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                                                                    EXHIBIT 10.7

                         OCEAN POWER TECHNOLOGIES, INC.

                                 2001 STOCK PLAN

     1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract and
retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees, Non-Employee Directors and
Consultants (sometimes referred to herein as "Participants") of the Company and
its Subsidiaries and to promote the success of the Company's business.

     2. CERTAIN DEFINITIONS. As used herein, the following definitions shall
apply:

          (a) "Award" or "Awards," except where referring to a particular
category of grant under the Plan, shall include Incentive Stock Options,
Nonstatutory Stock Options, Restricted Stock Awards and Stock Awards.

          (b) "Board" means the Board of Directors of the Company.

          (c) "Code" means the Internal Revenue Code of 1986, as amended,
including any successor law thereto.

          (d) "Committee" means any Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.

          (e) "Common Stock" means the Common Stock, without par value, of the
Company.

          (f) "Company" means Ocean Power Technologies, Inc., a New Jersey
corporation.

          (g) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services or provide
goods and is compensated for such goods or services, and any Non-Employee
Director of the Company whether compensated for such services or not.

          (h) "Consulting Relationship" means the relationship established by
the provision of ongoing services by a Consultant to the Company. A Consulting
Relationship is terminated when the Company delivers written notice to the
Consultant that the Company no longer wishes to utilize the services of such
Consultant; provided, however, that in the case of any Non-Employee Director,
the Consulting Relationship is terminated on the date upon which such
Non-Employee Director no longer serves on the Company's Board of Directors.

          (i) "Continuous Status as an Employee" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave; (ii) military leave; (iii) maternity leave; (iv)
any other leave of absence approved by the Board, provided that such leave is
for a period of not more than ninety (90) days, unless

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reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (v) transfers between locations of the Company or between the
Company, its Subsidiaries or its successor.

          (j) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company.

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

          (l) "Fair Market Value" means: (i) if the Common Stock is admitted to
trading on a United States securities exchange, or quotation on the Nasdaq
National Market System, the Nasdaq SmallCap Market or the National Association
of Securities Dealers ("NASD") OTC Bulletin Board, the Fair Market Value on any
date shall be the reported closing price for the Common Stock on such exchange
or system for such date (or in the absence of a reported closing price, the Fair
Market Value on any given date shall be the average of the highest bid and
lowest asked prices of the Common Stock reported for such date) or, if no sales
were reported for such date, for the last day for which a sale was reported
prior to the date for which the Fair Market Value is to be determined; (ii)
notwithstanding the foregoing, the Fair Market Value of the Common Stock on the
effective date of the Company's Initial Public Offering shall be the initial
offering price to the public of the Common Stock on such date; and (iii) in the
absence of an established market for the Common Stock, the Fair Market Value
thereof shall be determined in good faith by the Plan Administrator.

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

          (n) "Initial Public Offering" means the first underwritten public
offering pursuant to an effective registration statement under the Securities
Act (as defined below) covering the offer and sale of the Common Stock to the
public.

          (o) "Non-Employee Director(s)" means a "non-employee director" as
defined within the meaning of Rule 16b-3(b)(3) promulgated under the Exchange
Act.

          (p) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.

          (q) "Option" means a stock option granted pursuant to the Plan.

          (r) "Optioned Stock" means the Common Stock subject to an Option.

          (s) "Optionee" means an Employee, Consultant or Non-Employee Director
who receives an Option.

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

          (u) "Plan" means this 2001 Stock Plan.


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          (v) "Plan Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.

          (w) "Restricted Stock" means shares of Common Stock acquired pursuant
to a Restricted Stock Award under Section 12 below.

          (x) "Restricted Stock Award" means any Award granted pursuant to
Section 12 of the Plan.

          (y) "Securities Act" means the Securities Act of 1933, as amended.

          (z) "Share" means a share of the Common Stock, as may be adjusted from
time to time in accordance with Section 15 of the Plan.

          (aa) "Stock Award" means any award granted pursuant to Section 13 of
the Plan.

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

          (cc) "Termination for Cause" shall include, but not be limited to, a
finding by the Board of the Participant's: (i) performance of duties in an
incompetent manner; (ii) commission of any act of fraud, insubordination,
misappropriation or personal dishonesty relating to or involving the Company in
any material way; (iii) gross negligence; (iv) violation of any express
direction of the Company or any material violation of any rule, regulation,
policy or plan established by the Company from time to time regarding the
conduct of its employees or its business, if such violation is not remedied by
the Participant within thirty (30) days of receiving notice of such violation
from the Company; (v) violation of any obligation of Participant's Consulting
Relationship or Continuous Status as an Employee with the Company that is
demonstrably willful and deliberate on the Participant's part and is not
remedied by the Participant within thirty (30) days after receiving notice of
such violation from the Company; (vi) disclosure or use of confidential
information of the Company, other than as required in the performance of the
Participant's duties; (vii) actions that are clearly contrary to the best
interest of the Company; (viii) conviction of a crime constituting a felony or
any other crime involving moral turpitude, or if no conviction, but the
substantial weight of credible evidence indicates that the Participant has
committed such a crime; or (ix) the Participant's use of alcohol or any unlawful
controlled substance to an extent that it interferes with the performance of the
Participant's duties.

     3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 15 of
the Plan, the initial maximum number of shares of Common Stock that may be
issued under the Plan shall be 1,500,000. For purposes of the foregoing
limitation, the shares of Common Stock underlying any Awards which are
forfeited, canceled, reacquired by the Company, satisfied without the issuance
of Common Stock or otherwise terminated (other than by exercise) shall be added
back to the number of shares of Common Stock available for issuance under the
Plan. Common Stock


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to be issued under the Plan may be either authorized and unissued shares or
shares held in treasury by the Company.

     4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by: (i) the
full Board; or (ii) a committee of the Board comprised of two or more
Non-Employee Directors. Subject to the provisions of the Plan, the Plan
Administrator is authorized to:

          (a)  construe the Plan and any Award under the Plan;

          (b)  select the Directors, officers, Employees and Consultants of the
               Company and its Subsidiaries to whom Awards may be granted;

          (c)  determine the number of shares of Common Stock to be covered by
               any Award;

          (d)  determine and modify from time to time the terms and conditions,
               including the addition and limitation of restrictions, of any
               Award and to approve the form of written instrument evidencing
               Awards;

          (e)  accelerate at any time the exercisability or vesting of all or
               any portion of any Award and/or to include provisions in awards
               providing for such acceleration;

          (f)  impose limitations on Awards, including limitations on transfer
               and repurchase provisions;

          (g)  extend the exercise period within which Options may be exercised;
               and

          (h)  determine at any time whether, to what extent, and under what
               circumstances Common Stock and other amounts payable with respect
               to an Award shall be deferred either automatically or at the
               election of the Participant and whether and to what extent the
               Company shall pay or credit amounts constituting interest (at
               rates determined by the Plan Administrator) or dividends or
               deemed dividends on such deferrals.

          (i)  The determination of the Plan Administrator on any such matters
               shall be conclusive.

     5. DELEGATION OF AUTHORITY TO GRANT AWARDS. The Plan Administrator, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Plan Administrator's authority and duties with respect to granting
Awards to individuals who are not subject to the reporting provisions of Section
16 of the Securities Act or "covered employees" within the meaning of Section
162(m) of the Code. The Plan Administrator may revoke or amend the terms of such
a delegation at any time, but such revocation shall not invalidate prior actions
of the Co-Chairmen that were consistent with the terms of the Plan.


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     6. ELIGIBILITY.

          (a) Directors, officers, Employees and Consultants of the Company or
its Subsidiaries who, in the opinion of the Plan Administrator, are mainly
responsible for the continued growth and development and future financial
success of the business shall be eligible to participate in the Plan.

          (b) The Plan shall not confer upon any Participant any right with
respect to continuation of employment or Consulting Relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or Consulting Relationship at
any time, with or without cause.

     7. STOCK OPTIONS.

          (a) Options granted pursuant to the Plan may be either Options which
are Incentive Stock Options or Nonstatutory Stock Options. Incentive Stock
Options and Nonstatutory Stock Options shall be granted separately hereunder.
The Plan Administrator, shall determine whether and to what extent Options shall
be granted under the Plan and whether such Options granted shall be Incentive
Stock Options or Nonstatutory Stock Options; provided, however, that: (i)
Incentive Stock Options may be granted only to Employees of the Company or any
Subsidiary; and (ii) no Incentive Stock Option may be granted following the
tenth (10th) anniversary of the effective date of the Plan. The provisions of
the Plan and any Option Agreement pursuant to which Incentive Stock Options
shall be issued shall be construed in a manner consistent with Section 422 of
the Code (or any successor provision) and rules and regulations promulgated
thereunder.

          (b) To the extent that Options designated as Incentive Stock Options
(under all plans of the Company or any Parent or Subsidiary) become exercisable
by a Participant for the first time during any calendar year for Common Stock
having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000),
the portion of such Options which exceeds such amount shall be treated as
Nonstatutory Stock Options. For purposes of this Section 7, Options designated
as Incentive Stock Options shall be taken into account in the order in which
they were granted, and the Fair Market Value of Common Stock shall be determined
as of the time the Option with respect to such Common Stock is granted. If the
Code is amended to provide for a different limitation from that set forth in
this Section 7, such different limitation shall be deemed incorporated herein
effective as of the amendment date and with respect to such Options as required
or permitted by such amendment to the Code. If an Option is treated as an
Incentive Stock Option in part and as a Nonstatutory Stock Option in part by
reason of the limitation set forth in this Section 7, the Participant may
designate which portion of such Option the participant is exercising. In the
absence of such designation, the Participant shall be deemed to have exercised
the Incentive Stock Option portion of the Option first. Separate certificates
representing each such portion shall be issued upon the exercise of the Option.

     8. TERM OF PLAN. The Plan shall become effective on August 24, 2001,
provided the Plan has been previously adopted by the Board and approved by the
shareholders of the Company as described in Section 24 of the Plan. The Plan
shall remain in effect until terminated under Section 20 of the Plan.


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

     10. OPTION EXERCISE PRICE AND CONSIDERATION.

          (a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:

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

                    (A) granted to an Employee who, at the time of the grant of
     such Incentive Stock Option, owns stock representing more than ten percent
     (10%) of the voting power of all classes of stock of the Company or any
     Parent or Subsidiary, the per Share exercise price shall be no less than
     one hundred ten percent (110%) of the Fair Market Value per Share on the
     date of grant.

                    (B) granted to any Employee, the per Share exercise price
     shall be no less than one hundred percent (100%) of the Fair Market Value
     per Share on the date of grant.

               (ii) In the case of a Nonstatutory Stock Option granted to any
person, the per Share exercise price shall be no less than eighty-five percent
(85%) of the Fair Market Value per Share on the date of grant.

          (b) At the discretion of the Plan Administrator, the Option exercise
price of each share purchased pursuant to an Option shall be paid in full at the
time of each exercise of the Option: (i) in cash; (ii) by check; (iii) by cash
equivalent; (iv) by delivering to the Company a notice of exercise with an
irrevocable direction to a broker-dealer registered under the Exchange Act to
sell a sufficient portion of the shares and deliver the sale proceeds directly
to the Company to pay the exercise price; (v) in the discretion of the Plan
Administrator, through the delivery to the Company of previously-owned shares of
Common Stock having an aggregate Fair Market Value equal to the Option exercise
price of the shares being purchased pursuant to the exercise of the Option;
provided, however, that shares of Common Stock delivered in payment of the
exercise price must have been held by the Participant for at least six (6)
months in order to be utilized to pay the exercise price; or (vi) in the
discretion of the Plan Administrator, through any combination of the foregoing
methods of payment.

