BEACON POWER CORP, S-1, 2000-08-09

BEACON POWER CORP
S-1, 2000-08-09

Previous: KIEWIT MATERIALS CO, 10-12G/A, EX-27.1, 2000-08-09

Next: BEACON POWER CORP, S-1, EX-5.1, 2000-08-09

<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST , 2000
REGISTRATION STATEMENT NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------

BEACON POWER CORPORATION
(Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 491102 04-3372365
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>

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

6D GILL STREET
WOBURN, MA 01801
(781) 938-9400
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive office)
------------------------------

WILLIAM E. STANTON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BEACON POWER CORPORATION
6D GILL STREET
WOBURN, MA 01801
(781) 938-9400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------

COPIES TO:

<TABLE>
<S> <C>
LAURA N. WILKINSON, ESQ. WILLIAM P. ROGERS, JR., ESQ.
Edwards & Angell, LLP Cravath, Swaine & Moore
2800 BankBoston Plaza 825 Eighth Avenue
Providence, Rhode Island 02903 New York, New York 10019
(401) 274-9200 (212) 474-1270
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE 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, 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 Rule 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>
PROPOSED MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE (2) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value per share (1)................. $115,000,000 $30,360
</TABLE>

1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended,
the number of shares being registered and the proposed maximum offering
price per share are not included in this table.

2) Estimated solely for the purpose of calculating the amount of the
registration fee.

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 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED , 2000

PROSPECTUS
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>
SHARES
[BEACON POWER LOGO]

BEACON POWER CORPORATION

COMMON STOCK

---------

We are selling shares of our common stock. The underwriters named in this
prospectus may purchase up to additional shares of common stock from us to
cover over-allotments.

This is an initial public offering of our common stock. We currently expect
the initial public offering price to be between $ and $ per
share. We intend to apply to have our common stock included for quotation on the
Nasdaq National Market under the symbol "BCON."

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

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6.

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

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Initial Public Offering Price $ $

Underwriting Discount $ $

Proceeds to Beacon (before expenses) $ $
</TABLE>

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about , 2000.

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

SALOMON SMITH BARNEY

BANC OF AMERICA SECURITIES LLC

CIBC WORLD MARKETS

, 2000
<PAGE>
[The figure consists of a cutaway of the Beacon flywheel in the center and
surrounded by potential market applications of Communications, Industrial
Manufacturing, Commercial Facilities, Distributed Generation, and Computer
Networks. Communications is the initial market and the other applications are
future markets.]

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 OF THIS PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Special Note Regarding Forward-Looking Statements........... 13
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Financial Data..................................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................ 19
Business.................................................... 24
Management.................................................. 37
Certain Relationships and Related Transactions.............. 44
Principal Stockholders...................................... 49
Description of Capital Stock................................ 52
Shares Eligible for Future Sale............................. 56
Underwriting................................................ 58
Legal Matters............................................... 61
Experts..................................................... 61
Where You Can Find More Information......................... 61
Index to Financial Statements............................... F-1
</TABLE>

In this prospectus, "Beacon," the "company," "we," "us" and "our" each
refers to Beacon Power Corporation and its subsidiaries.

Until , 2000, all dealers that buy, sell or trade our 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.

i
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION YOU
SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE SECTION ENTITLED "RISK FACTORS."

BEACON POWER CORPORATION

We are a leading designer and developer of flywheel energy storage systems
that we believe will provide highly reliable, high-quality, uninterruptible
electric power for communications networks, computers, the Internet, industrial
manufacturing, commercial facilities and distributed generation applications.
The broad use of digital electronics and computers throughout the information
economy is causing a dramatic increase in the demand for more reliable, higher
quality power. Alternative powering technologies, including flywheel energy
storage, are emerging to meet this need.

Flywheel systems draw electrical energy from a primary power source such as
the electric grid or a fuel cell, store that energy, and then convert that
energy to immediately provide uninterruptible electric power when the primary
power source fails or is disrupted. We believe our flywheels will offer
significant advantages over conventional back-up power systems that primarily
use lead-acid batteries. These advantages may include higher reliability, longer
life, lower life-cycle cost, improved recharging capability, reduced
maintenance, more reliable monitoring, and environmental friendliness. We also
believe that our flywheel systems will be used in conjunction with gasoline or
diesel generators, fuel cells, microturbines and other distributed power
generators to provide benefits that are not available from these products alone,
such as an instant-on capability and the ability to manage sudden changes in
power.

We have designed our initial products to specifically address the back-up
powering needs of the communications markets. Our proprietary composite
flywheels store and deliver the requisite energy demanded by communications
customers and can efficiently provide back-up power for long periods of time. In
addition, our flywheel systems can be installed in the ground to address cost,
permit, environmental and aesthetic concerns and our commercial product will
have a built-in, long-life, low-cost vacuum system that will automatically
restart if power is lost.

We have collaborated closely with potential customers including Bell
Atlantic, now part of Verizon Communications, during the definition, development
and testing of our 2kWh product. Our field trials have provided back-up power
for operating sites at Verizon Communications, Century Communications
Corporation, now part of Adelphia Communications, and WinDBreak Cable, and we
have demonstrated our product at our plant to Cox Communications, Inc., Asea
Brown Boveri, Kobe Steel and GTE, now part of Verizon Communications, among
others. We have purchase orders for 117 of our 2kWh commercial units, with
deliveries expected to begin in early 2001, and expect that our product
demonstrations will lead to additional, significant orders.

INDUSTRY DYNAMICS

Since 1990, a period of remarkable expansion of the information economy,
particularly the digital and Internet economies, more than 80% of the growth in
energy demand in the United States has been met by electricity. Coupled with
this increase in the demand for electricity is the strong demand across the
economy for more highly reliable power, with fewer interruptions, and higher
quality power, with smaller variations in voltage and current. For example,
Internet related power requires a much higher level of reliability than that
provided by the electric grid. The HUBER-MILLS DIGITAL POWER REPORT estimates
that Internet related power represented 10% of electricity consumption in 1999
and that the demand for this type of electrical power should grow 30% per year.

Traditional methods of delivering power through the electric grid are
proving to be inadequate to meet the high power quality and reliability needs of
technology-oriented applications. In addition, conventional technologies that
currently provide back-up power are costly and pose environmental

1
<PAGE>
threats. Moreover, as the Department of Energy recently recognized, deregulation
of the electric utility industry is expected to result in a further reduction in
the reliability of power. We expect these trends to accelerate the adoption of
alternative power technology products such as flywheels.

MARKET OPPORTUNITIES FOR OUR FLYWHEEL PRODUCTS

The Electric Power Research Institute, or EPRI, estimated that electric
power reliability problems cost the U.S. more than $50 billion annually.
Industry sources estimate that approximately $11 billion was spent worldwide in
1999 on power quality and reliability equipment to address these problems.
Mark Mills, one of the authors of THE HUBER-MILLS DIGITAL POWER REPORT, has
estimated that sales of power reliability products will expand at a market
growth rate of approximately 30% per year for the next 15 years. We believe that
significant growth in demand for power quality and reliability equipment will
come from our targeted markets, including:

COMMUNICATIONS MARKETS. Communications systems, which include telephony,
broadband, cable and wireless networks, must remain functional even during power
outages or disruptions. The Skyline Marketing Group estimated that power quality
and reliability equipment sold into the communications markets in 1999 totaled
$4 billion globally, and in 1999 grew at a 19% rate. We believe there is a
potential market in the United States for approximately 2.4 million flywheels to
replace lead-acid batteries at existing communications sites and a market for
approximately 230,000 flywheels per year to be installed at new sites.

COMPUTERS AND THE INTERNET MARKET. To support the growth in the Internet
economy, Internet service providers, or ISPs, are building new computer and
communication system facilities. As 24-hour operations have become a necessity,
ISPs must be able to provide their customers with continuous, uninterrupted
operations. To meet this goal, ISPs are adding power quality and power
reliability equipment to protect their systems. We will develop products to
address the high-quality power and reliability needs of the new technology
economy.

INDUSTRIAL MANUFACTURING. The growing reliance on automation equipment
means that even a split-second deviation in the voltage of electricity serving a
manufacturing plant can cause sensitive equipment to fail. This downtime can
damage equipment and cause missed deliveries and lost production, which can
result in significant costs. An EPRI study estimated that the average U.S.
manufacturing facility experiences more than 20 power disturbances annually.

COMMERCIAL FACILITIES. Power instabilities are a threat to data processing
centers, call centers, telecommunication switching facilities, emergency
services, hospitals and other mission critical commercial facilities. Also, many
commercial facilities such as office buildings, hotels and universities have
extensive computer, server and data center operations to maintain corporate
records and information. Flywheel storage systems create the opportunity to
provide more reliable and cost-effective back-up power at these facilities.

DISTRIBUTED GENERATION. The combination of the reduction in the reliability
of grid-provided electricity, the need for higher reliability electrical power
for the information economy, and the demand for off-grid powering is expected to
result in a significant market for distributed generation products, including
gasoline or diesel generators, fuel cells and microturbines. Whether distributed
generation technologies are connected to the grid or are used off-grid, we
believe these technologies represent a significant potential market for our
next-generation flywheel energy storage products.

OUR STRATEGY

Our goal is to become the leading provider of flywheel energy storage
systems. To accomplish our objective, we are pursuing the following key
strategies:

INITIALLY TARGET COMMUNICATIONS MARKETS WITH SUPERIOR PRODUCT OFFERINGS. We
believe we are the only company to have designed, demonstrated and received
orders for a flywheel product for

2
<PAGE>
distributed communications sites. Our products are specifically designed for the
needs of the communications markets because they store and deliver larger
amounts of energy than other available flywheel systems, have integrated
low-cost vacuum systems, have bearings designed for long life without
maintenance, can be buried in the ground, and have reliable, easy monitoring. We
will similarly design our future products and solutions for specific market
applications.

OVER THE LONGER TERM, EXPAND INTO OTHER SEGMENTS OF THE POWER QUALITY AND
RELIABILITY MARKETS. We believe we can leverage our design, development and
manufacturing expertise in the communications markets to expand into other
markets, including back-up power flywheel systems for computers, the Internet,
industrial manufacturing, commercial facilities and distributed generation
applications.

LEVERAGE KEY CUSTOMER AND STRATEGIC RELATIONSHIPS WITH VERIZON
COMMUNICATIONS, GENERAL ELECTRIC AND OTHERS TO ENHANCE OUR PRODUCT DEVELOPMENT
AND REDUCE PRODUCT COSTS. We have performed field trials and collaborated
closely with potential customers such as Verizon Communications on the
development of our product. In addition, as a result of a recent investment in
our company by GE Capital Equity Investments, Inc., an affiliate of the General
Electric Company, we are negotiating an agreement with GE Corporate Research &
Development, under which GE CR&D will agree to provide us with technical
expertise in controls and materials and consultations with respect to our cost
reduction strategy.

ESTABLISH KEY STRATEGIC RELATIONSHIPS TO AID IN OUR MARKETING AND
DISTRIBUTION EFFORTS. We intend to expand our alliances with potential
distributors for installation and support throughout North America and the rest
of the world. We have an agreement with DQE Enterprises, Inc., one of our
investors and a subsidiary of DQE, Inc., one of the leading utilities engaged in
new energy technologies, to act as a distributor of our flywheel products in
certain mid-Atlantic states. We intend to explore possible relationships with
other potential strategic partners.

OUTSOURCE COMPONENTS TO REDUCE CAPITAL COSTS AND TO MORE RAPIDLY SCALE UP TO
HIGHER VOLUMES. We purchase components from suppliers to reduce capital costs
and to enable us to more rapidly scale up to higher volumes by using available
manufacturing capacity of our suppliers. We will continue to perform final
assembly and testing.

PROTECT OUR INTELLECTUAL PROPERTY. At the direction of our board of
directors, management has formed a patent committee that is charged with
identifying and seeking patent protection for our intellectual property. We also
aggressively protect our trade secrets and technical know-how.

CAPITALIZE ON STRONG MANAGEMENT AND ENGINEERING TEAM. Our management team
has an average of 28 years of experience managing the development, manufacture,
and sales of high technology powering equipment that includes flywheels,
high-speed turbo-machinery and electrical power conversion products. Our
management and engineering personnel have extensive experience working for high
technology companies, including The Charles Stark Draper Laboratory, Inc.,
General Electric Company, International Business Machines Corporation,
Textron Inc. and United Technologies Corporation.

CAPITALIZE ON STRONG STOCKHOLDER BASE. Since our inception, we have raised
$41,800,000 in private equity and our stockholders include leading companies and
investors in the distributed generation industry, including GE Capital Equity
Investments, Inc., Penske Corporation, Mechanical Technology Incorporated,
SatCon Technology Corporation, DQE Enterprises, Inc., Perseus Capital, L.L.C.,
Micro-Generation Technology Fund, L.L.C. and The Beacon Group Energy Investment
Fund II, L.P. Through these relationships, we expect to improve our technology,
operations and manufacturing practices, as well as our marketing, sales and
distribution capabilities.

3
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock to be outstanding after the
offering................................... shares
Use of proceeds.............................. For general corporate purposes, including
research and product development, sales and
marketing expenses, working capital, capital
expenditures and potential acquisitions. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol....... BCON
</TABLE>

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

Unless otherwise indicated, all information in this prospectus, including the
outstanding share information above, is based on the number of shares
outstanding as of July 31, 2000 and:

- assumes no exercise of the underwriters' option to purchase up to
additional shares of common stock to cover over-allotments;

- excludes 2,375,750 shares of common stock which may be issued at a
weighted average exercise price of $4.29 per share upon exercise of
options outstanding as of July 31, 2000 under our stock incentive plan;

- excludes 2,645,035 shares of common stock which may be issued at a
weighted average exercise price of $ per share upon exercise of
outstanding warrants;

- excludes a number of shares of common stock which may be issued at an
exercise price of 75% of the initial public offering price upon exercise
of warrants issued as part of our class F financing equal to $14,250,000
divided by 75% of the initial public offering price, or shares assuming
a $ initial public offering price;

- reflects the automatic conversion of all of our outstanding preferred
stock into 14,679,765 shares of common stock upon the completion of the
offering;

- reflects the issuance of 368,338 shares of common stock to be issued upon
conversion of our class D preferred stock as a dividend payable on the
class D preferred stock;

- reflects the issuance of 45,000 shares of common stock to be issued on the
closing date of the offering as payment of consulting fees accrued through
July 31, 2000; and

- gives effect to a 1.125-for-1 stock split of our common stock effective in
October 1998.

CORPORATE INFORMATION

We are incorporated in Delaware. Our executive offices are located at 6D
Gill Street, Woburn, Massachusetts and our telephone number is (781) 938-9400.

4
<PAGE>
SUMMARY FINANCIAL DATA

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

The pro forma basic and diluted net loss per share gives effect to the
conversion at the beginning of the period of all shares of class A, C and D
preferred stock, including shares payable for consulting services, as though
they were common stock in all periods for which such shares were outstanding and
the issuance upon conversion of our class D preferred stock of 368,338 shares of
common stock as payment of accrued dividends on the class D preferred stock.

<TABLE>
<CAPTION>
PERIOD FROM DATE THREE MONTHS ENDED
OF INCEPTION YEAR ENDED DECEMBER 31, MARCH 31,
(MAY 8, 1997) TO ----------------------- -------------------
DECEMBER 31, 1997 1998 1999 1999 2000
----------------- --------- ----------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 232 $ -- $ 269 $ 33 $ --
Loss from operations................ (3,228) (4,790) (5,340) (1,191) (2,894)
Net loss............................ $ (3,111) $ (4,793) $ (5,672) $ (1,184) $ (3,019)
======== ======== ========== ======== ========
Loss to common shareholders......... $ (3,111) $ (4,912) $ (6,630) $ (1,346) $ (3,201)
======== ======== ========== ======== ========
Pro forma net loss per share, basic
and diluted....................... $ (0.84) $ (0.43)
========== ========
Shares used in computing pro forma
net loss per share, basic and
diluted........................... 6,746 7,014
</TABLE>

The balance sheet data on a pro forma basis assumes that our class E and F
preferred stock financings, including the issuance of related warrants, had
occurred on March 31, 2000. The balance sheet data on a pro forma as adjusted
basis reflect the closing of the class E and F preferred stock financings,
including the issuance of related warrants, the conversion of our preferred
stock upon consummation of this offering, the issuance upon conversion of our
class D preferred stock of 368,338 shares of common stock as a dividend payable
on the class D preferred stock, issuance of shares payable for consulting
services, and the sale of shares of common stock in this offering at an
assumed initial public offering price of $ per share, after deducting the
estimated underwriting discounts and commissions and our estimated offering
expenses.

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
---------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 402 $ 27,502
Working capital.................................... (2,162) 24,938
Total assets....................................... 1,334 28,434
Redeemable convertible preferred stock............. 4,545 36,720
Total stockholders' deficit........................ (11,712) (12,052)
</TABLE>

5
<PAGE>
RISK FACTORS

INVESTING IN SHARES OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IF
ANY OF THE FOLLOWING RISKS OCCUR, THE MARKET PRICE OF OUR SHARES OF COMMON STOCK
COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.

WE HAVE ONLY BEEN IN BUSINESS FOR A SHORT TIME AND YOUR BASIS FOR EVALUATING US
IS LIMITED.

We have a limited operating history and you should not rely on our recent
results as an indication of our future results in making your investment
decision. We were formed in May 1997 to commercialize electrical power systems
based on flywheel energy storage. We have only recently begun to market our
products. Unless we can achieve significant increases in market acceptance of
our product, we may never advance beyond our start-up phase. Due to our limited
operating history, it is difficult or impossible for us to predict future
results and you should not expect future revenue growth based on our recent
results. You should consider the challenges, expenses and difficulties that we
will face as a development stage company making the transition to the
manufacturing of new products. See "Business," "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

WE HAVE INCURRED LOSSES SINCE OUR INCEPTION AND ANTICIPATE CONTINUED LOSSES
THROUGH AT LEAST 2002.

We have incurred operating losses and negative cash flows since our
inception in May 1997. We had net losses of $4,793,398 in 1998 and $5,671,493 in
1999. We expect to continue to incur net losses through at least 2002. To
achieve profitability, we need to reduce manufacturing costs of our products and
increase our sales volumes. Even if we do achieve profitability, we may be
unable to sustain or increase our profitability in the future. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

WE HAVE LIMITED EXPERIENCE MANUFACTURING FLYWHEEL ENERGY STORAGE SYSTEMS ON A
COMMERCIAL BASIS.

We may not achieve profitability if we cannot develop efficient, low-cost
manufacturing capability, processes and suppliers that will enable us to meet
the quality, price, engineering, design and production standards or production
volumes required to timely meet our product commercialization schedule or to
satisfy the requirements of our distributors or customers. To date, we have
focused primarily on research and development and have limited experience
manufacturing flywheel energy storage systems on a commercial basis. See
"Business--Our Products," "--Our Technology" and "--Manufacturing."

WE MAY NOT MEET OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION MILESTONES.

Failure to meet product development and commercialization milestones could
impair our relationships with our potential customers, cause us to lose business
and/or cause the capital markets to devalue our common stock. We have
established internal product development and commercialization milestones and
dates for achieving our goals. If we experience delays in meeting our goals or
if our systems exhibit technical defects or are unable to meet cost or
performance goals, including energy output, useful life and reliability, our
commercialization schedule could be delayed. In that event, potential purchasers
of our commercial systems may choose competing products or alternative
technologies. We cannot guarantee that we will successfully achieve our future
milestones. See "Business--Product Milestones."

WE CANNOT ASSURE COMMERCIAL VIABILITY OF OUR PRODUCTS.

Our future success is dependent upon our ability to develop and market a
commercially acceptable product. The market for highly reliable, uninterruptible
electric power is rapidly evolving and it is difficult to predict its potential
size or future growth rate. We cannot assure you that our flywheel

6
<PAGE>
energy storage based products will achieve market acceptance, that they will
meet the technical demands of our potential communications customers or that
they will offer cost-effective advantages over competing technologies. Most of
the organizations that may purchase our products have invested substantial
resources in their existing power systems and, as a result, may be reluctant or
slow to adopt a new approach. Moreover, our products are alternatives to
existing power back-up systems and may not be accepted by our customers. To date
we have only had field trials of our products in commercial applications. We
have received only 117 commercial orders for our products and have made no
commercial deliveries to date. See "Business--Sales and Marketing" and
"--Competition."

In addition, the successful development of a commercially viable flywheel
energy storage system for an uninterruptible power supply involves significant
technological challenges. We must incur significant research and development
expenditures:

- to reduce manufacturing costs for the wheel shaft, hub and rim, and
bearings to achieve commercial viability for our current products; and

- to develop new products with increased energy storage capacity to expand
our market share.

We cannot assure you that our technologies will be suitable for specific
commercial applications, including communications applications. Design
modifications may be required or demanded by our potential customers, and we may
be unable to make those adjustments at all or to make them as well or as
cost-effectively as our competitors. See "Business--Our Technology" and
"Business--Manufacturing."

WE ARE DEPENDENT ON THIRD PARTY SUPPLIERS FOR THE DEVELOPMENT AND SUPPLY OF KEY
COMPONENTS FOR OUR PRODUCTS.

Our business, prospects, results of operations, or financial condition could
be harmed if we are unable to maintain satisfactory relationships with
suppliers. To accelerate development time and reduce capital investment, we rely
on third party, and in some cases, single source suppliers for several of our
key components. If these suppliers should fail to timely deliver components that
meet our quality, quantity, or cost standards, then our financial performance
could be adversely affected. Further, the loss of supply from any one of our
single source suppliers could harm our ability to produce and sell our systems
and thus our financial performance. See "Business--Manufacturing."

WE FACE INTENSE COMPETITION AND MAY BE UNABLE TO COMPETE SUCCESSFULLY.

The markets for highly reliable, uninterruptible electric power are
intensely competitive. There are a number of companies located in the United
States, Canada, and abroad that are developing flywheel storage technology. We
also compete with companies that are developing applications using other types
of alternative energy storage. In addition, if large, established companies
decide to focus on the development of flywheel storage systems for sale to
communications service providers, they may have the manufacturing, marketing,
and sales capabilities to complete research, development and commercialization
of commercially viable alternative energy storage systems that could be more
competitive than our systems and could be brought to market more quickly than
ours. To the extent they already have name recognition, their products may enjoy
greater initial market acceptance among our potential customers. These
competitors may also be better able than ourselves to adapt quickly to
customers' changing demands and to changes in technology. See
"Business--Competition."

Technological advances in alternative energy products or other alternative
energy technologies may render our systems obsolete and could therefore cause
your investment in our company to suffer. We do not presently have any products
or technologies other than flywheel systems under development, nor do we have
any plans to pursue other products or technologies either through internal
development or through acquisitions. Our system is, however, only one of a
number of alternative energy products being developed by potential competitors
as supplements to the electric grid that have potential

7
<PAGE>
commercial applications, including microturbines, solar power and wind power,
advanced batteries, fuel cells and other types of alternative energy
technologies. See "Business--Our Product" and "--Our Technology."

GOVERNMENT REGULATION MAY IMPAIR OUR ABILITY TO MARKET OUR PRODUCT.

Government regulation of our product, whether at the federal, state or local
level, including any regulations relating to installation and servicing of our
products, may increase our costs and the price of our systems, and may have a
negative impact on our revenue and profitability. We cannot assure you that our
products will not be subject to existing or future federal and state regulations
governing traditional electric utilities and other regulated entities. We expect
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. We
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.

OUR BUSINESS COULD BE SUBJECT TO PRODUCT LIABILITY CLAIMS.

Our business exposes us to potential product liability claims that are
inherent in the manufacturing, marketing and sale of electro-mechanical
products, and as such, we may face substantial liability for damages resulting
from the faulty design or manufacture of products or improper use of products by
end users. We cannot assure you that our product liability insurance will
provide sufficient coverage in the event of a claim. Also, we cannot predict
whether we will be able to maintain such coverage on acceptable terms, if at
all, or that a product liability claim would not materially adversely affect our
business, financial condition or the price of our common stock. In addition,
negative publicity in connection with the faulty design or manufacture of our
products would adversely affect our ability to market and sell our products.

SAFETY FAILURES BY OUR PRODUCTS OR THOSE OF OUR COMPETITORS COULD REDUCE MARKET
DEMAND OR ACCEPTANCE FOR FLYWHEELS IN GENERAL.

A serious accident involving either our flywheels or our competitors'
flywheels could be a significant deterrent to customer acceptance and adversely
affect our financial performance. With any form of energy storage, including
machinery, chemicals, fuel or other means of energy storage, there is the
possibility of accident. If a flywheel fails and the energy stored is released,
the flywheel could break apart and the pieces could be ejected at a high rate of
speed. A consortium of government, academic, and industry representatives has
been formed to address containment in the event of this kind of flywheel
failure. At this early stage of commercialization, there are differing
approaches to containment with disagreement in the community on the most
effective means.

WE MAY NEED ADDITIONAL FINANCING THAT MAY NOT BE AVAILABLE TO US ON ACCEPTABLE
TERMS OR AT ALL.

We may need to raise additional funds if we are unable to achieve positive
cash flow sufficient to fund our business plan. We may also need additional
financing for a variety of reasons including:

- expanding research and development;

- expanding manufacturing equipment and facilities faster than currently
planned;

- funding additional working capital; or

- acquiring complementary products, businesses or technologies.

8
<PAGE>
We cannot assure you that we will be able to raise additional funds on terms
acceptable to us, or at all. If future financing is not available or is not
available on acceptable terms, our business, results of operations and financial
condition would be materially adversely effected.

If we raise additional funds through the sale of equity or convertible debt
securities, your percentage ownership will be reduced. In addition, these
transactions may dilute the value of the common stock outstanding if stock is
sold at a price less than you paid. We may have to issue securities that may
have rights, preferences and privileges senior to our common stock. We currently
anticipate that the net proceeds from the common stock offering together with
available funds, will be sufficient to meet our needs for the next 24 months.
See "Selected Historical Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

WE MAY HAVE DIFFICULTY MANAGING THE EXPANSION OF OUR OPERATIONS.

Our business, prospects, results of operations or financial condition could
be harmed if we encounter difficulties in effectively managing our rapid
expansion. We are undergoing rapid growth in the number of our employees, the
size of our physical plant and the scope of our operations. Rapid expansion is
difficult to maintain and is likely to place a significant strain on our senior
management team and other resources. In addition, if we are successful in
obtaining rapid market penetration of our products, we will be required to
continue to expand and improve our operational, management and financial systems
and controls to meet anticipated growth. See "Business--Employees."

OUR FINANCIAL PERFORMANCE COULD BE ADVERSELY AFFECTED BY OUR NEED TO RETAIN KEY
PERSONNEL.

Because a large portion of our expenses relates to personnel that cannot be
easily reduced without adversely affecting our business prospects and strategic
plan, we may not be able to effectively adjust spending to compensate for
revenue shortfalls. Accordingly, any significant shortfall in revenues in
relation to our planned expenditures would reduce, and possibly eliminate,
operating income and could materially adversely affect our business, operating
results and financial condition.

WE WILL RELY ON A LIMITED NUMBER OF LARGE CUSTOMERS.

