
<PAGE>


                                                                    EXHIBIT 10.2


                             1994 STOCK OPTION PLAN
                                       OF
                       FLUID PROPULSION TECHNOLOGIES, INC.


                  1.       PURPOSES OF THE PLAN. The purposes of the 1994
Stock Option Plan (the "Plan") of Fluid Propulsion Technologies, Inc., a
California corporation (the "Company"), are to:

                           (a) Encourage selected employees, directors and
consultants to improve operations and increase profits of the Company;

                           (b) Encourage selected employees, directors and
consultants to accept or continue employment or association with the Company or
its Affiliates; and

                           (c) Increase the interest of selected employees,
directors and consultants in the Company's welfare through participation in the
growth in value of the common stock of the Company (the "Common Stock").

                  Options granted under this plan ("Options") may be "incentive
stock options" ("ISOs") intended to satisfy the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").

                  2.       ELIGIBLE PERSONS. Every person who at the date of
grant of an Option is a full-time employee of the Company or of any Affiliate
(as defined below) of the Company is eligible to receive NQOs or ISOs under
this Plan. Every person who at the date of grant is a consultant to, or
non-employee director of, the Company or any Affiliate (as defined below) of
the Company is eligible to receive NQOs under this Plan. The term "Affiliate"
as used in the Plan means a parent or subsidiary corporation as defined in
the applicable provisions (currently Sections 424(e) and (f), respectively)
of the Code. The term "employee" includes an officer or director who is an
employee, of the Company. The term "consultant" includes persons employed by,
or otherwise affiliated with, a consultant.

                  3.       STOCK SUBJECT TO THIS PLAN. Subject to the
provisions of Section 6.1.1 of the Plan, the total number of shares of stock
which may be issued under options granted pursuant to this Plan shall not
exceed 500,000 shares of Common Stock. The shares covered by the portion of
any grant under the Plan which expires unexercised shall become available
again for grants under the Plan.

                  4.       ADMINISTRATION.

                           4.1 GENERAL. This plan shall be administered by the
Board of Directors of the Company (the "Board") or, either in its entirety or
only insofar as required pursuant to Section 4.2 hereof, by a committee (the
"Committee") of at least two Board members to which administration of the Plan,
or of part of the Plan, is delegated (in either case, the "Administrator").


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<PAGE>

                           4.2 DISINTERESTED ADMINISTRATION. From and after such
time as the Company registers a class of equity securities under Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), it is
intended that this Plan shall be administered in accordance with the
disinterested administration requirements of Rule 16b-3 promulgated by the
Securities and Exchange Commission ("Rule 16b-3"), or any successor rule
thereto.

                           4.3 AUTHORITY OF ADMINISTRATOR. Subject to the other
provisions of this Plan, the Administrator shall have the authority, in its
discretion: (i) to grant Options; (ii) to determine the fair market value of the
Common Stock subject to Options; (iii) to determine the exercise price of
Options granted; (iv) to determine the persons to whom, and the time or times at
which, Options shall be granted, and the number of shares subject to each
Option; (v) to interpret this Plan; (vi) to prescribe, amend, and rescind rules
and regulations relating to this Plan; (vii) to determine the terms and
provisions of each Option granted (which need not be identical), including but
not limited to, the time or times at which Options shall be exercisable; (viii)
with the consent of the optionee, to modify or amend any Option; (ix) to
authorize any person to execute on behalf of the Company any instrument
evidencing the grant of an Option; and (x) to make all other determinations
deemed necessary or advisable for the administration of this Plan. The
Administrator may delegate nondiscretionary administrative duties to such
employees of the Company as it deems proper.

                           4.4 INTERPRETATION BY ADMINISTRATOR. All questions of
interpretation, implementation, and application of this Plan shall be determined
by the Administrator. Such determinations shall be final and binding on all
persons.

                           4.5 RULE 16b-3. With respect to persons subject to
Section 16 of the Exchange Act, if any, transactions under this Plan are
intended to comply with the applicable conditions of Rule 16b-3, or any
successor rule thereto. To the extent any provision of this Plan or action by
the Administrator fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Administrator.
Notwithstanding the above, it shall be the responsibility of such persons, not
of the Company or the Administrator, to comply with the requirements of Section
16 of the Exchange Act; and neither the Company nor the Administrator shall be
liable if this Plan or any transaction under this Plan fails to comply with the
applicable conditions of Rule 16b-3 or any successor rule thereto, or if any
such person incurs any liability under Section 16 of the Exchange Act.

                  5.       GRANTING OF OPTIONS; OPTION AGREEMENT. No Options
shall be granted under this Plan after ten years from the date of adoption of
this Plan by the Board. Each Option shall be evidenced by a written stock
option agreement, in form satisfactory to the Company, executed by the
Company and the person to whom such Option is granted; provided, however,
that the failure by the Company, the optionee, or both to execute such an
agreement shall not invalidate the granting of an Option, although the
exercise of each option shall be subject to Section 6.1.3. The stock option
agreement shall specify whether each Option it evidences is a NQO or an ISO.
Subject to Section 6.3.3 with respect to ISOs, the Administrator may approve
the grant of Options under this Plan to persons who are expected to become
employees, directors or consultants of the Company, but are not employees,
directors or consultants at the date of approval.

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<PAGE>

                  6.       TERMS AND CONDITIONS OF OPTIONS. Each Option
granted under this Plan shall be subject to the terms and conditions set
forth in Section 6.1. NQOs shall be also subject to the terms and conditions
set forth in Section 6.2, but not those set forth in Section 6.3. ISOs shall
also be subject to the terms and conditions set forth in Section 6.3, but not
those set forth in Section 6.2.

                           6.1 TERMS AND CONDITIONS TO WHICH ALL OPTIONS ARE
SUBJECT. All Options granted under this Plan shall be subject to the following
terms and conditions:

                               6.1.1 CHANGES IN CAPITAL STRUCTURE. Subject to
Section 6.1.2, if the stock of the Company is changed by reason of a stock
split, reverse stock split, stock dividend, or recapitalization, combination
or reclassification, appropriate adjustments shall be made by the Board in
(a) the number and class of shares of stock subject to this Plan and each
Option outstanding under this Plan, and (b) the exercise price of each
outstanding Option; provided, however, that the Company shall not be required
to issue fractional shares as a result of any such adjustments. Each such
adjustment shall be subject to approval by the Board in its sole discretion.

                               6.1.2 CORPORATE TRANSACTIONS. In the event
of the proposed dissolution or liquidation of the Company, the Administrator
shall notify each optionee at least 30 days prior to such proposed action. To
the extent not previously exercised, all Options will terminate immediately
prior to the consummation of such proposed action. In the event of a merger or
consolidation of the Company with or into another corporation or entity in which
the Company does not survive, or in the event of a sale of all or substantially
all of the assets of the Company in which the shareholders of the Company
receive securities of the acquiring entity or an affiliate thereof, all Options
shall be assumed or equivalent options shall be substituted by the successor
corporation (or other entity) or a parent or subsidiary of such successor
corporation (or other entity). If such successor does not agree to assume the
Options or to substitute equivalent options therefor, unless the Administrator
shall determine otherwise, the Options will expire upon such event.

                               6.1.3 TIME OF OPTION EXERCISE. Subject to
Section 5 and Section 6.3.4, Options granted under this Plan shall be
exercisable (a) immediately as of the effective date of the stock option
agreement granting the Option, or (b) in accordance with a schedule related to
the date of the grant of the Option, the date of first employment, or such other
date as may be set by the Administrator (in any case, the "Vesting Base Date")
and specified in the written stock option agreement relating to such Option;
provided, however, that the right to exercise an Option must vest at the rate of
at least 20% per year over five years from the date the option was granted. In
any case, no Option shall be exercisable until a written stock option agreement
in form satisfactory to the Company is executed by the Company and the optionee.

                               6.1.4 OPTION GRANT DATE. Except in the case
of advance approvals described in Section 5(d), the date of grant of an Option
under this Plan shall be the date as of which the Administrator approves the
grant.

                               6.1.5 NONASSIGNABILITY OF OPTION RIGHTS. No
Option granted under this Plan shall be assignable or otherwise transferable by
the optionee except by will or by


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<PAGE>

the laws of descent and distribution. During the life of the optionee, an Option
shall be exercisable only by the optionee.

                               6.1.6 PAYMENT. Except as provided below,
payment in full, in cash, shall be made for all stock purchased at the time
written notice of exercise of an Option is given to the Company, and proceeds of
any payment shall constitute general funds of the Company. At the time an Option
is granted or exercised, the Administrator, in the exercise of its absolute
discretion after considering any tax or accounting consequences, may authorize
any one or more of the following additional methods of payment:

                                     (a) Acceptance of the optionee's full
recourse promissory note for all or part of the Option price, payable on such
terms and bearing such interest rate as determined by the Administrator (but
in no event less than the minimum interest rate specified under the Code at
which no additional interest would be imputed), which promissory note may be
either secured or unsecured in such manner as the Administrator shall approve
(including, without limitation, by a security interest in the shares of the
Company); and

                                     (b) Delivery by the optionee of Common
Stock already owned by the optionee for all or part of the Option price,
provided the value (determined as set forth in Section 6.1.11) of such Common
Stock is equal on the date of exercise to the Option price, or such portion
thereof as the optionee is authorized to pay by delivery of such stock;
provided, however, that if an optionee has exercised any portion of any
Option granted by the Company by delivery of Common Stock, the optionee may
not, within six months following such exercise, exercise any Option granted
under this Plan by delivery of Common Stock without the consent of the
Administrator.

                                6.1.7 TERMINATION OF EMPLOYMENT. If for any
reason other than death or permanent and total disability, an optionee ceases to
be employed by the Company or any of its Affiliates (such event being called a
"Termination"), Options held at the date of Termination (to the extent then
exercisable) may be exercised in whole or in part at any time within three
months of the date of such Termination, or such other period of not less than
thirty days after the date of such Termination as is specified in the Option
Agreement (but in no event after the Expiration Date); PROVIDED, that if such
exercise of the Option would result in liability for the optionee under Section
16(b) of the Exchange Act, then such three-month period automatically shall be
extended until the tenth day following the last date upon which optionee has any
liability under Section 16(b) (but in no event after the Expiration Date). If an
optionee dies or becomes permanently and totally disabled while employed by the
Company or an Affiliate or within the period that the Option remains exercisable
after Termination, Options then held (to the extent then exercisable) may be
exercised, in whole or in part, by the optionee, by the optionee's personal
representative or by the person to whom the Option is transferred by devise or
the laws of descent and distribution, at any time within twelve months after the
death or eighteen months after the permanent and total disability of the
optionee, or such other period of not less than six months from the date of
Termination as is specified in the Option Agreement (but in no event after the
Expiration Date). For purposes of this Section 6.1.7, "employment" includes
service as a director or as a consultant. For purposes of this Section 6.1.7, an
optionee's employment shall not be deemed to terminate by reason of sick leave,
military leave or other leave of absence approved by the Administrator, if the
period of any such leave does not exceed


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<PAGE>

90 days or, if longer, if the optionee's right to reemployment by the Company or
any Affiliate is guaranteed either contractually or by statute.

                               6.1.8 REPURCHASE OF STOCK. At the option of
the Administrator, the stock to be delivered pursuant to the exercise of any
Option granted to an employee, director or consultant under this Plan may be
subject to a right of repurchase in favor of the Company with respect to any
employee, or director or consultant whose employment, or director or consulting
relationship with the Company is terminated. Such right of repurchase either:

                                     (a) shall be at the Option exercise
price and (i) shall lapse at the rate of at least 20% per year over five
years from the date the Option is granted (without regard to the date it
becomes exercisable), and must be exercised for cash or cancellation of
purchase money indebtedness within 90 days of such termination and (ii) if
the right is assignable by the Company, the assignee must pay the Company
upon assignment of the right (unless the assignee is a 100% owned subsidiary
of the Company or is an Affiliate) cash equal to the difference between the
Option exercise price and the value (determined as set forth in Section
6.1.11) of the stock to be purchased if the Option exercise price is less
than such value; or

                                     (b) shall be at the higher of the Option
exercise price or the value (determined as set forth in Section 6.1.11) of
the stock being purchased on the date of termination, and must be exercised
for cash or cancellation of purchase money indebtedness within 90 days of
termination of employment, and such right shall terminate when the Company's
securities become publicly traded.