     11. EXERCISE OF OPTION.

          (a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Plan


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Administrator, including performance criteria with respect to the Company and/or
the Optionee, and as shall be permissible under the terms of the Plan.

               i. An Option may not be exercised for a fraction of a Share.

               ii. An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company through a method of payment allowable under Section 10(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 15 of the Plan.

          (b) Termination of Employment. Except as set forth below, in the event
of termination of an Optionee's Consulting Relationship or Continuous Status as
an Employee with the Company (as the case may be), such Optionee may, but only
within ninety (90) days (or such other period of time as is determined by the
Board, with such determination in the case of an Incentive Stock Option being
made at the time of grant of the Option and not exceeding ninety (90) days)
after the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
his or her Option to the extent that Optionee was entitled to exercise it at the
date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of such termination, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.

          (c) Disability of Optionee. Notwithstanding the provisions of Section
11(b) above, in the event of termination of an Optionee's Consulting
Relationship or Continuous Status as an Employee with the Company (as the case
may be) as a result of his or her total and permanent disability (as defined in
Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent the Optionee was otherwise entitled to exercise it at
the date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.

          (d) Death of Optionee.

               (i) In the event of the death of an Optionee during the term of
Optionee's Consulting Relationship or Continuous Status as an Employee with the
Company (as the case may be), the Option may be exercised, at any time within
twelve (12) months following the date of death (but in no event later than the
expiration date of the term of such Option as set


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forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent the Optionee was entitled to exercise the Option at the date of
death. To the extent that Optionee was not entitled to exercise the Option at
the date of death, or if the Option is not exercised by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance to the extent so entitled within the time specified herein, the
Option shall terminate.

               (ii) In the event of the death of an Optionee within thirty (30)
days after the termination of Optionee's Consulting Relationship or Continuous
Status as an Employee with the Company (as the case may be) pursuant to Section
11(b) above, the Option may be exercised, at any time within six (6) months
following the date of death (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of death, or if the Option is not exercised by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance to the extent so entitled within the time
specified herein, the Option shall terminate.

          (e) Termination for Cause or Post-Termination Relationship with
Competing Business. Notwithstanding the provisions of Section 11(b) above, in
the event of "Termination for Cause" of an Optionee's Consulting Relationship or
Continuous Status as an Employee with the Company (as the case may be) or in the
event that such Optionee becomes an employee or consultant of a Competing
Business (as defined herein), any Option held by the Optionee, whether vested or
unvested, shall forthwith terminate. In addition to the immediate forfeiture of
all Options upon the occurrence of the events specified in the preceding
sentence, Optionee shall automatically forfeit all shares underlying any
exercised portion of an Option for which the Company has not yet delivered the
share certificates, upon refund by the Company of the exercise price paid by the
Optionee for such Shares. For purposes of this Plan, the term "Competing
Business" shall mean any person, corporation or other entity engaged in the
business of: (i) designing, developing, making or having made, selling or
marketing power generating equipment which utilizes ocean waves or water flows;
or (ii) selling or attempting to sell any product or service which is the same
as or similar to products or services sold by the Company within the last year
prior to termination of such Participant's employment or Consulting
Relationship, as the case may be, hereunder.

     12. RESTRICTED STOCK AWARDS.

          (a) The Plan Administrator may grant Restricted Stock Awards to any
officer, Employee or Consultant of the Company and its Subsidiaries. A
Restricted Stock Award entitles the recipient to acquire shares of Common Stock
subject to such restrictions and conditions as the Plan Administrator may
determine at the time of grant. Conditions may be based on continuing employment
(or other business relationship) and/or achievement of pre-established
performance goals and objectives.

          (b) Upon execution of a written instrument setting forth the
Restricted Stock Award and paying any applicable purchase price, a Participant
shall have the rights of a


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<PAGE>

shareholder with respect to the Common Stock subject to the Restricted Stock
Award, including, but not limited to, the right to vote and receive dividends
with respect thereto; provided, however, that shares of Common Stock subject to
Restricted Stock Awards that have not vested shall be subject to the
restrictions on transferability described in Section 12(d) below. Unless the
Plan Administrator shall otherwise determine, certificates evidencing the
Restricted Stock shall remain in the possession of the Company until such
Restricted Stock is vested as provided in Section 12(c) below.

          (c) The Plan Administrator at the time of grant shall specify the date
or dates and/or the attainment of pre-established performance goals, objectives
and other conditions on which Restricted Stock shall become vested, subject to
such further rights of the Company or its assigns as may be specified in the
instrument evidencing the Restricted Stock Award. If the grantee or the Company,
as the case may be, fails to achieve the designated goals or the grantee's
relationship with the Company is terminated prior to the expiration of the
vesting period, the grantee shall forfeit all shares of Common Stock subject to
the Restricted Stock Award which have not then vested.

          (d) Unvested Restricted Stock may not be sold, assigned transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
herein or in the written instrument evidencing the Restricted Stock Award.

     13. STOCK AWARDS. The Plan Administrator may, in its sole discretion, grant
(or sell at a purchase price determined by the Plan Administrator) a Stock Award
to any officer, Employee or Consultant of the Company or its Subsidiaries,
pursuant to which such individual may receive shares of Common Stock free of any
vesting restrictions (a "Stock Award") under the Plan. Stock Awards may be
granted or sold as described in the preceding sentence in respect of past
services or other valid consideration, or in lieu of any cash compensation due
to such individual.

     14. WITHHOLDING TAX OBLIGATIONS.

          (a) Whenever Shares are to be issued under the Plan, the Company shall
have the right to require the Participant to remit to the Company an amount
sufficient to satisfy applicable federal, state and local tax withholding
requirements prior to the delivery of any certificate for Shares; provided,
however, that in the case of a Participant who receives an Award of Shares under
the Plan which is not fully vested, the Participant shall remit such amount on
the first business day following the Tax Date. The "Tax Date" for purposes of
this Section 14 shall be the date on which the amount of tax to be withheld is
determined. If a Participant makes a disposition of shares acquired upon the
exercise of an Incentive Stock Option within either two (2) years after the
Option was granted or one (1) year after its exercise by the Participant, the
Participant shall promptly notify the Company and the Company shall have the
right to require the Participant to pay to the Company an amount sufficient to
satisfy federal, state and local tax withholding requirements.

          (b) A Participant who is obligated to pay the Company an amount
required to be withheld under applicable tax withholding requirements may pay
such amount: (i) in cash; (ii) in the discretion of the Plan Administrator,
through the delivery to the Company of previously-owned shares of Common Stock
having an aggregate Fair Market Value on the Tax


                                      -9-

<PAGE>

Date equal to the tax obligation, provided that the previously owned shares
delivered in satisfaction of the withholding obligations must have been held by
the Participant for at least six (6) months; or (iii) in the discretion of the
Plan Administrator, through a combination of the procedures set forth in
subsections (i) and (ii) of this Section 14(b).

          (c) A Participant who is obligated to pay to the Company an amount
required to be withheld under applicable tax withholding requirements in
connection with either the exercise of a Nonstatutory Stock Option, the receipt
of a Restricted Stock Award or Stock Award under the Plan may, in the discretion
of the Plan Administrator, elect to satisfy this withholding obligation, in
whole or in part, by requesting that the Company withhold shares of stock
otherwise issued to the Participant having a Fair Market Value on the Tax Date
equal to the amount of the tax required to be withheld; provided, however, that
shares may be withheld by the Company only if such withheld shares have vested.
Any fractional amount shall be paid to the Company by the Participant in cash or
shall be withheld from the Participant's next regular paycheck.

          (d) An election by a Participant to have shares of stock withheld to
satisfy federal, state and local tax withholding requirements pursuant to
Section 14(c) must be in writing and delivered to the Company prior to the Tax
Date.

     15. ADJUSTMENT OF NUMBER AND PRICE OF SHARES.

     Any other provision of the Plan notwithstanding:

          (a) If, through or as a result of any merger, consolidation, sale of
all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, the outstanding shares of Common Stock are
increased or decreased or are exchanged for a different number or kind of shares
or other securities of the Company, or additional shares or new or different
shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, the
Plan Administrator shall make an appropriate or proportionate adjustment in: (i)
the number of Options that can be granted to any one individual Participant;
(ii) the number and kind of shares or other securities subject to any then
outstanding Awards under the Plan; (iii) the price for each share subject to any
then outstanding Options under the Plan, without changing the aggregate exercise
price (i.e., the exercise price multiplied by the number of shares) as to which
such Options remain exercisable; and (iv) the maximum number of shares that may
be issued under the Plan. The adjustment by the Plan Administrator shall be
final, binding and conclusive.

          (b) In the event that, by reason of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation, the
Board shall authorize the issuance or assumption of an Option or Options in a
transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Plan Administrator may grant an Option or
Options upon such terms and conditions as it may deem appropriate for the
purpose of assumption of the old Option, or substitution of a new Option for the
old Option, in conformity with the provisions of Section 424(a) of the Code and
the rules and regulations thereunder, as they may be amended from time to time.


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<PAGE>

          (c) No adjustment or substitution provided for in this Section 15
shall require the Company to issue or to sell a fractional share under any
Option Agreement or share award agreement and the total adjustment or
substitution with respect to each Option and share award agreement shall be
limited accordingly.

          (d) In the case of the dissolution or liquidation of the Company, the
Plan and all Awards granted hereunder shall terminate. In the event of such
proposed termination, each Participant shall be notified of such termination and
shall be permitted to exercise for a period of at least fifteen (15) days prior
to the date of such termination all Options held by such Participant which are
then exercisable.

          (e) In the case of: (i) a merger, reorganization or consolidation in
which the Company is acquired by another person or entity (other than a holding
company formed by the Company); (ii) the sale of all or substantially all of the
assets of the Company to an unrelated person or entity which is not an
"affiliate" (as defined in Rule 144 of the Securities Act) of the Company; or
(iii) the sale of all of the capital stock of the Company to an unrelated person
or entity which is not an "affiliate" of the Company (in each case, a
"Fundamental Transaction"), all Options shall be assumed or equivalent options
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation. For the purposes of this paragraph, the Options
shall be considered assumed if, following the Fundamental Transaction, the
Options confer the right to purchase, for each Share of stock subject to the
Options immediately prior to the Fundamental Transaction, the consideration
(whether stock, cash, or other securities or property) received in the
Fundamental Transaction by holders of Common Stock for each Share held on the
effective date of the Fundamental Transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the Fundamental Transaction was not solely common
stock of the successor corporation or its Parent, the Board may, with the
consent of the successor corporation and the Participant, provide for the
consideration to be received upon the exercise of the Options, for each Share of
subject to the Options, to be solely common stock of the successor corporation
or its Parent equal in Fair Market Value to the per share consideration received
by holders of Common Stock in the Fundamental Transaction.

          In the event that such successor corporation does not agree to assume
the Options or to substitute equivalent options, the Board shall provide for
each Optionee to have the right to exercise all Options then held by such
Optionee, including Options which would not otherwise be exercisable. In such
event, the Board shall notify each Optionee that such Options shall be fully
exercisable for a period of fifteen (15) days from the date of receipt of such
notice, and that such Options will terminate upon the expiration of such period.

          Notwithstanding anything in the Plan to the contrary, the acceleration
of exercisability in this Section shall not occur in the event that such
acceleration would, in the opinion of the Company's independent auditors, make
the Fundamental Transaction ineligible for pooling of interests accounting
treatment and the Company intends to use such treatment with respect to such
transaction. The Board shall obtain a written statement from the Company's
independent auditors with respect to the effect of accelerated exercisability of
outstanding Options prior to providing any Optionee with the notice contemplated
by this Section.