Our initial intent is to focus on selling directly to a small number of
large communications companies and to original equipment manufacturers that
serve the communications markets. If we are successful in this strategy, the
loss of any one customer could have a material adverse effect on our operating
results. In addition, if we do not perform satisfactorily for a customer, that
customer could further harm our future business if the customer communicates its
dissatisfaction or does not recommend our services to other communications
customers.

WE FACE RISKS ASSOCIATED WITH OUR PLANS TO MARKET, DISTRIBUTE AND SERVICE OUR
PRODUCTS INTERNATIONALLY.

We intend to market, distribute and service our products internationally
through distributors. We have limited experience developing, and no experience
manufacturing, our products to comply with the commercial and legal requirements
of international markets. Our success in those markets will depend, in part, on
our ability to secure foreign customers and our ability to manufacture products
that meet foreign regulatory and commercial requirements. In addition, our
planned international operations are subject to other inherent risks, including
potential difficulties in establishing distributorship relationships and
enforcing contractual obligations and intellectual property rights in foreign
countries, fluctuations in currency exchange rates and entering into
satisfactory foreign distributorship arrangements.

ANY FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY COULD SERIOUSLY IMPAIR OUR
COMPETITIVE POSITION.

We cannot assure you that we have or will be able to maintain a significant
proprietary position on the basic technologies used in our flywheel systems. Our
ability to compete effectively against

9
<PAGE>
alternative technologies will depend on our ability to protect our proprietary
technology, systems designs and manufacturing processes. We do not know whether
any of our pending or future patent applications under which we have rights will
issue or, in the case of patents issued or to be issued, that the claims allowed
are or will be sufficiently broad to protect our technology or processes, or
will protect us from competitors. Even if all our patent applications are issued
and are sufficiently broad, they may be challenged or invalidated. We could
incur substantial costs in prosecuting or defending patent infringement suits,
and such suits would divert funds and resources that could be used in our
business. We do not know whether we have been or will be completely successful
in safeguarding and maintaining our proprietary rights.

Further, our competitors may independently develop or patent technologies or
processes that are substantially equivalent or superior to ours. If we are found
to be infringing on third party patents, we do not know whether we will be able
to obtain licenses to use such patents on acceptable terms, if at all. Failure
to obtain needed licenses could delay or prevent the development, manufacture or
sale of our systems.

We rely, in part, on contractual provisions to protect our trade secrets and
proprietary knowledge. These agreements may be breached, and we may not have
adequate remedies for any breach. Our trade secrets may also be known without
breach of such agreements or may be independently developed by competitors. Our
inability to maintain the proprietary nature of our technology and processes
could allow our competitors to limit or eliminate any competitive advantages we
may have and prevent us from being the first company to commercialize highly
reliable electrical power products, thereby harming our business prospects. See
"Business--Intellectual Property."

OUR EXISTING STOCKHOLDERS WILL CONTROL ALL MATTERS REQUIRING A STOCKHOLDER VOTE.

Upon the completion of this offering, our existing stockholders will retain
approximately % of our outstanding stock. If a sufficient number of these
stockholders were to vote together as a group, they would have the ability to
control our Board of Directors and its policies. For instance, these
stockholders would be able to control the outcome of all stockholder votes,
including votes concerning director elections, charter and by-law amendments and
possible mergers, corporate control contests and other significant corporate
transactions. See "Certain Relationships and Related Transactions," "Principal
Stockholders" and "Description of Capital Stock."

WE MAY NOT BE ABLE TO HIRE OR RETAIN KEY PERSONNEL, AND AS A RESULT WE MAY BE
UNABLE TO GROW OUR BUSINESS OR PRODUCE QUALITY PRODUCTS.

Our future success will depend on our ability to attract and retain highly
skilled and qualified management and technical personnel. Based on our planned
expansion, we will require a significant increase in the number of our employees
and outside contractors. Our inability to hire qualified personnel on a timely
basis, or the departure of key employees, could harm our expansion and
commercialization plans and thus have a material adverse effect on our business.
See "Management."

THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK.

Before this offering, there has been no public market for our common stock.
Although we expect our common stock to be quoted on the Nasdaq National Market,
an active trading market for our shares may not develop or may not be sustained
following this offering. Purchasers in this offering may not be able to resell
their shares at prices equal to or greater than the initial public offering
price. The initial public offering price will be determined through negotiations
between us and the underwriters and may not be indicative of the market price
for these shares following this offering. See "Underwriting."

10
<PAGE>
OUR SHARE PRICE COULD BE SUBJECT TO EXTREME PRICE FLUCTUATIONS.

The markets for equity securities in general, and for those of high
technology companies in particular, have been volatile and the market price of
our common stock may be subject to significant fluctuations. This could be in
response to operating results, announcements of technological innovations or new
products by us or our competitors, patent or proprietary rights developments and
market conditions for high technology stocks in general. In addition, the stock
market in recent years has experienced extreme price and volume fluctuations
that often have been unrelated or disproportionate to the operating performance
of individual companies. These market fluctuations, as well as general economic
conditions, may adversely affect the market price of our common stock. There can
be no assurance that the trading price of our common stock will remain at or
near the initial public offering price.

GENERAL ECONOMIC CONDITIONS MAY AFFECT INVESTORS' EXPECTATIONS REGARDING OUR
FINANCIAL PERFORMANCE AND ADVERSELY AFFECT OUR STOCK PRICE.

Certain industries in which we sell products, such as the communications
industry, recently have sustained high rates of infrastructure build-out. We
cannot assure you that these rates will be maintained. In the future, our
results may be subject to substantial period-to-period fluctuations as a
consequence of the industry patterns of our customers, general or regional
economic conditions and other factors. These factors may also have a material
adverse effect on our business, operating results and financial condition.

PROVISIONS OF DELAWARE LAW AND OF OUR CHARTER AND BY-LAWS MAY INHIBIT A TAKEOVER
THAT STOCKHOLDERS CONSIDER FAVORABLE.

Provisions in our certificate of incorporation and by-laws and in the
Delaware corporate law may make it difficult and expensive for a third party to
pursue a tender offer, change in control or takeover attempt that is opposed by
our management and Board of Directors. Public stockholders who might desire to
participate in such a transaction may not have an opportunity to do so. We also
have a staggered Board of Directors that makes it difficult for stockholders to
change the composition of the Board of Directors in any one year. These
anti-takeover provisions could substantially impede the ability of public
stockholders to benefit from a change in control or change our management and
Board of Directors. See "Description of Capital Stock."

YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.

The initial public offering price per share will be substantially higher
than the net tangible book value per share immediately after the offering. If
you purchase common stock in this offering, you will incur dilution of
$ per share from the price per share you would have paid based on our
net book value at March 31, 2000 on a pro forma basis assuming consummation of
the class E and F preferred stock financings. We also have a large number of
outstanding warrants and stock options to purchase our common stock with
exercise prices significantly below the initial public offering price of our
common stock. To the extent these warrants and options are exercised, you will
be further diluted. See "Dilution," "Certain Relationships and Related
Transactions" and "Principal Stockholders."

FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.

Substantial sales of our common stock in the public market following this
offering, or the perception by the market that such sales could occur, could
lower our stock price or make it difficult for us to raise additional equity
capital in the future. After this offering, we will have shares of common
stock outstanding. Of these shares, the shares sold in this offering and an
additional 6,744 shares owned by six investors will be freely tradable.
15,094,783 of the remaining shares of common stock are subject to 180-day
lock-up agreements with the underwriters. Up to 32,000 and 15,094,783

11
<PAGE>
shares may be available for sale in the public market 90 and 180 days after the
date of this prospectus, respectively, subject, in some cases, to the holding
period, volume limitations and other requirements of Rule 144 under the
Securities Act.

In addition, after this offering, we also intend to register 4,500,000
shares of common stock for issuance under our stock incentive plan. As of
July 31, 2000, options to purchase 2,375,750 shares of common stock were issued
and outstanding, of which options to purchase 510,271 shares have vested.

As of July 31, 2000, we also have outstanding warrants to purchase
2,645,035 shares of our common stock, plus warrants to purchase a number of
shares equal to $14,250,000 divided by 75% of the initial offering price, or
shares assuming a $ initial public offering price. The shares
purchased upon exercise of these warrants may be sold 180 days after the date of
this prospectus, subject to the holding period, volume limitation and other
requirements of Rule 144 under the Securities Act.

We cannot predict if future sales of our common stock, or the availability
of our common stock for sale, will harm the market price for our common stock or
our ability to raise capital by offering equity securities.

See "Shares Eligible for Future Sale" and "Underwriting."

WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE
AND AS A RESULT STOCKHOLDERS WILL NEED TO SELL SHARES IN ORDER TO REALIZE A
RETURN ON THEIR INVESTMENTS IN US.

We have not paid dividends to the holders of our common stock since our
inception and do not anticipate paying cash dividends in the foreseeable future.
We intend to reinvest earnings, if any, in the development and expansion of our
business. Declaration of dividends on our common stock or preferred stock will
depend upon, among other things, future earnings, our operating and financial
condition, our capital requirements and general business conditions. See
"Dividend Policy" and "Description of Capital Stock."

12
<PAGE>
SPECIAL NOTE REGARDING 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. This
forward-looking information is subject to risks and uncertainties including the
factors listed under "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as
elsewhere in this prospectus. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "intends,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue," or the negative of these terms or other comparable terminology.
These statements are only predictions 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.

13
<PAGE>
USE OF PROCEEDS

We estimate our net proceeds from the sale of shares of our common stock
in this offering will be $ million, at an assumed initial public
offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and our estimated offering expenses. If
the underwriters exercise their over-allotment option in full, our net proceeds
will be approximately $ million.

The principal purposes of this offering are to increase our equity capital,
create a public market for our common stock under market conditions that we
believe are favorable, facilitate future access by us to public equity markets
and provide us with increased credibility with our customers and suppliers. We
will use the net proceeds of the offering for general corporate purposes,
including research and product development, sales and marketing expenses,
working capital, capital expenditures and potential acquisitions. While we have
from time to time engaged in acquisition discussions with other parties, we are
not party to any agreement or letter of intent with respect to a potential
acquisition.

Our management will have significant flexibility in applying the net
proceeds of this offering. For example, we may use a portion of the net proceeds
to acquire businesses, products or technologies that complement our current or
future business and product lines.

Pending their use, we will invest the proceeds in government securities and
other short-term, investment-grade securities.

DIVIDEND POLICY

We have never declared or paid cash dividends on shares of our common stock.
We expect to retain any future earnings to finance the expansion of our
business, and therefore we do not expect to pay cash dividends in the
foreseeable future.

Payment of future cash dividends, if any, will be at the discretion of our
Board of Directors after taking into account various factors, including our
financial condition, operating results, current and anticipated cash needs and
plans for expansion.

14
<PAGE>
CAPITALIZATION

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

- on an actual basis;

- on a pro forma basis as if the class E and F preferred stock financings,
including the issuance of related warrants, had occurred on March 31,
2000; and

- on a pro forma, as adjusted basis to reflect the closing of the class E
and F preferred stock financings, including the issuance of related
warrants, the conversion of our preferred stock upon consummation of this
offering, the issuance upon conversion of our class D preferred stock of
368,338 shares of common stock as a dividend payable on the class D
preferred stock, issuance of shares payable for consulting services and
the sale of shares of common stock in this offering at an assumed
initial public offering price of $ per share, after deducting the
estimated underwriting discounts and commissions and our estimated
offering expenses.

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 402 $ 27,502
======== ======== ====
Notes payable to investors.................................. 4,950 -- --
Dividends payable (1)....................................... 921 921 --
Capital lease obligations................................... 131 131 131
Redeemable convertible preferred stock:
Class D Preferred Stock, $0.01 par value per share;
6,000,000 shares authorized, 1,900,000 shares issued and
outstanding............................................. 4,545 4,545 --
Class E Preferred Stock, $0.01 par value per share;
2,000,000 shares authorized, 1,226,141 shares issued and
outstanding, pro forma.................................. -- 3,695 --
Class F Preferred Stock, $0.01 par value per share;
7,500,000 shares authorized, 6,785,711 shares issued and
outstanding, pro forma.................................. -- 28,480 --
Redeemable preferred stock warrants......................... -- 344 --
Stockholders' equity (deficit):
Class A Preferred Stock, $0.01 par value per share;
6,000,000 shares authorized, 4,767,907 shares issued and
outstanding............................................. 5,708 5,708 --
Class C Preferred Stock, $0.01 par value per share; six
shares authorized, six shares issued and outstanding.... 30 30 --
Common Stock, $0.01 par value per share; 30,000,000 shares
authorized, 8,424 shares issued and outstanding, actual;
and shares issued and outstanding, pro forma, as
adjusted................................................ -- --
Deferred prepaid consulting expense, net.................. (25) (25) (25)
Deferred stock compensation............................... (51) (51) (51)
Paid-in capital........................................... 515 372
Retained earnings......................................... (17,889) (18,086)
-------- -------- ----
Total stockholders' equity (deficit).................... (11,712) (12,052)
-------- -------- ----
Total capitalization.................................. $ (1,165) $ 26,064
======== ======== ====
</TABLE>

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

(1) Represents dividends payable in shares of Class D Preferred Stock

15
<PAGE>
DILUTION

Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of our common stock in this offering and the
net tangible book value per share as adjusted of our common stock immediately
after completion of the offering. Net tangible book value per share, on a pro
forma basis, represents the amount of our total assets less total liabilities,
divided by 15,133,527 shares of common stock outstanding as of March 31, 2000,
determined on a pro forma basis as if the class E and F preferred stock
financings had occurred on that date, assuming conversion on that date of all
shares of our preferred stock, giving effect to the issuance upon conversion of
our class D preferred stock of 368,338 shares of common stock as a dividend
payable on the class D preferred stock and the issuance of 45,000 shares of
common stock to be issued on the closing date of the offering as payment of
consulting fees accrued through July 31, 2000.

As of March 31, 2000, on a pro forma basis, we had a net tangible book value
of $(12,052,000), or $(0.80) per share of common stock. After giving effect to
the sale of the shares of common stock offered by this prospectus at an
assumed initial public offering price of $ per share, and after
deducting the estimated underwriting discounts and commissions and our estimated
offering expenses, our net tangible book value on a pro forma as adjusted basis,
as of March 31, 2000, would have been $ million, or $ per share of
common stock on a pro forma as adjusted basis. This represents an immediate
increase in net tangible book value on a pro forma as adjusted basis of
$ per share to our existing stockholders and an immediate dilution of
$ per share to new investors in this offering. If the initial public
offering price is higher or lower than $ per share, the dilution to
new investors will be higher or lower, respectively. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at March 31,
2000 $(0.80)
Increase in pro forma net tangible book value per share
attributable to this offering...........................
------
Pro forma net tangible book value per share after this
offering..................................................
----
Dilution in pro forma net tangible book value per share to
new investors............................................. $
====
</TABLE>

The following table sets forth, as of March 31, 2000 after giving effect to
the offering, the number of shares of common stock issued by us, the total
consideration paid in cash or other consideration for those shares and the
average price per share paid in cash or other consideration by existing
stockholders and by new investors. The table is presented assuming that the
class E and F preferred stock financings, the conversion of all shares of our
preferred stock and the issuance upon conversion of our class D preferred stock
of 368,338 shares of common stock as a dividend payable on the class D preferred
stock, all occurred on March 31, 2000.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 15,133,527 % $42,673,445 % $2.82
New investors............................
---------- --- ----------- ---
Total................................ % $ %
========== === =========== ===
</TABLE>

Each of the above tables excludes:

- up to shares that may be issued by us pursuant to the underwriters'
overallotment option;

- 2,375,750 shares of common stock issuable upon exercise of stock options
outstanding as of July 31, 2000 at a weighted average exercise price of
$4.29 per share;

16
<PAGE>
- an aggregate of 2,645,035 shares of common stock issuable upon exercise of
outstanding warrants, 306,535 of which have an exercise price of $2.50 per
share, 742,500 of which have an exercise price of $3.33 per share, 41,000
of which have an exercise price of $4.20 per share, 742,500 of which have
an exercise price of $4.50 per share, 742,500 of which have an exercise
price of $6.00 per share, 120,000 of which have an exercise price of $4.20
per share and 70,000 of which will have an exercise price equal to the
initial public offering price;

- a number of shares of common stock issuable upon exercise of warrants
issued in connection with the class F financing equal to $14,250,000
divided by 75% of the initial public offering price, or shares assuming
a $ initial public offering price; and

- 2,092,250 shares of common stock available as of July 31, 2000 for future
grant under our stock incentive plan.

To the extent these shares are issued, you will be further diluted. See
"Management" and the notes to our financial statements included elsewhere in
this prospectus.

17
<PAGE>
SELECTED FINANCIAL DATA

The following selected financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, including the related notes, found
elsewhere in this prospectus.

The following tables present selected historical financial data for the
period from May 8, 1997, the date of our inception, through December 31, 1997,
the years ended December 31, 1998 and 1999 and the three month periods ended
March 31, 1999 and 2000. The balance sheet data as of December 31, 1997, 1998
and 1999 and the statement of operations data for the period from inception
through December 31, 1997 and for the years ended December 31, 1998 and 1999
have been derived from our audited financial statements that have been audited
by Deloitte & Touche LLP, our independent auditors, which are included elsewhere
in this prospectus. The statement of operations data for the three month periods
ended March 31, 1999 and 2000 and the balance sheet data as of March 31, 2000
are derived from our unaudited financial statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of our results of operations and
financial condition for those periods. Results for any interim period are not
necessarily indicative of the results that may be expected for any other interim
period or for a full year.

<TABLE>
<CAPTION>
PERIOD FROM DATE YEAR ENDED THREE MONTHS
OF INCEPTION DECEMBER 31, ENDED MARCH 31,
(MAY 8, 1997) TO --------------------- -------------------
DECEMBER 31, 1997 1998 1999 1999 2000
----------------- -------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ 232 $ -- $ 269 $ 33 $ --
Operating expenses:
Selling, general and administrative............... 1,168 1,188 1,559 303 452
Research and development.......................... 2,292 3,524 3,506 880 1,165
Loss on contracts................................. -- -- 325 -- 1,200
Depreciation and amortization..................... -- 78 219 41 77
-------- -------- ---------- -------- --------
Total operating expenses............................ 3,460 4,790 5,609 1,224 2,894
-------- -------- ---------- -------- --------
Loss from operations................................ (3,228) (4,790) (5,340) (1,191) (2,894)
Interest and other income (expense), net............ 117 (3) (331) 7 (125)
-------- -------- ---------- -------- --------
Net loss............................................ (3,111) (4,793) (5,671) (1,184) (3,019)
Preferred stock dividends........................... -- (112) (917) (152) (172)
Accretion of redeemable convertible preferred
stock............................................. -- (7) (42) (10) (10)
-------- -------- ---------- -------- --------
Loss to common shareholders......................... $ (3,111) $ (4,912) $ (6,630) $ (1,346) $ (3,201)
======== ======== ========== ======== ========
Net loss per share, basic and diluted............... $(369.35) $(583.15) $ (787.04) $(159.79) $(379.99)
======== ======== ========== ======== ========
Shares used in computing net loss per share, basic
and diluted....................................... 8 8 8 8 8
Pro forma net loss per share, basic and diluted..... $ (0.84) $ (0.43)
========== ========
Shares used in computing pro forma net loss per
share, basic and diluted.......................... 6,746 7,014
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------ AS OF MARCH 31,
1997 1998 1999 2000
-------- -------- -------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 30 $ 2,491 $ 234 $ 402
Working capital............................................. (29) 1,481 (878) (2,162)
Total assets................................................ 112 2,992 974 1,334
Redeemable convertible preferred stock...................... -- 4,493 4,535 4,545
Total stockholders' deficit................................. (1) (2,720) (8,591) (11,712)
</TABLE>

18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements, the
notes to those financial statements and other financial information appearing
elsewhere in this prospectus. In addition to historical information, the
following discussion and other parts of this prospectus contain forward-looking
statements that reflect our plans, estimates, intentions, expectations and
beliefs. Our actual results could differ materially from those discussed in the
forward-looking statements. See "Special Note Regarding Forward-Looking
Statements." Factors that could cause or contribute to such differences include,
but are not limited to, those set forth in the "Risk Factors" section and
contained elsewhere in this prospectus.

OVERVIEW

As a former division of SatCon Technology Corporation, we were founded in
May 1997. Since our inception, we have raised $41,800,000 in private equity.
These investments allowed us to develop and test field-trial flywheel units and
to continue development of our first commercial product. These funds, plus the
proceeds from this offering of common stock, will allow us to complete our
product design, increase manufacturing capacity and begin production.

From our inception through March 31, 2000 we have incurred losses of
approximately $17,900,000. We expect to continue to incur losses as we expand
our product development and commercialization program and prepare for the
commencement of full manufacturing operations. We expect that losses will
fluctuate from quarter to quarter and that such fluctuations may be substantial
as a result of, among other factors, the number of systems we produce and sell
to our customers.

REVENUES

To date our revenues have been the result of development contracts with
government entities focused on the design of flywheel technologies. We have
placed several development prototypes with potential customers and are currently
shipping pre-production units. These products have been provided to potential
customers without charge to allow us access to field test information and to
demonstrate the application of our technologies. We believe that through the
performance of these field units we will obtain commercial orders.

OPERATING EXPENSES

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our sales and marketing
expenses consist primarily of compensation and benefits for our sales and
marketing personnel and related business development expenses. We are emerging
from research and development to introduction of commercial products through
manufacturing. To date, our historical sales and marketing expenses have not
been material. We have relied on engineering personnel to provide technical
specifications and product overviews to our potential customer base. We expect
sales and marketing expenses to increase significantly as we continue to grow.

Our general and administrative expenses consist primarily of compensation
and benefits related to our corporate staff, professional fees, and related
travel. We expect our general and administrative expenses to increase
significantly as we continue to grow.

19
<PAGE>
RESEARCH AND DEVELOPMENT. Our cost of research and development consists
primarily of the cost of compensation and benefits for research and development,
manufacturing and support staff, as well as materials and supplies used in the
engineering design process. We expect our cost of research and development to
continue to increase as we develop additional product designs, refine existing
products and expand our analytic capabilities. We will be significantly
expanding our research and manufacturing capacity as we move to a new facility
during the fourth quarter of 2000.

LOSS ON CONTRACTS. We have commercial production contracts for a limited
number of units. We have established reserves for expected contract losses on
initial production contracts when our cost estimates indicate a loss will be
incurred. We expect our losses to continue until we are able to expand unit
volumes and achieve our plan for product cost reductions. We expect to decrease
our cost per unit through engineering design changes, operating efficiencies,
and volume purchasing discounts.

DEPRECIATION AND AMORTIZATION. Our depreciation and amortization is
primarily related to depreciation on capital expenditures and the amortization
of lease and leasehold costs related to our facilities.

INTEREST AND OTHER INCOME/EXPENSE, NET

Our non-operating income and expenses are primarily attributable to interest
income attributable to cash on hand from our private financings and interest
expense associated with our notes payable to investors.

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 2000

REVENUE

We recorded no revenues for the three months ended March 31, 2000 compared
to approximately $33,000 for the three months ended March 31, 1999. In the 1999
quarter, we were performing work on research contracts to demonstrate
applications of our technologies.

OPERATING EXPENSES

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended March 31, 2000 were
approximately $452,000, compared to approximately $303,000 for the three months
ended March 31, 1999. This increase of $149,000 is primarily the result of
increased compensation and benefit costs.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for
the three months ended March 31, 2000 were approximately $1,165,000, compared to
approximately $880,000 for the three months ended March 31, 1999. This increase
of $285,000 is primarily the result of increased compensation and benefit costs
related to increased engineering personnel.

LOSS ON CONTRACTS. Loss on contracts for the three months ended March 31,
2000 was approximately $1,200,000 compared to no contract losses for the three
months ended March 31, 1999. We have accrued contract loss based on our
estimated costs to complete a production contract entered into during that
quarter.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the three
months ended March 31, 2000 were approximately $77,000 compared to approximately
$41,000 for the three months ended March 31, 1999. This increase of $36,000 is
attributable to increases in capital lease costs and capital equipment
expenditures.

20
<PAGE>
INTEREST AND OTHER INCOME/EXPENSE, NET

Our net non-operating expenses for the three months ended March 31, 2000
were approximately $125,000, compared to net non-operating income of
approximately $7,000 for the three months ended March 31, 1999. This increase of
$132,000 is attributable to costs associated with notes payable to investors.

COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1999

REVENUE

Revenues were approximately $269,000 in 1999 while we did not record
revenues in the prior year. These revenues resulted from work performed on
research contracts to demonstrate applications of our technologies.

OPERATING EXPENSES

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were approximately $1,559,000 in 1999 compared to
approximately $1,188,000 for 1998. This increase of approximately $371,000
reflects the expansion of our infrastructure to support sales growth and the
commercialization of our products.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses in
1999 were approximately $3,506,000, compared to approximately $3,524,000 in
1998. Research and development expenses, while essentially flat over the
two-year period, is indicative of our ongoing efforts to develop and improve our
technologies and product potentials.

LOSS ON CONTRACTS. Loss on contracts of approximately $325,000 were
recorded in 1999 compared to no contract losses in 1998. We accrued contract
losses in 1999 because our estimate of costs to complete indicated a loss would
be incurred.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization were
approximately $219,000 in 1999 compared to approximately $78,000 in 1998. This
increase of approximately $141,000 reflects increased capital expenditures for
development and production equipment as well as increased facilities related
lease costs.

INTEREST AND OTHER INCOME/EXPENSE, NET

Other expenses were approximately $332,000 for 1999 compared to
approximately $3,000 in 1998. This increase is related to a higher level of
indebtedness in 1999.

COMPARISON OF PERIOD FROM MAY 8, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
AND YEAR ENDED DECEMBER 31, 1998

REVENUE

We recorded no revenues in 1998 compared to approximately $232,000 in 1997.
The 1997 revenues resulted from a contract to demonstrate applications of our
technologies.

OPERATING EXPENSES

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses of $1,188,000 and $1,168,000 in 1998 and 1997,
respectively were essentially equal as we focused our expenditures on furthering
our technology development efforts.

21
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses were
approximately $3,524,000 in 1998, compared to approximately $2,292,000 in 1997.
The increase in expenditures of approximately $1,232,000 reflects our increased
developmental effort on our emerging flywheel technologies.

LOSS ON CONTRACTS. We recorded no loss on contracts in 1998 or 1997.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization were
approximately $78,000 in 1998 compared to zero in 1997. This was primarily
attributable to lease expenditures as we established our own facilities in 1998.
In 1997, we were located in SatCon's facilities.

INTEREST AND OTHER INCOME/EXPENSE, NET

Interest and other income/expenses in 1998 totaled approximately $3,000
compared to approximately $117,000 of interest income in 1997. This decrease was
primarily due to lower cash balances in reduced interest income in 1998 and an
increase in interest expense related to new capital leases in 1998.