                  Determination of the number of shares subject to any such
right of repurchase shall be made as of the date the employee's employment by,
director's director relationship with, or consultant's consulting relationship
with, the Company terminates, not as of the date that any Option granted to such
employee, director or consultant is thereafter exercised.

                               6.1.9 WITHHOLDING AND EMPLOYMENT TAXES. At
the time of exercise of an Option or at such other time as the amount of such
obligations becomes determinable (the "Tax Date"), the optionee shall remit to
the Company in cash all applicable federal and state withholding and employment
taxes. If authorized by the Administrator in its sole discretion after
considering any tax or accounting consequences, an optionee may elect to (a)
deliver a promissory note on such terms as the Administrator deems appropriate,
(b) tender to the Company previously owned shares of Stock or other securities
of the Company, or (c) have shares of Common Stock which are acquired upon
exercise of the Option withheld by the Company to pay some or all of the amount
of tax that is required by law to be withheld by the Company as a result of the
exercise of such Option, subject to the following limitations:

                                     (i) Any election pursuant to clause (c)
above by an optionee subject to Section 16 of the Exchange Act shall either
(x) be made at least six months before the Tax Date and shall be irrevocable;
or (y) shall be made in (or made earlier to take effect in) any ten-day
period beginning on the third business day following the date of release for
publication of the Company's quarterly or annual summary statements of
earnings and shall be subject to approval by the Administrator, which
approval may be given at any time after such

                                       5
<PAGE>

election has been made. In addition, in the case of (y), the Option shall be
held at least six months prior to the Tax Date.

                                     (ii) Any election pursuant to clause (b)
above, where the optionee is tendering Common Stock issued pursuant to the
exercise of an Option, shall require that such shares be held at least six
months prior to the Tax Date.

                  Any of the foregoing limitations may be waived (or additional
limitations may be imposed) by the Administrator, in its sole discretion, if the
Administrator determines that such foregoing limitations are not required (or
that such additional limitations are required) in order that the transaction
shall be exempt from Section 16(b) of the Exchange Act pursuant to Rule 16b-3,
or any successor rule thereto. In addition, any of the foregoing limitations may
be waived by the Administrator, in its sole discretion, if the Administrator
determines that Rule 16b-3, or any successor rule thereto, is not applicable to
the exercise of the Option by the optionee or for any other reason.

                  Any securities tendered or withheld in accordance with this
Section 6.1.9 shall be valued by the Company as of the Tax Date.

                               6.1.10 OTHER PROVISIONS. Each Option granted
under this Plan may contain such other terms, provisions, and conditions not
inconsistent with this Plan as may be determined by the Administrator, and each
ISO granted under this Plan shall include such provisions and conditions as are
necessary to qualify the Option as an "incentive stock option" within the
meaning of Section 422 of the Code. If Options provide for a right of first
refusal in favor of the Company with respect to stock acquired by employees,
directors or consultants, such Options shall provide that the right of first
refusal shall terminate upon the earlier of (a) the closing of the Company's
initial registered public offering to the public generally, or (b) the date ten
years after the grant date as set forth in Section 6.1.4.

                               6.1.11 DETERMINATION OF VALUE. For purposes of
the Plan, the value of Common Stock or other securities of the Company shall
be determined as follows:

                                     (a) If the stock of the Company is
listed on any established stock exchange or a national market system,
including without limitation the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation System, its fair
market value shall be the closing sales price for such stock or the closing
bid if no sales were reported, as quoted on such system or exchange (or the
largest such exchange) for the date the value is to be determined (or if
there are no sales for such date, then for the last preceding business day on
which there were sales), as reported in the WALL STREET JOURNAL or similar
publication.

                                     (b) If the stock of the Company is
regularly quoted by a recognized securities dealer but selling prices are not
reported, its fair market value shall be the mean between the high bid and
low asked prices for the stock on the date the value is to be determined (or
if there are no quoted prices for the date of grant, then for the last
preceding business day on which there were quoted prices).

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<PAGE>

                                     (c) In the absence of an established
market for the stock, the fair market value thereof shall be determined in
good faith by the Administrator, with reference to the Company's net worth,
prospective earning power, dividend-paying capacity, and other relevant
factors, including the goodwill of the Company, the economic outlook in the
Company's industry, the Company's position in the industry and its
management, and the values of stock of other corporations in the same or a
similar line of business.

                               6.1.12 OPTION TERM. Subject to Section 6.3.5,
no Option shall be exercisable more than ten years after the date of grant,
or such lesser period of time as is set forth in the stock option agreement
(the end of the maximum exercise period stated in the stock option agreement
is referred to in this Plan as the "Expiration Date").

                               6.1.13 EXERCISE PRICE. The exercise price of
any Option granted to any person who owns, directly or by attribution under
the Code currently Section 424(d), stock possessing more than ten percent of
the total combined voting power of all classes of stock of the Company or of
any Affiliate (a "Ten Percent Stockholder") shall in no event be less than
110% of the fair market value (determined in accordance with Section 6.1.11)
of the stock covered by the Option at the time the Option is granted.

                           6.2 TERMS AND CONDITIONS TO WHICH ONLY NQOS ARE
SUBJECT. Except as set forth in Section 6.1.13, the exercise price of a NQO
shall be not less than 85 % of the fair market value (determined in accordance
with Section 6.1.11) of the stock subject to the Option on the date of grant.

                           6.3 TERMS AND CONDITIONS TO WHICH ONLY ISOS ARE
SUBJECT. Options granted under this Plan which are designated as ISOs shall be
subject to the following terms and conditions:

                               6.3.1 EXERCISE PRICE. Except as set forth in
Section 6.1.13, the exercise price of an ISO shall be determined in accordance
with the applicable provisions of the Code and shall in no event be less than
the fair market value (determined in accordance with Section 6.1.11) of the
stock covered by the Option at the time the Option is granted.

                               6.3.2 DISQUALIFYING DISPOSITIONS. If stock
acquired by exercise of an ISO granted pursuant to this Plan is disposed of in a
"disqualifying disposition" within the meaning of Section 422 of the Code, the
holder of the stock immediately before the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall provide
such other information regarding the Option as the Company may reasonably
require.

                               6.3.3 GRANT DATE. If an ISO is granted in
anticipation of employment as provided in Section 5(d), the Option shall be
deemed granted, without further approval, on the date the grantee assumes the
employment relationship forming the basis for such grant, and, in addition,
satisfies all requirements of this Plan for Options granted on that date.

                               6.3.4 TERM. Notwithstanding Section 6.1.12,
no ISO granted to any Ten Percent Stockholder shall be exercisable more than
five years after the date of grant.


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                  7. MANNER OF EXERCISE. An optionee wishing to exercise an
Option shall give written notice to the Company at its principal executive
office, to the attention of the officer of the Company designated by the
Administrator, accompanied by payment of the exercise price as provided in
Section 6.1.6. The date the Company receives written notice of an exercise
hereunder accompanied by payment of the exercise price will be considered as the
date such Option was exercised. Promptly after receipt of written notice of
exercise of an Option, the Company shall, without stock issue or transfer taxes
to the optionee or other person entitled to exercise the Option, deliver to the
optionee or such other person a certificate or certificates for the requisite
number of shares of stock. An optionee or permitted transferee of an optionee
shall not have any privileges as a shareholder with respect to any shares of
stock covered by the Option until the date of issuance (as evidenced by the
appropriate entry on the books of the Company or a duly authorized transfer
agent) of such shares.

                  8. EMPLOYMENT OR CONSULTING RELATIONSHIP. Nothing in this Plan
or any Option granted thereunder shall interfere with or limit in any way the
right of the Company or of any of its Affiliates to terminate any optionee's
employment or consulting at any time, nor confer upon any optionee any right to
continue in the employ of, or consult with, the Company or any of its
Affiliates.

                  9. FINANCIAL INFORMATION. The Company shall provide to each
optionee during the period such optionee holds an outstanding Option, and to
each holder of Common Stock acquired upon exercise of Options granted under the
Plan for so long as such person is a holder of such Common Stock, annual
financial statements of the Company as prepared either by the Company or
independent certified public accountants of the Company. Such financial
statements shall include, at a minimum, a balance sheet and an income statement,
and shall be delivered as soon as practicable following the end of the Company's
fiscal year.

                  10. CONDITIONS UPON ISSUANCE OF SHARES. Shares of Common Stock
shall not be issued pursuant to the exercise of an Option unless the exercise of
such Option and the issuance and delivery of such shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended (the "Securities Act").

                  11. NONEXCLUSIVITY OF THE PLAN. The adoption of the Plan shall
not be construed as creating any limitations on the power of the Company to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options other than under the Plan.

                  12. MARKET STANDOFF. Each Optionee, if so requested by the
Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the company under the
Securities Act shall not sell or otherwise transfer any shares of Common Stock
acquired upon exercise of Options during that period following the effective
date of a registration statement of the Company filed under the Securities Act
agreed to by the Company and the representative(s) of the underwriters;
provided, however, that such restriction shall apply only to the first two
registration statements of the Company to become effective under the Securities
Act which includes securities to be sold on behalf of the Company to the public
in an underwritten public offering under the Securities Act. The Company may
impose


                                       8
<PAGE>

stop-transfer instructions with respect to securities subject to the foregoing
restriction until the end of such period.

                  13. AMENDMENTS TO PLAN. The Board may at any time amend,
alter, suspend or discontinue this Plan. Without the consent of an optionee, no
amendment, alteration, suspension or discontinuance may adversely affect
outstanding Options except to conform this Plan and ISOs granted under this Plan
to the requirements of federal or other tax laws relating to incentive stock
options. No amendment, alteration, suspension or discontinuance shall require
shareholder approval unless (a) shareholder approval is required to preserve
incentive stock option treatment for federal income tax purposes, or (b) the
Board otherwise concludes that shareholder approval is advisable.

                  14. EFFECTIVE DATE OF PLAN. This Plan shall become effective
upon adoption by the Board provided, however, that no Option shall be
exercisable unless and until written consent of the shareholders of the Company,
or approval of shareholders of the Company voting at a validly called
shareholders' meeting, is obtained within 12 months after adoption by the Board.
If such shareholder approval is not obtained within such time, Options granted
hereunder shall terminate and be of no force and effect from and after
expiration of such 12-month period. Options may be granted and exercised under
this Plan only after there has been compliance with all applicable federal and
state securities laws.


Plan adopted by the Board of Directors on October 19, 1994.

Plan approved by Shareholders on _________________________________.


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                                   EXHIBIT C-2

                        Incentive Stock Option Agreement



                                        10
<PAGE>


                       FLUID PROPULSION TECHNOLOGIES, INC.
                           1994 STOCK INCENTIIVE PLAN
                        INCENTIVE STOCK OPTION AGREEMENT


                  (A)    Name of Optionee:____________________________________
                  (B)    Grant Date:__________________________________________
                  (C)    Number of Shares:____________________________________
                  (D)    Exercise Price:______________________________________
                  (E)    Vesting Base Date:___________________________________
                  (F)    Effective Date:______________________________________


                  THIS INCENTIVE STOCK OPTION AGREEMENT (the "AGREEMENT"), is
made and entered into as of the date set forth in ITEM F above (the "EFFECTIVE
DATE") between Fluid Propulsion Technologies, Inc., a California corporation
(the "COMPANY") and the person named in ITEM A above (the "OPTIONEE").


