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                                                                    EXHIBIT 10.5

                         OCEAN POWER TECHNOLOGIES, INC.

                             1994 STOCK OPTION PLAN

     1. STATEMENT OF PURPOSE. The purpose of this Stock Option Plan (the "Plan")
is to benefit Ocean Power Technologies, Inc., a New Jersey corporation (the
"Company"), through the maintenance and development of its business by offering
certain present and future key employees, directors and consultants of the
Company an opportunity to become holders of stock in the Company over a period
of years, thereby providing them a permanent stake in the growth and prosperity
of the Company and encouraging the continuance of their involvement with the
Company.

     2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee (the "Committee"), appointed by the Board of Directors (the "Board"),
which shall also designate the Chairman of the Committee. The Committee shall
hold its meetings at such times and places as it may determine. A majority of
its members shall constitute a quorum, and all determinations of the committee
shall be made by not less than a majority of its members. Any action may be
taken by a written instrument signed by a majority of the members of the
Committee and action so taken shall be as fully effective as if it had been made
by a majority vote of its members at a meeting duly called and held. The
Committee may designate the Secretary or other Company employees to assist the
Committee in the administration of the Plan, and may grant authority to such
persons to execute award agreements or other documents on behalf of the
Committee and the Company. Any duly constituted committee of the Board meeting
the qualifications of this Section 2 may be appointed as the Committee. The
Committee's interpretation of the terms and provisions of the Plan shall be
final and conclusive. The selection of specific employees, directors and
consultants for participation in the Plan and all decisions concerning the
timing, pricing, amount, and any and all other terms and conditions of any grant
or award under the Plan shall be made solely by the Committee.

     3. ELIGIBILITY. Options shall be granted only to key employees of the
Company (including officers of the Company), directors of the Company and
consultants of the Company selected initially and from time to time by the
Committee on the basis of their importance to the business of the Company.
Options may be granted to members of the Committee only with the approval of a
majority of the disinterested members of the Board.

     4. STOCK RESERVED FOR THE PLAN. The Committee may grant options under which
a total not in excess of 500,000 shares of the no par value common stock of the
Company ("Common Stock") may be purchased from the Company, subject to
adjustment as provided in Section 13; provided that the Committee may not grant
to any individual, options to purchase more than 100,000 shares of Common Stock
or more than 40% of the total number of options to purchase shares of Common
Stock granted under the Plan. Options granted under the Plan are intended not to
be treated as incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").

     In the event that an option expires or is terminated or cancelled
unexercised as to any shares, such released shares may again be optioned
(including a grant in substitution for a cancelled option). With respect to any
individual, however, in the case of an option that is

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terminated or cancelled unexercised as to any shares, such released shares shall
continue to count against the maximum number of shares that may be offered to
such individual under the Plan. Shares subject to options shall be made
available from authorized but unissued, or reacquired shares of Common Stock.

     Nothing contained in the Plan or in any option granted pursuant thereto
shall confer upon any optionee any right to be continued as an employee,
director, or consultant of the Company, or interfere in any way with the right
of the Company to terminate the optionee's position as employee, director or
consultant at any time.

     5. GRANT OF OPTIONS. The Committee shall have discretionary authority (i)
to determine, authorize, and designate those key employees, directors, and
consultants of the Company or any parent or subsidiary thereof who are to
receive options under the Plan, and (ii) to determine the number of shares to be
covered by such options and the terms thereof. The Committee shall thereupon
grant options in accordance with such determination as evidenced by a written
option agreement. Subject to the express provisions of the Plan, the Committee
shall have discretionary authority to prescribe, amend and rescind rules and
regulations relating to the Plan, to interpret the Plan, to prescribe and amend
the terms of the option agreements (which need not be identical) and to make all
other determinations deemed necessary or advisable for the administration of the
Plan. Any option granted under this plan shall be granted within ten (10) years
from the date set forth in Section 19.

     6. OPTION PRICE. The option price per share shall be determined by the
Committee and, subject to the provisions of Section 10 hereof, the purchase
price may be less than the fair market value, at the time the option is granted,
of the shares of Common Stock subject to the option, but not less than the par
value of such shares, if any.

     7. DURATION OF OPTIONS. Subject to the provisions of Section 10 hereof,
each option shall be for such term of not more than ten years, as shall be
determined by the Committee. The Committee may in its descretion at any time
prior to the expiration or termination of any option previously granted, extend
the term of any option (including such options held by officers) for such
additional period as the Committee in its discretion shall determine. In no
event, however, shall the aggregate option period with respect to any option,
including the original term of the option and any extensions thereof, exceed ten
years.