LIQUIDITY AND CAPITAL RESOURCES

Our cash requirements depend on many factors, including our research and
development activities, expansion of our manufacturing facilities and efforts to
commercialize our products. We expect to devote substantial capital resources to
continue developing our technologies and to increase our manufacturing
capabilities, as well as expanding our sales and marketing programs. We also
have product expansion plans that will require significant increases in the
level of spending for research and development activities. We believe that our
current cash balances and the net proceeds from this offering will provide us
with sufficient capital to fund our operations through the next 24 months.

Historically, we have financed our operations primarily through cash from
private offerings. We have raised approximately $42.0 million through the sale
of our preferred shares. Our primary cash requirements have been to fund
research and development, establish low rate production capabilities, make
capital expenditures and fund infrastructure costs. Net cash used in operating
activities was approximately $4,840,000 and $3,722,000 for 1999 and 1998,
respectively. Net cash used in investing activities was approximately $461,000
and $237,000 for 1999 and 1998, respectively, and was primarily used for the
purchase of property and equipment, the payment of security deposits pursuant to
obtaining additional facility space and the payment of costs associated with
fund raising activities. Proceeds from the sales of preferred shares are
currently held in short-term, interest-bearing investment grade securities to
provide liquidity for operations. Our capital requirements will be affected by
many factors, including the success of our product offerings, the ability to
enhance our 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, capital expenditures and infrastructure to
support our business plan. Additionally, we may use a portion of the net
proceeds to fund acquisitions of, or investments in, businesses, products or
technologies that expand, complement or are otherwise related to our current
business. Pending our use of proceeds as described above, we intend to invest
the proceeds of this offering in short-term, interest-bearing investment grade
securities.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET IMPLEMENTED

For United States generally accepted accounting principles, or GAAP,
reporting purposes we will be required to adopt SFAS 133 "Accounting for
Derivative Instruments and Hedging Activities" for the 2001 fiscal year. We have
not yet determined the impact that the adoption of SFAS 133 will have on our
financial reporting. However, as we do not use derivative financial instruments
for trading purposes and do not have any current intention to enter into any
hedging transactions, we expect that any such impact would not be material.

22
<PAGE>
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition" (SAB 101). SAB 101
established guidelines for revenue recognition and is effective for periods
beginning no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. We do not expect that the adoption of SAB 101 will have
a material impact on our financial condition or results of operations.

DISCLOSURE ABOUT MARKET RISK

Our cash equivalents and investments, all of which have maturities of less
than one year, may expose us to market risk. We maintain a non-trading
investment portfolio of short-term, interest-bearing investment grade, liquid
debt securities. The fair value of these securities approximates their cost. We
believe that the effect, if any, of near-term changes in interest rates on our
financial position, results of operations and cash flows will not be material.

23
<PAGE>
BUSINESS

OVERVIEW

Flywheel systems draw electrical energy from a primary power source such as
the electric grid or fuel cells, store that energy, and then convert that energy
to immediately provide uninterruptible electric power when the primary power
source fails or is disrupted. We believe our flywheels will offer significant
advantages over conventional back-up power systems that primarily use lead-acid
batteries. These advantages may include higher reliability, longer life, lower
life-cycle cost, improved recharging capability, reduced maintenance, more
reliable monitoring, and environmental friendliness.

We have designed our initial products to specifically address the back-up
powering needs of the communications markets. We have collaborated closely with
potential customers including Bell Atlantic, now part of Verizon Communications,
during the definition, development and testing of our 2kWh product. Our field
trials have provided back-up power for operating sites at Verizon
Communications, Century Communications Corporation, now part of Adelphia
Communications, and WinDBreak Cable, and we have demonstrated our product at our
plant to Cox Communications, Inc., Asea Brown Boveri, Kobe Steel and GTE, now
part of Verizon Communications, among others. We have purchase orders for 117 of
our 2kWh commercial units, with deliveries expected to begin in early 2001, and
expect that our product demonstrations will lead to additional, significant
orders.

Over the longer term, we intend to capitalize on our strengths in the
communications markets to expand into other markets such as back-up power for
computers, the Internet, industrial manufacturing and commercial facilities. We
will also target our future products toward enhancing the performance of
distributed generation products, such as gasoline or diesel generators, fuel
cells and microturbines. We believe that our flywheel systems will be used in
conjunction with these generators to provide benefits that are not available
from these products alone, such as an instant-on capability and the ability to
manage sudden changes in power.

Since our inception, we have raised $41,800,000 from third-party investors,
including GE Capital Equity Investments, Inc., Penske Corporation, Mechanical
Technology Incorporated, SatCon Technology Corporation, DQE Enterprises, Inc.,
Perseus Capital, L.L.C., Micro-Generation Technology Fund, LLC and The Beacon
Group Energy Investment Fund II, L.P. As part of the investment by GE Equity, we
are negotiating an agreement with GE Corporate Research and Development under
which GE CR&D will agree to provide us with technical expertise in controls and
materials and consultations with respect to our cost reduction strategy.

INDUSTRY DYNAMICS

INCREASING DEMANDS FOR MORE RELIABLE, HIGHER QUALITY POWER

Decentralized communications networks, the Internet and the information
economy are driving the increased demand for electricity, particularly the need
for higher power quality and reliability. Since 1990, a period of remarkable
expansion of the information economy, particularly the digital and Internet
economies, more than 80% of the growth in energy demand in the United States has
been met by electricity. Coupled with this increase in the demand for
electricity is the strong demand across the economy for more highly reliable
power, with fewer interruptions, and higher quality power, with smaller
variations in voltage and current. For example, Internet related power requires
a much higher

24
<PAGE>
level of reliability than that provided by the electric grid. The HUBER-MILLS
DIGITAL POWER REPORT estimates that Internet related power represented 10% of
electricity consumption in 1999 and that the demand for electrical power should
grow 30% per year.

Traditional methods of delivering power through the electric grid are
proving to be inadequate to meet the high-power quality and reliability needs of
technology-oriented applications. In addition, conventional technologies that
currently provide back-up power are costly and pose environmental threats.
Moreover, as the Department of Energy recently recognized, deregulation of the
electric utility industry is expected to result in a further reduction in the
reliability of power. We expect these trends to accelerate the adoption of
alternative power technology products such as flywheels.

DISADVANTAGES OF CONVENTIONAL LEAD-ACID BATTERY-BASED SYSTEMS

Lead-acid batteries provide back-up energy for most high reliability power
applications, including those in communications, and are viewed as the weakest
component of conventional power quality and reliability products. Lead-acid
batteries have numerous problems, including:

LIMITED BATTERY LIFE AND CAPACITY

- TEMPERATURE SENSITIVITY: Battery life rapidly degrades when batteries are
exposed to extreme cold or heat. Batteries used for communications
applications typically are not placed in climate-controlled environments
and are therefore subject to extreme temperatures.

- USAGE AND ENVIRONMENTAL SENSITIVITY: The capacity of a battery to store
and supply energy is reduced by frequent discharging and recharging and
exposure to hot and cold temperatures.

LOWER RELIABILITY

- RELATIVELY HIGH FAILURE RATE: Batteries exposed to the environment,
particularly hot climates, are prone to high failure rates.

- INCREASED UNCERTAINTY BASED ON USAGE: When batteries are repeatedly
discharged, their energy capacity can rapidly decrease, increasing the
uncertainty that batteries can provide power when needed.

HIGHER COST

- HIGH MAINTENANCE: Batteries require regular inspections and periodic
testing to determine problems and power output capacity, which lessens
over time. Remote and decentralized powering has made the performance of
maintenance and inspection very difficult, if not impossible.

- FREQUENT REPLACEMENT REQUIRED: Batteries have a limited useful life and
must be replaced every two to six years, on average, regardless of usage.
Batteries that are used in non-controlled environments may need to be
replaced more frequently. For example, in southern regions, where
batteries are exposed to extreme, prolonged heat, some communications
companies replace batteries within a year.

ENVIRONMENTAL ISSUES

- TOXICITY: Batteries contain chemicals of varying degrees of toxicity.

- DISPOSAL: Disposal of dead batteries is governed by state and federal
environmental regulations which are becoming increasingly rigorous and
costly.

25
<PAGE>
- PERMITTING: State and local governments are increasingly requiring
distributed equipment to be installed in the ground. However, most state
and local governments do not permit in-ground installation of batteries
because of concerns about spills of toxic substances.

MARKET OPPORTUNITIES FOR OUR FLYWHEEL PRODUCTS

The Electric Power Research Institute, or EPRI, estimated that electric
power reliability problems cost the U.S. more than $50 billion annually.
Industry sources estimated that approximately $11 billion was spent worldwide in
1999 on power quality and reliability equipment to address these problems. Mark
Mills, one of the authors of THE HUBER-MILLS DIGITAL POWER REPORT, has estimated
that sales of power reliability products will expand at a market growth rate of
approximately 30% per year for the next 15 years. We believe that significant
growth in demand for power quality and reliability equipment will come from our
targeted markets, including:

COMMUNICATIONS MARKETS

Communications systems, which include telephony, broadband, cable and
wireless networks, must remain functional even during power outages or
disruptions. Most wire-line telephony providers design and equip their systems
to meet a goal of 100% reliability. Until recently, power was often provided
from central stations where lead-acid batteries typically provided back-up power
until a generator could be engaged. With the onset of the Internet and the
increased demand for telephone lines came an expanding demand for communications
bandwidth by customers. Recently, as fiber cables were used to provide the
increased bandwidth, powering began to be decentralized into suburban and rural
areas where the batteries are unattended and exposed to the environment. Because
batteries are less reliable and have a dramatically reduced life when used in a
non-climate controlled environment, the large-scale deployment of lead-acid
batteries in these areas is proving to be unsatisfactory.

The Skyline Marketing Group estimated that power quality and reliability
equipment sold into the communications markets in 1999 totaled $4 billion
globally, and in 1999 grew at a 19% rate.

26
<PAGE>
COMMUNICATIONS SITE REQUIREMENTS

We believe there is a potential market in the United States for
approximately 2.4 million flywheels to replace lead-acid batteries at existing
communications sites and a market for approximately 230,000 flywheels per year
to be installed at new sites.

The following table indicates in the columns under "Existing Sites":

- an estimate of the number of installed communications sites in the United
States today;

- the energy requirements for each of those sites; and

- the number of 2kWh equivalent flywheels per site, and in the aggregate,
that would be required to replace lead-acid batteries at these sites.

The following table indicates in the columns under "Estimated Annual New
Installations":

- an estimate of the number of communications sites to be installed in the
United States on an annual basis over the next several years;

- the potential energy requirements for each of those sites; and

- the potential number of 2kWh flywheels per site, and in the aggregate,
that would be required at these new sites.

<TABLE>
<CAPTION>
EXISTING SITES ESTIMATED ANNUAL NEW INSTALLATIONS
------------------------------------------------ -----------------------------------------------
POTENTIAL POTENTIAL
NUMBER OF NUMBER OF
2KWH 2KWH POTENTIAL
AVERAGE EQUIVALENT POTENTIAL AVERAGE EQUIVALENT NEW
ENERGY PER FLYWHEELS REPLACEMENT ENERGY PER FLYWHEELS ANNUAL
SITES SITE (KWH) PER SITE MARKET SITES SITE (KWH) PER SITE MARKET
-------- ---------- ---------- ----------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Telephony............ 100,000 12kWh 6 600,000 15,000 12kWh 6 90,000
Cable................ 200,000 8kWh 4 800,000 10,000 8kWh 4 40,000
Wireless............. 100,000 20kWh 10 1,000,000 10,000 20kWh 10 100,000
------- --------- ------ -------
Total.............. 400,000 2,400,000 35,000 230,000
======= ========= ====== =======
</TABLE>

COMPUTERS AND THE INTERNET MARKET

To support the growth in the Internet economy, Internet service providers,
or ISPs, are building new computer and communication system facilities. As
24-hour operations have become a necessity, ISPs must be able to provide their
customers with continuous, uninterrupted operations. To meet this goal, ISPs are
adding power quality and power reliability equipment to protect these systems.
We will develop products to address the high power quality and reliability needs
of the new technology economy.

INDUSTRIAL MANUFACTURING

The growing reliance on automation equipment means that even a split-second
deviation in the voltage of electricity serving a manufacturing plant can cause
sensitive equipment to fail. This downtime can damage equipment and cause missed
deliveries and lost production, which can result in significant costs. An EPRI
study estimated that the average U.S. manufacturing facility experiences more
than 20 power disturbances annually.

COMMERCIAL FACILITIES

Power instabilities are a threat to data processing centers, call centers,
telecommunication switching facilities, emergency services, hospitals and other
mission critical commercial facilities. Also,

27
<PAGE>
many commercial facilities such as office buildings, hotels and universities
have extensive computer, server and data center operations to maintain corporate
records and information. Flywheel storage systems create the opportunity to
provide more reliable and cost-effective back-up power at these facilities.

DISTRIBUTED GENERATION

The combination of the reduction in the reliability of grid-provided
electricity, the need for higher reliability electrical power for the
information economy, and the demand for off-grid powering is expected to result
in a significant market for distributed generation products, including gasoline
or diesel generators, fuel cells and microturbines. Whether distributed
generation technologies are connected to the grid or are used off-grid, we
believe these technologies represent a significant potential market for our
next-generation flywheel energy storage products. For grid connected systems,
our flywheel systems will be designed to eliminate the inherent lag in
transferring a customer from utility power to fuel cell or microturbine stand-by
power in the event of a utility outage. For off-grid applications, our systems
will be designed to provide load-leveling and to maintain voltage constancy for
rapid load changes or disturbances.

OUR STRATEGY

Our goal is to become the leading provider of flywheel energy storage
systems. To accomplish our objective, we are pursuing the following key
strategies:

INITIALLY TARGET COMMUNICATIONS MARKETS WITH SUPERIOR PRODUCT OFFERINGS. We
believe we are the only company to have designed, demonstrated and received
orders for a flywheel product for distributed communications sites. Our products
are specifically designed for the needs of the communications markets because
they store and deliver larger amounts of energy than other available flywheel
systems, have integrated low-cost vacuum systems, have bearings designed for
long life without maintenance, can be buried in the ground, and have reliable,
easy monitoring. We will similarly design our future products and solutions for
specific market applications.

LEVERAGE KEY CUSTOMER AND STRATEGIC RELATIONSHIPS WITH VERIZON
COMMUNICATIONS, GENERAL ELECTRIC AND OTHERS TO ENHANCE OUR PRODUCT DEVELOPMENT
AND REDUCE PRODUCT COSTS. We have collaborated closely with potential customers
including Bell Atlantic, now part of Verizon Communications, during the
definition, development and testing of our 2kWh product. Our field trials have
supported operating sites at Verizon Communications, Century Communications, now
part of Adelphia Communications, and WinDBreak Cable, and we have demonstrated
our product at our plant to Cox, Asea Brown Boveri, Kobe Steel and GTE, now part
of Verizon Communications, among others. As a result of a recent investment in
our company by GE Capital Equity Investments, Inc., an affiliate of the General
Electric Company, we are negotiating an agreement with GE Corporate Research &
Development under which GE CR&D will agree to provide us with technical
expertise in controls and materials and consultations with respect to our cost
reduction strategy.

ESTABLISH KEY STRATEGIC RELATIONSHIPS TO AID IN OUR MARKETING AND
DISTRIBUTION EFFORTS. We intend to expand our alliances with potential
distributors for installation and support throughout North America and the rest
of the world. We have an agreement with DQE Enterprises, Inc., one of our
investors to act as a distributor of our flywheel products in certain
mid-Atlantic states. DQE Enterprises, Inc. is a subsidiary of DQE, Inc., one of
the leading utilities engaged in new energy technologies. We intend to explore
possible relationships with other potential strategic partners.

28
<PAGE>
OUTSOURCE COMPONENTS TO REDUCE CAPITAL COSTS AND TO MORE RAPIDLY SCALE UP TO
HIGHER VOLUMES. We purchase components from suppliers to reduce capital costs
and to enable us to more rapidly scale up to higher volumes by using available
manufacturing capacity of our suppliers. We will continue to perform final
assembly and testing.

PROTECT OUR INTELLECTUAL PROPERTY. We hold a perpetual, exclusive,
royalty-free, worldwide right and license to use SatCon's flywheel technologies
and patents for stationary terrestrial flywheel applications. Those rights
include 8 issued U.S. patents and 13 U.S. and foreign patent applications, as
well as other rights. We also have one pending U.S. patent application and 19
other applications being prepared for filing. Our patent and trade secret rights
are of material importance to us, and to our future prospects. We are actively
pursuing both national and foreign patent protection. At the direction of our
board of directors, management has formed a patent committee that is charged
with identifying and seeking patent protection for our intellectual property. We
also aggressively protect our trade secrets and technical know-how.

CAPITALIZE ON STRONG STOCKHOLDER BASE. Since our inception, we have raised
$41,800,000 in private funding and our stockholders include leading companies
and investors in the distributed generation industry, including GE Capital
Equity Investments, Inc., Penske Corporation, Mechanical Technology
Incorporated, SatCon Technology Corporation, DQE Enterprises, Inc., Perseus
Capital, L.L.C., Micro-Generation Technology Fund, L.L.C. and The Beacon Group
Energy Investment Fund II, L.P. Through these relationships, we expect to
improve our technology, operations and manufacturing practices, as well as our
marketing, sales and distribution capabilities.

OUR COMPETITIVE ADVANTAGES

We intend to capitalize on our competitive advantages, including:

PRODUCTS UNIQUELY DESIGNED FOR THE COMMUNICATIONS MARKETS. We believe that
we are the only flywheel energy storage company focusing on the needs of
communications customers, particularly for remote and distributed applications.
We believe that our flywheel products are a unique fit to be used for back-up
powering for distributed locations in the communications markets for a number of
reasons, including:

- We believe that we are the only company to have developed a product with
an adequate level of energy storage to meet the needs for back-up powering
of communications sites. Our composite flywheels provide a minimum of 2kWh
of energy. Most communications sites require at least that level of
energy.

- Our flywheels have very low operating power losses which make it possible
to efficiently provide back-up power for long periods of time.

- Our flywheel units can be installed in the ground. State and local
governments, as well as customers, increasingly are requiring
communications and other equipment to be installed in the ground for cost,
environmental and aesthetic reasons. However, most do not permit in-ground
installation of batteries because of the potentially harmful releases of
substances into the environment.

29
<PAGE>
- Our systems have a built-in, long-life, low-cost vacuum system that
automatically restarts if the power is completely lost.

- We expect our units to operate for many years, possibly for more than a
decade, without planned maintenance.

SUCCESSFUL PRODUCT DEMONSTRATIONS. We believe that our field trial
demonstrations at Verizon Communications, Century Communications, now part of
Adelphia Communications, and WinDBreak Cable were the first to demonstrate the
potential effectiveness of flywheel energy storage systems as an alternative to
lead-acid batteries in the communications industry. We expect that these and
future on-site demonstrations will lead to additional, significant commercial
orders from those and other customers.

TECHNOLOGICAL LEADER. We believe that our flywheels store and deliver more
energy than those of other flywheel companies. Compared to other flywheel
systems, our flywheel systems also have integrated vacuum systems, very low
stand-by operating losses, and bearing systems designed for long life without
maintenance. We believe that we have assembled a superior engineering team that
will expand our technical know-how, patents, and trade secrets that in turn will
provide us with the following significant advantages over our competition:

- Expertise in the design of high-speed rotating machinery, in the analysis
and synthesis of structural and rotational mechanical components, and in
the design and manufacture of composite technology that we believe will
lead to low-cost flywheels;

- Unique bearing technology that we believe will result in very low-cost,
long-life bearing systems;

- Applications for patents on our vacuum apparatus that our test results
indicate will provide a vacuum life of up to 20 years;

- Engineering and manufacturing team skilled in aircraft engine safety
design which we utilize in development of our flywheels; and

- Our composite flywheels have significant advantages over flywheels made of
other materials such as steel.

EXPERTISE IN DESIGN AND MANUFACTURING PROCESSES. We have recruited and
attracted experienced, top quality manufacturing management and engineering
personnel to develop low-cost, high quality manufacturing processes. In
addition, we have supply relationships with established companies and are
working closely with them to provide design drawings and processes in order to
maintain tight control over the manufacturing process.

PROVEN ABILITY TO REDUCE COSTS. Since 1998, we have reduced the cost of
producing a demonstration unit by approximately two-thirds by reducing the
number of parts in the system from more than three hundred to approximately one
hundred and by simplifying the assembly process. In addition, flywheel rim and
vacuum system costs have been reduced by factors of five and ten, respectively.
We expect to further reduce costs by achieving additional reductions in parts
count, by increasing machine speeds to store equivalent energy with smaller
composite rims, by improving manufacturing yields, and by manufacturing in
larger volumes.

STRONG AND EXPERIENCED MANAGEMENT TEAM. We have a very capable and
experienced management team. Our management and engineering personnel
collectively have extensive experience working for high technology companies,
including The Charles Stark Draper Laboratory, Inc., General Electric Company,
International Business Machines Corporation, Textron Inc. and United
Technologies Corporation. We believe that this managerial and technical
knowledge and expertise gives us advantages over our competition.

30
<PAGE>
WE DESIGN AND TEST OUR SYSTEMS WITH SAFETY IN MIND. All storage of energy
and the operation of any machinery involves some risk. In order to efficiently
store energy, a flywheel rotates at high speeds. To assure safe operation of our
flywheels, we have developed proprietary technology designed to ensure that the
flywheel will never spin faster than intended. In addition, we take special
design and manufacturing precautions to assure that failure of the composite rim
within operating speed is very improbable. In the very unlikely event of a
rotating metal component failure, we have designed our flywheel system to slowly
release energy in rotation in a manner analogous to the crumpling of a car in an
accident. We use a design, fabricate, test and redesign program to assure that
our flywheels meet the most stringent safety criteria. Our flywheel safety
concept has been successfully demonstrated in failure testing. In addition,
during the early years of installation, our flywheels will be installed in the
ground. There, even the extremely low probability of failure of the rotating
elements will be contained by the earth.

OUR FLYWHEEL SYSTEMS HAVE ADVANTAGES OVER OTHER TECHNOLOGIES. We believe
our flywheels will offer significant advantages over conventional back-up power
systems used by communications service providers, such as those with lead-acid
batteries. We expect these technological advantages to include higher
reliability, longer life, lower life-cycle cost, improved recharging capability,
reduced maintenance, more reliable monitoring and environmental-friendliness. We
also believe that our flywheel systems will be used in conjunction with gasoline
and diesel generators, fuel cells, microturbines and other distributed power
generators to provide benefits that are not available from these products alone,
such as an instant-on capability and the ability to manage sudden changes in
power.

OUR PRODUCTS

Our initial product will provide 2kWh of energy at up to 1 kilowatt of
power. Our 2kWh flywheel would provide back-up power for 10 hours to a
telecommunications site that requires 200 watts of power. For a site using the
full 1 kilowatt capacity of the conversion electronics, the flywheel would
back-up a site for 2 hours. At Verizon Communications, Century Communications,
now part of Adelphia Communications, and WinDBreak Cable, we have successfully
maintained power during loss of utility power with no degradation of service in
planned and unplanned tests. The amount of power and time can be increased by
paralleling flywheels as was done at the Verizon Communications site.

To meet a broad set of applications, we intend to build a set of powering
modules ranging from 20W to 250kW of power and a set of flywheel modules ranging
from 200W to 20kWh of energy. By combining a relatively small set of powering
modules with a similarly small set of energy modules, we intend to create a
broad set of products to meet a variety of application requirements. We are
currently developing a 4kWh flywheel product and intend to deliver our first
demonstration units in 2001. Beyond that we intend to produce an 8kWh flywheel
and then a flywheel with deliverable energy in the range of 20kWh. We developed
a laboratory version of a 30kW system for the U.S. Marine Corps on our 2kWh
flywheel that provides four minutes of back-up power. The intended future
application of that product is to provide ride-through for diesel generator
start and for peak-load protection during normal operation. Our product vision
also includes a 200 watt-hour unit to maintain the powering interface device for
fiber or wireless to the home and a 250kW, 2kWh device that will provide

31
<PAGE>
ride-through for generator start and short-term transient protection. The
following table indicates the expected characteristics and the potential
applications for each of these products:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
POWER RELIABILITY AND POWER QUALITY FLYWHEEL PRODUCTS

<CAPTION>
------------------------------------------------------------------------------------------------------------------
MAXIMUM
DELIVERABLE ENERGY DELIVERABLE POWER MINIMUM BACK-UP TIME TARGET MARKETS
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2kWh 1kW 2 hours Communications

-----------------------------------------------------------------------------------------------------------------
4kWh 1kW 4 hours Communications

-----------------------------------------------------------------------------------------------------------------
8kWh 1kW 8 hours Communications

-----------------------------------------------------------------------------------------------------------------
20kWh 10kW 2 hours Communications

-----------------------------------------------------------------------------------------------------------------
Computers and the Internet
Commercial Facilities
Industrial Manufacturing
Distributed Generation

-----------------------------------------------------------------------------------------------------------------
200 watt 25 watts 8 hours Communications
hours

-----------------------------------------------------------------------------------------------------------------
2kWh 30kW 4 minutes Computers and the Internet
Industrial Manufacturing
Commercial Facilities
Distributed Generation
Communications

-----------------------------------------------------------------------------------------------------------------
2kWh 250kW 30 seconds Computers and the Internet
Industrial Manufacturing
Commercial Facilities
Communications

-----------------------------------------------------------------------------------------------------------------
</TABLE>

32
<PAGE>
PRODUCT MILESTONES

We plan to continue to refine our product design and assembly processes over
the remainder of 2000. To do this, we intend to produce and test 25 to 50 of our
2kWh flywheel energy storage systems during 2000. We have achieved the following
major milestones:

<TABLE>
<CAPTION>
DATE MILESTONE
---- ---------
<S> <C>
June 1997............................ Began developing 2kWh demonstration units

September 1997....................... Received first order for two demonstration units from San
Diego Gas & Electric Company (SDGE)

September 1998....................... Installed first demonstration unit at WinDBreak Cable

December 1998........................ Operated a demonstration unit via the Internet at Century
Communications, now part of Adelphia Communications, for the
Western Cable show

January 1999......................... Installed two demonstration units at Verizon Communications

January-June 2000.................... Received orders from TLER Associates, Ltd., Cox, and EPRI
for 115 commercial units

June 2000............................ Began development of 4kWh system
</TABLE>

OUR TECHNOLOGY

Since our formation, we have been developing a flywheel energy storage
system to offer customers superior reliability and performance at a lower life
cycle cost. The flywheel is a rotating wheel on magnetic bearings that operates
in a near frictionless vacuum environment. Energy is stored as mechanical or
kinetic energy in the rotating flywheel rim. The flywheel is powered up to its
operational speed, like a motor, using electricity from a power source. The
flywheel is able to spin for extended periods with great efficiency, because the
friction and drag are virtually eliminated by employing magnetic bearings and a
vacuum in the container. Because it has very low friction, little power is
required to maintain the flywheel's operating speed. When the power source is
eliminated, the spinning flywheel drives a motor or generator, and its
bi-directional inverter converts the kinetic energy into electrical energy,
providing it to an end-user just as a battery back-up system would do. This
conversion continues, and the flywheel slows, until the electricity is
discharged.

