ASTROPOWER INC, S-1/A, 1998-01-23

ASTROPOWER INC
S-1/A, 1998-01-23
SEMICONDUCTORS & RELATED DEVICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 23, 1998

REGISTRATION NO. 333-42591
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM S-1

AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

ASTROPOWER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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DELAWARE 3674 51-0315869
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)

ASTROPOWER, INC. DR. ALLEN M. BARNETT, PRESIDENT
SOLAR PARK ASTROPOWER, INC.
NEWARK, DELAWARE 19716-2000 SOLAR PARK
(302) 366-0400 NEWARK, DELAWARE 19716-2000
(NAME, ADDRESS, INCLUDING ZIP CODE (302) 366-0400
AND TELEPHONE NUMBER, INCLUDING AREA (NAME, ADDRESS, INCLUDING ZIP CODE
CODE, AND TELEPHONE NUMBER, INCLUDING AREA
OF REGISTRANT'S PRINCIPAL EXECUTIVE CODE, OF AGENT FOR SERVICE)
OFFICE)

COPIES TO:

PETER LANDAU, ESQ. WILLIAM C. ROGERS, ESQ.
OPTON HANDLER FEILER & LANDAU, LLP CHOATE, HALL & STEWART
52 VANDERBILT AVENUE EXCHANGE PLACE, 53 STATE STREET
NEW YORK, NEW YORK 10017 BOSTON, MASSACHUSETTS 02109-2891
(212) 599-1744 (617) 248-5000

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: as soon as
practicable after effective date of Registration Statement.
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. [_]

CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED PROPOSED
AMOUNT AGGREGATE MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock .............. 3,105,000 Shares(1) $10.00 $31,050,000 $9,159.75
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Total...................... $9,159.75
</TABLE>
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(1) Represents the maximum number of securities that could be issued in the
transactions described in the Registration Statement including
Underwriters' over-allotment option.

THE REGISTRANT HEREBY AMENDS THE 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 COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

SUBJECT TO COMPLETION, DATED JANUARY 23, 1998

PROSPECTUS
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2,700,000 Shares

LOGO

ASTROPOWER

Common Stock

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All of the shares of Common Stock offered hereby (the "Offering") are being
sold by AstroPower, Inc. ("AstroPower" or the "Company"). Prior to the
Offering, there has been no public market for the Common Stock of the Company.
It is currently anticipated that the initial public offering price will be
between $8.00 and $10.00 per share. See "Underwriting" for information relating
to the method of determining the initial public offering price. Application has
been made for inclusion of the Common Stock on the Nasdaq National Market under
the symbol "APWR."

-----------

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CAREFULLY
CONSIDERED BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED HEREBY.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share................................. $ $ $
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Total (3)................................. $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $400,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 405,000 shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."

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The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters named herein, subject to prior sale, when, as and if
delivered to and accepted by them and subject to the right of the Underwriters
to reject orders in whole or part. It is expected that delivery of the shares
of Common Stock will be made in New York, New York on or about , 1998.

-----------

Needham & Company, Inc. First Albany Corporation

The date of this Prospectus is , 1998

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>

[PHOTOGRAPH TO BE INSERTED]

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Silicon-Film(TM) is a trademark of the Company. This Prospectus also
includes product names and other trade names and trademarks of companies other
than the Company.

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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
COMMON STOCK AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. Except as otherwise specified,
all information in this Prospectus (i) reflects a 3-for-4 reverse stock split
to be effected as of the effective date of the Registration Statement of which
this Prospectus is a part; (ii) reflects the adoption of the Company's Amended
and Restated Certificate of Incorporation and Amended and Restated By-Laws
effective as of the effective date of the Registration Statement of which this
Prospectus is a part; and (iii) assumes no exercise of the Underwriters' over-
allotment option. See "Underwriting."

THE COMPANY

AstroPower, Inc. ("AstroPower" or the "Company") develops, manufactures,
markets and sells photovoltaic ("PV") solar cells, modules and panels for
generating solar electric power. Solar cells are semiconductor devices which
convert sunlight directly into electricity. Solar electric power is used off
the electric utility grid for many applications in the communications and
transportation industries and in remote villages and homes. Solar electric
power is also used in on-grid applications by existing electric utility
customers to provide a clean, renewable source of alternative or supplementary
electric power.

The Company has developed a new proprietary technology, Silicon-Film(TM),
which it believes will provide significantly lower manufacturing costs for
solar cells than any other current process. Silicon-Film(TM) is an advanced
continuous sheet process for forming the crystalline silicon wafers from which
solar cells are fabricated. Silicon-Film(TM): (i) uses raw material which is
lower in cost than the solar or semiconductor grade silicon used in other solar
cell processes; (ii) operates at continuous high processing speeds, leading to
lower capital and manufacturing costs than conventional batch processes; and
(iii) produces crystalline silicon sheets which are larger than those obtained
from conventional processes, capturing economies of scale in manufacturing,
materials utilization and solar cell and module fabrication.

The Company currently produces most of its solar cells from silicon wafers
recycled from the semiconductor industry in its current 5 megawatt ("MW")
annual capacity plant. In October 1997, the Company commenced equipment
purchases for the scale-up of its Silicon-Film(TM) process in a new 9 MW annual
capacity plant (the "9 MW plant"). In January 1998, the Company signed a lease
for a 60,300 square foot facility to house the 9 MW plant. The Company expects
to commence Silicon-Film(TM) production in this plant in the second quarter of
1998 and to reach full capacity production in early 1999. In addition, assuming
successful and timely ramp up of its 9 MW plant, the Company intends to
implement a further major increase in Silicon-Film(TM) capacity in 1999. The
Company's planned expansion would approximately triple manufacturing capacity
in 1998 and further increase capacity in 1999 by a factor of two or more. The
Company intends to utilize a portion of the proceeds of the Offering for the
completion and ramp up of the 9 MW plant. A further portion of the proceeds is
intended to be used for the equity capital requirements for the Company's
planned 1999 capacity expansion.

The Company believes that its Silicon-Film(TM) process is well characterized
in pilot production with regard to yields, product quality and production
costs. The Company's Silicon-Film(TM) production machine is intended to be used
in high-volume production in the 9 MW plant. This machine has been qualified in
pilot production for ten months in over 100 production runs aggregating more
than 500 hours. To date, the Company has produced more than 130,000 Silicon-
Film(TM) solar cells. Fabrication of Silicon-Film(TM) solar cells uses
processes and equipment very similar to the Company's current 5 MW single
crystal solar cell and module line, and Silicon-Film(TM) modules are assembled
with the equipment and processes currently used in this line.

PV Energy Systems, Inc., an independent solar energy market research firm
("PV Energy Systems"), estimates 1997 worldwide solar electric power industry
shipments at 114 MW, corresponding to solar electric power system revenues of
approximately $1.8 billion. Over the 17 year period since 1980, industry
shipments have increased at a compound annual rate of 22% and are forecast to
continue to increase through the year 2005 at an approximate compound annual
rate of 24%. The growth of the solar electric power market is being driven by
the expanding number of rapidly growing needs for electricity off-grid where
solar electric power is the most cost-effective energy source and by widespread
demand for an environmentally-friendly alternative source of on-grid
electricity. Current demand for solar electric power systems significantly
exceeds aggregate industry manufacturing capacity. The Company expects that,
due to its low-cost Silicon-Film(TM) products, it will experience revenue
growth rates in excess of the market's overall growth rate.

The Company sells its solar cells, modules and panels to distribution and
manufacturing customers which either resell such products to other marketing
intermediaries or which assemble such products into completed systems for sale
to end users. The Company uses a "tiered" customer strategy, which aims to grow
volume with existing customers while selectively adding new customers, thereby
obtaining access to high growth market segments while maintaining geographic
diversification.

The Company has leveraged and plans to continue to leverage its resources
through research and development contracts with government research
laboratories and agencies, alliances with corporate partners and the utility
industry, and affiliations with strategic customers.

3
<PAGE>

In August 1997, the Company entered into a strategic relationship with
Corning Incorporated ("Corning"), a major manufacturer of specialty materials
and high technology products. Corning has loaned the Company $5.0 million to be
used for ramping up Silicon-Film(TM) manufacturing capacity and has agreed to
provide research, development, engineering and manufacturing assistance for a
three year period.

The Company was incorporated in Delaware in 1989 as a successor to a business
that was organized in 1983. The Company's principal executive offices are
located at Solar Park, Newark, Delaware 19716-2000 and its telephone number is
(302) 366-0400.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the
Company........................... 2,700,000 shares

Common Stock outstanding after the
Offering.......................... 8,053,191 shares (1)

Use of proceeds.................... For major expansion of manufacturing
capacity and associated capital
expenditures, product development and
commercialization, working capital and
other general corporate purposes. See "Use
of Proceeds."

Proposed Nasdaq National Market
symbol............................ "APWR"

</TABLE>

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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1992 1993 1994 1995 1996 1996 1997
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(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Product sales.......... $1,003 $2,476 $3,434 $5,356 $ 6,237 $ 4,581 $ 9,334
Research contracts..... 3,779 3,694 3,676 4,589 4,346 3,359 2,778
------ ------ ------ ------ ------- ------- -------
Total revenues........ 4,782 6,170 7,110 9,945 10,583 7,940 12,112
Income (loss) from
continuing
operations(2).......... (244) 423 17 98 (2,363) (2,122) 454
Net income (loss)....... $ (765) $ 257 $ 17 $ 98 $(2,363) $(2,122) $ 454
Pro forma income (loss)
per share(3)........... $ (0.40) $ 0.08
Pro forma weighted
average shares
outstanding............ 5,893 6,026
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
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PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................... $ 5,358 $ 5,358 $27,558
Total assets............................. 13,852 13,852 36,052
Long-term debt........................... 5,797 5,797 5,797
Total stockholders' equity (deficit)..... (2,340) 3,458 25,658
</TABLE>

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(1) Based upon the number of shares outstanding at September 30, 1997. Includes
Common Stock issuable upon conversion of outstanding Preferred Stock, which
will occur simultaneous with the closing of the Offering. Excludes 740,741
shares of Common Stock issuable upon conversion of the Company's 7%
convertible note issued on August 19, 1997 at a conversion price of $6.75
per share. Also excludes 1,149,778 shares of Common Stock issuable upon
exercise of stock options outstanding at September 30, 1997 with an average
exercise price of $3.87 per share. See Notes 1, 8, 9 and 13 of Notes to
Financial Statements, "Description of Capital Stock" and "Management--
Executive Compensation."
(2) In 1992, the Company made the decision to dispose of its Canadian
subsidiary, which was a small assembler of modules and a systems
integrator. This subsidiary was subsequently divested in 1994.
(3) See Note 1 of Notes to Financial Statements for information concerning
computation of pro forma income (loss) per share.
(4) Gives effect to the conversion of all of the outstanding Preferred Stock
into shares of Common Stock, which will occur simultaneous with the closing
of the Offering. The Company's Preferred Stock consists of two separate
series: Series A Redeemable Convertible Preferred Stock and Series B
Convertible Preferred Stock, of which there were 1,309,626 and 336,409
shares outstanding respectively, as of September 30, 1997. Each share of
Preferred Stock is convertible into one share of Common Stock. See Note 8
of Notes to Financial Statements, "Description of Capital Stock."
(5) Adjusted to reflect the sale by the Company of the 2,700,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$9.00 per share) and the application of the estimated net proceeds
therefrom, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. See
"Use of Proceeds" and "Capitalization."

