H POWER CORP, S-1/A, 2000-07-28

H POWER CORP
S-1/A, 2000-07-28
MOTORS & GENERATORS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 2000.

REGISTRATION NO. 333-34234
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--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

H POWER CORP.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 3629 22-3010742
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

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

1373 BROAD STREET
CLIFTON, NEW JERSEY 07013
(973) 450-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------

DR. H. FRANK GIBBARD
CHIEF EXECUTIVE OFFICER
H POWER CORP.
1373 BROAD STREET
CLIFTON, NEW JERSEY 07013
(973) 450-4400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------

COPIES TO:

<TABLE>
<S> <C>
MERRILL M. KRAINES, ESQ. STEPHEN A. WEISS, ESQ.
FULBRIGHT & JAWORSKI L.L.P. CLIFFORD E. NEIMETH, ESQ.
666 FIFTH AVENUE GREENBERG TRAURIG, LLP
NEW YORK, NEW YORK 10103 THE METLIFE BUILDING
(212) 318-3000 200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 801-9200
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ______
If this Form is a post-effective amendment filed pursuant to 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE (1) REGISTRATION FEE (2)
<S> <C> <C>
Common stock, $.001 par value per share..................... $100,000,000 $26,400
</TABLE>

(1) Estimated solely for purpose of calculating the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933, as amended.

(2) Previously paid.
------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8a OF THE
SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8a, MAY DETERMINE.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS

SUBJECT TO COMPLETION, DATED JULY 28, 2000

7,000,000 SHARES

[LOGO]

H POWER CORP.

COMMON STOCK

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

This is our initial public offering of shares of common stock. We are offering
7,000,000 shares of our common stock. No public market currently exists for our
common stock.

We currently anticipate the initial public offering price to be between $11.00
and $13.00 per share. Our common stock has been approved for quotation on the
Nasdaq National Market under the symbol "HPOW."

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 5.

<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------ ------------------------
<S> <C> <C>
Initial Public Offering Price............... $ $
Underwriting Discount....................... $ $
Proceeds to H Power......................... $ $
</TABLE>

The underwriters have been granted a 30-day option to purchase up to 1,050,000
shares of common stock, solely to cover over-allotments, if any. If our selling
stockholders elect not to sell 1,050,000 outstanding shares of H Power common
stock to the underwriters, we will issue and sell 1,050,000 additional shares of
common stock to the underwriters.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

Lehman Brothers, on behalf of the underwriters, expects to deliver the shares to
purchasers on or about , 2000.

--------------------------------------------------------------------------------
LEHMAN BROTHERS
CIBC WORLD MARKETS
DEUTSCHE BANC ALEX. BROWN
JOSEPHTHAL & CO. INC.
FIDELITY CAPITAL MARKETS
A DIVISION OF NATIONAL
FINANCIAL SERVICES CORPORATION

, 2000
<PAGE>
[GRAPHICS OMITTED]
<PAGE>
TABLE OF CONTENTS

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<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward Looking Statements.................................. 11
Use of Proceeds............................................. 12
Dividend Policy............................................. 12
Capitalization.............................................. 13
Dilution.................................................... 14
Selected Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Business.................................................... 24
Management.................................................. 42
Certain Relationships and Related Transactions.............. 49
Principal and Selling Stockholders.......................... 53
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 59
United States Tax Consequences to Non-U.S. Holders.......... 61
Underwriting................................................ 64
Legal Matters............................................... 68
Experts..................................................... 68
Where You Can Find Additional Information................... 68
Index to Financial Statements............................... F-1
</TABLE>

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

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.

Until , 2000, all dealers that buy, sell or trade the common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER BEFORE
INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY,
ESPECIALLY THE RISKS OF INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK
FACTORS." OUR FISCAL YEAR ENDS MAY 31.

OUR COMPANY

H Power is a leading fuel cell development company. We believe that we were
the first to complete a commercial sale of proton-exchange membrane, or PEM,
fuel cell systems. Our PEM fuel cells are designed to provide electricity for a
wide range of stationary, portable and mobile applications. We believe that our
residential cogeneration products will be adopted in our first target market,
consisting of rural, remote homes, because they will best meet the criteria used
by the customer in choosing a residential power source. These criteria include
price, operating cost, noise, pollution, reliability and maintenance. We believe
that as our stationary, portable and mobile products gain acceptance in the
market and are manufactured in large quantities, their cost will decline and
their reliability will increase until they can provide electricity competitively
for a wide variety of applications and geographical territories.

PEM fuel cells are devices that generate electricity efficiently and cleanly
from the electrochemical reaction of hydrogen and oxygen. Hydrogen is typically
derived from conventional fuels such as natural gas or propane, while oxygen is
drawn from the air.

In August 1999, we entered into a ten-year agreement with ECO Fuel Cells,
LLC, a subsidiary of Energy Co-Opportunity, Inc. (ECO), to market, sell, install
and service our stationary power fuel cell systems. ECO is an association of
approximately 250 U.S. rural electric cooperatives. We have granted ECO the
right to market our products to more than 900 cooperatives whose service
territory includes 83% of the U.S. counties in 47 states. These cooperatives
supply power to approximately 14 million U.S. households, farms and small
businesses. ECO also has the right to market H Power's products to the
additional 37 million households in this service territory that are served by
municipal and investor-owned electric utilities. ECO has agreed to purchase
12,300 of our stationary fuel cell systems over several years for an aggregate
purchase price of approximately $81 million. ECO's ability to purchase these
systems from us depends on its ability to resell the systems to its cooperatives
and customers.

In March 2000, we completed the first installation of our prototype
stationary fuel cell system to an ECO cooperative. We have not yet completely
developed and produced the stationary fuel cell systems we have agreed to sell
to ECO. We believe that ECO's rural customer base will be among the most likely
early adopters of fuel cell technology. As of May 31, 2000, we delivered and
installed five test and evaluation units to ECO. We intend to establish
manufacturing facilities in the first half of the calendar year 2001 to meet our
goal of shipping initial commercial units in the second half of calendar year
2001. We expect that the introductory price of our stationary power fuel cell
systems will be less than $10,000. Our product cost analyses indicate that after
two to three years of commercial production, efficiencies in production and
learning experience should reduce substantially the cost of our PEM fuel cell
systems. We believe that our systems would then become attractive to a
significant percentage of the additional 37 million households, particularly
those in areas where the cost of electricity is relatively high and the cost of
natural gas is relatively low.

We seek to be among the first to mass market stationary and portable and
mobile fuel cell systems. We first achieved commercial operation and sale of our
low power systems in 1998 and are now offering for sale five portable and mobile
fuel cell systems ranging in power from 35 watts to 250 watts under the trade
name PowerPEM-Registered Trademark-. These products are designed as battery
substitutes and power sources for potential applications ranging from traffic
systems to golf carts to consumer devices. We

<PAGE>
believe that demand for portable and mobile fuel cell systems will be driven by
consumer preference for smaller power sources with longer operating lives and
lighter weights.

We have installed our first prototype stationary fuel cell systems and
expect these multi-kilowatt systems to be commercially available in the second
half of calendar year 2001. Our stationary products in development include a
residential cogeneration system, designed to meet the electricity requirements
of a typical home, and a system which is designed as a backup power source
during grid power outages. We are also developing products targeted for
telecommunications backup which we believe will be available in the second half
of calendar year 2001.

FIRST TO COMMERCIALIZE FUEL CELLS

In June 1998, we began fulfilling our commitment to deliver 65 backup power
units to the New Jersey Department of Transportation for use with its variable
message highway signs. As of May 31, 2000, we had delivered 53 of these units,
all of which are in operation. We believe that this transaction represents the
world's first commercial sale of a sizeable number of competitively-bid,
non-subsidized PEM fuel cell systems offered with a warranty. This sale has been
our only commercial sale to date.

FAVORABLE INDUSTRY AND MARKET TRENDS

According to the Gas Research Institute, the percentage of power generation
supplied by central utilities will continue to decline over the next ten years
due in large part to state deregulation legislation which should increase
competitive pricing and make power generation less profitable for those
utilities. A growing share of total generation will be provided by non-utility
generators, of which merchant generators will provide the biggest share.
Generation by large non-central generators and distributed generators will also
grow. In particular, we believe that demand for fuel cell products will increase
as the worldwide need for distributed, off-grid electric power grows. We believe
that a number of market trends favor significant penetration of fuel cells into
the distributed power generation market, including the:

- increasing requirements for continuous, reliable primary and backup
electric power, particularly in rural areas and in developing countries;

- continuing privatization and deregulation of utilities, which is likely to
open the market for alternative power; and

- increasing desire of utilities to avoid costly central generation,
transmission, maintenance and distribution expenditures.

OUR STRATEGY

Our strategy is to establish PEM fuel cells as a major alternative power
source and to become the leading commercial provider of PEM fuel cells and fuel
cell systems for applications below 25 kilowatts. We intend to implement this
strategy by:

- focusing on existing markets for stationary power products, such as rural
areas;

- strengthening our existing strategic relationships and aggressively
pursuing additional manufacturing, marketing and distribution
partnerships;

- penetrating markets for portable and mobile fuel cell products;

- developing low-cost, state-of-the-art manufacturing capabilities;

- capitalizing on our technological advantages over other fuel cell
developers and other potential alternative power sources; and

- developing and acquiring advanced, complementary technologies.

2
<PAGE>
OUR HISTORY

We were incorporated in Delaware in June 1989. We have incurred a cumulative
net loss since inception through May 31, 2000 of approximately $44.7 million. We
anticipate incurring significant additional losses through at least our fiscal
year 2002, primarily as a result of our substantial research and development
expenditures and increased sales and marketing expenses. Our industry is new and
is characterized by significant capital investment, intense competition and
ongoing technical development. Since 1996, we have received an aggregate of
approximately $46.5 million in equity financing from strategic and financial
investors. Our principal executive offices are located at 1373 Broad Street,
Clifton, New Jersey 07013 and our telephone number is (973) 450-4400.

THE OFFERING

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<S> <C>
Common stock offered......................... 7,000,000 shares

Common stock to be outstanding............... 52,756,860 shares after the offering

Use of proceeds.............................. For the acquisition of new manufacturing
facilities, capital expenditures, research
and product development, sales and marketing,
potential acquisitions and for general
corporate purposes. See "Use of Proceeds."

Proposed Nasdaq National Market Symbol....... "HPOW"
</TABLE>

UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT
THE UNDERWRITERS WILL NOT EXERCISE THEIR OVER-ALLOTMENT OPTION TO PURCHASE
1,050,000 SHARES OF OUR COMMON STOCK AT THE PRICE SET FORTH ON THE COVER PAGE OF
THIS PROSPECTUS.

IN ADDITION, UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS,
INCLUDING THE OUTSTANDING SHARE INFORMATION ABOVE, IS BASED UPON THE NUMBER OF
SHARES OUTSTANDING AS OF MAY 31, 2000 AND GIVES EFFECT TO A 5-FOR-1 STOCK SPLIT
OF OUR COMMON STOCK WHICH WAS EFFECTED ON JULY 24, 2000 AND THE FOLLOWING
TRANSACTIONS TO BE EFFECTED IMMEDIATELY PRIOR TO THE CONSUMMATION OF THIS
OFFERING:

- the conversion of all of our outstanding shares of mandatorily redeemable
convertible preferred stock into a total of 6,000,000 shares of common
stock; and

- the issuance of 1,666,665 shares of our common stock to outside investors
upon conversion of their 50% equity interest in our subsidiary, H Power
Enterprises of Canada.

The share information in the table above excludes:

- 5,491,625 shares of common stock issuable upon the exercise of outstanding
stock options at a weighted average exercise price of $4.91 per share;

- 500,000 shares of common stock issuable upon the exercise of outstanding
warrants at an exercise price of $5.00 per share; and

- approximately 268,000 shares of common stock issuable to DQE Enterprises
in payment of accrued dividends to which they are entitled.

3
<PAGE>
SUMMARY FINANCIAL DATA

The following table sets forth our summary financial data. You should read
this information carefully together with our consolidated financial statements
and the notes to those statements beginning on page F-1 of this prospectus, and
the information under "Selected Financial Data," "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Our pro forma financial information gives effect to the conversion of all of
our outstanding shares of mandatorily redeemable convertible preferred stock
into a total of 6,000,000 shares of our common stock and the issuance of
1,666,665 shares of our common stock to outside investors upon conversion of
their 50% equity interest in H Power Enterprises of Canada, all of which will be
effected immediately prior to the consummation of this offering. For purposes of
calculating our pro forma net loss per share, the pro forma items described
above are assumed to have occurred on June 1, 1998.

Our pro forma as adjusted results also give effect to our sale of 7,000,000
shares of common stock in this offering at an assumed initial public offering
price of $12.00 per share, after deducting the underwriting discount and
estimated offering expenses and the application of the net proceeds of that
sale.

<TABLE>
<CAPTION>
AS OF MAY 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $11,257 $11,257 $ 88,114
Working capital........................................... 13,213 13,213 89,434
Total assets.............................................. 18,650 18,650 94,191
Long-term debt............................................ 67 67 67
Minority interest......................................... 5,000 -- --
Mandatorily redeemable convertible preferred stock........ 15,327 -- --
Total stockholders' (deficit) equity...................... (6,938) 13,389 89,610
</TABLE>

4
<PAGE>
RISK FACTORS

BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE OF VARIOUS RISKS,
INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER THESE RISK
FACTORS, TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS,
BEFORE YOU DECIDE TO PURCHASE SHARES OF OUR COMMON STOCK.

WE HAVE A HISTORY OF LOSSES SINCE OUR INCEPTION, WE EXPECT FUTURE LOSSES AND
WE MAY NEVER ACHIEVE OR SUSTAIN PROFITABILITY. We have incurred net losses each
year since our inception in 1989 and had an accumulated loss of approximately
$44.7 million as of May 31, 2000. We expect to continue to incur net losses at
least through our fiscal year 2002 and these losses may be substantial. To
implement our business strategy, we will have to incur a high level of fixed
operating expenses and we will continue to incur considerable research and
development expenses and capital expenditures. Accordingly, if we are unable to
generate substantial revenues and positive cash flows we will not achieve
profitability. Even if we do achieve profitability, we may not be able to
sustain or increase our profitability on a quarterly or annual basis.

Our ability to generate future revenues will depend on a number of factors,
many of which are beyond our control. These factors include the rate of market
acceptance of our products, regulatory developments and general economic trends.
Due to these factors, we cannot anticipate with any degree of certainty what our
revenues, if any, will be in future periods. You have limited historical
financial data and operating results with which to evaluate our business and our
prospects. As a result, you should consider our prospects in light of the early
stage of our business in a new and rapidly evolving market.

WE HAVE HAD ONLY ONE COMMERCIAL PRODUCT SALE. WE MAY NOT BE ABLE TO
MANUFACTURE OR COMMERCIALIZE OUR PRODUCTS IN A COST-EFFECTIVE MANNER. To date,
we have derived revenues principally from government research and development
contracts. For our fiscal year ended May 31, 2000, we generated approximately
$985,000 from sales of our fuel cell systems. Our only commercial order occurred
in June 1998 and consisted of 65 backup power units to the New Jersey Department
of Transportation, 53 of which have been delivered as of May 31, 2000. Our other
product sales have been limited to demonstration and prototype models. We have
not made any commercial sales of units that include fuel processing
capabilities. We may not be able to produce or commercialize any of our products
in a cost-effective manner, and, if produced, we may not be able to successfully
market these products. We expect the production costs of the initial commercial
units to be delivered under the ECO contract to be higher than their sales price
and there can be no assurance that higher production levels will occur or that
sales prices will ever exceed production costs.

We do not have the manufacturing experience to handle large commercial
requirements. We may not be able to develop manufacturing technologies and
processes and expand our plant facilities to the point where they are capable of
satisfying large commercial orders, including the demand for stationary fuel
cell systems under the current ECO contract. Development and expansion of these
technologies and processes require extensive lead times and the commitment of
significant financial, engineering and human resources. We may not successfully
develop the required manufacturing technologies and processes.

WE MAY NOT BE ABLE TO DEVELOP THE NECESSARY TECHNOLOGY TO INTRODUCE AND
MARKET OUR PRODUCTS IN A TIMELY FASHION, IF AT ALL. Our product and technology
development efforts are subject to unanticipated and significant delays,
expenses and technical or other problems, as well as the possible lack of
funding to complete this development. Our success will depend upon our products
and technologies meeting acceptable cost and performance criteria, and upon
their timely introduction into the marketplace. None of our proposed products
and technologies may ever be successfully developed, and even if developed, they
may not actually perform as designed. Failure to develop or significant delays
in the development of our products and technology would have a material adverse
effect on our ability to sell our products and generate sufficient cash to
achieve profitability.

5
<PAGE>
ANY ADVERSE CHANGE IN OUR RELATIONSHIP WITH ECO FUEL CELLS, LLC WOULD DELAY
OUR ABILITY TO GENERATE REVENUES. We believe that a substantial portion of our
revenues over the next two to three years will be derived from sales of our
residential cogeneration unit, or RCU, to ECO. However, we have not yet fully
developed and produced the RCU product we have agreed to sell to ECO. Economic
and technical difficulties may prevent us from completing development of the
RCUs and delivering them on schedule to ECO. Moreover, ECO's financial ability
to perform under the agreement and to purchase the units from us is entirely
dependent on its ability to resell the units to its customer base. ECO's failure
to successfully market our RCU, or a decision by ECO to alter its commitment to
our fuel cell technology in favor of other energy product solutions, would
substantially delay our ability to generate revenues and could negatively impact
our liquidity and harm our reputation.

Under the terms of our agreement, ECO has the right to delay delivery of our
contracted-for units until the later of December 30, 2003 or thirty months from
when the 10th commercial unit is shipped. In addition, ECO will be permitted to
purchase fuel cell products that compete with our RCU and sell these competitive
products to its customer base if our RCU does not remain competitive in terms of
quality, price and performance. For a discussion of the material terms of our
relationship with ECO, see "Business--Our ECO Relationship."

MARKET ACCEPTANCE OF OUR FUEL CELL PRODUCTS MAY TAKE LONGER TO DEVELOP THAN
WE ANTICIPATE OR MAY NEVER DEVELOP. Our stationary PEM fuel cell products
represent a new technology and our success will depend on this technology
achieving market acceptance. Because we design our products to capitalize on
markets that presently utilize or are serviced by products from traditional and
well-established power generation sources, such as engine-generators, we may
face significant resistance from end-users to adopt a new and alternative power
source technology.

Fuel cell products for portable and mobile applications represent an
emerging market and we do not know whether our targeted distributors, resellers
or end-users will purchase our products. The development of a mass market for
our portable and mobile products may be impacted by many factors, some of which
are out of our control, including:

- cost competitiveness of portable and mobile products;

- consumer reluctance to try our products;

- consumer perception of our systems' safety; and

- emergence of newer, more competitive technologies and products.

If a mass market develops more slowly than we anticipate or fails to
develop, we may not be able to recover the expenses we incurred to develop these
products.

FAILURE OF OUR FIELD TESTS COULD NEGATIVELY IMPACT DEMAND FOR OUR
PRODUCTS. We are currently field testing a number of our products and we plan
to conduct additional field tests in the future. Field tests for the RCU to be
sold to ECO have only recently begun. We may encounter problems and delays
during these field tests for a number of reasons, including the failure of our
technology or the technology of third parties, as well as our failure to
maintain and service our prototypes properly. Many of these potential problems
and delays are beyond our control. Any problem or perceived problem with our
field tests could materially harm our reputation and impair market acceptance
of, and demand for, our products.

WE MAY NOT BE ABLE TO SATISFY OUR CONTRACTUAL OBLIGATIONS TO OUR CUSTOMERS
IF WE ARE UNABLE TO RELOCATE TO NEW MANUFACTURING FACILITIES. We currently have
only limited production facilities that are not capable of mass producing fuel
cell systems. We will not be able to meet our obligations to ECO unless we
promptly identify, acquire and bring on-line new large-scale manufacturing
facilities. We have not yet identified suitable facilities and may not be able
to do so. If we encounter delays in identifying suitable manufacturing plant
facilities for purchase or lease, in obtaining the necessary equipment or in
hiring

6
<PAGE>
and training personnel to commence large-scale manufacturing, we will not be
able to fill customer orders, including prospective orders from ECO, or
profitably manufacture our various fuel cell systems.

WE MAY NOT BE ABLE TO MEET OUR CUSTOMERS' DEMAND FOR OUR PRODUCTS IF WE DO
NOT SUCCESSFULLY MANAGE THE EXPANSION OF OUR OPERATIONS. Locating and
establishing new manufacturing facilities will place significant demands on our
managerial, technical, financial and other resources. We will be required to
make significant investments in our engineering and logistics systems, financial
and management information systems and to retain, motivate and effectively
manage our employees. There can be no assurance that our management skills and
systems currently in place will enable us to implement our strategy or enable us
to attract and retain skilled management and production personnel. Our failure
to manage our growth effectively or to implement our strategy would have a
material adverse effect on our ability to produce products and meet our
contractual obligations.

BECAUSE WE DEPEND ON THIRD-PARTY SUPPLIERS, WE MAY EXPERIENCE DELAYS IN
RECEIVING KEY MATERIALS AND COMPONENTS NECESSARY TO PRODUCE OUR FUEL CELL
SYSTEMS. We depend on third parties for the manufacture and assembly of
materials and components used to make our products. If any of our suppliers are
unable or unwilling to provide us with materials and components on commercially
reasonable terms, or at all, delays in identifying and contracting for
alternative sources of supply would adversely affect our ability to develop,
manufacture and market our products. In addition, some of these materials and
components, including the Nafion-Registered Trademark- polymer electrolyte
membranes and bipolar plates, are purchased from a single or limited number of
supply sources.

WE MAY NOT BE ABLE TO SELL OUR FUEL CELL SYSTEMS IF THEY ARE NOT COMPATIBLE
WITH THE PRODUCTS OF THIRD-PARTY MANUFACTURERS OR OUR POTENTIAL CUSTOMERS. Our
success will depend upon our ability to make our products compatible with the
products of third-party manufacturers. In addition, our mobile and portable
products will be successful only if our potential customers redesign or modify
their existing products to fully incorporate our products and technologies. Our
failure to make our products and technologies compatible with the products of
third-party manufacturers or the failure of potential customers to redesign or
make necessary modifications to their existing products to accommodate our
products would cause our products to be significantly less attractive to
customers.

THE FUELS ON WHICH OUR FUEL CELL PRODUCTS RELY MAY NOT BE READILY AVAILABLE
ON A COST-EFFECTIVE BASIS. Our fuel cell products require oxygen and hydrogen to
operate. While ambient air supplies the necessary oxygen, our fuel cells derive
hydrogen from fuels such as natural gas, propane, methanol and other petroleum
products. Even if these fuels are available to us, if their prices are such that
electricity produced by our systems would cost more than electricity provided
through the grid, potential users would have less of an economic incentive to
purchase our units.

WE MAY BE UNABLE TO COMPETE SUCCESSFULLY IN A HIGHLY COMPETITIVE
MARKET. The development and marketing of fuel cells and fuel cell systems is
extremely competitive. In many cases, we compete directly with alternative
energy and entrenched power-generation and power-storage technologies. In
addition, a number of firms throughout the world have established PEM fuel cell
development programs. Competitors range from development stage companies to
major domestic and international companies, many of which have:

- substantially greater financial, technical, marketing and human resource
capabilities;

- established relationships with original equipment manufacturers;

- name-brand recognition; and

- established positions in the markets that we have targeted for
penetration.

7
<PAGE>
These or other companies may succeed in developing and bringing to market
products or technologies that are more cost-effective than those being developed
by us or that would render our products and technology obsolete or
non-competitive in the marketplace.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS. Our ability
to compete effectively will depend, in part, on our ability to maintain the
exclusive ownership of our technology and manufacturing processes through a
combination of patent and trade secret protection, non-disclosure agreements and
other arrangements. Patents may not be issued under pending applications and any
issued patents that we hold may not provide adequate protection for our products
or processes. Moreover, patent applications filed in foreign countries are
subject to laws, rules and procedures that differ from those of the United
States and any resulting patents may be difficult to enforce.

There can be no assurance that our competitors will not either independently
develop proprietary information that is the same or similar to ours or obtain
access to our proprietary information. In addition, there can be no assurance
that we would prevail if challenges to our intellectual property rights are
asserted by third parties against us. We could incur substantial costs defending
patent infringement suits brought by others and prosecuting patent infringement
suits against third party infringers. Moreover, some foreign countries provide
significantly less patent protection than the United States. Competitors'
products may infringe upon our patents and the cost of protecting our rights may
be substantial, if not cost prohibitive, thereby undermining our ability to
protect our products effectively.

We rely on confidentiality agreements with our employees and third parties
to protect our unpatented proprietary information, know-how and trade secrets
but we have no effective means to enforce compliance with the terms of these
agreements.

GOVERNMENT REGULATION COULD IMPOSE BURDENSOME REQUIREMENTS AND RESTRICTIONS
THAT COULD IMPAIR DEMAND FOR OUR STATIONARY FUEL CELL PRODUCTS. Stationary
power systems, such as our RCUs, cannot be operated without permits in some of
the markets in which we will be marketing and selling our products. At this
time, we do not know which jurisdictions will impose regulations upon our
stationary fuel cell products as these regulations may depend, in part, upon
whether a fuel cell system is placed outside or inside a home. In addition, our
stationary fuel cell products and their installation may be subject to oversight
and regulation at the local level in accordance with state and local ordinances
relating to building codes, safety, pipeline connections and related matters. We
also do not know the extent to which any existing regulations may impact our
ability to distribute, install and service our stationary fuel cell products.
Once our stationary fuel cell products reach the commercialization stage and we
begin distributing our systems to our target early markets, federal, state or
local government agencies may seek to impose regulations. Any government
regulation of our stationary fuel cell products, whether at the federal, state
or local level, including any regulations relating to installation and servicing
of these products, may increase our costs and the price of our systems, and may
have a negative impact on our revenue and profitability.

ANY ACCIDENTS INVOLVING THE FLAMMABLE FUELS USED WITH OUR PRODUCTS COULD
IMPAIR THEIR MARKET ACCEPTANCE. Our fuel cell products use hydrogen which is
typically generated from gaseous and liquid fuels, such as propane, natural gas
or methanol in a process known as reforming. While our fuel cell products do not
use these fuels in a combustion process, natural gas and propane are flammable
fuels that could leak into a residence or commercial location and combust if
ignited by another source. Since our products have not yet gained widespread
market acceptance, any accidents involving our systems or other fuel cell-based
products could materially impede demand for our products. In addition, we may be
held responsible for damages beyond the scope of our insurance coverage.

8
<PAGE>
WE COULD BE LIABLE FOR ENVIRONMENTAL DAMAGES RESULTING FROM OUR RESEARCH,
DEVELOPMENT AND MANUFACTURING OPERATIONS. Our business exposes us to the risk
of harmful substances escaping into the environment, resulting in personal
injury or loss of life, damage to or destruction of property, and natural
resource damage. Depending on the nature of the claim, our current insurance
policies may not adequately reimburse us for costs incurred in settling
environmental damage claims, and in some instances, we may not be reimbursed at
all. Our business is subject to numerous federal, state and local laws,
regulations and policies that govern environmental protection. These laws and
regulations have changed frequently in the past and it is reasonable to expect
additional changes in the future. Our operations may not comply with future laws
and regulations and we may be required to make significant unanticipated capital
and operating expenditures. If we fail to comply with applicable environmental
laws and regulations, governmental authorities may seek to impose fines and
penalties on us or to revoke or deny the issuance or renewal of operating
permits and private parties may seek damages from us. Under those circumstances,
we might be required to curtail or cease operations, conduct site remediation or
other corrective action, or pay substantial damage claims.

UTILITY COMPANIES COULD PLACE BARRIERS ON OUR ENTRY INTO THE MARKET FOR
RESIDENTIAL POWER WHICH WOULD REDUCE DEMAND FOR OUR PRODUCTS. Utility companies
often charge fees to industrial customers for using less electricity, using the
grid for backup purposes only or disconnecting from the grid altogether. Though
these fees are not currently charged to residential users, it is possible that
utility companies could charge similar fees to residential customers in the
future. These fees could increase the cost to residential customers of using our
stationary power products, making them less cost-effective and less attractive
to potential customers.

OUR SUCCESS DEPENDS ON ATTRACTING AND RETAINING KEY PERSONNEL. The
successful development, marketing and manufacturing of our products will depend
upon the skills and efforts of a small group of management and technical
personnel, including Dr. H. Frank Gibbard, our Chief Executive Officer and
Dr. Arthur Kaufman, our Chief Technology Officer. The loss of any of our key
personnel could adversely impact our ability to execute our business plan.
Furthermore, recruiting and retaining qualified executive, technical, marketing,
manufacturing and support personnel in our emerging industry in the future will
be critical to our success and there can be no assurance that we will be able to
do so. We do not maintain "key-man" life insurance policies on any of our key
personnel.

OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS HAVE
SUBSTANTIAL CONTROL OVER OUR AFFAIRS AND YOU WILL NOT BE ABLE TO INFLUENCE THE
OUTCOME OF ANY IMPORTANT TRANSACTIONS INVOLVING H POWER. After consummation of
this offering, executive officers and directors and stockholders who
beneficially own more than 5% of our common stock will have the power to, in the
aggregate, direct the vote of approximately 24.1% of our voting securities
(assuming that the underwriters do not exercise their over-allotment option).
Therefore, these persons may have the power to influence our business policies
and affairs and determine the outcome of any matter submitted to a vote of our
stockholders, including mergers, sales of substantially all of our assets and
changes in control.

BECAUSE OUR MAJOR CUSTOMER HAS A REPRESENTATIVE ON OUR BOARD OF DIRECTORS,
CONFLICTS OF INTERESTS MAY ARISE. A representative of ECO is currently a member
of our Board of Directors and we have agreed to use our best efforts to nominate
one designee of ECO at each election of our Board of Directors. ECO is our
principal customer and strategic partner in the marketing and sales of our RCUs.
The presence of a representative of our major customer on our Board could
influence certain decisions and present a conflict of interest.

WE MAY BECOME SUBJECT TO RISKS INHERENT IN INTERNATIONAL OPERATIONS
INCLUDING CURRENCY EXCHANGE RATE FLUCTUATIONS AND TARIFF REGULATIONS. If we
sell or license our products or technologies outside the United States, we will
be subject to the risks associated with fluctuations in currency exchange rates.
We do not intend to enter into any hedging or other similar agreements or
arrangements to protect us against any of these currency risks. We also may be
subject to tariff regulations and requirements for export

9
<PAGE>
licenses, particularly with respect to the export of certain technologies,
unexpected changes in regulatory requirements, longer accounts receivable
requirements and collections, difficulties in managing international operations,
potentially adverse tax consequences, restrictions on repatriation of earnings
and the burdens of complying with a wide variety of foreign laws.

WE MAY BE UNABLE TO OBTAIN THE ADDITIONAL CAPITAL NEEDED TO OPERATE AND GROW
OUR BUSINESS, THEREBY REQUIRING US TO CURTAIL OR CEASE OPERATIONS. Our capital
requirements in connection with our development activities and transition to
commercial operations have been and will continue to be significant. We will
require substantial additional funds to continue the research, development and
testing of our technologies and products, to obtain patent protection relating
to our technologies when appropriate, and to manufacture and market our
products. There is no assurance that any additional financing will be available
on commercially attractive terms, in a timely fashion, in sufficient amounts, or
at all. If adequate funds are not available, we may have to scale back our
operations, including our product development, manufacturing and marketing
activities, all of which could cause us to lose both customers and market share
and ultimately cease operations.

OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO BE VOLATILE IN THE
FUTURE. Our quarterly operating results are likely to vary significantly in the
future. Fluctuations in our quarterly financial performance may result from, for
example:

- unevenness in demand and orders for our products;

- significant short-term capital expenses as we develop our manufacturing
facilities;

- a shortage of the raw materials used in the production of our fuel cell
systems; and

- difficulties with our manufacturing operations.

Because of these anticipated fluctuations, our sales and operating results in
any fiscal quarter are likely to be inconsistent, may not be indicative of our
future performance and may be difficult for investors to properly evaluate.

OUR STOCK PRICE MAY BE VOLATILE AND, AS A RESULT, YOU COULD LOSE ALL OR PART
OF YOUR INVESTMENT. Prior to this offering there has been no public market for
our common stock. We cannot predict the extent to which, or if, investor
interest will lead to the development of an active and liquid trading market.
The initial public offering price for the shares of our common stock will be
determined by negotiations between us and the representatives of the several
underwriters and may not be indicative of the market price of the common stock
that will prevail in the trading market. The market price of the common stock
may decline below the initial public offering price and this decline may be
significant.

The value of your investment could decline due to the impact of any of the
following factors upon the market price of our common stock:

- variations in our actual and anticipated operating results;

- changes in our earnings estimates by research analysts;

- our failure to meet analysts' performance expectations; and

- lack of liquidity.

In addition, stock markets, particularly the Nasdaq National Market, have
experienced extreme price and volume fluctuations, and the market prices of
securities of technology companies have been highly volatile. These fluctuations
are often unrelated to operating performance and may adversely affect the market
price of our common stock. As a result, investors may not be able to resell
their shares at or above the initial public offering price.

10
<PAGE>
THERE MAY BE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK AS A
RESULT OF A SIGNIFICANT NUMBER OF SHARES BEING AVAILABLE FOR FUTURE SALE BY OUR
EXISTING STOCKHOLDERS. Future sales of a substantial amount of our common stock
in the public market, or the perception that these sales may occur, could
adversely affect the market price of our common stock from time to time. These
future sales or perceptions could also impair our ability to raise additional
capital through the sale of our equity securities after completion of the
offering.

Our officers, directors and substantially all of our principal stockholders
will be permitted to dispose of an aggregate of 30,427,170 shares of common
stock commencing on the 181st day following the date of this prospectus. In
addition, the underwriters have agreed to allow Frederick Entman and Norman
Rothstein, each of whom are principal stockholders, and their affiliates to sell
up to an aggregate of 1,388,875 shares commencing on the 91st day following the
date of this prospectus. A substantial number of our common shares will become
available for sale in the public market simultaneously, including through
private sales transactions, which could cause the market price of our shares to
decline.

After this offering, the holders of up to 30,555,415 shares of common stock
will have registration rights to have their shares included for sale in
subsequent registered public offerings of our common stock. Furthermore, the
holders of substantially all of the above shares of common stock will be able to
require us to conduct a registered public offering for up to the following
number of shares at the times indicated below:

- 20,555,415 shares of common stock at any time following the date that is
one year after the closing of this offering;

- 5,000,000 shares of common stock at any time after August 27, 2001; and

- 4,000,000 shares of common stock at any time after November 29, 2001.

The exercise of these registration rights would allow these stockholders to sell
these shares in the market simultaneously with any further public offerings by
us of our equity securities. Any sales of significant shares could prevent us
from raising needed equity in the future or adversely affect the market prices
of our publicly traded shares.

THE TANGIBLE BOOK VALUE OF OUR COMMON STOCK WILL BE SUBSTANTIALLY LOWER THAN
THE OFFERING PRICE. The initial public offering price will be substantially
higher than the pro forma as adjusted tangible book value per share of our
outstanding common stock. If you purchase our common stock in this offering, the
shares you buy will experience an immediate and substantial dilution in tangible
book value per share. The shares of common stock owned by our existing
stockholders will receive a material increase in the tangible book value per
share. The dilution to investors in this offering will be approximately $10.31
per share. We also have a significant number of outstanding options to purchase
our common stock with exercise prices significantly below the initial public
offering price of the common stock. To the extent these options are exercised,
there will be substantial further dilution to you as new investors in our common
stock.

BECAUSE WE DO NOT INTEND TO PAY ANY DIVIDENDS, STOCKHOLDERS MUST RELY ON
STOCK APPRECIATION FOR ANY RETURN ON THEIR INVESTMENT IN OUR COMMON STOCK. We
have not paid any dividends on our common stock and we do not intend to declare
and pay any dividends on our common stock. Earnings, if any, are expected to be
retained by us to finance and expand our business.

FORWARD LOOKING STATEMENTS

This prospectus, including the sections entitled "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," contains forward-looking information. In
some cases, you can identify forward-looking

11
<PAGE>
statements by phrases such as "in our view," "there can be no assurance,"
"although no assurance can be given" or "there is no way to anticipate with
certainty" as well as by terminology such as "may," "will," "should," "expects,"
"intends," "plans," "objectives," "goals," "aims," "projects," "forecasts,"
"possible," "seeks," "could," "might," "likely," "enable," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue," or the negative
of these terms or other comparable terminology. These statements generally
constitute statements of expectation, intent and anticipation and may be
inaccurate. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined under "Risk Factors." These factors may cause our actual results
to differ materially from any forward-looking statement. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.

USE OF PROCEEDS

We estimate that the net proceeds from our sale of the 7,000,000 shares of
our common stock in this offering, at an assumed initial public offering price
of $12.00 per share, and after deducting underwriting discounts, commissions and
other estimated offering expenses payable by us, will be approximately
$77 million (or approximately $89 million if the underwriters exercise their
over-allotment option from us in full).

We expect to use the net proceeds from this offering in the following ways:

- approximately $21 million to locate and acquire new manufacturing
facilities and fund other capital expenditures over the next 18 months;

- approximately $18 million to fund our continued research and product
development;

- approximately $10 million to expand our marketing and sales efforts; and

- approximately $28 million for general corporate purposes.

We may also use a portion of the net proceeds to acquire or to invest in
complementary businesses, technologies, products or services, but we have no
current plans or commitments to do so. Our management will retain broad
discretion in the allocation of the net proceeds of the offering.

Actual expenditures may vary substantially from these estimates. The amounts
and timing of our actual expenditures will depend on numerous factors, including
the status of our research and product development efforts, marketing and sales
activities, and the growth of our manufacturing and distribution arrangements.
We may find it necessary to use portions of the net proceeds for other purposes.
We believe that cash from operations, together with the net proceeds of the sale
of common stock in this offering, will be adequate to fund our operations for
the next 18 months (whether or not the underwriters exercise their
over-allotment option from us).

Pending these uses, we intend to invest our net proceeds in short-term,
investment grade securities, at prevailing market rates of interest.

If our selling stockholders elect to sell 1,050,000 of their shares of our
common stock to the underwriters pursuant to the underwriters' over-allotment
option, all of the net proceeds from this sale will be payable to our selling
stockholders.

DIVIDEND POLICY

We have never declared nor paid any cash dividends to the holders of our
common stock. We intend to retain any future earnings, if any, for the
development and operation of our business. Accordingly, we do not anticipate
paying cash dividends on our common stock.

12
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization as of May 31, 2000:

- on an actual basis;

- on a pro forma basis giving effect to the conversion of all of our
outstanding shares of mandatorily redeemable convertible preferred stock
into 6,000,000 shares of our common stock and the issuance of 1,666,665
shares of our common stock to outside investors upon conversion of their
50% equity interest in H Power Enterprises of Canada; and

- on a pro forma as adjusted basis to reflect the adjustments described
above as well as our sale of 7,000,000 shares of common stock in this
offering at an assumed initial public offering price of $12.00 per share,
after deducting the underwriting discount, commissions and estimated
offering expenses and the application of the net proceeds of that sale.

<TABLE>
<CAPTION>
AS OF MAY 31, 2000
-------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- --------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 11,257 $ 11,257 $ 88,114
======== ======== ==========================
Long-term debt, including current portion................... 190 190 190
Minority interest........................................... 5,000 -- --
Series A, Series B, and Series C mandatorily redeemable
convertible preferred stock--$.001 par value; 10,000,000
shares authorized; 1,200,000 shares issued and
outstanding, actual; 0 shares, pro forma and pro forma as
adjusted.................................................. 15,327 -- --
Stockholder's equity:
Common Stock--$.001 par value; 150,000,000 shares
authorized; 38,090,195 shares issued and outstanding,
actual; 45,756,860 shares, pro forma; 52,756,860 shares,
pro forma as adjusted................................... 38 46 53
Additional paid-in capital................................ 38,127 58,446 134,660
Accumulated deficit....................................... (44,747) (44,747) (44,747)
Accumulated other comprehensive loss...................... (356) (356) (356)
-------- -------- --------------------------
Total stockholders' (deficit) equity...................... (6,938) 13,389 89,610
-------- -------- --------------------------
Total capitalization........................................ $ 13,579 $ 13,579 $ 89,800
======== ======== ==========================
</TABLE>

The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of May 31, 2000. It does not
include:

- 5,491,625 shares of common stock issuable upon the exercise of outstanding
stock options at a weighted average exercise price of $4.91 per share;

- 500,000 shares of common stock issuable upon the exercise of outstanding
warrants at an exercise price of $5.00 per share; and

- approximately 268,000 shares of common stock issuable to DQE Enterprises
immediately prior to this offering in payment of accrued dividends to
which they are entitled.

13
<PAGE>
DILUTION

Our pro forma net tangible book value as of May 31, 2000 was approximately
$12,950,000 or $0.28 per share of common stock after giving effect to the
conversion of all of our outstanding shares of mandatorily redeemable
convertible preferred stock into 6,000,000 shares of our common stock and the
issuance of 1,666,665 shares of our common stock to outside investors upon
conversion of their 50% equity interest in H Power Enterprises of Canada, all of
which will be effected immediately prior to the consummation of this offering.
Pro forma net tangible book value per share is equal to our pro forma tangible
assets, less our total liabilities, divided by the pro forma number of shares of
our common stock outstanding as of May 31, 2000.

After giving effect to the sale of 7,000,000 shares of our common stock at
the assumed initial public offering price of $12.00 per share, and after
deducting the underwriting discounts, commissions and estimated offering
expenses, and the application of the net proceeds of that sale, our pro forma as
adjusted net tangible book value at May 31, 2000 would have been approximately
$89,540,000 or $1.69 per share of common stock. This amount represents an
immediate increase in the pro forma net tangible book value of $1.41 per share
to existing stockholders and an immediate dilution in the pro forma as adjusted
net tangible book value of $10.31 per share to the investors who purchase our
common stock in this offering. The following table illustrates this per share
dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 12.00
Pro forma net tangible book value per share at May 31,
2000.................................................... $ 0.28
Increase per share attributable to new investors.......... 1.41
Pro forma net tangible book value per share after the
offering.................................................. 1.69
-------
Dilution per share to new investors......................... $ 10.31
=======
</TABLE>

The following table summarizes, on a pro forma basis as of May 31, 2000, the
total number of shares of common stock purchased from us, the total amount paid
to us, and the average price per share paid by our existing stockholders and by
new investors purchasing shares of common stock from us in this offering, at an
assumed initial public offering price of $12.00, before deducting underwriting
discounts, commissions and the estimated offering expenses payable by us:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 45,756,860 86.7% $ 53,245,000 38.8% $ 1.16
New investors............................. 7,000,000 13.3% $ 84,000,000 61.2% $12.00
---------- ----- ------------ -----
Total................................... 52,756,860 100% $137,245,000 100%
========== ===== ============ =====
</TABLE>

This table excludes:

- 5,491,625 shares of common stock issuable upon the exercise of outstanding
stock options at a weighted average exercise price of $4.91 per share;

- 500,000 shares of common stock issuable upon the exercise of outstanding
warrants at an exercise price of $5.00 per share; and

- approximately 268,000 shares of common stock issuable to DQE Enterprises
immediately prior to this offering in payment of accrued dividends to
which they are entitled.

To the extent these shares are issued, new investors will own 11.86% of our
outstanding common stock for which they will have paid $84 million or 50.39% of
total cash consideration, provided, however, if we were to issue and sell to the
underwriters 1,050,000 shares of common stock pursuant to the underwriters'
over-allotment option, new investors would own 13.40% of our outstanding common
stock for which they will have paid $96.6 million or 53.87% of total cash
consideration.

14
<PAGE>
SELECTED FINANCIAL DATA

The selected financial data set forth below as of and for the years ended
May 31, 1996, 1997, 1998, 1999 and 2000 have been derived from financial
statements, including those set forth elsewhere in this prospectus, audited by
PricewaterhouseCoopers LLP, independent accountants. The following should be
read in conjunction with the consolidated financial statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Products.................................................. $ -- $ 54 $ 99 $ 501 $ 985
Contracts................................................. 1,935 192 619 517 2,695
------- ------- -------- ------- --------
1,935 246 718 1,018 3,680
------- ------- -------- ------- --------
OPERATING EXPENSES:
Cost of revenues--products................................ 123 355 614 1,101
Cost of revenues--contracts............................... 1,036 172 436 466 2,356
Research and development.................................. 1,622 2,106 2,813 3,051 5,339
Selling, general and administrative....................... 2,134 2,562 3,514 3,813 12,565
------- ------- -------- ------- --------
Total operating expenses.................................. 4,792 4,963 7,118 7,944 21,361
------- ------- -------- ------- --------
Loss from operations...................................... (2,857) (4,717) (6,400) (6,926) (17,681)
Interest and other income, net............................ 2 145 723 182 746
Interest expense.......................................... (190) (174) (41) (22) (77)
------- ------- -------- ------- --------
Net loss.................................................. $(3,045) $(4,746) $ (5,718) $(6,766) $(17,012)
======= ======= ======== ======= ========
Net loss attributable to common stockholders.............. $(3,045) $(4,921) $ (5,928) $(6,976) $(17,222)
======= ======= ======== ======= ========
Loss per share, basic and diluted......................... $ (0.11) $ (0.17) $ (0.20) $ (0.24) $ (0.49)
======= ======= ======== ======= ========
Weighted average shares outstanding, basic and diluted.... 28,840 28,939 29,011 29,015 34,879
</TABLE>

<TABLE>
<CAPTION>
AS OF MAY 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 1,002 $ 13,146 $ 4,961 $ 242 $ 11,257
Working capital (deficit)................................. (2,669) 11,015 4,476 (1,955) 13,213
Total assets.............................................. 2,186 14,272 7,436 3,472 18,650
Long-term debt............................................ -- -- 4 69 67
Minority Interest......................................... -- 5,000 5,000 5,000 5,000
Mandatorily redeemable convertible preferred stock........ 1,000 15,327 15,327 15,327 15,327
Total stockholders' deficit............................... (3,930) (8,386) (14,356) (20,464) (6,938)
</TABLE>

15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS AND OTHER FINANCIAL
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. OUR FISCAL YEAR ENDS
MAY 31.

OVERVIEW

We design, develop and manufacture proton-exchange membrane, or PEM, fuel
cell systems. Fuel cells are devices that produce electrical energy without
combustion and its associated environmental contaminants. The fuel cell systems
we make and market are designed to complement or replace conventional power
sources such as batteries and electric power generators. The use of alternative
electric power systems is desirable in situations where conventional power
sources cannot adequately, economically or technologically supply the power
required.

We were incorporated in June 1989 under the laws of the State of Delaware. A
substantial portion of our business activity, from our inception through our
fiscal year ended May 31, 1995, was based on a U.S. Department of Energy
program. As prime contractor under that program, we developed, fabricated and
delivered to the DOE three phosphoric acid fuel cell/battery power sources for
installation in buses. These buses were among the first to operate under a
hybrid fuel cell system. During this early period, we also continued developing
our PEM fuel cell technologies, principally for portable applications. From 1995
through May 31, 2000, we had various government contracts. The most significant
of these contracts were used to develop fuel cell powered vehicles, stationary
power systems, communications backup power systems and diesel reformers.
Although these contracts have accounted for a substantial portion of our
revenues, we believe that they will diminish in importance as a result of our
focus on commercialization.

In subsequent years, while continuing our commitment to government programs,
we accelerated the development of our core technologies and began applying our
technologies to develop and fabricate different portable PEM fuel cell products.
Sales of these products have been modest and, until June 1998, were comprised
mainly of test and prototype units for evaluation by prospective users. In
June 1998, we made what we believe to be the world's first commercial sale of a
PEM fuel cell product used in the regular course of daily operations. This sale
to the New Jersey Department of Transportation of an initial order of 65 backup
power units for its variable message highway signs was competitively-bid,
non-government subsidized and came with a two-year product and maintenance
warranty. As of May 31, 2000, we had delivered 53 of these units, all of which
are in operation. To date, we have made no other commercial sales.

After an infusion of capital in 1996 and the establishment of our Canadian
subsidiary, H Power Enterprises of Canada, Inc., or HPEC, in 1997, we began to
use our technologies to develop higher power, stationary PEM fuel cell products
for use as primary and supplemental on-site electric power systems for
residential use. As of May 31, 2000, we have delivered 5 initial test units of
our residential electric primary power system to ECO Fuel Cells, LLC, a
subsidiary of Energy Co-Opportunity, Inc., an association of approximately 250
U.S. rural electric cooperatives. We believe we will be producing commercial
units for sale commencing June 2001.

We have a limited history of generating revenues and many of our products
have only been recently introduced or are in a formative stage of development.
Through May 31, 2000, we have incurred accumulated losses of approximately
$44.7 million since our inception in 1989 and we anticipate incurring
significant losses in the future. Most of our operating expenses will be fixed
in the near term. Therefore, if we are unable to generate significant revenues,
our net losses in any given quarter could be greater than expected. We intend to
significantly increase our capital expenditures and operating expenses to
rapidly expand our manufacturing capabilities and for general corporate
purposes, including product development activities, sales and marketing,
administration and data

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processing systems. You have limited historical financial data and operating
results with which to evaluate our business and our prospects. As a result, you
should consider our prospects in light of the early stage of our business in a
new and rapidly evolving market.

REVENUES. We derive revenue from the sale of our products and from
contracts. Revenues on products are recognized when the product has been shipped
and the Company has met its obligations under the sales contract. These
obligations vary based on the specific product and customer. Revenues on
products requiring the Company to perform installation are recognized when
installation has been completed (i.e., New Jersey Department of Transportation
sales). Revenues on products allowing a 30-day customer acceptance period are
recognized at the conclusion of the acceptance period (i.e., ECO). Revenues on
test and evaluation products used by customers primarily for research and
development purposes are sold without a right of return and without a customer
acceptance period and revenues on these units are recognized when the product
has been shipped. The revenues related to contracts which qualify as
best-efforts arrangements are treated as an offset to H Power's research and
development expenses.

Revenues on contracts include reimbursed direct costs and allowable
allocated indirect costs incurred, plus recognized profits. Profit is recognized
on cost-reimbursable contracts as costs are incurred, and under fixed-price
contracts on the cost-to-cost method of the percentage-of-completion basis.
Revenue recognized on contracts in excess of related billings is reflected as
unbilled receivables. Cost reimbursable contracts are billed one month in
arrears, coincident with the preparation of the required billing detail. When it
is determined that a loss will result from the performance of a fixed-price
contract, the entire amount of the estimated ultimate loss is charged against
income.

We believe our agreement to sell 12,300 units of our stationary fuel cell
systems to ECO could result in more than $81 million in revenue beginning in
fiscal 2002. We began to ship our initial test and evaluation units to ECO in
March 2000 and our goal is to commence shipping our initial commercial units in
the second half of calendar year 2001. We expect to continue to pursue new
contracts with government agencies and to further expand our product development
efforts with respect to stationary and portable fuel cell systems. In addition,
we expect to continue to find new customers and applications for our commercial
fuel cells.

COST OF REVENUES. Cost of revenues includes compensation related to
engineering and manufacturing staff, inventory and supplies used in the
manufacturing process and fees paid to subcontractors and consultants directly
related to the manufacture of our products.

We expect our cost of product revenue to continue to increase as a
percentage of product revenue over the next year, when we expect to deliver
initial prototype units under the ECO contract. In addition, we intend to
relocate and significantly expand our manufacturing facilities and capabilities.
Initially, we expect the costs of producing our first units to be higher than
their sales price until we achieve significantly higher production levels. We
expect that the cost of revenue as a percentage of product revenue will decrease
as we significantly increase our commercial sales. Cost of revenues for
contracts will vary as the amount of costs are predicated on whether or not the
contract is a cost sharing or cost plus arrangement.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs include
materials, salaries and wages, subcontracting and other costs related to further
developing our commercial products. We believe that research and development
expenditures are essential to establishing and maintaining our competitive
position in the PEM fuel cell markets and anticipate that these annual
expenditures will continue to increase significantly in absolute dollars for at
least the next few years.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses include compensation related to general corporate functions, including
management, finance, sales and information systems and related expenses. These
expenses are expected to continue to increase significantly commensurate with
increased staffing and infrastructure costs over the next few years.

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RESULTS OF OPERATIONS

YEAR ENDED MAY 31, 2000 COMPARED TO YEAR ENDED MAY 31, 1999

REVENUES. Revenues were $3,680,000 for the year ended May 31, 2000 compared
to $1,018,000 for fiscal 1999, an increase of $2,662,000. Our revenues for the
year ended May 31, 2000 were derived approximately 73% from contract revenues
and 27% from products. Contract revenues for the year ended May 31, 2000 were
$2,695,000, an increase of $2,178,000 from $517,000 for fiscal 1999. The
increase in contract revenues is principally due to two new contracts. A
contract with the Naval Surface Warfare Center to develop and provide a 3 to
5 kilowatt fuel cell system integrated with a fuel reformer for military field
communications generated 20% of contract revenue for the year ended May 31,
2000. A contract with the National Institute of Standards & Technology to build
and demonstrate a 5 kilowatt fuel cell system for primary and backup power for
telecommunication systems generated 78% of contract revenues for the year ended
May 31, 2000. The principal product sales for the year ended May 31, 2000 were
backup power units sold to the New Jersey Department of Transportation.

COST OF REVENUE. Cost of revenue was $3,457,000 for the year ended May 31,
2000 compared to $1,080,000 for fiscal 1999, an increase of $2,377,000. The cost
of revenue for the year ended May 31, 2000 was derived approximately 68% from
contracts and 32% from products. The increase in the cost of revenue for
contracts and products is proportionate to the increase in revenue.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs were
$5,339,000 for the year ended May 31, 2000 compared to $3,051,000 for fiscal
1999, an increase of $2,288,000. The increase in research and development costs
is primarily related to the continuing development of our 1 to 10 kilowatt
stationary power fuel cell systems in conjunction with the contract we entered
into with ECO during the year ended May 31, 2000 and development of our portable
and mobile products.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs were $12,565,000 for the year ended May 31, 2000 compared to $3,813,000
for fiscal 1999, an increase of $8,752,000. This increase was primarily due to
cash payments totaling $2,100,000 to terminate our agreements with Norman
Rothstein, Fredrick Entman and NBG Technologies, Inc., and an associated stock
compensation charge of $4,764,000 relating to the issuance of 850,000 stock
options granted concurrently with the termination of those agreements, and a
stock compensation charge of $411,000 related to options granted in payment of
services for fiscal 2000 compared to a stock compensation charge of $693,000 for
fiscal 1999, or a net increase in stock compensation charges of $4,482,000 for
fiscal 2000. Other factors contributing to the increase from fiscal 1999 to
fiscal 2000 include an increase in the number of employees and a resulting
increase in salaries, benefits and recruiting expenses of approximately
$545,000, increased legal and professional expenses of $364,000, increased rent,
telephone and other office expenses of $456,000 and increased selling and travel
expenses of $405,000 attributable to the increased activity required to support
the ECO contract and increased trade show participation. General insurance
expense increased by $107,000 and HPEC's selling, general and administrative
expenses increased by $296,000 for the year ended May 31, 2000 compared to
fiscal 1999.

INTEREST AND OTHER INCOME, NET. Interest and other income was $746,000 for
the year ended May 31, 2000 compared to $182,000 for fiscal 1999, an increase of
$564,000. The increase is primarily related to interest income resulting from
the investment of the net proceeds of equity funding from ECO, Sofinov and
Hydro-Quebec Capi-Tech received during the year ended May 31, 2000. This was
partially offset by a loss on foreign exchange for the year ended May 31, 2000
of $23,000 compared to a gain of $156,000 for fiscal 1999.

INTEREST EXPENSE. Interest expense was $77,000 for the year ended May 31,
2000 compared to $22,000 for fiscal 1999, an increase of $55,000. The increase
is related to the additional borrowings

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outstanding during the year ended May 31, 2000 which were repaid using the
proceeds from equity funding.

YEAR ENDED MAY 31, 1999 COMPARED TO YEAR ENDED MAY 31, 1998

REVENUES. Revenues were $1,018,000 for fiscal 1999 compared to $718,000 for
fiscal 1998, an increase of $300,000. Our revenues for fiscal 1999 were derived
approximately 51% from contracts and 49% from product sales. Product revenue for
1999 was $501,000, an increase of $402,000 from the prior comparable period.
Product sales were primarily to the New Jersey Department of Transportation for
both periods as we commenced shipments pursuant to their purchase order in the
second half of 1998. Contract revenues for fiscal 1999 were $517,000 as compared
to $619,000 for fiscal 1998. The decline in contract revenue is principally due
to reduced revenue recognized on work performed under a contract with the U.S.
Army for Communication Electronic Command which was substantially completed
during fiscal 1998.

COST OF REVENUE. Cost of revenue was $1,080,000 for fiscal 1999 compared to
$791,000 for fiscal 1998, an increase of $289,000. Cost of revenue for products
was $614,000 for fiscal 1999 compared to $355,000 for fiscal 1998, an increase
of $259,000. This is principally due to increases in revenue from the New Jersey
Department of Transportation and an increasing number of prototype units sold to
other customers. Cost of revenue for contracts was $466,000 for fiscal 1999 as
compared to $436,000 for the same comparable period in 1998, or an increase of
$30,000.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs were
$3,051,000 in fiscal 1999 compared to $2,813,000 in fiscal 1998, an increase of
$238,000. The increases were primarily due to activities related to the
development of our stationary power products from 1 to 10 kilowatts that will be
targeted towards the residential market. In addition, in 1999, we extended the
expiration dates of stock options for some employees resulting in a non-cash
stock compensation expense. The amount attributable to research and development
was $107,000. There was no comparable expense in fiscal 1998.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs were $3,813,000 in fiscal 1999 compared to $3,514,000 in fiscal 1998, an
increase of $299,000. Several offsetting factors resulted in this increase. In
fiscal 1999, we recognized additional stock compensation expense of $711,000
that was discussed above. HPEC's selling, general and administrative expenses
increased by approximately $86,000 to approximately $284,000 in fiscal 1999 from
approximately $198,000 in fiscal 1998. In an effort to conserve cash in fiscal
1999, we made reductions in many discretionary expenses, including $250,000 in
professional, legal and consulting fees, $105,000 in recruiting costs, $60,000
in computer expenses, and other expenses when compared to fiscal 1998.

INTEREST AND OTHER INCOME, NET. Interest and other income was $182,000 in
fiscal 1999 compared to $723,000 in fiscal 1998, a decrease of $541,000. Of this
amount, interest income declined by $373,000 when comparing fiscal 1999 with
1998 primarily due to lower cash and cash equivalents and the gain on foreign
exchange in fiscal 1999 decreased by approximately $161,000 from fiscal 1998.
These foreign exchange effects resulted from transactions associated with the
HPEC operations in Canada. This decrease was due to a lower Canadian dollar when
compared to the U.S. dollar during fiscal 1999 when compared to the same period
in 1998.

INTEREST EXPENSE. Interest expense was $22,000 in fiscal 1999 compared to
$41,000 in fiscal 1998, a decrease of $19,000. The decrease was due to lower
average borrowings in fiscal 1999 when compared to fiscal 1998.

YEAR ENDED MAY 31, 1998 COMPARED TO YEAR ENDED MAY 31, 1997

REVENUES. Revenues were $718,000 in fiscal 1998 compared to $246,000 in
fiscal 1997, an increase of $472,000. In fiscal 1998, we derived approximately
86% of our revenues from government contracts

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and approximately 14% from product sales. This increase was principally due to
contract revenue increasing by $427,000 to $619,000 in fiscal 1998 from $192,000
in fiscal 1997. These increases were primarily a result of increased activity on
existing contracts. Product revenues increased by $45,000 from fiscal 1997 to
fiscal 1998 due to the sale of more prototypes and evaluation units.

COST OF REVENUE. Cost of revenue was $791,000 in fiscal 1998 compared to
$295,000 in fiscal 1997, an increase of $496,000. Cost of revenue from contracts
was $436,000 for fiscal year 1998 compared to $172,000 in fiscal 1997, an
increase of $264,000. The increase in cost of revenue contracts is due primarily
to higher cost associated with increased contract revenue, although cost of
revenue contracts decreased as a percentage of contract revenue primarily as a
result of a CECOM contract which had higher margins when compared with other
contracts. The cost of revenue from products increased by $232,000 in fiscal
1998 when compared to fiscal 1997, due principally to increasing costs of
prototype systems sold to customers. The costs of these fuel cells in both
fiscal 1997 and fiscal 1998 exceeded the sales value due to the utilization of
engineers in building these systems as opposed to production workers and the
high cost of materials that were purchased in low quantities.

RESEARCH AND DEVELOPMENT. Total research and development costs were
$2,813,000 in fiscal 1998 compared to $2,106,000 in fiscal 1997, an increase of
$707,000. The increase in expenses in fiscal 1998 as compared to 1997 was
largely due to the establishment of a research and development facility in
Canada in fiscal 1998 where we incurred $221,000 in expenses. In addition, we
incurred higher costs associated with development of our stationary power and
our portable and mobile products.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs were $3,514,000 in fiscal 1998 compared to $2,562,000 in fiscal 1997, an
increase of $952,000. In addition, in conjunction with the opening of our
Canadian facility in May of 1997, we had approximately $198,000 of additional
selling, general and administrative expenses in Canada in fiscal 1998. Salaries
and benefits in fiscal 1998 also increased by $328,000 as we increased the
number of employees in sales and administration from 9 to 17 consistent with our
plans to begin limited production in our New Jersey facility. Professional fees
for marketing and financial services increased by $154,000 in fiscal 1998 as
compared to fiscal 1997. Other cost increases in fiscal 1998 as compared to
fiscal 1997 were for the addition of a facility in New Jersey, additional costs
for general insurance coverage including product liability and for other office
expenses related to the increase in number of employees.

INTEREST AND OTHER INCOME, NET. Interest and other income was $723,000 in
fiscal 1998 compared to $145,000 in fiscal 1997, an increase of $578,000.
Interest income increased to $455,000 in fiscal 1998 from approximately $145,000
in fiscal 1997. The increase was primarily due to the higher levels of invested
cash due to the purchase of an equity interest in HPEC by Sofinov Societe
Financiere D'Innovation Inc., or Sofinov. Gain on foreign exchange was
approximately $261,000 for fiscal 1998 due to exchange gains associated with
transactions with HPEC. There were no comparable gains recorded in fiscal 1997.

INTEREST EXPENSE. Interest expense was $41,000 in fiscal 1998 compared to
$174,000 in fiscal 1997, a decrease of $133,000. At May 31, 1996, we had loans
outstanding to a company then affiliated with us, Teledata International, Inc.,
and other investors, totaling approximately $2.3 million which were payable at
an interest rate of 8% to 10% per annum. During fiscal 1998, all of these loans
were repaid.