[This figure consists of a block diagram of the electronics architecture and
a labeled cutaway of the Beacon flywheel. The electronics architecture shows
a) potential sources of power as utility, fuel cells, or microturbines, b) an AC
to DC power converter, c) a DC Bus, d) a bi-directional inverter to the
flywheel, and e) a DC to DC or a DC to AC converter to the output load. Magnetic
bearings, composite rim, motor/generator, and vacuum housing are labeled on the
flywheel.]

Flywheels have been used in commercial applications since the industrial
revolution. Recent attempts at commercializing flywheel systems have been based
on technology developed for aerospace applications that attempt to maximize the
amount of stored energy with the minimum system weight. Compact high-energy
flywheels that can be commercially cost competitive are a recent development. We
are using new enabling materials and products such as high-strength fiber,
efficient electric drives, and high performance magnetic bearings to create new
generations of flywheel products. Our flywheels are fabricated from
high-strength, lightweight fiber composites, such as graphite and fiberglass,
which allow the flywheel to rotate at high speeds and store large amounts of
energy relative to similar size and weight machines made from metals. For
example, a 600-pound steel flywheel running at 8,000 revolutions per minute, or
RPM, will store approximately 900 Watt-hours of energy. In contrast, our
150-pound, composite flywheel running at 22,500 RPM stores 2,700 Watt-hours of
energy and delivers

33
<PAGE>
2,000 Watt-hours of energy to the load. On a per pound basis, storing more
energy with steel flywheels is difficult. We believe we can, over time, nearly
double the speed of our composite flywheel product. Composites, which already
have superior energy storage per pound to steel, have the potential for
significant increases in energy storage per pound.

RESEARCH AND DEVELOPMENT

We believe that our research and development efforts are essential to our
ability to successfully deliver our products to our targeted communications
customers, as well as our next generation of products to customers in the
computer, Internet, industrial manufacturing, commercial facilities and
distributed generation markets. Our research and development team has worked
closely with potential communications customers to define product features and
performance to address specific needs. Our research and development expenses,
including engineering expenses, were $3,523,572 in 1998 and $3,506,031 in 1999.
We anticipate maintaining significant levels of research and development
expenditures in the future. At June 30, 2000, we employed 31 engineers and
technicians who were engaged in research and development.

MANUFACTURING

We will initially have most components of our flywheel systems contract
manufactured to our design drawings and processes in order to facilitate more
rapid growth by taking advantage of installed manufacturing capacity. For a
limited number of non-proprietary components, we will generate performance
specifications and obtain either standard or custom components. We will perform
the final assembly and testing. Many of our manufacturing staff have been
trained in and are skilled in six sigma quality control techniques. Six sigma is
a strategic implementation of total quality management principles. We expect to
make these skills a key element of our manufacturing strategy to develop and
maintain production processes that result in high-quality, low-cost products.

The energy storage portion of our flywheels, the rim, is made from
composites, a combination of fibers and resins, as an alternative to
conventional metals. The rim is the most expensive component in our system.
While we outsource the manufacture of the composite rims, we will continuously
evaluate whether to continue this outsourcing or to manufacture the rims
ourselves. To this end, we are building a state-of-the-art composite
flywheel-manufacturing laboratory to:

- accelerate the rate of cost reduction;

- assume increased control over composites, intellectual property and the
associated manufacturing processes; and

- enable us to manufacture the rim if that proves to be the most efficient
course.

To manage cost and supplier risk, we are positioning ourselves so that we
will be able to manufacture composite rims beginning in 2002. To accomplish
this, we have hired personnel skilled in business management, design, and the
manufacturing of composites. These people, using our composite laboratory and
suppliers, are evaluating manufacturing processes and developing both the
equipment and personnel skills required to manufacture the rims ourselves.

We currently rely on single sources for the supply of several of the key
components for our products, including the composite rim, the electronics and
housing. In most of these cases, we are developing alternate suppliers. While
the loss of supply from any one of these single sources could impact our ability
to produce and sell our systems and thus our financial results, we believe that
we can replace any supplier with a new supplier. As timing and volume merit, we
will develop long-term supply contracts with certain of our suppliers.

34
<PAGE>
SALES AND MARKETING

We intend to market our products as highly reliable power systems that
exceed our customers' requirements. By combining superior products with
excellent customer service, we intend to become the market leader in the
communications markets for flywheel energy storage products.

In the communications markets, we expect to sell directly to our customers.
Our initial sales and marketing strategy is to identify key prospects in the
communications markets, and to work with those companies to formulate our
product plan, pricing, initial installation and service strategies. We have
conducted on-site demonstration testing at three of these companies, Verizon
Communications, Century Communications, now part of Adelphia Communications, and
WinDBreak Cable, in order to begin the buying cycle and to accelerate sales
volume. We plan to expand these activities with other potential customers
beginning in the fourth quarter of 2000.

Since the communications markets consist of a relatively small number of
customers, initial sales will be made directly by means of our sales force. As
sales volume expands, this sales force will be expanded as appropriate. We will
also consider the use of manufacturer's representative organizations and
strategic alliances with OEMs.

CUSTOMER SERVICE

We intend to use customer service to meet and exceed our customers'
requirements. We will intensively support installation and operation of our
flywheel systems. We intend to develop superior installation, operation, and
maintenance manuals for our customers and to provide them with excellent
training in all aspects of using flywheel systems. During the first few years we
will perform monitoring and diagnostics on our installed systems.

COMPETITION

Back-up power is provided today by lead-acid batteries or generators. We may
compete with:

- manufacturers and developers of battery technologies, such as Exide
Corporation, C&D Technologies Inc., Yuasa, Inc. and Fiamm;

- developers of flywheel technology such as Active Power, Inc., Trinity
Flywheel Power, U.S. Flywheel Systems and Acumentrics;

- developers of fuel cell products such as Ballard Power Systems, Inc., Plug
Power, Inc., Hydrogenics Corporation, H Power Corporation and Proton
Energy Systems, Inc.;

- manufacturers of internal combustion generators such as
Caterpillar, Inc., Cummins, Inc. and Generac Power Systems, Inc.; and

- developers of microturbine products such as Capstone Turbine Corporation
and Honeywell Inc.

The power quality and power reliability markets are intensely competitive,
with the principal bases for competition being system reliability and quality,
price, including the initial cost of the system to the customer and the total
cost of ownership, and brand recognition.

INTELLECTUAL PROPERTY

Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright law and contract restrictions to
protect the proprietary aspects of our technology. We seek to limit disclosure
of our intellectual property by requiring employees, consultants, and any third
parties with access to our proprietary

35
<PAGE>
information to execute confidentiality agreements and by restricting access to
that information. These legal protections afford only limited protection for our
technology.

We hold a perpetual, exclusive, royalty-free, worldwide right and license to
use SatCon's flywheel technologies and patents for stationary terrestrial
flywheel applications. Those rights include 8 issued U.S. patents and 13 U.S.
and foreign patent applications, as well as other rights. However, after the
offering, we will not be entitled to any future improvements made by SatCon in
its flywheel technology. We also have one pending U.S. patent application, and
19 other applications being prepared for filing. Our patent and trade secret
rights are of material importance to us, and to our future prospects. We are
actively pursuing both national and foreign patent protection. At the direction
of our board of directors, management has established a patent committee that is
charged with pursuing the protection of intellectual property.

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 do believe 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. 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.

FACILITIES

Our principal executive offices, laboratory and manufacturing facilities are
located at a single location in Woburn, Massachusetts. These three facilities,
that in combination are approximately 20,000 square feet, operate under leases
that expire on January 31, 2001. We have signed a lease and expect to move into
a larger, approximately 52,000-square foot facility in the Wilmington,
Massachusetts area in the second half of 2000 in order to house our growing
engineering, research and development, sales and marketing, and management
personnel and to provide adequate space for manufacturing and the composites
laboratory. If our production growth meets our expectations, we will not require
additional space until 2003. At that time, we could require an additional 50,000
to 70,000 square feet in order to expand our production capacity for assembly
and testing of units.

EMPLOYEES

As of June 30, 2000, we had a total staff of 62 full-time employees and one
independent contractor, of which approximately 46 were engineers, scientists,
and other degreed professionals. Our plan is to add another 20 to 30 employees
by the end of 2000. None of our employees are represented by a union. We
consider our relations with our employees to be excellent.

LEGAL PROCEEDINGS

We may from time to time be involved in legal proceedings in the ordinary
course of our business. We have not been and are not currently involved in any
legal proceedings.

36
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors, their positions and their ages as of
March 31, 2000, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
William E. Stanton................... 57 President and Chief Executive Officer, Director
Matthew L. Lazarewicz................ 50 Vice President of Engineering
Maureen A. Lister.................... 38 Vice President of Operations Management and Chief
Administrative Officer
Robert D. French..................... 60 Vice President of Manufacturing
James M. Spiezio..................... 52 Vice President of Finance and Chief Financial Officer
Stephen T. Swech..................... 50 Vice President of Marketing and Sales
Kenneth M. Socha(2).................. 54 Director
Philip J. Deutch(1).................. 35 Director
David B. Eisenhaure.................. 54 Director
Eric R. Stoltz(1)(2)................. 42 Director
Hans Kobler.......................... 35 Director
Alan P. Goldberg..................... 55 Director
</TABLE>

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

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

EXECUTIVE OFFICERS

WILLIAM E. STANTON. Mr. Stanton has served as our President and Chief
Executive Officer since 1998 and our director since 1997. Prior to joining
Beacon, Mr. Stanton was the Chief Operating Officer of SatCon, where he managed
operations and the strategy development to convert SatCon from a contract
research and development company to a commercial product organization. This
strategy included the formation of Beacon Power. Prior to joining SatCon,
Mr. Stanton was one of two Vice Presidents of Operations at the Charles Stark
Draper Laboratory where he managed between $50,000,000 and $75,000,000 of
contract research and development annually. At Draper, he had also served as the
Vice President of Corporate Development, where he led strategic planning,
developed and managed a $25,000,000 annual corporate research and development
program, and helped create new business units that were generating over
$30,000,000 in software and avionics products annually. Mr. Stanton received a
Bachelor's Degree in Electrical Engineering from the University of Maine, a
Master's Degree in Instrumentation and Control from the Massachusetts Institute
of Technology, and an Master's in Business Administration from the Harvard
Business School.

MATTHEW L. LAZAREWICZ. Mr. Lazarewicz has served as our Vice President of
Engineering since February 1999. He started his 25-year career with the General
Electric Company in the gas turbine division as a design engineer. After a
transfer to GE Aircraft Engines, he progressed through a variety of positions in
design, manufacturing, quality, marketing, and product support in both military
and commercial applications. Most recently, he was the mechanical design manager
for the F414 engine used in the Navy front line F/A18 fighter using concurrent
engineering practices. This included the development through production phases.
He won the GE Aircraft Engines "Engineer of the Year" and the Department of
Defense "Excellence in Acquisition" Awards for his leadership of this project.
Mr. Lazarewicz is a Registered Professional Engineer in the Commonwealth of
Massachusetts and received both Bachelor's and Master's Degrees in Mechanical
Engineering from the Massachusetts

37
<PAGE>
Institute of Technology. Mr. Lazarewicz also completed his Master's Degree in
Management at the Massachusetts Institute of Technology Sloan School of
Management.

MAUREEN A. LISTER. Ms. Lister serves as our Vice President of Operations
Management and Chief Administrative Officer. She joined us as Vice President and
Chief Financial Officer in March 1998 responsible for all aspects of finance
including fund raising and investor relations. Prior to joining us, Ms. Lister
was Vice President and Chief Financial Officer at Priscilla of Boston, Inc., a
manufacturing and retail operation with $10,000,000 in annual revenues where she
was responsible for all aspects of financial and treasury management. Prior to
joining Priscilla of Boston, Inc., Ms. Lister served as Chief Financial Officer
at Cahners Direct Marketing Systems, a $35,000,000 direct mail business where
she was responsible for all aspects of the business including financial
reporting and mergers and acquisitions. Prior to Cahners, she held the position
of Vice President of Finance and Operations with Rigby, a $32,000,000 publisher
and distributor where Ms. Lister was responsible for joint venture activity,
warehouse and distribution as well as the establishment of an employee run
retail store. Ms. Lister holds a Bachelor of Science in Finance (with Honors)
from Northeastern University and an Master's of Business Administration from
DePaul University.

ROBERT D. FRENCH. Mr. French is responsible for the definition and growth
of all phases of production in his role as Vice President of Manufacturing at
Beacon. His most recent position was with General Electric Aircraft Engines, and
involved transitioning the U.S. Navy's newest fighter engine, the F414, from
development to full production. Prior to this, Mr. French was part of
GE Aircraft Engines in the building and operating of an automated factory for
jet engine components and held positions as Manager of Engine Assembly and
Flight Support and as Manufacturing Program Manager for several engine product
lines. His professional career began with the U.S. Army Materials and Mechanics
Research Center, progressing from Metallurgist to Director of the Metals and
Ceramics Laboratory and transitioning technology from basic research through
manufacturing process development. Dr. French received his Bachelor's and
Master's Degrees in Mechanical Engineering from Northeastern University and his
Ph.D. in Engineering, with a major in Materials Science, from Brown University.

JAMES M. SPIEZIO. Mr. Spiezio joined us in May 2000 as our Vice President
of Finance and Chief Financial Officer and Treasurer. He has over twenty-five
years of diversified manufacturing and financial management experience. Prior to
joining us, Mr. Spiezio was the Chief Financial Officer at Starmet Corporation,
a diversified metallurgical manufacturing company, for seven years. While at
Starmet he also served as President of a wholly-owned manufacturing facility for
five years and held additional financial management positions including
Corporate Controller and Manager Planning and Analysis. Prior to joining
Starmet, Mr. Spiezio held financial management positions with United
Technologies Corporation, Pratt & Whitney Aircraft Group in accounting, cost and
business analysis. Prior to Pratt & Whitney, Mr. Spiezio held financial
management positions with General Electric Company in both the Power Systems and
Apparatus Services business groups. Mr. Spiezio is a graduate of the Indiana
University School of Business.

STEPHEN T. SWECH. Mr. Swech has served as our Vice President of Marketing
and Sales since June 2000. Mr. Swech has more than 25 years of successful
experience in marketing and sales of technical and engineered products with the
past 14 years in senior management positions in the power conversion industry.
Prior to joining us, he was Executive Vice President for the $43,000,000
Industrial Technology Group of WPI Group, Inc., a manufacturer of power
conversion systems and components, instrumentation products, and precision
electro-mechanical devices for the telecommunications, semiconductor
manufacturing, medical, and power quality markets. Prior to this, he was
President of two operating companies within WPI and Vice President of Sales and
Marketing for its power systems operation. Previously, Mr. Swech was Vice
President of Sales and Marketing for Kaiser Systems, Inc. Mr. Swech also has
several years of experience at both Federal Mogul Corporation and Paccar,

38
<PAGE>
Incorporated. Mr. Swech holds a Bachelor of Arts in English Language Arts along
with a Minor in Engineering from the University of Washington.

NON-MANAGEMENT DIRECTORS

KENNETH M. SOCHA. Mr. Socha serves as Senior Managing Director of Perseus
Capital. He practiced corporate and securities law from 1970 to 1992, and was
one of the founders of The Clarion Securities Group Incorporated, a registered
broker-dealer and a NASD member. He resigned as President of Clarion Securities
in 1985 to return to the practice of law full time as a partner of the New York
office of Lane & Edson, and became a partner of Dewey Ballantine LLP in New York
City in 1988. Mr. Socha left Dewey Ballantine LLP in February 1992 to devote
additional time to Rappahannock Investment Company, which he had joined in
May 1991 as Executive Vice President. Mr. Socha serves on the board of directors
of MGI Software. Mr. Socha is a graduate of the University of Notre Dame and the
Duke University School of Law. Mr. Socha has served as a Director since
October 1998 and serves as Chairman of our Compensation Committee. Mr. Socha's
term of office expires in .

PHILIP J. DEUTCH. Mr. Deutch serves as a Managing Director of Perseus. In
this position, Mr. Deutch has led Perseus' investments in numerous energy
technology companies. From 1991 to 1997, Mr. Deutch was an attorney at
Williams & Connolly LLP. Mr. Deutch worked in the Mergers and Acquisitions
Department of Morgan Stanley Dean Witter & Co. in New York City. In this
position, Mr. Deutch was a member of execution teams for acquisitions,
divestitures, and leveraged buyouts. Mr. Deutch is a graduate, with distinction,
of Stanford Law School and of Amherst College where he was elected a member of
Phi Beta Kappa. Mr. Deutch is a term member of the Council of Foreign
Relations and a Trustee of the Washington Performing Arts Society. Mr. Deutch
has served as a Director since October 1998 and serves as Chairman of our Audit
Committee. Mr. Deutch's term of office expires in .

DAVID B. EISENHAURE. Mr. Eisenhaure has served as President, Chief
Executive Officer, and Chairman of the Board of Directors of SatCon since 1985.
Prior to founding SatCon, Mr. Eisenhaure was associated with the Charles Stark
Draper Laboratory from 1974 to 1985, and with its predecessor, the Massachusetts
Institute of Technology's Instrumentation Laboratory, from 1967 to 1974.
Mr. Eisenhaure holds S.B. and S.M. degrees in Mechanical Engineering, as well as
a Mechanical Engineering degree, from the Massachusetts Institute of Technology.
In addition to his duties at SatCon, Mr. Eisenhaure holds an academic position
at M.I.T., serving as a lecturer in the Department of Mechanical Engineering.
Mr. Eisenhaure also serves on the board of directors of Mechanical Technology,
Incorporated. Mr. Eisenhaure has served as a director since our inception in
May 1997. Mr. Eisenhaure's term of office expires in .

ERIC R. STOLTZ. Mr. Stoltz serves as a Vice President of DQE
Enterprises, Inc., a wholly owned subsidiary of DQE, Inc., which acquires and
develops businesses involved in energy services and technologies, communications
and electronic commerce. In this position, Mr. Stoltz is responsible for
identifying and managing strategic investment opportunities. Mr. Stoltz has
served in various management positions within DQE since 1988, including business
development, marketing and real estate. He holds a Master's in Business
Administration from Carnegie Mellon University. Mr. Stoltz has served as a
Director since October 1999 and currently serves as a member of the Audit and
Compensation Committees. Mr. Stoltz's term of office expires in .

HANS KOBLER. Mr. Kobler serves as Vice President at GE Equity. As head of
the Energy Technology Group, he oversees GE Equity's investment efforts in New
Energy Technologies. Before that, Mr. Kobler served as Chief Quality Officer for
GE Equity. From 1993 to 1997 Mr. Kobler was a strategy consultant with Bain &
Company in their Boston, Munich and Sydney offices. Mr. Kobler holds a Master's
degree in Aerospace Engineering from the Technical University of Munich as well
as a

39
<PAGE>
Master's in Business Administration from the University of Texas at Austin and
the I.N.S.E.A.D. in Fontainebleau. Mr. Kobler has served as a director since
June 2000. Mr. Kobler's term of office expires in .

ALAN P. GOLDBERG. Mr. Goldberg joined us as a director in June 2000.
Mr. Goldberg has served as President and Co-Chief Executive Officer and as a
director of First Albany Companies Inc., an investment bank, since 1993.
Mr. Goldberg also serves on the board of directors of Mechanical Technology,
Incorporated and SatCon. Mr. Goldberg is active in industry and civic
organizations and serves on the board of several non-profit institutions. He
received a B.A. degree in Government from Tufts University. Mr. Goldberg's term
of office expires in .

BOARD COMPOSITION

Our board of directors currently consists of seven members, six of whom are
outside directors. By agreement of our stockholders, two members are currently
designated by Perseus Capital, one member is designated by DQE Enterprises, one
member is designated by SatCon, one member is designated by GE Equity and one
member is designated by Mechanical Technology. The seventh member of Beacon's
board of directors is Mr. Stanton, our President and Chief Executive Officer.
The agreement among stockholders to vote for these directors terminates upon
consummation of the offering.

There are no family relationships among any of our directors or executive
officers.

BOARD COMMITTEES

The members of the audit committee are responsible for recommending to the
board of directors the engagement of our independent auditors and reviewing our
accounting controls and the results and scope of audits and other services
provided by our auditors. The current members of the audit committee are
Messrs. Deutch and Stoltz.

The compensation committee is responsible for reviewing and recommending to
the board of directors the amount and type of non-stock and stock compensation
to be paid to senior management and establishing and reviewing general policies
relating to compensation and benefits of employees. The current members of the
compensation committee are Messrs. Socha and Stoltz.

DIRECTOR COMPENSATION

Directors who are employees receive no additional compensation for their
services as directors. Following consummation of this offering, we intend to
compensate our outside directors in a manner that is competitive with comparable
public companies.

EXECUTIVE COMPENSATION

The following table sets forth the total compensation paid in the years
ended December 31, 1999 and 1998 and for the period beginning on the date of our
inception through December 31, 1997 to our chief executive officer and our other
executive officers whose aggregate compensation exceeded $100,000.

40
<PAGE>
SUMMARY COMPENSATION TABLE (1)

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) UNDERLYING OPTIONS
--------------------------- -------- --------- -------- ------------------
<S> <C> <C> <C> <C>
William E. Stanton................................ 1999 $157,769 -0- 95,000
President and Chief Executive Officer 1998 157,500 -0- -0-
1997 105,000 -0- 90,000
Matthew L. Lazarewicz(2).......................... 1999 $113,723 -0- 125,000
Vice President of Engineering
</TABLE>

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

(1) Columns required by the rules and regulations of the Securities and Exchange
Commission that contain no entries have been omitted.

(2) We hired Mr. Lazarewicz in February 1999.

STOCK INCENTIVE PLAN

SECOND AMENDED AND RESTATED 1998 STOCK INCENTIVE PLAN

Our Second Amended and Restated 1998 Stock Incentive Plan was adopted by our
board of directors and shareholders on June 5, 2000 as an amendment and
restatement of our Amended and Restated 1998 Stock Incentive Plan. A total of
4,500,000 shares of our common stock are authorized and reserved for issuance
under the stock incentive plan.

The stock incentive plan was adopted to advance the interests of our
shareholders by enhancing our ability to attract, retain and motivate employees,
officers, directors, consultants and advisors who make important contributions
to us by providing such persons with equity ownership. The plan permits our
board of directors or a committee of the board of directors to make various
long-term incentive awards as described below, generally equity-based, to
eligible persons.

Our board of directors or a committee of our board of directors administers
the stock incentive plan. The administrator has the authority, consistent with
the terms of the plan, to determine the persons to whom awards are granted and
all the terms and conditions of those awards. The administrator has the
authority to construe and interpret the terms of the plan and the awards granted
under it, and has the power to amend and terminate the plan at any time without
shareholder approval except to the extent that the law requires shareholder
approval. Unless terminated sooner by the board of directors, the stock
incentive plan will terminate automatically in 2008, on the tenth anniversary of
its adoption by our shareholders.

The stock incentive plan authorizes the administrator to grant awards in the
form of incentive stock options, within the meaning of Section 422 of the United
States tax code, nonstatutory stock options, restricted stock purchase rights
and other awards of our common stock having such terms and conditions as the
board of directors determines, including grants of shares of our common stock
upon certain conditions, grants of securities convertible into shares of common
stock and grants of stock appreciation rights. While incentive stock options may
be granted only to employees, including officers and employee directors, all
other awards may be granted to employees, consultants and non-employee
directors. No participant will be granted an award to purchase more than 450,000
shares of common stock per calendar year.

The exercise price per share of incentive stock options granted under the
stock incentive plan must be at least equal to the fair market value of a share
of our common stock on the date of grant, while the exercise price per share of
nonstatutory stock options will be determined by our board of directors.
However, the exercise price per share of an incentive stock option granted to
any participant who owns stock possessing more than 10% of the voting power of
all classes of our outstanding capital stock or that of any subsidiary
corporation must equal at least 110% of the fair market value of a share of our

41
<PAGE>
common stock on the grant date, and the term of that incentive stock option must
not exceed five years. The terms of all other options granted under the stock
incentive plan may not exceed ten years. The aggregate fair market value
(determined as of the date of grant) of our common stock for which incentive
stock options may become exercisable for the first time by any optionee may not
exceed $100,000 in any calendar year. The administrator has the discretion to
determine the vesting provisions and exercise requirements, if any, of all
options granted under the plan.

Unless longer periods are authorized by the administrator, options granted
under the equity incentive plan generally must be exercised, if at all, within
one year after an optionee's termination of service due to death or disability
and otherwise within three months after an optionee's termination of service,
but in no event later than the expiration of the option's term. Options granted
under the plan generally are not transferable by an optionee other than by will
or the laws of descent and distribution, except that, with the consent of the
administrator, an optionee may transfer a nonstatutory stock option to certain
entities established for the benefit of family members.

In the case of restricted stock purchase rights, unless the administrator
determines otherwise, the restricted stock purchase agreement will grant us a
repurchase option exercisable in the event that the conditions specified in the
award are not satisfied prior to the end of the restriction period. Awards of
restricted stock may be made subject to vesting restrictions and other
conditions as established by the administrator and are not transferable by the
participant until vested.

The stock incentive plan provides that in the event of our merger or
consolidation with or into another entity, a sale of all or substantially all of
our assets or our complete liquidation, the board of directors may take any one
or more of the following actions with respect to the options, restricted stock
purchase rights and other awards:

- Provide that all outstanding options, restricted stock purchase rights and
other stock based awards will be assumed, or equivalent options be
substituted for, by the successor corporation;

- Provide, with written notice to participants, that all unexercised options
will become exercisable in full as of a specified time and will terminate
immediately prior to the consummation of the merger, consolidation, sale
of assets or liquidation unless otherwise exercised by the participant;

- Provide that, in the event of a merger, consolidation, sale of assets or
liquidation in which holders of our common stock will receive a cash
payment for each share of our common stock surrendered ("Acquisition
Price"), all options will terminate and each participant will receive, in
exchange, a cash payment equal to the amount (if any) by which (1) the
Acquisition Price multiplied by the number of shares of our common stock
subject to such outstanding options (whether or not exercisable) exceeds
(2) the aggregate exercise price of such options; and

- Provide that all restricted stock purchase rights become free of all
restrictions and that all other stock-based awards shall become
exercisable, realizable or vested in full, or be free of all conditions or
restrictions.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding stock options granted
during 1999 to our executive officers listed in the Summary Compensation Table.
During 1999, we granted options to purchase an aggregate of 652,500 shares of
common stock to employees and 81,000 shares of common stock to consultants. The
exercise price per share for these options was equal to the fair market value of
the common stock as of the grant date as determined by our board of directors.

42
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED TO TERM(1)
OPTIONS EMPLOYEES IN FISCAL EXERCISE PRICE ------------------------
NAME GRANTED YEAR ($/SHARE) EXPIRATION DATE 5%($) 10%($)
---- ---------- ------------------- -------------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
William E. Stanton..... 95,000 14.6% $1.78 10/19/09 $275,446 $438,601
Matthew L.
Lazarewicz........... 125,000 19.1 1.78 10/19/09 362,429 577,108
</TABLE>

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

(1) The dollar amounts under these columns represent the potential realizable
value of each grant assuming that the market value of our stock appreciates
from the date of grant to the expiration of the option at annualized rated
of 5% and 10%. These assumed rates of appreciation have been specified by
the SEC for illustrative purposes only and are not intended to forecast
future financial performance or possible future appreciation in the price of
our stock. The actual amount the executive officer may realize will depend
on the extent to which the stock price exceeds the exercise price of the
options on the date the option is exercised.