4
<PAGE>

RISK FACTORS

An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. In addition to the other information in this
Prospectus, prospective investors should carefully consider the following risk
factors before making a decision to purchase the Common Stock offered hereby.

This Prospectus contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available
to the Company's management. When used in this document, the words
"anticipate", "believe", "estimate", "expect", "going forward" and similar
expressions, as they relate to the Company or Company management, are intended
to identify forward-looking statements. Such statements reflect the current
views of the Company with respect to future events and are subject to certain
risks, uncertainties and assumptions, including the risk factors described in
this Prospectus. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated or expected. The Company does not intend to update these forward-
looking statements.

SCALE-UP OF NEW MANUFACTURING PLANT

The Company plans to begin manufacturing Silicon-Film(TM) products in a new
9 MW annual capacity plant in the second quarter of 1998. This plant will
require a substantial investment of the Company's capital, including all of
the $5.0 million recently loaned to the Company by Corning and a portion of
the net proceeds of the Offering. Approximately 70% of the equipment for the 9
MW plant has been ordered and a lease for the facility was entered into in
January 1998. The new plant will utilize the Company's proprietary Silicon-
Film(TM) production equipment which has produced more than 130,000 solar cells
in pilot production for sale and for use in commercial and demonstration
programs. The Company believes, on the basis of its Silicon-Film(TM) pilot
production, that it has demonstrated manufacturing yields, equipment
capability, product performance and product quality that will enable it to
produce solar cells at costs lower than competitors when manufactured in large
quantities. However, the successful completion and operation of the 9 MW plant
will require substantial engineering and is subject to significant risks,
including risks of cost overruns and delays. There can be no assurance that
the Company will successfully operate its Silicon-Film(TM) processes in high
volume, make planned process and equipment improvements, enter into contracts
for the production of such equipment, obtain timely delivery of such
equipment, implement multiple production lines or be able to hire and train
the additional employees and management needed to operate the 9 MW plant. To
the extent that the Company's financial and operational plans and capital
budgets assume increases in productivity, equipment performance and energy
conversion efficiency of solar cells produced in its 9 MW plant over the
levels achieved in pilot production, any failure by the Company to achieve
these projected increases, or any failure or significant delay in starting and
ramping up the 9 MW plant, could materially and adversely affect the Company's
business, results of operations and financial condition. See "Use of Proceeds"
and "Business--Manufacturing and Research Facilities."

HIGH-VOLUME OPERATION OF SILICON-FILM(TM) PRODUCTION EQUIPMENT

The Company has produced more than 130,000 Silicon-Film(TM) solar cells,
representing over 300 kilowatts of rated generating capacity, using its
Silicon-Film(TM) production machines. The Company's current production machine
began operation in February 1997 and has made more than 100 production runs
aggregating more than 500 hours. Upon completion of the 9 MW plant, the
Company will begin continuous high-volume production of Silicon-Film(TM)
products using its current Silicon-Film(TM) production machine. The Company
believes that the production results obtained from the current machine
demonstrate the Company's ability to produce Silicon-Film(TM) products at
full-scale production levels. However, there can be no assurance that the
current machine will perform as anticipated at continuous production levels.
The Company may not ultimately be able to operate the current machine at full-
scale production levels without experiencing significant delays, equipment
breakdowns, higher costs or lower product quality. In addition, to the extent
that the Company's business and financial

5
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projections assume increased levels of productivity and economies of scale
upon achieving full-scale production levels, the failure to achieve such
increases could materially and adversely affect the Company's business,
results of operations and financial condition.

ACCEPTANCE OF SILICON-FILM(TM) PRODUCTS IN THE SOLAR ELECTRIC POWER MARKET

The Company believes it can produce its Silicon-Film(TM) solar cells at a
lower cost per watt than competing technology because of the continuous nature
of the Silicon-Film(TM) manufacturing process, the use of inexpensive raw
materials and the elimination of costly manufacturing steps that must be used
in other competing technologies. The Company believes that the anticipated
lower cost per watt of solar cells produced by the Silicon-Film(TM) process
will provide it with significant price advantages over current and potential
alternative technologies. However, there is no assurance that the Company will
be able to sell its Silicon-Film(TM) products at a lower price per watt than
conventional solar cells because the Company may not be able to produce
Silicon-Film(TM) products at projected costs and/or because prices for
competing solar cells may decline more rapidly than anticipated. Although the
Company plans to price its Silicon-Film(TM) solar cells competitively, the
market acceptance of the Company's Silicon-Film(TM) products may also be
affected by Silicon-Film's(TM) lower energy conversion efficiency and power
produced per unit of area compared to some other competing solar cell
products. The Company's Silicon-Film(TM) products may also fail to win market
acceptance due to the development of new products or technologies by its
competitors. Other factors that any affect the acceptance of the Company's
Silicon-Film(TM) products include the size, appearance and quality of Silicon-
Film(TM) solar cells and the market acceptance of module products and systems
assembled by manufacturers over which the Company has no control. The failure
of the Company's Silicon-Film(TM) products to achieve market acceptance and/or
price advantage could materially and adversely affect the Company's business,
results of operations and financial condition.

FUTURE EXPANSION OF MANUFACTURING CAPACITY

The Company expects to commence Silicon-Film(TM) production in the 9 MW
plant in the first half of 1998 and to reach full capacity production in early
1999. In addition, assuming successful and timely ramp of the 9 MW plant, the
Company intends to implement another major increase in Silicon-Film(TM)
capacity in 1999 (the "Future Expansion"). The Company believes that this
Future Expansion, based on its experience with the 9 MW plant, will result in
increases in productivity and equipment performance, mostly through economies
of scale associated with high volume commercial production and advances in
Silicon-Film(TM) manufacturing technology. Based on its pilot production and
the expected results from its 9 MW plant, the Company also believes that it
will achieve further increases in the energy conversion efficiency of the
Silicon-Film(TM) solar cells as it implements and scales up the Future
Expansion. However, there can be no assurance that the 9 MW plant will be
successfully completed, that production in the 9 MW plant will reach maximum
capacity, or that the Company will be able to utilize additional manufacturing
capacity from the Future Expansion. There can also be no assurance that
increased levels of productivity, throughput levels, periods of equipment
operation or product energy conversion efficiencies will be obtained or can be
consistently maintained as a result of the Future Expansion. If the Company is
unable for any reason to successfully complete, scale-up or efficiently
utilize additional manufacturing capacity as a result of the Future Expansion,
the Company's business, results of operations and financial condition could be
materially and adversely affected.

MANAGEMENT OF GROWTH

The Company's planned rapid expansion of Silicon-Film(TM) manufacturing
capacity in 1998 and 1999 entails a planned threefold expansion of the
Company's manufacturing capacity in 1998 and a further two-fold expansion of
that manufacturing capacity in 1999. This planned expansion, involving major
increases in facilities and employees and enhancements to its operating
systems, could place a significant strain on the Company's senior management
team and other resources. Based on its planned expansion, the Company will
require a significant increase in the number of its manufacturing employees in
both 1998 and again in 1999. The Company

6
<PAGE>

may be unable to hire and train a sufficient number of employees on a timely
basis or to upgrade its operating systems without undue cost or delay. The
expansion may also require substantial additions to the Company's operating
and financial management team. The inability of the Company to effectively
manage the budgeting, forecasting and other process control issues presented
by such a rapid expansion could have an adverse effect on the Company's
operations and financial results. In addition, the Company will be required to
implement an enlarged sales and marketing plan for Silicon-Film(TM) technology
and expand its marketing and sales staff. There can be no assurance that the
Company will be able to successfully recruit and train required personnel and
manage its planned growth, and its failure to do so could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business--Marketing, Sales and Customer Support", and "--
Employees"; "Management"; and "Risk-Factors--Scale-Up of New Manufacturing
Plant" and "--Future Expansion of Manufacturing Capacity."

UNCERTAINTY OF ADDITIONAL FINANCING

As mentioned above, assuming successful and timely ramp up of its 9 MW
plant, the Company intends to implement another major increase in Silicon-
Film(TM) capacity during 1999. The Company expects that the net proceeds of
the Offering, together with existing sources of capital and projected cash
generated from operations, will be sufficient to fund its activities for the
next 24 months, including the scale-up of the 9 MW plant and the equity
capital requirements for the Future Expansion. In the next 24 months, changes
in technology, a significant delay in implementation of the 9 MW plant or the
Future Expansion, or a significant decrease in manufacturing efficiency or
operating margins may require further capital. The inability of the Company to
obtain the necessary capital or financing to fund the Future Expansion could
materially and adversely affect the Company's business, results of operations
and financial condition. Furthermore, there can be no assurance that the
Company will be profitable in the future or that the net proceeds of any
financing, together with any funds provided by operations and present capital,
will be sufficient to fund the Company's ongoing needs for product
development, manufacturing, marketing and working capital. Additional
financing may not be available when needed or may not be available on terms
acceptable to the Company. If additional funds are raised by issuing equity
securities, stockholders may incur dilution. If adequate funds are not
available, the Company may be required to delay, scale back or eliminate one
or more of its development programs or otherwise limit the development,
manufacture or sale of Silicon-Film(TM) solar cells, which could materially
and adversely affect the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

PROTECTION OF PROPRIETARY TECHNOLOGY

The Company's ability to compete effectively will depend in part on its
ability to maintain the proprietary nature of its technology and manufacturing
processes through a combination of patent and trade secret protection. The
Company is assigned ten issued United States patents in the field of
photovoltaics and related optoelectronics materials and devices which expire
beginning in April 2003 and ending in April 2016. In addition, the Company has
three United States patents pending. Patent applications in the United States
are maintained in secrecy until patents issue and publication of discoveries
in the scientific literature tends to lag behind actual discoveries. The
Company therefore cannot be certain that it was the first creator of
inventions covered by pending patent applications or the first to file patent
applications on such inventions, and there can be no assurance that the
Company's pending patent applications will result in issued patents.
International counterparts of four issued patents have been filed under the
Patent Cooperation Treaty. Patent applications filed in foreign countries are
subject to laws, rules, and procedures which differ from those of the United
States, and thus there can be no assurance that the Company's foreign patent
applications will result in issued patents or that such patents will provide
meaningful patent protection. In addition, no assurance can be given that
patents issued to the Company will not be intentionally infringed upon or
designed around or that any of its issued patents will provide meaningful
patent protection. The inability of the Company to maintain the proprietary
nature of its products and core technologies could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Business -- Patents and Proprietary Technology."