LIQUIDITY AND CAPITAL RESOURCES

Our capital requirements depend on numerous factors, including completion of
our product development activities and market acceptance of our systems. We
expect to allocate substantial capital resources to expand our manufacturing
capacity to meet near-term commercial production requirements, to fund our
working capital requirements and to continue development work on our PEM fuel
cell systems. At May 31, 2000, we had working capital of approximately
$13.2 million which consisted primarily of cash and cash equivalents compared to
a working capital deficit of $2.0 million at

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May 31, 1999. This increase was primarily the result of net proceeds received
from private placements of our equity securities consummated during fiscal 2000
as described below.

Cash flows used by operating activities for fiscal 2000 were $11.8 million
as compared to $5.0 million for fiscal 1999. For the year ending May 31, 2000,
cash was used primarily to fund the net loss of $17.0 million offset by net
changes in operating assets and liabilities primarily for the following reasons:

- increases in accounts receivable of $743,000 consistent with increased
revenue from contracts and products;

- increases in inventory of $960,000 for increased production of our
stationary power systems primarily for ECO and increasing production of
our portable and mobile PEM fuel cell systems;

- increases in prepaid expenses and other assets of $1,684,000 primarily due
to the increase of deferred IPO charges of $1,316,000;

- decreases in accounts payable of $203,000 and increases in other accrued
expenses of $700,000 for a total increase of $497,000 are due to increases
in inventory purchases, capital expenditures, deferred IPO charges, and
increases in expenses and accrued compensation; and

- increases in deferred revenue of $2.5 million for an initial payment by
ECO for the exclusive distribution rights in its territory.

Net cash used by investing activities totaled $1,120,000 for fiscal 2000
primarily as a result of purchases of new machinery and equipment in support of
our development and commercialization activities as compared to $919,000 for
fiscal 1999.

Substantially all of our capital has been raised through the issuance of our
common and preferred stock in private equity transactions. Since 1989,
approximately $53.3 million of equity has been invested in us. Of this amount,
our founders and other individual investors have contributed approximately
$6.7 million in common equity.

In July 1996, DQE Enterprises, Inc. invested $3.0 million for 200,000 shares
of Series A convertible preferred stock. The Series A convertible preferred
stock is entitled to cumulative dividends at a rate of 7.0% per annum. These
dividends are payable in the form of common stock, valued at a market price of
$3.00 per share in the absence of a public market price. DQE Enterprises has
agreed to convert all shares of its Series A convertible preferred stock into
1,000,000 shares of our common stock immediately prior to the closing of this
offering. At that time, we will also issue to DQE Enterprises approximately
251,000 shares of our common stock in payment of all cumulative dividends to
which they are entitled.

In July 1996, Singapore Technologies Kinetics Ltd. invested $5.0 million for
400,000 shares of Series B convertible preferred stock. The Series B convertible
preferred stock is entitled to dividends in the event that dividends or
distributions are paid on our common stock, in an amount per share equal to the
as-if-converted common stock equivalent of its Series B convertible preferred
shares. The Series B convertible preferred stock will automatically convert into
2,000,000 shares of our common stock immediately prior to the closing of this
offering.

In May 1997, Sofinov invested $7.5 million for 500,000 shares of Series C
convertible preferred stock. The Series C convertible preferred stock is
entitled to dividends in the event that dividends or distributions are paid on
our common stock, in an amount per share equal to the as-if-converted common
stock equivalent of the Series C convertible preferred shares. On December 31,
1997, we issued an additional 100,000 shares of Series C convertible preferred
stock to Sofinov for no consideration as a result of our contractual obligation
to do so upon DQE Enterprises' failure to exercise warrants issued to them.
Sofinov has agreed to convert all shares of its Series C convertible preferred
stock into 3,000,000 shares of our common stock immediately prior to the closing
of this offering.

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Simultaneously with the purchase of the Series C convertible preferred
stock, Sofinov, Societe Innovatech du Grand Montreal, or Innovatech, and
9042-0175 Quebec Inc., a Sofinov affiliate, invested $5.0 million in exchange
for a 50% interest in HPEC. HPEC is developing, among other things, our
electrical/thermal co-generation stationary power product and has the exclusive
rights to market this product in Canada. Immediately prior to the consummation
of this offering, this equity interest will be exchanged for 1,666,665 shares of
our common stock and HPEC will become our wholly-owned subsidiary. HPEC will
have exclusive marketing rights to our stationary power products throughout
North, Central and South America to the extent these rights do not infringe upon
the license we granted to ECO.

In August 1999, ECO invested $15.0 million for 5,000,000 shares of our
common stock. At the same time, we entered into an agreement with ECO pursuant
to which ECO paid us an initial territory licensing fee of $2.5 million and
agreed to purchase, market and service our stationary power fuel cell systems in
exchange for the exclusive marketing, distribution and servicing rights to those
areas in the United States that are being serviced by ECO's affiliated rural
electric cooperative members. The $2.5 million license fee has been deferred and
will be recognized over a ten-year period, commencing with the first commercial
sale.

In November 1999, we issued a total of 2,000,000 shares of our common stock
to Sofinov at a price of $2.50 per share, or $5.0 million in total, pursuant to
the terms of a May 1999 letter agreement. Under this agreement, Sofinov agreed
to lend us up to $5.0 million in increments of at least $150,000, payable on
demand. Sofinov had the right to convert the outstanding balance of these
advances into shares of our common stock at a conversion price of $2.50 per
share. In addition, if the outstanding balance of the advances at the time of
conversion was less than $5.0 million, Sofinov had the right to purchase
additional shares of our common stock at $2.50 per share to bring its total
purchase up to $5.0 million. On November 30, 1999, the date Sofinov exercised
its conversion right, the outstanding balance of Sofinov's advances was
$2.1 million, and was converted into 840,000 shares of our common stock.
Furthermore, Sofinov exercised its purchase right in full and purchased an
additional 1,160,000 shares of our common stock.

On November 30, 1999, we issued 2,000,000 shares of our common stock, at a
price of $3.00 per share, or $6.0 million in total, to Hydro-Quebec CapiTech.

In April 2000, H Power made cash payments totalling $2.1 million to Messrs.
Rothstein and Entman and NBG Technologies Inc. to terminate agreements with
them. A discussion of the termination arrangements of Messrs. Rothstein and
Entman is set forth in "Certain Relationships and Related Transactions."

Our capital requirements will be affected by many factors, including the
success of current product offerings, the ability to enhance our current
products and our ability to develop and introduce new products that keep pace
with technological developments in the marketplace. We intend to use the
proceeds of this offering for general corporate purposes including continued
research and product development, expanded marketing and sales efforts, locating
and acquiring a new manufacturing facility and for working capital.
Additionally, we may also use a portion of the net proceeds to acquire or to
invest in complementary businesses, technologies, products or services.

We believe that cash from operations, together with the net proceeds of the
sale of common stock in this offering, will be adequate to fund our operations
for the next 18 months (whether or not the underwriters exercise their
over-allotment option from us). We expect to spend in excess of $21 million on
property, plant and equipment. We anticipate that we will incur substantial
losses over at least the next few years due to numerous factors, including
completion of our product development activities in our efforts to commercialize
our fuel cell systems, increasing our sales and marketing activities, hiring and
training our production staff, expanding our manufacturing capacity, and
acquiring and installing new management information systems.

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As of May 31, 2000, we had notes and notes payable of $190,000. Of this
amount, $122,000 is an unsecured payment that was due pending resolution with
the lender. We also have a $67,000 government loan that is non-interest bearing
that was used to finance the last phase of a HPEC development project.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The new standard
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all quarters of fiscal years
beginning after June 15, 2000. We do not expect SFAS No. 133 to have a material
effect on our financial condition or results of operations.

SECTION 382 OF THE INTERNAL REVENUE CODE

Section 382 of the Internal Revenue Code limits the ability of a corporation
that undergoes an "ownership change" to use its net operating losses to reduce
its tax liability. While this offering of our common stock will not trigger such
an ownership change, later transactions may do so. In that event, we would not
be able to use our net operating losses from before our ownership change in
excess of the limitation imposed by Section 382. This limitation generally would
be calculated by multiplying the value of our stock immediately before the
ownership change by the long-term tax-exempt rate as provided in Section 382(f)
of the Internal Revenue Code.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial market risk includes risks associated with international
operations and related foreign currencies, as we have a significant operation in
Canada. Expenses in this operation are incurred in Canadian dollars and
therefore are subject to foreign currency exchange risk. Through May 31, 2000,
we have not experienced any significant negative impact on our operations as a
result of fluctuations in foreign currency exchange rates. In addition our
international business is subject to the risks typical of an international
business including, but not limited to differing economic conditions, changes in
political climate, differing tax structures, other regulations and restrictions,
and foreign exchange rate volatility. Accordingly, our future results could be
materially and adversely affected by changes in these and other factors.

The primary objective of our investment activities is to preserve principal
while at the same time maximizing yields without significantly increasing risk.
We maintain our portfolio of cash equivalents and investments in marketable
securities in a variety of securities, including both government and corporate
obligations and money market funds. We do not utilize any derivative financial
instruments, derivative commodity instruments or other market risk sensitive
instruments, positions or transactions in any material fashion. We believe that
the investment-grade securities we hold are not subject to any material risks
arising from changes in interest rates, however, they may be subject to changes
in the financial standing of the issuer of these securities.

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BUSINESS

INTRODUCTION

We are a leader in developing, and believe that we were the first to
complete a commercial sale of proton-exchange membrane, or PEM, fuel cell
systems. Fuel cells are devices that generate electricity efficiently and
cleanly from the electrochemical reaction of hydrogen and oxygen. Hydrogen is
typically derived from conventional fuels such as natural gas or propane, while
the oxygen is drawn from the air. We have sold fuel cell systems for stationary
and portable and mobile applications on a limited basis to the U.S. Government,
state agencies and domestic and multinational corporations. We expect demand for
our fuel cell products to be driven by the increasing worldwide need for
distributed, off-grid electric power, as well as consumer preference for smaller
power sources with longer operating lives and lighter weights. We believe that
our residential cogeneration products will be adopted in our first target
market, consisting of rural, remote homes, because they will best meet the
criteria used by the customer in choosing a residential power source. These
criteria include price, operating cost, noise, pollution, reliability and
maintenance. We believe that as our stationary, portable and mobile products
gain acceptance in the market and are manufactured in large quantities, their
cost will decline and their reliability will increase until they can provide
electricity competitively for a wide variety of applications and geographical
territories. We were founded in 1989 and have developed, own or have been
granted the exclusive rights to significant patents, proprietary technology and
trade secrets covering fuel cells and ancillary systems.

OUR PRODUCT FOCUS

Our business focus is to design, manufacture and sell PEM fuel cell systems
that address the needs of existing and near-term commercial markets. We focus on
two major product areas:

- ON-SITE STATIONARY POWER UNITS WITH OUTPUTS OF 1 TO 25 KILOWATTS
Stationary fuel cell systems can provide on-site power to replace or
supplement the electric grid for use in residences, farms, small commercial
establishments and industrial facilities, and telecom applications.

- PORTABLE AND MOBILE POWER UNITS WITH OUTPUTS UP TO 15 KILOWATTS
Portable fuel cell systems can power electronic equipment such as highway
variable message signs, communications apparatus, sensor and metering
devices, and personal portable electronic devices, such as video cameras and
laptop computers.

Mobile fuel cell systems can provide auxiliary power to operate the air
conditioning and electronic systems of large vehicles, such as recreational
vehicles or light rail coaches. These systems also can provide primary power
for small, specialty vehicles such as forklifts, golf carts and airport
terminal cars.

FAVORABLE INDUSTRY AND MARKET TRENDS

STATIONARY POWER. According to the GRI Baseline Projection of U.S. Energy
Supply and Demand-2000 Edition, the share of power generation represented by
central utilities will decline sharply over the next ten years. We believe
demand for fuel cell products will correspondingly increase as the worldwide
need for distributed, off-grid electric power grows. The restructuring of the
electric utility industry is contributing to a move away from large central
power generating plants with high-voltage transmission lines, to a new model
whereby power is increasingly generated and distributed locally. In addition,
environmental compliance requirements and higher air-quality standards are
causing significant and continuous changes in power generation in the U.S. and
worldwide. The distributed power applications sector, in which a dedicated
electricity generator is located at or near the end user's site, is our
principal target market. We believe that fuel cell systems will allow
residential and small commercial consumers to generate electricity on-site from
readily available and potentially renewable fuel sources.

PORTABLE AND MOBILE POWER. We believe that demand for portable and mobile
systems will be driven by consumer preference for smaller power sources with
longer lives and lighter weights. We

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believe that one of the earliest commercial opportunities for low-power fuel
cells will be as battery substitutes. A 1997 study by the Freedonia Group, a
market research organization, has estimated that worldwide battery sales will
increase by 8% per year, reaching $89 billion by 2005. This growth is based on
increased demand for an expanding variety of battery-powered consumer devices,
from video cameras and laptop computers to industrial applications.

We believe that a number of industry and market trends favor significant
penetration by fuel cells into the distributed power generation market. These
trends include:

- increasing requirements for continuous, reliable primary and backup
electric power at residences, on farms, in commercial establishments and
at small manufacturing facilities;

- increasing trend toward decentralized communications systems requiring
more reliable power than is available on the current electric grid;

- continuing privatization and deregulation of utilities, which opens the
market for alternative power;

- rising demand for electric power in rural areas as well as in developing
countries with minimal existing infrastructure;

- increasing desire on the part of utilities to avoid costly transmission,
maintenance and distribution expenditures; and

- increasing regulation of the environmental impact of conventional fossil
fuel and nuclear power generation and transmission.

PATH TO COMMERCIAL PRODUCTION

We believe that we were the first to commercialize fuel cells and that the
following represent key milestones towards our commercialization efforts:

<TABLE>
<CAPTION>
DATE MILESTONE
----------------- ------------------------------------------------------------
<S> <C>
February 1998 We began delivering limited-production quantities of 50-watt
and 100-watt fuel cells to Ball Aerospace & Technologies
Corp., a major aerospace company, for integration into
systems it is delivering to the U.S. military.
June 1998 We made our first commercial sale when we began supplying
the New Jersey Department of Transportation with 65 backup
power units for its variable message highway signs. As of
May 31, 2000, we had already delivered 53 of these units,
all of which are in operation. We believe that this sale
represents the world's first commercial order for a sizeable
number of competitively-bid, non-subsidized PEM fuel cell
systems offered with a warranty.
November 1998 We sold fifteen 50-watt and one 100-watt evaluation systems
to a major Scandinavian energy company for remote
telecommunications backup power applications.
August 1999 We entered into a ten-year agreement with ECO. Under this
agreement, ECO invested $15 million in our company and paid
us $2.5 million as a downpayment for licensing fees, in
exchange for a mutually exclusive marketing, distribution
and servicing arrangement for all of our stationary power
products in the 1 to 25 kilowatt range.
March 2000 We have begun delivering to ECO, as its exclusive supplier,
the prototype of our residential cogeneration unit, or RCU,
which is designed to serve as a primary residential electric
power source. Our goal is to commence shipping our initial
commercial units in the second half of calendar year 2001.
May 2000 We entered into a renewable two-year distribution
arrangement with Mitsui & Co., Ltd. under which they will
market our entire line of fuel cell products in Japan.
</TABLE>

25
<PAGE>
OUR ECO RELATIONSHIP

ECO is a national energy services cooperative structured as an independent
organization formed in 1998 to assist rural electric cooperatives' efforts to
diversify into fuel cells, distributive generation products, and natural gas and
propane. ECO provides its members with products and services to help them take
advantage of new energy technologies, supports them in their acquisition of
natural gas and propane companies, obtains energy products and services and
provides consulting services. Currently, approximately 250 of the more than 900
rural electric cooperatives in the U.S. are ECO members (who are also its
owners) and membership continues to grow at a rapid pace. ECO is controlled by a
board of directors who are appointed by these same cooperative members. Rural
electric cooperatives have a service territory that includes 83% of US counties
in 47 states. These cooperatives supply power to approximately 14 million U.S.
households, farms and small businesses. ECO also has the right to market H
Power's products to the additional 37 million households in this service
territory that are served by municipal and investor-owned electric utilities.
Our product cost analyses indicate that after two to three years of commercial
production, efficiencies in production and learning experience should reduce the
cost of our PEM fuel cell systems substantially. We believe that our systems
would then become attractive to a significant percentage of the additional 37
million households, particularly those in areas where the cost of electricity is
relatively high and the cost of natural gas is relatively low. The 250 rural
cooperatives, which are currently the ECO members, currently service in excess
of 9 million homes.

ECO has selected us to be its exclusive supplier of stationary fuel cells in
the 1 to 25 kilowatt range. In addition, ECO has agreed not to sell to its
cooperative members any of our competitors' fuel cell systems, so long as our
fuel cell systems are not significantly less competitive in terms of quality,
price and performance. ECO has already started its marketing efforts nationwide.

ECO, has entered into arrangements with various cooperatives to install 44
of our initial production units in test sites throughout the country. These
locations were chosen based on geography, climatic conditions (e.g. temperature
and humidity) and traditional load curves. It is intended that the data obtained
from these test units will be used to further develop our fuel cell size, design
and operational components. Participation in this testing program was voluntary,
and required participants to pay a test participation fee which will be refunded
against future fuel cell purchases, and territory license purchases.

In furtherance of this testing program, ECO created a fuel cell engineering
committee, consisting of 50 managers, engineers and technical representatives
from these cooperatives. Four sub-committees have also been established to focus
on the fuel cell design and test protocol, safety and interconnection, code and
building inspection and training and maintenance. The objective of these
committees will be to provide guidance on the final commercial development of
the stationary fuel cell.

ECO purchased the exclusive rights on a per-household basis to be the
supplier of fuel cells in the 1 to 25 kilowatt range in the U.S. and made an
initial $2.5 million payment to us in August of 1999. These rights exclude sales
of fuel cells to the national accounts of telecommunications companies for
systems that power telecommunications equipment. The ultimate customer of the
fuel cells will be the rural electric cooperatives. ECO has subdivided its
distribution rights by county, and has itself begun to sell its rights to sell,
distribute, lease, finance and service to ECO members, or to electric
cooperatives which become ECO members. ECO members will be able to purchase the
exclusive rights to the territories to which the cooperatives currently provide
energy services as of August 15, 1999 on an exclusive basis until December 1,
2000. All unsold territories will then be available to be purchased by
cooperatives on a "first come, first serve" basis. Any remaining unsold
territories will revert back to us on the third anniversary of the date on which
fuel cells are first available in commercial quantities. The purchase price paid
to ECO will be based on the number of households in the purchased territory and
a portion of the fee received by ECO will be paid to us. In addition to the
exclusive distribution rights, the rural electric cooperatives will be required
to purchase a minimum number of fuel cells each year, but will also be given
volume discounts based on units purchased.

26
<PAGE>
Under the terms of our agreement, ECO has agreed to purchase 12,300 of our
stationary fuel cell systems over several years at established unit prices,
representing approximately $81 million in revenues. We began to ship our initial
test and evaluation units to ECO in March 2000 and our goal is to commence
shipping our initial commercial units in the second half of calendar year 2001.
ECO, however, has the right to review and revise the delivery schedule for these
units to meet the demand of its customer base and may delay delivery until the
later of December 30, 2003 or thirty months from when the 10th commercial unit
is shipped. We also have agreed to sell our units to ECO at most preferred
customer prices. To the extent that our sales to third parties requires us to
lower the price of the RCUs that ECO has committed to purchase, the aggregate
purchase price under our ECO agreement would be correspondingly reduced. ECO's
financial ability to perform under the agreement and to purchase units from us
is entirely dependent on its ability to resell the units to its customer base,
the rural electric cooperatives.

OUR COMPETITIVE ADVANTAGES

We believe we have developed a leadership position in the commercialization
of low and medium power sectors of the PEM fuel cell industry. We believe our
fuel cell systems effectively address the requirements of a wide range of
stationary, portable and mobile power applications.

Our competitive advantages include:

- EXISTING PRODUCTION CAPABILITY. Since June 1998, we have been delivering
PEM fuel systems to the New Jersey Department of Transportation, which we
believe represents the world's first commercial fuel cell sale. We
recently have begun to ship our initial prototype stationary RCU units to
ECO for which we have a production capability of approximately 216 systems
per year. Our existing manufacturing capacity for portable and mobile
systems is in excess of 10,000 units per year.

- EXCLUSIVE LICENSE TO FUEL PROCESSING TECHNOLOGY. We licensed from Harvest
Energy Technology Inc. the exclusive right to use a proprietary,
fuel-processing technology for fuel cell systems in the 1 to 10 kilowatt
range, which encompasses the entire range suitable for remote and
grid-connected residential cogeneration. This technology is used to
process commonly available fuels, such as natural gas or propane, via
steam-reforming, a highly efficient chemical process for extracting
hydrogen from hydrocarbon fuels. We licensed the technology to reduce the
scale of steam-reforming equipment to meet the needs of a
residential-power fuel cell system. We believe that the high-efficiency of
this equipment will provide electricity at a lower cost per kilowatt-hour
than can be achieved by fuel cell generators that use other types of fuel
processors.

- LEADERSHIP IN FUEL CELL AND RELATED TECHNOLOGY. We currently hold 20 U.S.
and international patents related to fuel cells and fuel cell systems. We
have applied for additional domestic and international patents related to
fuel cell technology. While some of our competitors hold more patents
related to fuel cells and fuel cell systems than we do, we believe our
comprehensive knowledge of fuel cell technology permits us to improve on
its key elements and positions us to lead further technological advances
in the industry.

- COGENERATION CAPABILITIES. We believe our initial stationary systems will
be the first to incorporate cogeneration capabilities. Cogeneration allows
us to enhance significantly the overall efficiency of our fuel cell
systems by capturing byproduct heat and supplying it and hot water to
homes in addition to electricity.

- EXPERTISE IN FUEL CELL SYSTEM DESIGN AND INTEGRATION. As of May 31, 2000,
we employed 61 engineers and technical professionals in our engineering
and product development activities who as a group have the expertise to
design and develop the elements required for complete fuel cell systems
and to select appropriate ancillary components and subsystems from outside
vendors.

27
<PAGE>
We assist our customers in integrating our systems into their products and
provide them with a complete, integrated solution.

- ECO DISTRIBUTION CHANNEL. Our arrangement with ECO provides us with a
primary distribution channel for our RCU product through which we can
penetrate our target markets.

OUR BUSINESS STRATEGY

Our goal is to establish PEM fuel cells as a major alternative energy source
and to become the leading commercial provider of PEM fuel cells and fuel cell
systems. The following are key elements in our strategy:

- FOCUS ON EXISTING MARKETS FOR STATIONARY POWER PRODUCTS SUCH AS RURAL
AREAS. We intend to initially distribute our stationary products to rural
areas through ECO. We believe rural areas will be among the most likely
early adopters of fuel cell systems because these markets require
alternative stationary power sources such as our RCU systems. In the
future, our goal is for manufacturing efficiencies to lead to cost
reductions that will make our products attractive to more price-sensitive,
grid-connected urban and suburban locations.

- STRENGTHEN AND EXPAND OUR STRATEGIC RELATIONSHIPS. We are seeking to
strengthen our existing strategic relationships, such as our ECO
relationship, as well as aggressively pursue additional manufacturing,
marketing and distribution partnerships.

- PENETRATE MARKETS FOR PORTABLE AND MOBILE FUEL CELL PRODUCTS. We will seek
to increase sales of our portable and mobile fuel cell systems in addition
to continuing to supply demonstration and prototype models of these
systems to a broad range of customers with multiple potential
applications.

- DEVELOP LOW-COST, STATE-OF-THE-ART MANUFACTURING CAPABILITIES. Our goal is
to acquire state-of-the-art manufacturing facilities and develop strategic
manufacturing partnerships, including outsourcing relationships, necessary
to produce our fuel cell systems in commercial quantities on a low-cost,
high-quality basis.

- CAPITALIZE ON OUR TECHNOLOGICAL ADVANTAGES OVER OTHER FUEL CELL DEVELOPERS
AND OTHER POTENTIAL ALTERNATIVE POWER SOURCES. We are seeking to continue
to capitalize on our proprietary technologies in developing our fuel cell
systems. For example, we believe our license for the exclusive use of
steam reforming technology will provide our products with a significant
advantage in hydrogen yield and overall system efficiency as compared with
other fuel processing methodologies.

- DEVELOP AND ACQUIRE ADVANCED COMPLEMENTARY TECHNOLOGIES. We believe that
several new technologies could provide advantages for certain applications
over systems that require fuel processing equipment to deliver hydrogen to
a fuel cell. For example, the direct methanol fuel cell, or DMFC, converts
the chemical energy of liquid methanol directly into electrical energy. We
have been pursuing the development of DMFC technology under U.S.
Government contracts and through internally-funded projects. In addition,
we will evaluate acquiring advanced, complementary technologies.

The competitiveness of our products depends on several factors, including
the application and the environment in which they will be operated. Another
major factor is cost to the customer. To quantify the cost of our products, we
have carried out detailed economic analyses. These analyses have shown the
competitiveness of our products, against particular alternative products, for
specific applications. For example, the cost of a solar voltaic system to power
an average residence in a remote, rural environment, our initial preferred
market, is approximately $25,000. The introductory price of under $10,000 for
our fuel cell power generator suggests that it would be competitive with this
alternative method of generation. Other traditional residential power sources
for remote locations, such as internal

28
<PAGE>
combustion engine-generators, may currently be less expensive but may not be
competitive because of their noise, pollution, and inconvenient maintenance
requirements. We believe that our residential cogeneration products will be
readily adopted in rural, remote locations because they will best meet the
complete set of criteria used by the customer in choosing a residential power
source.

OUR PRODUCTS

Our current products consist of PEM fuel cell systems for stationary power
and portable and mobile power. We consider our stationary power products to be
medium and high power products and our portable and mobile products to be low
power products. Our low power products have power ratings of up to 250 watts;
our medium power products have power ratings of 250 watts to 1,000 watts; and
our high power products have power ratings in excess of 1,000 watts.

STATIONARY POWER PRODUCTS

Stationary fuel cell systems can provide on-site power to replace or
supplement the electric grid for use in residences, farms, small commercial
establishments and industrial facilities, and telecom applications. Our fuel
cells' low emissions, low noise and high efficiency will allow them to be
installed near or at the end-user's location, which will eliminate expensive
transmission and distribution costs. Additionally, our fuel cells' negligible
regulated emissions and quiet operation significantly reduce complex issues
associated with siting and licensing traditional power sources. The following
table outlines each of our stationary power products and the current status of
our commercialization efforts.

<TABLE>
<CAPTION>
PRODUCT NAME AND DESCRIPTION APPLICATION STATUS
----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
RCU - Residential cogeneration of - Commenced shipping of field
1 to 10 kilowatt AC electricity and heat test units in March 2000
generator of electricity (providing all the - Commercial production is
and by-product heat electricity needs of a expected to commence in the
home) second half of calendar
- Initial market is off-grid year 2001
sites fueled with propane
- Follow-up market is grid-
connected sites fueled with
natural gas

EPAC - Backup power for homes - Available in pre-production
250 or 500 watt AC, during grid power outages quantities for evaluation
hydrogen-fueled power by selected customers
supply

TELPAC - Distributed telecom backup - In preliminary development
500 to 5000 watt, liquid power
fuel power supply
</TABLE>

According to data provided to us by the National Electric Rural Cooperative
association, over the course of a year, the average U.S. home consumes, on
average, approximately 1 kilowatt of energy each day. There are specific
circumstances, however, especially during the use of air-conditioning in the
summertime, when the power draw could be as much as 4 to 5 kilowatts for a
period of several hours. Power peaks in a home could be on the order of 20
kilowatts, for example, during motor-starting. These peak loads are inherently
very short in duration (on the order of a second or less); therefore, they
represent an insignificant energy burden for the battery, which can easily
respond to such instantaneous peak-power demands. During these peak periods, the
power provided from a fuel cell system, economically sized to meet a small
multiple of the average power need, would be insufficient without the use of
supplemental batteries. The amount of incremental energy required from batteries
will vary depending on the size of the home and on the climatic conditions to
which it is subject. For

29
<PAGE>
the typical home, averaging less than 2,400 square feet of floor space, the
battery energy storage requirement in expected to be less than 8 kilowatt-hours,
except in those areas that experience very high temperatures for a large
fraction of the summertime day. The first prototype of our primary cogeneration
system for residences, or RCU, provides 3 kilowatts of continuous power and peak
power of up to 10 to 15 kilowatts. This system would not be adequate to power
average homes with high air-conditioning requirements. Our second generation
prototype RCU system, which we expect to begin shipping in the second half of
calendar year 2000, will increase the level of continuous power to 4 to 5
kilowatts. We believe that these second generation prototypes and the commercial
systems that are planned to follow will be suitable to power most homes in the
U.S.

Our RCU system will process propane or natural gas, yielding electricity and
heat for hot water as well as space heating. In addition, we are designing our
systems to provide for net metering, which we believe will eventually allow our
customers to sell power back to the grid. The RCU will incorporate a fuel
processor based on proprietary steam reforming technology, for which we have
obtained exclusive rights. The economics of replacing grid-delivered electricity
with home-generated power are sensitive to fuel efficiency and we believe that
our licensed steam reforming technology will provide a competitive advantage
over other types of fuel processing in the potentially large urban,
grid-connected market for distributed power generation.

Our fuel cell stack operates at near atmospheric pressures, which allows the
use of an air blower, instead of a compressor. This results in substantially
lower power consumption, greater fuel efficiency, less system complexity and
less noise.

[DIAGRAM]

In February 1999, our EPAC furnace power backup unit won a first prize in
the home energy category at the 20th Salon National de l'Habitation, a major
home show held annually in Montreal. Approximately 15 other companies
participated in the show's home energy category and the sponsors granted more
than one award in this category. The EPAC unit is designed to provide backup
power to gas or oil furnaces during power outages and it also can supply power
to run appliances such as refrigerators, freezers, televisions or sump pumps.

PORTABLE AND MOBILE PRODUCTS

Portable fuel cell systems can power electronic equipment and personal
portable electronic devices. Mobile fuel cell systems can provide auxiliary
power for applications that operate the air conditioning and electronic systems
of large vehicles. The power requirements for portable and mobile electronic
devices continue to expand. Leading battery technologies, however, are rapidly
approaching the practical limits of their energy storage capabilities. In
response to the growing demand for portable and mobile power, we have produced a
wide array of prototypes and commercial portable and mobile fuel cell systems
for product applications that require a low, steady state power draw for long
durations.

30
<PAGE>
The following table outlines each of our portable and mobile power products and
the current status of our commercialization efforts.

<TABLE>
<CAPTION>
PRODUCT NAME AND DESCRIPTION APPLICATION STATUS
----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
POWERPEM(-REGISTERED TRADEMARK-)-D35-- - Educational - Limited production
35 watt, 12 volt DC, - Demonstration
hydrogen-fueled power - Scientific
supply

POWERPEM(-REGISTERED TRADEMARK-)-VMS50-- - Backup power for solar - Limited commercial
50-100 watt, 12 volt DC, variable-message road signs production
hydrogen-fueled power
supply for battery charging

POWERPEM(-REGISTERED TRADEMARK-)-SSG50-- - General purpose power - Limited production
50 watt, 12 volt DC, - Remote communications and
hydrogen-fueled power instrumentation
supply - Railroad and traffic
equipment

POWERPEM(-REGISTERED TRADEMARK-)-PS100/250-- - Telecommunications backup - Limited production
100 or 250 watt DC, power
hydrogen-fueled power - Auxiliary power units
supplies (railroad/medical)
- Electric wheelchairs
- Small electric vehicles
- Remote power
</TABLE>

In addition to the products outlined above, we are also completing the
design of a hydrogen-fueled, 500 watt DC power supply to extend the range of
applications now addressed by the POWERPEM(-REGISTERED TRADEMARK-)-PS100 and
-PS250. We are also developing products that can be used to power diverse
applications such as radio transmitters and robotic vehicles. Our development
activities are targeted towards capitalizing on major market opportunities in
both military and commercial sales. Our remote-lighting system products
incorporating the POWERPEM-REGISTERED TRADEMARK--VMS50 are currently under
development and have the potential for wide use in applications such as
construction, advertising and transportation.