FISCAL YEAR-END OPTION VALUES

The following table sets forth information concerning the number and value
of unexercised options to purchase common stock held as of December 31, 1999 by
our executive officers listed in the Summary Compensation Table. There was no
public trading market for our common stock as of December 31, 1999. Accordingly,
the values of the unexercised in-the-money options have been calculated on the
basis of an assumed initial public offering price of $ per share less
the applicable exercise price multiplied by the number of shares that may be
acquired on exercise. None of the executive officers listed in the Summary
Compensation Table exercised any stock options in 1999.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE-MONEY
FISCAL YEAR-END(#) OPTIONS AT FISCAL YEAR-END($)
------------------------------- ----------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
William E. Stanton................... 60,000 125,000
Matthew L. Lazarewicz................ 0 125,000
</TABLE>

43
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

AGREEMENT WITH GE CORPORATE RESEARCH AND DEVELOPMENT

As a result of the recent investment in our company by GE Capital Equity
Investments, Inc., we are negotiating an agreement with GE Corporate Research &
Development, under which GE CR&D will agree to provide us with technical
expertise in controls and materials and consultations with respect to our cost
reduction strategy. Under the proposed terms of that agreement, we will pay for
GE CR&D's services at cost and will issue GE Equity a warrant to purchase
120,000 shares of our common stock at an exercise price of $4.20 per share.

DQE ENTERPRISES DISTRIBUTION AGREEMENT

In connection with our May 1997 formation, DQE Enterprises, a subsidiary of
DQE, Inc., entered into a letter agreement with us pursuant to which, among
other things, we have agreed to appoint DQE Enterprises or one of its affiliates
as our exclusive distributor of our flywheel products for stationary energy
storage applications in the states of Pennsylvania, New York, Ohio, West
Virginia, Maryland, Delaware, Virginia and the District of Columbia, the
"territory". Under this agreement, we retained the right to make sales in the
territory to cable and telephone companies and to electric utilities for their
internal use. DQE Enterprises also has a nonexclusive right to distribute the
products outside the territory, which we have the right to terminate at any
time. The distribution rights have a term of 20 years from the commencement of
commercial production of our products, provided that the rights may be
terminated earlier if DQE Enterprises does not meet sales targets to be agreed
upon in the future. We have agreed to sell our products to DQE Enterprises at
the lower of (i) cost of goods sold (including certain overhead expenses) plus
30% and (ii) the lowest price at which the products are sold to others.

LICENSES WITH SATCON

SatCon has granted us a perpetual, exclusive, royalty-free, worldwide right
and license to all patents, patent applications, technical knowledge,
information and know-how in existence in May 1997 and any improvements thereon
prior to the completion of this offering which relate to the field of flywheel
energy storage products, systems and processes for stationary terrestrial (in or
on ground or affixed to structures on ground) applications, but not for
satellite or other non-terrestrial, stationary applications. We do not have the
right to sublicense this technology other than in connection with our
manufacturing and distribution operations. Our rights to further improvements in
SatCon's flywheel technology terminate upon the consummation of this offering.
We have granted SatCon a perpetual, worldwide, royalty-free, exclusive right and
license to use any improvements upon the flywheel energy storage technology for
any applications made by us other than stationary terrestrial applications.
SatCon's rights to further improvements made in our flywheel technology
terminate upon the consummation of this offering. The license from SatCon is
terminable by SatCon in certain limited circumstances, including our bankruptcy,
upon the material breach of our obligations under the license, the exercise of
certain put rights granted by SatCon to certain of our investors and upon notice
by SatCon that the license agreement infringes upon the rights of a third party.
See "Risk Factors--Any failure to protect our intellectual property could
seriously impair our competitive position."

INITIAL FORMATION

SatCon formed us on May 8, 1997 and funded our initial operations on
May 28, 1997, using an investment in SatCon of $5,000,000 made by DQE
Enterprises. Pursuant to the terms of a securities purchase agreement dated
May 28, 1997 among us, SatCon and DQE Enterprises, DQE Enterprises made an
initial investment in SatCon totaling $5,000,000 to fund flywheel product
development and received a warrant to purchase 562,500 shares of our common
stock, at a purchase price of $5.33 per

44
<PAGE>
share. These warrants expired on May 28, 1999. We granted DQE Enterprises
registration rights which were terminated by the registration rights agreement
entered into in connection with the class E preferred stock financing described
below. In addition, SatCon received 3,375,000 shares of our common stock and
1,125,000 shares of our class A preferred stock and granted us the perpetual,
exclusive, royalty-free right and license described above.

1997 RECAPITALIZATION

On December 19, 1997, we issued 6,738 shares of our common stock and six
shares of our class C preferred stock to six individuals. In connection with
this investment, SatCon exchanged shares of our common stock for 3,373,313
shares of our class A preferred stock.

In connection with that transaction, the six investors and SatCon entered
into a voting agreement under which the stockholders agreed to vote to elect
designated directors and as to certain other matters. This agreement, as
amended, will terminate upon consummation of this offering.

CLASS D PREFERRED STOCK SECURITIES PURCHASE AGREEMENT

Pursuant to the terms of a securities purchase agreement dated October 23,
1998, among us, Perseus Capital, DQE Enterprises, Micro-Generation and SatCon:

- the purchasers purchased from us 1,900,000 shares of our class D preferred
stock at a purchase price of $2.50 per share;

- we issued to the purchasers warrants to purchase in the aggregate
2,227,500 shares of our common stock; and

- we and SatCon agreed as to certain other matters, all of which were either
superseded in subsequent financings or terminate effective upon the
closing of this offering.

The aggregate consideration we received was $4,750,000. The terms of the
securities purchase agreement were determined on the basis of arms-length
negotiations. Prior to the execution of the securities purchase agreement,
neither we nor SatCon had any material relationship with Perseus Capital or
Micro-Generation.

CLASS E BRIDGE LOANS

On June 22, 1999, SatCon, Perseus Capital, DQE Enterprises and
Micro-Generation made bridge loans to us in the respective principal amounts of
$250,000, $250,000, $50,000 and $50,000. These loans accrued interest at a rate
of 12.5% per annum increasing to 15% per annum in the event the loans went into
default or were not paid in full by September 23, 1999.

On August 2, 1999, SatCon, Perseus Capital, DQE Enterprises and
Micro-Generation committed to make, and on or subsequent to that date made,
bridge loans to us in the respective principal amounts of $1,000,000,
$1,350,000, $500,000 and $300,000. These loans accrued interest at a rate of
12.5% per annum, increasing to 15% per annum in the event we had not sold
$5,000,000 or more of our class E preferred stock by February 2, 2000.

On January 7, 2000, SatCon, Perseus Capital, DQE Enterprises and Micro
Generation made similar bridge loans to us in the respective principal amounts
of $200,000, $250,000, $90,000 and $60,000. These loans accrued interest at a
rate of 12.5% per annum, increasing to 15% per annum in the event we had not
sold $5,000,000 or more of our class E preferred stock by May 7, 2000. The
principal and interest on these loans was payable in cash or, in the event the
bridge loans were converted into shares of class E preferred stock, in shares of
class E preferred stock at the price per share at which the class E preferred
stock was issued.

45
<PAGE>
As part of these transactions, SatCon, Perseus Capital, DQE Enterprises and
Micro-Generation received warrants to purchase shares of our class E preferred
stock. In the August bridge financing, these investors received warrants to
purchase shares in an aggregate amount equal to $787,500 divided by the per
share price equal to the price we sold at least $5,000,000 of our class E
preferred stock, or, if such transaction was not consummated within 6 months,
$2.50 per share. In the January bridge financing, these investors received the
right to be issued a warrant under their notes in the event there was a sale of
at least $5,000,000 of our class E preferred stock by February 2, 2000 and the
investors demanded that either the notes be paid in full or the investors
purchased class E preferred stock. No such sale occurred and these warrants were
never issued.

All of these bridge loans and warrants were converted into the class E
preferred stock and class E warrants described below, except for the principal
and interest accrued on the SatCon $200,000 loan made on January 7, 2000 which
was repaid in full prior to the consummation of the class E preferred stock
financing.

CLASS E PREFERRED STOCK SECURITIES PURCHASE AGREEMENT

Pursuant to the terms of a securities purchase agreement, dated April 7,
2000, by and among us, SatCon, Perseus Capital, DQE Enterprises and
Micro-Generation:

- the purchasers purchased from us 1,226,141 shares of our class E preferred
stock at a purchase price of $3.12 per share; and

- we issued warrants to purchase 306,535 shares of our class E preferred
stock at an exercise price of $2.50 per share.

The class E preferred stock and these warrants were issued in consideration
of the cancellation of $3,550,000 principal amount of the bridge loans and
$275,559 accrued interest on those bridge loans and cancellation of the warrants
issued in connection with the bridge loans. The terms of the securities purchase
agreement were determined on the basis of arms-length negotiations.

In connection with the class E preferred stock financing, we agreed as to
certain other matters, all of which were either superceded in subsequent
financings or terminate effective with the closing of this offering.

FEBRUARY AND MARCH, 2000 INTERIM FINANCINGS

During February and March, 2000 we borrowed $600,000 from Perseus Capital,
$300,000 from SatCon, $300,000 from DQE Enterprises and $200,000 from
Micro-Generation under demand promissory notes convertible into our class F
preferred stock. The loans accrued interest at a rate of 6% per annum.

The principal on the Perseus Capital, DQE Enterprises and Micro-Generation
notes was converted into class F preferred stock upon consummation of the
class F preferred stock financing and accrued interest paid in cash. The
principal and interest accrued on the SatCon note was repaid in full prior to
the consummation of the class F preferred stock financing.

CLASS F BRIDGE LOAN

On April 21, 2000, Perseus Capital, Micro-Generation, Mechanical Technology
Incorporated, The Beacon Group, Energy Investment Fund II, L.P. and Penske
Corporation made bridge loans to us in the respective principal amounts of
$1,200,000, $400,000, $1,200,000, $900,000 and $400,000. These loans accrued
interest at a rate of 6% per annum. The principal and interest on these loans
were payable in cash or, in the event the bridge loan was converted into shares
of class F preferred stock, in shares of class F preferred stock at the price
per share at which the class F preferred stock was issued.

46
<PAGE>
As part of these transactions, Perseus Capital, Micro-Generation, Mechanical
Technology, Beacon Group and Penske Corporation received warrants to purchase in
the aggregate 41,000 shares of our common stock. These bridge warrants expire on
April 21, 2005 and have an exercise price of $4.20 per share.

The principal and interest accrued on these bridge loans were converted into
the class F preferred stock described below.

CLASS F PREFERRED STOCK SECURITIES PURCHASE AGREEMENT

Pursuant to the terms of a securities purchase agreement, dated May 23,
2000, by and among us, Perseus Capital, DQE Enterprises, Micro-Generation,
Mechanical Technology, Beacon Group, Penske and GE Capital Equity
Investments, Inc.:

- the purchasers purchased from us 6,785,711 shares of our class F preferred
stock at a purchase price of $4.20 per share; and

- we issued warrants to purchase a number of shares of our common stock
equal to $14,250,000 divided by 75% of the initial offering price at an
exercise price of 75% of the initial offering price.

The class F preferred stock and these warrants were issued in consideration
of an aggregate of $23,300,000 in cash and the cancellation of $5,200,000
principal amount of the bridge loans. We also repaid the interest on the bridge
loans at the closing of the class F preferred stock financing. The terms of the
securities purchase agreement were determined on the basis of arms-length
negotiations.

In connection with the class F preferred stock financing, we entered into an
investors rights agreement. Also as part of this financing, we granted the
purchasers rights to demand registration of their shares of our capital stock
under certain circumstances and to participate in any offering registered by us.
The shareholders have waived the right to participate in this offering.

CONSULTING AGREEMENTS

We are party to Amended/Restated Consulting Agreements with each of DQE
Enterprises, Micro-Generation and Perseus, each dated as of November 1, 1999
under which they act as independent contractors and provide us with consulting
and advisory services with respect to:

- Flywheel applications in utility and related markets;

- Economic analysis of product opportunities in utility and related markets;

- Energy market trends and developments; and

- Other matters relating to our business that we shall reasonably request.

DQE ENTERPRISES CONSULTING AGREEMENT. Our Amended/Restated Consulting
Agreement with DQE Enterprises replaced a consulting agreement with them entered
into in 1997.

Under this agreement, we issued DQE Enterprises 60,000 shares of our
class A preferred stock as of May 1998, 60,000 shares of our class A preferred
stock as of May 1999 and 25,000 shares of our class A preferred stock as of
November 1999. In addition, if not terminated prior to issuance, we would be
obligated to issue 60,000 shares of class A preferred stock on October 31 of
each year, commencing October 31, 2000. This agreement terminates by its terms
immediately prior to the effective date of this offering. Upon termination, we
will be required to issue DQE Enterprises shares of our class A preferred
stock representing the amount due and owing under the agreement prorated to the
date of termination. These shares will convert into an equal number of shares of
common stock upon consummation of this offering.

47
<PAGE>
MICRO-GENERATION CONSULTING AGREEMENT. Our Amended/Restated Consulting
Agreement with Micro-Generation replaced a consulting agreement with them
entered into in 1998.

Under this agreement, we issued Micro-Generation 24,000 shares of our
class A preferred stock in November 1999 in replacement of common stock to which
they were entitled as of October 1998 and October 1999. In addition, if not
terminated prior to issuance, we would be obligated to issue 12,000 shares of
class A preferred stock on October 31 of each year, commencing October 31, 2001.
This agreement terminates by its terms immediately prior to the effective date
of this offering. Upon termination, we will not be required to issue
Micro-Generation any additional shares of our class A preferred stock. These
shares will convert into an equal number of shares of common stock upon
consummation of this offering.

PERSEUS CAPITAL CONSULTING AGREEMENT. Our Amended/Restated Consulting
Agreement with Perseus replaced a consulting agreement with them entered into in
1998.

Under this agreement, we issued Perseus 96,000 shares of our class A
preferred stock in November 1999 in replacement of common stock to which they
were entitled as of October 1998 and October 1999. In addition, if not
terminated prior to issuance, we would be obligated to issue 48,000 shares of
class A preferred stock on October 31 of each year, commencing October 31, 2001.
This agreement terminates by its terms immediately prior to the effective date
of this offering. Upon termination, we will not be required to issue Perseus
Capital any additional shares of our class A preferred stock. These shares will
convert into an equal number of shares of common stock upon consummation of this
offering.

SATCON SERVICES

During 1997, 1998, 1999 and 2000, SatCon performed research and development,
administrative and other services on our behalf. Amounts paid to SatCon for
these services amounted to approximately $1,351,000, $443,000, $59,000 and
$202,000 during the period from inception to December 31, 1997, the year ended
December 31, 1998, the year ended December 31, 1999 and to June 30, 2000,
respectively.

48
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock (1) prior to the offering, assuming the issuance
of 14,679,765 shares of common stock upon consummation of this offering upon
conversion of our preferred stock, and (2) after the offering, assuming the
issuance of 368,338 shares of common stock to be issued upon consummation of
this offering as a dividend on the class D preferred stock, 45,000 shares
accrued as of July 31, 2000 to be issued on the closing date of this offering
and common stock under a consulting agreement, and the sale of shares of
common stock in this offering, by:

- our institutional stockholders and all other persons known by us to own
beneficially 5% or more of our voting securities;

- each of our directors;

- the executive officers listed in the Summary Compensation Table; and

- all directors and executive officers as a group.

Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the voting securities beneficially owned by the
stockholder.

<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
NUMBER OF BENEFICIALLY OWNED(2)(3)(4)
SHARES ---------------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2)(3)(4) OFFERING OFFERING
--------------------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
William E. Stanton................................... 121,667 * *
Matthew L. Lazarewicz................................ 41,667 * *
Philip J. Deutch(5).................................. 5,097,357 30.8%
David B. Eisenhaure(6)............................... 4,934,258 33.3%
Alan P. Goldberg(7).................................. 1,440,571 9.8%
Hans Kobler(8)....................................... 1,428,571 9.7%
Kenneth M. Socha(9).................................. 5,097,357 30.8%
Eric R. Stoltz(10)................................... 1,854,325 12.2%
SatCon Technology Corporation(11).................... 4,934,258 33.3%
Perseus Capital, L.L.C.(12).......................... 5,097,357 30.8%
DQE Enterprises, Inc.(13)............................ 1,854,325 12.2%
Mechanical Technology, Incorporated(14).............. 1,440,571 9.8%
GE Capital Equity Investments, Inc.(15).............. 1,428,571 9.7%
Micro-Generation Technology Fund, L.L.C.(16)......... 1,354,118 8.9%
The Beacon Group Energy Investment Fund II,
L.P.(17)........................................... 1,080,428 7.3%
Penske Corporation(18)............................... 480,190 3.2%
All directors and executive officers as a group (12
persons)........................................... 14,962,416 83.5%
</TABLE>

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

* Less than 1%.

(1) The address for all executive officers and directors is c/o Beacon Power
Corporation, 6D Gill Street, Woburn, Massachusetts 01801.

(2) The number of shares beneficially owned by each stockholder is determined
under rules issued by the Securities and Exchange Commission and includes
voting or investment power with respect to those securities. Under these
rules, beneficial ownership includes any shares as to which the individual
or entity has sole or shared voting power or investment power and includes
any shares as to which the individual or entity has the right to acquire
beneficial ownership within 60 days after July 31, 2000 through the exercise
of any warrant, stock option or other right. The inclusion

49
<PAGE>
in this prospectus of these shares, however, does not constitute an
admission that the named stockholder is a direct or indirect beneficial
owner of those shares. The number of shares of common stock outstanding used
in calculating the percentage for each listed person includes the shares of
common stock underlying warrants, options or convertible preferred stock
held by that person that are exercisable or convertible within 60 days of
July 31, 2000, but excludes shares of common stock underlying warrants,
options or convertible preferred stock held by any other person. Percentage
of beneficial ownership prior to the offering is based on 14,720,189 shares
of common stock outstanding as of July 31, 2000 after giving effect to the
conversion of our preferred stock, plus, after the offering, 368,338 shares
of common stock to be issued upon consummation of this offering as a
dividend on the class D preferred stock, 45,000 shares accrued as of July
31, 2000 to be issued on the closing date of the offering as common stock
under a consulting agreement, and the shares of common stock being sold in
this offering assuming no exercise of the underwriters' overallotment
option.

(3) Includes the following number of shares of common stock issuable upon the
exercise of stock options which may be exercised on or before September 29,
2000: Mr. Stanton, 121,667; Mr. Lazarewicz, 41,667; Ms. Lister, 44,000;
Mr. French, 0; Mr. Spiezio, 0; and Mr. Swech, 0.

(4) Assumes conversion of all shares of preferred stock into common stock upon
consummation of this offering. The percentage of common stock beneficially
owned after the offering also assumes that the underwriters have not
exercised their over-allotment option.

(5) Mr. Deutch is a Director of Beacon. Includes the shares and warrants held by
Perseus Capital of which Mr. Deutch is a Managing Director. Mr. Deutch
disclaims beneficial ownership of these shares.

(6) Mr. Eisenhaure is a Director of Beacon. Includes the shares and warrants
held by SatCon of which Mr. Eisenhaure is the President, Chief Executive
Officer and Chairman of the Board of Directors. Mr. Eisenhaure disclaims
beneficial ownership of these shares.

(7) Mr. Goldberg is a Director of Beacon. Includes the shares and warrants held
by Mechanical Technology of which Mr. Goldberg is a member of the Board of
Directors. Mr. Goldberg disclaims beneficial ownership of these shares.

(8) Mr. Kobler is a Director of Beacon. Includes the shares and warrants held by
GE Equity of which Mr. Kobler is Vice President. Mr. Kobler disclaims
beneficial ownership of these shares.

(9) Mr. Socha is a Director of Beacon. Includes the shares and warrants held by
Perseus Capital of which Mr. Socha is the Senior Managing Director.
Mr. Socha disclaims beneficial ownership of these shares.

(10) Mr. Stoltz is a Director of Beacon. Includes the shares and warrants held
by DQE Enterprises, Inc. of which Mr. Stoltz is a Vice President.
Mr. Stoltz disclaims beneficial ownership of these shares.

(11) Includes shares of common stock issuable upon exercise of warrants to
purchase 86,852 shares of common stock. SatCon's address is 161 First
Street, Cambridge, MA 02142.

(12) Includes shares of common stock issuable upon exercise of warrants to
purchase 1,589,630 shares of common stock and 232,636 shares of common stock
to be issued upon consummation of this offering as a dividend on the
class D preferred stock. Does not include shares of common stock issuable
upon exercise of warrants issued in connection with the class F financing to
purchase a number of shares of common stock equal to $3,000,000 divided by
75% of the initial offering price, or shares assuming a $
initial public offering price. Perseus Capital's address is The Army and
Navy Club Building, 1627 I Street, N.W., Suite 610, Washington, DC 20006.

50
<PAGE>
(13) Includes shares of common stock issuable upon exercise of warrants to
purchase 501,199 shares of common stock, 77,545 shares of common stock to be
issued upon consummation of this offering as a dividend on the class D
preferred stock and 45,000 shares accrued through July 31, 2000 to be issued
in payment of consulting fees. Does not include shares of common stock
issuable upon exercise of warrants issued in connection with the class F
financing to purchase a number of shares of common stock equal to $1,000,000
divided by 75% of the initial offering price, or shares assuming a
$ initial public offering price. DQE Enterprises' address is One
Northshore Center, Suite 100, 12 Federal Street, Pittsburgh, PA 15212.

(14) Includes shares of common stock issuable upon exercise of warrants to
purchase 12,000 shares of common stock. Does not include shares of common
stock issuable upon exercise of warrants issued in connection with the
class F financing equal to $3,000,000 divided by 75% of the initial offering
price, or shares assuming a $ initial public offering price.
Mechanical Technology's address is 30 South Pearl Street, Albany, NY 12207.

(15) Does not include shares of common stock issuable upon exercise of warrants
issued in connection with the class F financing equal to $3,000,000 divided
by 75% of the initial offering price, or shares assuming a $
initial public offering price. GE Equity's address is 120 Long Ridge Road,
Stamford, CT 06927.

(16) Includes shares of common stock issuable upon exercise of warrants to
purchase 372,354 shares of common stock and 58,157 shares of common stock to
be issued upon consummation of this offering as a dividend on the class D
preferred stock. Does not include shares of common stock issuable upon
exercise of warrants issued in connection with the class F financing to
purchase a number of shares of common stock equal to $1,000,000 divided by
75% of the initial offering price, or shares assuming a $
initial public offering price. Micro-Generation's address is c/o Arete
Corporation, P.O. Box 1299, Center Harbor, NH 03226.

(17) Includes shares of common stock issuable upon exercise of warrants to
purchase 9,000 shares of common stock. Does not include shares of common
stock issuable upon exercise of warrants issued in connection with the
class F financing equal to $2,250,000 divided by 75% of the initial offering
price, or shares assuming a $ initial public offering price.
Beacon Group's address is 399 Park Avenue, New York, NY 10022.

(18) Includes shares of common stock issuable upon exercise of warrants to
purchase 4,000 shares of common stock. Does not include shares of common
stock issuable upon exercise of warrants issued in connection with the
class F financing equal to $1,000,000 divided by 75% of the initial offering
price, or shares assuming a $ initial public offering price.
Penske's address is 13400 Outer Drive West, B41, Detroit, MI 48239.

51
<PAGE>
DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

We are authorized to issue 30,000,000 shares of common stock, of which
40,424 shares were issued and outstanding as of July 31, 2000. The following
summary description of the common stock is qualified in its entirety by
reference to our certificate of incorporation.

VOTING RIGHTS

The holders of our common stock have one vote per share. Holders of our
common stock are not entitled to vote cumulatively for the election of
directors. Generally, all matters to be voted on by stockholders must be
approved by a majority, or, in the case of election of directors, by a
plurality, of the votes entitled to be cast at a meeting at which a quorum is
present by all shares of common stock present in person or represented by proxy,
voting together as a single class, subject to any voting rights granted to
holders of any then outstanding preferred stock.

DIVIDENDS

Holders of common stock will share ratably in any dividends declared by our
Board of Directors, subject to the preferential rights of any preferred stock
then outstanding. Dividends consisting of shares of common stock may be paid to
holders of shares of common stock.

OTHER RIGHTS

All holders of common stock are entitled to share ratably in any assets
available for distribution to holders of shares of common stock upon our
liquidation, dissolution or winding up. No shares of common stock are subject to
redemption or have preemptive rights to purchase additional shares of common
stock. The outstanding common stock is, and the common stock to be outstanding
upon completion of the offering will be, validly issued, fully paid and
nonassessable.

WARRANTS

We have outstanding three series of warrants to purchase our common stock
that were issued in connection with our class D and F preferred stock
financings. We also issued a series of warrants to purchase our class E
preferred stock in connection with our class E preferred stock financing. Upon
consummation of this offering, these warrants will be exercisable for shares of
our common stock.

The exercise price and the number of shares of common stock to be issued
upon exercise of the warrants will be adjusted under certain circumstances,
including:

- subdivisions, stock dividends or combinations of our common stock;

- reclassifications, exchanges, substitutions, or in-kind distributions that
results in a change in the number and/or class of the securities issuable
upon exercise of the warrants;

- reorganizations, mergers and similar transactions; and

- the issuance of additional common stock or securities convertible into
common stock at a price per share less than the exercise price in effect
immediately prior to the issuance of the additional securities.

Holders of the warrants are not entitled to receive dividends, vote, receive
notice of any meetings of stockholders or otherwise have any right as
stockholders.

CLASS D PREFERRED STOCK FINANCING WARRANTS. Of the 2,227,500 warrants
issued in connection with the class D preferred stock financing, one-third have
an exercise price of $3.33, one-third have an

52
<PAGE>
exercise price of $4.50 and one-third have an exercise price of $6.00. These
warrants expire on December 31, 2004.

CLASS E PREFERRED STOCK FINANCING WARRANTS. The warrants issued in
connection with the class E preferred stock financing are exercisable for
306,535 shares of our class E preferred stock at an exercise price of $2.50 per
share. These warrants will convert upon consummation of this offering into
warrants to receive shares of our common stock. These warrants expire on
April 7, 2005.

CLASS F PREFERRED STOCK BRIDGE LOAN WARRANTS. The warrants issued in
connection with the class F preferred stock bridge loan are exercisable for
41,000 shares of our common stock at an exercise price of $4.20 per share. These
warrants expire on April 21, 2005.

CLASS F PREFERRED STOCK WARRANTS. The warrants issued in connection with
the class F preferred stock financing are exercisable for a number of shares of
our common stock equal to $14,250,000 divided by 75% of the initial public
offering price, or shares assuming a $ initial public offering
price. The exercise price is 75% of the initial public offering price, or
$ , assuming a $ initial public offering price. These
warrants expire on May 23, 2005.