7
<PAGE>

COMPETITION

The markets for the Company's products are intensely competitive. There are
many competitors engaged in all areas of solar electric power generation in
the United States and abroad including, among others, major electrical, oil
and chemical companies, specialized electronics firms, universities, research
institutions and foreign government-sponsored companies. Most of these
entities have substantially greater financial, research and development,
manufacturing and marketing resources than the Company. There is also a large
number of smaller companies involved in the development, manufacturing and
marketing of solar electric power products and systems. See "Business--
Competition."

UNCERTAINTY OF SOLAR ELECTRIC POWER MARKET GROWTH

The market for solar electric power products has grown steadily in the past.
PV Energy Systems reports that the shipment volume of solar electric power
products has grown at an average compound annual rate of approximately 22%,
11% and 17% since 1980, 1990 and 1993, respectively. However, there can be no
assurance that the solar electric power market, or the particular market
segments and/or geographic regions where the Company sells its products, will
continue to grow. The Company's strategy of significantly increasing
manufacturing capacity is based in part on the assumption of continuing market
growth. The Company believes that its assumption of continuing market growth
is reasonable based on the large overall market for solar electric power
products and services world-wide, historical growth trends in the solar
electric power industry and solar electric power market growth forecasts that
have been developed by independent third parties. For example, PV Energy
Systems predicts that solar electric power product shipments will grow at an
average compound annual rate of 24% through the year 2005. However, in the
event that the market for solar electric power does not experience continuing
growth, or that the particular market segments and/or geographic sales regions
where the Company sells the majority of its products do not continue to grow,
this factor could have a material adverse effect on the Company's business,
results of operations and financial condition.

DEPENDENCE ON KEY CUSTOMERS; CUSTOMER CONCENTRATION

The Company's strategy has been to market its products to a limited group of
key customers. The Company's five largest customers accounted for, in the
aggregate, approximately 60.0%, 60.3% and 74.6% of the Company's product sales
in fiscal years 1995, 1996 and for the nine months ended September 30, 1997,
respectively. The Company's product sales accounted for 53.9%, 58.9% and 77.1%
of the Company's total revenues in fiscal years 1995, 1996 and for the nine
months ended September 30, 1997, respectively. The remainder of the Company's
total revenues for these periods was derived from government-related research
and development contracts. The loss or significant reduction of purchases by
one or more of these customers could have a material adverse effect on the
Company's business, results of operations and financial condition. The Company
expects to continue its strategy of selling solar electric power products to
relatively few customers and that such customers will account for a high
percentage of its revenue in the foreseeable future. The Company believes that
it has successfully managed the level of customer concentration in the past,
and that the level of customer concentration will decrease as the Company's
manufacturing capacity increases, but there can be no assurance that the
Company's sales strategy of focusing on a small group of customers will be
successful in the future or can be successfully changed in the future to
another sales strategy. See "Business -- Customers."

RELIANCE ON MARKETING INTERMEDIARIES

The Company's marketing strategy has been to sell its products to marketing
intermediaries selected to provide access to certain important market segments
and regions around the world. The Company's customers are not end users of the
Company's products but are distributors, module manufacturers or system
integrators who either resell the Company's products to other customers, or
package the Company's products into systems for resale to end users. These
marketing intermediaries are not under the direct control of the Company. The
Company therefore has no control over the ability of its customers to market
and sell to end users. In addition, the Company has no control over the
financial performance of its customers which may affect the ability of these

8
<PAGE>

customers to buy products manufactured by the Company in the future. Any
reduction in sales activities by the Company's customers or a termination of
their relationship with the Company could have a material adverse effect on
the Company's business, results of operations and financial condition.

AVAILABILITY OF SYSTEM FINANCING FOR REMOTE ELECTRIC POWER APPLICATIONS

Solar electric power is used in many applications and has proven to be a
cost-effective source of electric power where the electric power grid is
unavailable. Solar electric power has also proven to be cost-effective in
competition with diesel generators and/or other alternative forms of off-grid
power generation. The Company estimates that remote electric power
applications currently comprise approximately 76% of the market for solar
electric power. Because of the high capital costs of solar electric power
systems, users may not have sufficient resources or credit to acquire such
systems, particularly in developing countries, and the Company believes that
the availability of financing, such as loans and lease arrangements, could
have a significant effect on the rate of growth of remote solar electric
power. Such financing programs are becoming increasingly available through
electric utility companies, banks, local governments and the World Bank. To
the extent that the Company believes that the increased availability of system
financing will play a role in expanding the market for solar electric power
products, particularly in developing countries, and to the extent that the
Company's plans for increased sales of solar electric power products include
increased sales within this market segment, the lack of increased availability
of system financing or the elimination of existing system financing programs
could have a material adverse effect on the Company's business, results of
operations and financial condition.

AVAILABILITY OF SUBSIDIES AND CONSUMER INCENTIVES FOR GRID-CONNECTED
APPLICATIONS

Approximately 19% of the market for solar electric power is for grid-
connected applications, according to PV Energy Systems. The cost of solar
electric power currently substantially exceeds the cost of power furnished by
the conventional electric utility grid. Governmental bodies in many countries,
notably the United States, Germany and Japan, have provided subsidies in the
form of cost reductions, tax write-offs, and other incentives to end users,
distributors, systems integrators and manufacturers of solar electric power
products to promote the use of solar energy in grid connected applications and
reduce dependency on other forms of energy. Although the Company believes that
grid-connected applications currently account for a limited fraction of the
total market for solar electric power systems, these applications are
generally predicted by third party market research firms to be among the most
rapidly growing solar electric power market segments in the future. Therefore,
the future market for solar products depends in some measure on the
willingness of governments to enter into and to continue programs for solar
electric power subsidies and consumer incentives. There can be no assurance
that government subsidization of solar energy will continue into the future.
Any reduction or elimination of government subsidies may have a material
adverse effect on the Company's business, results of operations and financial
condition.

SUPPLY AND COST OF SILICON WAFERS AND OTHER RAW MATERIALS

The Company purchases and recycles silicon wafers from the semiconductor
industry for use in manufacturing its single crystal solar cells. 93.4% of the
Company's total product sales in the nine months ended September 30, 1997 was
derived from solar cells and modules manufactured from single crystal silicon
wafers. However, the Silicon-FilmTM process is the focus of the Company's
plans for capacity expansion and the Silicon-FilmTM process does not use
recycled silicon wafers.

Although the Company has generally been successful in obtaining sufficient
quantities of quality wafers in the past, there can be no assurance that such
wafers will be available at cost-effective prices in the future. The absence
of cost-effective sources of supply and the inability of the Company to locate
alternative sources of low-cost high-quality wafers could have a material
adverse effect on the Company's business, results of operations and financial
condition.

9
<PAGE>

The Company presently has multiple sources of supply for its required raw
materials, including silicon wafers and silicon, although for economic and
quality control reasons the Company utilizes single sources of supply for
certain materials. In situations where it relies on single sources of supply,
the Company believes that an adequate supply of materials is available to meet
its foreseeable needs and, to date, the Company generally has been able to
obtain supplies of such materials in a timely manner. There can be no
assurance that supplies of the Company's critical materials will be adequate
in the future or that the cost of such materials will remain low enough for
the Company to maintain a cost-competitive market position for its solar
electric power products.

PRIOR LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE PROFITABILITY

The Company generated net income for the nine months ended September 30,
1997. It incurred a net loss in two of the last five fiscal years and, as of
September 30, 1997, had an accumulated deficit of approximately $5.1 million.
For the nine months ended September 30, 1997, the Company reported net income
of $454,000 as compared to a net loss of $2.1 million for the nine months
ended September 30, 1996. The net income (loss) for the years ended December
31, 1992, 1993, 1994, 1995 and 1996 was $(765,000), $257,000, $17,000, $98,000
and $(2.4 million), respectively. There can be no assurance that the Company
will continue to be profitable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

INTERNATIONAL SALES

Approximately 86.7% and 70.7% of the Company's product sales for the year
ended December 31, 1996 and the nine months ended September 30, 1997,
respectively, was attributable to international sales. For the year ended
December 31, 1996, customers located in Germany, Spain and India each
accounted for more than 10% of the Company's product sales. In the nine months
ended September 30, 1997, customers located in Germany and Spain each
accounted for more than 10% of the Company's product sales. The Company
expects that international sales will continue to represent a significant
portion of the Company's product sales. To date, in connection with its
international sales, the Company has not experienced any material adverse
impact on its business, results of operations or financial condition, however,
there can be no assurance that this will be true in the future. All past
international sales were denominated in United States dollars and the Company
expects this practice to continue but there can be no assurance that future
sales will be protected from foreign currency fluctuations. The Company
believes that there are additional risks associated with the political and
economic stability of foreign countries inasmuch as this impacts the ability
of its foreign customers to pay for their purchases. The Company is also
subject to other risks associated with international sales, including but not
limited to tariff regulations, requirements for export licenses, long accounts
receivable cycles, potentially adverse tax consequences and the burdens of
complying with a wide variety of foreign laws, including compliance with
technical standards.

STRATEGIC ALLIANCES

The Company has developed, and will continue to develop, strategic alliances
with customers, companies and other organizations to provide support for its
own technical, manufacturing and marketing staffs and to facilitate the entry
into certain geographic market areas. Such strategic alliances could be
cooperative agreements for sharing of information, cooperative marketing
agreements, or any other business relationships such as equity investments or
joint ventures. The goal of such alliances is to provide resources and
experience which complement those the Company already has in place, including
manufacturing and marketing expertise, and entry into new geographic markets.
To accelerate the commercialization of its Silicon-Film(TM) technology, the
Company has entered into strategic alliances with Corning and GPU
International. There can be no assurance that the Company will be able to
enter into additional alliances or that existing and/or future alliances will
achieve their goals. The terms of such alliances may require the Company and
its partners to share revenues and/or expenses from certain activities or for
the Company to grant to its partners licenses to manufacture, market and/or
sell products based upon its Silicon-Film(TM) technology. The Company's
current alliances provide for cost sharing, technology sharing with respect to
jointly developed technologies, options to purchase equity of the Company,
securitization of loans made to the Company and pricing discounts. Such terms
could be part of any future

10
<PAGE>

strategic alliance and could materially impact the Company's business, results
of operations and financial condition. See "Business--Business Strategy" and
"--Strategic Alliances."

BACKLOG

The Company's order backlog as of September 30, 1997 was approximately $5.2
million, of which $4.1 million was attributable to product sales. All of the
product orders included in backlog are covered by signed purchase orders or
contracts and represent products or services to be delivered within the next
12 months. Although purchase orders with customers typically specify dollar
volumes of products to be purchased over an extended time period, in some
instances such orders also provide that scheduled shipment dates of particular
volumes are released to the Company only a few days or weeks prior to the
required delivery dates. Accordingly, the Company does not believe that its
backlog as of any particular date is representative of actual sales for any
succeeding period, and there can be no assurance that current order backlog
will lead to sales in any future period. In addition, the Company's customers
may cancel or defer orders without significant penalty. Termination or
reduction of existing or future purchase orders from customers of the Company
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Backlog."