KEY BUSINESS RELATIONSHIPS

OUR EQUITY INVESTORS. Our major investors have invested an aggregate of
approximately $46.5 million in cash for the funding of our ongoing and planned
operations. These investors' contributions are not purely financial.
Individually and collectively, they have helped us identify new business
opportunities and potential technology partners. These investors also
participate actively in the management of our business affairs through their
respective representatives or observers on our board of directors. Our major
investors include:

- DQE Enterprises, Inc. is a wholly-owned subsidiary of DQE, Inc.
(NYSE:DQE), which delivers essential products, such as electricity, gas,
water and communications to homes and businesses and offers services which
use technology to increase the value of these essential products for
customers. DQE Enterprises acquires and develops companies involved in
electronic commerce, communications and energy services and technologies,
including power systems for distributed energy generation. We have
received a purchase order from an affiliate of DQE Enterprises to purchase
an RCU system for use in demonstration, such as an all-propane home. In
addition, Duquesne Light Company, a wholly-owned subsidiary of DQE, Inc.,
has placed an order for backup power systems for sale and demonstration to
customers with needs for reliable backup to the electric grid.

31
<PAGE>
- ECO markets services and products to the more than 900 rural electric
cooperatives that operate in territories comprising about two-thirds of
the land mass of the U.S. ECO will sell, market and distribute our
stationary power products in the 1 to 25 kilowatt range.

- Hydro-Quebec CapiTech Inc. is a division of Hydro-Quebec, a major Canadian
electric utility, that specializes in technology investments.

- Singapore Technologies Kinetics Ltd., a division of Singapore Technologies
Engineering Ltd., a large conglomerate headquartered in Singapore. They
principally make ordnance products, such as heavy vehicles for military
use, and invest in promising technologies, including power generation.

- Sofinov Societe Financiere d'Innovation, Inc. is the technology investment
arm of Caisse de Depot, a large Canadian pension fund with more than
$70 billion in assets under management.

OUR VENDORS AND TECHNOLOGY PROVIDERS. Several of our suppliers of key
components or materials are working with us in cooperative technology
development programs to improve and optimize system performance through a closer
sharing of development data than is typical in a vendor/user relationship.
Examples of relationships that we currently have in place or are developing
include development programs in the areas of fuel processing, fuel cell stack
components and test equipment. These relationships not only have the potential
to optimize the performance of our fuel cells, but also may decrease our
manufacturing costs significantly.

OTHER STRATEGIC AND MARKETING ALLIANCES. We have identified, and will
continue to seek out, partners for strategic alliances that meet our defined
business needs. In January 1999, we established a joint-technology development
program with Epyx, Inc., which recently merged with De Nora Fuel Cells to form
Nuvera Fuel Cells, dedicated to fuel processing technology for stationary and
transportation applications. Our development program is designed to integrate
our fuel cell stack and system technology with the fuel processing technology of
Epyx. This two-year, $6.4 million-program is being partially supported by the
National Institute of Science and Technology under its advanced technology
program.

In addition, in May 2000, we entered into a renewable two-year distribution
arrangement with Mitsui & Co., Ltd. Under the terms of this arrangement, we
granted Mitsui the right to distribute and sell our fuel cell products in Japan.
The terms and conditions of each purchase and sale of our fuel cell products by
and to Mitsui, if any, will be determined through the negotiation of separate
purchase and sales contracts. We intend to aggressively pursue additional
manufacturing, marketing and distribution alliances in the future.

GOVERNMENT SPONSORED RESEARCH AND DEVELOPMENT CONTRACTS. Since inception,
we have been awarded approximately $19.5 million in federal and state government
contracts. We believe most of the technology developed under these government
contracts can be utilized in our fuel cell product applications.

32
<PAGE>
HOW A PEM FUEL CELL FUNCTIONS

A PEM fuel cell is a device that silently produces electricity through an
electrochemical reaction in which hydrogen and oxygen are combined to generate
electricity, with usable heat and water as the principal by-products. The
hydrogen used in the process is derived from fuels such as natural gas, propane,
methanol or other petroleum products and the oxygen is drawn from the air. As is
illustrated by the following diagram, our fuel cells consist principally of two
electrodes, the anode and the cathode, separated by a polymer electrolyte
membrane. Each of the electrodes is coated on one side with a platinum-based
catalyst. Hydrogen fuel is fed into the anode and air enters through the
cathode. In the presence of the platinum catalyst, the hydrogen molecule splits
into two protons and two electrons. The electrons from the hydrogen molecule
flow through an external circuit creating an electric current. Protons from the
hydrogen molecule are transported through the polymer electrolyte membrane and
combine at the cathode with the electrons and oxygen from the air, to form water
and generate by-product heat.

[DIAGRAM]

Individual fuel cells are positioned between electrically conducting bipolar
plates and combined into a fuel cell stack as is illustrated in the following
diagram. The voltage of a stack of cells is proportional to the number of cells.
The number of cells in a stack and the cell surface area determine the amount of
electrical power that can be generated. The DC power produced by a fuel cell
stack is either applied directly to a DC load or converted to AC power by an
inverter. The heat generated in the process can be used in cogeneration heating
and offers the potential to enhance significantly the overall efficiency of a
PEM fuel cell system.

[DIAGRAM]

33
<PAGE>
FUEL CELL SYSTEMS COMPARED TO OTHER ENERGY STORAGE AND PRODUCTION ALTERNATIVES

Compared with currently available energy storage and production
alternatives, fuel cell systems have a combination of characteristics that make
them attractive for a wide variety of current niche applications. Typically,
fuel cell systems are attractive to users of electricity who require
portability, mobility, an independent off-grid power source, a remotely located
electrical power source or an on-site backup power source when the grid fails.
Fuel cell systems, nonetheless, today are significantly more expensive than
other currently available energy storage and production alternatives.

PEM FUEL CELLS COMPARED TO OTHER TYPES OF FUEL CELLS. Other types of fuel
cells have been under development for a variety of applications but we believe
that PEM fuel cells have distinct advantages over each of these for immediate
commercialization. PEM fuel cells can provide power ranging from milliwatts to
kilowatts, depending on their size and configuration. PEM fuel cells operate at
low temperatures, which allows for faster start-ups. They also respond rapidly
to changes in demand for power. Other types of fuel cells, however, have a
greater tolerance to operating on different fuels than PEM fuel cells and are
more suitable for high (up to 250 kilowatt) power applications. Nonetheless, we
believe that PEM fuel cells have the greatest potential for rapid and profitable
commercialization of systems that can be utilized for the broadest range of
commercial, industrial and consumer products. We also believe that PEM fuel
cells are better suited for small portable and mobile applications than other
types of fuel cells.

PEM FUEL CELLS COMPARED TO COMBUSTION-POWERED GENERATORS. PEM fuel cell
systems have inherent operational and environmental advantages over
combustion-powered generators:

<TABLE>
<CAPTION>
ATTRIBUTE ADVANTAGE
--------------------------------------------- ---------------------------------------------
<S> <C>
Fuel cells are electrochemical devices, Greater efficiency and lower operating costs
rather than combustion-powered generators. through fuel savings.

Fuel cells are virtually pollution and More suitable for home use; can be located
odor-free. within the home or business.

Fuel cells operate quietly. More suitable for residential and densely
populated environments.

Fuel cells are reliable and require minimal Better adapted to intermittent use in backup
maintenance. power systems.

Even small units can efficiently recover Greater fuel economy through cogeneration of
by-product heat. power and heat.

While PEM fuel cells are advantageous in many respects, they are significantly more
expensive and have a slower start-up time than combustion-powered generators. Unlike PEM
fuel cells, combustion-powered generators are also widely available today in the
marketplace.
</TABLE>

34
<PAGE>
PEM FUEL CELLS AND BATTERY/FUEL CELL HYBRIDS COMPARED TO BATTERIES. Fuel
cell systems have the potential to solve the most challenging current battery
problem, which is insufficient energy at a given weight or volume:

<TABLE>
<CAPTION>
ATTRIBUTE ADVANTAGE
--------------------------------------------- ---------------------------------------------
<S> <C>
The energy of a fuel cell is limited only by Fuel cells can operate indefinitely when
the availability of its external fuel supply. connected to a pipeline fuel source; fuel
cells can operate longer than batteries for a
given system weight and volume since the
energy of a battery is limited by its size.

Fuel cells can operate more effectively than Greater tolerance to elevated temperatures
conventional batteries at elevated means longer system life and higher
temperatures. reliability in harsh environments.

Commercial fuel cell technology is still in Leading battery technologies are nearing the
the early stages of development. practical limits of their energy storage
capabilities.

While PEM fuel cells and battery/fuel cell hybrids are advantageous in many respects,
batteries are significantly less expensive and have a greater tolerance to very low
temperatures. Batteries also have an instantaneous start-up time unlike fuel cells operating
with reformers that can take up to 30 minutes to start. Moreover, batteries have a dynamic
power range and more readily provide bursts of high power when required than do PEM fuel
cells and battery/fuel cell hybrids.
</TABLE>

RESEARCH AND DEVELOPMENT

Our research team focuses on improving PEM fuel cell performance by working
to optimize materials and processes. These activities are critical to achieving
a higher cell power density, which leads directly to smaller, lighter,
lower-cost and more fuel-efficient fuel cell stacks and systems.

Our materials research efforts address the function, durability and cost of
our fuel cell stack components, including electrode materials, membranes,
bipolar plates and seals. The bipolar plates are a key area of focus because
they perform a variety of critical fuel cell functions. These functions include
conducting electricity from cell to adjacent cell, distributing the hydrogen and
oxygen over the electrodes and removing the water that is produced as a
by-product.

Our development team improves the designs of our existing products and
generates new product concepts. This team initiates advanced fuel cell stack and
system concepts and develops associated pre-prototype and prototype hardware.
This team also develops new methods for the removal of heat from a fuel cell and
for the humidification of the cell membrane, thereby increasing the utility of
existing products.

The activities of our development team are complemented by the
multi-kilowatt system development team efforts at HPEC. This team, in concert
with our system integration engineers, provides for the specification,
procurement, evaluation and optimization of key subsystem hardware such as fuel
processors, power conditioners and overall system assembly.

We expect to spend in excess of $10 million on our research and development
activities in fiscal 2001.

STATUS OF OUR TECHNOLOGY

Our in-house PEM fuel cell system development efforts have concentrated on
fuel cell components, fuel cell stack, system components and system integration,
as well as hydrogen storage and

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generation subsystems for low- and medium-power applications. The proprietary
technologies that we have developed include:

- formulation and fabrication of electrodes and membrane-electrode
assemblies;

- design and fabrication of bipolar plates;

- management of heat and water within the fuel cell stack and overall
system;

- fabrication and assembly methodologies for cells and stacks; and

- hydrogen fuel storage and generation.

Our technologies have resulted in compact, efficient fuel cell systems that
we believe can be mass produced, reliably and cost-effectively for a wide array
of current applications. We believe that our fuel processing and overall
system-integration experience, as well as our established relationships with
third-party suppliers, allows us to acquire effectively and economically all
necessary auxiliary components for our fuel cell systems.

OUR FUEL CELL STACKS. Our development program has emphasized the design and
fabrication technologies for fuel cell stacks. The design characteristics differ
between "higher-power," multi-kilowatt stacks, which are used for stationary
power applications and "lower-power" stacks, which are used for portable power
and battery replacement. Our proprietary low-power stack design achieves
compactness and internal humidification, as well as user-friendly features such
as external air-cooling and non-humidified reactants. We have successfully
implemented this technology in many prototype, pre-commercial and commercial
fuel cell systems.

We cool high-power stacks by directing a flow of water through them. This
approach allows the stacks to operate at a higher power and provides by-product
heat for hot water and space heating. Since 1997, we have utilized a
platelet-type bipolar plate technology acquired on an exclusive basis from
Aerojet Corporation, which provides for the incorporation of cooling-water
flow-fields within the bipolar plates of our high-power stacks. We have
fabricated and assembled dozens of developmental fuel cell stacks of this type
in the 1 to 5 kilowatt range. Our internal test results have confirmed that this
platelet-type bipolar plate technology provides compactness and a particularly
high degree of temperature uniformity throughout the fuel cell stack. We believe
that this offers a significant advantage with respect to the reliability and
durability of our PEM fuel cells.

OUR FUEL STORAGE AND PROCESSING-INTEGRATED SYSTEMS. Our low-power fuel cell
systems generally incorporate some means of hydrogen storage and supply.
Examples are pressurized hydrogen vessels, metal-hydride canisters and chemical
hydrides that generate hydrogen upon reaction with water. We typically integrate
pressurized hydrogen or metal-hydride units into our fuel cell systems. We have
delivered many prototype, pre-commercial and commercial systems based on
hydrogen and metal-hydride fuel supplies.

To expand the utility of our portable and mobile fuel cell systems in the
marketplace, we are developing fuel reformers which extract hydrogen from
common, widely-available fuels such as natural gas, liquid propane or methanol.
For these fuels, we are working with selected outside development companies to
obtain fuel reforming technologies suitable for use in PEM fuel cell systems. We
expect these reformers to be completed and available in the next three to five
years.

Fuel reformers for our stationary power systems will be fabricated by
suitable outside contractors in accordance with our specifications. We have
acquired pre-prototype and prototype fuel processor hardware suitable for
residential applications and this hardware is undergoing evaluation,
optimization and integration within fuel cell systems at our facilities. We
expect that these fuel reformers for the beta units of our RCUs will be
completed in the fourth quarter of calendar year 2000 and that the fuel
processing hardware for our commercial RCUs will be available in the second half
of calendar year 2001.

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Power conditioning hardware, such as DC-to-AC inverters, for our products
will similarly be specified by us and procured from outside contractors. We are
evaluating performance, availability and cost profiles from potential suppliers,
and we have acquired our initial hardware. We expect that this power
conditioning hardware for the beta units of our RCUs will be completed in the
fourth quarter of calendar year 2000 and that the power conditioning hardware
for our commercial RCUs will be available in the second half of calendar year
2001.

MANUFACTURING

PHASE I--LOW VOLUME COMMERCIAL PRODUCTION. Our research and product
development process has evolved over the past two years to the point where we
are in low-volume commercial production of a number of fuel cell systems and are
producing prototype versions of other systems. Though the level of automation
has been low, with much of the assembly being manual, we have gone through the
early stages of design optimization and, over time, have produced fuel cells
with increasing power per unit weight and at significantly lower cost than
earlier models. Unit cost reductions achieved by these efforts over the past two
years are attributable to, among other things, volume purchases of components
and materials, technological advances and the redesign of our products for ease
of manufacturing. Our goal is to achieve additional cost reductions as we move
into higher-volume manufacturing phases.

PHASE II--MEDIUM TO HIGH VOLUME COMMERCIAL PRODUCTION. The next stage of
our manufacturing strategy is to implement a major upgrade of our production
capabilities to enable medium-to-high- volume commercial production and become
registered under ISO 9000. Existing forms of equipment and manufacturing
processes currently available in the battery industry are directly applicable to
our fuel cell technology.

We recently received a comprehensive manufacturing plant siting study from a
major international consulting firm identifying potential plant locations in the
eastern United States and Canada. We estimate that the size of the facilities
necessary to meet the anticipated demand for our products through 2002 will
exceed 100,000 square feet. We intend to acquire and occupy a new manufacturing
facility by the end of 2000 and our goal is to commence commercial sales of
stationary units by the second half of calendar year 2001.

PHASE III--HIGH VOLUME COMMERCIAL PRODUCTION. To progress to the next stage
of volume manufacturing, we will selectively upgrade a number of the
manufacturing steps to semi-automated operation or create automated cells that
can perform a series of processes. We intend to:

- upgrade product designs for automated production;

- identify and contract with suppliers to outsource non-critical parts and
assemblies;

- develop our vendor networks for materials sourcing; and

- procure and install equipment needed to meet production demands.

As we reach successively higher volumes of production, we believe that we
can achieve substantial cost reductions through improved equipment and operator
efficiencies, and by taking advantage of high-volume orders in the purchase of
materials.

SALES AND MARKETING

We plan to market and sell our products globally through distribution
channels that we consider to be appropriate for the particular product and
geographical area. Our immediate focus is to access markets that offer near-term
opportunities for the sale of our stationary and portable and mobile fuel cell
systems. We are strengthening our existing strategic relationships and pursuing
new marketing and distribution partnerships with companies that have established
distribution networks. These new relationships, for example, could be with
companies who sell generators, batteries or certain power protection equipment.
Additionally, we plan to be a leading supplier of fuel cell products to large
original equipment manufacturers for applications that could include motorized
wheelchairs, golf carts, forklifts and small electric vehicles.

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We believe that the rural community will be among the first early adopters
of fuel cell technology. In the U.S., ECO sells, markets and distributes our
stationary power products, with a power range of 1-25 kilowatts, in the counties
in which rural electric cooperatives are active. We are also working closely
with ECO to train participating cooperatives in the installation and maintenance
of our products. ECO initiated its program to sell our products with a series of
seven meetings across the U.S. in January and February of 2000. More than 900
representatives of the rural cooperative community attended these meetings to
learn how ECO and H Power plan to provide stationary power fuel cell products,
which are specifically designed to meet the needs of the cooperatives.
Subsequently, ECO, H Power and representatives of many of the cooperatives set
up a 50-member engineering committee to establish the specifications for the
product that ECO will market. This committee will complete its work in June 2000
with a set of recommendations on the specifications and attributes for our
initial stationary power units and for a series of product enhancements to be
introduced over the next two years. ECO has also created programs to secure
early orders of our commercial fuel cells by creating awareness of the product
through presentations in cooperative territories.

We are actively seeking or have completed business arrangements with major
companies that will distribute our stationary power products in industrialized
regions such as Europe and Japan, and in developing countries. For example, we
have entered into an arrangement with Mitsui & Co., Ltd. to sell our full cell
products in Japan. Mitsui will also assist in developing new strategic partners
for sales, marketing and distribution in Japan.

After our stationary products have been introduced to the rural, remote
market, where we believe they will command an initial price of $8,000 to
$10,000, we believe that manufacturing economies of scale and production
efficiency will permit us to further reduce our selling price. As unit costs
decrease, we believe that a mass market will develop in grid-connected areas in
which natural gas is available. We believe that the combination of electricity
and heat generated by our cogeneration systems from natural gas will then be
cost-competitive with electricity from the grid in many areas of the U.S.

In addition to our ECO distribution channel, we believe that other types of
companies will choose to enter into agreements to distribute our stationary
power products. These include natural gas and propane distributors, electric
utilities, manufacturers and distributors of electric and heating equipment, and
home builders. We expect that these distributors will have existing sales
organizations, and that some of them will have the capability, or will acquire
it, to install and service our products.

We are taking a number of steps to increase our sales and marketing
capability. We have retained a large executive search firm to find a senior
executive to head up our sales and marketing functions and to build a larger
professional staff to support these functions. We already use a variety of
channels to market and sell our stationary and portable and mobile products. We
actively participate in domestic and international conferences and trade shows
to make direct contact with potential customers and distributors. We also
distribute product literature at trade shows and by direct mail and advertise
our products in various industry publications and journals. Under the direction
of our expanded sales and marketing staff, we plan to extend our network of
representatives and distributors to achieve worldwide distribution of our
products.

Most of our sales contacts for our portable and mobile products are
generated by customer visits to our internet web site. When these contacts lead
to new applications for our products, our engineering team works closely with
the customer to design specific product features, including appropriate
mechanical and electrical interfaces, for the particular application.

INTELLECTUAL PROPERTY

In general, our proprietary technology is comprised of the physical and
chemical design of our fuel cell components, fuel cell stacks and our
manufacturing and assembling methodology and procedures. We have 17 patents
issued or allowed in the U.S. and one patent issued or allowed in each of
Europe, Taiwan and Singapore covering our proprietary technology. The issued
patents will remain in effect for the next fourteen to eighteen years. In
addition, we have filed patent applications domestically and internationally
relating to fuel cell technology to protect proprietary features arising from
our

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development efforts. We also have filed numerous "Document Disclosures" with the
U.S. Patent and Trademark Office in preparation for submitting corresponding
patent applications.

We license some of our technology from third parties. For example, in
August 1998, we acquired from Harvest Energy Technology Inc. the right to use
steam reforming technology pursuant to the grant of an exclusive worldwide
license. This license will remain exclusive unless we fail to meet minimum
levels of production and royalty payments during the next several years. Our
agreement with Harvest expires in August 2018, at which point we have the option
to renew the license for an additional 20-year period.

We have also accumulated substantial trade secrets and "know-how" since our
inception relating to fuel cell design and assembly. For example, in 1995 we
acquired platelet technology from Aerojet-General Corporation. In connection
with this agreement, Aerojet granted us an exclusive, worldwide, royalty free
license to use all of its information and trade secrets (whether or not
patentable) for use in developing fuel cells. This license is perpetual but may
be canceled by Aerojet in the event of our bankruptcy or our material breach of
the agreement.

We rely on confidentiality agreements to protect our unpatented proprietary
information, know-how and trade secrets. We believe, however, that our success
is substantially dependent on the knowledge, experience and technical expertise
of our employees. In this regard, our employees are required to enter into
agreements providing for confidentiality and the assignment of rights to
inventions made by them while employed by us. These agreements also contain
non-competition and non-solicitation clauses for the term of employment and for
one year thereafter.

OUR COMPETITIVE ENVIRONMENT

We compete primarily on the basis of reliability, efficiency, cost and
environmental considerations. A number of companies located in the United
States, Canada and abroad are developing PEM fuel cell technology. Many of these
companies possess greater financial, technological and personnel resources than
we do and represent significant competition. Ballard Power Systems has been
developing PEM fuel cell technology with a number of partners and is a potential
competitor. A number of major automotive and manufacturing companies also have
in-house PEM fuel cell development efforts. Although we believe several
companies have established residential fuel cell system development programs, we
believe that these companies are still in the development stage. Plug
Power Inc. and Avista Corp. are potential competitors for residential
applications. We are not aware of any competitors in the less than 1 kilowatt
segment of the market, wherein we have four products now in low-volume
production.

We also compete with companies that are developing other types of fuel
cells. In addition to PEM fuel cells, phosphoric acid fuel cells, molten
carbonate fuel cells, solid oxide fuel cells and alkaline fuel cells are
generally considered to have viable commercial applications. These fuel cells
differ in regard to cell materials and operating temperature. While all fuel
cell types have potential environmental and efficiency advantages over
traditional power sources, we believe that PEM fuel cells can be manufactured
less expensively and are more efficient and more practical in small-scale
applications.

We believe that our systems will also compete with other distributed
generation technologies, including microturbines and engine-generators. For
example, current engine-generators below 25 kilowatts which supply continuous
power have approximately the same installed price as the anticipated
introductory price of our RCU. We believe that our fuel cell systems will have a
competitive advantage because they can be more easily scaled to residential size
and will be more efficient in handling the load profile of residential
customers. We also believe that they will be quieter, environmentally cleaner,
more efficient, and less expensive to install, service and maintain. We also
expect that our systems will compete very favorably from a cost standpoint with
solar- and wind-powered systems. Furthermore, our products could potentially
compete with current conventional power sources such as batteries and providers
of on-grid electricity.

To be competitive with electricity provided by the grid, we believe that our
products need to be at or near parity with on-grid electricity on the basis of
electricity cost, and provide additional benefits.

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We expect that the most important additional benefit will be immunity to utility
"brown-outs" and "black-outs" that have affected many areas of the U.S.,
particularly in the summertime. We believe that to those who rely on electricity
for their livelihood, power reliability is a major concern, and that these
consumers of electricity will be highly motivated to adopt fuel-cell-generated
electric power because it is immune to defects in the electric utility power
grid.

We divide the market for PEM fuel cells into three power ranges, as follows:

- Low power, less than 1 kilowatt;

- Medium power, between 1 kilowatt and 25 kilowatts; and

- High power, more than 25 kilowatts.

THE MARKET FOR LOW POWER PEM FUEL CELLS IS MOSTLY FOR BATTERY
REPLACEMENT. The known market for sub-kilowatt fuel cells consists mostly of
replacement or supplementation of the rechargeable batteries that now meet most
needs for these power systems. The total annual worldwide market for
rechargeable batteries as estimated in a 1997 study by the Freedonia Group is
approximately $25 billion. Except for small batteries for consumer electronics,
such as laptop computers and cell phones, lead-acid and nickel cadmium batteries
largely dominate the rechargeable battery industry. Each of these systems is
relatively large and heavy, contains toxic materials, and loses energy upon
storage. Our PEM fuel cells contain no toxic materials, are capable of
indefinite storage without loss of energy, and are designed to supplement or
replace these batteries in many applications. Of the many potential uses for
sub-kilowatt power sources, we have chosen to concentrate in the next few years
on a small number of uses that can command an attractive price and for which the
issues of fuel infrastructure are relatively simple.

The largest markets for low power PEM fuel cells that we have identified and
are pursuing are for backup power systems and small, hybrid electric vehicles.
Examples of backup power systems are the Variable Message Sign fuel cell power
source that we have supplied on a commercial basis to the New Jersey Department
of Transportation, and the microwave repeater and remote weather station power
sources that we supply in limited quantities to a major Scandinavian energy
company. Each of these systems supplies supplementary power to a system
consisting of a solar photovoltaic array and a reserve rechargeable battery.
Each operates on compressed hydrogen gas. We plan to expand our product
offerings in the backup power category to include emergency power for homes,
small businesses and government use. We are aware of very little competition in
this product segment.

Our demonstration systems have been used to power wheelchairs, electric
bicycles and battery/fuel cell hybrid specialty vehicles similar to golf carts.
We expect to sell a substantial number of power systems for use in this kind of
small electric vehicle. We are not aware of any serious commitment of a
competitor to enter this market.

Our principal market thrust is in the 1 to 25 kilowatt sector of the high
power market. Based on data from a 1999 report of Allied Business Intelligence,
we estimate the worldwide fuel cell market for stationary power in 2006 will be
between two billion and eight billion dollars. Our first product in the
stationary power market will be a generator powered either by propane or natural
gas and sized to meet the electric power needs of a single home. The most direct
competitor for this market appears to be Plug Power, which relies heavily on its
relationship with General Electric. Other potential competitors include Ballard,
International Fuel Cells and IdaTech.

WE DO NOT PLAN TO COMPETE IN MARKETS REQUIRING POWER ABOVE 25 KILOWATTS FOR
THE NEXT FIVE YEARS. The market for high power systems is divided into
transportation applications such as electric vehicle propulsion, and stationary
applications such as generator systems for businesses, hospitals, and multiple-
occupancy dwellings. Some companies such as Ballard and International Fuel Cells
have chosen to devote significant efforts to commercial production of high power
systems. For several reasons, we have chosen not to devote any efforts to the
market for high power systems over 25 kilowatts for the next five years.

We believe that fuel cells for automobile propulsion will have to be priced
competitively with the gasoline and diesel internal combustion engines currently
used for that purpose, at about $50 or less

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per kilowatt of system power. It is not our strategy to pursue technology that
has such aggressive cost targets. We also believe that other technologies may
provide lower costs and similar performance for stationary applications above
25 kilowatts. Solid oxide and molten carbonate fuel cells may be developed to
serve the high-power market within the next 5 to 10 years. These
high-temperature fuel cells may be able to process hydrocarbon fuels more simply
than PEM fuel cell systems. We believe that non-fuel-cell power sources may
compete effectively with PEM fuel cells in the power range above 25 kilowatts.
Several companies, including Honeywell/Allied Signal and Capstone Turbine
Corporation, are developing microturbines in the range of 25 to 75 kilowatts.
These generators may precede PEM fuel cells in introduction to the markets for
prime power generation and backup power applications, and their projected prices
(well below $1,000 per kilowatt) may be difficult for PEM fuel cell systems to
achieve.

GOVERNMENT REGULATION

We do not believe that we will be subject to existing federal and state
regulatory commissions governing traditional electric utilities and other
regulated entities. We anticipate, however, that our products and their
installation will be subject to oversight and regulation at the local level in
accordance with state and local ordinances relating to building codes, safety,
pipeline connections and related matters. Any government regulation may depend,
in part, upon whether a system is placed outside or inside a home. At this time,
we do not know which jurisdictions, if any, will impose regulations upon our
products or installation. We also do not know the extent to which any existing
or new regulations may impact our ability to distribute, install and service our
products. Once our products reach the commercialization stage and we begin
distributing our systems to our early target markets, federal, state or local
government entities or competitors may seek to impose regulations. We intend to
encourage the standardization of industry codes to avoid having to comply with
differing regulations on a state-by-state or locality-by-locality basis.

EMPLOYEES

As of May 31, 2000, we employed 141 persons. None of our employees is
represented by a labor union. We consider our relationships with our employees
to be satisfactory. All key employees have signed confidentiality and
non-competition agreements. These agreements prohibit our employees from
disclosing any of our confidential information at any time during or after their
employment with us and prohibit them from competing with us for one year
following termination of their employment.

FACILITIES

We lease through two separate leases approximately 27,000 square feet in two
buildings in an industrial park located in Belleville, New Jersey. Each of these
leases expires in July 2001. We have an option to renew the lease for the
building that is dedicated to our product engineering and manufacturing of fuel
cells for an additional year.

In December 1999, we entered into a lease for approximately 4,400 square
feet of office space in Clifton, New Jersey. Our executive offices are located
at this location. This lease expires in July 2001. We intend to consolidate all
of our New Jersey operations into a separate facility also located in New
Jersey. HPEC leases approximately 9,000 square feet in an industrial park near
Montreal which expires in September 2001. In March 2000, HPEC entered into a
lease for approximately 2,900 square feet of manufacturing space near Montreal
which expires in March 2003.

We estimate that we will need at least 100,000 square feet of manufacturing
space in the next few months in order to meet demand for our products through
2002. We have not yet identified suitable facilities. We believe that additional
space will be available on commercially reasonable terms as and when needed.

LEGAL PROCEEDINGS

We are not a party to any material pending legal proceedings, nor is any of
our property, including intellectual property, the subject of any material
pending legal proceedings.

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MANAGEMENT

OUR DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

Our directors, executive officers and key employees, and their ages and
positions, are:

<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------- -------- ----------------------------------------------------------------------
<S> <C> <C>
H. Frank Gibbard........... 59 Chief Executive Officer, Director
Arthur Kaufman............. 63 Chief Technology Officer
William L. Zang............ 47 Chief Financial Officer, Director
Alan Attia................. 57 Vice President, Research and Development
Thomas H. Michael.......... 44 Vice President, Administration and Assistant Secretary
Jean-Guy Chouinard......... 49 General Manager--H Power Enterprises of Canada
Fong Saik Hay.............. 43 Director
Rachel K. Lorey............ 35 Director
John A. McSweeney(1)....... 54 Director
Ivan Roch(1)............... 57 Director
Howard L. Clark, Jr.(2).... 56 Director
Gary K. Willis(1),(2)...... 54 Director
Leonard A. Hadley(1),(2)... 66 Director
</TABLE>

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

(1) Member of the compensation committee.

(2) Member of the audit committee.