                  THE PARTIES AGREE AS FOLLOWS:

                  1.       GRANT OF OPTION:  VESTING BASE DATE.

                           1.1 GRANT. The Company hereby grants to Optionee
pursuant to the Company's 1994 Stock Incentive Plan (the "PLAN"), a copy of
which is attached to this Agreement as EXHIBIT 1, an incentive stock option (the
"ISO") to purchase all or any part of an aggregate of the number of shares (the
"ISO SHARES") of the Company's Common Stock (as defined in the Plan) listed in
ITEM C above on the terms and conditions set forth herein and in the Plan, the
terms and conditions of the Plan being hereby incorporated into this Agreement
by reference.

                           1.2 VESTING BASE DATE. The parties hereby establish
the date set forth in ITEM E above as the Vesting Base Date (as defined in
Section 5.1 below).

                  2. EXERCISE PRICE. The exercise price for purchase of each
share of Common Stock covered by this ISO shall be the price set forth in ITEM D
above.

                  3. TERM. Unless otherwise specified on EXHIBIT 3 attached
hereto, if any (the absence of such exhibit indicating that no such exhibit was
intended), this ISO shall expire as provided in Section 6.1.11 of the Plan.

                  4. ADJUSTMENT OF ISOS. The Company shall adjust the number and
kind of shares and the exercise price thereof in certain circumstances in
accordance with the provisions of Section 6.1.1 of the Plan.


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<PAGE>

                  5.       EXERCISE OF OPTIONS.

                           5.1 VESTING; TIME OF EXERCISE. This ISO shall be
exercisable according to the schedule set forth on EXHIBIT 5.1 attached hereto.
Such schedule shall commence as of the date set forth in ITEM E above (the
"VESTING BASE DATE"). The absence of EXHIBIT 5.1 indicates that no such exhibit
was intended and that the ISO Shares shall be subject to the Company's rights
set forth in Section 7.

                           5.2 EXERCISE AFTER TERMINATION OF STATUS AS AN
EMPLOYEE, DIRECTOR OR CONSULTANT. In the event of termination of Optionee's
continuous status as an employee, director or consultant, this ISO may be
exercised only in accordance with the provisions of Section 6.1.7 of the Plan.

                           5.3 MANNER OF EXERCISE. Optionee may exercise this
ISO, or any portion of this ISO, by giving written notice to the Company at its
principal executive office, to the attention of the officer of the Company
designated by the Plan Administrator, accompanied by a copy of the Employee
Stock Option Plan Stock Purchase Agreement in substantially the form attached
hereto as EXHIBIT 5.3 executed by Optionee (or at the option of the Company such
other form of stock purchase agreement as shall then be acceptable to the
Company), payment of the exercise price and payment of any applicable
withholding or employment taxes. The date the Company receives written notice of
an exercise hereunder accompanied by payment will be considered as the date this
ISO was exercised.

                           5.4 PAYMENT. Except as provided in EXHIBIT 5.4
attached hereto, if any (the absence of such exhibit indicating that no exhibit
was intended), payment may be made for ISO Shares purchased at the time written
notice of exercise of the ISO is given to the Company, by delivery of cash,
check, previously owned shares of Common Stock (provided that delivery of
previously owned shares may not be made more than once in any six-month period),
or a full recourse promissory note equal to up to 90% of the exercise price and
payable over no more than five years. The proceeds of any payment shall
constitute general funds of the Company.

                           5.5 DELIVERY OF CERTIFICATE. Promptly after receipt
of written notice of exercise of the ISO, the Company shall, without stock issue
or transfer taxes to the Optionee or other person entitled to exercise, deliver
to the Optionee or other person a certificate or certificates for the requisite
number of ISO Shares. An Optionee or transferee of an Optionee shall not have
any privileges as a shareholder with respect to any ISO Shares covered by the
option until the date of issuance of a stock certificate.

                  6. NONASSIGNABILITY OF ISO. This ISO is not assignable or
transferable by Optionee except by will or by the laws of descent and
distribution. During the life of Optionee, the ISO is exercisable only by the
Optionee. Any attempt to assign, pledge, transfer, hypothecate or otherwise
dispose of this ISO in a manner not herein permitted, and any levy of execution,
attachment, or similar process on this ISO, shall be null and void.

                  7. COMPANY'S REPURCHASE RIGHTS. The ISO Shares arising from
exercise of this ISO shall be subject to a right of repurchase in favor of the
Company (the "RIGHT OF REPURCHASE") to the extent set forth on EXHIBIT 7
attached hereto (the absence of such exhibit


                                       12
<PAGE>

indicating that no such exhibit was intended and that the ISO shall be subject
to the limitations set forth on EXHIBIT 5.1). If the Optionee's employment with
the Company terminates before the Right of Repurchase lapses in accordance with
EXHIBIT 7, the Company may purchase ISO Shares subject to the Right of
Repurchase (either by payment of cash or by cancellation of purchase money
indebtedness) for an amount equal to the price the Optionee paid for such ISO
Shares (exclusive of any taxes paid upon acquisition of the stock) by giving
notice at any time within the later of (a) 30 days after the acquisition of the
ISO Shares upon option exercise, or (b) 90 days after such termination of
employment that the Company is exercising its right of repurchase. The Company
shall include with such notice payment in full in cash or by evidence of
cancellation of purchase money indebtedness. The Optionee may not dispose of or
transfer ISO Shares while such shares are subject to the Right of Repurchase and
any such attempted transfer shall be null and void. The Company's rights under
this Section 7 shall be fully assignable, in whole or in part; PROVIDED, that if
the Company assigns such rights, the assignee (other than an assignee that is a
wholly-owned subsidiary or the sole parent of the Company) shall pay to the
Company upon assignment cash equal to the difference, if any, between the then
fair market value of the ISO Shares and the aggregate exercise price thereof.

                  8.       COMPANY'S RIGHT OF FIRST REFUSAL.

                           8.1 RIGHT OF FIRST REFUSAL. In the event that the
Optionee proposes to sell, pledge, or otherwise transfer any ISO Shares or any
interest in such shares to any person or entity, the Company shall have a right
of first refusal (the "RIGHT OF FIRST REFUSAL") with respect to such ISO Shares.
If Optionee desires to transfer ISO Shares, Optionee shall give a written notice
(the "TRANSFER NOTICE") to the Company describing fully the proposed transfer,
including the number of ISO Shares proposed to be transferred, the proposed
transfer price, and the name and address of the proposed transferee. The
Transfer Notice shall be signed both by Optionee and by the proposed transferee
and must constitute a binding commitment of both such parties for the transfer
of such ISO Shares. The Company may elect to purchase all, but not less than
all, of the ISO Shares subject to the Transfer Notice by delivery of a notice of
exercise of the Company's Right of First Refusal within 30 days after the date
the Transfer Notice is delivered to the Company. The purchase price paid by the
Company shall be the price per share equal to the proposed per share transfer
price, and shall be paid to the Optionee within 60 days after the date the
Transfer Notice is received by the Company, unless a longer period for payment
was offered by the proposed transferee, in which case the Company shall pay the
purchase price within such longer period. The Company's rights under this
Section 8.1 shall be freely assignable, in whole or in part. Notwithstanding the
foregoing, the Right of First Refusal does not apply to a transfer of shares by
gift or devise to the Optionee's immediate family (i.e., parents, spouse or
children or to a trust for the benefit of the Optionee or any of the Optionee's
immediate family members), but does apply to any subsequent transfer of such
shares by such immediate family members.

                           8.2 TRANSFER OF ISO SHARES. If the Company fails to
exercise the Right of First Refusal within 30 days after the date the Transfer
Notice is delivered to the Company, the Optionee may, not later than 75 days
following delivery to the Company of the Transfer Notice, conclude a transfer of
the ISO Shares subject to the Transfer Notice on the terms and conditions
described in the Transfer Notice. Any proposed transfer on terms and conditions
different from those described in the Transfer Notice, as well as any subsequent
proposed


                                       13
<PAGE>

transfer by the Optionee, shall again be subject to the Right of First Refusal
and shall require compliance by the Optionee with the procedure described in
Section 8.1 of this Agreement. If the Company exercises the Right of First
Refusal, the parties shall consummate the sale of ISO Shares on the terms, other
than price, as applicable under Section 8.1, set forth in the Transfer Notice;
provided, however, in the event the Transfer Notice provides for payment for the
ISO Shares other than in cash, the Company shall have the option of paying for
the ISO Shares by paying in cash the present value of the consideration
described in the Transfer Notice; and further provided that if the value of
noncash consideration is to be paid, the Optionee disagrees with the value
determined by the Company, the Optionee may request an independent appraisal by
an appraiser acceptable to the Optionee and the Company, the costs of such
appraisal to be borne equally by the Optionee and the Company.

                           8.3 BINDING EFFECT. The Right of First Refusal shall
inure to the benefit of the successors and assigns of the Company and shall be
binding upon any transferee of ISO Shares other than a transferee acquiring ISO
Shares in a transaction where the Company failed to exercise the Right of First
Refusal (a "FREE TRANSFEREE") or a transferee of a Free Transferee.

                           8.4 TERMINATION OF COMPANY'S RIGHT OF FIRST REFUSAL.
Notwithstanding anything in this Section 8, the Company shall have no Right of
First Refusal, and Optionee shall have no obligation to comply with the
procedures in Sections 8.1 through 8.3 after the earlier of (i) the closing of
the Company's initial public offering to the public generally, or (ii) the date
ten years after the Effective Date.

                  9. MARKET STANDOFF. Optionee hereby agrees that if so
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of the securities of the Company under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), Optionee shall not
sell or otherwise transfer the ISO Shares for that period following the
effective date of a Registration Statement filed under the Securities Act agreed
to by the Company and the representative(s) of the underwriters; provided that
such restrictions shall only apply to the first two registration statements of
the Company to become effective under the Securities Act which include
securities to be sold on behalf of the Company in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to the ISO Shares subject to the foregoing
restrictions until the end of each such period.

                  10.      RESTRICTION ON ISSUANCE OF SHARES.

                           10.1 LEGALITY OF ISSUANCE. The Company shall not be
obligated to sell or issue any ISO Shares pursuant to this Agreement if such
sale or issuance, in the opinion of the Company and the Company's counsel, might
constitute a violation by the Company of any provision of law, including without
limitation the provisions of the Securities Act.

                           10.2 REGISTRATION OR QUALIFICATION OF SECURITIES. The
Company may, but shall not be required to, register or qualify the sale of this
ISO or any ISO Shares under the Securities Act or any other applicable law. The
Company shall not be obligated to take any


                                       14
<PAGE>

affirmative action in order to cause the grant or exercise of this option or the
issuance or sale of any ISO Shares pursuant thereto to comply with any law.

                  11. RESTRICTION ON TRANSFER. Regardless whether the sale of
the ISO Shares has been registered under the Securities Act or has been
registered or qualified under the securities laws of any state, the Company may
impose restrictions upon the sale, pledge or other transfer of ISO Shares
(including the placement of appropriate legends on stock certificates) if, in
the judgment of the Company and the Company's counsel, such restrictions are
necessary or desirable in order to achieve compliance with the provisions of the
Securities Act, the securities laws of any state, or any other law, or if the
Company does not desire to have a trading market develop for its securities.

                  12. STOCK CERTIFICATE. Stock certificate evidencing ISO Shares
may bear such restrictive legends as the Company and the Company's counsel deem
necessary or advisable under applicable law or pursuant to this Agreement.

                  13. DISQUALIFYING DISPOSITIONS. If stock acquired by exercise
of this ISO is disposed of within two years after the Effective Date or within
one year after date of such exercise (as determined under Section 5.3 of this
Agreement), the Optionee immediately prior to the disposition shall promptly
notify the Company in writing of the date and terms of the disposition and shall
provide such other information regarding the disposition as the Company may
reasonably require.

                  14. REPRESENTATIONS, WARRANTIES, COVENANTS, AND
ACKNOWLEDGMENTS OF OPTIONEE UPON EXERCISE OF ISO. Optionee hereby agrees that in
the event that the Company and the Company's counsel deem it necessary or
advisable in the exercise of their discretion, the issuance of ISO Shares may be
conditioned upon certain representations, warranties, and acknowledgments by the
person exercising the ISO.