TECHNOLOGICAL CHANGE AND COMPETING TECHNOLOGIES

The Company believes it has developed a new technology for solar electric
power applications. The future success of the Company will depend, however, in
large part upon its ability to keep pace with advancing solar electric power
technology. In addition to the Company's Silicon-Film(TM) technology, there is
a variety of competing technologies under active development by other
companies, including amorphous silicon, cadmium telluride and copper indium
diselenide, as well as advanced concepts for the manufacture of both bulk
silicon and thin film crystalline silicon. Any of these competing technologies
could achieve manufacturing costs less than the manufacturing costs achieved
by the Silicon-Film(TM) products being developed by the Company. There can
also be no assurance that the Company's development efforts will not be
rendered obsolete by technological advances of others or that other materials
will not prove more advantageous for the commercialization of solar electric
power products. The Company believes that to remain competitive in the future,
it will need to invest significant financial resources in research and
development.

GOVERNMENT CONTRACTS

The Company intends to continue to complement and enhance its own resources
with funding derived from contracts with agencies of the United States
government. The percentage of the Company's total revenue derived from
government-related contracts was approximately 59.9%, 51.7%, 46.1%, 41.1% and
22.9% of total revenue for fiscal years 1993, 1994, 1995 and 1996 and for the
the nine months ended September 30, 1997, respectively. The Company's
contracts involving the United States government are subject to various risks
such as the risk of termination at the convenience of the government. To date,
the government has not terminated any of the Company's contracts. Other risks
include potential disclosure of the Company's confidential information to
third parties, audits and the exercise of "march-in" rights by the government.
March-in rights refer to the right of the United States government or
government agency to exercise its non-exclusive, royalty-free, irrevocable
worldwide license to any technology developed under contracts funded by the
government if the contractor fails to continue to develop the technology.
There can be no assurance that the United States government will continue its
commitment to programs to which the Company's development projects are
applicable or that the Company can compete successfully to obtain funding
available pursuant to such programs. A reduction or discontinuance of such
commitment or of the Company's participation in such programs could have a
material adverse effect on the Company's business, operating results and
financial condition. Substantially all of the Company's revenues from
government contracts including overhead rates are subject to audit under
various federal statutes. The Company has received final approval of its
overhead rates through 1993. Audits of 1994 and 1995 rates began in December
1997. It is the Company's opinion that adjustments to such revenue, if any,
will not have a material adverse effect on its business, results of operations
and financial condition.

11
<PAGE>

ENVIRONMENTAL REGULATIONS

The Company uses, generates and discharges toxic, volatile or otherwise
hazardous chemicals and wastes in its research and development and
manufacturing activities. Therefore, the Company is subject to a variety of
federal, state and local governmental regulations related to the storage, use
and disposal of these materials. The Company believes that it has all the
permits necessary to conduct its business. However, failure to comply with
present or future regulations could result in fines being imposed on the
Company, suspension of production or a cessation of operations. The Company
believes that it has properly handled its hazardous materials and wastes and
has not contributed to any contamination at its premises. The Company is not
aware of any environmental investigation, proceeding or action by federal or
state agencies involving these premises. However, under certain federal and
state statutes and regulations, a governmental agency may seek recovery and
response costs from both operators and owners of property where releases of
hazardous substances have occurred or are ongoing. Any failure by the Company
to control the use of, or to restrict adequately the discharge of, hazardous
substances could subject it to substantial financial liabilities and could
have a material adverse effect on the Company's business, results of
operations and financial condition.

POTENTIAL FLUCTUATIONS IN ANNUAL OR QUARTERLY RESULTS

The Company has experienced and may continue to experience significant
annual and quarterly fluctuations in its operating results. The Company's
annual and quarterly operating results may fluctuate as a result of a variety
of factors including the timing of orders from, and shipments to, major
customers, the timing of new product introductions by the Company or its
competitors, delays in the planned Silicon-Film(TM) manufacturing expansion,
variations in the mix of products sold by the Company or its competitors,
including possible decreases in average selling prices of the Company's
products in response to competitive pressures, market acceptance of new and
enhanced versions of the Company's products, the availability and cost of key
raw materials, requirements for cost sharing on government contracts and
fluctuations in general economic conditions. In addition, the Company's annual
and quarterly operating results may fluctuate as a result of the issuance of
stock options to Corning pursuant to an existing agreement with Corning at
exercise prices below the then current fair market value of the Company's
Common Stock. There can be no assurance that the Company will be able to
achieve and sustain consistent profitability on an annual or quarterly basis.

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on its corporate officers and other principal
members of its management and technical personnel. None of such personnel is
covered by an employment contract other than Dr. Allen M. Barnett, the
Company's President and Chief Executive Officer, and Dr. George W. Roland,
President and Chief Executive Officer of the Company's Solar Power Business.
The Company's success in the future will depend in part on attracting and
retaining qualified management and technical personnel. There can be no
assurance that the Company will be successful in hiring or retaining qualified
personnel. Loss of key personnel or inability to hire and retain qualified
personnel could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company maintains and is
the beneficiary of a $500,000 insurance policy on the life of Dr. Barnett. See
"Business--Employees" and "Management."

ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Company's
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between the Company and the
representatives of the Underwriters and may bear no relationship to the price
of the Common Stock after the Offering. There can be no assurance that any
active public market for the Company's Common Stock will develop or be
sustained after the Offering. The trading price of the Company's Common Stock
could be subject to wide fluctuations in response to variations in the actual
or anticipated quarterly operating results of the Company, announcements of
new products or technological innovations by the Company or its competitors,
and general conditions in the solar electric power industry. In addition,
stock markets have experienced extreme price

12
<PAGE>

and volume trading volatility in recent years. This volatility has had a
substantial effect on the market prices of securities of many high-technology
companies for reasons frequently unrelated to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock. See "Underwriting."

CONTROL BY EXISTING STOCKHOLDERS

Following the Offering, the Company's officers and directors together with
their affiliates will beneficially own approximately 41.7% of the Company's
outstanding Common Stock. As a result, they may have the ability to elect the
Company's directors and to determine all corporate actions requiring
stockholder approval. This concentration of ownership may also have the effect
of delaying or preventing a change in control of the Company. See "Principal
Stockholders."

ANTI-TAKEOVER EFFECT OF DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW
PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 prohibits certain publicly held Delaware
corporations from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder", unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and stock transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates, owns, or
within three years prior to the date on which the determination of whether
such person is an interested stockholder is being made, did own 15% or more of
the Company's voting stock. Parallel provisions have been included in the
Company's Amended and Restated Certificate of Incorporation. These provisions
may make it more difficult for a third party to acquire, or may discourage
acquisition bids for, the Company. The Company's Amended and Restated
Certificate of Incorporation and By-Laws contain additional provisions that
may also have the effect of discouraging a third party from making an
acquisition proposal for the Company. The Amended and Restated Certificate of
Incorporation and By-Laws of the Company, among other things: (i) classify the
Board of Directors into three classes, with directors of each class serving
for a staggered three-year period; (ii) provide that directors may be removed
only for cause and only upon the affirmative vote of the holders of at least
80% of the outstanding shares of Common Stock entitled to vote for such
directors; (iii) permit the Board of Directors but not the Company's
stockholders, to fill vacancies and newly created directorships on the Board
of Directors; and (iv) provide that any action required or permitted to be
taken by the stockholders of the Company must be effected at an annual or
special meeting of stockholders and not by any consent in writing by such
stockholders. Special meetings of stockholders may be called only by the Board
of Directors. Such provisions would make the removal of incumbent directors
more difficult and time-consuming and may have the effect of discouraging a
tender offer or other takeover attempt not previously approved by the Board of
Directors. In addition, 5 million shares of the Company's Preferred Stock may
be issued in the future without further stockholder approval and upon such
terms and conditions, and having such rights, privileges and preferences, as
the Board of Directors may determine. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or discouraging a third
party from acquiring, a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of Preferred
Stock. See "Description of Capital Stock--Delaware Law and Certain Charter and
By-Law Provisions."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market following
the Offering could have an adverse effect on the price of the Common Stock,
and future sales of Common Stock by existing stockholders could also have an
adverse effect on such price and on the Company's ability to raise capital.
Beginning 180

13
<PAGE>

days after the date of this Prospectus, 4,804,655 shares of Common Stock will
be eligible for sale in the public market upon the expiration of lock-up
agreements between the Company's stockholders and the Underwriters, subject in
some cases to the volume and other restrictions of Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"). Additionally,
740,741 shares of Common Stock are issuable upon conversion of outstanding
convertible debt and an additional 1,200,000 shares of Common Stock are
reserved for issuance under the Company's stock option plan. Approximately 90
days after the date of this Prospectus, the Company intends to register the
shares subject to outstanding options as well as reserved for issuance under
the Company's stock option plan, which shares would then be eligible for sale
in the public market, although all of these shares and all shares acquired
under the Company stock option plan by employees are subject to agreements not
to sell until 180 days after the date of this Prospectus. Certain holders of
shares of Common Stock will have the right, under certain conditions, to
participate in future Company registrations. See "Shares Eligible for Future
Sale."

DILUTION

The initial public offering price substantially exceeds the net tangible
book value of the Common Stock as adjusted for the receipt of the net proceeds
from the Offering, resulting in immediate and substantial dilution of $5.53
per share to purchasers of Common Stock in the Offering. See "Dilution."

ABSENCE OF DIVIDENDS

The Company has never paid any dividends and it is currently anticipated
that no cash dividends will be paid to the holders of the Common Stock in the
foreseeable future. See "Dividend Policy."

14
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,700,000 shares of
Common Stock offered hereby are estimated to be $22.2 million, assuming an
initial public offering price of $9.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.

The Company currently anticipates that approximately $8.0 million of the net
proceeds from the Offering and all of the $5.0 million recently loaned to the
Company by Corning will be used for the rapid scale-up of the Company's 9 MW
Silicon-Film(TM) plant. Approximately 70% of the equipment for the 9 MW plant
has been ordered and a lease for the facility was entered into in January
1998. In addition, approximately $1.3 million of the proceeds of the Offering
will be used to expand the capacity of the Company's existing recycled wafer
solar cell manufacturing line. These two expansions will approximately triple
the Company's aggregate production capacity over the next 12 months. The
remainder of the proceeds of the Offering will be used to fund research,
development and commercialization programs, for general working capital
purposes and, assuming the scale-up of the 9 MW plant is successful, the
Company's equity capital requirements for the Future Expansion.