                                      -11-

<PAGE>

          (f) In the event that the Company shall be merged or consolidated with
another corporation or entity, other than with a corporation or entity which is
an "affiliate" of the Company, under the terms of which holders of capital stock
of the Company will receive upon consummation thereof a cash payment for each
share of capital stock of the Company surrendered pursuant to such transaction
(the "Cash Purchase Price"), the Board may provide that all outstanding options
shall terminate upon consummation of such transaction and each Optionee shall
receive, in exchange therefor, a cash payment equal to the amount (if any) by
which (i) the Cash Purchase Price multiplied by the number of shares of Capital
Stock of the Company subject to outstanding options held by such optionee
exceeds (ii) the aggregate exercise price of such options.

     16. NONTRANSFERABILITY. A Participant's rights under the Plan, including
the right to any shares or amounts payable may not be assigned, pledged, or
otherwise transferred except, in the event of a Participant's death, to the
Participant's designated beneficiary or, in the absence of such a designation,
by will or by the laws of descent and distribution; provided, however, that the
Plan Administrator may, in its discretion, at the time of grant of a
Nonstatutory Stock Option or by amendment of an Option Agreement for an
Incentive Stock Option or a Nonstatutory Stock Option, provide that Options
granted to or held by a Participant may be transferred, in whole or in part, to
one or more transferees and exercised by any such transferee, provided further
that: (i) any such transfer must be without consideration; (ii) each transferee
must be a member of such Participant's "immediate family" (as defined below) or
a trust, family limited partnership or other estate planning vehicle established
for the exclusive benefit of one or more members of the Participant's immediate
family; and (iii) such transfer is specifically approved by the Plan
Administrator following the receipt of a written request for approval of the
transfer; and provided further that any Incentive Stock Option which is amended
to permit transfers during the lifetime of the Participant shall, upon the
effectiveness of such amendment, be treated thereafter as a Nonstatutory Stock
Option. In the event an Option is transferred as contemplated in this Section,
such transfer shall become effective when approved by the Plan Administrator and
such Option may not be subsequently transferred by the transferee other than by
will or the laws of descent and distribution. Any transferred Option shall
continue to be governed by and subject to the terms and conditions of this Plan
and the relevant Option Agreement, and the transferee shall be entitled to the
same rights as the Participant as if no transfer had taken place. As used in
this Section, "immediate family" shall mean, with respect to any person, any
spouse, child, stepchild or grandchild, and shall include relationships arising
from legal adoption.

     17. TERMINATION - CERTAIN FORFEITURES. Notwithstanding any other provision
of the Plan to the contrary, a Participant shall have no right to exercise any
Option or vest or receive payment of any Restricted Stock Award or Stock Award
if the Participant is Terminated for Cause or (b) if following the Participant's
termination of employment from the Company and prior to the Company's delivery
of the shares of Common Stock underlying an Award, the Participant becomes an
officer or director of, a consultant to or employed by a Competing Business.
Furthermore, notwithstanding any other provision of the Plan to the contrary, in
the event that a Participant receives or is entitled to the delivery or vesting
of Common Stock pursuant to an Award during the twelve (12) month period prior
to the Participant's termination from the Company or during the twelve (12)
months following the Participant's termination from the Company, the Company in
its sole discretion, may require the Participant to return or forfeit the cash
and/or Common Stock received with respect to such award (or its economic value
as of


                                      -12-

<PAGE>

(i) the date of the exercise of Options; (ii) the date immediately following the
end of the Restricted Period for Restricted Stock Awards; or (iii) the date of
grant with respect to Stock Awards, as the case may be) in the event that the
Participant becomes an officer or director of, a consultant to or employed by a
Competing Business within eighteen (18) months of such Participant's termination
from the Company. The Company's right to require forfeiture under this Section
17 must be exercised within ninety (90) days after the discovery of an
occurrence triggering the Plan Administrator's right to require forfeiture but
in no event later than twenty-four (24) months after the Participant's
termination from the Company.

     18. RIGHT OF FIRST REFUSAL. Prior to an Initial Public Offering, if at any
time Optionee desires to sell, encumber, or otherwise dispose of the Shares,
Optionee shall first offer the Shares to the Company by giving the Company
written notice disclosing: (i) the name of the proposed transferee of the
Shares; (ii) the certificate number and number of shares of Common Stock
proposed to be transferred or encumbered; (iii) the proposed price; (iv) all
other terms of the proposed transfer; and (v) a written copy of the proposed
offer. Within thirty (30) days after receipt of such notice, the Company shall
have the option to purchase all or part of such Shares at the same price and on
the same terms as contained in such notice.

     The Board, in its sole discretion, may waive all or a portion of the
Company's right of first refusal pursuant to this Section and the Company's
repurchase right pursuant to Section 19 below. If the Company's right of first
refusal or repurchase right is so waived, the Board may, in its sole discretion,
pass such right to the remaining stockholders of the Company. In such event,
each stockholder may purchase that number of Shares equal to his or her
proportionate share ownership in the Company, as determined by the Board. To the
extent that a stockholder has been given such right and does not purchase his or
her allotment, the other stockholders shall have the right to purchase such
allotment on the same basis.

     In the event the Company or the Company's stockholders elect to purchase
less than all of the Shares, as provided above, Optionee shall have the right to
sell, encumber or otherwise dispose of such Shares on the terms of the transfer
set forth in the written notice to the Company, provided such transfer is
effected within thirty (30) days after the expiration of the 30-day option
period. If the transfer is not effected within such period, the Company must
again be given an option to purchase, as provided above.

     On and after an Initial Public Offering, the Company shall have no further
right to purchase the Shares under this Section or Section 19 below.

     19. REPURCHASE RIGHTS OF THE COMPANY. Optionee understands that the Company
has the option to repurchase any Shares issued by the Company in connection with
the grant of Stock Awards or upon the exercise of any portion of outstanding
Options; provided, however, that such repurchases may only be made prior to the
effective date of an Initial Public Offering. Such repurchases shall be at the
Fair Market Value of the Shares repurchased as of the date on which the Company
exercises such repurchase option.


                                      -13-

<PAGE>

     20. AMENDMENT AND TERMINATION OF THE PLAN.

          (a) Amendment and Termination. The Board may at any time amend, alter,
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.

          (b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.

     21. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant
to any Award under the Plan unless the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

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

     22. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

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

     23. AGREEMENTS. Options and Restricted Stock Awards shall be evidenced by
written agreements in such form as the Board shall approve from time to time.

     24. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.


                                      -14-

<PAGE>

     25. INFORMATION TO OPTIONEES. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.

                                      *****


                                      -15-
<PAGE>



THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF
IN THE US. NO SUCH SALE OR DISPOSITION IN THE US MAY BE EFFECTED WITHOUT AN
EFFECTIVE US REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.

                       NONSTATUTORY STOCK OPTION AGREEMENT
                        (ENTERPRISE MANAGEMENT INCENTIVE)

                            DATE OF GRANT: __________

                             VESTING DATE: __________

     OCEAN POWER TECHNOLOGIES, INC., a New Jersey corporation (the "Company"),
on [__________] granted to [_____________] (the "Optionee") an Option to
purchase a total of [___________] shares of Common Stock (the "Shares"), at the
price determined as provided herein, and in all respects subject to the terms,
definitions and provisions of the 2001 Stock Plan (the "Plan") adopted by the
Company, which is incorporated herein by reference. Unless otherwise defined
herein, capitalized terms shall have the same defined meanings as set forth in
the Plan.

     1. NATURE OF THE OPTION. This Option is a Nonstatutory Stock Option for the
purposes of the Plan and is granted under Schedule 5 to the Income Tax (Earnings
and Pensions) Act 2003 (Enterprise Management Incentives) ("Schedule 5"). The
Optionee is an employee of the Company or any of its Subsidiaries and satisfies
the employment and working time requirements set out in paragraphs 25 and 26 of
Schedule 5. The Option is being granted for commercial reasons in order to
recruit or retain the Optionee and not as part of a scheme or arrangement the
main purpose (or one of the main purposes) of which is the avoidance of tax.

     2. EXERCISE PRICE. The exercise price is US $___________ for each share of
Common Stock, and is not less than eighty five percent (85%) of the Fair Market
Value per share of Common Stock on the date of grant, as determined by the
Board.

     3. CONDITIONS.

(i.) (i) Declaration. The Optionee shall within 30 days (or such longer period
as permitted by the Board) immediately following the date of grant give a
declaration to the Company or any Subsidiary of the Company (in the form
determined by the Board) that he meets the requirements of paragraph 26 of
Schedule 5 (commitment of working time) in relation to this Option. If the
Optionee fails to provide the declaration referred to above within such period,
the Board shall give at least seven days' notice to the Optionee requiring him
to provide such declaration and if the Optionee fails to provide that
declaration by the expiry of the notice, the Board may, in its absolute
discretion, determine that this Option shall lapse immediately and be deemed
never to have been granted.

<PAGE>

     4. EXERCISE OF OPTION. This Option shall be exercisable during its term in
accordance with the provisions of Section 10 of the Plan as follows:

     (i) Right to Exercise.

          (a) Subject to subsections 4(i)(b), (c), (d), (e) and (f) below,
     shares subject to this Option shall become exercisable based upon the
     following schedule until all of such shares are exercisable:

               Months from Vesting Date   Percentage Exercisable


          (b) This Option may not be exercised for a fraction of a Share.

          (c) In the event of Optionee's death, disability or termination, the
     exercisability of this Option is governed by Sections 8, 9, 10 and 13
     below, subject to the limitations and conditions contained in subsections
     4(i)(d), (e) and (f) hereof.

          (d) In no event may this Option be exercised after the date of
     expiration of the term of this Option as set forth in Section 13 below.

          (e) This Option may not be exercised unless and until the Company (or
     any Subsidiary of the Company) has received from the Optionee a duly
     completed joint election with the Company, his employer or other company
     (in the form prescribed by the Board) to the effect that the Optionee will
     become liable for the whole of any secondary Class 1 national insurance
     contributions which may arise in connection with this Option.

          (f) If the Board so determines, this Option may not be exercised
     unless and until the Optionee enters into a joint election under Section
     431(1) of the Income Tax (Earnings and Pensions) Act 2003 (in the form
     prescribed by the Board) for the full disapplication of Chapter 2 of Part 7
     of that Act.

     (ii) Method of Exercise. This Option shall be exercisable by written notice
in the form attached as Exhibit A, which shall state the election to exercise
the Option, the number of Shares in respect of which the Option is being
exercised, and such other representations and agreements as to the holder's
investment intent with respect to such shares of Common Stock as may be required
by the Company pursuant to the provisions of the Plan. Such written notice shall
be signed by Optionee and shall be delivered in person or by certified mail to
the President, Secretary or Chief Financial Officer of the Company or such other
agent designated in writing by the Company. The written notice shall be
accompanied by payment of the exercise price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
exercise price. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the


                                       2

<PAGE>

Option. The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option.

          No shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.

     5. INVESTMENT REPRESENTATIONS; RESTRICTIONS ON TRANSFER

     (i) By receipt of this Option, by its execution and by its exercise in
whole or in part, Optionee represents to the Company the following as they
pertain to sales of Shares in the US:

          (a) Optionee understands that this Option and any Shares purchased
     upon its exercise are securities, the issuance of which requires compliance
     with US federal and US state securities laws.

          (b) Optionee is aware of the Company's business affairs and financial
     condition and has acquired sufficient information about the Company to
     reach an informed and knowledgeable decision to acquire the securities.
     Optionee is acquiring these securities for investment for Optionee's own
     account only and not with a view to, or for resale in the US in connection
     with, any "distribution" thereof within the meaning of the US Securities
     Act of 1933, as amended (the "Securities Act").