                  15. ASSIGNMENT: BINDING EFFECT. Subject to the limitations set
forth in this Agreement, this Agreement shall be binding upon and inure to the
benefit of the executors, administrators, heirs, legal representatives, and
successors of the parties hereto; provided, however, that Optionee may not
assign any of Optionee's rights under this Agreement.

                  16. DAMAGES. Optionee shall be liable to the Company for all
costs and damages, including incidental and consequential damages, resulting
from a disposition of ISO Shares which is not in conformity with the provisions
of this Agreement.

                  17. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California excluding
those laws that direct the application of the laws of another jurisdiction.

                  18. NOTICES. All notices and other communications under this
Agreement shall be in writing. Unless and until the Optionee is notified in
writing to the contrary, all notices, communications, and documents directed to
the Company and related to the Agreement, if not delivered by hand, shall be
mailed, addressed as follows:


                                       15
<PAGE>

                   Fluid Propulsion Technologies, Inc.
                   3350 Scott Boulevard, Bldg. 33
                   Santa Clara, California 95054
                   Attn: President and Chief Executive Officer

Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for the Optionee and related to
this Agreement, if not delivered by hand, shall be mailed to Optionee's last
known address as shown on the Company's books. Notices and communications shall
be mailed by first class mail, postage prepaid; documents shall be mailed by
registered mail, return receipt requested, postage prepaid. All mailings and
deliveries related to this Agreement shall be deemed received when actually
received, if by hand delivery, and two business days after mailing, if by mail.


                                       16
<PAGE>


                  IN WITNESS WHEREOF, the parties have executed this Agreement
as of the Effective Date.

                                     FLUID PROPULSION TECHNOLOGIES, INC.



                                     By:
                                        ---------------------------------------
                                     Title:
                                           ------------------------------------

The Optionee hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.



                                     ------------------------------------------
                                     Optionee


Optionee's spouse indicates by the execution of this Option Agreement his or her
consent to be bound by the terms thereof as to his or her interests, whether as
community property or otherwise, if any, in the option granted hereunder, and in
any ISO Shares purchased pursuant to this Agreement.



                                     ------------------------------------------
                                     Optionee's Spouse


                                       17
<PAGE>


                                    EXHIBITS

Exhibit 1                  1994 Stock Incentive Plan

Exhibit 3                  Expiration of Incentive Stock Options
(if applicable)

Exhibit 5.1                Time of Exercise
(if applicable)

Exhibit 5.3                1994 Stock Incentive Plan Stock Option
                           Exercise and Purchase Agreement

Exhibit 5.4                Payment
(if applicable)

Exhibit 7                  Right of Repurchase
(if applicable)


                                        18
<PAGE>


                               EXHIBIT 5.1 TO THE
                        INCENTIVE STOCK OPTION AGREEMENT


         The ISO shall be exercisable with respect to twenty five percent (25%)
of the total number of ISO Shares one year after the Vesting Base Date and,
thereafter, with respect to an additional 2.083% of such shares on the last day
of each calendar month after the first anniversary of the Vesting Base Date, so
that all of the ISO Shares may be purchased on and after the fourth anniversary
of the Vesting Base Date.


Initialled by:                       FLUID PROPULSION TECHNOLOGIES, INC.



                                     By:
                                        ---------------------------------------
                                     Title:
                                           ------------------------------------


                                     ------------------------------------------
                                     Optionee



                                        19
<PAGE>


                                   EXHIBIT C-3

                       Nonqualified Stock Option Agreement


                                        20
<PAGE>


                       FLUID PROPULSION TECHNOLOGIES, INC.
                            1994 STOCK INCENTIVE PLAN
                       NONQUALIFIED STOCK OPTION AGREEMENT
                       -----------------------------------


                  (A)  Name of Optionee:____________________________________
                  (B)  Grant Date:__________________________________________
                  (C)  Number of Shares:____________________________________
                  (D)  Exercise Price:______________________________________
                  (E)  Vesting Base Date:___________________________________
                  (F)  Effective Date:______________________________________


                  THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "AGREEMENT"),
is made and entered into as of the date set forth in ITEM F above (the
"EFFECTIVE DATE") between Fluid Propulsion Technologies, Inc., a California
corporation (the "COMPANY") and the person named in ITEM A above (the
"OPTIONEE").

                  THE PARTIES AGREE AS FOLLOWS:

                  1.       GRANT OF OPTION; VESTING BASE DATE.

                           1.1 GRANT. The Company hereby grants to Optionee
pursuant to the Company's 1994 Stock Incentive Plan (the "PLAN"), a copy of
which is attached to this Agreement as Exhibit 1, a nonqualified stock option
(the "NQO") to purchase all or any part of an aggregate of the number of
shares (the "NQO Shares") of the Company's Common Stock (as defined in the
Plan) listed in ITEM C above on the terms and conditions set forth herein and
in the Plan, the terms and conditions of the Plan being hereby incorporated
into this Agreement by reference. This option does not constitute, and will
not be treated as, an "incentive stock option" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended.

                           1.2 VESTING BASE DATE. The parties hereby establish
the date set forth in ITEM E above as the Vesting Base Date (as defined in
Section 5.1 below).

                  2. EXERCISE PRICE. The exercise price for purchase of each
share of Common Stock covered by this NQO shall be the price set forth in ITEM
D above.

                  3. TERM. Unless otherwise specified on EXHIBIT 3 attached
hereto, if any (the absence of such exhibit indicating that no such exhibit
was intended), this NQO shall expire as provided in Section 6.1.12 of the Plan.

                  4. ADJUSTMENT OF NQOS. The Company shall adjust the number
and kind of shares and the exercise price thereof in certain circumstances in
accordance with the provisions of Section 6.1.1 of the Plan.


                                       21
<PAGE>

                  5.       EXERCISE OF OPTIONS.

                           5.1 VESTING; TIME OF EXERCISE. This NQO shall be
exercisable according to the schedule set forth on EXHIBIT 5.1 attached
hereto. Such schedule shall commence as of the date set forth in ITEM E above
(the "VESTING BASE DATE"). The absence of EXHIBIT 5.1 indicates that no such
exhibit was intended and that the ISO Shares shall be subject to the Company's
rights set forth in Section 7.

                           5.2 EXERCISE AFTER TERMINATION OF STATUS AS AN
EMPLOYEE, DIRECTOR OR CONSULTANT. In the event of termination of Optionee's
continuous status as an employee, director or consultant, this NQO may be
exercised only in accordance with the provisions of Section 6.1.7 of the Plan.

                           5.3 MANNER OF EXERCISE. Optionee may exercise this
NQO, or any portion of this NQO, by giving written notice to the Company at
its principal executive office, to the attention of the officer of the Company
designated by the Plan Administrator, accompanied by a copy of the Employee
Stock Option Plan Stock Purchase Agreement in substantially the form attached
hereto as EXHIBIT 5.3 executed by Optionee (or at the option of the Company
such other form of stock purchase agreement as shall then be acceptable to the
Company), payment of the exercise price and payment of any applicable
withholding or employment taxes. The date the Company receives written notice
of an exercise hereunder accompanied by payment will be considered as the date
this NQO was exercised.

                           5.4 PAYMENT. Except as provided in EXHIBIT 5.4
attached hereto, if any (the absence of such exhibit indicating that no
exhibit was intended), payment may be made for NQO Shares purchased at the
time written notice of exercise of the NQO is given to the Company, by
delivery of cash, check, previously owned shares of Common Stock (provided
that delivery of previously owned shares may not be made other than once in
any six-month period), or a full recourse promissory note equal to up to 90%
of the exercise price and payable over no more than five years. The proceeds
of any payment shall constitute general funds of the Company.

                           5.5 DELIVERY OF CERTIFICATE. Promptly after receipt
of written notice of exercise of the NQO, the Company shall, without stock
issue or transfer taxes to the Optionee or other person entitled to exercise,
deliver to the Optionee or other person a certificate or certificates for the
requisite number of NQO Shares. An Optionee or transferee of an Optionee shall
not have any privileges as a shareholder with respect to any NQO Shares
covered by the option until the date of issuance of a stock certificate.

                  6. NONASSIGNABILITY OF NQO. This NQO is not assignable or
transferable by Optionee except by will or by the laws of descent and
distribution. During the life of Optionee, the NQO is exercisable only by the
Optionee. Any attempt to assign, pledge, transfer, hypothecate or otherwise
dispose of this NQO in a manner not herein permitted, and any levy of
execution, attachment, or similar process on this NQO, shall be null and void.

                  7. COMPANY'S RIGHT OF REPURCHASE UPON TERMINATION OF
EMPLOYMENT. The NQO Shares arising from exercise of this NQO shall be subject
to a right of repurchase in favor


                                       22
<PAGE>

of the Company (the "RIGHT OF REPURCHASE") to the extent set forth on EXHIBIT
7 attached hereto (the absence of such exhibit indicating that no such exhibit
was intended and that the NQO shall be subject to the limitations set forth on
EXHIBIT 5.1). If the Optionee's employment with the Company terminates before
the Right of Repurchase lapses in accordance with EXHIBIT 7, the Company may
purchase NQO Shares subject to the Right of Repurchase (either by payment of
cash or by cancellation of purchase money indebtedness) for an amount equal to
the price the Optionee paid for such NQO Shares (exclusive of any taxes paid
upon acquisition of the stock) by giving notice at any time within the later
of (a) 30 days after the acquisition of the NQO Shares upon option exercise,
or (b) 90 days after such termination of employment that the Company is
exercising its right of repurchase. The Company shall include with such notice
payment in full in cash or by evidence of cancellation of purchase money
indebtedness. The Optionee may not dispose of or transfer NQO Shares while
such shares are subject to the Right of Repurchase and any such attempted
transfer shall be null and void. The Company's rights under this Section 7
shall be fully assignable, in whole or in part; PROVIDED, that if the Company
assigns such rights, the assignee (other than an assignee that is a
wholly-owned subsidiary or the sole parent of the Company) shall pay to the
Company upon assignment cash equal to the difference, if any, between the then
fair market value of the NQO Shares and the aggregate exercise price thereof.

                  8.       COMPANY'S RIGHT OF FIRST REFUSAL.

                           8.1 RIGHT OF FIRST REFUSAL. In the event that the
Optionee proposes to sell, pledge, or otherwise transfer any NQO Shares or any
interest in such shares to any person or entity, the Company shall have a
right of first refusal (the "RIGHT OF FIRST REFUSAL") with respect to such NQO
Shares. If Optionee desires to transfer NQO Shares, Optionee shall give a
written notice (the "TRANSFER NOTICE") to the Company describing fully the
proposed transfer, including the number of NQO Shares proposed to be
transferred, the proposed transfer price, and the name and address of the
proposed transferee. The Transfer Notice shall be signed both by Optionee and
by the proposed transferee and must constitute a binding commitment of both
such parties for the transfer of such NQO Shares. The Company may elect to
purchase all, but not less than all, of the NQO Shares subject to the Transfer
Notice by delivery of a notice of exercise of the Company's Right of First
Refusal within 30 days after the date the Transfer Notice is delivered to the
Company. The purchase price paid by the Company shall be the price per share
equal to the proposed per share transfer price, and shall be paid to the
Optionee within 60 days after the date the Transfer Notice is received by the
Company, unless a longer period for payment was offered by the proposed
transferee, in which case the Company shall pay the purchase price within such
longer period. The Company's rights under this Section 8.1 shall be freely
assignable, in whole or in part. Notwithstanding the foregoing, the Right of
First Refusal does not apply to a transfer of shares by gift or devise to the
Optionee's immediate family (i.e., parents, spouse or children or to a trust
for the benefit of the Optionee or any of the Optionee's immediate family
members), but does apply to any subsequent transfer of such shares by such
immediate family members.