PREFERRED STOCK

We are authorized to issue 21,500,007 shares of preferred stock. Of those
authorized shares, we have designated:

- 6,000,000 shares of class A preferred stock, 4,767,907 of which are
outstanding;

- one share of class B preferred stock which is not outstanding;

- six shares of class C preferred stock, all of which are outstanding;

- 6,000,000 shares of class D preferred stock, 1,900,000 of which are
outstanding;

- 2,000,000 shares of class E preferred stock, 1,226,141 of which are
outstanding; and

- 7,500,000 shares of class F preferred stock, 6,785,711 of which are
outstanding.

The preferred stock may be issued in one or more classes, the terms of which
may be determined at the time of issuance by our Board of Directors, without
further action by stockholders and may include voting rights (including the
right to vote as a series on particular matters), preferences as to dividends
and liquidation, conversion and redemption rights. The issuance of preferred
stock could reduce the rights, including voting rights, of the holders of common
stock, and, therefore, reduce the value of your common stock. In particular,
specific rights granted to future holders of preferred stock could be used to
restrict our ability to merge with or sell our assets to a third party, thereby
preserving the control of us by our existing stockholders.

No description of any of our outstanding classes of preferred stock is
included because all outstanding shares of preferred stock will convert into
shares of common stock upon consummation of this offering.

INDEMNIFICATION MATTERS

Our certificate of incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors, officers and
trustees for monetary damages for breaches of their fiduciary duty, so long as
the person was acting in good faith and in a manner the person reasonably
believed to be in or not opposed to our best interest and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which the person shall have been adjudged to be liable to us unless and only to
the extent that the court in which action was brought determines otherwise. This
provision does not alter a director's liability under the federal securities
laws and does

53
<PAGE>
not affect the availability of equitable remedies, such as an injunction or
rescission, for breach of fiduciary duty. We have entered into indemnification
agreements with our directors and certain of our officers to the same effect. We
also have directors' and officers' insurance against certain liabilities that
insures those persons against the cost of defense, settlement or payment of a
judgment under certain circumstances.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us as described
above, we have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. At present, there is no pending
material litigation or proceeding involving any of our directors, officers,
employees or agents in which indemnification will be required or permitted.

PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS WHICH MAY HAVE
ANTI-TAKEOVER EFFECT

A number of provisions of our certificate of incorporation and by-laws which
will be effective upon completion of this offering concern matters of corporate
governance and the rights of stockholders. These provisions, as well as the
ability of our Board of Directors to issue shares of preferred stock and to set
the voting rights, preferences and other terms, may be deemed to have an
anti-takeover effect and may discourage takeover attempts not first approved by
our Board of Directors, including takeovers which stockholders may deem to be in
their best interests. If takeover attempts are discouraged, temporary
fluctuations in the market price of our common stock, which may result from
actual or rumored takeover attempts, may be inhibited. These provisions,
together with our classified Board of Directors and the ability of our Board of
Directors to issue preferred stock without further stockholder action, also
could delay or frustrate the removal of incumbent directors or the assumption of
control by stockholders, even if the removal or assumption would be beneficial
to our stockholders. These provisions also could discourage or make more
difficult a merger, tender offer or proxy contest, even if favorable to the
interests of stockholders, and could depress the market price of our common
stock. Our Board of Directors believes that these provisions are appropriate to
protect our interests and those of our stockholders. Our Board of Directors has
no present plans to adopt any further measures or devices which may be deemed to
have an "anti-takeover effect."

MEETINGS OF STOCKHOLDERS

Our by-laws provide that a special meeting of stockholders may be called
only by the President or our Board of Directors unless otherwise required by
law. Our by-laws provide that only those matters included in the notice of the
special meeting may be considered or acted upon at that special meeting unless
otherwise provided by law. In addition, our by-laws include notice and
informational requirements and time limitations on any director nomination or
any new proposal which a stockholder wishes to make at an annual meeting of
stockholders.

DIRECTOR VACANCIES AND REMOVAL

Our by-laws provide that vacancies in our Board of Directors may be filled
only by the affirmative vote of a majority of the remaining directors. Our
by-laws provide that directors may be removed from office with or without cause
and only by the affirmative vote of holders of a majority of the shares then
entitled to vote at an election of directors.

ABILITY TO ADOPT STOCKHOLDER RIGHTS PLAN

Our Board of Directors may in the future resolve to issue shares of
preferred stock or rights to acquire such shares in order to implement a
stockholder rights plan. A stockholder rights plan typically creates voting or
other impediments to discourage persons seeking to gain control of Beacon by
means

54
<PAGE>
of a merger, tender offer, proxy contest or otherwise if our Board of Directors
determines that such change in control is not in the best interests of Beacon
and our stockholders. Our Board of Directors has no present intention of
adopting a stockholder rights plan and is not aware of any attempt to effect a
change in control of Beacon.

AMENDMENT OF BY-LAWS

Our certificate of incorporation and by-laws provide that our by-laws may be
amended or repealed by our Board of Directors or by the stockholders. Such
action by the Board of Directors requires the affirmative vote of a majority of
the directors then in office. Such action by the stockholders requires the
affirmative vote of at least two-thirds of the shares present in person or
represented by proxy at an annual meeting of stockholders or a special meeting
called for such purpose unless our Board of Directors recommends that the
stockholders approve such amendment or repeal at such meeting, in which case
such amendment or repeal shall only require the affirmative vote of a majority
of the shares present in person or represented by proxy at the meeting.

STATUTORY BUSINESS COMBINATION PROVISION

Following the offering, we will be subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from consummating a "business combination," except under certain circumstances,
with an "interested stockholder" for a period of three years after the date such
person became an "interested stockholder" unless:

- before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;

- upon the closing of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares held
by directors who are also officers of the corporation and shares held by
employee stock plans; or

- following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of 66 2/3% of the outstanding
voting stock of the corporation not owned by the interested stockholder.

The term "interested stockholder" generally is defined as a person who,
together with affiliates and associates, owns, or, within the prior three years,
owned, 15% or more of a corporation's outstanding voting stock. The term
"business combination" includes mergers, asset sales and other similar
transactions resulting in a financial benefit to an interested stockholder.
Section 203 makes it more difficult for an "interested stockholder" to effect
various business combinations with a corporation for a three-year period. A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or by-laws resulting from an amendment approved by
holders of a least a majority of the outstanding voting stock. Neither our
certificate of incorporation nor our by-laws contains any such exclusion.

TRADING ON THE NASDAQ NATIONAL MARKET SYSTEM

We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "BCON."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock will be Registrar and
Transfer Company.

55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Before this offering, there has been no public market for our common stock,
and no prediction can be made as to the effect, if any, that sales of common
stock or the availability of common stock for sale will have on the market price
of our common stock prevailing from time to time. Nonetheless, substantial sales
of common stock in the public market following this offering, or the perception
that sales could occur, could lower the market price of our common stock or make
it difficult for us to raise additional equity capital in the future.

SALES OF RESTRICTED SHARES

Following this offering, there will be shares of our common stock
outstanding. Of these shares, the shares which are being sold in this offering
generally will be freely transferable without restriction or further
registration under the Securities Act, except that any shares held by our
"affiliates" as defined in Rule 144 under the Securities Act may be sold only in
compliance with the limitations described below.

All of the remaining shares of common stock which will be outstanding after
the offering will be "restricted securities" as defined in Rule 144, and may be
sold in the future without registration under the Securities Act subject to
compliance with the provisions of Rule 144 or any other applicable exemption
under the Securities Act. Generally, restricted securities that have been owned
for a period of at least two years may be sold immediately after the completion
of this offering, and restricted securities that have been owned for at least
one year may be sold immediately after the completion of this offering but
subject to the volume limitations of Rule 144.

In connection with this offering, our existing officers, directors, and
certain stockholders who will own an aggregate of 15,094,783 shares of common
stock after this offering, have agreed with the underwriters that, subject to
exceptions, they will not sell or dispose of any of their shares for 180 days
after the date of this prospectus. Solomon Smith Barney, Inc. may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to such restrictions. Subject to these lock-up agreements, the
shares of common stock outstanding upon the closing of the offering will be
available for sale in the public market as follows:

<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF SHARES DESCRIPTION
---------------------------- -----------
<C> <S>
These shares will be immediately saleable under Rule 144.
6,744 After the date of this prospectus, freely tradable shares
sold in the offering.
32,000 After 90 days from the date of this prospectus, these shares
will be saleable under Rule 701.
6,464,593 After 180 days from the date of this prospectus, the lock-up
period will expire and these shares will be saleable under
Rule 144 without regard to holding period limitations but
subject, in some cases, to volume limitations.
8,630,190 After 180 days from the date of this prospectus, the lock-up
period will expire and these shares will be saleable under
Rule 144, subject to holding period and volume limitations.
</TABLE>

In general, under Rule 144 as currently in effect, assuming we are current
in our public filings with the Securities Exchange Commission, a person or
persons whose shares are required to be aggregated, including an affiliate of
ours, and who has beneficially owned shares for at least one year is entitled to
sell through a brokers transaction or in a transaction directly with a market
maker, within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of 1% of the
then outstanding shares of common stock, which is expected to be shares upon
the completion of this offering, or the average weekly trading volume of the
common stock during the four calendar weeks preceding the date on which notice
of such sale is filed, subject to

56
<PAGE>
certain restrictions. In addition, a person who is not deemed to have been an
affiliate of ours 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 would
be entitled to sell those shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate of ours, that person's holding period for the purpose of effecting a
sale under Rule 144 commences on the date of transfer from the affiliate.

WARRANTS

We have outstanding warrants to purchase 2,645,035 shares of our common
stock, plus outstanding warrants to purchase a number of shares equal to
$14,250,000 divided by 75% of the initial offering price, or shares assuming a
$ initial public offering price. The shares purchased upon exercise of these
warrants may be sold 180 days after the date of this prospectus, subject to the
holding period, volume limitation and other requirements of Rule 144 under the
Securities Act.

STOCK INCENTIVE PLAN

Under our stock incentive plan, as of July 31, 2000, options to purchase
2,375,750 shares of common stock were issued and outstanding, of which options
to purchase 510,271 shares have vested. We intend to file a registration
statement on Form S-8 with respect to the aggregate of shares of common stock
issuable under our stock incentive plan promptly following the consummation of
this offering. Shares issued upon the exercise of stock options after the
effective date of the Form S-8 registration statement will be eligible for
resale in the public market without restriction, subject to Rule 144 limitations
applicable to affiliates and the lock-up agreements described above.

ISSUANCE OF ADDITIONAL SHARES

We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, except we
may issue, and grant options to purchase, shares of common stock under our stock
incentive plan.

REGISTRATION RIGHTS

Upon completion of this offering, holders of approximately 15,094,783 shares
of our common stock and the common stock issuable upon exercise of outstanding
warrants to purchase 2,575,035 shares of common stock have the right to demand
that we include the shares of common stock they hold or acquire upon the
exercise of the warrants in any registration statements we file with the
Securities Exchange Commission, other than registration statements filed with
respect to employee benefit plans or in connection with an acquisition.

57
<PAGE>
UNDERWRITING

Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to each underwriter, the number of shares
set forth opposite the name of that underwriter.

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Salomon Smith Barney Inc....................................
Banc of America Securities LLC..............................
CIBC World Markets Corp.....................................
----
TOTAL...................................................
====
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to the
approval of particular legal matters by the underwriters' counsel and to other
conditions. The underwriters are obligated to purchase all the shares, other
than those covered by their over-allotment option described below, if they
purchase any of the shares.

The underwriters, for whom Salomon Smith Barney Inc., Banc of America
Securities LLC, and CIBC World Markets Corp. are acting as representatives,
propose to offer some of the shares directly to the public at the public
offering price set forth on the cover page of this prospectus and some of the
shares to particular dealers at the public offering price less a concession not
in excess of $ per share. The underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share on sales to
other dealers. If all the shares are not sold at the initial offering price, the
underwriters may change the public offering price and other selling terms. The
representatives have advised us that the underwriters do not intend to confirm
any sales to any accounts over which they exercise discretionary authority.

We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares of our common
stock at the public offering price less the underwriting discount. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent this
option is exercised, each underwriter will be obligated, subject to some
conditions, to purchase a number of additional shares approximately
proportionate to that underwriter's initial purchase commitment.

At our request, the underwriters have reserved up to 5% of the shares of
common stock for sale at the initial public offering price to our directors,
officers and employees and other parties associated with us who have advised us
of their desire to purchase the shares. The number of shares of common stock
available for sale to the general public will be reduced to the extent that
these individuals purchase reserved shares. Any reserved shares that are not
purchased through this directed share program will be offered by the
underwriters to the general public on the same basis as all other shares of
common stock offered by this prospectus. We have agreed to indemnify the
underwriters against certain liabilities and expenses, including liabilities
under the Securities Act of 1933, in connection with the sales of the directed
shares.

We and our officers, directors and major shareholders have agreed that, for
a period of 180 days from the date of this prospectus, we will not, without the
prior written consent of Salomon Smith Barney Inc., dispose of or hedge any
shares of our common stock or any securities convertible into, or exercisable or
exchangeable for, our common stock. Salomon Smith Barney Inc., in its sole
discretion, may release any of the securities subject to these lock-up
agreements at any time without notice.

58
<PAGE>
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering for the shares was determined
by negotiation between us and the representatives. Among the factors considered
in determining the initial public offering price were:

- our record of operations;

- our current financial condition;

- our future prospects;

- our markets;

- the economic conditions in and future prospects for the industry in which
we compete;

- our management; and

- currently prevailing general conditions in the equity securities markets,
including current market valuations of publicly traded companies
considered comparable to us.

The prices at which the shares will sell in the public market after this
offering may, however, be lower than the price at which they are sold by the
underwriters. Additionally, an active trading market in our common stock may not
develop and continue after this offering.

We intend to apply to have our common stock included for quotation on the
Nasdaq National Market under the symbol "BCON".

The following table shows the underwriting discounts and commissions that we
will pay to the underwriters in connection with this offering. These amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.

<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share............................................ $ $
Total................................................ $ $
</TABLE>

In connection with this offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include short sales, syndicate covering
transactions and stabilizing transactions. Short sales involve syndicate sales
of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
"Covered" short sales are sales of shares made in an amount up to the number of
shares represented by the underwriters' over-allotment option. In determining
the source of shares to close out the covered syndicate short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the over-allotment option. Transactions to close out the
covered syndicate short involve either purchases of the common stock in the open
market after the distribution has been completed or the exercise of the
over-allotment option. The underwriters may also make "naked" short sales of
shares in excess of the over-allotment option. The underwriters must close out
any naked short position by purchasing shares of common stock in the open
market. A naked short position is more likely to be created if the underwriters
are concerned that there may be downward pressure on the price of the shares in
the open market after pricing that could adversely affect investors who purchase
in the offering. Stabilizing transactions consist of bids for or purchases of
shares in the open market while the offering is in progress.

The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member while
Salomon Smith Barney Inc., in covering a syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.

59
<PAGE>
Any of these activities may have the effect of preventing or retarding a
decline in the market price of the common stock. They may also cause the price
of the common stock to be higher than the price that would otherwise exist in
the open market in the absence of these transactions. The underwriters may
conduct these transactions on the Nasdaq National Market or in the
over-the-counter market, or otherwise. If the underwriters commence any of these
transactions, they may discontinue them at any time.

We estimate that our total expense for this offering, excluding the
underwriting discount, will be $ .

We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of any of those liabilities.

60
<PAGE>
LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for us by Edwards & Angell, LLP, Boston, Massachusetts. Various legal
matters related to this offering will be passed upon for the underwriters by
Cravath, Swaine & Moore, New York, New York.

EXPERTS

The financial statements in this prospectus, and the financial statements
from which the Selected Financial Data included in this prospectus have been
derived and have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein. Such financial statements and Selected
Financial Data have been included herein in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including the exhibits and schedules thereto) under the
Securities Act and the rules and regulations thereunder, for the registration of
the common stock offered hereby. This prospectus is part of the registration
statement. This prospectus does not contain all the information included in the
registration statement because we have omitted certain parts of the registration
statement as permitted by the Securities and Exchange Commission's rules and
regulations. For further information about us and our common stock, you should
refer to the registration statement. Statements contained in this prospectus as
to any contract, agreement or other document referred to are not necessarily
complete. Where the contract or other document is an exhibit to the registration
statement, each statement is qualified by the provisions of that exhibit.

You can inspect and copy all or any portion of the registration statements
or any reports, statements or other information we file at the public reference
facility maintained by the Securities and Exchange Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices at
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may call the Securities
and Exchange Commission at 1-800-SEC-0330 for further information about the
operation of the public reference rooms. Copies of all or any portion of the
registration statement can be obtained from the Public Reference Section of the
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the registration statement is publicly
available through the Securities and Exchange Commission's site on the
Internet's World Wide Web, located at http://www.sec.gov.

We will also file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You can also
request copies of these documents, for a copying fee, by writing to the
Securities and Exchange Commission. We intend to furnish to our stockholders
annual reports containing audited financial statements for each fiscal year.

61
<PAGE>
BEACON POWER CORPORATION

(A DEVELOPMENT STAGE COMPANY)

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-2

FINANCIAL STATEMENTS:

Balance Sheets.............................................. F-3

Statements of Operations.................................... F-4

Statements of Stockholders' Deficiency...................... F-5

Statements of Cash Flows.................................... F-6

Notes to Financial Statements............................... F-8
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
Beacon Power Corporation:

We have audited the accompanying balance sheets of Beacon Power Corporation
(the "Company")(a development stage company) as of December 31, 1998 and 1999,
and the related statements of operations, stockholders' deficiency and cash
flows for the years then ended and for the period from May 8, 1997 (date of
inception) through December 31, 1997 and the period from May 8, 1997 (date of
inception) through December 31, 1999. 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 in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Beacon Power Corporation as
of December 31, 1998 and 1999, and the results of its operations and its cash
flows for the years then ended and the period from May 8, 1997 (date of
inception) through December 31, 1997 and the period from May 8, 1997 (date of
inception) through December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America.

Boston, Massachusetts
May 25, 2000

F-2
<PAGE>
BEACON POWER CORPORATION
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- PRO FORMA
1998 1999 MARCH 31, 2000 MARCH 31, 2000
---------- ------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $2,491,151 $ 234,350 $ 401,992
Prepaid expenses and other current assets............ 20,307 15,987 25,877
---------- ------------ ------------
Total current assets............................. 2,511,458 250,337 427,869
PROPERTY AND EQUIPMENT, Net............................ 433,726 566,013 670,051

DEFERRED FINANCING COSTS............................... -- 81,934 150,483

DEPOSITS............................................... 42,595 57,150 53,418

OTHER ASSETS........................................... 4,375 18,066 32,668
---------- ------------ ------------
TOTAL ASSETS........................................... $2,992,154 $ 973,500 $ 1,334,489
========== ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable..................................... $ 822,723 $ 413,146 $ 513,861
Accrued compensation and benefits.................... 68,183 109,206 94,766
Accrued interest..................................... -- 164,140 281,373
Accrued loss on contracts............................ -- 325,000 1,525,000
Due to related party................................. 18,611 -- --
Other accrued expenses............................... 15,622 43,222 84,494
Current portion of capital lease obligations......... 105,406 73,291 90,082
---------- ------------ ------------
Total current liabilities........................ 1,030,545 1,128,005 2,589,576
---------- ------------ ------------
DIVIDENDS PAYABLE...................................... 112,153 749,005 920,848 --
---------- ------------ ------------ ------------
NOTES PAYABLE TO INVESTORS............................. -- 3,150,000 4,950,000
---------- ------------ ------------
CAPITAL LEASE OBLIGATIONS, Net of current portion...... 76,166 2,875 40,621
---------- ------------ ------------
COMMITMENTS (Note 6)

CLASS D REDEEMABLE CONVERTIBLE
PREFERRED STOCK (Liquidation preference of
$4,750,000).......................................... 4,493,145 4,534,816 4,545,234 --
---------- ------------ ------------ ------------
STOCKHOLDERS' (DEFICIENCY) EQUITY:
Preferred stock:
Class A Convertible, $.01 par value; 6,000,000,
shares authorized 4,622,907, 4,767,907 and
4,767,907 shares issued and outstanding in 1998,
1999 and 2000 respectively, (liquidation
preference, $20,571,936, $21,217,186, and
$21,217,186, respectively)....................... 5,345,218 5,707,718 5,707,718 $ --
Class B Convertible, $.01 par value; 1 share
authorized; no shares issued and outstanding..... -- -- -- --
Class C Convertible, $.01 par value; 6 shares
authorized, issued and outstanding............... 29,933 29,933 29,933 --
Common stock, $.01 par value; 30,000,000 shares
authorized; 8,424 shares issued and outstanding
(7,069,676 shares pro forma)..................... 84 84 84 70,697
Deferred consulting expense, net..................... (37,500) (100,000) (25,000) (25,000)
Deferred stock compensation.......................... -- (56,648) (51,241) (51,241)
Additional paid-in capital........................... -- 515,318 515,318 11,711,188
Accumulated deficit during the development stage..... (8,057,590) (14,687,606) (17,888,602) (17,888,602)
---------- ------------ ------------ ------------
Total stockholders' deficiency................... (2,719,855) (8,591,201) (11,711,790) $ (6,182,958)
---------- ------------ ------------ ============
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY......... $2,992,154 $ 973,500 $ 1,334,489
========== ============ ============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

F-3
<PAGE>
BEACON POWER CORPORATION

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

OPERATING EXPENSES:
Selling, general and
administrative................. 1,168,471 1,188,165 1,558,985 3,915,621 303,367 452,004
Research and development......... 2,291,874 3,523,572 3,506,031 9,321,477 879,577 1,165,080
Loss on contracts................ -- -- 325,000 325,000 -- 1,200,000
Depreciation and amortization.... -- 78,208 218,594 296,802 41,004 76,613
----------- ----------- ----------- ------------ ----------- -----------
Total operating expenses....... 3,460,345 4,789,945 5,608,610 13,858,900 1,223,948 2,893,697
----------- ----------- ----------- ------------ ----------- -----------

LOSS FROM OPERATIONS............... (3,228,029) (4,789,945) (5,339,742) (13,357,716) (1,191,017) (2,893,697)
----------- ----------- ----------- ------------ ----------- -----------

OTHER INCOME (EXPENSE):
Interest income.................. 116,648 11,277 25,118 153,043 13,230 --
Interest expense................. -- (14,730) (356,869) (371,599) (5,932) (125,038)
----------- ----------- ----------- ------------ ----------- -----------
Total other income (expense),
net.......................... 116,648 (3,453) (331,751) (218,556) 7,298 (125,038)
----------- ----------- ----------- ------------ ----------- -----------

NET LOSS........................... (3,111,381) (4,793,398) (5,671,493) (13,576,272) (1,183,719) (3,018,735)

PREFERRED STOCK DIVIDENDS.......... -- (112,153) (916,852) (1,029,005) (151,940) (171,843)

ACCRETION OF REDEEMABLE CONVERTIBLE
PREFERRED STOCK.................. -- (6,908) (41,671) (48,579) (10,418) (10,418)
----------- ----------- ----------- ------------ ----------- -----------

LOSS TO COMMON SHAREHOLDERS........ $(3,111,381) $(4,912,459) $(6,630,016) $(14,653,856) $(1,346,077) $(3,200,996)
=========== =========== =========== ============ =========== ===========

LOSS PER SHARE--BASIC AND
DILUTED.......................... $ (369.35) $ (583.15) $ (787.04) $ (1,739.54) $ (159.79) $ (379.99)
=========== =========== =========== ============ =========== ===========

WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING...................... 8,424 8,424 8,424 8,424 8,424 8,424
=========== =========== =========== ============ =========== ===========

PRO FORMA LOSS PER SHARE........... $ (0.84) $ (0.43)
=========== ===========

PRO FORMA WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING--BASIC AND
DILUTED.......................... 6,746,337 7,013,851
=========== ===========
</TABLE>

F-4
<PAGE>
BEACON POWER CORPORATION
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>

CLASS A CLASS C
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
---------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MAY 8, 1997 (DATE OF INCEPTION)............. -- $ -- -- $ -- -- $ --
Issuance of founder's shares......................... -- -- -- -- 3,375,000 33,750
Issuance of Class A preferred stock.................. 1,125,000 5,000,000 -- -- -- --
Recapitalization..................................... 3,373,313 33,733 -- -- (3,373,314) (33,733)
Issuance of Class C preferred and common stock....... -- -- 6 29,933 6,738 67
Repayment of subscription receivable.................
Accrual of consulting expense........................ -- -- -- -- -- --
Net loss............................................. -- -- -- -- -- --
--------- ---------- ---------- ------- ---------- --------
BALANCE, DECEMBER 31, 1997............................. 4,498,313 5,033,733 6 29,933 8,424 84
Issuance of Class A preferred stock for services..... 120,000 300,000 -- -- -- --
Issuance of Series A preferred stock for services and
interest on loans.................................. 4,594 11,485 -- -- -- --
Dividend on Class D preferred stock.................. -- -- -- -- -- --
Repayment of subscription receivable................. -- -- -- -- -- --
Amortization of deferred consulting expense, net..... -- -- -- -- -- --
Accretion of redeemable preferred stock to redemption
value.............................................. -- -- -- -- -- --
Net loss............................................. -- -- -- -- -- --
--------- ---------- ---------- ------- ---------- --------
BALANCE, DECEMBER 31, 1998............................. 4,622,907 5,345,218 6 29,933 8,424 84
Issuance of Class A preferred stock for services..... 145,000 362,500 -- -- -- --
Dividend on Class D preferred stock.................. -- -- -- -- -- --
Deferred stock compensation.......................... -- -- -- -- -- --
Amortization of deferred stock compensation.......... -- -- -- -- -- --
Amortization of deferred consulting expense, net..... -- -- -- -- -- --
Issuance of warrants to holders of Class D shares.... -- -- -- -- -- --
Issuance of warrants for bridge loans................ -- -- -- -- -- --
Accretion of redeemable preferred stock to redemption
value.............................................. -- -- -- -- -- --
Net loss............................................. -- -- -- -- -- --
--------- ---------- ---------- ------- ---------- --------
BALANCE, DECEMBER 31, 1999............................. 4,767,907 5,707,718 6 29,933 8,424 84
--------- ---------- ---------- ------- ---------- --------
(unaudited)
Dividend on Class D preferred stock.................. -- -- -- -- -- --
Amortization of deferred consulting expense, net..... -- -- -- -- -- --
Amortization of deferred stock compensation.......... -- -- -- -- -- --
Accretion of redeemable preferred stock to redemption
value.............................................. -- -- -- -- -- --
Net loss............................................. -- -- -- -- -- --
--------- ---------- ---------- ------- ---------- --------
BALANCE, MARCH 31, 2000................................ 4,767,907 $5,707,718 6 $29,933 8,424 $ 84
========= ========== ========== ======= ========== ========