          (c) Optionee acknowledges and understands that the securities
     constitute "restricted securities" under the US Securities Act and cannot
     be sold in the US unless they are subsequently registered under the
     Securities Act or an exemption from such registration is available.
     Optionee further acknowledges and understands that the Company is under no
     obligation to register the securities in the US. Optionee understands that
     the certificate evidencing the securities in the US will be imprinted with
     a legend which prohibits the transfer of the securities unless they are
     registered or such registration is not required in the opinion of counsel
     satisfactory to the Company and any other legend required under applicable
     state securities laws.

          (d) Optionee is familiar with the provisions of Rule 701 and Rule 144,
     each promulgated under the US Securities Act, which, in substance, permit
     limited public resale in the US of "restricted securities" acquired,
     directly or indirectly, from the issuer thereof, in a non-public offering
     subject to the satisfaction of certain conditions. Rule 701 provides that
     if the issuer qualifies under Rule 701 at the time of exercise of the
     Option by the Optionee, such exercise will be exempt from registration
     under the US Securities Act. In the event the Company later becomes subject
     to the reporting requirements of Section 13 or 15(d) of the US Securities
     Exchange Act of 1934, ninety (90) days thereafter the securities exempt
     under Rule 701 may be resold in the US, subject to the satisfaction of
     certain of the conditions specified by Rule 144, including among other
     things: (1) the sale being made through a broker in an unsolicited
     "broker's transaction" or in transactions directly with a market maker (as
     said term is defined under


                                       3
<PAGE>

     the US Securities Exchange Act of 1934); and, in the case of an affiliate,
     (2) the availability of certain public information about the Company, and
     the amount of securities being sold during any three-month period not
     exceeding the limitations specified in Rule 144(e), if applicable.
     Notwithstanding this paragraph 5(i)(d), the Optionee acknowledges and
     agrees to the restrictions set forth in paragraph 5(ii) below.

          In the event that the Company does not qualify under Rule 701 at the
     time of exercise of the Option, then the securities may be resold in the US
     in certain limited circumstances subject to the provisions of Rule 144,
     which requires among other things: (1) the availability of certain public
     information about the Company; (2) the resale occurring not earlier than
     the time period prescribed by Rule 144 after the party has purchased, and
     made full payment for, within the meaning of Rule 144, the securities to be
     sold; and (3) in the case of an affiliate, or of a non-affiliate who has
     held the securities less than the time period prescribed by Rule 144, the
     sale being made through a broker in an unsolicited "broker's transaction"
     or in transactions directly with a market maker (as said term is defined
     under the US Securities Exchange Act of 1934) and the amount of securities
     being sold during any three month period not exceeding the specified
     limitations stated therein, if applicable.

     (ii) Optionee agrees, in connection with an underwritten public offering of
the Company's securities in the US, (1) not to sell, make short sale of, loan,
grant any options for the purchase of, or otherwise dispose of any shares of
Common Stock of the Company held by Optionee (other than those shares included
in the registration) without the prior written consent of the underwriters
managing such underwritten public offering of the Company's securities for a
period of one hundred eighty (180) days from the effective date of such
registration (the "Lock Up Period"), and (2) further agrees to execute any
agreement reflecting clause (1) above, or extending the Lock Up Period, as may
be requested by the underwriters at the time of the US public offering.

     6. METHOD OF PAYMENT. Payment of the exercise price for each Share shall be
paid in full at the time of each exercise of the Option: (i) in cash; (ii) by
check; (iii) by cash equivalent; (iv) in the discretion of the Plan
Administrator, by delivering to the Company a notice of exercise with an
irrevocable direction to a broker-dealer registered under the Exchange Act to
sell a sufficient portion of the shares and deliver the sale proceeds directly
to the Company to pay the exercise price; (v) in the discretion of the Plan
Administrator, through the delivery to the Company of previously-owned shares of
Common Stock having an aggregate Fair Market Value equal to the Option exercise
price of the shares being purchased pursuant to the exercise of the Option;
provided, however, that shares of Common Stock delivered in payment of the
exercise price must have been held by the Optionee for at least six (6) months
in order to be utilized to pay the exercise price; or (vi) in the discretion of
the Plan Administrator, through any combination of the foregoing methods of
payment.

     7. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this option, the Company may require Optionee to make any


                                       4

<PAGE>

representation and warranty to the Company as may be required by any applicable
law or regulation.

     8. TERMINATION OF STATUS AS AN EMPLOYEE. Except as set forth below, in the
event of termination of Optionee's Continuous Status as an Employee with the
Company or any Subsidiary of the Company (as the case may be), Optionee may, but
only within ninety (90) days after the date of such termination (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 13 below), exercise this Option to the extent that Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise this Option at the date of such termination, or if
Optionee does not exercise this Option within the time specified herein, this
Option shall terminate.

     9. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 8
above, in the event of termination of Optionee's Continuous Status as an
Employee with the Company or any Subsidiary of the Company (as the case may be)
as a result of Optionee's total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the
date of Optionee's termination of employment (but in no event later than the
date of expiration of the term of this Option as set forth in Section 13 below),
exercise this Option to the extent Optionee was entitled to exercise it at the
date of such termination. To the extent that Optionee was not entitled to
exercise this Option at the date of termination, or if Optionee does not
exercise such Option (which Optionee was entitled to exercise) within the time
specified herein, this Option shall terminate.

     10. DEATH OF OPTIONEE. In the event of the death of Optionee:

     (i) during the term of this Option while an Employee of the Company or any
Subsidiary of the Company (as the case may be) and having been in Continuous
Status as an Employee since the date of grant of this Option, this Option may be
exercised, at any time within twelve (12) months following the date of death
(but in no event later than the date of expiration of the term of this Option as
set forth in Section 13 below), by Optionee's Personal Representatives, but only
to the extent the Optionee was entitled to exercise the Option at the date of
death; or

     (ii) in the event of Optionee's death within thirty (30) days after the
termination of Optionee's Continuous Status as an Employee pursuant to Section 8
above, this Option may be exercised, at any time within six (6) months following
the date of death (but in no event later than the date of expiration of the term
of this Option as set forth in Section 13 below), by Optionee's Personal
Representatives, but only to the extent of the right to exercise that had
accrued at the date of termination.

     11. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any
manner other than to Optionee's Personal Representatives on his death and may be
exercised during the lifetime of Optionee only by Optionee. The terms of this
Option shall be binding upon Optionee's Personal Representatives.

     12. PERSONAL REPRESENTATIVES. For the purposes of Sections 10 and 11, the
term "Personal Representatives" shall mean the legal personal representatives of
Optionee (being


                                       5

<PAGE>

either the executors of his will to whom a valid grant of probate has been made
or, if he dies intestate, the duly appointed administrator(s) of his estate) who
have produced to the Company evidence of their appointment as such.

     13. TERM OF OPTION. Notwithstanding anything herein to the contrary, this
Option may not be exercised more than ___ years from the date of grant of this
Option, and may be exercised during such term only in accordance with the Plan
and the terms of this Option.

     14. TAXATION.

     (i) Withholding. No Shares will be issued or transferred pursuant to the
exercise of this Option unless and until Optionee pays to the Company, or makes
provision satisfactory to the Company for payment of, any federal, national,
foreign, state or local taxes (including any social security or national
insurance contributions) required by law to be withheld in respect of this
Option or which Optionee has agreed or elected to bear.

     (ii) EMI status. Neither the Company nor any Subsidiary of the Company
shall have any liability to Optionee if this Option (or any part thereof) does
not qualify or ceases to qualify as an enterprise management incentive option
under Schedule 5.

     15. TAX CONSEQUENCES. The Optionee understands that any of the foregoing
references to taxation are based on tax, national insurance and social security
laws and regulations now in effect. The Optionee has reviewed with the
Optionee's own tax advisors the federal, state, local and foreign tax, social
security and national insurance consequences of the transactions contemplated by
this Agreement. The Optionee is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents. The Optionee
understands that the Optionee (and not the Company) shall be responsible for the
Optionee's own tax, social security and national insurance liability that may
arise as a result of the transactions contemplated by this Agreement together
with any secondary Class 1 national insurance contributions which Optionee has
elected to bear.

     16. NO EMPLOYMENT CLAIMS. The rights and obligations of Optionee under the
terms of his office or employment with the Company, any past or present
Subsidiary of the Company, or associated or affiliate company of the Company
shall not be affected by his participation in the Plan or the grant of this
Option or any right which he may have to participate therein, and Optionee
hereby waives all and any rights to compensation or damages in consequence of
the termination of his office or employment with any such company for any
reasons whatsoever (whether lawful or unlawful and including, without prejudice
to the generality of the foregoing, in circumstances giving rise to a claim for
wrongful dismissal) insofar as those rights arise or may arise from his ceasing
to have rights under or being entitled to exercise this option in whole or in
part as a result of such termination, or from the loss or diminution in value of
such rights or entitlements.


                                       6

<PAGE>
 17. DATA PROTECTION. Optionee agrees to the receipt, holding and processing of
information in connection with the grant, vesting, exercise, taxation and
general administration of the Plan and this Option by the Company or any
Subsidiary of the Company and any of their advisers or agents and to the
transmission or transfer of such information outside of the European Economic
Area for this purpose and, in particular, the transmission or transfer of such
information to the Company in the USA.

     18. THIRD PARTY RIGHTS. The Contracts (Rights of Third Parties) Act 1999
shall not apply to this Option and no person other than parties hereto shall
have any rights under it nor shall it be enforceable under that Act by any
person other than the parties to it.

     19. OPTIONEE ACKNOWLEDGEMENT.

     (i) Optionee acknowledges and agrees that the vesting of shares pursuant to
Section 4 hereof is earned only by continuing service as an employee of the
Company or any Subsidiary of the Company (not through the act of being hired,
being granted this Option or acquiring shares hereunder). Optionee further
acknowledges and agrees that this Option, the Plan which is incorporated herein
by reference, the transactions contemplated hereunder and the vesting schedule
set forth herein do not constitute an express or implied promise of continued
engagement as an employee for the vesting period, for any period, or at all, and
shall not interfere with Optionee's right or the company's right to terminate
Optionee's employment at any time, with or without cause.

     (ii) Optionee acknowledges receipt of a copy of the Plan, a copy of which
is annexed hereto, represents that Optionee is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee has reviewed the Plan and this Option in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board or of the Committee upon any questions arising
under the Plan. Optionee further agrees to notify the Company upon any change in
his residence address.

IN WITNESS WHEREOF the parties have executed this document as a Deed and the
Company has caused this option to be executed under its corporate seal by its
duly authorised officer on the following date. This option shall take effect as
a deed and sealed instrument.


DATED:
       --------------, ---------

OCEAN POWER TECHNOLOGIES INC.              By:
                                               ---------------------------------
                                           Name:
                                                 -------------------------------
                                           Title:
                                                  ------------------------------


                                       7

<PAGE>


EXECUTED as a DEED by OPTIONEE:            By:
                                               ---------------------------------
                                               (Signature of Optionee)
                                           Name:
                                                 -------------------------------
                                                 (Printed Name of Optionee)

In the presence of:

Witness signature:
                   --------------------
Witness name:
                   --------------------

Witness address:
                   --------------------

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

Witness occupation:
                   --------------------


                                       8

<PAGE>

                                    EXHIBIT A

                       NOTICE OF EXERCISE OF STOCK OPTION

TO: ____________

FROM: __________

DATE: __________

RE:  Exercise of Stock Option

     I hereby exercise my option to purchase _____________shares of Common Stock
at $______________________ per share (total exercise price of $_______________),
effective today's date. This notice is given in accordance with the terms of my
Stock Option Agreement dated _______________. The option price and vested amount
is in accordance with Sections 2 and 4 of the Stock Option Agreement.

     Attached is a check payable to Ocean Power Technologies, Inc. for the total
exercise price of the shares being purchased. The undersigned confirms the
representations made in Section 5 of the Stock Option Agreement.