                           8.2 TRANSFER OF NQO SHARES. If the Company fails to
exercise the Right of First Refusal within 30 days after the date the Transfer
Notice is delivered to the Company, the Optionee may, not later than 75 days
following delivery to the Company of the Transfer Notice, conclude a transfer
of the NQO Shares subject to the Transfer Notice on the


                                       23
<PAGE>

terms and conditions described in the Transfer Notice. Any proposed transfer
on terms and conditions different from those described in the Transfer Notice,
as well as any subsequent proposed transfer by the Optionee, shall again be
subject to the Right of First Refusal and shall require compliance by the
Optionee with the procedure described in Section 8.1 of this Agreement. If the
Company exercises the Right of First Refusal, the parties shall consummate the
sale of NQO Shares on the terms, other than price, as applicable under Section
8.1, set forth in the Transfer Notice; provided, however, in the event the
Transfer Notice provides for payment for the NQO Shares other than in cash,
the Company shall have the option of paying for the NQO Shares by paying in
cash the present value of the consideration described in the Transfer Notice;
and further provided that if the value of noncash consideration is to be paid,
and the Optionee disagrees with the value determine by the Company, the
Optionee may request an independent appraisal by an appraiser acceptable to
the Optionee and the Company, the costs of such appraisal to be home equally
by the Optionee and the Company.

                           8.3 BINDING EFFECT. The Right of First Refusal
shall inure to the benefit of the successors and assigns of the Company and
shall be binding upon any transferee of NQO Shares other than a transferee
acquiring NQO Shares in a transaction where the Company failed to exercise the
Right of First Refusal (a "FREE TRANSFEREE") or a transferee of a Free
Transferee.

                           8.4 TERMINATION OF COMPANY'S RIGHT OF FIRST
REFUSAL. Notwithstanding anything in this Section 8, the Company shall have no
Right of First Refusal, and Optionee shall have no obligation to comply with
the procedures in Sections 8.1 through 8.3 after the earlier of (i) the
closing of the Company's initial public offering to the public generally or
(ii) the date is 10 years after the Effective Date.

                  9. MARKET STANDOFF. Optionee hereby agrees that if so
requested by the Company or any representative of the underwriters in
connection with any registration of the offering of the securities of the
Company under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
Optionee shall not sell or otherwise transfer the NQO Shares for that period
following the effective date of a Registration Statement filed under the
Securities Act agreed to by the Company and the representative(s) of the
underwriters; provided that such restrictions shall apply only to the first
two registration statements of the Company to become effective under the
Securities Act which include securities to be sold on behalf of the Company in
an underwritten public offering under the Securities Act. The Company may
impose stop-transfer instructions with respect to the NQO Shares subject to
the foregoing restrictions until the end of each such period.

                  10.      RESTRICTION ON ISSUANCE OF SHARES.

                           10.1 LEGALITY OF ISSUANCE. The Company shall not be
obligated to sell or issue any NQO Shares pursuant to this Agreement if such
sale or issuance, in the opinion of the Company and the Company's counsel,
might constitute a violation by the Company of any provision of law, including
without limitation the provisions of the Securities Act.

                           10.2 REGISTRATION OR QUALIFICATION OF SECURITIES.
The Company may, but shall not be required to, register or qualify the sale of
this NQO or any NQO Shares under the


                                       24
<PAGE>

Securities Act or any other applicable law. The Company shall not be obligated
to take any affirmative action in order to cause the grant or exercise of this
option or the issuance or sale of any NQO Shares pursuant thereto to comply
with any law.

                  11. RESTRICTION ON TRANSFER. Regardless whether the sale of
the NQO Shares has been registered under the Securities Act or has been
registered or qualified under the securities laws of any state, the Company
may impose restrictions upon the sale, pledge or other transfer of NQO Shares
(including the placement of appropriate legends on stock certificates) if, in
the judgment of the Company and the Company's counsel, such restrictions are
necessary or desirable in order to achieve compliance with the provisions of
the Securities Act, the securities laws of any state, or any other law, or if
the Company does not desire to have a trading market develop for its
securities.

                  12. STOCK CERTIFICATE RESTRICTIVE LEGENDS. Stock
certificates evidencing NQO Shares may bear such restrictive legends as the
Company and the Company's counsel deem necessary or advisable under applicable
law or pursuant to this Agreement.

                  13. REPRESENTATIONS, WARRANTIES, COVENANTS, AND
ACKNOWLEDGMENTS OF OPTIONEE UPON EXERCISE OF NQO. Optionee hereby agrees that
in the event that the Company and the Company's counsel deem it necessary or
advisable in the exercise of their discretion, the issuance of NQO Shares may
be conditioned upon certain representations, warranties, and acknowledgments
by the person exercising the NQO.

                  14. ASSIGNMENT; BINDING EFFECT. Subject to the limitations
set forth in this Agreement, this Agreement shall be binding upon and inure to
the benefit of the executors, administrators, heirs, legal representatives,
and successors of the parties hereto; provided, however, that Optionee may not
assign any of Optionee's rights under this Agreement.

                  15. DAMAGES. Optionee shall be liable to the Company for all
costs and damages, including incidental and consequential damages, resulting
from a disposition of NQO Shares which is not in conformity with the
provisions of this Agreement.

                  16. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California excluding
those laws that direct the application of the laws of another jurisdiction.

                  17. NOTICES. All notices and other communications under this
Agreement shall be in writing. Unless and until the Optionee is notified in
writing to the contrary, all notices, communications, and documents directed
to the Company and related to the Agreement, if not delivered by hand, shall
be mailed, addressed as follows:

                       Fluid Propulsion Technologies, Inc.
                       3350 Scott Boulevard, Bldg. 33
                       Santa Clara, California 95054
                       Attn: President and Chief Executive Officer

Unless and until the Company is notified in writing to the contrary, all
notices, communications, and documents intended for the Optionee and related
to this Agreement, if not delivered by hand,


                                       25
<PAGE>

shall be mailed to Optionee's last known address as shown on the Company's
books. Notices and communications shall be mailed by first class mail, postage
prepaid; documents shall be mailed by registered mail, return receipt
requested, postage prepaid. All mailings and deliveries related to this
Agreement shall be deemed received when actually received, if by hand
delivery, and two business days after mailing, if by mail.




























                                       26
<PAGE>


                  IN WITNESS WHEREOF, the parties have executed this Agreement
as of the Effective Date.

                                            FLUID PROPULSION TECHNOLOGIES, INC.


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

                                            Title:
                                                  -----------------------------


The Optionee hereby accepts and agrees to be bound by all of the terms and
conditions of this Agreement and the Plan.


                                            -----------------------------------
                                            Optionee


Optionee's spouse indicates by the execution of this Agreement his or her
consent to be bound by the terms thereof as to his or her interests, whether
as community property or otherwise, if any, in the option granted hereunder,
and in any NQO Shares purchased pursuant to this Agreement.



                                            -----------------------------------
                                            Optionee's Spouse












                                       27
<PAGE>


                                    EXHIBITS
                                    --------

Exhibit 1                        1994 Stock Incentive Plan

Exhibit 3                        Expiration of Incentive Stock Option
(if applicable)

Exhibit 5.1                      Time of Exercise
(if applicable)

Exhibit 5.3                      1994 Stock Incentive Plan Stock Option
                                 Exercise and Purchase Agreement

Exhibit 5.4                      Payment
(if applicable)

Exhibit 7                        Right of Repurchase
(if applicable)



                                        28
<PAGE>


                               EXHIBIT 5.1 TO THE
                       NONQUALIFIED STOCK OPTION AGREEMENT
                       -----------------------------------

                  The NQO shall be exercisable with respect to twenty five
percent (25%) of total number of NQO Shares one year after the Vesting Base
Date and, thereafter, with respect to an additional 2.083% of such shares on
the last day of each calendar month after the first anniversary of the Vesting
Base Date, so that all of the NQO Shares may be purchased on and after the
fourth anniversary of the Vesting Base Date.

                  Initialed by:             FLUID PROPULSION TECHNOLOGIES, INC.


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

                                            Title:
                                                  -----------------------------


                                            -----------------------------------
                                            Optionee



                                        29
<PAGE>


                                   EXHIBIT C-4
                                   -----------

                    Stock Purchase and Restriction Agreement


                                        30
<PAGE>



                       FLUID PROPULSION TECHNOLOGIES, INC.
                            1994 STOCK INCENTIVE PLAN
                    STOCK PURCHASE AND RESTRICTION AGREEMENT



         THIS STOCK PURCHASE AND RESTRICTION AGREEMENT (the "Agreement") is
made and entered into as of this ______ day of ________, 19__ between Fluid
Propulsion Technologies, Inc., a California corporation (the "Company"), and
___________________ ("EMPLOYEE"), an employee of the Company.

         1. PURCHASE OF SHARES. Pursuant to the Company's 1994 Stock Incentive
Plan (the "Plan") and subject to the terms and conditions of the Plan and this
Agreement, the Company hereby offers to Employee the right to purchase AT ANY
TIME PRIOR TO DATE 30 DAYS AFTER THE DATE OF THIS AGREEMENT SET FORTH ABOVE
__________________ (____) shares of the Company's no par value Common Stock
(the "SHARES"). Upon execution and delivery of this Agreement with the
purchase price for the Shares, the Company shall sell the Shares to Employee
at a price of $ _______, per share, or an aggregate purchase price of $_____,
payable in cash.

         2. MARKET STANDOFF. Employee agrees upon request from the Company or
any representative of the underwriters in connection with any registration of
the offering of any securities of the Company under the Securities Act of
1933, as amended (the "SECURITIES ACT"), not to sell or otherwise transfer any
Shares or other securities of the Company during that period following the
effective date of a registration statement of the Company filed under the
Securities Act agreed to by the Company and the representative(s) of the
underwriters; provided, however, that such restriction shall apply only to the
first two registration statements of the Company to become effective under the
Securities Act which include securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such periods.

         3. RIGHT OF COMPANY TO REPURCHASE SHARES.

            3.1 REPURCHASE RIGHT. The Company shall have the right (but not
the obligation) to repurchase all of the shares with respect to which the
Right of Repurchase has not yet expired in accordance with Schedule 3.1, at a
price of $____ per share if Employee ceases to be employed by the Company for
any reason whatsoever ("EMPLOYMENT TERMINATION"). Employee may not dispose of
or transfer any Shares while the Shares are subject to the Right of Repurchase
and any such attempted disposition or transfer shall be null and void. The
Company's rights under this Section 3.1 shall be freely assignable, in whole
or in part.

            3.2 COMPANY REPURCHASE PROCEDURE. The Company's Right of
Repurchase shall terminate if not exercised by written notice from the Company
to Employee within 90 days after the date of the Employment Termination. If
the Company exercises its Right of Repurchase, Employee shall, if necessary,
endorse and deliver to the Company the stock certificates representing the
Shares being repurchased, and the Company shall then promptly pay to Employee,
a sum equal to the product of (i) the number of shares being repurchased, and


                                       31
<PAGE>

(ii) the price per share at which Employee acquired such shares (the
"REPURCHASE PRICE"). Employee shall cease to have any rights with respect to
such repurchased Shares immediately upon receipt of the Repurchase Price. The
Company's rights under this Section 3 shall be freely assignable, in whole or
in part; PROVIDED, that if the Company assigns such rights, the assignee
(other than an assignee that is a wholly-owned subsidiary or the sole parent
of the Company) shall pay to the Company upon assignment cash equal to the
difference, if any, between the then fair market value of the Shares and the
aggregate exercise price thereof.

            3.3 BINDING EFFECT. The Company's Right of Repurchase shall inure
to the benefit of the successors and assigns of the Company and shall be
binding upon any representative, executor, administrator, heir, or legatee of
Employee.