     8. EXERCISE OF OPTION. An option shall be exercised by giving written
notice to the Company, attention of the Secretary, specifying the number of
shares to be purchased, accompanied by a cashier's check, bank draft, or postal
or express money order payable to the order of the Company, or shall be preceded
by a bank wire transfer, for an amount equal to the option price of such shares,
and shall specify the address to which the certificates for such shares are to
be mailed. An optionee shall be deemed to be a stockholder with respect to
shares covered by an option on the date the Company receives such written notice
and payment of such option price. As promptly as practicable after receipt of
such written notification and payment, the Company shall deliver to the optionee
certificates for the number of shares with respect to which such option has been
so exercised, issued in the optionee's name; provided, however, that such
delivery shall be deemed effected for all purposes when a stock transfer agent
of the Company


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shall have deposited such certificates in the United States mail, addressed to
the optionee at the address specified pursuant to this Section.

     At the time of the exercise of any option, the Company may, if it shall
determine it necessary or desirable for any reason, require the optionee (or his
heirs, legatees, or legal representative, as the case may be) as a condition
upon the exercise thereof, to deliver to the Company a written representation of
present intention to purchase the shares for investment and not for
distribution. In the event such representation is required to be delivered, an
appropriate legend may be placed upon each certificate delivered to the optionee
upon his exercise of part or all of the option and a stop transfer order may be
placed with the transfer agent. Each option shall also be subject to the
requirement that, if at any time the Company determines, in its discretion, that
the listing, registration or qualification of the shares subject to the option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body is necessary or desirable as a
condition of or in connection with, the issue or purchase of shares thereunder,
the option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Company.

     At the time of the exercise of any option the Committee may require, as a
condition of the exercise of such option, the optionee to (a) pay the Company an
amount equal to the amount of tax the Company may be required to withhold to
obtain a deduction for federal income tax purposes as a result of the exercise
of such option by the optionee or (b) make such other arrangements with the
Company which would enable the Company to pay such withholding tax, including,
without limitation, holding back a number of shares issuable upon exercise of
the option equal to the amount of such withholding tax, or permitting the
optionee to deliver a promissory note in a form specified by the Committee, or
(c) a combination of the foregoing.

     9. STOCKHOLDER AGREEMENT. The Committee shall provide in the option
agreement that prior to receiving any shares of Common Stock or other securities
on the exercise of the option, the optionee or the optionee's representative
upon the optionee's death shall be required to execute the Company's Stockholder
Agreement.

     10. TERMINATION OF RELATIONSHIP-EXERCISE THEREAFTER. In the event the
relationship between the Company and an optionholder is terminated for any
reason other than death, permanent disability or retirement, such optionholder's
options shall expire and all rights to purchase shares pursuant thereto shall
terminate immediately. The Committee may, in its sole discretion, permit any
option to remain exercisable for such period after such termination as the
Committee may prescribe, but in no event after the expiration date of the
option. Temporary absence from employment because of illness, vacation, approved
leaves of absence, and transfers of employment among the Company and its
subsidiaries, shall not be considered to terminate employment or to interrupt
continuous employment.

     In the event of termination of said relationship because of death,
permanent disability (as that term is defined in Section 22(e)(3) of the Code,
as now in effect or as subsequently amended), or retirement, the option may be
exercised in full, without regard to any installments established under Section
6 hereof, by the optionee or, if the optionee is not living, by the optionee's
heirs, legatees or legal representatives (as the case may be), within a twelve
(12)


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month period after the date of death, permanent disability or retirement, or
such longer period as the Committee may prescribe, but in no event after the
expiration date of the option.

     11. NO RIGHTS AS STOCKHOLDER. No optionee shall have any rights as a
stockholder with respect to shares covered by an option until the option is
exercised by the written notice accompanied by payment as provided in Section 8
above.

     12. NON-ASSIGNABILITY. During the lifetime of the optionee, options shall
be exercisable only by the optionee, and options shall not be assignable or
transferable by the optionee otherwise than by will or by the laws of descent
and distribution.