          Please prepare the stock certificate in the following name(s):

                      ___________________________________

                      ___________________________________

If the stock is to be registered in a name other than your name, please so
advise the Company. The Stock Option Agreement requires the Company's approval
for registration in a name other than your name and requires certain agreements
from any joint owner.

                                           Sincerely,


                                           -------------------------------------
                                           (Signature)


                                           -------------------------------------
                                           (Print or Type Name)

Letter and consideration

Received on _________________, 20__.


By:
    ------------------------------------


                                       9

<PAGE>

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.

                        INCENTIVE STOCK OPTION AGREEMENT

                          DATE OF GRANT: ______________

     OCEAN POWER TECHNOLOGIES, INC., a New Jersey corporation (the "Company"),
hereby grants to [_____] (the "Optionee") an Option to purchase a total of
[_________] shares of Common Stock (the "Shares"), at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the 2001 Stock Plan (the "Plan") adopted by the Company, which is
incorporated herein by reference. Unless otherwise defined herein, capitalized
terms shall have the same defined meanings as set forth in the Plan.

     1. NATURE OF THE OPTION. This Option is intended to qualify as an Incentive
Stock Option and may only be granted to an Employee of the Company.

     2. EXERCISE PRICE. The exercise price is $_____ for each share of Common
Stock, which price is not less than the fair market value per share of Common
Stock on the date of grant, as determined by the Board; provided, however, in
the event Optionee owns stock representing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of its
Parent or Subsidiary corporations immediately before this Option is granted,
said exercise price is not less than one hundred ten percent (110%) of the Fair
Market Value per share of Common Stock on the date of grant as determined by the
Board.

     3. EXERCISE OF OPTION. This Option shall be exercisable during its term in
accordance with the provisions of Section 10 of the Plan as follows:

     (i) Right to Exercise.

          (a) Subject to subsections 3(i)(b), (c), (d) and (e) below, shares
     subject to this Option shall become exercisable based upon the following
     schedule until all of such shares are exercisable:

<TABLE>
<CAPTION>
                 Months from Grant Date   Percentage Exercisable
                 ----------------------   ----------------------
<S>                                       <C>
                           12                        20%
                           24                        40
                           36                        60
                           48                        80
                           60                       100
</TABLE>

          (b) This Option may not be exercised for a fraction of a Share.

<PAGE>

          (c) In the event of Optionee's death, disability or other termination
     of employment, the exercisability of the option is governed by Sections 7,
     8, 9 and 11 below, subject to the limitations contained in subsections
     3(i)(d) and (e) hereof.

          (d) In no event may this Option be exercised after the date of
     expiration of the term of this Option as set forth in Section 11 below.

          (e) To the extent that options designated as Incentive Stock Options
     (under all plans of the Company or any Parent or Subsidiary) become
     exercisable by Optionee for the first time during any calendar year for
     Common Stock having a Fair Market Value greater than One Hundred Thousand
     Dollars ($100,000) (determined for each share as of the date of grant of
     the option covering such share), the portion of such options which exceeds
     such amount shall be treated as Nonstatutory Stock Options.

     (ii) Method of Exercise. This Option shall be exercisable by written notice
in the form attached as Exhibit A, which shall state the election to exercise
the Option, the number of Shares in respect of which the Option is being
exercised, and such other representations and agreements as to the holder's
investment intent with respect to such shares of Common Stock as may be required
by the Company pursuant to the provisions of the Plan. Such written notice shall
be signed by Optionee and shall be delivered in person or by certified mail to
the President, Secretary or Chief Financial Officer of the Company or such other
agent designated in writing by the Company. The written notice shall be
accompanied by payment of the exercise price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
exercise price. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option.

          No shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.

     4. Investment Representations; Restrictions on Transfer.

     (i) By receipt of this Option, by its execution and by its exercise in
whole or in part, Optionee represents to the Company the following:

          (a) Optionee understands that this Option and any Shares purchased
     upon its exercise are securities, the issuance of which requires compliance
     with federal and state securities laws.

          (b) Optionee is aware of the Company's business affairs and financial
     condition and has acquired sufficient information about the Company to
     reach an informed and knowledgeable decision to acquire the securities.
     Optionee is acquiring


                                       2

<PAGE>

     these securities for investment for Optionee's own account only and not
     with a view to, or for resale in connection with, any "distribution"
     thereof within the meaning of the Securities Act of 1933, as amended (the
     "Securities Act").

          (c) Optionee acknowledges and understands that the securities
     constitute "restricted securities" under the Securities Act and must be
     held indefinitely unless they are subsequently registered under the
     Securities Act or an exemption from such registration is available.
     Optionee further acknowledges and understands that the Company is under no
     obligation to register the securities. Optionee understands that the
     certificate evidencing the securities will be imprinted with a legend which
     prohibits the transfer of the securities unless they are registered or such
     registration is not required in the opinion of counsel satisfactory to the
     Company and any other legend required under applicable state securities
     laws.

          (d) Optionee is familiar with the provisions of Rule 701 and Rule 144,
     each promulgated under the Securities Act, which, in substance, permit
     limited public resale of "restricted securities" acquired, directly or
     indirectly, from the issuer thereof, in a non-public offering subject to
     the satisfaction of certain conditions. Rule 701 provides that if the
     issuer qualifies under Rule 701 at the time of exercise of the Option by
     the Optionee, such exercise will be exempt from registration under the
     Securities Act. In the event the Company later becomes subject to the
     reporting requirements of Section 13 or 15(d) of the Securities Exchange
     Act of 1934, ninety (90) days thereafter the securities exempt under Rule
     701 may be resold, subject to the satisfaction of certain of the conditions
     specified by Rule 144, including among other things: (1) the sale being
     made through a broker in an unsolicited "broker's transaction" or in
     transactions directly with a market maker (as said term is defined under
     the Securities Exchange Act of 1934); and, in the case of an affiliate, (2)
     the availability of certain public information about the Company, and the
     amount of securities being sold during any three-month period not exceeding
     the limitations specified in Rule 144(e), if applicable. Notwithstanding
     this paragraph 4(i)(d), the Optionee acknowledges and agrees to the
     restrictions set forth in paragraph 4(ii) below.

          In the event that the Company does not qualify under Rule 701 at the
     time of exercise of the Option, then the securities may be resold in
     certain limited circumstances subject to the provisions of Rule 144, which
     requires among other things: (1) the availability of certain public
     information about the Company; (2) the resale occurring not earlier than
     the time period prescribed by Rule 144 after the party has purchased, and
     made full payment for, within the meaning of Rule 144, the securities to be
     sold; and (3) in the case of an affiliate, or of a non-affiliate who has
     held the securities less than the time period prescribed by Rule 144, the
     sale being made through a broker in an unsolicited "broker's transaction"
     or in transactions directly with a market maker (as said term is defined
     under the Securities Exchange Act of 1934) and the amount of securities
     being sold during any three month period not exceeding the specified
     limitations stated therein, if applicable.

     (ii) Optionee agrees, in connection with an underwritten public offering of
the Company's securities, (1) not to sell, make short sale of, loan, grant any
options for the purchase


                                       3

<PAGE>

of, or otherwise dispose of any shares of Common Stock of the Company held by
Optionee (other than those shares included in the registration) without the
prior written consent of the underwriters managing such underwritten public
offering of the Company's securities for a period of one hundred eighty (180)
days from the effective date of such registration (the "Lock Up Period"), and
(2) further agrees to execute any agreement reflecting clause (1) above, or
extending the Lock Up Period, as may be requested by the underwriters at the
time of the public offering.

     5. METHOD OF PAYMENT. Payment of the exercise price for each Share shall be
paid in full at the time of each exercise of the Option: (i) in cash; (ii) by
check; (iii) by cash equivalent; (iv) by delivering to the Company a notice of
exercise with an irrevocable direction to a broker-dealer registered under the
Exchange Act to sell a sufficient portion of the shares and deliver the sale
proceeds directly to the Company to pay the exercise price; (v) in the
discretion of the Plan Administrator, through the delivery to the Company of
previously-owned shares of Common Stock having an aggregate Fair Market Value
equal to the Option exercise price of the shares being purchased pursuant to the
exercise of the Option; provided, however, that shares of Common Stock delivered
in payment of the exercise price must have been held by the Optionee for at
least six (6) months in order to be utilized to pay the exercise price; or (vi)
in the discretion of the Plan Administrator, through any combination of the
foregoing methods of payment.

     6. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.

     7. TERMINATION OF STATUS AS AN EMPLOYEE. Except as set forth below, in the
event of termination of Optionee's Continuous Status as an Employee, Optionee
may, but only within ninety (90) days after the date of such termination (but in
no event later than the date of expiration of the term of this Option as set
forth in Section 11 below), exercise this Option to the extent that Optionee was
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise this Option at the date of such
termination, or if Optionee does not exercise this Option within the time
specified herein, this Option shall terminate.

     8. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 7
above, in the event of termination of Optionee's Continuous Status as an
Employee as a result of Optionee's total and permanent disability (as defined in
Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months
from the date of Optionee's termination of employment (but in no event later
than the date of expiration of the term of this Option as set forth in Section
11 below), exercise this Option to the extent Optionee was entitled to exercise
it at the date of such termination. To the extent that Optionee was not entitled
to exercise this Option at the date of termination, or if Optionee does not
exercise such Option (which Optionee was entitled to exercise) within the time
specified herein, this Option shall terminate.

     9. DEATH OF OPTIONEE. In the event of the death of Optionee:


                                       4

<PAGE>

     (i) during the term of this Option while an Employee of the Company and
having been in Continuous Status as an Employee since the date of grant of this
Option, this Option may be exercised, at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 11 below), by Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death, subject to the limitations contained in Section
3(i)(e) above; or

     (ii) in the event of Optionee's death within thirty (30) days after the
termination of Optionee's Continuous Status as an Employee pursuant to Section 7
above, this Option may be exercised, at any time within six (6) months following
the date of death (but in no event later than the date of expiration of the term
of this Option as set forth in Section 11 below), by Optionee's estate or by a
person who acquired the right to exercise this Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination.

     10. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner other than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by Optionee. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of Optionee.

     11. TERM OF OPTION. Notwithstanding anything herein to the contrary, this
Option may not be exercised more than ten (10) years from the date of grant of
this Option, and may be exercised during such term only in accordance with the
Plan and the terms of this Option.

     12. RIGHT OF FIRST REFUSAL. Prior to an Initial Public Offering, if at any
time Optionee desires to sell, encumber, or otherwise dispose of the Shares,
Optionee shall first offer the Shares to the Company by giving the Company
written notice disclosing: (i) the name of the proposed transferee of the
Shares; (ii) the certificate number and number of shares of Common Stock
proposed to be transferred or encumbered; (iii) the proposed price; (iv) all
other terms of the proposed transfer; and (v) a written copy of the proposed
offer. Within thirty (30) days after receipt of such notice, the Company shall
have the option to purchase all or part of such Shares at the same price and on
the same terms as contained in such notice.

     The Board, in its sole discretion may waive all or a portion of the
Company's right of first refusal pursuant to this Section and the Company's
repurchase right pursuant to Section 13 below. If the Company's right of first
refusal or repurchase right is so waived, the Board may, in its sole discretion,
pass such right to the remaining stockholders of the Company. In such event,
each stockholder may purchase that number of Shares equal to his or her
proportionate share ownership in the Company, as determined by the Board. To the
extent that a stockholder has been given such right and does not purchase his or
her allotment, the other stockholders shall have the right to purchase such
allotment on the same basis.