The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the progress of the Company's
research and development programs, the phase-in of incremental capacity,
technological advances, determinations as to the commercial potential of the
Company's technologies and products, and the status of competitive products.
The establishment of additional research arrangements with government agencies
will also affect the amounts expended for each purpose. Pending such uses, the
Company intends to invest the net proceeds of the Offering in short-term
investment-grade, interest-bearing instruments. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

DIVIDEND POLICY

The Company has not declared or paid any cash dividends and does not
anticipate that it will do so in the foreseeable future. The Company currently
intends to retain future earnings, if any, to provide funds for the growth and
development of the Company's business. Any future determination to pay
dividends will be at the discretion of the Company's Board of Directors and
will be dependent upon the Company's earnings, capital requirements, operating
and financial condition, and such other factors as the Board of Directors may
deem relevant.

15
<PAGE>

CAPITALIZATION

The following table sets forth as of September 30, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company after giving effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock upon consummation of the Offering and (iii)
the pro forma as adjusted capitalization of the Company after giving effect to
the sale of 2,700,000 shares of Common Stock offered by the Company hereby at
an assumed public offering price of $9.00 per share and the application of the
estimated net proceeds therefrom. The information set forth below should be
read in conjunction with the Financial Statements and the Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997(1)
----------------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(2)(3)
--------------- ---------------- ---------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Short-term debt(4)............ $ 469 $ 469 $ 469
=============== =============== ===============
Long-term debt, excluding
current maturities(5)........ 5,797 5,797 5,797
--------------- --------------- ---------------
Series A Redeemable
Convertible Preferred Stock
($.01 par value; 1,331,250
shares authorized; 1,309,626
issued and
outstanding)(5)(6)........... 5,798 -- --
Stockholders' equity:
Series B Convertible
Preferred Stock ($.01 par
value; 750,000 shares
authorized, 336,409 shares
issued and
outstanding)(5)(6)......... 3 -- --
Common Stock ($.01 par
value; 15,000,000 shares
authorized, 3,707,156
shares issued and
outstanding; 5,353,191
shares issued and
outstanding, pro forma;
8,053,191 shares issued and
outstanding, pro forma as
adjusted)(6)(7)............ 37 54 81
Additional paid-in capital.. 2,763 8,547 30,720
Accumulated deficit......... (5,143) (5,143) (5,143)
--------------- --------------- ---------------
Total stockholders' equity
(deficit)................ (2,340) 3,458 25,658
--------------- --------------- ---------------
Total capitalization.... $ 9,255 $ 9,255 $ 31,455
=============== =============== ===============
</TABLE>
- --------
(1) Reflects a 3-for-4 reverse stock split to be effected as of the effective
date of the Registration Statement of which this Prospectus is a part.
(2) Reflects Common Stock issuable upon conversion of outstanding Preferred
Stock, which will occur simultaneous with the closing of the Offering.
(3) Adjusted to give effect to the sale by the Company of 2,700,000 shares of
Common Stock offered (at an assumed initial public offering price of $9.00
per share) and the application of the net proceeds as set forth in "Use of
Proceeds."
(4) Consists of note payable--stockholder of $58,000, note payable--bank of
$75,000 and current maturities of long-term debt of $336,000.
(5) See Notes 3, 8 and 13 of Notes to Financial Statements for information
concerning the Company's notes payable, long-term debt, convertible note
and Convertible Preferred Stock.
(6) Effective upon the consummation of the Offering, the Company's authorized
capital stock will consist of 25,000,000 shares of Common Stock, par value
$.01 per share, and 5,000,000 shares of Preferred Stock, par value $.01
per share.
(7) Excludes 1,149,778 shares of Common Stock issuable upon exercise of stock
options outstanding at September 30, 1997 with a weighted average exercise
price of $3.87 per share.

16
<PAGE>

DILUTION

The net tangible book value of the Company at September 30, 1997 was
approximately $9.9 million or $1.51 per share, after giving effect to the
conversion of all outstanding shares of Preferred Stock into Common Stock upon
the consummation of the Offering and assuming conversion of the Company's 7%
convertible note and the exercise of currently exercisable options to purchase
467,857 shares of the Company's Common Stock. "Net tangible book value" per
share represents the amount of total tangible assets of the Company less total
liabilities, divided by the number of shares of Common Stock outstanding.
After giving effect to the sale of the 2,700,000 shares of Common Stock
offered by the Company hereby at an assumed public offering price of $9.00 per
share (after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company), the pro forma tangible
net book value of the Company at September 30, 1997 would have been $32.1
million or $3.47 per share. This represents an immediate increase in net
tangible book value of $1.96 per share to existing stockholders and an
immediate dilution of $5.53 per share to new stockholders. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $9.00
Pro forma net tangible book value per share at September 30,
1997......................................................... $1.51
Increase attributable to new stockholders..................... 1.96
-----
Pro forma net tangible book value after the Offering............ 3.47
-----
Dilution per share to new stockholders.......................... $5.53
=====
</TABLE>

The following table summarizes, on a pro forma basis as of September 30,
1997, the number of shares purchased from the Company, the total consideration
paid and the average price per share paid by existing stockholders and to be
paid by purchasers of shares offered hereby (before deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1)(2).................. 6,561,789 70.8% $ 15,074,878 38.3% $ 2.30
New stockholders ........ 2,700,000 29.2 24,300,000 61.7 9.00
--------- ----- ------------ -----
Total.................. 9,261,789 100.0 $ 39,347,878 100.0
========= ===== ============ =====
</TABLE>
- --------

(1) Includes 467,857 shares of Common Stock issuable upon the exercise of
stock options currently exercisable and outstanding at September 30, 1997
and 740,741 shares issuable upon conversion of the Company's 7%
convertible note issued on August 19, 1997. Excludes 681,921 shares of
Common Stock issuable upon the exercise of stock options not currently
exercisable but outstanding at September 30, 1997. To the extent such
options are exercised, there will be further dilution to new stockholders.
See Notes 9 and 13 of the Notes to Financial Statements.
(2) Gives effect to the conversion of all of the outstanding Preferred Stock
into shares of Common Stock, which will occur simultaneous with the
closing of the Offering. The Company's Preferred Stock consists of two
separate series: Series A Redeemable Convertible Preferred Stock and
Series B Convertible Preferred Stock, of which there were 1,309,626 and
336,409 shares outstanding respectively as of September 30, 1997. Each
share of Preferred Stock is convertible into one share of Common Stock.
See Note 8 of Notes to Financial Statements and "Description of Capital
Stock."

17
<PAGE>

SELECTED FINANCIAL DATA

The selected financial data presented below as of December 31, 1995 and 1996
and September 30, 1997 and for each of the three years in the period ended
December 31, 1996 and for the nine months ended September 30, 1997 have been
derived from the audited Financial Statements of the Company included
elsewhere in this Prospectus. The selected financial data as of December 31,
1992, 1993 and 1994 and for each of the two years in the period ended December
31, 1993 are derived from audited financial statements not included herein.
The selected financial data for the nine months ended September 30, 1996 are
derived from the unaudited financial statements of the Company, which, in
management's opinion, include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the information
set forth therein. The results of operations for prior periods, including the
nine months ended September 30, 1996 and 1997, are not necessarily indicative
of the results that may be expected for 1997 or future years. The information
set forth below should be read in conjunction with the Company's Financial
Statements and the Notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------- --------
(UNAUDITED)
STATEMENT OF OPERATIONS
DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales.......... $ 1,003 $ 2,476 $ 3,434 $ 5,356 $ 6,237 $ 4,581 $ 9,334
Research contracts..... 3,779 3,694 3,676 4,589 4,346 3,359 2,778
------- ------- ------- ------- ------- -------- --------
Total revenues........ 4,782 6,170 7,110 9,945 10,583 7,940 12,112
Cost of revenues:
Cost of product
sales................. 1,878 2,224 2,954 4,483 6,896 5,484 6,747
Cost of research
contracts............. 1,890 2,168 2,299 3,029 2,580 1,977 1,954
------- ------- ------- ------- ------- -------- --------
Total cost of
revenues............. 3,768 4,392 5,253 7,512 9,476 7,461 8,701
------- ------- ------- ------- ------- -------- --------
Gross profit.......... 1,014 1,778 1,857 2,433 1,107 479 3,411
Operating expenses:
Product development
costs................. 117 125 220 314 776 565 755
General and
administrative
expenses.............. 854 898 1,172 1,469 1,859 1,447 1,397
Selling expenses....... 198 268 377 444 660 486 624
------- ------- ------- ------- ------- -------- --------
Operating income
(loss)............... (155) 487 88 206 (2,188) (2,019) 635
Other expense (income):
Interest expense....... 16 30 42 115 169 107 217
Other expense
(income).............. 73 34 29 (7) 6 (4) (45)
------- ------- ------- ------- ------- -------- --------
Income (loss) from
continuing operations
before income taxes.. (244) 423 17 98 (2,363) (2,122) 463
Income taxes............ -- -- -- -- -- -- 9
------- ------- ------- ------- ------- -------- --------
Net income (loss) from
continuing
operations........... (244) 423 17 98 (2,363) (2,122) 454
Loss from discontinued
operations(1).......... 520 166 -- -- -- -- --
------- ------- ------- ------- ------- -------- --------
Net income (loss)..... $ (764) $ 257 $ 17 $ 98 $(2,363) $ (2,122) $ 454
======= ======= ======= ======= ======= ======== ========
Pro forma income (loss)
per share(2)........... $ (0.40) $ 0.08
======= ========
Pro forma weighted
average shares
outstanding(2)......... 5,893 6,026
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1997
------------------------------------------ --------------------
PRO
FORMA
1992 1993 1994 1995 1996 ACTUAL (3)
------ ------- ------- -------- ------ --------- ---------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital......... $ 284 $ 1,515 $ 1,309 $ 1,420 $ (970) $ 5,358 $ 5,358
Total assets............ 4,526 6,412 7,148 8,615 7,887 13,852 13,852
Short-term debt......... 85 168 264 812 955 469 469
Long-term debt.......... 82 356 250 651 528 5,797 5,797
Total liabilities....... 2,021 2,495 2,657 3,894 4,948 10,394 10,394
Redeemable Convertible
Preferred Stock........ 5,369 5,798 5,798 5,798 5,798 5,798 --
Total stockholders'
equity (deficit)....... (2,864) (1,881) (1,308) (1,077) (2,860) (2,340) 3,458
</TABLE>
- -------
(1) In 1992, the Company made the decision to dispose of its Canadian
subsidiary, which was a small assembler of modules and a systems
integrator. This subsidiary was subsequently divested in 1994.
(2) See Note 1 of Notes to Financial Statements for information concerning
computation of pro forma income (loss) per share.
(3) Gives effect to the conversion of all outstanding Preferred Stock into
1,646,035 shares of Common Stock, which will occur simultaneously with the
closing of the Offering. The Company's Preferred Stock consists of two
separate series: Series A Redeemable Convertible Preferred and Series B
Convertible Preferred, of which there were 1,309,626 and 336,409 shares
outstanding, respectively, as of September 30, 1997. Each share of
Preferred Stock is convertible into one share of Common Stock. See Note 8
of Notes to Financial Statements and "Description of Capital Stock".