<CAPTION>
DEFICIT
DEFERRED ACCUMULATED
CONSULTING DEFERRED ADDITIONAL STOCK DURING THE
EXPENSE, STOCK PAID-IN SUBSCRIPTION DEVELOPMENT
NET COMPENSATION CAPITAL RECEIVABLE STAGE
---------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT MAY 8, 1997 (DATE OF INCEPTION)............. -- $ -- $ -- $ -- --
Issuance of founder's shares......................... -- -- -- -- (33,750)
Issuance of Class A preferred stock.................. -- -- -- (5,000,000) --
Recapitalization..................................... -- -- -- -- --
Issuance of Class C preferred and common stock....... -- -- -- -- --
Repayment of subscription receivable................. 2,992,492 --
Accrual of consulting expense........................ 87,500 -- -- -- --
Net loss............................................. -- -- -- -- (3,111,381)
--------- -------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 1997............................. 87,500 -- -- (2,007,508) (3,145,131)
Issuance of Class A preferred stock for services..... (150,000) -- -- -- --
Issuance of Series A preferred stock for services and
interest on loans.................................. -- -- -- -- --
Dividend on Class D preferred stock.................. -- -- -- -- (112,153)
Repayment of subscription receivable................. -- -- -- 2,007,508 --
Amortization of deferred consulting expense, net..... 25,000 -- -- -- --
Accretion of redeemable preferred stock to redemption
value.............................................. -- -- -- -- (6,908)
Net loss............................................. -- -- -- -- (4,793,398)
--------- -------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 1998............................. (37,500) -- -- -- (8,057,590)
Issuance of Class A preferred stock for services..... (125,000) -- -- -- --
Dividend on Class D preferred stock.................. -- -- -- -- (636,852)
Deferred stock compensation.......................... -- (65,318) 65,318 -- --
Amortization of deferred stock compensation.......... -- 8,670 -- -- --
Amortization of deferred consulting expense, net..... 62,500 -- -- -- --
Issuance of warrants to holders of Class D shares.... -- -- 280,000 -- (280,000)
Issuance of warrants for bridge loans................ -- -- 170,000 -- --
Accretion of redeemable preferred stock to redemption
value.............................................. -- -- -- -- (41,671)
Net loss............................................. -- -- -- -- (5,671,493)
--------- -------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 1999............................. (100,000) (56,648) 515,318 -- (14,687,606)
--------- -------- ---------- ----------- ------------
(unaudited)
Dividend on Class D preferred stock.................. -- -- -- -- (171,843)
Amortization of deferred consulting expense, net..... 75,000 -- -- -- --
Amortization of deferred stock compensation.......... -- 5,407 -- -- --
Accretion of redeemable preferred stock to redemption
value.............................................. -- -- -- -- (10,418)
Net loss............................................. -- -- -- -- (3,018,735)
--------- -------- ---------- ----------- ------------
BALANCE, MARCH 31, 2000................................ (25,000) $(51,241) $ 515,318 $ 0 $(17,888,602)
========= ======== ========== =========== ============

TOTAL
STOCKHOLDERS'
DEFICIENCY
-------------
<S> <C>
BALANCE AT MAY 8, 1997 (DATE OF INCEPTION)............. $ --
Issuance of founder's shares......................... --
Issuance of Class A preferred stock.................. --
Recapitalization..................................... --
Issuance of Class C preferred and common stock....... 30,000
Repayment of subscription receivable................. 2,992,492
Accrual of consulting expense........................ 87,500
Net loss............................................. (3,111,381)
------------
BALANCE, DECEMBER 31, 1997............................. (1,389)
Issuance of Class A preferred stock for services..... 150,000
Issuance of Series A preferred stock for services and
interest on loans.................................. 11,485
Dividend on Class D preferred stock.................. (112,153)
Repayment of subscription receivable................. 2,007,508
Amortization of deferred consulting expense, net..... 25,000
Accretion of redeemable preferred stock to redemption
value.............................................. (6,908)
Net loss............................................. (4,793,398)
------------
BALANCE, DECEMBER 31, 1998............................. (2,719,855)
Issuance of Class A preferred stock for services..... 237,500
Dividend on Class D preferred stock.................. (636,852)
Deferred stock compensation.......................... --
Amortization of deferred stock compensation.......... 8,670
Amortization of deferred consulting expense, net..... 62,500
Issuance of warrants to holders of Class D shares.... --
Issuance of warrants for bridge loans................ 170,000
Accretion of redeemable preferred stock to redemption
value.............................................. (41,671)
Net loss............................................. (5,671,493)
------------
BALANCE, DECEMBER 31, 1999............................. (8,591,201)
------------
(unaudited)
Dividend on Class D preferred stock.................. (171,843)
Amortization of deferred consulting expense, net..... 75,000
Amortization of deferred stock compensation.......... 5,407
Accretion of redeemable preferred stock to redemption
value.............................................. (10,418)
Net loss............................................. (3,018,735)
------------
BALANCE, MARCH 31, 2000................................ $(11,711,790)
============
</TABLE>

F-5
<PAGE>
BEACON POWER CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM
MAY 8, 1997 MAY 8, 1997
(DATE OF (DATE OF THREE MONTHS ENDED
INCEPTION) TO YEAR ENDED YEAR ENDED INCEPTION) THROUGH MARCH 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------------
1997 1998 1999 1999 1999 2000
------------- ------------ ------------ ------------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss......................... $(3,111,381) $(4,793,398) $(5,671,493) $(13,576,272) $(1,183,719) (3,018,735)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and
amortization................. -- 78,208 218,594 296,802 41,004 76,613
Interest expense relating to
issuance of warrants......... -- -- 170,000 170,000 -- --
Amortization of deferred
consulting expense, net...... 87,500 175,000 300,000 562,500 75,000 75,000
Amortization of deferred stock
compensation................. -- -- -- -- 601 5,407
Services and interest expense
paid in preferred stock...... -- 11,485 -- 11,485 -- --
Accrued loss on contracts...... -- -- 325,000 325,000 -- 1,200,000
Changes in operating assets and
liabilities:
Accounts receivable.......... (14,487) 14,487 -- -- -- --
Prepaid expenses and other
current assets............. -- (20,307) 4,320 (15,987) (5,015) (9,890)
Accounts payable............. 50,000 772,723 (409,577) 413,146 (326,819) 100,715
Accrued compensation and
benefits................... 31,042 37,141 41,023 109,206 20,112 (14,440)
Accrued interest............. -- -- 164,140 164,140 -- 117,233
Due to related party......... -- 18,611 (18,611) -- (5,009)
Other accrued expenses and
current liabilities........ 31,981 (16,359) 36,270 51,892 2,022 41,272
----------- ----------- ----------- ------------ ----------- ----------
Net cash used in operating
activities............... (2,925,345) (3,722,409) (4,840,334) (11,488,088) (1,381,823) (1,426,825)
----------- ----------- ----------- ------------ ----------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in other assets......... (27,147) (19,823) (110,180) (157,150) (14,657) (79,419)
Repayment (issuance) of note
receivable from officer........ (40,000) 40,000 -- -- -- --
Purchases of property and
equipment...................... -- (257,423) (350,881) (608,304) (38,270) (87,966)
----------- ----------- ----------- ------------ ----------- ----------
Net cash used in investing
activities............... (67,147) (237,246) (461,061) (765,454) (52,927) (167,385)
----------- ----------- ----------- ------------ ----------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of subscription
receivable..................... 2,992,492 2,007,508 -- 5,000,000 -- --
Issuance of Class C preferred
stock.......................... 30,000 -- -- 30,000 -- --
Issuance of Class D redeemable
preferred stock................ -- 4,486,237 -- 4,486,237 -- --
Repayment of capital leases...... -- (72,939) (105,406) (178,345) (23,728) (38,148)
Proceeds from notes payable
issued to investors............ -- -- 3,150,000 3,150,000 -- 1,800,000
----------- ----------- ----------- ------------ ----------- ----------
Net cash provided by (used in)
financing activities........... 3,022,492 6,420,806 3,044,594 12,487,892 (23,728) 1,761,852
----------- ----------- ----------- ------------ ----------- ----------
(Continued)
</TABLE>

F-6
<PAGE>
BEACON POWER CORPORATION
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
CUMULATIVE
FROM
PERIOD FROM MAY 8, 1997
MAY 8, 1997 (DATE OF
(DATE OF INCEPTION) THREE MONTHS
INCEPTION) TO YEAR ENDED YEAR ENDED THROUGH ENDED JUNE 30
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------
1997 1998 1999 1999 1999 2000
------------- ------------ ------------ ------------ ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. 30,000 2,461,151 (2,256,801) 234,350 (1,458,478) 167,642

CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................. -- 30,000 2,491,151 -- 2,491,151 234,350
---------- ---------- ---------- ---------- ---------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.................................. $ 30,000 $2,491,151 $ 234,350 $ 234,350 $1,032,673 $401,992
========== ========== ========== ========== ========== ========
SUMMARY OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of Class A Preferred Stock for
subscription receivable............... $5,000,000 $ -- $ -- $5,000,000 $ -- $ --
========== ========== ========== ========== ========== ========
Acquisition of assets with capital
leases................................ $ -- $ 254,411 $ -- $ 254,411 $ -- $ 92,685
========== ========== ========== ========== ========== ========
Issuance of warrants in conjunction with
financing............................. $ -- $ -- $ 450,000 $ 450,000 $ -- $ --
========== ========== ========== ========== ========== ========
Issuance of non-qualified stock options
to consultants........................ $ -- $ -- $ 65,318 $ 65,318 $ 7,217 $ --
========== ========== ========== ========== ========== ========
</TABLE>

(Concluded)

SEE NOTES TO FINANCIAL STATEMENTS.

F-7
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND OPERATIONS

NATURE OF BUSINESS--Beacon Power Corporation (the "Company" or "Beacon") (a
development stage company) was incorporated on May 8, 1997 as a wholly owned
subsidiary of SatCon Technology Corporation ("SatCon"). Since its inception,
Beacon has been engaged in the development of flywheel devices for storing and
transmitting kinetic energy. As of December 31, 1999, the Company has not yet
commenced its planned principal activities of marketing and manufacturing such
devices and accordingly is accounted for as a development stage company under
Statement of Financial Accounting Standards No. 7. As of December 31, 1999, a
majority of the Company's outstanding shares is owned by SatCon. However, in
conjunction with the October 1998 Class D preferred stock offering, the
Company's minority investors were granted the right to appoint a majority of the
members of the Company's Board of Directors.

The Company has a single operating segment, manufacturing alternative power
sources. The Company has no organizational structure dictated by product lines,
geography or customer type.

OPERATIONS--The Company has experienced net losses since its inception and,
as of December 31, 1999, had an accumulated deficit of approximately
$14.7 million. The Company is currently facing the challenge of finalizing
development of a viable commercial product and raising adequate capital to
sustain operations. As discussed in Note 15, during the period during
January 1, 2000 to May 25, 2000, the Company secured additional financing of
approximately $32 million. Management believes that this funding is sufficient
to continue its operations as a going concern through at least December 31,
2000.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

UNAUDITED INTERIM INFORMATION AND PRO FORMA PRESENTATION--The financial
information as of March 31, 2000 and for the three month periods ended
March 31, 1999 and 2000 is unaudited, but reflects all adjustments, consisting
of normal recurring accruals which are, in the opinion of management, necessary
to fairly present such information in accordance with accounting principles
generally accepted in the United States of America.

The unaudited pro forma information as of March 31, 2000 reflects the
conversion of all outstanding shares of the Class A, B, C and D preferred stock,
including shares payable for dividends and consulting services, to common stock,
which will occur upon closing of an initial public offering.

ACCOUNTING PRINCIPLES--The accompanying financial statements have been
prepared using accounting principles generally accepted in the United States of
America.

RECAPITALIZATION--The accompanying financial statements reflect a
recapitalization of the Company in 1997 when one shareholder exchanged shares of
common stock for Class A preferred stock.

STOCK SPLIT--The accompanying financial statements reflect a 1.125 for 1
split of the Company's preferred and common stock. All share and per share
information herein has been retroactively restated to reflect this split.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the

F-8
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS--Cash and cash equivalents include demand deposits
and highly liquid investments with a maturity of three months or less when
acquired. Cash equivalents are stated at cost, which approximates market value.

PROPERTY AND EQUIPMENT--Property and equipment, including leasehold
improvements, are stated at cost and depreciated using the straight-line method
over the estimated useful lives of the assets.

DEFERRED FINANCING COSTS--Deferred financing costs consist of legal,
administrative, financing and other related expenses incurred in connection with
the Class E financing completed during the year ending December 31, 2000 and
will be amortized over the terms of the obligations using the effective interest
method.

OTHER ASSETS--Other assets consist of unamortized legal expenses related to
patents.

CONTRACT LOSSES--Substantially all of the Company's sales commitments are
firm fixed-price. Revenue and cost of revenue on such sales commitments are
recorded as deliveries are made. Estimates of costs to complete are reviewed and
revised periodically and accruals for estimated losses from such revisions are
recorded in the accounting period in which the revisions are made. Losses on
contracts are recorded in full as they are identified.

LONG-LIVED ASSETS--At the occurrence of certain events or changes in
circumstances, the Company reviews the carrying value of its long-lived assets
to determine if impairment has occurred and, if necessary, adjusts the carrying
value accordingly. No adjustments have been required to date.

REVENUE RECOGNITION--Revenue relates to work performed under research and
development contracts. Revenue is recognized as services are performed.

STOCK-BASED COMPENSATION--Compensation expense associated with awards of
stock or options to employees is measured using the intrinsic-value method.
Compensation expense associated with awards to nonemployees is measured using
the fair-value method and is amortized over the vesting period of three years.

INCOME TAXES--Deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and tax loss and credit carryforwards using the currently
enacted tax rates and laws. A valuation allowance is provided to the extent
realization of deferred tax assets is not considered more likely than not.

RESEARCH AND DEVELOPMENT--Research and development costs are expensed as
incurred.

FINANCIAL INSTRUMENTS--The carrying amount of cash and cash equivalents,
accounts payable, accrued expenses, notes payable to investors and capital lease
obligations approximate their fair values.

CONCENTRATION OF CREDIT RISK--Financial instruments that potentially subject
the Company to significant concentration of credit risk consist primarily of
cash and cash equivalents. Substantially all of the Company's cash and cash
equivalents are managed by one financial institution. At December 31, 1998 and
1999, the Company had cash balances at a financial institution in excess of
federally insured

F-9
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
limits. However, the Company does not believe that it is subject to unusual
credit risk beyond the normal credit risk associated with commercial banking
relationships.

COMPREHENSIVE LOSS--Comprehensive loss is the same as net loss for all
periods presented.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The statement, as amended, is effective
for fiscal years beginning after June 15, 2000. Management is currently
evaluating the effect of adopting SFAS No. 133 on the financial statements.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition" (SAB 101). SAB 101
established guidelines for revenue recognition and is effective for periods
beginning no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. Management does not expect that the adoption of SAB 101
will have a material impact on the Company's financial condition or results of
operations.

NET LOSS PER SHARE

HISTORICAL LOSS PER SHARE--Historical loss per share has been computed using
the weighted-average number of shares of common stock outstanding during each
period. Diluted loss per share was computed in the same manner. The impact of
the Company's outstanding potential common shares, such as options and warrants
(computed using the treasury stock method) and convertible preferred stock, were
excluded from the calculation because such items were antidilutive.

The weighted average number of shares of common stock issuable during the
years ended December 31, 1999, and 1998, the period from May 8, 1997 to
December 31, 1997 and the period from May 8, 1997 through December 31, 1999
aggregated 1,850,478, 7,247,769, and 8,149,460, and 5,338,018, respectively,
upon the exercise of options and warrants and the conversion of preferred stock
outstanding.

PRO FORMA NET LOSS PER SHARE (UNAUDITED)--Pro forma net loss per share has
been computed using the weighted-average number of shares of common stock
outstanding during each period. In addition, for the purposes of pro forma net
loss per share, all shares of Class A, B, C and D preferred stock, including
shares payable for dividends and consulting services, which are convertible into
common stock on a one-for-one basis and will be converted to common stock upon
closing of an initial public offering, have been treated as though they were
common stock in all periods for which such shares were outstanding. Such
computations exclude conversion of Class E and Class F shares since these
preferred shares were issued subsequent to March 31, 2000.

F-10
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES 1998 1999
---------- -------- --------
<S> <C> <C> <C>
Machinery and equipment..................... 5 years $214,635 $298,180
Furniture and fixtures...................... 7 years 19,423 41,521
Office equipment............................ 3 years 10,904 159,894
Leasehold improvements...................... lease term 12,561 108,809
Equipment under capital lease obligations... lease term 254,411 254,411
-------- --------
Total..................................... 511,934 862,815
Less accumulated depreciation and
amortization.............................. (78,208) (296,802)
-------- --------
Property and equipment, net............... $433,726 $566,013
======== ========
</TABLE>

4. NOTES PAYABLE TO INVESTORS

At December 31, 1999, notes payable to investors consists of Senior Secured
Convertible Promissory Notes (the "Senior Notes") held by the Company's primary
investors. The Senior Notes bear interest, which is payable upon conversion, at
an annual rate of 12.5%, increasing to 15% after six months if the Class E
redeemable convertible preferred stock ("Class E Stock") funding had not
occurred at that time. The notes are secured by substantially all of the assets
of the Company. In connection with the issuance of the Senior Notes, the
investors received warrants to purchase shares of the Company's common stock
(see Note 10).

On April 7, 2000, the Senior Notes and accrued interest were converted into
Class E Stock (see Note 15).

5. CAPITAL LEASE OBLIGATIONS

The Company leases equipment under capital lease agreements expiring through
2001. Future obligations under such capital leases as of December 31, 1999 are
as follows:

<TABLE>
<S> <C>
2000........................................................ $77,530
2001........................................................ 3,067
-------
80,597
Less amount representing interest........................... 4,431
-------
76,166
Less current portion of capital lease obligations........... 73,291
-------
Capital lease obligations, excluding current portion........ $ 2,875
=======
</TABLE>

6. COMMITMENTS

The Company leases office and light manufacturing space under operating
leases expiring through January 30, 2001 and an operating lease for office
equipment expiring October 2001.

F-11
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. COMMITMENTS (CONTINUED)
Future minimum annual lease payments under noncancelable operating leases as
of December 31, 1999 are as follows:

Total rent expense was $146,255 and $199,405, during 1998 and 1999, and
$345,660 for the period from inception to December 31, 1999.

7. PREFERRED STOCK

CLASS A CONVERTIBLE PREFERRED STOCK--Each share of Class A convertible
preferred stock ("Class A Stock") is convertible into one share of common stock
at the option of the holder. The Class A Stock is nonvoting. Upon liquidation,
holders of Class A Stock are entitled to receive, out of funds then generally
available prior to any payment with respect to the holders of common stock,
$4.45 per share, plus any declared and unpaid dividends thereon. Holders of the
Class A Stock have the right to receive the same dividends as declared by the
Board of Directors on common shares on an "as-if-converted" basis. The Class A
Stock will automatically be converted into shares of common stock upon the
closing of a public offering of common stock of the Company, upon a vote of the
Board of Directors or upon the automatic conversion of the Class D preferred
stock (see Note 8). Class A Stock is subordinate to Class D, E and F preferred
stock and has parity with Class B and C preferred stock. The Class A stock does
not have redemption features.

F-12
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. PREFERRED STOCK (CONTINUED)

CLASS B AND C CONVERTIBLE PREFERRED STOCK--Each share of Class B convertible
preferred stock ("Class B Stock") and Class C convertible preferred stock
("Class C Stock") is convertible into one share of common stock at the option of
the holder. The holders of the Class B and C Stock have voting rights equivalent
to the number of shares of common stock into which their shares of Class B and C
Stock convert. The Class B and C Stock have the right to receive the same
dividends as declared by the Board of Directors on common shares on an
"as-if-converted" basis. The Class B and C Stock will automatically be converted
into shares of common stock upon the closing of a public offering of common
stock of the Company, upon a vote of the Board of Directors, upon the automatic
conversion of the Class D preferred Stock (see Note 8), or upon conversion of
the Class A Stock. Class B and C Stock have parity with Class A in liquidation
and are subordinate to Class D, E and F preferred stock. The Class B and
C Stock do not have redemption features.

8. REDEEMABLE PREFERRED STOCK

CLASS D REDEEMABLE CONVERTIBLE PREFERRED STOCK--The Company has authorized
6,000,000 shares of Class D convertible preferred stock ("Class D Stock") with a
par value of $.01 per share. On October 23, 1998, the Company issued 1,900,000
shares of Class D Stock and received net proceeds of approximately $4,486,000.
Issuance costs totaled approximately $264,000 and are being accreted to the
carrying value of the Class D Stock over the period to the stock's earliest
redemption date. Each share of Class D Stock is convertible into one share of
common stock at the option of the holder. The holders of the Class D Stock have
voting rights equivalent to the number of shares of common stock into which
their shares of Class D Stock convert. Holders of the Class D Stock are also
entitled to appoint representatives to the Board of Directors. The Class D Stock
earns cumulative dividends at an annual rate of 12.5% through May 23, 2000 and
6% on and after this date, payable quarterly. Dividends can be paid in shares of
Class D Stock through May 23, 2000 and after this date, are payable only in
cash. Cumulative dividends not paid on Class D Stock total $112,153 and $749,005
as of December 31, 1998 and 1999, respectively. Upon liquidation, holders of
Class D Stock are entitled to receive, out of funds then generally available,
unpaid dividends previously declared or accrued and a per share amount of $2.50.
The Class D Stock is redeemable by the holder at any time after December 31,
2004 for the stated value of $2.50 per share plus accrued, but unpaid,
dividends. The Class D Stock will automatically be converted into shares of
common stock upon a change in ownership of 50% of the Company's outstanding
voting stock, upon a merger or consolidation of the Company or upon the sale of
significant assets of the Company, or upon the closing of a qualified public
offering.

Pursuant to the Stock Purchase Agreement related to the Class D Stock (the
"Class D Agreement"), the Company is bound by certain covenants. The Class D
Stock is senior to the Class A, B and C Stock, subordinate to Class F preferred
stock and has parity with Class E preferred Stock (see Note 15).

9. COMMON STOCK

DIVIDENDS--Dividends may be declared and paid on the common stock as and
when determined by the Board of Directors subject to any preferential dividend
rights of any then outstanding shares of preferred stock.

F-13
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. COMMON STOCK (CONTINUED)
RESERVED SHARES--At December 31, 1999, 9,130,420 shares of common stock were
reserved for issuance under the Company's stock option plan, outstanding
warrants and for the potential conversion of preferred stock.

10. STOCK WARRANTS

At its inception in 1997, the Company issued a warrant to purchase 562,500
shares of common stock to an investor at the price of $5.33 per share (the "1997
warrant"). The warrant expired unexercised on May 28, 1999. Value ascribed to
this warrant was not material.

Under the conditions of the Class D Stock offering, the Company issued
warrants in October 1999 to three investors to purchase 386,250 shares of common
stock at $3.33, 386,250 shares of common stock at $4.50, and 386,250 shares of
common stock at $6 (the "October 1999 warrants"). The estimated fair value of
the warrants at the date of their issuance was $280,000. This amount has been
recorded as a dividend to the holders of the Class D Stock and credited to
additional paid-in-capital. These warrants expire December 31, 2004. Additional
warrants were issued under the Class D agreement during April 2000 (see
Note 15).

In conjunction with the issuance of the Senior Notes in August 1999, the
Company issued warrants to four investors to purchase 315,000 shares of Class E
Stock (or common stock if the warrant was exercised prior to the Class E Stock
financing (see Note 15)) at an exercise price of $2.50 per share (the "August
1999 warrants"). The estimated fair value of the warrants at the date of grant
was $170,000. This amount has been recorded as a discount on the Senior Notes
and was charged to interest expense in 1999 as the Senior Notes are demand
notes. These warrants expire on August 2, 2004.

In conjunction with the Class E conversion in April 2000 (see Note 15), the
August 1999 warrants were cancelled.

All warrants were valued on the date of grant using the Black-Scholes
(common stock) or the Binary Option Pricing Model (preferred stock). The
assumptions used to value these warrants were as follows:

<TABLE>
<CAPTION>
AUGUST OCTOBER
1997 1999 1999
WARRANT WARRANTS WARRANTS
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate.................................. 6.25% 5.62% 5.86%
Expected life of warrant................................. 24 months 30 months 27 months
Expected dividend payment rate, as a percentage of the
stock price on the date of grant....................... 0% 0.0% 0%
Assumed volatility....................................... 48% 60% 60%
</TABLE>

11. STOCK OPTIONS

The Company's option plans provide for the granting of stock options to
purchase up to 4,500,000 shares of the Company's common stock. Options may be
granted to employees, officers, directors and consultants of the Company with
terms of up to 10 years. Under the terms of the option plans, incentive stock
options ("ISOs") are to be granted at fair market value of the Company's stock
at the

F-14
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. STOCK OPTIONS (CONTINUED)
date of grant, and nonqualified stock options ("NSOs") are to be granted at a
price determined by the Board of Directors. ISOs and NSOs generally vest ratably
over 36 months from the grant date and have contractual lives of up to
10 years.

Stock option activity since inception is as follows:

<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER OF EXERCISE FAIR
SHARES PRICE VALUE
---------- --------- ---------
<S> <C> <C> <C>
Outstanding at inception.................................... --
Granted................................................... 323,937 $1.78 $0.69
----------
Outstanding, December 31, 1997.............................. 323,937 1.78
Granted................................................... 99,563 1.78 0.75
Canceled, forfeited or expired............................ (5,000) 1.78
----------
Outstanding, December 31, 1998.............................. 418,500 1.78
Granted................................................... 733,500 1.78 0.80
Canceled, forfeited or expired............................ (147,844) 1.78
---------- -----
Outstanding, December 31, 1999.............................. 1,004,156 $1.78
========== =====
</TABLE>

The following table summarized information about stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
VESTED
WEIGHTED- --------------------------
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE AVERAGE
OF OPTIONS CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE OF OPTIONS PRICE
-------------- ----------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1.7$8 1,004,156 8.64 $1.78 189,122 $1.78
====== ========= ==== ====== ======= ======
</TABLE>

As described in Note 2, the Company uses the intrinsic-value method to
measure compensation expense associated with grants of stock options to
employees. If the Company had used the fair value method to measure
compensation, reported net loss would have been as follows:

<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM
MAY 8, 1997 MAY 8, 1997
(DATE OF INCEPTION) (DATE OF INCEPTION)
TO YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1999
------------------- ------------ ------------ -------------------
<S> <C> <C> <C> <C>
Net loss to common shareholders as
reported.......................... $(3,111,381) $(4,912,459) $(6,630,016) $(14,653,856)
Net loss pro forma.................. (3,336,722) (4,987,251) (7,154,362) (15,478,335)
Loss per share--as reported......... (369.35) (583.15) (787.04) (1,739.54)
Loss per share--pro forma........... (396.10) (592.03) (849.28) (1,837.41)
</TABLE>

F-15
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. STOCK OPTIONS (CONTINUED)
The fair value of the options on their grant date was measured using the
Black-Scholes option-pricing model. Key assumptions used to apply this
option-pricing model are as follows:

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate..................................... 5.5% 5.75% 6.0%
Expected life of option..................................... 3 years 3 years 3 years
Expected dividend payment rate, as a percentage of the stock
price on the date of grant................................ 0% 0% 0%
Assumed volatility.......................................... 50% 58% 60%
</TABLE>

The option-pricing model used was designed to value readily tradable stock
options with relatively short lives. However, management believes that the
assumptions used to value the options and the model applied yield a reasonable
estimate of the fair value of the grants made under the circumstances.