         4. RIGHT OF FIRST REFUSAL. The Shares shall be subject to a right of
first refusal by the Company in the event that Employee or any transferee of
the Shares proposes to sell, pledge, or otherwise transfer the Shares or any
interest in the Shares to any person or entity. Any holder of the Shares
desiring to transfer the Shares or any interest in the Shares shall give a
written notice to the Company describing the proposed transfer, including the
number of Shares proposed to be transferred, the price and terms at which such
Shares are proposed to be transferred, and the name and address of the
proposed transferee. Unless otherwise agreed by the Company and the holder of
such Shares, repurchases by the Company under this Section shall be at the
proposed price and terms, including the number of Shares to be repurchased,
specified in the notice to the Company. The Company's rights under this
Section shall be freely assignable. If the Company fails to exercise its right
of first refusal within 30 days from the date on which the Company receives
the shareholder's notice, the shareholder may, within the next 90 days,
conclude a transfer to the proposed transferee of the exact number of Shares
covered by that notice on terms not more favorable to the transferee than
those described in the notice. Any subsequent proposed transfer shall again be
subject to the Company's right of first refusal. If the Company exercises its
right of first refusal, the shareholder shall endorse and deliver to the
Company the stock certificates representing the Shares being repurchased
(unless such stock certificates are being held by the Company in pledge
pursuant to this Agreement) and the Company shall promptly pay the shareholder
the total repurchase price. The holder of the Shares being repurchased shall
cease to have any rights with respect to such Shares immediately upon receipt
of the repurchase price. The right of first refusal set forth in this Section
shall terminate upon the earlier of (i) consummation of an underwritten public
offering of the Company's Common Stock registered under the Securities Act, or
(ii) registration of the Company's Common Stock under the Securities Exchange
Act of 1934, as amended.

         5. REPRESENTATIONS AND ACKNOWLEDGEMENTS OF EMPLOYEE. Employee hereby
represents, warrants, acknowledges, and agrees that:

            5.1 INVESTMENT. Employee is acquiring the Shares for Employee's
own account and not with a view to or for sale in connection with any
distribution of the Shares. Employee understands that he or she must bear the
economic risk of the investment for an indefinite period of time because the
Shares have not been registered under the Act.


                                      32
<PAGE>

            5.2 PREEXISTING RELATIONSHIP.  Purchaser has either:

                (a) a preexisting personal or business relationship with the
Company or one or more of its directors that is of a nature and duration which
enable him or her to be aware of the character, business acumen, and general
business and financial circumstances of the Company or the director(s) with
whom such relationship exists, or

                (b) such business or financial experience as to be able to
protect his or her own interests in connection with the purchase of the Shares.

                  Purchaser has the financial capacity to bear the risk of
this investment.

            5.3 LIMITED OPERATING HISTORY. Employee is aware that the Company
has a limited operating history, has only recently begun realizing revenues
from the license or sale of its products or services, and has realized only
limited revenues therefrom.

            5.4 SPECULATIVE INVESTMENT. Employee's investment in the Company
represented by the Shares is highly speculative in nature and is subject to a
high degree of risk or loss in whole, or in part; the amount of such
investment is within Employee's risk, capital means and is not so great in
relation to Employee's total financial resources as would jeopardize the
personal financial needs of Employee or Employee's family in the event such
investment were lost in whole or in part.

            5.5 TAX ADVICE. THE COMPANY HAS MADE NO WARRANTIES OR
REPRESENTATIONS TO EMPLOYEE WITH RESPECT TO THE INCOME TAX CONSEQUENCES OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND EMPLOYEE IS IN NO MANNER
RELYING ON THE COMPANY OR ITS REPRESENTATIVES FOR AN ASSESSMENT OF ANY TAX
CONSEQUENCES RELATED TO THE OWNERSHIP, PURCHASE, OR DISPOSITION OF THE SHARES.
EMPLOYEE ASSUMES FULL RESPONSIBILITY FOR ALL SUCH CONSEQUENCES AND FOR THE
PREPARATION AND FILING OF ALL TAX RETURNS AND ELECTIONS WHICH MAY OR MUST BE
FILED IN CONNECTION WITH SUCH SHARES.

            5.6 UNREGISTERED SECURITIES. Employee must bear the economic risk
of investment for an indefinite period of time because the Shares have not
been registered under the Securities Act and therefore cannot and will not be
sold unless they are subsequently registered under the Securities Act or an
exemption from such registration is available. The Company has made no
agreements, covenants, or undertakings whatsoever to register any of the
Shares under the Securities Act. The Company has made no representations,
warranties, or covenants whatsoever as to whether any exemption from the
Securities Act, including without limitation any exemption for limited sales
in routine brokers' transactions pursuant to Rule 144 under the Securities
Act, will become available and any such exemption pursuant to Rule 144, if
available at all, will not be available unless: (i) a public trading market
then exists in the Company's Common Stock, (ii) adequate information as to the
Company's financial and other affairs and operations is then available to the
public, and (iii) all other terms and conditions of Rule 144 have been
satisfied. Employee understands that the resale provisions of Rule 701 will
not apply until 90 days after the Company becomes subject to the reporting
obligations of the Securities


                                      33
<PAGE>

Exchange Act of 1934 (typically upon the effective date of an initial public
offering). Transfer of the Shares has not been registered or qualified under
any applicable state law regulating securities and therefore the Shares cannot
and will not be sold unless they are subsequently registered or qualified
under any such law or an exemption therefrom is available. The Company has
made no agreements, covenants or undertakings whatsoever to register or
qualify any of the Shares under any such law. The Company has made no
representations, warranties or covenants whatsoever as to whether any
exemption from any such law will become available.

            5.7 PUBLIC TRADING. The Common Stock is not presently publicly
traded, and the Company has made no representation, covenant, or agreement as
to whether any such market for the Common Stock will develop.

         6. LEGENDS. Stock certificates evidencing the Shares may bear such
restrictive legends as the Company and the Company's counsel deem necessary or
advisable under applicable law or pursuant to this Agreement including,
without limitation, the following legends:

            "The securities represented hereby may be subject to a right of
         repurchase by the Company pursuant to the provisions of the Stock
         Purchase and Restriction Agreement between the Company and the
         original purchaser of such securities, should the person initially
         issued these securities cease to be employed by the Company or any
         affiliate thereof, and such securities may not be sold or otherwise
         transferred if such securities are subject to such right of
         repurchase."

            "The securities represented hereby are subject to a right of first
         refusal in favor of the Company pursuant to a Stock Purchase and
         Restriction Agreement between the Company and the original purchaser
         of such securities, and may not be sold or otherwise transferred
         except in compliance with the terms of such right of first refusal."

             "The securities represented hereby are subject to restrictions on
         transfer for a period following the effective date of a registration
         statement under the Securities Act of 1933, as amended (the "ACT"),
         for an offering of the Company's securities pursuant to the market
         standoff provisions of the Stock Purchase and Restriction Agreement
         between the Company and the original purchaser of such securities."

            "The securities represented hereby have not been registered under
         the Act. Such securities may not be transferred unless a Registration
         Statement under the Act is in effect as to such transfer, or in the
         opinion of counsel for the Company such transfer may be made pursuant
         to Rule 144, or registration under the Act is otherwise unnecessary
         for such transfer to comply with the Act."

         7. BINDING EFFECT. Subject to the limitations set forth in this
Agreement, this Agreement shall be binding upon, and inure to the benefit of,
the executors, administrators, heirs, legal representatives, successors, and
assigns of the parties hereto.

         8. TAXES. Employee shall execute and deliver to the Company with this
executed Agreement a copy of the Acknowledgement and Statement of Decision
Regarding Election Pursuant to Section 83(b) of the Internal Revenue Code (the
"ACKNOWLEDGEMENT") attached


                                      34
<PAGE>

hereto as Exhibit 8A and a copy of the Election pursuant to Section 83(b) of
the Code, attached hereto as Exhibit 8B, if Employee has indicated in the
Acknowledgement his or her decision to make such an election. Employee should
consult his or her tax advisor to determine if there is a comparable election
to file in the state of his or her residence and whether such filing is
desirable under the circumstances.

         9.  DAMAGES. Employee shall be liable to the Company for all costs
and damages, including incidental and consequential damages, resulting from a
disposition of Shares which is not in conformity with the provisions of this
Agreement.

         10. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
entered into and wholly to be performed within the State of California by
California residents.

         11. NOTICES. All notices and other communications under this
Agreement shall be in writing. Unless and until Employee is notified in
writing to the contrary, all notices, communications and documents directed to
the Company and related to this Agreement, if not delivered by hand, shall be
mailed, addressed as follows:

                  Fluid Propulsion Technologies, Inc.
                  3350 Scott Boulevard, Bldg. 33
                  Santa Clara, California 95054
                  Attn: President and Chief Executive Officer

         Unless and until the Company is notified in writing to the contrary,
all notices, communications and documents intended for Employee and related to
this Agreement, if not delivered by hand, shall be mailed to Employee's last
known address as shown on the Company's books. Notices and communications
shall be mailed by certified mail, return receipt requested, postage prepaid.
All mailings and deliveries related to this Agreement shall be deemed received
when actually received if by hand delivery, and four business days after
mailing if by mail.

         12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties pertaining to the purchase of the Shares by Employee from the
Company, and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties.





                                      35
<PAGE>


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.

FLUID PROPULSION                               EMPLOYEE
TECHNOLOGIES, INC.


Date:                                          Date:
     ---------------------------                    ---------------------------

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

Title:                                         Name:
      --------------------------                    ---------------------------
















                                      36
<PAGE>


         Employee's spouse indicates by the execution of this Agreement his or
her consent to be bound by the terms herein as to his or her interests, whether
as community property or otherwise, if any, in the Shares hereby purchased.


Employee's Spouse:
                  ---------------------------------



The Certificate for the Shares is to be registered as follows:


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


Schedule 3.1               Right of Repurchase

Exhibit 8A                 Acknowledgement Regarding Election Pursuant to
                           Section 83(b)

Exhibit 813                Section 83(b) Election

















                                      37
<PAGE>


                       SCHEDULE 3.1 OF THE STOCK PURCHASE
                        PLEDGE, AND RESTRICTION AGREEMENT


         The Right of Repurchase shall expire with respect to 25% of the
Shares on __________________, 19___ and on the first day of each succeeding
month shall expire with respect to an additional 2.083% of the Shares.

Initialed by:

FLUID PROPULSION                                    EMPLOYEE
TECHNOLOGIES, INC.

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









                                      38

<PAGE>

                                   EXHIBIT 8A

               ACKNOWLEDGEMENT AND STATEMENT OF DECISION REGARDING
                       ELECTION PURSUANT TO SECTION 83(b)
                          OF THE INTERNAL REVENUE CODE


         The undersigned (which term includes the undersigned's spouse), a
purchaser of _______ shares of Common Stock of Fluid Propulsion Technologies,
Inc., a California corporation (the "COMPANY"), and a party to a Stock
Purchase and Restriction Agreement with the Company (the "Agreement"), hereby
states as follows:

         1.       The undersigned acknowledges receipt of a copy of the
Agreement. The undersigned has carefully reviewed the Agreement.

         2.       The undersigned either [CHECK AS APPLICABLE]:

                  (a)      ______ has consulted, and has been fully advised by,
                           the undersigned's own tax advisor,
                           _______________________________, whose business
                           address is _________________________, regarding the
                           federal, state, and local tax consequences of
                           purchasing shares under the Agreement, and
                           particularly regarding the advisability of making
                           elections pursuant to Section 83(b) of the Internal
                           Revenue Code of 1986, as amended (the "Code"), and
                           pursuant to the corresponding provisions, if any, of
                           applicable state laws; or

                  (b)      ______ has knowingly chosen not to consult such a tax
                           advisor.

         3.       The undersigned hereby states that the undersigned has
decided [CHECK AS APPLICABLE]:

                  (a)      ______ to make an election pursuant to Section 83(b)
                           of the Code and is submitting to the Company,
                           together with the undersigned's executed Agreement,
                           an executed form which is attached as Exhibit 8B to
                           the Agreement, or

                  (b)      ______ not to make an election pursuant to Section
                           83(b) of the Code.

         4.       Neither the Company nor any subsidiary or representative of
the Company has made any warranty or representation to the undersigned with
respect to the tax consequences of the undersigned's purchase of shares and
execution of the Agreement in connection therewith or of the making or failure
to make an election pursuant to Section 83(b) of the Code or the corresponding
provisions, if any, of applicable state law.