18
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company was founded in 1989 as a successor to a business that was
organized in 1983 to develop thin crystalline silicon photovoltaic and related
optoelectronic technology. Initial revenue came from contract research
performed primarily for agencies of the United States government. The Company
commenced commercial solar cell manufacturing operations in 1988 with silicon
wafers purchased from third parties. Since then the commercial portion of the
business has grown steadily. Recently, the growth of product revenue has
accelerated, accounting for 77.1% of total revenue for the nine month period
ended September 30, 1997.

The Company has received significant assistance in its transition from
primarily a contract research organization to a commercial manufacturer of
solar cells and modules. Such assistance originated from the U.S. Department
of Energy in the form of cost-sharing contracts designed to assist the Company
in expanding its manufacturing capabilities and in reducing its manufacturing
costs.

The Company currently generates product revenues from the sale of solar
cells, modules and panels. Although the Company plans a significant expansion
of its Silicon-Film(TM) manufacturing capacity in 1998, the predominant source
of its product revenues to date has been single crystal products. Product
sales are recognized upon shipment. Solar cell prices and manufacturing costs
vary depending upon supply and demand in the market for solar cells and
modules, order size, yields, the costs of raw materials, particularly
reclaimed silicon wafers recycled from the semiconduct industry and other
factors. In addition, the Company also earns revenue from contracts with
various federal governmental agencies to conduct research on advanced Silicon-
Film(TM) products and optoelectronic devices. Generally, these contracts last
from six months to three years. The Company recognizes research contract
revenue at the time costs benefiting the contracts are incurred, which
approximates the percentage of completion method.

Solar cells manufactured by the Company are sold to original equipment
manufacturers that assemble the solar cells into modules. Modules are sold to
distributors and value-added resellers. The sale of a module results in
substantially more revenue to the Company than the sale of solar cells due to
the value of the additional materials, labor and overhead added during the
module assembly process. Accordingly, the Company's product sales are affected
not just by changes in total solar cells produced, but by changes in the mix
between solar cells and modules sold. In 1994, the Company commenced
manufacturing modules in substantial quantities as a means of expanding its
customer base. Currently, the gross margin percentages for modules are less
than that of solar cells.

The Company has developed a proprietary process called Silicon-Film(TM) for
the manufacture of sheets of polycrystalline silicon. Wafers made from these
sheets are used in the Company's solar cell manufacturing process. Silicon-
Film(TM) technology has been under development since the Company's inception
in 1983 and, after several successful field tests, Silicon-Film(TM) products
are currently being shipped to selected customers. In order to speed up the
technical and commercial viability of Silicon-Film(TM), the Company
accelerated its commitment to this technology in 1996 by investing $776,000 in
product development, thus contributing to the net loss for the year of $2.4
million. The Company is preparing to expand its Silicon-Film(TM) capacity and
production and expects to lease space in January 1998 for a new plant for
production of Silicon-Film(TM) solar cells, modules and panels. This facility
is being partially funded by the $5.0 million borrowed from Corning.

19
<PAGE>

For the nine months ended September 30, 1997, 70.7% of the Company's product
revenues is generated by sales to customers located outside of the United
States. The Company believes that international sales will continue to account
for a significant portion of its product sales for the foreseeable future.
Current sales are denominated in U.S. dollars and foreign exchange rate
fluctuations have not had an impact on the Company's results of operations.

Substantially all of the Company's revenues from government contracts are
subject to audit under various federal statutes. The Company has received
final approval of its overhead rates through 1993. Audits of 1994 and 1995
rates began in December 1997. It is management's opinion that adjustments to
such revenue, if any, will not have a material adverse effect on the Company's
business, results of operations and financial condition.

As described in Note 13 of Notes to Financial Statements, the Company has
entered into an agreement with Corning that provides for the issuance of stock
options to Corning in return for services performed. The Company's annual and
quarterly operating results may fluctuate as a result of the issuance of
options at exercise prices below the then current fair market value of the
Company's Common Stock.

RESULTS OF OPERATIONS

The following table sets forth selected financial data as a percentage of
total revenues for the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales.............. 48.3% 53.9% 58.9% 57.7% 77.1%
Research contracts......... 51.7 46.1 41.1 42.3 22.9
------- ------- ------- -------- --------
Total revenues........... 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Product sales.............. 41.5 45.1 65.1 69.1 55.7
Research contracts......... 32.4 30.4 24.4 24.9 16.1
------- ------- ------- -------- --------
Total cost of revenues... 73.9 75.5 89.5 94.0 71.8
Gross profit............. 26.1 24.5 10.5 6.0 28.2
Operating expenses:
Product development ex-
penses.................... 3.1 3.2 7.3 7.1 6.3
General and administrative
expenses.................. 16.5 14.7 17.7 18.2 11.5
Selling expenses........... 5.3 4.5 6.2 6.1 5.2
------- ------- ------- -------- --------
Income (loss) from opera-
tions................... 1.2 2.1 (20.7) (25.4) 5.2
Other expense................ 1.0 1.1 1.6 1.3 1.4
------- ------- ------- -------- --------
Net income (loss) before
income taxes................ 0.2 1.0 (22.3) (26.7) 3.8
Income taxes................. -- -- -- -- 0.1
------- ------- ------- -------- --------
Net income (loss)............ 0.2% 1.0% (22.3)% (26.7)% 3.7%
======= ======= ======= ======== ========
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.

Revenues. Total revenues for the nine month period ended September 30, 1997
were $12.1 million, an increase of $4.2 million, or 52.5%, from $7.9 million
for the nine month period ended September 30, 1996. Product sales for the nine
month period ended September 30, 1997 were $9.3 million, an increase of $4.8
million, or 103.8%, from $4.6 million for the nine month period ended
September 30, 1996. The increase in product sales was attributable to
increased levels of production as a result of improvements in manufacturing
technology and manufacturing productivity, allowing the Company to satisfy a
greater percentage of backlog orders. Research contract revenue for the nine
month period ended September 30, 1997 was $2.8 million, a decline of

20
<PAGE>

$581,000, or 17.3%, from $3.4 million for the nine month period ended
September 30, 1996. The decline in research contract revenue was primarily
attributable to a reduction in the Company's contract overhead rates as a
result of its ongoing transformation from a government contractor to a
manufacturing company.

Gross Profit. Gross profit for the nine month period ended September 30,
1997 was $3.4 million, an increase of $2.9 million, or 611.5%, from $479,000
for the nine month period ended September 30, 1996. Gross profit on product
sales for the nine month period ended September 30, 1997 was $2.6 million, an
increase of $3.5 million from $(903,000) for the nine month period ended
September 30, 1996. Gross profit margin on product sales for the nine month
period ended September 30, 1997 was 27.7%, as compared to (19.7)% for the nine
month period ended September 30, 1996. During 1996 the Company significantly
increased its staffing and overhead in its manufacturing operations but did
not experience a proportionate increase in manufacturing output. For several
months, the Company's manufacturing costs exceeded the revenues generated from
the sales of such products. In addition, during the nine month period ended
September 30, 1996, the Company reevaluated its ability to process certain of
the silicon wafers in its inventory, and determined that a downward adjustment
in their carrying value of $220,000 was appropriate. During 1997, the Company
began to realize the benefits of the costs incurred in 1996, as production
capacity and output increased significantly. As a result, the Company was able
to realize the significant increases in product sales noted above without a
commensurate increase in costs.

Gross profit on research contracts for the nine month period ended September
30, 1997 was $825,000, a decrease of $558,000, or 40.4%, from $1.4 million for
the nine month period ended September 30, 1996. Gross profit margin on
research contracts for the nine month period ended September 30, 1997 was
29.7% as compared to 41.2% for the nine month period ended September 30, 1996.
The decrease in gross profit and gross profit margin was attributable to
reduced amounts of overhead expenses that were previously allocated and billed
to government contracts. This reduction in the Company's contract overhead
rates was a result of its ongoing transition to a manufacturing company.

Product Development Expenses. Product development expenses for the nine
month period ended September 30, 1997 were $755,000, an increase of $189,000,
or 33.5%, from $565,000 for the nine month period ended September 30, 1996.
The increase in product development expenses was attributable to increased
levels of engineering and manufacturing support dedicated to the acceleration
of Silicon-Film(TM) production.

General and Administrative Expenses. General and administrative expenses for
the nine month period ended September 30, 1997 and 1996 were $1.4 million.
Expenses remained constant as reduced personnel expenses and a reduction in
the provision for bad debt expense were offset by an increase in employee
benefit costs due to increased company contributions to employee retirement
and bonus plans.

Selling Expenses. Selling expenses for the nine month period ended September
30, 1997 were $624,000, an increase of $138,000, or 28.4%, from $486,000 for
the nine month period ended September 30, 1996. The increase in selling
expenses was attributable to increased salary and benefit expenses to
employees as well as increased sales commissions paid to third parties,
reflecting a higher level of sales to certain customers.

Interest Expense. Interest expense for the nine month period ended September
30, 1997 was $217,000, an increase of $110,000, or 103.2%, from $107,000 for
the nine month period ended September 30, 1996. The increase in interest
expense was attributable to higher levels of debt outstanding as well as
higher interest rates provided for in the forbearance agreements with the
Company's primary lender. The increased debt levels resulted from the issuance
of the $5.0 million promissory note to Corning, as well as a $1.0 million
advance from a customer.

Other Income. Other income for the nine month period ended September 30,
1997 was $45,000, an increase of $41,000 from $4,000 for the nine month period
ended September 30, 1996. The increase in other income was attributable to
increased interest income and corresponding cash balances as a result of the
convertible note issued to Corning.

21
<PAGE>

Income Taxes. Income tax expense for the nine month period ended September
30, 1997 was $9,000 as compared with $0 for the nine month period ended
September 30, 1996. The 1997 expense represents the Company's Alternative
Minimum Tax liability.

YEARS ENDED DECEMBER 31, 1996 AND 1995.

Revenues. Total revenues for 1996 were $10.6 million, an increase of
$639,000, or 6.4%, from $9.9 million for 1995. Product sales for 1996 were
$6.2 million, an increase of $882,000, or 16.5%, from $5.4 million for 1995.
The increase in product sales was attributable to increased levels of
production, thereby allowing the Company to satisfy a greater number of
product orders, and a shift in product mix from solar cells to modules.
Research contract revenue for 1996 was $4.3 million, a decline of $243,000, or
5.3%, from $4.6 million for 1995. The decline in research contract revenue was
primarily attributable to the completion of a large contract in 1995.

Gross Profit. Gross profit for 1996 was $1.1 million, a decrease of $1.3
million, or 54.5%, from $2.4 million for 1995. Gross profit on product sales
for 1996 was $(659,000), a decrease of $1.5 million, or (175.5)%, from
$873,000 for 1995. The decrease in product gross profit was attributable to
several factors. First, in preparation for an anticipated increase in
manufacturing output, the Company increased its labor and overhead cost
structure through the hiring of additional personnel. The anticipated increase
in manufacturing output did not occur because the Company experienced
difficulty in purchasing recyclable silicon wafers so that the Company's
revenue level could not support its expanding infrastructure. For several
months, manufacturing costs exceeded revenues generated from the sales of such
products. Second, the Company reevaluated its ability to process certain of
the silicon wafers in its inventory which had been purchased over the
preceding several years and determined that a downward adjustment in their
carrying value of $220,000 was required. The Company has since implemented
significant changes in its wafer procurement activities. Finally, the
Company's Silicon-Film(TM) pilot production activities reduced revenues and
gross margin from the Company's single crystal business. As a result of the
foregoing, gross profit margin on product sales for 1996 was (10.6)%, as
compared to 16.3% for 1995.