     In the event the Company or the Company's stockholders elect to purchase
less than all of the Shares, as provided above, Optionee shall have the right to
sell, encumber or otherwise dispose of such Shares on the terms of the transfer
set forth in the written notice to the Company, provided such transfer is
effected within thirty (30) days after the expiration of the 30-day option


                                       5

<PAGE>

period. If the transfer is not effected within such period, the Company must
again be given an option to purchase, as provided above.

     On and after an Initial Public Offering, the Company shall have no further
right to purchase the Shares under this Section or Section 13 below.

     13. REPURCHASE RIGHTS OF THE COMPANY. Optionee understands that the Company
has the option to repurchase any Shares issued by the Company upon the exercise
of any portion of this Agreement, provided, however, that such repurchases shall
be made prior to the effective date of an Initial Public Offering. Such
repurchases shall be at the Fair Market Value of the Shares repurchased as of
the date on which the Company exercises such option.

     14. EARLY DISPOSITION OF STOCK. Optionee understands that, if Optionee
disposes of any Shares received under this Option within two (2) years after the
date of this Agreement or within one (1) year after such Shares were transferred
to Optionee, Optionee will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount generally
measured as the difference between the price paid for the Shares and the lower
of the Fair Market Value of the Shares at the date of exercise or the fair
market value of the Shares at the date of disposition. Any gain recognized on
such a premature sale of the Shares in excess of the amount treated as ordinary
income will be characterized as capital gain. Optionee hereby agrees to notify
the Company in writing within thirty (30) days after the date of any such
disposition. Optionee understands that if Optionee disposes of such Shares at
any time after the expiration of such two-year and one-year holding periods, any
gain on such sale will be treated as long-term capital gain.

     15. TAX CONSEQUENCES. The Optionee understands that any of the foregoing
references to taxation are based on federal income tax laws and regulations now
in effect. The Optionee has reviewed with the Optionee's own tax advisors the
federal, state, local and foreign tax consequences of the transactions
contemplated by this Agreement. The Optionee is relying solely on such advisors
and not on any statements or representations of the Company or any of its
agents. The Optionee understands that the Optionee (and not the Company) shall
be responsible for the Optionee's own tax liability that may arise as a result
of the transactions contemplated by this Agreement.

                                           Ocean Power Technologies, Inc.


                                           By:
                                               ---------------------------------
                                           Name: Dr. George W. Taylor
                                           Title: Chief Executive Officer


                                       6

<PAGE>

                                    EXHIBIT A

                       NOTICE OF EXERCISE OF STOCK OPTION

TO: _________________________________

FROM: _______________________________

DATE: _______________________________

RE: Exercise of Stock Option

     I hereby exercise my option to purchase ________________ shares of Common
Stock at $____________ per share (total exercise price of $____________),
effective today's date. This notice is given in accordance with the terms of my
Stock Option Agreement with a Grant Date of ________________. The option price
and vested amount is in accordance with Sections 2 and 3 of the Stock Option
Agreement.

     Attached is a check payable to Ocean Power Technologies, Inc. for the total
exercise price of the shares being purchased. The undersigned confirms the
representations made in Section 4 of the Stock Option Agreement.

         Please prepare the stock certificate in the following name(s):

                ________________________________________________

                ________________________________________________

     If the stock is to be registered in a name other than your name, please so
advise the Company. The Stock Option Agreement requires the Company's approval
for registration in a name other than your name and requires certain agreements
from any joint owner.

                                        Sincerely,


                                        ----------------------------------------
                                        (Signature)

                                        ----------------------------------------
                                        (Print or Type Name)

Letter and consideration
Received on __________________, 20__.

By:
    ---------------------------------


                                        7

<PAGE>

                            OPTIONEE ACKNOWLEDGEMENT

     OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
OPTION, THE COMPANY'S PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN
EMPLOYEE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.

     Optionee acknowledges receipt of a copy of the Plan, a copy of which is
annexed hereto, represents that Optionee is familiar with the terms and
provisions thereof, and hereby accepts this Option for ____________ shares, and
with a Grant Date of ____________, subject to all of the terms and provisions
thereof. Optionee has reviewed the Plan and this Option in their entirety, has
had an opportunity to obtain the advice of counsel prior to executing this
Option and fully understands all provisions of the Option. Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board or of the Committee upon any questions arising
under the Plan. Optionee further agrees to notify the Company upon any change in
the residence address indicated below.

Dated: ________________

                                        ________________________________________
                                        [NAME]

                                        Residence Address:

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        Social Security No. ____________________


                                       8

<PAGE>

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.

                       NONSTATUTORY STOCK OPTION AGREEMENT

                         DATE OF GRANT: ________________

     OCEAN POWER TECHNOLOGIES, INC., a New Jersey corporation (the "Company"),
hereby grants to [______________] (the "Optionee") an Option to purchase a total
of [______________] shares of Common Stock (the "Shares"), at the price
determined as provided herein, and in all respects subject to the terms,
definitions and provisions of the 2001 Stock Plan (the "Plan") adopted by the
Company, which is incorporated herein by reference. Unless otherwise defined
herein, capitalized terms shall have the same defined meanings as set forth in
the Plan.

     1. NATURE OF THE OPTION. This Option is a Nonstatutory Stock Option, is not
intended to qualify for any special tax benefits to the Optionee and may be
granted to Employees, Consultants and Directors of the Company.

     2. EXERCISE PRICE. The exercise price is $______________ for each share of
Common Stock, which price is not less than eighty five percent (85%) of the Fair
Market Value per share of Common Stock on the date of grant, as determined by
the Board.

     3. EXERCISE OF OPTION. This Option shall be exercisable during its term in
accordance with the provisions of Section 10 of the Plan as follows:

     (i) Right to Exercise.

          (a) Subject to subsections 3(i)(b), (c) and (d) below, shares subject
     to this Option shall become exercisable based upon the following schedule
     until all of such shares are exercisable:

<TABLE>
<CAPTION>
Months from Grant Date   Percentage Exercisable
----------------------   ----------------------
<S>                      <C>

</TABLE>

          (b) This Option may not be exercised for a fraction of a Share.

          (c) In the event of Optionee's death, disability or termination, the
     exercisability of the option is governed by Sections 7, 8, 9 and 11 below,
     subject to the limitations contained in subsections 3(i)(d) hereof.

<PAGE>

          (d) In no event may this Option be exercised after the date of
     expiration of the term of this Option as set forth in Section 11 below.

     (ii) Method of Exercise. This Option shall be exercisable by written notice
in the form attached as Exhibit A, which shall state the election to exercise
the Option, the number of Shares in respect of which the Option is being
exercised, and such other representations and agreements as to the holder's
investment intent with respect to such shares of Common Stock as may be required
by the Company pursuant to the provisions of the Plan. Such written notice shall
be signed by Optionee and shall be delivered in person or by certified mail to
the President, Secretary or Chief Financial Officer of the Company or such other
agent designated in writing by the Company. The written notice shall be
accompanied by payment of the exercise price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
exercise price. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option.

          No shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.

     4. INVESTMENT REPRESENTATIONS; RESTRICTIONS ON TRANSFER.

     (i) By receipt of this Option, by its execution and by its exercise in
whole or in part, Optionee represents to the Company the following:

          (a) Optionee understands that this Option and any Shares purchased
     upon its exercise are securities, the issuance of which requires compliance
     with federal and state securities laws.

          (b) Optionee is aware of the Company's business affairs and financial
     condition and has acquired sufficient information about the Company to
     reach an informed and knowledgeable decision to acquire the securities.
     Optionee is acquiring these securities for investment for Optionee's own
     account only and not with a view to, or for resale in connection with, any
     "distribution" thereof within the meaning of the Securities Act of 1933, as
     amended (the "Securities Act").

          (c) Optionee acknowledges and understands that the securities
     constitute "restricted securities" under the Securities Act and must be
     held indefinitely unless they are subsequently registered under the
     Securities Act or an exemption from such registration is available.
     Optionee further acknowledges and understands that the Company is under no
     obligation to register the securities. Optionee understands that the
     certificate evidencing the securities will be imprinted with a legend which
     prohibits the


                                       2

<PAGE>

     transfer of the securities unless they are registered or such registration
     is not required in the opinion of counsel satisfactory to the Company and
     any other legend required under applicable state securities laws.

          (d) Optionee is familiar with the provisions of Rule 701 and Rule 144,
     each promulgated under the Securities Act, which, in substance, permit
     limited public resale of "restricted securities" acquired, directly or
     indirectly, from the issuer thereof, in a non-public offering subject to
     the satisfaction of certain conditions. Rule 701 provides that if the
     issuer qualifies under Rule 701 at the time of exercise of the Option by
     the Optionee, such exercise will be exempt from registration under the
     Securities Act. In the event the Company later becomes subject to the
     reporting requirements of Section 13 or 15(d) of the Securities Exchange
     Act of 1934, ninety (90) days thereafter the securities exempt under Rule
     701 may be resold, subject to the satisfaction of certain of the conditions
     specified by Rule 144, including among other things: (1) the sale being
     made through a broker in an unsolicited "broker's transaction" or in
     transactions directly with a market maker (as said term is defined under
     the Securities Exchange Act of 1934); and, in the case of an affiliate, (2)
     the availability of certain public information about the Company, and the
     amount of securities being sold during any three-month period not exceeding
     the limitations specified in Rule 144(e), if applicable. Notwithstanding
     this paragraph 4(i)(d), the Optionee acknowledges and agrees to the
     restrictions set forth in paragraph 4(ii) below.

          In the event that the Company does not qualify under Rule 701 at the
     time of exercise of the Option, then the securities may be resold in
     certain limited circumstances subject to the provisions of Rule 144, which
     requires among other things: (1) the availability of certain public
     information about the Company; (2) the resale occurring not earlier than
     the time period prescribed by Rule 144 after the party has purchased, and
     made full payment for, within the meaning of Rule 144, the securities to be
     sold; and (3) in the case of an affiliate, or of a non-affiliate who has
     held the securities less than the time period prescribed by Rule 144, the
     sale being made through a broker in an unsolicited "broker's transaction"
     or in transactions directly with a market maker (as said term is defined
     under the Securities Exchange Act of 1934) and the amount of securities
     being sold during any three month period not exceeding the specified
     limitations stated therein, if applicable.

     (ii) Optionee agrees, in connection with an underwritten public offering of
the Company's securities, (1) not to sell, make short sale of, loan, grant any
options for the purchase of, or otherwise dispose of any shares of Common Stock
of the Company held by Optionee (other than those shares included in the
registration) without the prior written consent of the underwriters managing
such underwritten public offering of the Company's securities for a period of
one hundred eighty (180) days from the effective date of such registration (the
"Lock Up Period"), and (2) further agrees to execute any agreement reflecting
clause (1) above, or extending the Lock Up Period, as may be requested by the
underwriters at the time of the public offering.

     5. METHOD OF PAYMENT. Payment of the exercise price for each Share shall be
paid in full at the time of each exercise of the Option: (i) in cash; (ii) by
check; (iii) by cash


                                       3

<PAGE>

equivalent; (iv) by delivering to the Company a notice of exercise with an
irrevocable direction to a broker-dealer registered under the Exchange Act to
sell a sufficient portion of the shares and deliver the sale proceeds directly
to the Company to pay the exercise price; (v) in the discretion of the Plan
Administrator, through the delivery to the Company of previously-owned shares of
Common Stock having an aggregate Fair Market Value equal to the Option exercise
price of the shares being purchased pursuant to the exercise of the Option;
provided, however, that shares of Common Stock delivered in payment of the
exercise price must have been held by the Optionee for at least six (6) months
in order to be utilized to pay the exercise price; or (vi) in the discretion of
the Plan Administrator, through any combination of the foregoing methods of
payment.

     6. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.