         5.       The undersigned is also submitting to the Company, together
with the Agreement, an executed original of an election, if any is made, of
the undersigned pursuant to provisions of

                                      39

<PAGE>

state law corresponding to Section 83(b) of the Code, if any, which are
applicable to the undersigned's purchase of shares under the Agreement.



Date:                                       Employee:
     -----------------------------                   ---------------------

Date:                                       Spouse:
     -----------------------------                   ---------------------------






























                                      40

<PAGE>


                                   EXHIBIT 8B

                      ELECTION PURSUANT TO SECTION 83(b) OF
              THE INTERNAL REVENUE CODE TO INCLUDE IN GROSS INCOME
               THE EXCESS OVER THE PURCHASE PRICE, IF ANY, OF THE
            VALUE OF PROPERTY TRANSFERRED IN CONNECTION WITH SERVICES

         The undersigned hereby elects pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in the undersigned's
gross income for the ______ taxable year the excess (if any) of the fair
market value of the property described below, over the amount the undersigned
paid for such property, and supplies herewith the following information in
accordance with the Treasury regulations promulgated under Section 83(b).

         1.       The undersigned's name, address and taxpayer identification
(social security) number are:

                  Name:
                       ------------------------------------

                  Address:
                          ---------------------------------


                  TIN:
                      -------------------------------------

         2.       The property with respect to which the election is made
consists of _____________ common shares of Fluid Propulsion Technologies,
Inc., a California corporation (the "COMPANY").

         3.       The date on which the above property was transferred to the
undersigned was _________________,19___ and the taxable year to which this
election relates is ________.

         4.       The above property is subject to a right of repurchase by
the Company at the initial purchase price, if the undersigned ceases to be an
employee of, or a consultant to, the Company or an affiliate of the Company.

         5.       The fair market value of the above property at the time of
transfer (determined without regard to any restrictions other than those which
by their terms will never lapse) is $____ per share.

         6.       The amount paid for the above property by the undersigned
was $____ per share.









                                      41

<PAGE>

         7.       A copy of this election has been furnished to the Company,
and a copy will be filed with the income tax return of the undersigned to
which this election relates.



Date:
     ------------------------


Name:
     ------------------------






























                                      42
<PAGE>

                                   EXHIBIT C-5

                  Stock Option Exercise and Purchase Agreement


                                        43
<PAGE>

                       FLUID PROPULSION TECHNOLOGIES, INC.
                            1994 STOCK INCENTIVE PLAN
                  STOCK OPTION EXERCISE AND PURCHASE AGREEMENT


                  THIS STOCK OPTION EXERCISE AND PURCHASE AGREEMENT (the
"AGREEMENT") is made and entered into as of ______________, 19___, between
Fluid Propulsion Technologies, Inc., a California corporation (the "Company"),
and _________ ("Purchaser").

                  THE PARTIES AGREE AS FOLLOWS:

                  1.       PURCHASE OF SHARES. Pursuant to the Company's 1994
Stock Incentive Plan (the "Plan") and to a stock option agreement (the "OPTION
AGREEMENT") between the parties, the Company hereby sells to Purchaser, and
Purchaser hereby buys from the Company, _______ shares (the "PLAN SHARES") of
the Company's Common Stock, no par value ("COMMON STOCK") on the terms and
conditions set forth herein and in the Plan and the Option Agreement, the
terms and conditions of the Plan and the Option Agreement being hereby
incorporated into this Agreement by reference.

                  2.       PURCHASE PRICE. Purchaser shall purchase the Plan
Shares from the Company, and the Company shall sell the Plan Shares to
Purchaser, at a price of $_______ per share (the "EXERCISE PRICE"), for a
total purchase price of $_______ (the "PURCHASE PRICE").

                  3.       MANNER OF PAYMENT. Purchaser shall pay the Purchase
Price of the Plan Shares in cash (or in the manner set forth in Exhibit 3 to
this Agreement, the absence of any Exhibit 3 indicating that no such exhibit
was intended).

                  4.       RIGHT OF COMPANY TO REPURCHASE SHARES.

                           4.1    REPURCHASE RIGHT. If so provided in Section
7 of the Option Agreement, the Plan Shares shall be subject to a right (but
not an obligation) of repurchase by the Company (the "RIGHT TO REPURCHASE"),
at the Exercise Price of such shares, if Purchaser ceases to be employed by
the Company or an Affiliate (as defined in Section 2 of the Plan) for any
reason whatsoever ("EMPLOYMENT TERMINATION") prior to the expiration of the
Right of Repurchase in accordance with Schedule 7 of the Option Agreement.
Purchaser may not dispose of or transfer any Plan Shares while the Plan Shares
are subject to the Right of Repurchase and any such attempted disposition or
transfer shall be null and void. The Company's rights under this Section 4.1
shall be freely assignable, in whole or in part; PROVIDED, that if the Company
assigns such rights, the assignee (other than an assignee that is a
wholly-owned subsidiary or the sole parent of the Company) shall pay to the
Company upon assignment cash equal to the difference, if any, between the then
fair market value of the Plan Shares and the Purchase Price.

                           4.2    REPURCHASE PROCEDURE. The Company's Right of
Repurchase shall terminate if not exercised by written notice from the Company
to Purchaser within the later of (a) 30 days after the acquisition of the Plan
Shares by Purchaser, or (b) 90 days after Employment Termination. If the
Company exercises its Right of Repurchase, Purchaser shall endorse and deliver
to the Company the stock certificates representing the Plan Shares being

                                       44

<PAGE>

repurchased, and the Company shall then promptly pay, pursuant to the
provisions of Section 4.3 of this Agreement, the total repurchase price to
Purchaser.

                           4.3    REPURCHASE PAYMENT. If, at the time of
repurchase, any notes are outstanding which represent any portion of the
Purchase Price of the Plan Shares, the repurchase price shall be paid first by
cancellation of any obligation for accrued but unpaid interest under such
notes, next by cancellation of principal under such notes, and finally by
payment of cash.

                           4.4    BINDING EFFECT. The Company's Right of
Repurchase shall inure to the benefit of the successors and assigns of the
Company and shall be binding upon any transferee, representative, executor,
administrator, heir, or legatee of Purchaser.

                  5.       COMPANY'S RIGHT OF FIRST REFUSAL RESPECTING PLAN
SHARES.

                           5.1    RIGHT OF FIRST REFUSAL. In the event that
Purchaser proposes to sell, pledge, or otherwise transfer any Plan Shares or
any interest in such shares to any person or entity, the Company shall have a
right of first refusal (the "RIGHT OF FIRST REFUSAL") with respect to such
Plan Shares. If Purchaser desires to transfer Plan Shares, Purchaser shall
give a written notice (the "TRANSFER NOTICE") to the Company describing fully
the proposed transfer, including the number of Plan Shares proposed to be
transferred, the proposed transfer price and the name and address of the
proposed transferee. The Transfer Notice shall be signed both by Purchaser and
by the proposed transferee and must constitute a binding commitment of both
such parties for the transfer of such Plan Shares. The Company shall have the
right to purchase the Plan Shares subject to the Transfer Notice by delivery
of a notice of exercise of the Company's Right of First Refusal within 30 days
after the date the Transfer Notice is delivered to the Company. The purchase
price paid by the Company shall be at a price per share equal to the proposed
per share transfer price. The Company's rights under this Section 5.1 shall be
freely assignable, in whole or in part.

                           5.2    TRANSFER OF PLAN SHARES. If the Company
fails to exercise the Right of First Refusal within 30 days from the date the
Transfer Notice is delivered to the Company, Purchaser may, not later than 75
days following delivery to the Company of the Transfer Notice, conclude a
transfer of the Plan Shares subject to the Transfer Notice on the terms and
conditions described in the Transfer Notice. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well
as any subsequent proposed transfer by Purchaser, shall again be subject to
the Company's Right of First Refusal and shall require compliance by Purchaser
with the procedure described in Section 5.1 of this Agreement. If the Company
exercises the Right of First Refusal, the parties shall consummate the sale of
Plan Shares on the terms set forth in the Transfer Notice, subject to Section
5.1; provided, however, in the event the Transfer Notice provides for payment
for the Plan Shares other than in cash, the Company shall have the option of
paying for the Plan Shares by the discounted cash equivalent of the
consideration described in the Transfer Notice. Notwithstanding anything in
this Section to the contrary, any cash payment by the Company shall be made in
accordance with the payment provisions of Section 4.3 of this Agreement.

                           5.3    BINDING EFFECT OF RIGHT OF FIRST REFUSAL.
The Company's Right of First Refusal shall inure to the benefit of the
successors and assigns of the Company and shall be

                                       45

<PAGE>

binding upon any transferee of Plan Shares other than a transferee acquiring
Plan Shares in a transaction where the Company failed to exercise the Right of
First Refusal (a "FREE TRANSFEREE") or a transferee of a Free Transferee.

                           5.4    TERMINATION OF COMPANY'S RIGHT OF FIRST
REFUSAL. Notwithstanding anything in this Section 5, the Company shall have no
Right of First Refusal, and Purchaser shall have no obligation to comply with
the procedures in Sections 5.1 through 5.3 after the earlier of (a) the
Company's initial registered public offering to the public generally, or (b)
the date 10 years after the Effective Date (as defined in the Option
Agreement).

                  6.       STOCK CERTIFICATE RESTRICTIVE LEGENDS. Stock
certificates evidencing Plan Shares may bear such restrictive legends as the
Company and the Company's counsel deem necessary or advisable under applicable
law or pursuant to this Agreement, including without limitation, the following
legends:

                           "THE OFFERING AND SALE OF THE SECURITIES REPRESENTED
                  HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
                  1933, AS AMENDED (THE "ACT"). ANY TRANSFER OF SUCH SECURITIES
                  WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT
                  IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL
                  FOR THE COMPANY SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR
                  SUCH TRANSFER TO COMPLY WITH THE ACT."

                           "THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO A
                  RIGHT OF FIRST REFUSAL BY THE COMPANY PURSUANT TO THE
                  PROVISIONS OF COMPANY'S STOCK OPTION PLAN AND A PURCHASE
                  AGREEMENT RELATING TO SUCH SECURITIES, AND MAY NOT BE SOLD OR
                  OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS OF
                  SUCH RIGHT OF FIRST REFUSAL."

                           "THE SECURITIES REPRESENTED HEREBY MAY BE SUBJECT TO
                  A RIGHT OF REPURCHASE BY THE COMPANY PURSUANT TO THE
                  PROVISIONS OF THE COMPANY'S EMPLOYEE STOCK OPTION PLAN AND THE
                  AGREEMENT RELATING TO THE ACQUISITION OF SUCH SECURITIES,
                  SHOULD THE PERSON INITIALLY ISSUED THESE SECURITIES CEASE TO
                  BE EMPLOYED BY THE COMPANY OR ANY AFFILIATE THEREOF, AND SUCH
                  SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IF SUCH
                  SECURITIES ARE SUBJECT TO SUCH RIGHT OF REPURCHASE."

                                       46

<PAGE>

                           "THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO
                  RESTRICTIONS ON TRANSFER FOR A PERIOD FOLLOWING THE EFFECTIVE
                  DATE OF A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
                  1933, AS AMENDED, FOR AN OFFERING OF THE COMPANY'S SECURITIES
                  AS MORE FULLY PROVIDED IN AN AGREEMENT RELATING TO THE OPTION
                  TO PURCHASE SUCH SECURITIES."

                  7.       REPRESENTATIONS, WARRANTIES, COVENANTS, AND
ACKNOWLEDGEMENTS OF PURCHASER. Purchaser hereby represents, warrants,
covenants, acknowledges and agrees that:

                           7.1    INVESTMENT. Purchaser is acquiring the Plan
Shares for Purchaser's own account, and not for the account of any other
person. Purchaser is acquiring the Plan Shares for investment and not with a
view to distribution or resale thereof except in compliance with applicable
laws regulating securities.