Gross profit on research contracts for 1996 was $1.8 million, an increase of
$206,000, or 13.2%, from $1.6 million for 1995. The increase in research
contracts gross profit was attributable to the completion of two projects in
1995 that had large cost-sharing provisions, requiring the Company to fund a
portion of the operating costs of the affected contracts. As a result, gross
profit margin on research contracts for 1996 was 40.6%, as compared to 34.0%
for 1995.

Product Development Expenses. Product development expenses for 1996 were
$776,000, an increase of $462,000, or 147.1%, from $314,000 for 1995. The
increase in product development expenses was attributable to increased
engineering and related resources dedicated toward improving the performance
of the Company's Silicon-Film(TM) products.

General and Administrative Expenses. General and administrative expenses for
1996 were $1.9 million, an increase of $390,000, or 26.5%, from $1.5 million
for 1995. The increase in general and administrative expenses was attributable
to increased salary and employee benefit expenses due to the addition of a
full year's salary and benefit expense for a senior executive of the Company
who was hired in mid-1995, combined with an increased provision for bad debts
and less absorption of general and administrative expenses into self-
constructed assets.

Selling Expenses. Selling expenses for 1996 were $660,000, an increase of
$216,000, or 48.6%, from $444,000 for 1995. The increase in selling expenses
was attributable to increased salary expenses resulting from the hiring of
additional sales personnel, as well as higher travel costs for employees and
commissions paid to third-parties.

Interest Expense. Interest expense for 1996 was $169,000, an increase of
$53,000, or 45.7%, from $116,000 for 1995. The increase in interest expense
was attributable to higher levels of debt outstanding due to borrowings for
the purchase of manufacturing equipment and, to a certain extent, higher
interest rates on the outstanding balances provided for in the forbearance
agreements with the Company's primary lender.

22
<PAGE>

YEARS ENDED DECEMBER 31, 1995 AND 1994.

Revenues. Total revenues for 1995 were $9.9 million, an increase of $2.8
million, or 39.9%, from $7.1 million for 1994. Product sales for 1995 were
$5.4 million, an increase of $1.9 million, or 56.0%, from $3.4 million for
1994. The increase in product sales was attributable to an approximate 21.0%
increase in solar cell sales and an approximate 165.0% increase in module
sales resulting from a shift in production from a focus primarily on solar
cells to an increased focus on modules. Research contract revenue for 1995 was
$4.6 million, an increase of $914,000, or 24.9%, from $3.7 million for 1994.
The increase in research contract revenue was primarily attributable to a
higher level of contract research as well as the completion in mid-1995 of two
contracts with provisions for the Company to share operating costs.

Gross Profit. Gross profit for 1995 was $2.4 million, an increase of
$576,000, or 31.0%, from $1.9 million for 1994. Gross profit on product sales
for 1995 was $873,000, an increase of $392,000, or 81.5%, from $481,000 for
1994. The increase in product gross profit was attributable to increased
product shipments resulting from an expansion of the Company's manufacturing
capacity and a related increase in revenues. Gross profit margin on product
sales for 1995 was 16.3%, as compared to 14.0% for 1994. The increase in gross
profit margin was attributable to costs related to the scale-up of the
Company's module manufacturing operations in 1994.

Gross profit on research contracts for 1995 was $1.6 million, an increase of
$200,000, or 14.4%, from $1.4 million for 1994. The increase in research
contracts gross profit was attributable to the completion in mid-1995 of two
contracts with provisions for the Company to share operating costs. Gross
profit margin on research contracts for 1995 was 34.0% a decrease from 37.5%
for 1994. The decrease in gross profit margin was attributable to fixed
overhead rates on certain of the Company's longer-term contracts and the
Company's inability to recover increased operating costs.

Product Development Expenses. Product development expenses for 1995 were
$314,000, an increase of $93,000, or 42.3%, from $220,000 for 1994. The
increase in product development expenses was attributable to an expansion of
the Company's engineering efforts related to its Silicon-Film(TM)products.

General and Administrative Expenses. General and administrative expenses for
1995 were $1.5 million, an increase of $297,000, or 25.3%, from $1.2 million
for 1994. The increase in general and administrative expenses was attributable
to increased salary expenses due to staff additions, higher travel expenses,
higher depreciation as a result of additions to its information systems
hardware, increased insurance expenses and lower absorption of general and
administrative expenses into self-constructed assets.

Selling Expenses. Selling expenses for 1995 were $444,000, an increase of
$68,000, or 18.0%, from $377,000 for 1994. The increase in selling expenses
was attributable to higher levels of advertising and marketing consulting
expenses.

Interest Expense. Interest expense for 1995 was $116,000, an increase of
$73,000, or 173.8%, from $42,000 for 1994. The increase in interest expense
was attributable to higher levels of debt outstanding due to bank borrowings
for the purchase of manufacturing equipment.

Interest and Other Income. Other income for 1995 was $7,000, an increase of
$36,000 from an expense of $(29,000) for 1994. The increase in other income
was attributable to the absence of the amortization of organizational expenses
which were present for 1994.

23
<PAGE>

QUARTERLY RESULTS

The following tables represent the unaudited quarterly results of operations
of the Company for the 11 most recent fiscal quarters ended September 30,
1997. The information has been prepared by the Company on a basis consistent
with the Company's annual audited financial statements and includes all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the information for the periods
presented.

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales... $1,162 $1,359 $1,246 $1,589 $1,353 $ 1,559 $1,668 $1,657 $2,481 $3,281 $3,572
Research con-
tracts......... 965 1,097 1,343 1,184 1,094 1,146 1,120 987 1,005 929 845
------ ------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Total revenues.. 2,127 2,456 2,589 2,773 2,447 2,705 2,788 2,644 3,486 4,210 4,417
Cost of revenues:
Product sales... 911 1,151 1,152 1,269 1,195 2,566 1,722 1,412 1,821 2,400 2,526
Research
contracts...... 605 787 877 759 618 658 701 603 688 659 606
------ ------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Total cost of
revenues....... 1,516 1,938 2,029 2,028 1,813 3,224 2,423 2,016 2,509 3,059 3,132
Gross profit
(loss)......... 611 518 560 745 634 (519) 365 629 977 1,151 1,285
Operating ex-
penses:
Product
development
expenses....... 53 72 61 127 118 230 216 210 247 246 261
General and
administrative
expenses....... 334 383 405 348 465 546 436 414 428 469 502
Selling ex-
penses......... 87 102 114 141 139 177 171 174 174 232 218
------ ------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Income (loss)
from
operations..... 137 (39) (20) 129 (88) (1,472) (458) (169) 128 204 304
Other expense.... 18 29 29 33 32 34 38 72 53 54 65
------ ------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Net income (loss)
before income
taxes........... 119 (68) (49) 96 (120) (1,506) (496) (241) 75 150 239
Income taxes..... -- -- -- -- -- -- -- -- 1 3 5
------ ------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Net income
(loss).......... $ 119 $ (68) $ (49) $ 96 $ (120) $(1,506) $ (496) $ (241) $ 74 $ 147 $ 234
====== ====== ====== ====== ====== ======= ====== ====== ====== ====== ======
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
------------------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales... 54.6% 55.3% 48.1% 57.3% 55.3% 57.6% 59.8% 62.7% 71.2% 77.9% 80.9%
Research
contracts...... 45.4 44.7 51.9 42.7 44.7 42.4 40.2 37.3 28.8 22.1 19.1
------ ------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Total revenues.. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Products sales.. 42.8 46.9 44.5 45.8 48.8 94.9 61.8 53.4 52.2 57.0 57.2
Research
contracts...... 28.5 32.0 33.9 27.4 25.3 24.3 25.1 22.8 19.7 15.7 13.7
------ ------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Total cost of
revenues....... 71.3 78.9 78.4 73.2 74.1 119.2 86.9 76.2 71.9 72.7 70.9
Gross profit
(loss)......... 28.7 21.1 21.6 26.8 25.9 (19.2) 13.1 23.8 28.0 27.3 29.1
Operating
expenses:
Product
development
expenses....... 2.5 2.9 2.4 4.6 4.8 8.5 7.7 7.9 7.1 5.8 5.9
General and
administrative
expenses....... 15.5 15.6 15.5 12.3 19.0 20.2 15.7 16.1 12.3 10.9 10.9
Selling
expenses....... 4.1 4.2 4.4 5.1 5.7 6.5 6.1 6.6 5.0 5.5 4.9
------ ------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Income (loss)
from
operations..... 6.6 (1.6) (0.7) 4.8 (3.6) (54.4) (16.4) (6.8) 3.7 5.1 7.4
Other expense.... 1.0 1.2 1.2 1.3 1.3 1.3 1.4 2.3 1.6 1.6 2.1
------ ------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Net income (loss)
before income
taxes........... 5.6 (2.8) (1.9) 3.5 (4.9) (55.7) (17.8) (9.1) 2.1 3.5 5.3
Income taxes..... -- -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Net income
(loss).......... 5.6% (2.8)% (1.9)% 3.5% (4.9)% (55.7)% (17.8)% (9.1)% 2.1% 3.5% 5.3%
====== ====== ====== ====== ====== ======= ====== ====== ====== ====== ======
</TABLE>

24
<PAGE>

The Company has experienced substantial product sales growth during the
above periods and has experienced, and may continue to experience,
fluctuations in its quarterly operating results. Such fluctuations are due to
timing of customer orders and shipments, variations in manufacturing
quantities and yields, the impact of government contract cost sharing
requirements and other factors. A large portion of the Company's costs are
fixed in the one to three month time frame and, as a result, fluctuations in
quantities of products manufactured and shipped have resulted, and may in the
future result, in large fluctuations in the Company's quarterly gross margin
and operating results. To date, there has not been any significant seasonality
in the Company's operations.

During 1996, the Company began to increase its manufacturing capacity, which
resulted in a large increase in the cost structure. However, there was not a
commensurate increase in production quantities and as result, the Company's
product gross margin was adversely affected. In the quarter ended June 30,
1996, the Company reevaluated its ability to process certain of the silicon
wafers in its inventory and determined that a downward adjustment in their
carrying value of $220,000 was required. In addition, for several months, the
Company's manufacturing costs exceeded the revenues generated from the sales
of such products. At the same time, the Company reduced the number of its
employees in order to reduce its cost structure.

