running Royalty on Licensed Products as
described in Section 5.1.2. If the amount of calculated Running Royalties for
either or both of Y1 or Y2 is less than the Minimum Royalty for that respective
year, then in the fourth quarter of each of Y1 and Y2, the amount of royalties
to be paid by RDG to CBMX will be equal to the Minimum Royalty for that year,
less the amount paid for the first three quarters of that year. During the
fourth quarter of Y3, if the Minimum Royalty was paid in Y1 and/or Y2 (rather
than the actual Running Royalty), the amount of paid royalties less the amount

*  Provision subject to grant of confidential treatment.

** Provision subject to pending confidential treatment request.

<PAGE>

                                  CONFIDENTIAL

                                       5

of earned royalties for each year will be treated as a credit offset ("Y3
Adjustment") to the amount owed by RDG to CBMX when the total royalty for Y3 is
calculated. Negative amounts (earned royalties are greater than paid royalties
in any given year) will not be considered. The following formula shall be used
to determine the amount of any Adjustment:

Y3 TOTAL PAYMENT = *
--------------------
Y3 ADJUSTMENT = *
-----------------
*.
WHERE:
------
X =*
----
Y = *; and
----------
Z = *.
-----

After Y1, Y2 and Y3, no minimum royalties shall be due. All royalties on
Licensed Products sold to Third Parties and due to CBMX shall be subject to
deduction of the price RDG paid to CBMX for the Licensed Products or components
of them for the supply of such Licensed Products or components under Section
5.1.4 and Annex IV to this Agreement.

5.1.2         GENERAL PAYMENT TERMS FOR LICENSED PRODUCTS SOLD BY CBMX TO RDG
              AND CUSTOM ROYALTIES.
5.1.2.1.1
5.1.2.1.2     DESK TOP SYNTHESIZERS. At the time of shipment of Desk Top
              Synthesizers from CBMX to RDG, CBMX will invoice RDG the price for
              such Desk Top Synthesizers under Annex IV.
5.1.2.1.3     BLANK CHIPS. At the time of shipment of Blank Chips from CBMX to
              RDG for use by RDG with its Phone Booth Synthesizer, CBMX will
              invoice RDG the price for such Blank Chips under Annex IV. .
5.1.2.1.4     CUSTOM ARRAYS. Except for the sale of Custom Arrays to RDG under
              Section 3.1, before shipment to RDG of additional Custom Arrays
              for development by RDG of Content for Catalogue Arrays CBMX and
              RDG will negotiate a commercially reasonable price in good faith.
5.1.2.1.5     CUSTOM ROYALTIES. On Custom Arrays, Blank Chips (for use with Desk
              Top Synthesizers only) and related Reagents sold by CBMX to RDG
              Customers, CBMX shall pay to RDG on a quarterly basis a royalty of
              * of Net Sales ("Custom Royalty"). In the event any Third Party
              supplies such Reagents and CBMX or its Affiliates receive any
              consideration in connection therewith, the Custom Royalty shall
              apply to such consideration.
5.1.2.1.6     CATALOGUE ARRAYS. At the time of shipment of Catalogue Arrays from
              CBMX to RDG for resale to RDG End Users, CBMX will invoice RDG the
              price for such Catalogue Arrays under Annex IV.

*  Provision subject to grant of confidential treatment.

<PAGE>

                                  CONFIDENTIAL

                                       6

IN WITNESS WHEREOF the Parties hereto have signed this 1st Amendment on this
30th day of November 2001.

Mannheim, Germany                 Mukilteo, Washington

ROCHE DIAGNOSTICS GMBH            COMBIMATRIX CORPORATION

By: _________________             By: _________________
Rainer Kuehn                      Edward M. Eadeh

i.V.

By: _________________             By: ___________________
S. Willemsen                      Jeffrey B. Oster

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