                           7.2    BUSINESS EXPERIENCE. Purchaser is capable of
evaluating the merits and risks of Purchaser's investment in the Company
evidenced by the purchase of the Plan Shares.

                           7.3    RELATION OF COMPANY. Purchaser is presently
an officer, director, or employee of, or consultant to, the Company and in
such capacity has become personally familiar with the business, affairs,
financial condition, and results of operations of the Company.

                           7.4    ACCESS TO INFORMATION. Purchaser has had the
opportunity to ask questions of, and to receive answers from, appropriate
executive officers of the Company with respect to the terms and conditions of
the transactions contemplated hereby and with respect to the business,
affairs, financial conditions, and results of operations of the Company.
Purchaser has had access to such financial and other information as is
necessary in order for Purchaser to make a fully-informed decision as to
investment in the Company by way of purchase of the Plan Shares, and has had
the opportunity to obtain any additional information necessary to verify any
of such information to which Purchaser has had access.

                           7.5    SPECULATIVE INVESTMENT. Purchaser's
investment in the Company o represented by the Plan Shares is highly
speculative in nature and is subject to a high degree of risk of loss in whole
or in part. The amount of such investment is within Purchaser's risk capital
means and is not so great in relation to Purchaser's total financial resources
as would jeopardize the personal financial needs of Purchaser or Purchaser's
family in the event such investment were lost in whole or in part.

                           7.6    REGISTRATION. Purchaser may bear the
economic risk of investment for an indefinite period of time because the sale
to Purchaser of the Plan Shares has not been registered under the Securities
Act of 1933, as amended (the "ACT") and the Plan Shares cannot be transferred
by Purchaser unless such transfer is registered under the Act or an exemption
from such registration is available. The Company has made

                                       47

<PAGE>

no agreements, covenants or undertakings whatsoever to register the transfer
of any of the Shares under the Act. The Company has made no representations,
warranties, or covenants whatsoever as to whether any exemption from the Act,
including without limitation any exemption for limited sales in routine
brokers' transactions pursuant to Rule 144, will be available; if the
exemption under Rule 144 is available at all, it will not be available until
at least two years after payment of cash for the Plan Shares and not then
unless: (a) a public trading market then exists in the Company's common stock;
(b) adequate information as to the Company's financial and other affairs and
operations is then available to the public; and (c) all other terms and
conditions of Rule 144 have been satisfied.

                           7.7    PUBLIC TRADING. None of the Company's
securities is presently publicly traded, and the Company has made no
representation, covenant or agreement as to whether there will be a public
market for any of its securities.

                           7.8    TAX ADVICE. THE COMPANY HAS MADE NO
WARRANTIES OR REPRESENTATIONS TO PURCHASER WITH RESPECT TO THE INCOME TAX
CONSEQUENCES OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND PURCHASER
IS IN NO MANNER RELYING ON THE COMPANY OR ITS REPRESENTATIVES FOR AN
ASSESSMENT OF SUCH TAX CONSEQUENCES.

                  8.       BINDING EFFECT. Subject to the limitations set
forth in this Agreement, this Agreement shall be binding upon, and inure to
the benefit of, the executors, administrators, heirs, legal representatives,
successors and assigns of the parties hereto.

                  9.       TAXES. Purchaser shall execute and deliver to the
Company with this executed Agreement a copy of the Acknowledgement and
Statement of Decision Regarding Election Pursuant to Section 83(b) of the
Internal Revenue Code (the "ACKNOWLEDGEMENT") attached hereto as EXHIBIT 9A.
Purchaser shall execute and submit with the Acknowledgement a copy of the
Election Pursuant to Section 83(b) of the Code (the "ELECTION"), attached
hereto as EXHIBIT 9B, if Purchaser has indicated in the Acknowledgement his
decision to make such an election. Purchaser should consult his tax advisor to
determine if there is a comparable election to file in the state of his
residence and whether such filing is desirable under the circumstances. The
Company may withhold from Purchaser's wages, or require Purchaser to pay to
the Company, any applicable withholding or employment taxes resulting from the
purchase of Plan Shares hereunder or from the lapse of any restrictions
imposed on the Plan Shares.

                  10.      DISQUALIFYING DISPOSITIONS OF ISO STOCK. If stock
acquired by exercise of an ISO (as defined in the Plan) is disposed of within
two years from the date of grant of the ISO or within one year after the
transfer of the stock to Purchaser, Purchaser immediately prior to the
disposition shall promptly notify the Company in writing of the date and terms
of the disposition and shall provide such other information regarding the
disposition as the Company may reasonably require.

                  11.      DAMAGES. Purchaser shall be liable to the Company
for all costs and damages, including incidental and consequential damages,
resulting from a disposition of Plan Shares which is not in conformity with
the provisions of this Agreement.

                                       48

<PAGE>

                  12.      GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California
applicable to contracts entered into and wholly to be performed within the
State of California by California residents.

                  13.      NOTICES. All notices and other communications under
this Agreement shall be in writing. Unless and until Purchaser is notified in
writing to the contrary, all notices, communications and documents directed to
the Company and related to the Agreement, if not delivered by hand, shall be
mailed, addressed as follows:

                          Fluid Propulsion Technologies, Inc.
                          3350 Scott Boulevard, Bldg. 33
                          Santa Clara, California 95054
                          Attn: President and Chief Executive

Unless and until the Company is notified in writing to the contrary, all
notices, communications and documents intended for Purchaser and related to
this Agreement, if not delivered by hand, shall be mailed to Purchaser's last
known address as shown on the Company's books. Notices and communications
shall be mailed by registered mail, return receipt requested, postage prepaid.
All mailings and deliveries related to this Agreement shall be deemed received
only when actually received.


















                                       49

<PAGE>


                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.

                                             FLUID PROPULSION TECHNOLOGIES, INC.


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

                                             Title:
                                                   -----------------------------

                  Purchaser hereby accepts and agrees to be bound by all of
the terms and conditions of this Agreement and the Plan.




                                             -----------------------------------
                                             Purchaser


                  Purchaser's spouse indicates by the execution of this
Agreement his or her consent to be bound by the terms herein as to his or her
interests, whether as community property or otherwise, if any, in the Plan
Shares hereby purchased.



                                             -----------------------------------
                                             Purchaser's Spouse



<TABLE>
<CAPTION>
                                Exhibits
                                --------
<S>                        <C>
Exhibit 9A                 Acknowledgement Regarding Election Pursuant to Section 83(b)
Exhibit 9B                 Section 83(b) Election


</TABLE>









                                       50
<PAGE>

                                   EXHIBIT 9A

                        ACKNOWLEDGEMENT AND STATEMENT OF
                     DECISION REGARDING ELECTION PURSUANT TO
                   SECTION 83(b) OF THE INTERNAL REVENUE CODE


                  The undersigned (which term includes the undersigned's
spouse), a purchaser of ____ shares of Common Stock, no par value, of Fluid
Propulsion Technologies, Inc., a California corporation (the "COMPANY") by
exercise of an option (the "OPTION") granted pursuant to the Company's 1994
Stock Incentive Plan (the "PLAN"), hereby states as follows:

                  1.       The undersigned acknowledges receipt of a copy of
the Plan relating to the offering of such shares. The undersigned has
carefully reviewed the Plan and the option agreement pursuant to which the
Option was granted.

                  2.       The undersigned either [check and complete as
applicable]:

                  _________  (a) has consulted, and has been fully advised by,
                             the undersigned's own tax advisor, _______________,
                             whose business address is
                             _____________________________________________,
                             regarding the federal, state and local tax
                             consequences of purchasing shares under the Plan,
                             and particularly regarding the advisability of
                             making elections pursuant to Section 83(b) of the
                             Internal Revenue Code of 1986, as amended (the
                             "CODE") and pursuant to the corresponding
                             provisions, if any, of applicable state law; or

                  _________  (b) has knowingly chosen not to consult such a tax
                             advisor.

                  3.       The undersigned hereby states that the undersigned
has decided [check as applicable]:

                  _________  (a) to make an election pursuant to Section 83(b)
                             of the Code, and is submitting to the Company,
                             together with the undersigned's executed Stock
                             Purchase Agreement, an executed form entitled
                             "Election Pursuant to Section 83(b) of the Internal
                             Revenue Code With Respect to Property Acquired by
                             Exercise of a Stock Option; or

                  _________  (b) not to make an election pursuant to Section
                             83(b) of the Code.


                                        51
<PAGE>


                  4.       Neither the Company nor any subsidiary or
representative of the Company has made any warranty or representation to the
undersigned with respect to the tax consequences of the undersigned's purchase
of shares under the Plan or of the making or failure to make an election
pursuant to Section 83(b) of the Code or the corresponding provisions, if any,
of applicable state law.




Date:
     ------------------------                   --------------------------------
                                                Purchaser

Date:
     ------------------------                   --------------------------------
                                                Purchaser's Spouse


                                        52
<PAGE>

                                   EXHIBIT 9B

                    ELECTION PURSUANT TO SECTION 83(b) OF THE
                      INTERNAL REVENUE CODE WITH RESPECT TO
                 PROPERTY ACQUIRED BY EXERCISE OF A STOCK OPTION


                  The undersigned hereby elects pursuant to Section 830 of
the Internal Revenue Code of 1986, as amended (the "Code") to include in the
undersigned's gross income the excess (if any) of the fair market value of the
property described below over the sum of the amount the undersigned paid for
such property plus, if the shares to which this election relates were acquired
by exercise of an "incentive stock option" within the meaning of Section 422
of the Code, the amount excluded from the undersigned's income pursuant to
Sections 421 and 422 of the Code.

                  This election is made to the same effect, and with the same
limitations, with respect to the analogous provisions of Sections 83(b) (and,
if applicable, Sections 421 and 422) of the Code under any applicable state
statute.

                  Pursuant to Treasury Regulations, the following information
is provided:

                  1.       The undersigned's name, address and Social Security
Number are:

                           Name:
                                      ------------------------------------------

                           Address:
                                      ------------------------------------------
                                      ------------------------------------------

                           Social Security #:
                                              ----------------------------------

                  2.       The property with respect to which the election is
made consists of _____________ shares of Common Stock, no par value, of Fluid
Propulsion Technologies, Inc., a California corporation (the "COMPANY").

                  3.       The date on which the above property was
transferred to the undersigned was _____________,19 ___, and the taxable year
for which this election is made is 19___.

                  4.       The above property is subject to the following
restrictions checked below:

                  _____    a right of repurchase by the Company at the initial
                           purchase price, if the undersigned ceases to be an
                           employee of the Company or of an affiliate of the
                           Company within a specified period;



                                        53
<PAGE>

                  _____    a right of first refusal by the Company should the
                           undersigned wish to transfer the shares to a person
                           or entity other than the Company;

                  _____    restrictions as may be imposed by Section 16(b) of
                           the Securities Exchange Act of 1934, as amended, if
                           any.

                  5.       The fair market value of the above property at the
time of transfer (determined without regard to any lapse restrictions as
defined in Treasury Regulations ss. 1.83-3(i)) was $______ per share.

                  6.       The amount paid for the above property by the
undersigned was $_________ per share.

                  7.       Copies of this election have been furnished to the
Company and to the Internal Revenue Service Center to which the undersigned
submits his or her federal income tax return, and a copy will be filed with
the income tax return of the undersigned for the year to which this election
relates.

                  8.       If the shares to which this election relates were
acquired by exercise of an "incentive stock option" within the meaning of
Section 422 of the Code, except for purposes of Section 56(b)(3) of the Code
relating to the treatment of incentive stock options for purposes of the
alternative minimum tax or in the event of a "disqualifying disposition" of
the property, this election is protective only, is made solely to bar
application of Section 83(a) of the Code, and is not an election of the
undersigned actually to recognize income which apart from this election is
protected from recognition by Sections 421 and 422 of the Code. If the shares
to which this election relates were acquired by exercise of an incentive stock
option, the amount expressly excluded from income pursuant to Section 421 and
422 of the Code is $____ per share.



Date:
     ------------------------                   --------------------------------
                                                Purchaser


                                        54