12. INCOME TAXES

The components of the provision (benefit) for income taxes consisted of the
following:

<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM
MAY 8, 1997 MAY 8, 1997
(DATE OF INCEPTION) (DATE OF INCEPTION)
THROUGH YEAR ENDED YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999 1999
------------------- ------------ ------------ -------------------
<S> <C> <C> <C> <C>
Federal--deferred................... $(1,037,870) $(1,594,955) $(1,995,158) $(4,627,983)
State--deferred..................... (181,683) (282,933) (352,087) (816,703)
Increase in valuation allowance..... 1,219,553 1,877,888 2,347,245 5,444,686
----------- ----------- ----------- -----------
Provision (benefit) for income
taxes............................. $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>

Taxes during interim periods are computed using the estimated rate effective
for the entire year. Changes to the estimated rate are reflected in periods in
which the estimated charge occurs.

A reconciliation of the statutory federal rate to the effective rate for all
periods is as follows:

<TABLE>
<S> <C>
Statutory federal rate benefit.............................. (34)%
State, net of federal effect................................ (6)
Valuation allowance provided................................ 40
---
Effective rate.............................................. --%
===
</TABLE>

F-16
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

12. INCOME TAXES (CONTINUED)
The components of the Company's deferred tax assets and liabilities
consisted of the following at December 31:

<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Long-term assets:
Net operating loss carryforwards................. $ 2,643,962 $ 4,728,408
Research and development credits................. 444,513 524,958
Loss on contracts................................ -- 130,000
Other............................................ 8,966 61,320
----------- -----------
Net deferred tax assets before valuation
allowance........................................ 3,097,441 5,444,686
Less valuation allowance........................... (3,097,441) (5,444,686)
----------- -----------
Net deferred tax assets............................ $ -- $ --
=========== ===========
</TABLE>

The valuation allowance increased by $1,877,888 in 1998 and $2,347,245 in
1999, primarily due to the generation of net operating loss carryforwards and
credits for which realization is not reasonably assured.

The Company has available for future periods federal and state tax net
operating loss carryforwards for federal and state purposes of approximately
$11,850,000 and $11,616,000, respectively, as of December 31, 1999. In addition,
the Company has business credits of approximately $524,958 as of December 31,
1999. The net operating loss carryforwards expire beginning in 2012 and 2002 for
federal and state tax purposes, respectively. The federal research and
development credits begin to expire in 2012. The Company did not pay any income
taxes from inception to December 31, 1999.

Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may have limited, or may limit in the future,
the amount of net operating loss carryforwards which could be utilized annually
to offset future taxable income and income tax liabilities. The amount of any
annual limitation is determined based upon the Company's value prior to an
ownership change.

13. BENEFIT PLAN

In 1998, the Company created a 401(k) Profit Sharing Plan (the "Plan") for
its full-time employees. Each participant in the Plan may elect to contribute a
percentage of his or her annual compensation to the Plan on a pre-tax basis up
to the annual limit established by the Internal Revenue Service ($10,200 for
1999). The Company matches employee contributions at a rate of 50% up to the
first 6% of the employee's contributions. The Company may also elect to make a
profit-sharing contribution based on the discretion of the Board of Directors.
Employee contributions are fully vested. Company matching and profit sharing
contributions vest 20% after two years of service consisting of at least
1,000 hours per calendar year and 20% annually thereafter. Company contributions
were $19,376, $41,963 and $61,339 during 1998, 1999, and the Period from
Inception to December 31, 1999, respectively.

14. RELATED-PARTY TRANSACTIONS

CONSULTING AGREEMENTS--The Company entered into consulting agreements with
three investors in 1998 and 1997. The contracts are seven-year agreements,
renewable annually thereafter, for consulting

F-17
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

14. RELATED-PARTY TRANSACTIONS (CONTINUED)
services to be provided by the investors in exchange for annual issuances of
shares of the Company's Class A Stock. During 1997, 1998, 1999 and the period
from inception, $87,500, $175,000, $300,000, and $562,500, respectively, was
recorded as consulting expense relating to these agreements, and 120,000 and
145,000 shares of Class A Stock in 1998 and 1999, respectively, were issued or
issuable as compensation under these contracts. Prepaid and accrued consulting
expenses have been recorded annually, based on the terms and dates of the
consulting agreements. The services provided by the investors were recorded
based upon the value of the securities issued. These contracts all expire
immediately upon an initial public offering of the Company's common stock.

PATENTS--The Company has entered into an agreement with SatCon whereby
SatCon granted the Company a perpetual license to use the technology patented by
SatCon relating to the field of flywheel energy storage products, systems and
processes for stationary terrestrial applications.

SERVICES AGREEMENTS--SatCon performs certain research and development,
administrative and other services for the Company. Amounts paid to SatCon for
such services rendered amounted to approximately $1,351,000, $443,000, $59,000
and $1,853,000 during 1997, 1998, 1999 and the period from inception to
December 31, 1999, respectively. As of December 31, 1998, there was $18,611 due
to SatCon relating to such services.

DISTRIBUTION AGREEMENT--In 1997, the Company signed a 20-year agreement
which granted an investor (DQE Enterprises, Inc.) exclusive rights to distribute
certain of the Company's products in a territory comprised of seven Mid-Atlantic
states and the District of Columbia. However, the Company retained the right to
distribute products directly to cable television and telephone companies.

15. SUBSEQUENT EVENTS

BRIDGE FINANCING--On January 7, 2000, the Company received $600,000 of
bridge loans bearing annual interest at a rate of 12.5%; $200,000 of these loans
were repaid in February 2000 and the remaining loans were converted into
Class E redeemable convertible preferred stock (the "Class E Stock") in
conjunction with the Class E conversion (see below).

In February, March and April 2000, the Company received additional bridge
financing of $1,400,000 from previous investors and $4,100,000 from new and
previous investors (the "Class F Bridge Loans"). The Class F Bridge Loans bear
annual interest at a rate of 6%. $5,200,000 of these loans were converted into
Class F redeemable convertible preferred stock ("Class F Stock") in May 2000,
(see below). The remaining $300,000 plus interest was repaid in April 2000.

In conjunction with the April bridge loans, investors were granted warrants
to purchase 41,000 shares of the Company's common stock at $4.20 per share.
These warrants expire April 21, 2005. The estimated fair value of such warrants
is $27,000 based on the Black-Scholes Pricing Model.

WARRANTS ISSUED UNDER CLASS D AGREEMENT--Under the conditions of the
Class D Stock offering, the Company issued warrants in April 2000 to three
investors to purchase 356,250 shares of common stock at $3.33, 356,250 shares of
common stock at $4.50, and 356,250 shares of common stock at $6. Upon issuance
of these warrants the Company recorded a dividend of approximately $1,300,000
for the fair market value of these warrants based on the Black-Scholes Pricing
Model. These warrants expire December 31, 2004.

F-18
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

15. SUBSEQUENT EVENTS (CONTINUED)
CLASS E CONVERSION--During April 2000, the Company authorized 2,000,000
shares of $.01 par value per share Class E Stock. On April 7, 2000, the Company
converted $3,550,000 of bridge loans plus interest of $275,559 into 1,226,141
shares of Class E Stock (the "Class E conversion"). Each share of Class E Stock
is convertible into one share of common stock at the option of the holder.
Holders of the Class E Stock have voting rights equivalent to the number of
shares of common stock into which their shares of Class E Stock convert. Holders
of the Class E Stock also share with the Class D Stock shareholders the right to
appoint representatives to the Board of Directors. The Class E Stock earns
cumulative dividends at an annual rate of 12.5% through May 23, 2000 and 6% on
and after this date, payable quarterly. Dividends are payable in shares of
Class E Stock through May 23, 2000 and after this date, are payable in cash.
Upon liquidation, holders of Class E Stock are entitled to receive, out of funds
then generally available unpaid dividends previously declared or accrued and a
per share amount of $3.12. The Class E Stock is redeemable by the holder at any
time after December 31, 2004 for the stated value of $3.12 per share plus
accrued but unpaid dividends. The Class E Stock will automatically be converted
into shares of common stock upon a change in ownership of 50% of the Company's
outstanding voting stock, upon a merger or consolidation of the Company, upon
the sale of significant assets of the Company, or upon consummation of a
qualified public offering.

Class E Stock is senior to Class A, B and C Stock, on parity with Class D
Stock and subordinate to Class F Stock.

In conjunction with the Class E conversion, warrants totaling 315,000,
issued in conjunction with the issuance of the Senior Notes in August 1999
(Note 10), were cancelled. In exchange, warrants to purchase 306,535 shares of
Class E Stock at $2.50 per share were issued. These warrants expire April 7,
2005. The estimated fair market value of these warrants is approximately
$344,000 based on the Binary Option Pricing Model.

Pursuant to the stock purchase agreement related to the Class E Stock, the
Company is bound by certain covenants.

CLASS F ISSUANCE--During May 2000 the Company authorized 7,500,000 shares of
$.01 par value Class F Stock. On May 23, 2000, the Company sold 6,785,711 shares
of Class F Stock for a total of $28.5 million, and accordingly, the outstanding
Class F Bridge Loans of $5,200,000 were converted to Class F Stock.

Each share of Class F Stock is convertible into one share of common stock at
the option of the holder. Holders of the Class F Stock have voting rights
equivalent to the number of shares of common stock into which their shares of
Class F Stock convert. The Class F Stock earns cumulative dividends at an annual
rate of 6%, payable quarterly. Dividends are payable in cash. The Class F Stock
will automatically be converted into shares of common stock immediately prior to
a merger or consolidation of the Company or upon the sale of significant assets
of the Company, or the consummation of a qualified public offering. The Class F
shareholders are entitled to appoint representatives to the Board of Directors.
The Class F stock is redeemable by the holder at any time after May 23, 2005 at
a price per share equal to the sum of the Class F stated value, initially $4.20
per share, multiplied by the number of shares to be redeemed, plus all accrued
but unpaid dividends.

The Class F Stock is senior to all other classes of preferred stock.

F-19
<PAGE>
BEACON POWER CORPORATION (A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

15. SUBSEQUENT EVENTS (CONTINUED)
Upon liquidation, holders of the Class F stock are entitled to receive, out
of funds then generally available, unpaid dividends previously paid or accrued
and a per share amount equal to the Class F stated value.

Pursuant to the Stock Purchase Agreement related to the Class F Stock (the
"Class F Agreement"), the Company is bound by certain covenants.

Under the conditions of the Class F Agreement, the Company will issue
warrants for shares of common stock equal to $14,250,000 divided by the warrant
price. The warrant price is defined as 75% of the lower of: (i) the effective
price per share of common stock paid by the acquirer in a sale transaction as
determined by a nationally recognized banking firm chosen by the Company and
approved by a majority of the purchasers that hold a majority of the aggregate
preferred shares and conversion shares (shares of common stock issuable upon
conversion of the Class F Stock) as of the date of consummation of such sale
transaction and (ii) the initial price in the first qualified offering of the
Company's common stock. These warrants expire on May 23, 2005 and no warrants
have been issued at this time.

* * * * * *

F-20
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

[The back cover consists of a collage of pictures showing field trial
installation sites.]

SHARES
BEACON POWER CORPORATION
COMMON STOCK

[BEACON LOGO]

------

PROSPECTUS

, 2000

---------

SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses to be paid by the Registrant,
other than the underwriting discounts and commissions payable by the Registrant
in connection with the sale of the common stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.

<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
Registration fee............................................ $ 30,360
NASD filing fee............................................. 10,500
Nasdaq National Market...................................... 100,000
Printing and engraving expenses............................. 300,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 300,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous expenses...................................... 25,000
----------
Total..................................................... $1,175,860
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law.

The Registrant has obtained a policy of directors' and officers' liability
insurance that insures the Registrant's directors and officers against the cost
of defense, settlement or payment of a judgment under certain circumstances.

The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since our incorporation in May, 1997, we have issued the following
securities:

1. In May 1997, we granted a warrant to purchase 500,000 shares of our common
stock at an exercise price of $6.00 per share to one investor and issued
3,000,000 shares of our common stock and 1,000,000 shares of our class A
preferred stock to another investor all in exchange for a royalty-free
license agreement. The shares of common stock are not convertible into any
other security of ours. The shares of class A stock are convertible into
shares of our common stock. The warrant has expired.

2. In December 1997, we sold 5,994 shares of our common stock and six shares of
our class C preferred stock to six investors in exchange for an aggregate
purchase price of $30,000. The shares of common stock are not convertible
into any other security of ours. The shares of class C preferred stock are
convertible into our common stock.

II-1
<PAGE>
3. In December 1997, we exchanged 2,998,501 shares of our common stock for the
same number of shares of our class A preferred stock with one of our
shareholders. The shares of common stock are not convertible into any other
security of ours.

4. In October 1998, we effected a 1.125 for 1 stock split on all classes of our
capital stock.

5. In October 1998, we sold 1,900,000 shares of our class D preferred stock to
one of our existing shareholders and three new investors at a purchase price
of $2.50 per share. The aggregate purchase price of the securities was
$4,750,000. In connection with this issuance, we granted the purchasers the
right to receive warrants to purchase in the aggregate 2,227,500 shares of
our common stock, 1,158,750 of which were issued in October 1999 and
1,068,750 of which were issued in April 2000. The shares of class D
preferred stock are convertible into shares of our common stock.

6. In connection with the October 1998 sale of our class D preferred stock, we
issued 4,594 shares of our class A preferred stock in exchange for
transaction related services provided by one of the purchasers of our
class D preferred stock. The shares of class A preferred stock are
convertible into shares of our common stock.

7. In December 1998, we issued 60,000 shares of our common stock to one of our
existing shareholders in exchange for consulting services rendered. These
shares were later replaced in November 1999 with shares of our class A
preferred stock.

8. In June 1999, we sold senior secured convertible promissory notes to four of
our existing shareholders in an aggregate principal amount of $600,000. The
aggregate purchase price of the securities was $600,000. These notes were
convertible into convertible promissory notes to be issued at a subsequent
date.

9. In August, September and October 1999, we sold senior secured convertible
promissory notes to four of our existing shareholders in an aggregate
principal amount of $3,150,000. The aggregate purchase price of the
securities was the return of the $600,000 in notes issued in June 1999 plus
$2,550,000 in cash. We also issued warrants to these purchasers to purchase
315,000 shares of our class E preferred stock which were subsequently
cancelled. These notes were convertible into shares of our class E preferred
stock.

10. In November 1999, we issued an aggregate of 265,000 shares of our class A
preferred stock to three of our existing shareholders in exchange for
consulting services rendered and shares of our common stock which we were
obligated to issue to these consultants in exchange for consulting services
rendered. The shares of class A preferred stock are convertible into shares
of our common stock.

11. In January 2000, we sold senior secured convertible promissory notes to four
of our existing shareholders in an aggregate principal amount of $600,000.
The aggregate purchase price of the securities was $600,000. These notes
were convertible into class E preferred stock.

12. In April 2000, we sold to four of our existing shareholders an aggregate of
1,226,141 shares of our class E preferred stock at a purchase price of $3.12
per share and warrants to purchase 306,535 shares of our class E preferred
stock at an exercise price of $2.50 per share. The aggregate consideration
for the securities was the cancellation of $3,550,000 principal amount of
bridge notes and $275,559 accrued interest on those bridge notes and
cancellation of the warrants issued in connection with the bridge notes. The
shares of class E preferred stock are convertible into shares of our common
stock.

13. In February 2000, we issued demand promissory notes to two of our existing
shareholders for an aggregate principal amount of $600,000. The aggregate
purchase price of these securities was $600,000. These notes were
convertible into shares of our class F preferred stock.

II-2
<PAGE>
14. In March 2000, we issued demand promissory notes to three of our existing
shareholders for an aggregate principal amount of $800,000. These notes were
convertible into shares of our class F preferred stock.

15. In April 2000, we issued demand promissory notes to two of our existing
shareholders and three new investors for an aggregate principal amount of
$4,100,000 and warrants to purchase 41,000 shares of our common stock. These
notes were convertible into shares of our class F preferred stock.

16. In May 2000, we sold to three of our existing shareholders and four new
investors 6,785,711 shares of our class F preferred stock at a purchase
price of $4.20 per share and warrants to purchase a number of shares of our
common stock equal to $14,250,000 divided by 75% of the initial offering
price at an exercise price of 75% of the initial offering price. The
aggregate purchase price of the securities was $23,300,000 in cash and the
cancellation of $5,200,000 principal amount of convertible notes. The shares
of class F preferred stock are convertible into shares of our common stock.

17. In June 2000, we issued 32,000 shares of our common stock upon the exercise
of a stock option.

18. In July and August we issued warrants to purchase 190,000 shares of our
common stock to three consultants.

19. Since our inception, we have granted options to purchase common stock to our
executive officers, employees and consultants. The following table sets
forth information regarding these grants.

<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
May 8, 1997 to April 1, 2000......................... 1,162,719 $1.78
April 5, 2000 to May 10, 2000........................ 436,094 4.20
June 5, 2000......................................... 399,500 5.00
June 5, 2000......................................... 150,000 6.20
June 5, 2000......................................... 150,000 *
June 26, 2000........................................ 45,000 6.20
July 24, 2000........................................ 105,000 8.20
</TABLE>

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

* The exercise price of these options will be equal to the initial public
offering price.

There were no underwriters employed in connection with any of the
transactions set forth in this Item 15.

The issuances of securities described in Paragraphs 1-2 and 5-17 were exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering. The
issuances of the securities described in Paragraphs 3 and 4 were exempt from
registration in reliance on Section 3(a)(9) of the Securities Act. The issuances
of the securities described in Paragraphs 18 and 19 were exempt from
registration under the Securities Act in reliance on Section 4(2) or Rule 701
promulgated thereunder as transactions pursuant to compensatory benefit plans
and contracts relating to compensation. The recipients of securities in each
such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.

II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement

3.1* Amended and Restated Certificate of Incorporation

3.2* Bylaws

4.1* Form of Specimen Stock Certificate

5.1 Opinion of Edwards & Angell, LLP, regarding legality of the
securities being issued

10.1.1 Securities Purchase Agreement by and among SatCon Technology
Corporation, Duquesne Enterprises (n/k/a
DQE Enterprises, Inc.) and Beacon Power Corporation dated
May 28, 1997

10.1.2 Securities Purchase Agreement by and among Beacon Power
Corporation, Perseus Capital, L.L.C., Duquesne Enterprises
(n/k/a DQE Enterprises, Inc.), Micro-Generation Technology
Fund, L.L.C. and SatCon Technology Corporation dated October
23, 1998

10.1.3 Securities Purchase Agreement by and among Beacon Power
Corporation, Perseus Capital, L.L.C., Duquesne Enterprises
(n/k/a DQE Enterprises, Inc.), Micro-Generation Technology
Fund, L.L.C. and SatCon Technology dated April 7, 2000

10.1.4 Securities Purchase Agreement by and among Beacon Power
Corporation, Perseus Capital, L.L.C., Micro-Generation
Technology Fund, L.L.C., Mechanical Technology Incorporated,
The Beacon Group Energy Investment Fund II, L.P. and Penske
Corporation dated April 21, 2000

10.1.5 Securities Purchase Agreement by and among Beacon Power
Corporation, Perseus Capital, L.L.C.,
DQE Enterprises, Inc., Micro-Generation Technology
Fund, L.L.C., Mechanical Technology Incorporated,
GE Capital Equity Investments, Inc., The Beacon Group Energy
Investment Fund II, L.P. and Penske Corporation dated
May 23, 2000.

10.1.6 Investor Rights Agreement by and among Beacon Power
Corporation, Perseus Capital, L.L.C., DQE Enterprises, Inc.,
Micro-Generation Technology Fund, L.L.C., Mechanical
Technology Incorporated, GE Capital Equity Investments,
Inc., The Beacon Group Energy Investment Fund II, L.P.,
Penske Corporation, SatCon Technology Corporation, James S.
Bezreh, Russel S. Jackson, Russell A. Kelley, Stephen J.
O'Connor, Jane E. O'Sullivan and Robert G. Wilkinson dated
May 23, 2000

10.1.7 Form of Warrant of Beacon Power Corporation issued pursuant
to class D financing and list of holders thereof

10.1.8 Form of Warrant of Beacon Power Corporation issued pursuant
to class E financing and list of holders thereof

10.1.9 Form of Warrant of Beacon Power Corporation issued pursuant
to class F bridge financing and list of holders thereof

10.1.10 Form of Warrant of Beacon Power Corporation issued pursuant
to class F financing and list of holders thereof

10.1.11 Warrant of Beacon Power Corporation issued to Cox
Communications, Inc. dated August 2, 2000

10.1.12 Warrant of Beacon Power Corporation issued to Kaufman-Peters
dated August 2, 2000
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- ------------------------------------------------------------
<C> <S>
10.1.13 Second Amended and Restated 1998 Stock Incentive Plan of
Beacon Power Corporation

10.1.14 Form of Incentive Stock Option Agreement of Beacon Power
Corporation

10.1.15 Form of Non-Qualified Stock Option Agreement of Beacon Power
Corporation

10.1.16* Form of Non-Qualified Stock Option Agreement of Beacon Power
Corporation issued to certain consultants on July 24, 2000
and list of holders thereof

10.1.17 Amended and Restated License Agreement by and between Beacon
Power Corporation and SatCon Technology Corporation dated
October 23, 1998

10.1.18 Letter Agreement between Beacon Power Corporation and
Duquesne Enterprises (n/k/a/ DQE Enterprises, Inc.) dated
May 28, 1997

10.1.19 Lease between Beacon Power Corporation and BCIA New England
Holdings LLC dated July 14, 2000

10.1.20 Commercial Lease by and between Beacon Power Corporation and
Cummings Properties Management, Inc. dated November 19, 1997

10.1.21 Distribution Agreement between Beacon Power Corporation and
TLER dated [ ]

10.1.22* Form of Director and Officer Indemnification Agreements and
list of parties thereto

11.1 Statement of Computation of Earnings per Share (This exhibit
has been omitted because the information is shown in the
financial statements or notes thereto.)

23.1 Consent of Deloitte & Touche LLP

23.2 Consent of Edwards & Angell, LLP (contained in Exhibit 5.1)

24.1 Power of Attorney (contained in the signature page to this
Registration Statement)

27.1 Financial Data Schedule
</TABLE>

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

* To be filed by amendment

(B) FINANCIAL STATEMENT SCHEDULE.

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS.

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.

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities 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 hereunder, 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 whether such

II-5
<PAGE>
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, 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 Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and

(2) For the purpose of determining any liability under the Securities Act, 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 the time shall be deemed to
be the initial bona fide offering thereof.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Woburn, Massachusetts, on the
day of , 2000.

<TABLE>
<S> <C> <C>
BEACON POWER CORPORATION

By: /s/ WILLIAM E. STANTON
-----------------------------------------
William E. Stanton
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints William Stanton and James Spiezio, and
each of them acting individually, as his or her true and lawful
attorneys-in-fact and agents, each with full power of substitution, for him in
any and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments or any abbreviated registration
statement and any amendments thereto filed pursuant to Rule 462(b) increasing
the number of securities for which registration is sought), and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on the day of , 2000:

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ WILLIAM E. STANTON
------------------------------------------- President and Chief Executive Officer, and
William E. Stanton Director (PRINCIPAL EXECUTIVE OFFICER)

/s/ JAMES M. SPIEZIO Vice President of Finance and Chief Financial
------------------------------------------- Officer (PRINCIPAL FINANCIAL AND ACCOUNTING
James M. Spiezio OFFICER)

/s/ KENNETH M. SOCHA
------------------------------------------- Director
Kenneth M. Socha

/s/ PHILIP J. DEUTCH
------------------------------------------- Director
Philip J. Deutch

/s/ DAVID B. EISENHAURE
------------------------------------------- Director
David B. Eisenhaure
</TABLE>

II-7
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ERIC R. STOLTZ
------------------------------------------- Director
Eric R. Stoltz

/s/ HANS KOBLER
------------------------------------------- Director
Hans Kobler

/s/ ALAN P. GOLDBERG
------------------------------------------- Director
Alan P. Goldberg
</TABLE>

II-8
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement

3.1* Amended and Restated Certificate of Incorporation

3.2* Bylaws

4.1* Form of Specimen Stock Certificate

5.1 Opinion of Edwards & Angell, LLP, regarding legality of the
securities being issued

10.1.1 Securities Purchase Agreement by and among SatCon Technology
Corporation, Duquesne Enterprises (n/k/a
DQE Enterprises, Inc.) and Beacon Power Corporation dated
May 28, 1997

10.1.7 Form of Warrant of Beacon Power Corporation issued pursuant
to class D financing and list of holders thereof

10.1.8 Form of Warrant of Beacon Power Corporation issued pursuant
to class E financing and list of holders thereof

10.1.9 Form of Warrant of Beacon Power Corporation issued pursuant
to class F bridge financing and list of holders thereof

10.1.10 Form of Warrant of Beacon Power Corporation issued pursuant
to class F financing and list of holders thereof

10.1.11 Warrant of Beacon Power Corporation issued to Cox
Communications, Inc. dated August 2, 2000

10.1.12 Warrant of Beacon Power Corporation issued to Kaufman-Peters
dated August 2, 2000

10.1.13 Second Amended and Restated 1998 Stock Incentive Plan of
Beacon Power Corporation

10.1.14 Form of Incentive Stock Option Agreement of Beacon Power
Corporation

10.1.15 Form of Non-Qualified Stock Option Agreement of Beacon Power
Corporation
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- ------------------------------------------------------------
<C> <S>
10.1.16* Form of Non-Qualified Stock Option Agreement of Beacon Power
Corporation issued to certain consultants on July 24, 2000
and list of holders thereof

10.1.17 Amended and Restated License Agreement by and between Beacon
Power Corporation and SatCon Technology Corporation dated
October 23, 1998

10.1.18 Letter Agreement between Beacon Power Corporation and
Duquesne Enterprises (n/k/a/ DQE Enterprises, Inc.) dated
May 28, 1997

10.1.19 Lease between Beacon Power Corporation and BCIA New England
Holdings LLC dated July 14, 2000

10.1.20 Commercial Lease by and between Beacon Power Corporation and
Cummings Properties Management, Inc. dated November 19, 1997

10.1.21 Distribution Agreement between Beacon Power Corporation and
TLER dated [ ]

10.1.22* Form of Director and Officer Indemnification Agreements and
list of parties thereto

11.1 Statement of Computation of Earnings per Share (This exhibit
has been omitted because the information is shown in the
financial statements or notes thereto.)

23.1 Consent of Deloitte & Touche LLP

23.2 Consent of Edwards & Angell, LLP (contained in Exhibit 5.1)

24.1 Power of Attorney (contained in the signature page to this
Registration Statement)

27.1 Financial Data Schedule
</TABLE>

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

* To be filed by amendment