     13. EXTRAORDINARY CORPORATE TRANSACTIONS. New option rights may be
substituted for the option rights granted under the Plan, or the Company's
duties as to options outstanding under the Plan may be assumed, by an employer
corporation other than the Company, or by a parent or subsidiary of the Company
or such employer corporation, in connection with any merger, consolidation,
acquisition, separation, reorganization, liquidation or like occurrence in which
the Company is involved. Notwithstanding any other provision of this Section, in
the event such employer corporation, or parent or subsidiary of the Company or
such employer corporation, does not substitute new option rights for, and
substantially equivalent in terms and economic value to, the option rights
granted hereunder, or assume the option rights granted hereunder, the option
rights granted hereunder shall terminate and thereupon become null and void (i)
upon dissolution or liquidation of the Company, or similar occurrence, (ii) upon
any merger, consolidation, acquisition, separation, reorganization, or similar
occurrence, where the Company will not be a surviving entity or (iii) upon a
transfer of substantially all of the assets of the Company or more than 75% of
the outstanding Common Stock; provided, however, that each optionee shall have
the right in connection with such dissolution, liquidation, merger,
consolidation, acquisition or transfer, to exercise any unexercised option
rights granted hereunder, whether then otherwise immediately exercisable or not,
so as to permit the optionee to participate as a holder of Common Stock in such
transaction if the optionee so chooses. The Company shall give to each optionee
at least twenty (20) days prior written notice of any event or transaction of
the nature described in the preceding sentence.

     The existence of outstanding options shall not affect in any way the right
or power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, exchanges, or other changes in
the Company's capital structure or its business, or any merger or consolidation
of the Company, or any issuance of Common Stock or other securities or
subscription rights thereto, or any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise. However, if the
outstanding shares of Common Stock or other securities of the Company, or both,
for which the option is then exercisable shall at any time be changed or
exchanged by declaration of a stock dividend, stock split, combination of
shares, recapitalization or reorganization, the number and kind of shares of
Common Stock or other securities which are subject to the Plan or subject to any
options theretofore granted, and the option prices, shall be appropriately and
equitably adjusted so as to maintain the proportionate number of shares or other
securities without changing the aggregate option price.


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     14. NO IMPAIRMENT OF RIGHTS. Nothing contained in the Plan or any option
granted pursuant to the Plan shall confer upon any optionee any right to be
continued in the employment of the Company or any subsidiary of the Company or
interfere in any way with the right of the Company or its subsidiaries to
terminate such employment and/or to remove any optionee who is a director from
service on the Board of Directors of the Company at any time in accordance with
the provisions of applicable law or to terminate the Company's relationship with
any optionee who is a consultant to the Company.

     15. LIABILITY OF COMPANY. The Company or any affiliated entity which is in
existence or hereafter comes into exercise shall not be liable to an optionee or
other persons as to:

     a. THE NON-ISSUANCE OF SHARES. The non-issuance or sale of shares as to
which the Company has been unable to obtain from any regulatory body having
jurisdiction the authority deemed by the Company's counsel to be necessary to
the lawful issuance and sale of any shares hereunder; and

     b. TAX CONSEQUENCES. Any tax consequence expected, but not realized, by any
optionee or other person due to the exercise of any option granted hereunder.

     16. AMENDMENT OR TERMINATION. The Board of Directors of the Company may
amend, alter or discontinue the Plan, but no amendment or alteration shall be
made which would impair the rights of any participant, without the participant's
consent, under any option theretofore granted, or which, without the approval of
the Stockholders of the Company, would: (i) except as is provided in Section 13
of the Plan, increase the total number of shares reserved for the purposes of
the Plan; (ii) change the class of persons eligible to participate in the Plan
as provided in Section 3 of the Plan; (iii) extend the applicable maximum option
period provided for in Section 7 of the Plan; (iv) extend the expiration date of
this Plan set forth in Section 19 of the Plan; (v) except as provided in Section
13 of the Plan, decrease to any extent the option price of any option granted
under the Plan; or (vi) withdraw the administration of the Plan from the
Committee.

     17. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and
exercise of options thereunder, and the obligation of the Company to sell and
deliver shares under such options, shall be subject to all applicable federal
and state laws, rules and regulations and to such approvals by any governmental
or regulatory agency as may be required.

     18. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption by the Board nor the
submission of the Plan to the Common Stockholders of the Company for approval
shall be construed as creating any limitations of the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including
without limitation, the granting of restricted stock or stock options otherwise
than under the Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.

     19. EFFECTIVE DATE. The Plan shall be effective on the date the Board of
Directors of the Company adopts the Plan. The Plan shall expire ten years after
the date the Board of Directors approves the Plan and thereafter no option shall
be granted pursuant to the Plan.


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     20. GOVERNING LAW. This Plan and any agreements hereunder, shall be
interpreted and construed in accordance with the laws of the State of New Jersey
and applicable federal law.

     IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by the directors of the Company, Ocean Power Technologies, Inc. has
caused these presents to be duly executed in its name and behalf by its proper
officers thereunto duly authorized as of this 10th day of August, 1994.

                                        OCEAN POWER TECHNOLOGIES, INC.


                                        By: /s/ George W. Taylor
                                            ------------------------------------
                                        Title: President


ATTEST:


/s/ Charles F. Dunleavy
-------------------------------------
Secretary

[SEAL]


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