DR. H. FRANK GIBBARD has served as our Chief Executive Officer since
October 1996 and has been a member of our Board of Directors since June 1997.
From 1995 through 1996, Dr. Gibbard operated his own research company, Gibbard
Research and Development Corporation. From 1991 to 1995, Dr. Gibbard was
employed by Duracell Inc. as Vice President, R&D and Advanced Engineering.
Dr. Gibbard holds a B.S. degree in Chemistry from the University of Oklahoma and
a Ph.D. in Chemistry from the Massachusetts Institute of Technology.

DR. ARTHUR KAUFMAN has served as our Chief Technology Officer since June
2000. He previously served as our Vice President of Technology from October 1999
to May 2000, as our Vice President, Technology & Engineering from November 1996
through October 1999 and as our Director of Technology from July 1995 through
November 1996. In addition, Dr. Kaufman served as our President from 1989
through 1995. Dr. Kaufman has been responsible for our research and development
programs and the administration and performance of all government programs.
Dr. Kaufman was previously employed by Engelhard Corporation, where he served as
Research Manager for that company's fuel cell program, and by United
Technologies Corporation, where he served as Research Engineer in a broad range
of fuel cell development activities. Dr. Kaufman holds B.S., M.S. and Ph.D.
degrees in Chemical Engineering from the Massachusetts Institute of Technology,
the University of Florida and the University of Connecticut, respectively.

WILLIAM L. ZANG has served as our Chief Financial Officer since
December 1999 and has been a member of our Board of Directors since March 2000.
From February 1997 to December 1999, Mr. Zang served as a business and financial
consultant. From March 1997 to June 1999 in a consulting capacity, he acted as
Vice President, General Manager International of Alpha Technologies, a
manufacturer of cable telecommunications power supplies. Mr. Zang was employed
by Alpha Technologies as its Vice President, Corporate Development from
June 1996 to February 1997. Prior to June 1996, Mr. Zang served for
approximately 10 years as the Vice President, Finance and Secretary of
International Power Machines, a manufacturer of high technology power supply
systems. Mr. Zang

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holds a B.S. degree in Accountancy from the University of Illinois, Champaign
and an M.B.A. in Finance from Loyola University.

DR. ALAN ATTIA has served as our Vice President, Research and Development
since June 2000 and as our High Power Program Director since June 1997. From
1992 to 1997, Dr. Attia was Director of Emerging Technologies at Duracell, where
for two years he headed the advanced materials development group, focusing
principally on new materials for lithium-ion batteries, and prior to this served
as Director of Nickel Metal Hydride Cell Development. Dr. Attia holds a B.S.
degree in chemistry and a Ph.D. degree in physical chemistry from the University
of Illinois.

THOMAS H. MICHAEL has served as our Vice President, Administration since
October 1999 and as our Assistant Secretary since December 1999. He previously
served as Director, Corporate Finance of our Canadian subsidiary, H Power
Enterprises of Canada, or HPEC, from April 1998 to October 1999. Mr. Michael has
over 20 years experience in public accounting, finance and international
business. Prior to joining H Power, from 1997 to 1998, Mr. Michael was employed
as a financial and management consultant for JRM Global. From 1994 to 1997,
Mr. Michael served as Chief Financial Officer of Decolin Inc. Mr. Michael holds
a Bachelor of Commerce and a graduate Diploma in Accountancy from Concordia
University. Mr. Michael is also a Chartered Accountant and a member of The
Canadian Institute of Chartered Accountants.

JEAN-GUY CHOUINARD has served as General Manager of H Power Enterprises of
Canada, Inc. since April 1998. Prior to joining HPEC, from 1994 to 1998,
Mr. Chouinard served as Director of Research for Natural Gas Technologies Centre
where he led a research team in the development of gas technologies that
resulted in the issuance of six patents. Prior to 1994, Mr. Chouinard held
several positions at Gaz Metropolitan Limited Partnership, DATECH.
Mr. Chouinard holds B.S. and M.S. degrees in Physics from the University of
Montreal and the University of Toronto, respectively, and received an M.B.A.
from Concordia University.

FONG SAIK HAY has been a Director since July 1996. Since 1990, Mr. Fong has
been the Director of Engineering of Singapore Technologies Kinetics Ltd. His
principal roles during this time have involved leading a development staff of
approximately 300 people in developing military and commercial vehicles and
acting as Chief Technology Officer in identifying new technologies. From 1986 to
1989, Mr. Fong was a Principal Engineer in Chartered Industries of
Singapore Ltd.

RACHEL K. LOREY has been a Director since July 1999. Ms. Lorey has served as
Vice President of DQE Enterprises, Inc. since February 1999. Prior to then,
Ms. Lorey practiced as an attorney in the Pittsburgh offices of Jones, Day,
Reavis & Pogue from January 1996 through February 1999, and of Kirkpatrick &
Lockhart L.L.P. from 1989 through 1995. Her practice area focused on corporate
transactions, including mergers and acquisitions, divestitures, joint ventures
and financings.

JOHN A. MCSWEENEY has been a Director since October 1999. Mr. McSweeney has
served as President and Chief Executive Officer of Energy Co-Opportunity, Inc.,
the parent company of ECO Fuel Cells, LLC, since June 1999. Prior to this,
Mr. McSweeney served as a Vice President & General Manager for AmeriGas Propane,
L.P. from 1995 through 1998, where he oversaw AmeriGas' Midwest region, which
consisted of 50 locations and approximately 400 employees.

IVAN ROCH has been a Director since December 1999. From 1997 to 1999,
Mr. Roch served as a consultant (in the capacity of a general manager) to
Ateliers Wood Inc., a company that specializes in electromechanical equipment
repairs. Mr. Roch was employed from 1995 to 1997 as the President and General
Manager of Les Materiaux De Pointe Precitech Inc., a start-up venture that
manufactured powder metal parts for industrial uses. From 1994 to 1995,
Mr. Roch was a Project Manager for Les Enterprises Barrette Ltee and focused on
developing products from excess raw material used in a saw milling operation.

HOWARD L. CLARK, JR. has been a Director since June 2000. Mr. Clark has
served as Vice-Chairman of Lehman Brothers Inc., an investment banking and
brokerage firm, since 1993. From February 1990

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until February 1993, Mr. Clark served as Chairman, President and Chief Executive
Officer of Shearson Lehman Brothers Holdings, Inc. Before that, Mr. Clark served
as Executive Vice President and Chief Financial Officer of American Express
Company, having held various positions with that firm since 1981. From 1968 to
1981, Mr. Clark served as Managing Director of Blyth Eastman Paine Webber
Incorporated or predecessor firms. Mr. Clark also serves as a director of Lehman
Brothers Inc., White Mountains Insurance Group, Ltd., Maytag Corporation and
Walter Industries, Inc. Mr. Clark holds an M.B.A. degree from Columbia
University.

GARY K. WILLIS has been a Director since June 2000. Mr. Willis has served as
Chairman of the Board of Directors of Zygo Corporation, a supplier of high
precision yield improvement and metrology systems, since November 1998.
Mr. Willis has been a director of Zygo since February 1992 and has also served
as President from 1992 to 1999 and as Chief Executive Officer from 1993 to 1999
of that corporation. Prior to joining Zygo, Mr. Willis served as the President
and Chief Executive Officer of The Foxboro Company, a manufacturer of process
control instruments and systems. Mr. Willis is also a director of Rofin-Sinar
Technologies, Inc., Benthos Corporation and Middlesex Health Services, Inc.
Mr. Willis holds a B.S. degree in mechanical engineering from Worcester
Polytechnical Institute.

LEONARD A. HADLEY has been a Director since June 2000. Mr. Hadley retired as
Chairman and Chief Executive Officer of Maytag Corporation in August 1999 after
having served in those capacities since 1993. Mr. Hadley serves as a director of
Deere & Co. and Snap-On Inc. Mr. Hadley holds a B.S.C. degree in accounting from
the University of Iowa. He also attended Drake University and the University of
Iowa College of Law.

BOARD COMMITTEES

We formed an audit committee of our board of directors in April 2000. Our
audit committee currently consists of Messrs. Clark, Jr., Willis and Hadley,
each of whom is an independent director. Our audit committee has the
responsibility of reviewing our audited financial statements and accounting
practices. This committee considers and recommends the appointment of
independent accountants and approves fee arrangements with them for audit
functions and for advisory and other consulting services.

Our compensation committee has been in existence since November 1996 and
currently consists of Messrs. Hadley, Willis, McSweeney and Roch. Our
compensation committee reviews and approves compensation and benefits for our
employees, consultants and directors and administers our employee plans.

DIRECTOR COMPENSATION

Directors are reimbursed for expenses actually incurred in connection with
attendance at each meeting of the board or any committee thereof. In June 2000,
we granted to each of Messrs. Clark, Jr., Hadley and Willis, upon their becoming
directors of H Power, options to purchase 80,000 shares of our common stock, at
an exercise price per share equal to the initial public offering price of our
common stock.

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<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to our chief executive officer and to
all other executive officers whose total cash consideration exceeded $100,000
for services rendered to us during the fiscal year ended May 31, 2000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- -------------------------
SECURITIES
OTHER UNDERLYING ALL
NAME AND ANNUAL OPTIONS/ OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION SARS COMPENSATION
----------------------------------------- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
H. Frank Gibbard, Chief Executive
Officer................................ $195,776 -- $20,271 -- --

Arthur Kaufman, Chief Technology
Officer................................ $134,722 -- $ 4,997 -- --

William Zang, Chief Financial
Officer(a)............................. $ 55,392 -- $ 1,677 -- --
</TABLE>

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

(a) William Zang's annual base salary is $120,000. The amounts reflected above
represent his salary from December 1999, when he joined H Power, until the
end of our most recent fiscal year.

STOCK OPTIONS

The following table sets forth information concerning the grant of options
to purchase shares of our common stock to each of our chief executive officer,
chief technology officer, and chief financial officer during the fiscal year
ended May 31, 2000.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT
TOTAL ASSUMED ANNUAL RATES
OPTIONS OF
NUMBER OF GRANTED STOCK PRICE
SECURITIES TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (5)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME AND PRINCIPAL POSITION GRANTED YEAR ($/SHARE) DATE 5% 10%
--------------------------- ---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
H. Frank Gibbard, Chief
Executive Officer............ 500,000 18.52% $ 3.00(1) 12/22/04 $414,422 $915,765

Arthur Kaufman, Chief
Technology Officer........... 15,625 0.58% $12.00(2) 3/17/05 $ 51,803 $114,471

William Zang, Chief Financial
Officer...................... 250,000 9.26% $ 3.00(3) 12/22/04 $207,211 $457,883

125,000 4.63% $12.00(4) 12/22/04 $414,422 $915,765
</TABLE>

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

(1) The options to purchase 500,000 shares of common stock held by H. Frank
Gibbard at May 31, 2000 are exercisable as to 250,000 shares on October 6,
2000 and as to the remaining 250,000 shares on October 6, 2001.

(2) The options to purchase 15,625 shares of common stock held by Arthur Kaufman
at May 31, 2000 are exercisable annually in three equal installments
starting on March 17, 2000, at a price per

45
<PAGE>
share equal to the initial public offering price of our common stock,
assumed for purposes of this table to be $12.00 per share.

(3) The options to purchase 250,000 shares of common stock held by William Zang
at May 31, 2000 are exercisable annually in three equal installments
starting on December 5, 2000.

(4) The options to purchase 125,000 shares of common stock held by William Zang
at May 31, 2000 are exercisable annually in three equal installments
starting on December 5, 2000, at a price per share equal to the initial
public offering price of our common stock, assumed for purposes of this
table to be $12.00 per share.

(5) These amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. These assumptions are not intended to forecast future
appreciation of our stock price. The potential realizable value computation
does not take into account federal or state income tax consequences of
option exercises or sales of appreciated stock.

The following table sets forth at May 31, 2000 the number of options and the
value of unexercised options held by each of the executive officers named in the
summary compensation table. The dollar values have been calculated by
determining the difference between the fair market value of the securities
underlying the options at May 31, 2000 and the exercise prices of the options.
Solely for purposes of determining the value of options at May 31, 2000, we have
assumed that the fair market value of shares of common stock issuable upon
exercise of options was $12.00 per share, the assumed initial public offering
price.

AGGREGATED YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
SUBJECT TO UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR END AT YEAR END
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
H. Frank Gibbard,
Chief Executive Officer..................... 750,000 750,000 $7,125,000 $6,875,000

Arthur Kaufman,
Chief Technology Officer.................... 5,210 10,415 -- --

William Zang,
Chief Financial Officer..................... -- 375,000 -- $2,250,000
</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In November 1996, we established a compensation committee which currently
consists of Messrs. Hadley, Willis, McSweeney and Roch. Prior to November 1996,
matters concerning executive officer compensation were addressed by the entire
board.

EMPLOYMENT AGREEMENTS

In October 1999, we entered into an amended and restated employment
agreement with Dr. H. Frank Gibbard, our Chief Executive Officer. The term of
this agreement expires in October 2002. Pursuant to the terms of this agreement,
Dr. Gibbard is required to devote his full time and attention to our business
and affairs and he receives an annual base salary of $203,320. As part of his
compensation package, Dr. Gibbard receives an automobile allowance and other
fringe benefits commensurate with his duties and responsibilities and is
eligible to receive, from time to time, discretionary cash bonuses. If, within a
year after a change in our control, we terminate Dr. Gibbard or

46
<PAGE>
we assign him duties materially inconsistent with his position, he may be
entitled to receive a lump sum payment equal to one-half of his then annual base
salary and incentive compensation. Dr. Gibbard's employment agreement precludes
him from competing with us or soliciting our employees during the period of his
employment and for two years thereafter.

In October 1999, we entered into a three-year employment agreement with
Arthur Kaufman to serve as our Vice President of Technology. Dr. Kaufman is
required to devote his full time and attention to our business and affairs and
he receives an annual base salary of $135,000. As part of his compensation
package, Dr. Kaufman receives an automobile allowance and other fringe benefits
commensurate with his duties and responsibilities and is eligible to receive,
from time to time, discretionary cash bonuses. Dr. Kaufman's employment
agreement precludes him from competing with us during the period of his
employment and for one year thereafter or from soliciting any of our employees
during the period of his employment and for two years thereafter.

In November 1999, we entered into a three-year employment agreement with
Thomas H. Michael to serve as our Vice President, Administration. Under the
terms of his agreement, Mr. Michael must devote substantially all of his
business time, ability and attention to our business and affairs and he receives
an annual base salary of $117,500. Mr. Michael received an option to purchase
225,000 shares of our common stock as part of his compensation package. These
options have an exercise price of $3.00 per share, vest over a three-year period
ending October 2002 and may be exercised until December 2004. As part of his
compensation package, Mr. Michael receives an automobile allowance and is
eligible, from time to time, to receive discretionary bonuses. If, within a year
after a change in our control, we terminate Mr. Michael or we assign him duties
materially inconsistent with his position, he may be entitled to receive a lump
sum payment equal to one-half of his then annual base salary. Mr. Michael's
employment agreement precludes him from competing with us or soliciting our
employees during the period of his employment and for two years thereafter.

In November 1999, we entered into a three year employment agreement with
William L. Zang to serve as our Chief Financial Officer. Under the terms of his
agreement, Mr. Zang must devote substantially all of his business time, ability
and attention to our business and affairs and he receives an annual base salary
of $120,000. As part of his compensation package, Mr. Zang also received an
option to purchase 250,000 shares of our common stock at an exercise price of
$3.00 per share. These options vest over a three-year period ending
December 2002 and may be exercised until December 2004. Mr. Zang also receives
an automobile allowance and other fringe benefits commensurate with his duties
and responsibilities and is eligible, from time to time, to receive
discretionary bonuses. If, within a year after a change in our control, we
terminate Mr. Zang or we assign him duties materially inconsistent with his
position, he may be entitled to receive a lump sum payment equal to one-half of
his then annual base salary. Mr. Zang's employment agreement precludes him from
competing with us or soliciting our employees during the period of his
employment and for two years thereafter.

OUR STOCK OPTION PLANS

1989 STOCK OPTION PLAN. Pursuant to our June 1989 stock option plan, which
expired on June 6, 1994, options to purchase 957,500 shares of our common stock
at $0.80 per share were issued to 21 employees. Of that amount, 137,500 have
been exercised and 718,750 have lapsed. Options to purchase 101,250 shares are
currently exercisable until May 31, 2002. Options granted under the 1989 Plan
must be exercised within three months of the end of the optionee's status as an
employee or consultant, or within 12 months after the optionee's termination by
death or disability, but in no event later than the expiration of the option
term.

2000 STOCK OPTION PLAN. This stock option plan was originally approved by
our stockholders in May 1996 and at that time was named the 1996 Stock Option
Plan. In March 2000, we amended and restated this plan principally to update the
plan to reflect changes in applicable tax and securities laws. The 2000 Plan
authorizes options to purchase up to an aggregate of 3,750,000 shares of our
common

47
<PAGE>

stock and is administered by the compensation committee. Options granted under
the 2000 Plan are not generally transferable by the optionee except by will or
by the laws of descent and distribution, and are exercisable during the lifetime
of the optionee only by that optionee. Options granted under the 2000 Plan must
be exercised within three months of the end of optionee's status as an employee
or consultant, or within 12 months after that optionee's termination by death or
disability, but in no event later than the expiration of the option term. The
exercise price of all stock options granted under the 2000 Plan will be
determined by the compensation committee. With respect to any participant who
owns stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any stock option granted must
equal at least 110% of the fair market value on the grant date. The exercise
price of stock options for all other employees cannot be less than 100% of the
fair market value per share on the date of the grant. The maximum term of an
option granted under the 2000 Plan may not exceed 10 years from the date of
grant, or five years in the case of an incentive stock option granted to a 10%
stockholder. As of July 21, 2000, we have granted options to purchase 883,485
shares of our common stock under the 2000 Plan.

OPTIONS GRANTED OUTSIDE THE PLANS. In addition to the options which may be
granted under our 1989 and 2000 Stock Option Plans, as of July 21, 2000, we have
granted options to purchase 4,730,625 shares of our common stock outside of
those plans at exercise prices per share ranging from $2.50 to the initial
public offering price of our common stock. These grants include options to
purchase 750,000 shares of our common stock at an exercise price of $2.50
granted to Dr. Gibbard in fiscal 1997, options to purchase 250,000 shares at an
exercise price of $2.50 granted to Dr. Gibbard in fiscal 1998 and options to
purchase 500,000 shares of our common stock at an exercise price of $3.00
granted to Dr. Gibbard in fiscal 2000. In fiscal 2000, we also granted to
Mr. Zang options to purchase 250,000 shares of our common stock at an exercise
price of $3.00 per share and 125,000 shares at an exercise price equal to the
initial public offering price per share of our common stock. In addition, in
fiscal 2000, we granted to Mr. Michael options to purchase 225,000 shares of our
common stock, to Mr. Russo options to purchase 100,000 shares of our common
stock, each at an exercise price of $3.00 per share, and to Mr. Kaufman options
to purchase 15,625 shares of our common stock at an exercise price equal to the
initial public offering price of our common stock. Furthermore, in fiscal 2000
we granted to Mr. Chouinard options to purchase 125,000 shares of our common
stock at an exercise price of $3.00 per share.

48
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In July 1999, we entered into consulting agreements with Norman Rothstein
and Frederick Entman, who were our founders in 1989 and who also served on our
board of directors from June 1997 until their resignation in April 2000.
Messrs. Rothstein and Entman had previously served as consultants to us since
1996, and Mr. Entman had been our full-time counsel from June 1989 until
May 1996. Mr. Rothstein is the beneficial owner of approximately 18.1% of our
outstanding common stock, and Mr. Entman is the beneficial owner of
approximately 16.5% of our outstanding common stock. Under the terms of their
consulting agreements, Messrs. Rothstein and Entman received annual base
salaries of $113,000 for serving as our consultants on various corporate related
matters and were also entitled to receive bonuses in connection with any public
or private financings consummated by us other than this offering. In connection
with their consulting agreements, our board of directors granted to each of
Mr. Rothstein and Mr. Entman options to purchase 500,000 shares of our common
stock at exercise prices of $3.00 per share, respectively. These options are
fully vested and may be exercised in cash or by the delivery of other H Power
options or securities.

Norman Rothstein and Frederick Entman resigned from our board of directors
effective April 5, 2000. Messrs. Rothstein and Entman also terminated their
consulting agreements effective as of April 5, 2000 in exchange for which they
each received a cash payment of $1 million and the grant of options to purchase
300,000 shares of our common stock at an exercise price per share equal to the
initial public offering price of our common stock. We have agreed to include all
shares of common stock underlying the options granted to Messrs. Rothstein and
Entman in any future registration statement filed after this offering to
register shares of common stock underlying options granted to any of our
employees or officers. Furthermore, we have agreed that if such a registration
statement is not filed within six months prior to the expiration date of the
options granted to Messrs. Rothstein and Entman, then we will extend the
expiration date of Mr. Rothstein's and Mr. Entman's options.

On June 23, 1995, Messrs. Rothstein and Entman, without admitting or denying
allegations, consented to an SEC order to cease and desist from violating or
causing violations or future
violations of Sections 5(a) and 5(c) of the Securities Act. In accepting the
offers of settlement of Messrs. Rothstein and Entman, the SEC found that in
1988, Messrs. Rothstein and Entman, acting through a partnership, sold 50,000
previously registered shares of common stock of Gil-Med Industries, Inc. to the
public through broker-dealers. The SEC determined that a new registration
statement was required, but had not been filed, with respect to the sale of the
50,000 shares. Messrs. Rothstein and Entman maintain they were unaware of this
requirement.

On April 5, 2000, at the request of Lehman Brothers Inc. in connection with
this offering, we entered into a stockholders' and voting agreement with
Messrs. Rothstein and Entman and certain of their affiliates, who collectively
own 18.1%, in the case of the Rothstein family, and 16.5%, in the case of the
Entman family, of our common stock. Pursuant to this agreement, these investors
have granted to our independent directors an irrevocable proxy for their shares
and have agreed that:

- their shares will be present and counted for quorum purposes at every
meeting of our stockholders;

- their shares will be voted on all matters in the same proportion as the
votes cast by our other stockholders;

- in the case of a tender offer or an exchange offer for our common stock,
their shares will be tendered in the same proportion as the shares
tendered by our other stockholders;

49
<PAGE>
- they will sell or transfer their shares without the prior written consent
of our independent directors, only:

-- in transactions meeting the requirements of Rule 144 under the
Securities Act, so long as in all cases the manner of sale
requirements of Rule 144(f) are complied with;

-- in underwritten public offerings conducted in a manner intended to
effect a broad, unaffiliated public distribution;

-- in a private sale to unaffiliated qualified institutional buyers who
will own less than 10% of our outstanding common stock after the sale;

-- as a bona fide pledge to an independent financial institution to
secure borrowings on a full recourse basis, provided that such
financial institution need not agree to be bound by the terms and
conditions of the stockholders' and voting agreement if such
borrowings do not exceed $2,500,000 in the aggregate;

-- to other Rothstein family members in the case of Rothstein family
members and to other Entman family members in the case of Entman
family members;

-- pursuant to a registration statement in which the sale is consistent
with the manner of sale requirements of Rule 144(f) under the
Securities Act;

-- to H Power in a bona fide repurchase transaction; or

-- pursuant to a tender or exchange offer conducted pursuant to
Regulations M-A, 14D, 14E and/or Rule 13e-4 under the Exchange Act;
and

- they will not increase their percentage ownership in H Power by more than
3% of our outstanding common stock, in the case of each family, above the
levels of fully diluted ownership that exist immediately following this
offering.

In all cases, the foregoing transfers are subject to the terms and
conditions of the lock-up agreements described under "Underwriting."

The investors have also agreed that they will not seek to be represented on,
seek the removal of any directors from, or otherwise change the composition of,
our board of directors or otherwise control our board of directors or have any
involvement in our management.

The investors have further agreed that neither they nor any person they
control will: (i) conduct or participate in any solicitation of proxies or
consents relating to our common stock or our other securities; (ii) conduct or
participate in any meeting of our stockholders; (iii) request or obtain any
lists of our stockholders; (iv) initiate or encourage the making of any
stockholder proposal; (v) deposit any of their shares of common stock in a
voting trust or enter into any voting agreement or grant any proxy in respect of
their shares; (vi) form, join, or participate with any persons or group for the
purpose of acquiring, holding, voting or disposing of our common stock; (vii)
make any offer or proposal regarding the acquisition of H Power or any of its
securities or assets or with respect to any merger, business combination,
change-in-control, restructuring or recapitalization transaction involving H
Power; (viii) facilitate, encourage, disclose or pursue any intention, purpose,
plan or proposal with respect to H Power, our board of directors or our
management personnel that is inconsistent with the terms of the stockholders'
and voting agreement; (ix) seek any waiver or amendment of the voting and proxy
provisions of the stockholders' and voting agreement; or (x) assist, advise,
facilitate or encourage any person, entity or group to enter into any of the
transactions contemplated by clauses (i) through (ix) above.

The stockholders' and voting agreement has a 10-year term and will continue
in effect until April 5, 2010. However, the agreement will automatically
terminate on October 31, 2000 if we have not

50
<PAGE>
completed an initial public offering of our common stock by that date, or any
earlier date upon which we withdraw the registration statement of which this
prospectus forms a part and abandon this offering. The agreement will also
terminate with respect to the Rothstein family members when the number of shares
they own collectively is less than 5% of our outstanding common stock. This same
termination provision also applies with respect to the Entman family members.
The agreement would again become operative if the Rothstein family investors or
Entman family investors, as applicable, reacquire, on a collective basis, record
or beneficial ownership of 5% or more of our outstanding common stock, in which
case the agreement would terminate upon the earlier of April 5, 2010 or the date
on which such Rothstein family investors or Entman family investors, as
applicable, collectively own less than 5% of our outstanding common stock. If
our initial public offering has not been completed by October 31, 2000, we will
withdraw the registration statement of which this prospectus forms a part. We
have filed this agreement as an exhibit to the registration statement and we
encourage you to read the agreement carefully and in its entirety.

In February 1995, we entered into an agreement with NBG Technologies, Inc.
(formerly known as TechMatics, Inc.), a company controlled by Mr. Rothstein's
family, whereby NBG provided us with research and development consulting
services and, as consideration therefor, we granted to NBG marketing,
distribution and exclusive manufacturing rights in the U.S. with respect to fuel
cell systems that may be used to power consumer products. The agreement provided
that NBG was entitled to any arising technology and patent rights with respect
to all designs, materials and technologies they developed under this agreement
and we were granted a worldwide exclusive paid-up license for any of these
designs, materials and technologies. However, if we were to use NBG developed
designs, materials and technologies in products that were not manufactured by
them, the agreement provided that we were to pay NBG a royalty to be determined.
Under this agreement, we have paid approximately $157,000 to NBG over the last
three fiscal years. We believe that the amounts paid to NBG were equivalent to
the amounts that would have been paid in an arm's-length transaction between
unaffiliated parties. All agreements and other arrangements with NBG were
terminated on March 29, 2000, in exchange for a cash payment of $100,000 and the
grant of options to purchase 250,000 shares of our common stock at an exercise
price per share equal to the initial public offering price of our common stock.
The termination of our agreements with NBG, however, does not preclude us from
continuing our involvement with NBG's activities, although we are not obligated
to do so.

In connection with DQE Enterprises' purchase of 200,000 shares of our
Series A preferred stock in 1996 for $3 million, we granted them the exclusive
right to distribute our stationary power fuel cell systems in Pennsylvania, Ohio
and West Virginia. DQE Enterprises recently agreed to modify this right to allow
ECO to distribute stationary power fuel cell systems in those counties in
Pennsylvania, Ohio and West Virginia in which ECO's rural electric cooperative
members provide energy services. As consideration for DQE Enterprises' modifying
its exclusive rights, we agreed to amend our Amended and Restated Certificate of
Incorporation to change the redemption price of our Series A preferred stock
from $16.50 per share to $18.00 per share, thereby increasing the liquidation
value of the Series A preferred stock by $300,000. We also issued to DQE
Enterprises warrants to purchase 500,000 shares of our common stock at $5.00 per
share. We recorded a charge to cost of revenues--products totaling $150,000
which represents the fair value of the warrants on August 25, 1999, their date
of issuance. These warrants expire on July 31, 2001. Rachel K. Lorey, a Vice
President of DQE Enterprises, serves as DQE Enterprises' representative on our
Board of Directors.

In May 1997, we entered into a 50-50 joint venture with Sofinov, Societe
Innovatech du Grand Montreal and 9042-0175 Quebec Inc. to establish HPEC. We
granted HPEC an exclusive license to market and distribute our stationary power
products in Canada. Sofinov, Innovatech and 9042-0175 Quebec Inc. have agreed
that they will exercise, effective immediately prior to this offering, their
right to convert their 50% interest in HPEC into 333,333 shares of our Series C
convertible preferred stock, which, in turn, will be converted into 1,666,665
shares of our common stock. Upon conversion, HPEC

51
<PAGE>
will become our wholly-owned subsidiary and the territory in which HPEC has the
exclusive right to market and sell our stationary fuel cell products would
expand to cover most of North and South America to the extent it does not
infringe upon the license we granted to ECO.

In November 1999, we issued 2,000,000 shares of our common stock to Sofinov.
Pursuant to the terms of a May 1999 agreement, Sofinov agreed to lend us, at 8%
annual interest, up to $5 million, in increments of at least $150,000. These
loans were payable on demand. Under this agreement, Sofinov could convert all or
any portion of the outstanding balance of the advances and interest thereon into
shares of our common stock at a conversion rate of $2.50 per share. If the
outstanding balance of advances and interest thereon was less than $5 million,
Sofinov was entitled to purchase additional shares of our common stock at $2.50
per share to bring its total purchase up to $5 million. Total advances to us
from Sofinov under this agreement amounted to $2.1 million and on November 30,
1999, Sofinov exercised its conversion and purchase rights in full.

In May and June of 1999, Allan Rothstein, a son of Norman Rothstein, a
beneficial owner of more than five percent of our outstanding common stock,
loaned us a total of $483,000 evidenced by promissory notes, payable on demand,
with an interest rate of 8.0% per annum. We paid these loans and all accumulated
interest thereon in full in August 1999.

Concurrent with ECO's purchase of 5,000,000 shares of our common stock at a
price of $3.00 per share in August 1999, ECO paid us an initial payment of
$2.5 million for the exclusive right to market, distribute and service our 1 to
25 kilowatt stationary power products in U.S. counties in which ECO's rural
electric cooperative members provide energy services. The initial term of this
agreement shall remain in effect for a period of 10 years following the date
that we commence shipment of our commercial units to ECO and, at ECO's option,
is renewable thereafter for successive 10-year terms. In addition, we have
agreed to use our best efforts to nominate one designee of ECO at each election
of our board of directors. John A. McSweeney, the President and Chief Executive
Officer of Energy Co-Opportunity, Inc., serves as ECO's representative on our
Board of Directors.

The composition of our Board of Directors was subject to a stockholders'
rights agreement among Sofinov, Singapore Technologies Kinetics and DQE
Enterprises and Messrs. Entman and Rothstein and their affiliates. Under this
agreement, each party was required to vote or cause to be voted all of its
shares in order to fix the size of our Board of Directors at nine and to ensure
representation on our Board of each of the parties thereto. This agreement will
terminate immediately prior to the offering upon the conversion of all of our
outstanding shares of convertible preferred stock.

In June 2000, Howard L. Clark, Jr., who has served as Vice-Chairman of
Lehman Brothers Inc. since 1993, was elected to our Board of Directors. Lehman
Brothers Inc. is currently serving as the lead underwriter for the offering.