     7. TERMINATION OF STATUS AS AN EMPLOYEE, CONSULTANT OR DIRECTOR. Except as
set forth below, in the event of termination of Optionee's Continuous Status as
an Employee, consulting relationship or Director status with the Company (as the
case may be), Optionee may, but only within ninety (90) days after the date of
such termination (but in no event later than the date of expiration of the term
of this Option as set forth in Section 11 below), exercise this Option to the
extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise this
Option at the date of such termination, or if Optionee does not exercise this
Option within the time specified herein, this Option shall terminate.

     8. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 7
above, in the event of termination of Optionee's Continuous Status as an
Employee, consulting relationship or Director status with the Company (as the
case may be) as a result of Optionee's total and permanent disability (as
defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of Optionee's termination of employment or consulting
relationship or Director status (but in no event later than the date of
expiration of the term of this Option as set forth in Section 11 below),
exercise this Option to the extent Optionee was entitled to exercise it at the
date of such termination. To the extent that Optionee was not entitled to
exercise this Option at the date of termination, or if Optionee does not
exercise such Option (which Optionee was entitled to exercise) within the time
specified herein, this Option shall terminate.

     9. DEATH OF OPTIONEE. In the event of the death of Optionee:

     (i) during the term of this Option while an Employee, Consultant or
Director of the Company (as the case may be) and having been in Continuous
Status as an Employee, Consultant or Director since the date of grant of this
Option, this Option may be exercised, at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 11 below), by Optionee's
estate or by


                                       4

<PAGE>

a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death; or

     (ii) in the event of Optionee's death within thirty (30) days after the
termination of Optionee's Continuous Status as an Employee, consulting
relationship or Director status (as the case may be) pursuant to Section 7
above, this Option may be exercised, at any time within six (6) months following
the date of death (but in no event later than the date of expiration of the term
of this Option as set forth in Section 11 below), by Optionee's estate or by a
person who acquired the right to exercise this Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination.

     10. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any
manner other than by will or by the laws of descent or distribution and may be
exercised during the lifetime of Optionee only by Optionee. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of Optionee.

     11. TERM OF OPTION. Notwithstanding anything herein to the contrary, this
Option may not be exercised more than ____ years from the date of grant of this
Option, and may be exercised during such term only in accordance with the Plan
and the terms of this Option.

     12. RIGHT OF FIRST REFUSAL. Prior to an Initial Public Offering, if at any
time Optionee desires to sell, encumber, or otherwise dispose of the Shares,
Optionee shall first offer the Shares to the Company by giving the Company
written notice disclosing: (i) the name of the proposed transferee of the
Shares; (ii) the certificate number and number of shares of Common Stock
proposed to be transferred or encumbered; (iii) the proposed price; (iv) all
other terms of the proposed transfer; and (v) a written copy of the proposed
offer. Within thirty (30) days after receipt of such notice, the Company shall
have the option to purchase all or part of such Shares at the same price and on
the same terms as contained in such notice.

     The Board, in its sole discretion may waive all or a portion of the
Company's right of first refusal pursuant to this Section and the Company's
repurchase right pursuant to Section 13 below. If the Company's right of first
refusal or repurchase right is so waived, the Board may, in its sole discretion,
pass such right to the remaining stockholders of the Company. In such event,
each stockholder may purchase that number of Shares equal to his or her
proportionate share ownership in the Company, as determined by the Board. To the
extent that a stockholder has been given such right and does not purchase his or
her allotment, the other stockholders shall have the right to purchase such
allotment on the same basis.

     In the event the Company or the Company's stockholders elect to purchase
less than all of the Shares, as provided above, Optionee shall have the right to
sell, encumber or otherwise dispose of such Shares on the terms of the transfer
set forth in the written notice to the Company, provided such transfer is
effected within thirty (30) days after the expiration of the 30-day option
period. If the transfer is not effected within such period, the Company must
again be given an option to purchase, as provided above.

     On and after an Initial Public Offering, the Company shall have no further
right to purchase the Shares under this Section or Section 13 below.


                                       5

<PAGE>

     13. REPURCHASE RIGHTS OF THE COMPANY. Optionee understands that the Company
has the option to repurchase any Shares issued by the Company upon the exercise
of any portion of this Agreement, provided, however, that such repurchases shall
be made prior to the effective date of an Initial Public Offering. Such
repurchases shall be at the Fair Market Value of the Shares repurchased as of
the date on which the Company exercises such option.

     14. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon
exercise of this Option, Optionee will recognize income for tax purposes in an
amount equal to the excess of the then fair market value of the Shares over the
exercise price. Optionee hereby agrees to notify the Company in writing within
thirty (30) days after the date of any such disposition. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the fair
market value of the Shares on the date of exercise of the option will be treated
as capital gain or loss.

     15. TAX CONSEQUENCES. The Optionee understands that any of the foregoing
references to taxation are based on federal income tax laws and regulations now
in effect. The Optionee has reviewed with the Optionee's own tax advisors the
federal, state, local and foreign tax consequences of the transactions
contemplated by this Agreement. The Optionee is relying solely on such advisors
and not on any statements or representations of the Company or any of its
agents. The Optionee understands that the Optionee (and not the Company) shall
be responsible for the Optionee's own tax liability that may arise as a result
of the transactions contemplated by this Agreement.

                                        Ocean Power Technologies, Inc.


                                        By:
                                            ------------------------------------
                                        Name: Dr. George W. Taylor
                                        Title: Chief Executive Officer


                                       6

<PAGE>

                                    EXHIBIT A

                       NOTICE OF EXERCISE OF STOCK OPTION

TO: _________________________________

FROM: _______________________________

DATE: _______________________________

RE: Exercise of Stock Option

     I hereby exercise my option to purchase ________________ shares of Common
Stock at $____________ per share (total exercise price of $____________),
effective today's date. This notice is given in accordance with the terms of my
Stock Option Agreement with a Grant Date of ________________. The option price
and vested amount is in accordance with Sections 2 and 3 of the Stock Option
Agreement.

     Attached is a check payable to Ocean Power Technologies, Inc. for the total
exercise price of the shares being purchased. The undersigned confirms the
representations made in Section 4 of the Stock Option Agreement.

         Please prepare the stock certificate in the following name(s):

                ________________________________________________

                ________________________________________________

     If the stock is to be registered in a name other than your name, please so
advise the Company. The Stock Option Agreement requires the Company's approval
for registration in a name other than your name and requires certain agreements
from any joint owner.

                                        Sincerely,


                                        ----------------------------------------
                                        (Signature)

                                        ----------------------------------------
                                        (Print or Type Name)

Letter and consideration
Received on __________________, 20__.

By:
    ---------------------------------


                                       7

<PAGE>

                            OPTIONEE ACKNOWLEDGEMENT

     OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE, CONSULTANT
OR DIRECTOR OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED
THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND
AGREES THAT THIS OPTION, THE COMPANY'S PLAN WHICH IS INCORPORATED HEREIN BY
REFERENCE, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE, CONSULTANT OR DIRECTOR FOR THE VESTING PERIOD, FOR
ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT, CONSULTING RELATIONSHIP OR
POSITION AS A DIRECTOR AT ANY TIME, WITH OR WITHOUT CAUSE.

     Optionee acknowledges receipt of a copy of the Plan, a copy of which is
annexed hereto, represents that Optionee is familiar with the terms and
provisions thereof, and hereby accepts this Option for _____ shares and with
Grant Date of _______________, subject to all of the terms and provisions
thereof. Optionee has reviewed the Plan and this Option in their entirety, has
had an opportunity to obtain the advice of counsel prior to executing this
Option and fully understands all provisions of the Option. Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board or of the Committee upon any questions arising
under the Plan. Optionee further agrees to notify the Company upon any change in
the residence address indicated below.

Dated: ________________


                                        ________________________________________
                                        (Signature)

                                        Name: __________________________________

                                        Residence Address:

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        Social Security No. ____________________


                                       8

<PAGE>

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF
IN THE US. NO SUCH SALE OR DISPOSITION IN THE US MAY BE EFFECTED WITHOUT AN
EFFECTIVE US REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.

                       NONSTATUTORY STOCK OPTION AGREEMENT
                             (UK NON-TAX QUALIFIED)

                         DATE OF GRANT: ________________

                         VESTING DATE: ________________

     OCEAN POWER TECHNOLOGIES, INC., a New Jersey corporation (the "Company"),
on [__________] granted to [__________] (the "Optionee") an Option to purchase a
total of [__________] shares of Common Stock (the "Shares"), at the price
determined as provided herein, and in all respects subject to the terms,
definitions and provisions of the 2001 Stock Plan (the "Plan") adopted by the
Company, which is incorporated herein by reference. Unless otherwise defined
herein, capitalized terms shall have the same defined meanings as set forth in
the Plan.

     1. NATURE OF THE OPTION. This Option is a Nonstatutory Stock Option, is not
intended to qualify for any special tax benefits to the Optionee and may be
granted to Employees, Consultants and Directors of the Company.

     2. EXERCISE PRICE. The exercise price is US $__________ for each share of
Common Stock, and is not less than eighty five percent (85%) of the Fair Market
Value per share of Common Stock on the date of grant, as determined by the
Board.

     3. EXERCISE OF OPTION. This Option shall be exercisable during its term in
accordance with the provisions of Section 10 of the Plan as follows:

     (i) Right to Exercise.

          (a) Subject to subsections 4(i)(b), (c), (d), (e) and (f) below,
     shares subject to this Option shall become exercisable based upon the
     following schedule until all of such shares are exercisable:

<TABLE>
<CAPTION>
Months from Vesting Date   Percentage Exercisable
------------------------   ----------------------
<S>                        <C>

</TABLE>

          (b) This Option may not be exercised for a fraction of a Share.

<PAGE>

          (c) In the event of Optionee's death, disability or termination, the
     exercisability of this Option is governed by Sections 8, 9, 10 and 12
     below, subject to the limitations and conditions contained in subsections
     4(i)(d), (e) and (f) hereof.

          (d) In no event may this Option be exercised after the date of
     expiration of the term of this Option as set forth in Section 12 below.

          (e) This Option may not be exercised unless and until the Company (or
     any Subsidiary of the Company) has received from the Optionee a duly
     completed joint election with the Company, his employer or other company
     (in the form prescribed by the Board) to the effect that the Optionee will
     become liable for the whole of any secondary Class 1 national insurance
     contributions which may arise in connection with this Option.

          (f) This Option may not be exercised unless and until the Optionee
     enters into a joint election under Section 431(1) of the Income Tax
     (Earnings and Pensions) Act 2003 (in the form prescribed by the Board) for
     the full disapplication of Chapter 2 of Part 7 of that Act.

     (ii) Method of Exercise. This Option shall be exercisable by written notice
in the form attached as Exhibit A, which shall state the election to exercise
the Option, the number of Shares in respect of which the Option is being
exercised, and such other representations and agreements as to the holder's
investment intent with respect to such shares of Common Stock as may be required
by the Company pursuant to the provisions of the Plan. Such written notice shall
be signed by Optionee and shall be delivered in person or by certified mail to
the President, Secretary or Chief Financial Officer of the Company or such other
agent designated in writing by the Company. The written notice shall be
accompanied by payment of the exercise price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
exercise price. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Option.

          No shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.

     4. INVESTMENT REPRESENTATIONS; RESTRICTIONS ON TRANSFER.

     (i) By receipt of this Option, by its execution and by its exercise in
whole or in part, Optionee represents to the Company the following as they
pertain to sales of Shares in the US:

          (a) Optionee understands that this Option and any Shares purchased
     upon its exercise are securities, the issuance of which requires compliance
     with US federal and US state securities laws.