52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock as of May 31, 2000, and as adjusted to reflect the
sale by H Power of 7,000,000 shares of common stock in this offering, by:
(1) each person known to beneficially own more than 5% of our shares of common
stock; (2) each of our directors; (3) each named executive officer; (4) all of
our executive officers and directors as a group; and (5) certain other
significant stockholders of H Power. The following table also reflects the sale
of an aggregate of 1,050,000 shares of outstanding common stock by our selling
stockholders, assuming the exercise in full of the underwriters' over-allotment
option and the sale to the underwriters pursuant thereto of the number of shares
of common stock set forth opposite the names of the selling stockholders. All
persons listed have sole voting and investment power with respect to their
shares unless otherwise indicated. Unless indicated otherwise, the business
address of the beneficial owners is: c/o H Power Corp., 1373 Broad Street,
Clifton, New Jersey 07013.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED(1) PRIOR OWNED AFTER
TO THE OFFERING THE OFFERING
-------------------- SHARES TO --------------------
NUMBER PERCENT BE SOLD** NUMBER PERCENT
--------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Norman Rothstein (2)
311 Links Drive West
Oceanside, NY 11572.......................... 8,528,125 18.1% -- 8,003,125 15.0%

Frederick Entman (3)
260 Tillou Road
South Orange, NJ 07079....................... 7,741,750 16.5% -- 7,216,750 13.5%

Sofinov Societe Financiere D'Innovation Inc.
1981 Avenue McGill College
Montreal, Quebec H3A 3C7..................... 6,458,335 14.1% -- 6,458,335 12.2%

ECO Fuel Cells, LLC
2201 Cooperative Way
Herndon, VA 20171............................ 4,750,000 10.4% -- 4,750,000 9.0%

John McSweeney (4)
ECO Fuel Cells, LLC
2201 Cooperative Way
Herndon, VA 20171............................ 5,000,000 10.9% -- 5,000,000 9.5%

Gerald Entman, Trustee for Elise Entman
2440 North Lakeview Avenue
Chicago, IL 60614............................ 2,500,000 5.5% 225,000 2,275,000 4.3%

Cynthia Rothstein
311 Links Drive West
West Oceanside, NY 11572..................... 3,000,000 6.6% 525,000 2,475,000 4.7%

Hydro-Quebec CapiTech Inc.
75, Rene-Levesque Blvd. West, 22nd Floor
Montreal, Quebec H2Z 1AU..................... 2,000,000 4.4% -- 2,000,000 3.8%

Singapore Technologies Kinetics Ltd.
5 Portsdown Road
Singapore 139296............................. 2,000,000 4.4% -- 2,000,000 3.8%

DQE Enterprises, Inc. (5)
One North Shore Center, Suite 100
Pittsburgh, PA 15212......................... 1,500,000 3.3% -- 1,500,000 2.8%
</TABLE>

53
<PAGE>

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED(1) PRIOR OWNED AFTER
TO THE OFFERING THE OFFERING
-------------------- SHARES TO --------------------
NUMBER PERCENT BE SOLD** NUMBER PERCENT
--------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Dr. H. Frank Gibbard (6)..................... 863,750 1.9% -- 863,750 1.6%

Dr. Arthur Kaufman........................... 1,125,000 2.5% -- 1,125,000 2.1%

Gary K. Willis............................... 0 * -- 0 *

Leonard A. Hadley............................ 0 * -- 0 *

Howard Clark, Jr............................. 0 * -- 0 *

William L. Zang.............................. 0 * -- 0 *

Ivan Roch (7)................................ 0 * -- 0 *

Rachel K. Lorey (8).......................... 0 * -- 0 *

Fong Saik Hay (9)............................ 0 * -- 0 *

Scott Entman................................. 1,463,305 3.2% 150,000 1,313,305 2.5%

Brian Entman................................. 1,442,820 3.2% 150,000 1,292,820 2.5%

All directors and executive officers as a
group
(10 persons) (10).......................... 6,988,750 15.0% -- 6,988,750 13.1%
</TABLE>

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

* Less than 1% of the outstanding common stock.

** Assumes that the underwriters' over-allotment option is exercised in full
and that H Power does not issue and sell any shares to the underwriters
pursuant to this option.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock issuable
pursuant to options, to the extent the options are currently exercisable or
convertible within 60 days of May 31, 2000, are treated as outstanding for
computing the percentage of the person holding these securities but are not
treated as outstanding for computing the percentage of any other person.
Unless otherwise noted, each person or group identified possesses sole
voting and investment power with respect to shares, subject to community
property laws where applicable.

(2) Includes 153,125 shares held by Mr. Rothstein, 3,000,000 shares held by
Cynthia Rothstein, his spouse, 75,000 shares held by his brother Carl
Rothstein and 3,875,000 shares held by his children as follows: Allan
Rothstein 1,625,000 shares, Steven Rothstein 1,000,000 shares and Tammy
Rothstein 1,000,000 shares. Also includes 125,000 shares held by
Mr. Rothstein as trustee for Jordan H. Rothstein 2000 Irrevocable Trust and
125,000 shares held by Mr. Rothstein as trustee for Nicole S. Rothstein 2000
Irrevocable Trust. Also includes 125,000 shares of common stock held by
Dynamark Corp., a company controlled by members of Mr. Rothstein's family.
Includes stock options to purchase 1,050,000 shares granted to
Mr. Rothstein and stock options to purchase 250,000 shares granted to NBG
Technologies, Inc., a company controlled by Mr. Rothstein. Mr. Rothstein
disclaims beneficial ownership of all shares of common stock held by any
members of his family. Substantially all of these shares are subject to a
stockholders' and voting agreement as discussed under "Certain Relationships
and Related Transactions." The shares beneficially owned by Mr. Rothstein
after the offering have been reduced to reflect the sale, pursuant to the
underwriters' over-allotment option, of shares of our common stock owned by
Cynthia Rothstein whose shares Mr. Rothstein may be deemed to beneficially
own. See "Underwriting--Over-Allotment Option."

54
<PAGE>
(3) Includes 285,625 shares held directly by Mr. Entman and 375,000 shares held
in trust for Mr. Entman. Also includes 3,125,000 shares held in trust for
Elise Entman, his spouse, and 1,437,500 shares held by Brian Entman and
1,437,500 shares held by Scott Entman, his children. Includes stock options
to purchase 25,805 shares granted to Scott Entman, and 5,320 shares granted
to Brian Entman. Also includes options to purchase 1,050,000 shares granted
to Mr. Entman. Mr. Entman disclaims beneficial ownership of all shares of
common stock held by any members of his family. All of these shares are
subject to a stockholders' and voting agreement as discussed under "Certain
Relationships and Related Transactions." The shares beneficially owned by
Mr. Entman after the offering have been reduced to reflect the sale,
pursuant to the underwriters' over-allotment option, of shares of our common
stock owned by Brian Entman, Scott Entman and Gerald Entman, as Trustee for
Elise Entman, whose shares Mr. Entman may be deemed to beneficially own. See
"Underwriting--Over-Allotment Option."

(4) Includes 4,750,000 shares of common stock held by ECO over which
Mr. McSweeney shares voting power.

(5) Includes warrants to purchase 500,000 shares of common stock. Does not
include shares of common stock issuable to DQE Enterprises in payment of
dividends to which they are entitled.

(6) Includes 86,750 shares owned by Dr. Gibbard, an aggregate of 26,000 shares
held by his eight children and 1,000 shares held by Lindsey Hough, his
nephew. Dr. Gibbard disclaims beneficial ownership of all shares held by his
children and his nephew. Includes stock options to purchase 750,000 shares
of common stock.

(7) Mr. Roch is the designee of Sofinov on our board of directors, but he does
not have or share voting or investment control over the 6,458,335 shares of
common stock held by Sofinov.

(8) Ms. Lorey is the designee of DQE Enterprises on our board of directors and
serves as a Vice President of DQE Enterprises, but she does not have or
share voting or investment control over the 1,000,000 shares of common stock
and warrants to purchase 500,000 shares of common stock held by DQE
Enterprises.

(9) Mr. Fong is the designee of Singapore Technologies Kinetics on our board of
directors and serves as a Director of Engineering of Singapore Technologies
Kinetics, but he does not have or share voting or investment control over
the 2,000,000 shares of common stock held by Singapore Technologies
Kinetics.

(10) Includes options to purchase 750,000 shares.

55
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, our authorized capital stock will consist
of 150,000,000 shares of common stock, par value $0.001 per share and 10,000,000
shares of preferred stock, par value $0.001 per share.

The following is a summary of some of the provisions of the common stock and
preferred stock provisions of our amended and restated certificate of
incorporation.

COMMON STOCK

As of May 31, 2000, there were 38,090,195 shares of common stock outstanding
that were held by approximately 253 stockholders of record.

The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive, ratably, dividends, if any,
as may be declared by the board out of funds legally available for the payment
of dividends. Our common stock does not have cumulative voting rights which
means that the holders of the outstanding common stock voting for the election
of directors can elect all directors then being elected. If we liquidate,
dissolve or wind up, the holders of our common stock will be entitled to share
ratably in all assets remaining after payment of liabilities and liquidation
preferences of any outstanding shares of preferred stock. Holders of our common
stock have no preemptive rights or rights to convert their common stock into any
other securities. There are no redemption or sinking fund provisions applicable
to our common stock. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock to be issued upon completion of
this offering will be fully paid and non-assessable.

PREFERRED STOCK

Upon the closing of this offering, we will not have any shares of our
preferred stock outstanding. The 10,000,000 authorized shares of our preferred
stock may be issued in one or more series without further approval from our
stockholders. Our board of directors is authorized to determine the terms,
limitations and relative rights, qualifications and preferences of our preferred
stock, to establish several series of our preferred stock and to determine the
variations among series. If we issue preferred stock, it would have priority
over our common stock with respect to dividends and to other distributions,
including the distribution of assets upon liquidation. In addition, we may be
obligated to repurchase or redeem our preferred stock. The holders of our
preferred stock may have voting and conversion rights, including multiple voting
rights, which could adversely affect the rights of the holders of our common
stock. We do not have any present plans to issue any shares of preferred stock.

REGISTRATION RIGHTS

Pursuant to agreements between us and DQE Enterprises, Inc., Singapore
Technologies Kinetics Ltd., Sofinov Societe Financiere D'Innovation Inc.,
Societe Innovatech du Grand Montreal, 9042-0175 Quebec Inc., ECO and
Hydro-Quebec CapiTech, these entities are entitled to certain rights with
respect to the registration under the Securities Act of 16,666,665 shares of our
common stock, including the common stock into which the preferred stock is
convertible, that they currently hold. Following the closing of this offering,
if we propose to register any of the shares of our capital stock under the
Securities Act, either for our own account or for the account of other security
holders exercising registration rights, these holders are entitled to notice of
the registration and are entitled to include shares of their common stock in the
registration.

56
<PAGE>
DQE Enterprises, Singapore Technologies Kinetics, Sofinov, Innovatech,
9042-0175 Quebec Inc., ECO and Hydro-Quebec CapiTech have waived their rights to
include their shares in this offering.

Singapore Technologies Kinetics, Sofinov, Innovatech, 9042-0175
Quebec Inc., ECO and Hydro-Quebec CapiTech are also entitled to demand
registration rights with respect to 15,666,665 shares of our common stock
pursuant to which they may require us to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock, and
we are required to use our best efforts to effect the registration. Singapore
Technologies Kinetics, Sofinov, Innovatech, 9042-0175 Quebec Inc., ECO and
Hydro-Quebec CapiTech have agreed not to exercise these rights for a period of
one year following the closing of this offering.

Furthermore, Messrs. Rothstein and Entman's consulting agreements provide
for one collective demand registration right and unlimited piggyback
registration rights with respect to an aggregate of approximately 13,888,750
shares. All fees and expenses incurred in connection with any of these
registrations will be borne by us, except that Messrs. Rothstein and Entman will
pay all fees and expenses of their own counsel and all underwriting discounts
and commissions relating to any sale of their common stock. Messrs. Rothstein
and Entman have agreed not to exercise their demand registration rights for
12 months following the closing of this offering and have waived their right to
include their shares in this offering.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

Under Section 203 of the Delaware General Corporation Law, certain "business
combinations" between a Delaware corporation, whose stock generally is publicly
traded or held of record by more than 2,000 stockholders, and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless:

- the corporation has elected in its certificate of incorporation or bylaws
not to be governed by the Delaware anti-takeover law (we have not made
this election);

- the business combination was approved by the board of directors of the
corporation before the other party to the business combination became an
interested stockholder;

- upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also
officers or held in employee stock plans in which the employees do not
have a right to determine confidentially whether to tender or vote stock
held by the plan); or

- the business combination was approved by the board of directors of the
corporation and ratified by 66 2/3% of the voting stock which the
interested stockholder did not own.

The three-year prohibition does not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors. The term "business combination" is defined generally to
include mergers or consolidations between a Delaware corporation and an
interested stockholder, transactions with an interested stockholder involving
the assets or stock of the corporation or its majority-owned subsidiaries and
transactions which increase an interested stockholder's percentage ownership of
stock. The term "interested stockholder" is defined generally as a stockholder
who becomes beneficial owner of 15% or more of a Delaware corporation's voting
stock. Section 203 could have the effect of delaying, deferring or preventing
takeover attempts that might result in your receiving a premium over the market
price of our common stock.

57
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

We will enter into indemnification agreements with our current directors and
executive officers. These agreements and provisions of our amended and restated
certificate of incorporation may have the practical effect in some cases of
eliminating our stockholders' ability to collect monetary damages from our
directors. We believe that these contractual agreements and the provisions of
our amended and restated certificate of incorporation are necessary to attract
and retain qualified persons as directors and officers.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for our common stock is American Stock
Transfer & Trust Company.

58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could decline.
These sales also might make it more difficult for us to sell equity or
equity-related securities in the future and at a time and price that we deem
appropriate.

Upon completion of this offering, we will have outstanding an aggregate of
52,756,860 shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
these shares, all of the shares sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act, unless
these shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act. This leaves up to 45,756,860 shares eligible for sale
in the public market as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
------------------------------------- ------------------------------------------------------------
<S> <C>
13,237,695 After the date of this prospectus.

1,388,875 Commencing on the 91st day after the date of this
prospectus, subject, in some cases, to volume limitations.

31,130,290 At various times commencing on the 181st day after the date
of this prospectus.
</TABLE>

LOCK-UP AGREEMENTS

All of our officers and directors and substantially all the holders of at
least 5% of our common stock have signed lock-up agreements under which they
agreed not to transfer or dispose of, directly or indirectly, any shares of our
common stock or any securities convertible into or exercisable or exchangeable
for shares of our common stock, for a period of 180 days after the date of this
prospectus. In addition, the underwriters have agreed to allow Messrs. Entman
and Rothstein and their affiliates who are parties to the stockholders' and
voting agreement to sell up to 10% of their common shares commencing on the 91st
day after the date of this prospectus. Transfers or dispositions can be made
sooner:

- with the prior written consent of Lehman Brothers Inc.;

- in the case of gifts or estate planning transfers where the donee signs a
lock-up agreement; or

- in the case of distributions to stockholders or affiliates of the
stockholders where the recipient signs a lock-up agreement.

In addition to the foregoing restrictions, the transfer and sale of common
stock by certain of the stockholders who have entered into the lock-up
agreements described above is further subject to the provisions of the
stockholders' and voting agreement described under "Certain Relationships and
Related Transactions."

RULE 144

In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:

- 1% of the number of shares of our common stock then outstanding, which
will equal approximately 527,569 shares immediately after this offering;
or

59
<PAGE>
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing with
the Securities and Exchange Commission of a notice on Form 144 with
respect to that sale.

Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

RULE 144(K)

Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
generally including the holding period of any prior owner other than an
affiliate, is entitled to sell those shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, Rule 144(k) shares may be sold
immediately upon the completion of this offering. However, our transfer agent
may require an opinion of counsel that a proposed sale of shares comes within
the terms of Rule 144 under the Securities Act prior to effecting a transfer of
the shares. Upon completion of this offering, holders of 35,090,195 shares will
be eligible to freely sell their shares under Rule 144(k).

RULE 701

In general, subject to the volume limitations under Rule 701 of the
Securities Act as currently in effect, any of our employees, consultants or
advisors who purchases shares of our common stock from us in connection with a
compensatory stock or option plan or other written agreement is eligible to
resell those shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with some of the restrictions,
including the holding period, contained in Rule 144.

STOCK OPTIONS

We intend to file a registration statement on Form S-8 under the Securities
Act shortly after the completion of this offering covering 3,750,000 shares of
our common stock reserved for issuance under our stock option plan and, as of
July 21, 2000, approximately 4,730,625 shares of our common stock issuable upon
exercise of options granted outside of our stock option plan. As of July 21,
2000, options to purchase 5,715,360 shares of our common stock were issued and
outstanding of which 3,443,955 shares are currently exercisable. Shares of our
common stock registered under the S-8 registration statement will, subject to
vesting provisions and Rule 144 volume limitations applicable to our affiliates,
be available for sale immediately in the open market, subject to the expiration
of any applicable lock-up agreements.

REGISTRATION RIGHTS

After this offering, the holders of 30,555,415 shares of our common stock,
or their transferees, will be entitled to have their shares included for sale in
subsequent registered offerings of our common stock. Furthermore, the holders of
up to the following number of shares of common stock will be able to require us
to conduct a registered public offering of their shares at the times indicated
below:

- 20,555,415 shares of common stock at any time following the date that is
one year after the closing of this offering;

- 5,000,000 shares of common stock at any time after August 27, 2001; and

- 4,000,000 shares of common stock at any time after November 29, 2001.

If these holders exercise their registration rights, their shares of our common
stock would become freely tradeable without restriction under the Securities
Act. These sales could have a material adverse effect on the trading price of
our common stock.

60
<PAGE>
UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following discussion summarizes the material United States federal
income and estate tax consequences generally applicable to the ownership and
disposition of our common stock by a non-U.S. holder of common stock. A non-U.S.
holder is a holder of common stock that is not, for United States federal income
tax purposes, any of the following:

- a citizen or resident of the United States;

- a corporation, partnership or other entity created or organized in or
under the laws of the United States or any of its political subdivisions;

- an estate, the income of which is subject to U.S. federal income taxation
regardless of its source; or

- a trust (a) whose administration is subject to the primary supervision of
a U.S. court and which has one or more U.S. persons who have the authority
to control all substantial decisions of the trust, or (b) which was in
existence on August 20, 1996 and has properly elected to continue to be
received as a United States person.

This discussion is based on provisions of the United States Internal Revenue
Code of 1986, as amended, or the "Code," Treasury regulations under the Code,
published rulings, administrative pronouncements and judicial decisions, all of
which are subject to change or different interpretation on a possibly
retroactive basis. In addition, special rules may apply to certain non-U.S.
holders, such as "controlled foreign corporations," "passive foreign investment
companies," "foreign personal holding companies" or certain U.S. expatriates.
This discussion does not address the treatment of any non-U.S. holders under the
laws of any state, local or foreign taxing jurisdiction. This discussion is
limited to non-U.S. holders who hold our common stock as a capital asset. EACH
PROSPECTIVE HOLDER IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO THE
UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES OF ACQUIRING, HOLDING
AND DISPOSING OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE
UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.

DIVIDENDS

Dividends paid to a non-U.S. holder of common stock generally will be
subject to United States federal withholding tax at a 30% rate or a lower rate
as may be specified by an applicable income tax treaty. Provided that the
non-U.S. holder complies with applicable certification and disclosure
requirements, there will be no withholding tax with respect to dividends that
are effectively connected with the non-U.S. holder's conduct of a trade or
business within the United States (and if an income tax treaty applies, are
attributable to a United States permanent establishment of the non-U.S. holder).
Instead, the "effectively connected" dividends will be subject to net U.S.
federal income tax in the same manner as dividends paid to United States
citizens, resident aliens and domestic United States corporations. Any
effectively connected dividends received by a corporate non-U.S. holder may
also, under certain circumstances, be subject to an additional "branch profits
tax" at a 30% rate or a lower rate as may be specified by an applicable income
tax treaty, on the repatriation from the United States of its "effectively
connected earnings and profits," subject to adjustments.

Under currently effective United States Treasury regulations, dividends paid
prior to January 1, 2000 to an address in a foreign country are presumed to be
paid to a resident of that country, unless the payor has knowledge to the
contrary, for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. Under recently finalized
United States Treasury regulations that will generally be effective for
distributions after December 31, 2000, or the "Final Withholding Regulations,"
however, a non-U.S. holder of common stock who wishes to claim the benefit of an
applicable treaty rate would be required to satisfy applicable certification
requirements. In addition, under the Final Withholding Regulations, in the case
of common stock held

61
<PAGE>
by a foreign partnership, (1) the certification requirements would generally be
applied to the partners of the partnership and (2) the partnership would be
required to provide certain information, including a United States taxpayer
identification number. The Final Withholding Regulations provide look-through
rules for tiered partnerships.

A non-U.S. holder of common stock that is eligible for a reduced rate of
United States withholding tax under a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the United States Internal Revenue Service.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to United States federal
income tax for gain recognized on a sale or other disposition of common stock
unless one of the following conditions is satisfied:

- the gain is effectively connected with a trade or business conducted by
the non-U.S. holder in the United States (and, if an income tax treaty
applies, is attributable to a permanent establishment maintained in the
United States by the non-U.S. holder). The non-U.S. holder will, unless an
applicable treaty provides otherwise, be taxed on its net gain derived
from the sale or other disposition under regular graduated U.S. federal
income tax rates. Effectively connected gains realized by a corporate
non-U.S. holder may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or a lower rate as may be
specified by an applicable income tax treaty;

- in the case of a non-U.S. holder who is an individual and holds the common
stock as a capital asset, the holder is present in the United States for
183 or more days in the taxable year of the sale or other disposition and
certain other conditions exist;

- we are or have been a "United States real property holding corporation"
for U.S. federal income tax purposes within the shorter of the five-year
period preceding the disposition or the non-U.S. holder's holding period.
We believe we are not currently, and do not anticipate becoming, a "United
States real property holding corporation" for U.S. federal income tax
purposes. Further, even if we were to become a "United States real
property holding corporation" for U.S. federal income tax purposes, any
gain recognized by a non-U.S. holder still would not be subject to U.S.
tax if the shares were considered to be "regularly traded on an
established securities market," and the non-U.S. holder did not hold,
directly or indirectly at any time during the shorter of the periods
described above, more than 5% of the common stock; or

- the non-U.S. holder is subject to tax under certain provisions of the Code
applicable to U.S. expatriates.

FEDERAL ESTATE TAX CONSEQUENCES

Common stock held by an individual non-U.S. holder at the time of death will
be included in the holder's gross estate for U.S. federal estate tax purposes,
and may be subject to U.S. federal estate tax, unless an applicable estate tax
treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING

We must report annually to the United States Internal Revenue Service and to
each non-U.S. holder the amount of dividends paid to, and the tax withheld with
respect to, any holder, regardless of whether any tax was actually withheld.
This information may also be made available to the tax authorities in the
non-U.S. holder's country of residence.

62
<PAGE>
Under current law, United States information reporting requirements, other
than reporting of dividend payments for purposes of the withholding tax noted
above, and backup withholding tax generally will not apply to dividends paid to
non-U.S. holders that are either subject to the 30% withholding discussed above
or that are not subject to withholding because an applicable tax treaty reduces
or eliminates the withholding. Otherwise, backup withholding of United States
federal income tax at a rate of 31% may apply to dividends paid with respect to
common stock to holders that are not "exempt recipients" and that fail to
provide certain information including the holder's United States taxpayer
identification number.

Under current law, generally, unless the payor of dividends has actual
knowledge that the payee is a United States person, the payor may treat dividend
payments to a payee with a foreign address as exempt from information reporting
and backup withholding. However, under the Final Withholding Regulations,
dividend payments made after December 31, 2000 generally will be subject to
information reporting and backup withholding unless applicable certification
requirements are satisfied. See the discussion above with respect to the rules
applicable to foreign partnerships under the Final Withholding Regulations.

In general, United States information reporting and backup withholding
requirements also will not apply to the payment of disposition proceeds where
the transaction is effected through an office outside the United States of a
non-United States broker. However, United States information reporting, but not
backup withholding, requirements will apply to a payment made outside the United
States of the proceeds of a sale of common stock through an office outside the
United States of a broker that is (i) a United States person, (ii) a foreign
person that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, (iii) a "controlled foreign
corporation" for United States federal income tax purposes, or, (iv) in the case
of payments made after December 31, 2000, a foreign partnership with certain
connections to the United States, unless the broker has documentary evidence in
its records that the holder or beneficial owner is a non-United States person
and that certain conditions are met, or the holder or beneficial owner otherwise
establishes an exemption. Payment of the proceeds of the sale of common stock to
or through a United States office of a broker is currently subject to both
United States backup withholding and information reporting unless the holder
certifies its non-United States status under penalties of perjury or otherwise
establishes an exemption.

Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules are generally allowable as a refund or credit against a
non-U.S. holder's federal income tax liability, if any, provided that the
required information is furnished to the IRS.

63
<PAGE>
UNDERWRITING

Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, each of the underwriters
named below for whom Lehman Brothers Inc., CIBC World Markets Corp., Deutsche
Bank Securities Inc., Josephthal & Co. Inc. and Fidelity Capital Markets Corp.,
a division of National Financial Services Corporation, are acting as
representatives, has agreed to purchase from us, on a firm commitment basis,
subject only to the conditions contained in the underwriting agreement, the
respective number of shares of common stock shown opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ----------
<S> <C>
Lehman Brothers Inc.........................................
CIBC World Markets Corp.....................................
Deutsche Bank Securities Inc................................
Josephthal & Co. Inc........................................
Fidelity Capital Markets Corp., a division of National
Financial Services Corporation............................
----------
Total.......................................................
==========
</TABLE>

The underwriting agreement provides that the underwriters' obligations to
purchase our common stock depend on the satisfaction of the conditions contained
in the underwriting agreement, and that if any shares of common stock are
purchased by the underwriters under the underwriting agreement, then all the
shares of common stock which the underwriters have agreed to purchase under the
underwriting agreement must be purchased. The conditions contained in the
underwriting agreement include that:

- the representations and warranties made by us to the underwriters are
true;

- there is no material change in the financial markets; and

- we deliver customary closing documents to the underwriters.

COMMISSIONS AND EXPENSES

The representatives had advised us that the underwriters propose to offer
the common stock directly to the public at the public offering price presented
on the cover page of this prospectus, and to selected dealers, who may include
the underwriters, at the public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the selected dealers
may reallow, a concession not in excess of $ per share to brokers and
dealers. After the offering, the underwriters may change the offering price and
other selling terms.

The following table summarizes the underwriting discounts and commissions we
will pay. The underwriting discounts and commissions are equal to the public
offer price per share, less the amount paid to us per share. The underwriting
discounts and commissions will equal 7% of the public offering price.

<TABLE>
<CAPTION>
TOTAL WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions to be paid by
us.................................................... $ $ $
</TABLE>

We estimate that the total expenses of the offering, including registration,
filing and listing fees, printing fees and legal and accounting expenses, but
excluding underwriting discounts and commissions, will be approximately
$ million.

64
<PAGE>
OVER-ALLOTMENT OPTION

Cynthia Rothstein, Scott Entman, Bryan Entman and Gerald Entman, Trustee for
Elise Entman, or H Power will grant to the underwriters an option to purchase up
to an aggregate of 1,050,000 shares of common stock, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. To the extent the underwriters exercise this
option, each underwriter will be committed, so long as the conditions of the
underwriting agreement are satisfied, to purchase a number of additional shares
proportionate to that underwriter's initial commitment as indicated in the
preceding table.

At the time the underwriting agreement is entered into, Cynthia Rothstein,
Scott Entman, Brian Entman and Gerald Entman, as Trustee for Elise Entman, shall
either elect to become parties to the underwriting agreement and sell 1,050,000
shares of common stock to the underwriters, or if they do not so elect, H Power
will agree to issue and sell to the underwriters 1,050,000 additional shares of
common stock, in either case pursuant to the underwriters' over-allotment
option.

LOCK-UP AGREEMENTS

We have agreed that, without the prior written consent of Lehman
Brothers Inc., we will not, directly or indirectly, offer, sell or dispose of
any common stock or any securities which may be converted into or exchanged for
any common stock for a period of 180 days from the date of this prospectus. We
and all of our executive officers and directors, and our 5% shareholders,
including Messrs. Norman Rothstein and Frederick Entman and certain members of
their respective families, have agreed under lock-up agreements that, without
the prior written consent of Lehman Brothers Inc., they will not, directly or
indirectly, offer, sell or otherwise dispose of any common stock or any
securities which may be converted into or exchanged or exercised for any common
stock for a period of 180 days from the date of this prospectus. Notwithstanding
the foregoing, during the period commencing on the 91st day after the date of
the underwriting agreement through and including the 180th day after the date of
the underwriting agreement, Messrs. Norman Rothstein and Frederick Entman and
certain of their affiliates who are parties to the stockholders' and voting
agreement may sell up to 10% of their shares of common stock subject, in all
cases, with respect to Messrs. Rothstein and Entman and their affiliates, to the
prohibitions and limitations contained in the stockholders' and voting agreement
described under "Certain Relationships and Related Transactions."

OFFERING PRICE DETERMINATION

Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of our
common stock, the representatives will consider

- prevailing market conditions;

- our historical performance and capital structure;

- estimates of our business potential and earnings prospects;

- an overall assessment of our management; and

- the consideration of these factors in relation to market valuation of
companies in related businesses.

INDEMNIFICATION

We have agreed to indemnify the underwriters against liabilities relating to
the offering, including liabilities under the Securities Act and liabilities
arising from breaches of the representations and warranties contained in the
underwriting agreement and liabilities incurred in connection with the

65
<PAGE>
directed share program referred to below, and to contribute to payments that the
underwriters may be required to make for these liabilities. We have further
agreed to indemnify Lehman Brothers Inc. against liabilities relating to the
directed share program conducted at H Power's request, including liabilities
under the Securities Act.

STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of our common stock. These transactions
may consist of bids or purchases for the purpose of stabilizing, fixing or
maintaining the price of our common stock.

The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares of our
common stock than are presented on the cover page of this prospectus. If the
underwriters create a short position, then the representatives may reduce that
short position by purchasing our common stock in the open market. The
representatives also may elect to reduce any short position by exercising all or
part of the over-allotment option described in this prospectus.

The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase our
common stock in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares of our common stock as part of the offering.

In general, purchasers of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might be in the absence of these purchases. The imposition of a
penalty bid could have an effect on the price of a security to the extent that
it were to discourage resales of the security by purchasers in an offering.

Neither we nor any of the underwriters make any representation or prediction
concerning the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters make any representation that the representatives
will engage in these transactions or that any such transaction, once commenced,
will not be discontinued without notice.

FIDELITY CAPITAL MARKETS

Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter of this offering, and will be
facilitating electronic distribution through the Internet.

STAMP TAXES

Purchasers of the shares of our common stock offered by this prospectus may
be required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition of the offering price listed on the cover
of this prospectus.

OFFER AND SALES IN CANADA

Any offers in Canada will be made only under an exception from the
requirements to file a prospectus in each relevant province of Canada where a
sale is made.