                                       2

<PAGE>

          (b) Optionee is aware of the Company's business affairs and financial
     condition and has acquired sufficient information about the Company to
     reach an informed and knowledgeable decision to acquire the securities.
     Optionee is acquiring these securities for investment for Optionee's own
     account only and not with a view to, or for resale in the US in connection
     with, any "distribution" thereof within the meaning of the US Securities
     Act of 1933, as amended (the "Securities Act").

          (c) Optionee acknowledges and understands that the securities
     constitute "restricted securities" under the Securities Act and cannot be
     sold in the US unless they are subsequently registered under the Securities
     Act or an exemption from such registration is available. Optionee further
     acknowledges and understands that the Company is under no obligation to
     register the securities in the US. Optionee understands that the
     certificate evidencing the securities will be imprinted with a legend which
     prohibits the transfer of the securities in the US unless they are
     registered or such registration is not required in the opinion of counsel
     satisfactory to the Company and any other legend required under applicable
     state securities laws.

          (d) Optionee is familiar with the provisions of Rule 701 and Rule 144,
     each promulgated under the Securities Act, which, in substance, permit
     limited public resale in the US of "restricted securities" acquired,
     directly or indirectly, from the issuer thereof, in a non-public offering
     subject to the satisfaction of certain conditions. Rule 701 provides that
     if the issuer qualifies under Rule 701 at the time of exercise of the
     Option by the Optionee, such exercise will be exempt from registration
     under the Securities Act. In the event the Company later becomes subject to
     the reporting requirements of Section 13 or 15(d) of the Securities
     Exchange Act of 1934, ninety (90) days thereafter the securities exempt
     under Rule 701 may be resold in the US, subject to the satisfaction of
     certain of the conditions specified by Rule 144, including among other
     things: (1) the sale being made through a broker in an unsolicited
     "broker's transaction" or in transactions directly with a market maker (as
     said term is defined under the Securities Exchange Act of 1934); and, in
     the case of an affiliate, (2) the availability of certain public
     information about the Company, and the amount of securities being sold
     during any three-month period not exceeding the limitations specified in
     Rule 144(e), if applicable. Notwithstanding this paragraph 5(i)(d), the
     Optionee acknowledges and agrees to the restrictions set forth in paragraph
     5(ii) below.

          In the event that the Company does not qualify under Rule 701 at the
     time of exercise of the Option, then the securities may be resold in the US
     in certain limited circumstances subject to the provisions of Rule 144,
     which requires among other things: (1) the availability of certain public
     information about the Company; (2) the resale occurring not earlier than
     the time period prescribed by Rule 144 after the party has purchased, and
     made full payment for, within the meaning of Rule 144, the securities to be
     sold; and (3) in the case of an affiliate, or of a non-affiliate who has
     held the securities less than the time period prescribed by Rule 144, the
     sale being made through a broker in an unsolicited "broker's transaction"
     or in transactions directly with a market maker (as said term is defined
     under the Securities Exchange Act of 1934) and the amount of securities
     being sold during any three month period not exceeding the specified
     limitations stated therein, if applicable.


                                       3

<PAGE>

     (ii) Optionee agrees, in connection with an underwritten public offering of
the Company's securities in the US, (1) not to sell, make short sale of, loan,
grant any options for the purchase of, or otherwise dispose of any shares of
Common Stock of the Company held by Optionee (other than those shares included
in the registration) without the prior written consent of the underwriters
managing such underwritten public offering of the Company's securities for a
period of one hundred eighty (180) days from the effective date of such
registration (the "Lock Up Period"), and (2) further agrees to execute any
agreement reflecting clause (1) above, or extending the Lock Up Period, as may
be requested by the underwriters at the time of the US public offering.

     5. METHOD OF PAYMENT. Payment of the exercise price for each Share shall be
paid in full at the time of each exercise of the Option: (i) in cash; (ii) by
check; (iii) by cash equivalent; (iv) in the discretion of the Plan
Administrator, by delivering to the Company a notice of exercise with an
irrevocable direction to a broker-dealer registered under the Exchange Act to
sell a sufficient portion of the shares and deliver the sale proceeds directly
to the Company to pay the exercise price; (v) in the discretion of the Plan
Administrator, through the delivery to the Company of previously-owned shares of
Common Stock having an aggregate Fair Market Value equal to the Option exercise
price of the shares being purchased pursuant to the exercise of the Option;
provided, however, that shares of Common Stock delivered in payment of the
exercise price must have been held by the Optionee for at least six (6) months
in order to be utilized to pay the exercise price; or (vi) in the discretion of
the Plan Administrator, through any combination of the foregoing methods of
payment.

     6. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.

     7. TERMINATION OF STATUS AS AN EMPLOYEE, CONSULTANT OR DIRECTOR. Except as
set forth below, in the event of termination of Optionee's Continuous Status as
an Employee, consulting relationship or Director status with the Company (as the
case may be), Optionee may, but only within ninety (90) days after the date of
such termination (but in no event later than the date of expiration of the term
of this Option as set forth in Section 12 below), exercise this Option to the
extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise this
Option at the date of such termination, or if Optionee does not exercise this
Option within the time specified herein, this Option shall terminate.

     8. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 8
above, in the event of termination of Optionee's Continuous Status as an
Employee, consulting relationship or Director status with the Company (as the
case may be) as a result of Optionee's total and permanent disability (as
defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of Optionee's termination of employment, consulting
relationship or Director status (but in no event later than the date of
expiration of the term of this Option as set forth in Section 12 below),
exercise this Option to the extent Optionee was entitled


                                       4

<PAGE>

to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise this Option at the date of termination, or if Optionee
does not exercise such Option (which Optionee was entitled to exercise) within
the time specified herein, this Option shall terminate.

     9. DEATH OF OPTIONEE. In the event of the death of Optionee:

     (i) during the term of this Option while an Employee, Consultant or
Director of the Company (as the case may be) and having been in Continuous
Status as an Employee, Consultant or Director since the date of grant of this
Option, this Option may be exercised, at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 12 below), by Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death; or

     (ii) in the event of Optionee's death within thirty (30) days after the
termination of Optionee's Continuous Status as an Employee, consulting
relationship or Director status (as the case may be) pursuant to Section 8
above, this Option may be exercised, at any time within six (6) months following
the date of death (but in no event later than the date of expiration of the term
of this Option as set forth in Section 12 below), by Optionee's estate or by a
person who acquired the right to exercise this Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination.

     10. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any
manner other than by will or by the laws of descent or distribution and may be
exercised during the lifetime of Optionee only by Optionee. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of Optionee.

     11. TERM OF OPTION. Notwithstanding anything herein to the contrary, this
Option may not be exercised more than ____ years from the date of grant of this
Option, and may be exercised during such term only in accordance with the Plan
and the terms of this Option.

     12. TAXATION. No shares will be issued or transferred pursuant to the
exercise of this Option unless and until Optionee pays to the Company, or makes
provision satisfactory to the Company for payment of, any federal, national,
foreign, state or local taxes (including any social security or national
insurance contributions) required by law to be withheld in respect of this
Option or which Optionee has agreed or elected to bear.

     13. TAX CONSEQUENCES. The Optionee understands that any of the foregoing
references to taxation are based on tax, national insurance and social security
laws and regulations now in effect. The Optionee has reviewed with the
Optionee's own tax advisors the federal, state, local and foreign tax, social
security and national insurance consequences of the transactions contemplated by
this Agreement. The Optionee is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents. The Optionee
understands that the Optionee (and not the Company) shall be responsible for the
Optionee's own tax, social security and national insurance liability that may
arise as a result of the


                                       5

<PAGE>

transactions contemplated by this Agreement together with any secondary Class 1
national insurance contributions which Optionee has elected to bear.

     14. NO EMPLOYMENT CLAIMS. The rights and obligations of Optionee under the
terms of his office or employment with the Company, any past or present
Subsidiary of the Company, or associated or affiliate company of the Company
shall not be affected by his participation in the Plan or the grant of this
Option or any right which he may have to participate therein, and Optionee
hereby waives all and any rights to compensation or damages in consequence of
the termination of his office or employment with any such company for any
reasons whatsoever (whether lawful or unlawful and including, without prejudice
to the generality of the foregoing, in circumstances giving rise to a claim for
wrongful dismissal) insofar as those rights arise or may arise from his ceasing
to have rights under or being entitled to exercise this option in whole or in
part as a result of such termination, or from the loss or diminution in value of
such rights or entitlements.

     15. DATA PROTECTION. Optionee agrees to the receipt, holding and processing
of information in connection with the grant, vesting, exercise, taxation and
general administration of the Plan and this Option by the Company or any
Subsidiary of the Company and any of their advisers or agents and to the
transmission or transfer of such information outside of the European Economic
Area for this purpose and, in particular, the transmission or transfer of such
information to the Company in the USA.

     16. THIRD PARTY RIGHTS. The Contracts (Rights of Third Parties) Act 1999
shall not apply to this Option and no person other than parties hereto shall
have any rights under it nor shall it be enforceable under that Act by any
person other than the parties to it.

     17. OPTIONEE ACKNOWLEDGEMENT.

     (i) Optionee acknowledges and agrees that the vesting of shares pursuant to
Section 4 hereof is earned only by continuing service as an employee of the
Company or any Subsidiary of the Company (not through the act of being hired,
being granted this Option or acquiring shares hereunder). Optionee further
acknowledges and agrees that this Option, the Plan which is incorporated herein
by reference, the transactions contemplated hereunder and the vesting schedule
set forth herein do not constitute an express or implied promise of continued
engagement as an employee for the vesting period, for any period, or at all, and
shall not interfere with Optionee's right or the company's right to terminate
Optionee's employment at any time, with or without cause.

     (ii) Optionee acknowledges receipt of a copy of the Plan, a copy of which
is annexed hereto, represents that Optionee is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee has reviewed the Plan and this Option in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board or of the Committee upon any questions arising
under the Plan. Optionee further agrees to notify the Company upon any change in
his residence address.


                                       6

<PAGE>

IN WITNESS WHEREOF the parties have executed this document as a Deed and the
Company has caused this option to be executed under its corporate seal by its
duly authorised officer on the following date. This option shall take effect as
a deed and sealed instrument.

DATED:
       ------------, --------

OCEAN POWER TECHNOLOGIES INC.:          By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------


EXECUTED as a DEED by OPTIONEE:         By:
                                            ------------------------------------
                                            (Signature of Optionee)
                                        Name:
                                              ----------------------------------
                                              (Printed Name of Optionee)

In the presence of:


Witness signature:
                   ----------------------------
Witness name:
              ---------------------------------
Witness address:
                 ------------------------------

                 ------------------------------
Witness occupation:
                    ----------------------------


                                        7

<PAGE>

                                    EXHIBIT A

                       NOTICE OF EXERCISE OF STOCK OPTION

TO: _________________________________

FROM: _______________________________

DATE: _______________________________

RE: Exercise of Stock Option

     I hereby exercise my option to purchase ________________ shares of Common
Stock at $____________ per share (total exercise price of $____________),
effective today's date. This notice is given in accordance with the terms of my
Stock Option Agreement dated ________________. The option price and vested
amount is in accordance with Sections 2 and 4 of the Stock Option Agreement.

     Attached is a check payable to Ocean Power Technologies, Inc. for the total
exercise price of the shares being purchased. The undersigned confirms the
representations made in Section 5 of the Stock Option Agreement.

          Please prepare the stock certificate in the following name(s):

                ________________________________________________

                ________________________________________________

     If the stock is to be registered in a name other than your name, please so
advise the Company. The Stock Option Agreement requires the Company's approval
for registration in a name other than your name and requires certain agreements
from any joint owner.

                                        Sincerely,


                                        ----------------------------------------
                                        (Signature)

                                        ----------------------------------------
                                        (Print or Type Name)

Letter and consideration
Received on __________________, 20__.


By:
    ---------------------------------


                                        8