66
<PAGE>
DIRECTED SHARE PROGRAM

At our request, the underwriters have reserved up to 700,000 shares, or 10%
of our common stock offered by this prospectus, for sale under a directed share
program to our officers, directors, employees and to our business associates.
All of the persons purchasing the reserved shares must commit to purchase no
later than the close of business on the day following the date of this
prospectus. The number of shares available for sale to the general public will
be reduced to the extent these persons purchase the reserved shares. Shares
committed to be purchased by directed share participants which are not so
purchased will be reallocated for sale to the general public in the offering.
All sales of shares pursuant to the directed share program will be made at the
initial public offering price set forth on the cover page of this prospectus.
All of the persons purchasing the reserved shares, except for our employees who
are not officers or directors, must sign lock-up agreements under which they
agree not to directly or indirectly transfer or dispose of any shares of our
common stock or any securities convertible into or exercisable or exchangeable
for shares of our common stock, for a period of 45 days after the date of this
prospectus.

The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed 5% of the total number of shares of our
common stock offered by them.

67
<PAGE>
LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for H Power by Fulbright & Jaworski L.L.P., New York, New York. Merrill M.
Kraines, a partner in Fulbright & Jaworski L.L.P., has served as our Secretary
since December 1999. Certain legal matters in connection with the offering will
be passed upon for the underwriters by Greenberg Traurig, LLP, New York, New
York.

EXPERTS

The financial statements as of May 31, 2000 and 1999 and for each of the
three fiscal years in the period ended May 31, 2000 included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement, of which this prospectus constitutes a part, on Form S-1, with
respect to the common stock being sold in this offering. This prospectus
constitutes a part of that registration statement. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement, because some parts have
been omitted in accordance with rules and regulations of the Securities and
Exchange Commission. For further information about us and the common stock being
sold in this offering, please refer to the registration statement and the
exhibits and schedules filed as a part of the registration statement.

A copy of the registration statement, including exhibits and schedules
thereto, may be inspected without charge and obtained at prescribed rates at the
public reference section of the Securities and Exchange Commission at its
principal offices, located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and maybe inspected without charge at the regional offices of the Securities and
Exchange Commission located at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may also obtain information on the operation of the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. The registration statement, including the exhibits and schedules
thereto, is also available at the Securities and Exchange Commission's site on
the World Wide Web at http://www.sec.gov.

We intend to furnish our stockholders annual reports containing financial
statements audited by our independent auditors and quarterly reports containing
unaudited financial information.

68
<PAGE>
H POWER CORP.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGES
--------
<S> <C>
Report of Independent Accountants........................... F-2

Consolidated Balance Sheets as of May 31, 1999 and 2000 and
May 31, 2000 Pro Forma (unaudited)........................ F-3

Consolidated Statements of Operations for the years ended
May 31, 1998, 1999 and 2000............................... F-4

Consolidated Statements of Changes in Stockholders' Equity
(Deficit) and Comprehensive Loss for the years ended
May 31, 1998, 1999 and 2000............................... F-5

Consolidated Statements of Cash Flows for the years ended
May 31, 1998, 1999 and 2000............................... F-6

Notes to Consolidated Financial Statements.................. F-7-F-20
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
H Power Corp.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and comprehensive loss and of cash flows present fairly, in all
material respects, the financial position of H Power Corp. and its subsidiary
(the "Company") at May 31, 1999 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
2000, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
Florham Park, NJ
July 26, 2000

F-2
<PAGE>
H POWER CORP.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MAY 31,
------------------------------------------
PRO FORMA
1999 2000 2000
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS

Current assets
Cash and cash equivalents................................. $ 242,107 $ 11,257,355 $ 11,257,355
Accounts receivable net of allowance for doubtful accounts
of $0 and $60,000 at May 31, 1999 and 2000,
respectively............................................ 135,229 878,310 878,310
Unbilled receivables...................................... 186,283 214,550 214,550
Inventories............................................... 341,119 1,300,999 1,300,999
Tax credit receivable..................................... 644,791 930,117 930,117
Prepaid expenses and other current assets................. 35,188 1,604,041 1,604,041
------------ ------------ ------------
Total current assets.................................... 1,584,717 16,185,372 16,185,372
Plant and equipment, net.................................... 1,438,912 1,877,728 1,877,728
Patents, net of accumulated amortization of $18,886 and
$34,288 at May 31, 1999 and 2000, respectively............ 415,362 438,847 438,847
Other assets................................................ 32,900 147,646 147,646
------------ ------------ ------------
Total assets............................................ $ 3,471,891 $ 18,649,593 $ 18,649,593
============ ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt...................... $ 124,219 $ 123,223 $ 123,223
Accounts payable.......................................... 1,400,915 1,197,803 1,197,803
Accrued expenses.......................................... 472,441 1,172,570 1,172,570
Deferred revenue.......................................... 250,000 478,351 478,351
Due to related parties.................................... 1,292,654 -- --
------------ ------------ ------------
Total current liabilities............................... 3,540,229 2,971,947 2,971,947

Deferred revenue............................................ -- 2,222,222 2,222,222
Long-term debt.............................................. 69,280 66,765 66,765
------------ ------------ ------------
Total liabilities....................................... 3,609,509 5,260,934 5,260,934
------------ ------------ ------------
Commitments and contingencies
Minority interest........................................... 5,000,000 5,000,000 --
------------ ------------ ------------
Mandatorily redeemable preferred stock:
Series A Convertible Preferred Stock--$.001 par value;
200,000 shares authorized; 200,000 shares issued and
outstanding at May 31, 1999 and 2000; 0 shares issued
and outstanding at May 31, 2000 pro forma............... 2,966,471 2,966,471 --
Series B Convertible Preferred Stock--$.001 par value;
400,000 shares authorized; 400,000 shares issued and
outstanding at May 31, 1999 and 2000; 0 shares issued
and outstanding at May 31, 2000 pro forma............... 4,944,118 4,944,118 --
Series C Convertible Preferred Stock--$.001 par value;
1,200,000 shares authorized; 600,000 issued and
outstanding at May 31, 1999 and 2000; 0 shares issued
and outstanding at May 31, 2000 pro forma............... 7,416,177 7,416,177 --
STOCKHOLDERS' EQUITY
Common stock--$.001 par value; 150,000,000 shares
authorized; 29,015,195 shares issued and outstanding at
May 31, 1999; 38,090,195 shares issued and outstanding
at May 31, 2000; 45,756,860 shares issued and
outstanding at May 31, 2000 pro forma................... 29,016 38,091 45,758
Additional paid-in capital................................ 7,663,950 38,127,238 58,446,337
Accumulated deficit....................................... (27,734,495) (44,746,901) (44,746,901)
Accumulated other comprehensive loss...................... (422,855) (356,535) (356,535)
------------ ------------ ------------
Total stockholders' (deficit) equity.................... (20,464,384) (6,938,107) 13,388,659
------------ ------------ ------------
Total liabilities and stockholders' equity............ $ 3,471,891 $ 18,649,593 $ 18,649,593
============ ============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>
H POWER CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------------
1998 1999 2000
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES
Products............................................ $ 99,071 $ 501,065 $ 984,996
Contracts........................................... 618,728 516,967 2,695,291
----------- ----------- ------------
717,799 1,018,032 3,680,287
----------- ----------- ------------

OPERATING EXPENSES
Cost of revenues--products.......................... 354,957 613,864 1,100,767
Cost of revenues--contracts......................... 436,216 465,806 2,356,828
Research and development............................ 2,812,786 3,051,089 5,338,727
Selling, general, and administrative................ 3,514,048 3,813,161 12,565,380
----------- ----------- ------------
Total operating expenses.......................... 7,118,007 7,943,920 21,361,702
----------- ----------- ------------

Loss from operations................................ (6,400,208) (6,925,888) (17,681,415)
Interest and other income, net...................... 723,788 182,378 746,034
Interest expense.................................... (41,395) (22,250) (77,025)
----------- ----------- ------------
Net loss.......................................... $(5,717,815) $(6,765,760) $(17,012,406)
=========== =========== ============
Loss per share attributable to common stockholders,
basic and diluted................................. $ (0.20) $ (0.24) $ (0.49)
=========== =========== ============
Weighted average shares outstanding, basic and
diluted........................................... 29,011,040 29,015,195 34,879,061
=========== =========== ============
Pro forma net loss per share, basic and diluted..... $ (0.40)
============
Pro forma weighted average shares outstanding, basic
and diluted....................................... 42,545,726
============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>
H POWER CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) AND
COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
ACCUMULATED
NUMBER OF OTHER
SHARES ISSUED COMMON CAPITAL IN ACCUMULATED COMPREHENSIVE COMPREHENSIVE
AND OUTSTANDING STOCK EXCESS OF PAR DEFICIT LOSS LOSS
--------------- -------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance (deficiency)--May 31, 1997.... 29,002,695 29,003 6,835,838 (15,250,920) (4,745,718)
============

Net loss.............................. (5,717,815) (5,717,815)
Issuance of common stock upon exercise
of stock options.................... 12,500 13 9,987
Foreign currency translation
adjustment.......................... (261,829) (261,829)
---------- ------- ----------- ------------ --------- ------------
Balance (deficiency)--May 31, 1998.... 29,015,195 29,016 6,845,825 (20,968,735) (261,829) (5,979,644)
============

Net loss.............................. (6,765,760) (6,765,760)
Stock option compensation expense..... 818,125
Foreign currency translation
adjustment.......................... (161,026) (161,026)
---------- ------- ----------- ------------ --------- ------------
Balance (deficiency)--May 31, 1999.... 29,015,195 29,016 7,663,950 (27,734,495) (422,855) (6,926,786)
============
Net Loss.............................. (17,012,406) (17,012,406)
Sale of common stock.................. 8,160,000 8,160 22,979,124
Issuance of common stock upon
conversion of debt.................. 840,000 840 2,099,160
Issuance of common stock upon exercise
of stock options.................... 75,000 75 59,925
Issuance of warrants.................. 150,000
Stock option compensation expense..... 5,175,079
Foreign currency translation
adjustments......................... 66,320 66,320
---------- ------- ----------- ------------ --------- ------------
Balance (deficiency)--May 31, 2000.... 38,090,195 $38,091 $38,127,238 $(44,746,901) $(356,535) $(16,946,086)
========== ======= =========== ============ ========= ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>
H POWER CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------------
1998 1999 2000
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(5,717,815) $(6,765,760) $(17,012,406)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization........................... 408,076 481,977 654,917
(Gain) Loss on sale of equipment........................ (7,132) -- 3,263
Provision for losses on uncompleted contracts........... 184,525 -- --
Stock option compensation expense....................... -- 836,125 5,175,079
Warrants issued in payment of services.................. -- -- 150,000
Changes in assets and liabilities:
Accounts receivables.................................. (419,592) 428,645 (743,081)
Unbilled receivables.................................. (74,709) (111,574) (28,267)
Inventories........................................... 4,674 (327,408) (959,880)
Tax credit receivable................................. (205,131) (439,660) (285,326)
Prepaid expenses and other assets..................... (152,095) 132,863 (1,683,599)
Accounts payable...................................... 299,892 803,086 (203,112)
Accrued expenses...................................... 47,907 175,960 700,129
Deferred revenue...................................... 75,000 -- 2,450,573
Estimated losses on uncompleted contracts............. -- (184,525) --
----------- ----------- ------------
Total adjustments................................... 161,415 1,795,489 5,230,696
----------- ----------- ------------
Net cash used by operating activities............... (5,556,400) (4,970,271) (11,781,710)
----------- ----------- ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (942,930) (919,355) (1,124,691)
Proceeds from sale of equipment........................... 45,000 -- 4,209
----------- ----------- ------------
Net cash used by investing activities............... (897,930) (919,355) (1,120,482)
----------- ----------- ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock.................... 10,000 -- 23,047,284
Proceeds from related party borrowings.................... 21,700 1,267,728 1,461,987
Repayment of related party borrowings..................... (879,158) -- (654,641)
Proceeds from long-term debt.............................. -- 67,912 --
Repayments of long-term debt.............................. (616,081) -- --
Other..................................................... (5,491) (3,472) (2,364)
----------- ----------- ------------
Net cash (used) provided by financing activities.... (1,469,030) 1,332,168 23,852,266
----------- ----------- ------------
Effect of exchange rate changes on cash and cash
equivalents............................................... (261,829) (161,026) 65,174
----------- ----------- ------------
Net (decrease) increase in cash and cash
equivalents....................................... (8,185,189) (4,718,484) 11,015,248
Cash and cash equivalents at beginning of period............ 13,145,780 4,960,591 242,107
----------- ----------- ------------
Cash and cash equivalents at end of period.................. $ 4,960,591 $ 242,107 $ 11,257,355
=========== =========== ============

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................................... $ 143,184 $ 522 $ 99,829
Conversion of related party borrowings to equity.......... $ -- $ -- $ 2,100,000
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

H Power Corp. (the "Company") was organized on June 6, 1989 under the laws
of the State of Delaware. The Company designs, develops, markets and
manufactures proton-exchange membrane fuel cells and fuel cell systems designed
to provide electricity for a wide range of stationary, portable and mobile
applications.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and its Canadian subsidiary, H Power Enterprises of Canada, Inc.
("HPEC"). All significant intercompany accounts and transactions are eliminated.

The outside investors have an ability to convert their 50% interest in HPEC
into an interest in H Power and have a priority upon liquidation of HPEC. As a
result, the outside investors are not at risk with respect to the losses (i.e.,
R&D expenses) of HPEC. The Company, therefore, presents HPEC's results of
operations on a consolidated basis and has not allocated any of HPEC's losses to
the outside investors.

UNAUDITED PRO FORMA BALANCE SHEET AND EARNINGS PER SHARE INFORMATION

The Company's Series A, Series B and Series C convertible preferred
stockholders have agreed to convert all of their outstanding shares of preferred
stock into common stock concurrent with the closing of this initial public
offering. In addition, the other investors of the Company's 50% owned
subsidiary, HPEC, have agreed to exercise their conversion right concurrent with
the closing of this initial public offering. (See Note 1--Investment in
Subsidiary.) These investors have also agreed to convert their Series C
convertible preferred stock received in that transaction into common stock
concurrent with the closing of this offering. Accordingly, the unaudited pro
forma balance sheet has been presented on a basis to give effect to the
conversion of the stock and equity interests described above, as of the closing
date of an initial public offering, which is assumed to have been converted as
of May 31, 2000. The pro forma earnings per share and share data give effect to
the impact these conversions would have had on the weighted average share
amounts assuming the conversion occurred on June 1, 1998.

STOCK SPLIT

The Company declared a 5:1 stock split effective July 24, 2000 for
stockholders of record at the close of business on July 21, 2000. This stock
split increased the number of common shares outstanding by 30,472,156 shares at
May 31, 2000. All references in the consolidated financial statements referring
to share prices, conversion rates, per share amounts, stock option plans and
common shares issued and/or outstanding have been adjusted retroactively for the
5-for-1 stock split.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
its consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.

F-7
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND EQUIVALENTS

Cash and equivalents represent cash and short-term, highly liquid
investments with original maturities of three months or less.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company maintains its cash and cash equivalents at high
quality financial institutions and limits the amount of credit exposure to any
one institution. The Company had cash balances on deposit at May 31, 2000 that
exceeded the $100,000 amount insured by the F.D.I.C.

The Company's receivables are derived primarily from sales to U.S.
government agencies. Three government contracts represent approximately 86%, 41%
and 73% of consolidated revenues for the fiscal years ended May 31, 1998, 1999
and 2000, respectively. Amounts due the Company in accounts receivable and
unbilled receivables under these contracts were $150,085 and $546,840 at
May 31, 1999, and May 31, 2000, respectively. Additionally, one of our
commercial customers of portable PEM units represents 0%, 24% and 10% of
consolidated revenues for the fiscal years ended May 31, 1998, 1999 and 2000,
respectively. Amounts due to the Company in accounts receivable from this
customer were $0 and $73,613 at May 31, 1999 and 2000, respectively.

INVENTORY

Inventories, which include materials, labor, and overhead, are valued at the
lower of cost or market using the first-in, first-out method.

PLANT AND EQUIPMENT, NET

Plant and equipment are stated at cost, net of accumulated depreciation.
Repairs and maintenance costs are expensed as incurred; major renewals and
betterments are capitalized. When assets are sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts and any
gain or loss on the disposition is reflected in current operations. Depreciation
is determined on a straight-line basis over the estimated useful lives of the
applicable assets, generally five years for furniture and equipment for
financial reporting purposes and determined on an accelerated method for tax
purposes. Leasehold improvements are depreciated over the lesser of the lease
term or the estimated useful lives of the related assets.

The Company reviews long-lived assets and identifiable intangible assets for
impairment whenever any events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable.

PATENTS

Certain costs associated with obtaining and licensing patents are
capitalized as incurred and are amortized on a straight-line basis over
estimated useful lives up to 17 years. Costs associated with patents are
capitalized as incurred. Amortization of such costs begins once the patent has
been issued. The Company evaluates the recoverability of the patent and other
intangible asset costs at each balance sheet date based on estimated
undiscounted future cash flows.

F-8
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION

The financial statements of HPEC were prepared in Canadian dollars and
translated into U.S. dollars based on the current exchange rate in effect at the
end of the period for the balance sheet and a weighted-average rate for the
period on the statement of operations. Translation adjustments are reflected as
foreign currency translation adjustments in stockholders' equity and accordingly
have no effect on net income. Transaction gains and losses are included in
income.

REVENUE RECOGNITION

Revenues on products are recognized when the product has been shipped and
the Company has met its obligations under the sales contract. These obligations
vary based on the specific product type customer. Revenues on products requiring
the Company to perform installation are recognized when installation has been
completed (e.g., New Jersey Department of Transportation sales). Revenues on
products allowing a 30 day customer acceptance period are recognized at the
conclusion of the acceptance period (e.g., ECO). Revenues on test and evaluation
products used by customers primarily for research and development purposes are
sold without a right of return and without a customer acceptance period.
Revenues on test and evaluation products are recognized when the product has
been shipped. Revenues on product distribution rights fees are deferred upon
receipt and recognized into revenue on a straight-line basis over the term of
the distribution agreement. For the years ended May 31, 1999 and 2000, deferred
revenues amounted to $250,000 and $2,700,573, respectively. As of May 31, 2000,
$2,444,444 of the initial distribution rights fee received from ECO, see
Note 8, was included in deferred revenues.

Contract costs, including indirect expenses, are subject to audit and
adjustment by the Defense Contract Audit Agency. Contract costs through 1997
have been finalized, and contract revenues for the current and prior years have
been recorded in amounts which are expected to be realized upon final
settlement. In management's opinion, the results of such audits will not have a
material effect on the Company's financial position, results of operations or
cash flows.

RESEARCH AND DEVELOPMENT

Research and development expenses consist principally of expenditures for
research conducted by the Company. Costs for contracts that qualify as
best-efforts arrangements are recognized as research and development expenses.
All research and development costs are expensed as incurred.

Under certain arrangements in which a third party funds a portion of
research and development costs on a specific project, the direct materials and
labor costs of that project are recorded as costs of

F-9
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

revenues--contracts while overhead and general and administrative expenses
allowable for inclusion in the cost reimbursement calculation are recorded as
selling, general and administrative expenses.

INVESTMENT IN SUBSIDIARY

On May 2, 1997, the Company established a Canadian subsidiary, HPEC,
pursuant to an agreement with Sofinov Societe Financiere D'Innovation Inc.
("Sofinov"), Societe Innovatech du grand Montreal ("Innovatech") and 9042-0175
Quebec, Inc. ("Quebec") (collectively, the "Investors"). Sofinov, a company
wholly owned by the Caisse de Depot et Placement du Quebec (the Caisse), is an
agent of the Quebec government that administers and invests pension funds of
government employees. Innovatech is a government agent, funded by the Quebec
government, that invests in the technology industry in the greater Montreal
area. Quebec is a wholly-owned subsidiary of Groupe Laperriere & Verreault Inc.,
a publicly traded company involved in the design and manufacture of industrial
equipment. The Investors purchased 50% of the common stock of HPEC for
$5 million. The Investors hold Class A common shares in HPEC, which are
identical in all respects to Class B common shares in HPEC held by the Company,
except that in the event of a liquidation, dissolution or other distribution of
assets, Class A stockholders are entitled to receive in priority and preference
to any other class of common shares an amount equal to the subscription price
paid for each Class A common share. The investors have the right until May 2001
to convert their equity interest in HPEC into 333,333 shares of our Series C
convertible preferred stock. The Company licensed its fuel cell technology and
certain Canadian marketing rights to HPEC in exchange for the other 50% of the
common shares. The Investors and the Company are not legally obligated to fund
the losses of HPEC. The Company may elect to fund HPEC at its discretion, and
has chosen to do so as HPEC's development efforts contribute to the Company's
product commercialization. The Board of HPEC is comprised of six members. The
Company is entitled to designate three members and each of the Investors is
entitled to designate one member.

Pursuant to a stockholder agreement, the day-to-day management and operation
of HPEC is the responsibility of its president, who, as long as the Company owns
at least 33 1/3% of the aggregate common shares of HPEC, will be the nominee of
the Company. HPEC's current president is the chief executive officer of the
Company. In addition to having responsibility for the management of all aspects
of the daily operations of HPEC without Board approval, the president is
responsible for the preparation of the operating and capital budgets, which are
approved by the stockholders. The Board of Directors oversee the actions of the
president in managing the affairs and business of HPEC through periodic
meetings.

The Company reports 100% of the losses of this subsidiary in the
consolidated accounts as further discussed in Note 1--Principles of
Consolidation.

401(k) RETIREMENT PLAN

The Company has a contributory 401(k) Retirement Plan for eligible
employees. Employees eligible to participate in the Plan must be of age 21 and
have completed twelve months of service. Under the Plan, employees may generally
contribute from 1% to 15% of their salary, however, not in excess of IRS
limitations. The Company has elected not to make a discretionary matching
contribution

F-10
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

for the fiscal year ended May 31, 2000. Employees are 100% vested in their own
contributions plus earnings at all times.

INCOME TAXES AND TAX CREDITS

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
basis. A subjective assessment, which includes anticipating future income, is
used in assessing the likelihood of realizing deferred tax assets. Recoverable
tax credits arising from the acquisition of capital assets are recorded as a
deduction from the cost of the assets acquired while those arising from current
expenses are deducted from those expenses in the year of expenditure. All
amounts receivable at the end of fiscal 1999 have been collected during fiscal
2000. In addition, amounts receivable at May 31, 2000 are expected to be
received during fiscal 2001.

2. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
MAY 31,
---------------------
1999 2000
-------- ----------
<S> <C> <C>
Raw materials......................................... $149,010 $ 776,782
Work in process....................................... 192,109 340,549
Finished goods........................................ -- 183,668
-------- ----------
$341,119 $1,300,999
======== ==========
</TABLE>

For the year ended May 31, 1999 all finished goods inventory was sold to
customers prior to the end of that fiscal year.

3. PLANT AND EQUIPMENT

Plant and equipment consists of the following:

<TABLE>
<CAPTION>
MAY 31,
-----------------------
1999 2000
---------- ----------
<S> <C> <C>
Furniture and equipment.............................. $1,936,111 $3,056,232
Leasehold Improvements............................... 705,355 649,661
---------- ----------
2,641,466 3,705,893
Less: Accumulated depreciation....................... 1,202,554 1,828,165
---------- ----------
$1,438,912 $1,877,728
========== ==========
</TABLE>

Depreciation expense for the fiscal years ended May 31, 1998, 1999 and 2000
was $164,489, $473,020 and $639,515, respectively.

F-11
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
MAY 31,
---------------------
1999 2000
-------- ----------
<S> <C> <C>
Salaries and related expenses......................... $294,126 $ 180,230
Initial public offering fees.......................... -- 702,585
Other................................................. 178,315 289,755
-------- ----------
$472,441 $1,172,570
======== ==========
</TABLE>

5. NOTES PAYABLE AND LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
MAY 31,
-------------------
1999 2000
-------- --------
<S> <C> <C>
Notes payable, interest at 10%; unsecured,
past due.............................................. $121,875 $121,875
Government loan, non-interest bearing................... 67,912 66,765
Equipment notes payable, payable in various monthly
installments, secured by related equipment............ 3,712 1,348
-------- --------
193,499 189,988
Less: Current portion................................... 124,219 123,223
-------- --------
$ 69,280 $ 66,765
======== ========
</TABLE>

The past due notes payable were originated in 1991, the proceeds of which
were used for general corporate purposes and were originally due in 1993. The
due date was extended until 1997 by mutual agreement between the parties. The
lender purchased 31,250 shares of H Power common stock at the time the note was
issued, but has no other affiliation with the Company. Discussions were under
way and preliminary agreement had been reached to convert their note into
additional shares of common stock of the Company. Prior to consummation of the
agreement, the lender filed for bankruptcy and is currently in the process of
liquidation. The Company believes that resolution of these issues will be
settled with the Bankruptcy Court and that litigation will not result therefrom.
The notes are past due pending resolutions of these matters, and are included in
the current position.

The Government loan proceeds were used to finance the last phase of the
development of a specific product by HPEC. The loan does not bear any interest
and HPEC must repay the loan by paying 1% of the revenue earned on the sale of
the product. The period of the loan is ten years or whenever the loan is paid,
whichever comes first.

Principal payment requirements subsequent to May 31, 2000 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING MAY 31, AMOUNT
------------------- --------
<S> <C>
2001........................................................ $123,223
2002........................................................ --
2003........................................................ --
2004........................................................ --
2005........................................................ --
Thereafter.................................................. 66,765
</TABLE>

F-12
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS

The Company leases five properties under leasehold agreements, three of
which expire on July 31, 2001, one that expires on September 30, 2001 and one
that expires on March 31, 2003. The Company has the option to renew these leases
for one to two additional years. Rental expenditures for the fiscal years ended
May 31, 1998, 1999 and 2000 were $156,300, $177,538 and $218,376, respectively.
Commitments for minimum rentals under noncancellable operating leases having a
remaining term in excess of one year at May 31, 2000 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING MAY 31, AMOUNT
------------------- --------
<S> <C>
2001........................................................ $261,118
2002........................................................ 63,518
2003........................................................ 11,350
</TABLE>

The Company has agreements with four of its key officers, two of whom are
directors. The agreements with its officers expire in October and November 2002.
These agreements provide for base salaries with increases and bonuses at the
discretion of the Board of Directors.

7. INCOME TAXES

Deferred tax assets are comprised of the following:

<TABLE>
<CAPTION>
MAY 31,
--------------------------
1999 2000
----------- ------------
<S> <C> <C>
Depreciation and amortization..................... $ 427,085 $ 364,268
Bad debt.......................................... -- 23,775
Deferred revenue.................................. -- 976,311
Other............................................. 2,608 8,344
Net operating loss carryforwards.................. 8,549,692 13,648,543
----------- ------------
8,979,385 15,021,241
Less valuation allowance.......................... (8,979,385) (15,021,241)
----------- ------------
Net deferred tax asset............................ $ -- $ --
=========== ============
</TABLE>

The components of the provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
YEARS ENDED
MAY 31,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
Current:
Federal.......................................... $ -- $ --
State............................................ -- --
----------- -----------
-- --
----------- -----------
Deferred:
Federal.......................................... (1,242,251) (4,305,539)
State............................................ (240,661) (784,556)
Foreign.......................................... (391,384) (951,760)
Change in valuation allowance.................... 1,874,296 6,041,855
----------- -----------
-- --
----------- -----------
Income tax provision (benefit)..................... $ -- $ --
=========== ===========
</TABLE>

The Company has generated net operating loss carryforwards of approximately
$20 million and $28 million as of May 31, 1999 and May 31, 2000, respectively,
which are due to expire between 2019

F-13
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES (CONTINUED)

and 2020. Section 382 of the Internal Revenue Code of 1986, as amended, places a
limitation on the utilization of federal net operating loss carryforwards when
an ownership change occurs. Generally, an ownership change occurs when a greater
than 50% change in ownership takes place over a three-year test period. The
annual utilization of net operating loss carryforwards generated prior to such
change in ownership is limited, in any one year, to a percentage of the fair
market value of the Company at the time of the ownership change.

The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. income tax rate to income before
taxes as follows:

<TABLE>
<CAPTION>
YEARS ENDED
MAY 31,
-------------------
1999 2000
-------- --------
<S> <C> <C>
U.S. statutory rate......................................... (34.0)% (34.0)%
State taxes................................................. (3.8) (4.6)
Foreign..................................................... (6.3) (5.6)
Imputed Interest............................................ 5.4 2.0
Change in valuation allowance............................... 38.7 42.2
------ ------
Effective tax rate.......................................... 0.0% 0.0%
====== ======
</TABLE>

8. RELATED PARTY TRANSACTIONS

The Company's obligation to related parties and other investors is as
follows:

<TABLE>
<CAPTION>
MAY 31,
---------------------
1999 2000
---------- --------
<S> <C> <C>
Sofinov................................................ $ 850,000 $ --
Other stockholders..................................... 396,000 --
Note payable........................................... 23,983 --
Accrued interest....................................... 22,671 --
---------- -------
1,292,654 --
Less: Current portion.................................. 1,292,654 --
---------- -------
$ -- $ --
========== =======
</TABLE>

On May 25, 1999, Sofinov entered an agreement with the Company to make
advances up to $5 million, in increments of at least $150,000, bearing interest
at 8% per annum, calculated and compounded monthly, both before and after
default, and payable on demand. At any time prior to December 31, 1999 or the
completion of an initial public offering, whichever was sooner, Sofinov was
entitled to convert all or any portion of the outstanding balance of the
advances and interest thereon into common stock of the Company at a conversion
rate of $2.50 per common share. If Sofinov exercised its election to convert,
then in the event the outstanding balance of advances and interest thereon was
less that $5 million, Sofinov was entitled to purchase additional shares of the
Company's common stock at $2.50 per share to bring Sofinov's purchase up to
$5 million. On November 30, 1999, Sofinov exercised its conversion right as
described in Note 10.

During the fiscal year ended May 31, 1999, the Company received loans from
certain other stockholders to fund its operations at an interest rate of 8%.
These notes are payable on demand and were repayed during the fiscal year ended
May 31, 2000.

The Company had an arrangement with NBG Technologies, Inc. (formerly known
as TechMatics Inc.) whereby NBG provided the Company with R&D consulting
services. The Rothstein family is a principal stockholder of NBG and also a
principal stockholder of the Company. A member

F-14
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. RELATED PARTY TRANSACTIONS (CONTINUED)

of the Rothstein family serves as a director of the Company and is responsible
for various aspects of the Company's business and strategic issues. Fees and
expenses paid to NBG for consulting services for the fiscal years ended May 31,
1998, 1999 and 2000 amounted to $49,054, $63,110 and $45,065 respectively. The
Company believes the fees paid were equivalent to those that would be paid under
an arms-length transaction. On March 29, 2000 the Company terminated all
agreements with NBG in exchange for a cash payment of $100,000 and options to
purchase 250,000 shares of the Company's common stock at an exercise price equal
to the initial public offering price.

On April 5, 2000, two of the Company's directors resigned from the board of
directors and terminated their agreements with the Company in exchange for which
they each received a cash payment of $1 million and options to purchase 300,000
shares of the Company's common stock at an exercise price equal to the Company's
initial public offering price.

The fair value of each stock option granted to the resigning Company
directors and NBG were $5.32 and $6.29, respectively based upon the
Black-Scholes option pricing model which includes weighted average assumptions
for the dividend yield, risk-free interest rate, volatility and expected lives
of 0%, 6.3%, 52% to 58% and 3 to 5 years, respectively. The total expense
related to these option grants of $4,764,510 has been included in the results of
operations for the year ended May 31, 2000.

For the fiscal year ended May 31, 2000, the Company recognized $252,000 and
$55,556 in revenues for sales of fuel cell products and initial distribution
rights fees, respectively, under the ECO operating agreement described in
Note 10.

F-15
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. EMPLOYEE STOCK OPTION PLANS

In March 2000, the Company amended and restated their May 1996 stock option
plan. Under the stock option plan adopted in March 2000, a maximum of 3,750,000
shares of the Company's common stock have been made available for the granting
of options and stock appreciation rights to officers and other key employees of
the Company at prices not less than 100% of fair market value of a share of
common stock on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any stock option granted must
equal 110% of the fair market value on the grant date. 10% of such options
granted will generally become exercisable upon date of grant and the remaining
90% of such options will generally vest ratably over a five year period. The
stock option will generally expire within seven years from the date of grant. At
May 31, 2000 we have granted 359,751 options to purchase common stock under our
2000 plan.

Under the stock option plan adopted on June 6, 1989, a maximum of 2,500,000
shares of the Company's common stock were made available for the granting of
options and stock appreciation rights to officers and other key employees of the
Company at prices not less than 80% of fair market value of a share of common
stock on the date of grant. Such options generally become exercisable upon date
of grant and expire within five years from the date of grant. No further options
may be granted under this plan.

The Company has granted options to purchase shares of the Company's common
stock to certain officers and key employees outside of the 1989 and 2000 Stock
Option Plans. Such options generally become exercisable on the date of grant and
expire within five years from the date of grant. These options were generally
granted at the fair market value of the stock on the date of grant.

The Company has adopted the disclosure only provisions of SFAS No. 123 and,
accordingly, applies Accounting Principles Board Opinion ("APB") No. 25 and
related interpretations in accounting for its employee stock option plans. Had
the Company elected to recognize compensation expense in accordance with the
provisions of SFAS No. 123, for the stock option awards granted, its net loss
and loss per basic and diluted share attributable to common stockholders for the
fiscal years ended 1998, 1999 and 2000 would have been $(6,232,540),
$(7,975,157) and $(19,922,223) or $(0.22), $(0.28) and $(0.57) per share,
respectively.

On May 31, 1999, 488,750 employee stock options lapsed. The Company extended
the life of 481,250 of the options, until May 31, 2002 at the same option price
of $0.80. The options were vested upon extension. Under APB No. 25, the
extension created an additional compensation charge for the difference between
the option price and the fair market value of the shares at May 31, 1999 in the
amount of $836,125 of which $711,125, $107,000 and $18,000 has been recorded in
selling, general and administrative, research and development and cost of
revenue--contracts, respectively.

The fair value of the Company's stock options used to compute the pro forma
net loss and loss per share disclosures is the estimated present value on grant
date using the Black-Scholes option pricing model with the following weighted
average assumptions:

<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Dividend yield...................................... 0% 0% 0%
Risk-free interest rate............................. 5.92% 5.27% 6.10%
Volatility.......................................... 0% 0% 0%
Expected life (years)............................... 5 1.5 4
</TABLE>

F-16
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. EMPLOYEE STOCK OPTION PLANS (CONTINUED)

Changes in stock options are as follows:

<TABLE>
<CAPTION>
1998 1999 2000
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance................................ 1,838,750 $1.96 1,988,750 $2.08 1,981,250 $2.09
Granted or reissued.............................. 250,000 2.50 481,250 0.80 3,590,375 6.38
Exercised........................................ (12,500) 0.80 -- -- (75,000) 0.80
Canceled or expired.............................. (87,500) 0.80 (488,750) 0.80 (5,000) 0.80
--------- ----- --------- ----- --------- -----
Ending balance................................. 1,988,750 $2.08 1,981,250 $2.09 5,491,625 $4.91
========= ===== ========= ===== ========= =====
Exercisable...................................... 744,375 $1.94 1,731,250 $2.03 3,742,194 $4.73
Fair value of options granted during the year.... $ .77 $1.76 $2.19
</TABLE>

Summarized information about stock options outstanding and exercisable at
May 31, 2000 is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ---------------------
WEIGHTED-
AVG. WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OF SHARES LIFE IN YEARS PRICE OF SHARES PRICE
--------------------- --------- ------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ .80 401,250 2.0 $ .80 401,250 $ .80
2.50 1,540,000 1.9 2.50 1,290,000 2.50
3.00 2,200,000 4.3 3.00 1,162,500 3.00
12.00 1,350,375 9.5 12.00 888,444 12.00
-------------- --------- --- ----- --------- -----
$.80 to $12.00 5,491,625 8.0 $4.91 3,742,194 $4.73
============== ========= === ===== ========= =====
</TABLE>

10. COMMON STOCK

The Company's common stockholders are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. The Company's
common stockholders have no preemptive rights or rights to convert their common
stock into any other security.

On August 25, 1999, ECO Fuel Cells, LLC ("ECO") purchased 5,000,000 shares
of the Company's common stock, $.001 par value, at a price of $3.00 per share
for a total investment of $15,000,000. In addition to the stock purchase, the
Company and ECO entered into a ten year operating agreement, as amended,
pursuant to which ECO paid to the Company an initial distribution rights fee of
$2,500,000 and agreed to purchase, market and service the Company's stationary
power fuel cell systems in exchange for the exclusive marketing, distribution
and servicing rights to those areas in the United States that are being serviced
by ECO's affiliated rural electric cooperative members (the "Agreement").
Revenue will be recognized on the initial distribution rights fee on a
straight-line basis over the contractual period.

In order to enter into the Agreement, the Company modified its pre-existing
agreement with DQE Enterprises to allow ECO to have exclusive marketing,
distribution and servicing rights under the Agreement in certain geographic
areas that had previously been granted to DQE Enterprises. As part of the
consideration for modifying the DQE Enterprises agreement, the Company agreed to
amend

F-17
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. COMMON STOCK (CONTINUED)
article IV B3(a)(i) of the Amended and Restated Certificate of Incorporation to
change the redemption price of the Company's Series A convertible preferred
stock from $16.50 per share to $18.00 per share, thus increasing the liquidation
value of the Series A convertible preferred stock by $300,000. Also as part of
the consideration, the Company issued common stock purchase warrants, which
expire on July 31, 2001, to purchase 500,000 shares of its common stock at $5.00
per share to DQE Enterprises. The Company recorded a charge to cost of
revenues--products totaling $150,000 which represents the fair value of the
warrants on August 25, 1999, their date of issuance.

On November 30, 1999, pursuant to its May 25, 1999 agreement with the
Company as described in Note 8, Sofinov exercised its conversion right and
converted its outstanding advances at that date of $2,100,000 into 840,000
shares of our common stock. Furthermore, Sofinov exercised its purchase right in
full and purchased an additional 1,160,000 shares of our common stock for
$2,900,000.

On November 30, 1999, Hydro-Quebec CapiTech Inc. purchased 2,000,000 shares
of the Company's common stock, $.001 par value, at a price of $3.00 per share
for a total investment of $6,000,000.

In conjunction with ECO, Sofinov, and Hydro-Quebec CapiTech Inc.'s purchases
of the Company's common stock, the Company incurred stock issue costs
approximating $913,000. $685,000 of the stock issue costs are payable to a
consultant to the Company for services rendered in connection with the foregoing
transactions.

11. REDEEMABLE PREFERRED STOCKS

The Company's Series A, Series B and Series C convertible preferred stock
are classified as mandatorily redeemable as (i) the holders of the Series A,
Series B and Series C convertible preferred stock are entitled to be paid the
original issue price for such class of preferred stock plus all accumulated or
declared and unpaid dividends if the Company enters into any transaction in
which the stockholders of the Company immediately prior to the transaction own
less than 50% of the voting power immediately after the transaction and
(ii) preventing the completion of such a change in control transaction as
described in (i) is considered to be outside the control of the Company.

On May 22, 1996, the Company issued 80,000 shares of Series B convertible
preferred stock, $.001 par value, at $12.50 per share, or $1,000,000 in total,
to Singapore Technologies Kinetics Ltd. ("STK"). One share of the Series B
convertible preferred stock may be converted into five shares of the Company's
common stock. The Series B shares are entitled to dividends or distributions in
an amount equal per share (on an as-if converted to common stock basis) to the
amount paid, distributed or set aside for five shares of common stock. Upon any
liquidation, the holder of the Series B convertible preferred stock is entitled
to be paid out an amount equal to the original issue price plus all accumulated
or declared and unpaid dividends. The Company has the option to redeem the
Series B convertible preferred stock, unless it is converted, any time after
May 22, 1998, or the closing of an initial public offering, at the purchase
price plus 10%.

On July 30, 1996, the remaining 320,000 authorized shares of Series B
convertible preferred stock were issued at $12.50 per share to STK. In
connection with the preferred stock issuance, proceeds of $770,105 were used to
repay $550,000 of long-term debt for acquired technology and $220,105 of
short-term debt to STA.

On July 30, 1996, the Company issued 200,000 shares of Series A convertible
preferred stock, $.001 par value, at $15.00 per share, to DQE Enterprises. One
share of Series A convertible preferred stock

F-18
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. REDEEMABLE PREFERRED STOCKS (CONTINUED)
may be converted into five shares of the Company's common stock. The holders of
the Series A convertible preferred stock are entitled to receive cumulative
dividends in the form of shares of common stock at the rate of 7% per annum. In
connection with the issuance, proceeds of $300,000 were used to repay short-term
debt to DQE Enterprises. Upon any liquidation, the holder of the Series A
convertible preferred stock is entitled to be paid an amount equal to the
original issuance price plus all accumulated or declared and unpaid dividends.
The Company has the option to redeem the Series A convertible preferred stock,
unless it is converted, at any time after July 30, 1998, or the closing of an
initial public offering, at $18.00 per share and all accrued but unpaid
dividends.

On May 2, 1997, the Company issued 500,000 shares of Series C convertible
preferred stock, $.001 par value at $15.00 per share or $7,500,000 in total, to
Sofinov. One share of the Series C convertible preferred stock may be converted
into five shares of the Company's common stock. The Series C convertible
preferred shares are entitled to dividends or distributions in an amount equal
per share (on an as-if converted to common stock basis) to the amount paid,
distributed or set aside for five shares of common stock. Upon any liquidation,
the holder of the Series C convertible preferred stock is entitled to be paid an
amount equal to the original issuance price plus all accumulated or declared and
unpaid dividends. The Company has the option to redeem the Series C convertible
preferred stock, unless it is converted, any time after May 2, 1999, or the
closing of an initial public offering, at a price of $15.00 per share.

The holders of Series A and B convertible preferred stock each had the right
to exercise warrants to purchase up to 1,000,000 shares of common stock at $5.00
per share during the period January 1, 1997 through December 31, 1997. All of
the warrants lapsed on December 31, 1997. In the agreement, if DQE Enterprises
failed to exercise their warrants, the Company was required to issue an
additional 100,000 shares of Series C preferred stock to Sofinov for no
consideration. On December 31, 1997, the DQE Enterprises warrants lapsed
unexercised and the additional 100,000 shares were issued to Sofinov, thus
reducing the redemption price of Series C convertible preferred stock to $12.50
per share.

At May 31, 2000, $805,000 of retained earnings was restricted due to
undeclared and unpaid cumulative dividends on Series A preferred stock. The
redemption value of Series A, B and C convertible preferred stock at May 31,
2000 was $4,105,000, $5,500,000 and $7,500,000, respectively.

12. EARNINGS PER SHARE

Basic earnings per share (EPS) is computed by dividing income available to
common stockholders by the weighted average number of common shares actually
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.

F-19
<PAGE>
H POWER CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. EARNINGS PER SHARE (CONTINUED)
The following table illustrates the calculation of both basic and diluted
EPS:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------------
1998 1999 2000
----------- ----------- ------------
<S> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE
Net loss.................................................. $(5,717,815) $(6,765,760) $(17,012,406)
Accrued dividends on Series A Convertible Preferred
Stock................................................... (210,000) (210,000) (210,000)
----------- ----------- ------------
Net income available to common stockholders............... (5,927,815) (6,975,760) (17,222,406)
Weighted average number of common shares.................. 29,011,040 29,015,195 34,879,061
----------- ----------- ------------
Basic and diluted earnings per share...................... $ (0.20) $ (0.24) $ (0.49)
=========== =========== ============
</TABLE>

If potential common shares were assumed converted, the effect would have
been antidilutive to EPS for all periods. These antidilutive securities are
summarized below.

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------------
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Number of potential common shares........................... 9,832,840 9,993,915 11,410,332
</TABLE>

13. INFORMATION ABOUT GEOGRAPHIC AREAS

The Company operates primarily in one industry segment, that being the
development of technologies, systems and products utilizing hydrogen as an
alternative source of energy. The geographic distributions of the Company's
revenues and identifiable assets are summarized in the following table:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------
1998 1999 2000
---------- ---------- -----------
<S> <C> <C> <C>
Revenues from unrelated entities
United States......................... $ 717,799 $1,007,216 $ 3,332,908
Canada................................ -- 10,816 10,702
Europe................................ -- -- 19,240
Asia.................................. -- -- 9,881
---------- ---------- -----------
$ 717,799 $1,018,032 $ 3,372,731

Assets
United States......................... $2,534,652 $2,074,111 $17,360,541
Canada................................ 4,901,211 4,425,330 2,273,026
---------- ---------- -----------
Total identifiable assets............. 7,435,863 6,499,441 19,633,567
Corporate eliminations................ -- (3,027,550) (983,974)
---------- ---------- -----------
Total assets.......................... $7,435,863 $3,471,891 $18,649,593
========== ========== ===========
</TABLE>

F-20
<PAGE>
[GRAPHICS OMITTED]
<PAGE>
7,000,000 SHARES

[LOGO]

H POWER CORP.
COMMON STOCK

----------------
P R O S P E C T U S
, 2000
------------------------
LEHMAN BROTHERS
CIBC WORLD MARKETS
DEUTSCHE BANC ALEX. BROWN
JOSEPHTHAL & CO. INC.
FIDELITY CAPITAL MARKETS
A DIVISION OF NATIONAL FINANCIAL SERVICES CORPORATION
<PAGE>
PART II

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by H Power in connection with
the sale of the common stock being registered hereby. All the amounts shown are
estimated, except the Securities and Exchange Commission ("SEC") registration
fee, the National Association of Securities Dealers, Inc., ("NASD") filing fee
and the Nasdaq National Market listing fee.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 24,600
NASD Filing Fee............................................. 10,500
Nasdaq National Market Listing Fee.......................... 95,000
Printing Expenses........................................... 300,000
Legal Fees and Expenses..................................... 650,000
Accounting Fees and Expenses................................ 750,000
Blue Sky Expenses and Counsel Fees.......................... 10,000
Transfer Agent and Registrar Fees........................... 3,000
Miscellaneous............................................... 55,900
----------
Total................................................... $1,899,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145(a) of the General Corporation Law of the State of Delaware
("DGCL") provides that a Delaware corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding if he acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.

Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by the person in
connection with the defense or settlement of such action or suit if the person
acted under similar standards, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court in which such action or suit was brought shall determine that despite the
adjudication of liability, such person is fairly and reasonably entitled to be
indemnified for such expenses which the court shall deem proper.

Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses actually and reasonably incurred by such person in connection
therewith; that indemnification provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of any

II-1
<PAGE>
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise, against any liability
asserted against such person and incurred by such person in any such capacity or
arising out of such person's status as such whether or not the corporation would
have the power to indemnify such person against such liabilities under such
Section 145.

Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director: (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from
which the director derived an improper personal benefit.

Our Amended and Restated Certificate of Incorporation provides that we may
indemnify all persons who we are entitled to indemnify under the DGCL to the
fullest extent permitted thereunder. Furthermore, our Amended and Restated
Certificate of Incorporation provides that, to the extent permitted under
Section 102(b)(7) of the DGCL, none of our directors will be personally liable
to H Power or its stockholders for monetary damages for breach of fiduciary duty
as a director. We have entered or will enter into indemnification agreements
with each of our directors and executive officers, which will indemnify these
persons to the fullest extent permitted under the DGCL.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since May 22, 1996, we have sold unregistered securities in the amounts, at
the times, and for the aggregate amounts of consideration listed below.

No underwriters were engaged in connection with any of the following sales
of securities. Each sale of common stock and preferred stock was made in
reliance upon the exemption from registration set forth in Section 4(2) of the
Securities Act of 1933, as amended, (the "Act"), and Rule 506 of Regulation D
promulgated thereunder for transactions not involving a public offering, and all
purchasers were accredited investors as such term is defined in Rule 501(a) of
Regulation D. Furthermore, from inception to June 15, 2000 we have issued
6,645,240 options to purchase shares of our common stock to our employees,
directors and consultants. These issuances of options were made pursuant to
Rule 701 promulgated under the Act.

On May 22, 1996, we issued 80,000 shares of Series B mandatorily redeemable
convertible preferred stock, $.001 par value, at $12.50 per share, or $1,000,000
in total, to Singapore Technologies Kinetics, Ltd. in satisfaction of the
initial closing of a stock purchase agreement relating to the purchase of a
total of 400,000 shares of Series B preferred stock by Singapore Technologies
Kinetics. The Series B mandatorily redeemable convertible preferred stock will
automatically convert to 2,000,000 shares of common stock immediately prior to
the consummation of this offering.

On July 30, 1996, we issued 200,000 shares of our Series A preferred stock,
$.001 par value, at $15.00 per share, or $3,000,000 in total, to DQE
Enterprises. DQE Enterprises has agreed to convert all of its Series A preferred
stock to 1,000,000 shares of our common stock immediately prior to this
offering. In addition, we will issue approximately 234,375 shares of common
stock to DQE Enterprises immediately prior to the consummation of this offering
in payment of dividends to which they are entitled.

Until October 15, 1996, our noteholders had the option to convert some or
all of their debt, including accrued interest, into our common stock. As of
October 15, 1996, $249,844 of debt had been converted into 104,075 shares of
common stock. The remaining noteholders elected an interest payment on
October 15, 1996 and full principal payment on October 15, 1997.

II-2
<PAGE>
On May 2, 1997, we issued 500,000 shares of Series C preferred stock, $.001
par value, at $15.00 per share, or $7,500,000 in total, to Sofinov. Sofinov has
agreed to convert these shares of Series C preferred stock into 2,500,000 shares
of our common stock immediately prior to this offering.

The holders of Series A and Series B preferred stock each had the right to
exercise warrants to purchase up to 1,000,000 shares of common stock at $5.00
per share during the period January 1, 1997 through December 31, 1997. All of
the warrants lapsed on December 31, 1997. The terms of Sofinov's warrant
agreement provided that if DQE Enterprises failed to exercise their warrants, we
were required to issue an additional 100,000 shares of Series C preferred stock
to Sofinov for no consideration. On December 31, 1997, the DQE Enterprises
warrants lapsed unexercised and the additional 100,000 shares were issued to
Sofinov, thus reducing the redemption price of the Series C preferred stock to
$12.50 per share. Sofinov has agreed to convert these shares into 500,000 shares
of our common stock immediately prior to the consummation of the offering.

On August 25, 1999, ECO Fuel Cells, LLC purchased 5,000,000 shares of our
common stock, $.001 par value, at a price of $3.00 per share for a total
investment of $15,000,000. In order to enter into the agreement, we modified our
agreement with DQE Enterprises to allow ECO to have exclusive marketing,
distribution and servicing rights under the agreement in certain geographic
areas that had previously been granted to DQE Enterprises. As part of the
consideration for modifying the DQE Enterprises agreement, on July 28, 1999 we
issued warrants to purchase 500,000 shares of our common stock at $5.00 per
share to DQE Enterprises. These warrants expire on July 31, 2001.

On November 29, 1999, we issued 2,000,000 shares of our common stock, $.001
par value, to Hydro-Quebec CapiTech Inc. at a price of $3.00 per share, or
$6,000,000 in total, pursuant to a letter of intent dated September 7, 1999.

On November 29, 1999, we issued a total of 2,000,000 shares of our common
stock, $.001 par value, to Sofinov at a price of $2.50 per share, or $5,000,000
in total, pursuant to a letter agreement dated May 24, 1999. Under this
agreement, Sofinov agreed to lend us up to $5 million in increments of at least
$150,000, payable on demand. Sofinov had the right to convert the outstanding
balance of these advances into shares of our common stock at a conversion price
of $2.50 per share. In addition, if the outstanding balance of the advances at
the time of conversion was less than $5 million, Sofinov had the right to
purchase additional shares of our common stock at $2.50 per share to bring its
total purchase up to $5 million. On November 30, 1999, the date Sofinov
exercised its conversion right, the outstanding balance of the advances was
$2.1 million which was converted into 840,000 shares of our common stock.
Furthermore, Sofinov exercised its purchase right in full and purchased an
additional 1,160,000 shares of our common stock.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibit Index

<TABLE>
<CAPTION>
NO. DESCRIPTION
--------------------- -----------
<C> <S>
1.1 Underwriting Agreement.**

3.1 Amended and Restated Certificate of Incorporation.**

3.2 Restated Certificate of Incorporation.**

3.3 By-Laws.**

3.4 Amended and Restated By-Laws.

4.1 Registration Rights Agreement, dated March 25, 1996, between
H Power Corp. and Duquesne Enterprises.**
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
NO. DESCRIPTION
--------------------- -----------
<C> <S>
4.2 Investor Rights Agreement, entered into as of May 22, 1996,
by and between H Power Corp. and Singapore Technologies
Automotive Ltd.**

4.3 Investor Rights Agreement, entered into as of May 2, 1997,
by and between H Power Corp. and Sofinov Societe Financiere
D'Innovation Inc., Societe Innovatech Du Grand Montreal and
9042-0175 Quebec Inc.**

4.4 Letter agreement, dated as of May 2, 1997, between certain
common stockholders of H Power Corp. and Sofinov Societe
Financiere D'Innovation Inc., Societe Innovatech Du Grand
Montreal and 9042-0175 Quebec Inc.**

4.5 Stockholders' and Voting Agreement, dated as of April 5,
2000, by and among H Power Corp. and certain common
stockholders.**

4.6 Specimen Common Stock Certificate.**

5.1 Opinion of Fulbright & Jaworski L.L.P.

10.1 H Power Corp 1989 Stock Option Plan.**

10.2 H Power Corp. 2000 Stock Option Plan.**

10.3 Amended and Restated Officer's Employment Agreement, dated
as of October 1, 1999, between H Power Corp. and H. Frank
Gibbard.**

10.4 Executive's Employment Agreement, dated as of October 11,
1999, between H Power Corp. and Arthur Kaufman.**

10.5 Officer's Employment Agreement, dated as of November 1,
1999, between H Power Corp. and Thomas H. Michael.**

10.6 Officer's Employment Agreement, dated as of November 23,
1999, between H Power Corp. and William L. Zang.**

10.7 Consulting Agreement made and entered into as of July 28,
1999, between H Power Corp. and Frederick Entman.**

10.8 Consulting Agreement made and entered into as of July 28,
1999, between H Power Corp. and Norman Rothstein.**

10.9 Termination Agreement, dated as of April 5, 2000, by and
between H Power Corp. and Norman Rothstein.**

10.10 Termination Agreement, dated as of April 5, 2000, by and
between H Power Corp. and Frederick Entman.**

10.11 Consulting Agreement, dated as of March 15, 2000, between H
Power Corp. and Millennium Capital Resources, LLC.**

10.12 Letter Agreement, dated March 10, 2000, between H Power
Corp. and R. Michael Fromer.**

10.13 Stock Purchase Agreement made and entered into as of August
25, 1999, between H Power Corp. and ECO Fuel Cells, LLC.**

10.14 Stock Purchase Agreement made and entered into as of
November 29, 1999, between H Power Corp. and Hydro-Quebec
CapiTech Inc.**

10.15 Stock Purchase Agreement made and entered into as of
November 29, 1999, between H Power Corp. and Sofinov Societe
Financiere D'Innovation Inc.**

10.16 Letter Agreement, dated May 24, 1999, between H Power Corp.
and Sofinov Societe Financiere D'Innovation Inc.**

10.17 Agreement, dated July 28, 1999, between H Power Corp. and
Duquesne Enterprises, Inc.**

10.18 Subscription Agreement, made and entered into on May 2,
1997, by and between H Power Corp. and 3362469 Canada Inc.**
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
NO. DESCRIPTION
--------------------- -----------
<C> <S>
10.19 Shareholders Agreement made and entered into on May 2, 1997,
by and among H Power Corp., Sofinov Societe Financiere
D'Innovation Inc., Societe Innovatech Du Grand Montreal,
9042-0175 Quebec Inc. and 3362469 Canada Inc.**

10.20 Stock Exchange Agreement made and entered into on May 2,
1997, by and among H Power Corp. and Sofinov Societe
Financiere D'Innovation Inc., Societe Innovatech Du Grand
Montreal and 9042-0175 Quebec Inc.**

10.21 Amended and Restated Stockholders Agreement made and entered
into as of May 2, 1997, by and among H Power Corp., certain
common stockholders of H Power Corp., Duquesne Enterprises,
Singapore Technologies Automotive Ltd., Sofinov Societe
Financiere D'Innovation Inc., Societe Innovatech Du Grand
Montreal and 9042-0175 Quebec Inc.**

10.22 Joint Venture Agreement, dated as of December 18, 1998,
between H Power Corp. and Arthur D. Little, Inc.**

10.23 Memorandum of Agreement, dated February 9, 2000, between H
Power Corp., Societe Innovatech Du Grand Montreal, Sofinov
Societe Financiere D'Innovation Inc. and 9042-0175 Quebec
Inc.**

10.24 Agreement, dated February 15, 1995, between H Power Corp.
and TechMatics Inc.**

10.25 Termination Agreement, dated as of March 29, 2000, between H
Power Corp. and NBG Technologies, Inc. (formerly TechMatics
Inc.).**

10.26 Letter Agreement, dated March 25, 1996, between H Power
Corp. and Duquesne Enterprises.**

10.27 Amended and Restated Fuel Cell Operating Agreement, dated
March 9, 2000, between H Power Corp., H Power Enterprises of
Canada, Inc., and ECO Fuel Cells LLC.+**

10.28 Agreement dated August 20, 1999, between H Power Corp. and H
Power Enterprises of Canada Inc.**

10.29 Technology Licensing Agreement made and entered into on
May 2, 1997, by and between H Power Corp. and 3362469 Canada
Inc.**

10.30 First Amendment to Technology Licensing Agreement, entered
into as of August 20, 1999, between H Power Corp. and H
Power Enterprises of Canada Inc.**

10.31 Development and License Agreement, dated as of August 17,
1998, by and between H Power Enterprises of Canada Inc. and
Harvest Energy Technology Inc.+**

10.32 Letter Agreement, dated November 18, 1999, between H Power
Corp. and AvantCell Technologies Inc.**

10.33 Amending Agreement, dated January 11, 2000 between H Power
Corp. and AvantCell Technologies Inc.**

10.34 Form of Employee's Agreement Re: Inventions, Confidential
Information and Covenant not to Compete.**

10.35 Form of Indemnification Agreement.**

10.36 Lease, dated August 8, 1991, between Montbell Associates,
L.L.C. and H Power Corp. ("Lease I").**

10.37 Lease, dated August 8, 1991, between Montbell Associates,
L.L.C. and H Power Corp. ("Lease II").**

10.38 Addendum, dated April 4, 1996, to Leases dated August 8,
1991, between Montbell Associates, L.L.C. and H Power
Corp.**

10.39 Addendum, dated March 29, 1999, to Leases dated August 8,
1991, as Modified by Subsequent Addendum dated April 4, 1996
between Montbell Associates, L.L.C. and H Power Corp.**
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
NO. DESCRIPTION
--------------------- -----------
<C> <S>
10.40 Agreement of Lease, dated September 17, 1997, between SITQ
Inc. and H Power Enterprises of Canada Inc.**

10.41 Lease, dated December 8, 1999, between Khubani Enterprises,
Inc. and H Power Corp.**

10.42 Letter Agreement, dated March 29, 2000, between NBG
Technologies, Inc. and H Power Corp.**

10.43 Transfer of Technology Agreement, dated May 16, 1995,
between Aerojet-General Corporation and H Power Corp.**

10.44 Letter Agreement, dated May 16, 2000, between ECO Fuel Cells
LLC and H Power Corp.**

10.45 Contract between H Power Corp. and the Naval Surface Warfare
Center.**

10.46 Participation Agreement, dated August 5, 1997, by and
between H Power Corp. and Sacramento Municipal Utility
District ("SMUD I").**

10.47 Contract Change No. 1 to SMUD I.**

10.48 Contract Change No. 2 to SMUD I.**

10.49 Contract Change No. 3 to SMUD I.**

10.50 Contract Change No. 4 to SMUD I.**

10.51 Agreement between H Power Corp. and USA CECOM Acquisition
Center--Washington, dated December 23, 1997 (the "CECOM
Contract").**

10.52 Modification 01 to the CECOM Contract for Fuel Cell/Battery
Hybrid.**

10.53 Modification 02 to the CECOM Contract for Fuel Cell/Battery
Hybrid.**

10.54 Modification 03 to the CECOM Contract for Fuel Cell/Battery
Hybrid.**

10.55 Modification 04 to the CECOM Contract for Fuel Cell/Battery
Hybrid.**

10.56 Modification 05 to the CECOM Contract for Fuel Cell/Battery
Hybrid.**

21.1 List of subsidiaries of H Power Corp.**

23.1 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit
5.1).

23.2 Consent of PricewaterhouseCoopers LLP.

24.1 Power of attorney (on signature page).**

27.1 Financial Data Schedule, fiscal year ended May 31, 1999.

27.2 Financial Data Schedule, period ended November 30, 1999.**

27.3 Financial Data Schedule, period ended February 29, 2000.**

27.4 Financial Data Schedule, fiscal year ended May 31, 2000.
</TABLE>

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

** Previously filed.

+ A request for confidential treatment was filed for portions of this
document. Confidential portions have been omitted and filed separately with
the Commission as required by Rule 406.

(b) Financial Statement Schedules. The following financial statement
schedules are filed herewith:

All other schedules are omitted because they are not required or are not
applicable or the information is included in the financial statements or notes
thereto.

II-6
<PAGE>
ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of
this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-7
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 5 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on July 28, 2000.

<TABLE>
<S> <C> <C>
H POWER CORP.

By: /s/ H. FRANK GIBBARD
-----------------------------------------
H. Frank Gibbard
CHIEF EXECUTIVE OFFICER AND DIRECTOR
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 5 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ H. FRANK GIBBARD Chief Executive Officer,
------------------------------------------- Director (principal executive July 28, 2000
H. Frank Gibbard officer)

/s/ WILLIAM L. ZANG Chief Financial Officer,
------------------------------------------- Director (principal financial July 28, 2000
William L. Zang and accounting officer)

* Director
------------------------------------------- July 28, 2000
Fong Saik Hay

* Director
------------------------------------------- July 28, 2000
Rachel K. Lorey

* Director
------------------------------------------- July 28, 2000
John McSweeney

* Director
------------------------------------------- July 28, 2000
Ivan Roch

* Director
------------------------------------------- July 28, 2000
Gary K. Willis

* Director
------------------------------------------- July 28, 2000
Howard L. Clark, Jr.

* Director
------------------------------------------- July 28, 2000
Leonard A. Hadley
</TABLE>

<TABLE>
<S> <C> <C> <C>
*By: /s/ WILLIAM L. ZANG
--------------------------------------
William L. Zang
Attorney-in-fact
</TABLE>

II-8
<PAGE>
EXHIBIT INDEX

<TABLE>
<C> <S>
3.4 Amended and Restated Bylaws
5.1 Opinion of Fulbright & Jaworski L.L.P.
23.1 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit
5.1)
23.2 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule, fiscal year ended May 31, 1999.
27.4 Financial Data Schedule, fiscal year ended May 31, 2000.
</TABLE>