Beginning in July 1995, a new phase of one of the Company's largest
government contracts allowed the Company's cost sharing requirement to be met
with the purchase of manufacturing equipment, rather than the sharing of
operating costs. As a result, the level of contract gross profit increased
beginning in this quarter. Research contracts gross profit declined during
1997 as a result of the Company's ongoing transition to a commercial
manufacturer, and the corresponding decline in the overhead expenses that were
previously allocated to government contracts.

The operating results for any quarter are not necessarily indicative of
results for any subsequent period or of the Company's overall performance. The
Company's quarterly operating results have varied in the past and may vary in
the future for the same reasons. See "Risk Factors--Potential Fluctuations in
Annual or Quarterly Results."

LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital of $1.4 million, $(970,000) and $5.4 million
as of December 31, 1995, December 31, 1996 and September 30, 1997,
respectively. The Company had cash and cash equivalents of $29,000, $25,000
and $5.1 million for the same respective periods. At September 30, 1997, $5.0
million of the cash balance was restricted for use in connection with the
Company's planned scale-up of its new Silicon-Film(TM) 9 MW plant.

Net cash provided by (used in) operating activities was $(10,000),
$(88,000), $367,000 and $633,000 for the years ended December 31, 1994, 1995,
1996 and the nine months ended September 30, 1997. The net cash from operating
activities represents primarily net income (loss) plus depreciation and is
partially offset by changes in working capital. The fluctuations in cash
provided by or used in operations are due primarily to changes in accounts
receivable, accounts payable, inventories and net income (loss).

Net cash used in investing activities was $947,000, $864,000, $970,000 and
$374,000 for the years ended December 31, 1994, 1995, 1996 and the nine months
ended September 30, 1997, respectively, all of which represented expenditures
for capital equipment. In connection with the establishment of the 9 MW plant,
the Company expects its capital expenditures will increase significantly in
the last quarter of 1997 and for the year ended December 31, 1998. As of
September 30, 1997, the Company's outstanding commitments for capital
expenditures aggregated $500,000. See "Use of Proceeds" and "Risk Factors--
Scale-Up of New Manufacturing Plant."

Net cash provided by financing activities was $500,000, $905,000, $599,000
and $4.8 million for the years ended December 31, 1994, 1995, 1996 and the
nine months ended September 30, 1997, respectively. In August 1997, the
Company issued a convertible note for $5.0 million to Corning. The $5.0
million borrowed from

25
<PAGE>

Corning is to be used towards the engineering, design, lease, construction or
expansion of facilities and purchase of equipment and related tooling or
working capital devoted to the manufacture of products derived from the
Company's Silicon-Film(TM) technology. The loan is for four years with
interest at 7% per annum and is convertible into Common Stock of the Company
at a conversion price per share equal to the lesser of (i) $8.00 or (ii) 75%
of the price per share to the public in an initial public offering of Common
Stock by the Company. Corning has a security interest in certain physical
assets purchased with the proceeds of this loan. The cash provided by
financing activities for the years ended December 31, 1994, 1995 and 1996
represented private placements of securities and bank debt.

At December 31, 1996, the Company was not in compliance with financial
covenants relating to its ratio of current assets to current liabilities and
its ratio of total liabilities to tangible net worth contained in its
borrowing agreements with two of its financial lenders. The Company obtained
waivers from both lenders with respect to non-compliance with such covenants.
During 1997, the Company entered into several forbearance agreements with its
primary lender. In November 1997, the Company negotiated a new agreement with
this lender to provide for additional term loan borrowing for equipment
purchases of $250,000 and to increase its line of credit by $200,000, thereby
eliminating the forbearance agreements. The maturity date of the new agreement
is March 31, 1999. Total amounts outstanding with this lender at September 30,
1997 were $562,000. During the term of the agreement, the Company must comply
with certain covenants relating to the Company's ratio of debt to equity and
minimum tangible net worth.

In January 1997, the Company renegotiated its borrowing agreement with
another lender. The agreement provides for the borrowing of up to $750,000 for
capital equipment secured by such equipment. At September 30, 1997, the amount
outstanding under this facility was $640,000.

In April 1997, the Company received an advance payment from a customer for
$1.0 million, as part of a $5.0 million supply agreement for the delivery of
products through the end of 1998. This amount will be credited to the customer
against future shipments during the term of the agreement. The customer has
the right to convert any or all of the unapplied advance payment for an
equivalent amount of the Company's Common Stock at the then prevailing market
price.

The Company believes that cash generated from operations, its current cash
balance and the funds available under its bank borrowings, when combined with
the net proceeds to be generated from the Offering, will be sufficient to
satisfy the Company's projected working capital and planned capital
expenditures for the next 24 months.

INCOME TAXES

As of September 30, 1997, net operating loss carryforwards totaling
approximately $4.5 million were available to reduce federal and state taxable
income. The net operating loss carryforwards expire through 2012. The Tax
Reform Act of 1986 and other income tax regulations contain provisions which
may limit the net operating loss carryforwards available to be used in any
given year if certain events occur, including certain changes in ownership
interests. The Company has established a valuation allowance for the entire
amount of the net deferred tax asset since inception.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share", which
specifies the computation, presentation and disclosure requirements for
earnings per share. This statement supersedes Accounting Principles Board
Opinion No. 15 and is effective for financial statements issued for periods
ending after December 15, 1997. This statement requires restatement of all
prior period earnings per share data presented after the effective date. The
adoption of this statement is not expected to have a material effect on the
Company's financial statements.

26
<PAGE>

Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", was issued in June 1997. The statement establishes
standards for reporting and display of comprehensive income in financial
statements. This statement is effective for the Company's financial statements
for the year ended December 31, 1998. The adoption of this statement is not
expected to have a material effect on the Company's financial statements.

Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", was issued in June 1997.
This statement establishes standards for the way public business enterprises
report information about operating segments. It also establishes standards for
related disclosure about products and services, geographical areas, and major
customers. This statement is effective for the Company's financial statements
for the year ended December 31, 1998. The adoption of this statement is not
expected to have a material effect on the Company's financial statements.

EFFECTS OF INFLATION AND EXCHANGE RATES

The Company has not been materially affected by inflation. The Company has
also not been materially affected by changes in exchange rates because all of
its sales are denominated in U.S. dollars. However, there can be no assurance
that the Company's business will not be affected by inflation or foreign
exchange rates in the future. See "Risk Factors--International Sales."

YEAR 2000

The Company's current data processing systems are not year 2000 compliant.
The Company believes that, within the next 18 months, it will have to replace
its current systems with new systems that are year 2000 compliant. The cost of
such systems is currently estimated at approximately $500,000.

27
<PAGE>

BUSINESS

THE SOLAR ELECTRIC POWER MARKET

PV Energy Systems estimates 1997 worldwide solar electric power industry
shipments at 114 MW, corresponding to system revenues of approximately $1.8
billion. Over the 17 year period since 1980, industry shipments have increased
at a compound annual rate of 22% and are forecast to continue to increase
through the year 2005 at an approximate compound annual rate of 24%. In
particular, it is currently estimated that the solar electric power market has
grown by approximately 30% from 1996 to 1997. The growth of the solar electric
power market is being driven by the expanding number of rapidly growing needs
for electricity off-grid where solar electric power is the most cost-effective
energy source and by widespread demand for an environmentally-friendly
alternative source of on-grid electricity. Current demand for solar electric
power systems significantly exceeds aggregate industry manufacturing capacity.
The Company expects that, due to its low-cost Silicon-Film(TM) products, it
will experience revenue growth rates in excess of the market's overall growth
rate.

The use of solar electric power in commercial applications has grown over
the past two decades from initial satellite power supplies to a diversified
industry serving a large variety of terrestrial applications. Solar electric
power systems supply electrical power using only sunlight as "fuel", producing
electricity even under low light conditions on cloudy days. Because of their
reliability, modularity, low maintenance and lack of conventional fuel
requirements, such systems are used for a wide variety of stand-alone (not
connected to a utility network or grid) applications where conventional
sources of power are impractical or too expensive.

Solar electric power systems compete in their commercial use with other
sources of off-grid electric power, such as diesel engine generators. Solar
electric power systems are also used to supplement power from electric utility
grids. The electric power industry comprises one of the world's largest
industrial segments, with annual equipment revenues in excess of $200 billion.
Currently, annual shipments of electric power equipment, as defined by
equipment capacity, are approximately 90,000 MW. By contrast, shipments of
solar electric power systems are only about 0.1% of the electrical generating
capacity installed each year. Since the scale of solar electric power
shipments is very small compared to that of the electric power equipment
industry as a whole, small changes in solar electric power cost can have a
material impact on the size of the solar electric power equipment industry.

SOLAR ELECTRIC POWER PRODUCTS

The solar electric power industry sells four main classes of products: solar
cells, modules, panels and systems. Solar cells are semiconductor devices that
convert light, usually sunlight, directly into electricity according to a
phenomenon of physics known as the photovoltaic effect. The rated power of the
typical solar cells ranges from 1.0 to 3.3 watts. Modules are assemblies of
solar cells connected together and encapsulated in a weatherproof package. The
rated power of typical modules ranges from 50 to 120 watts. Industry revenues
in 1997 at the module level are estimated to be approximately $450.0 million.
Panels are assemblies of several modules connected together. Solar electric
power systems typically include one or more modules, a storage battery and
electric equipment for power conditioning and control. As noted above, 1997
industry revenue at the system level is estimated to be $1.8 billion.

28
<PAGE>

SOLAR ELECTRIC POWER PRODUCTS

[PHOTOGRAPH TO BE INSERTED]

ASTROPOWER'S MANUFACTURING TECHNOLOGY

The conventional processing technology used to process raw silicon into
wafers comprises one-half to two-thirds of the total cost of a solar cell. The
raw material is formed into ingots of single crystal silicon, or blocks of
polycrystalline silicon, and must be sawed into wafers in a time-consuming and
costly process that also results in significant waste of material. As solar
cell sizes become larger, the limitations of the block-forming and ingot-
forming processes and the wafer sawing process become more acute and add
significantly more expense. The Company has developed new technology that it
believes avoids costs inherent in conventional silicon wafer processing and
provides an important competitive advantage in the solar electric power market.
The Company believes it is uniquely positioned to capture increasing market
share as a result.

NEW LOW-COST SILICON-FILM(TM) TECHNOLOGY. The Company's Silicon-Film(TM)
technology involves a continuous production process to manufacture crystalline
silicon sheets and layers. This proprietary process is designed to
substantially reduce wafer cost while retaining the appearance, performance,
stability and reliability of conventionally-manufactured silicon wafers. The
Company believes that its proprietary Silicon-Film(TM) process is different
from any other process presently identified for producing solar cells and that
its Silicon-Film(TM) technology offers a number of advantages for both wafer
and solar cell production including:

Low-cost raw material. The Silicon-Film(TM) process does not require
the use of high-purity silicon as raw material feedstock for the
process.

Continuous process. Silicon-Film(TM) technology is a continuous sheet
manufacturing process, leading to lower capital cost and lower
manufacturing cost than conventional batch processes.

Size versatility. Silicon-Film(TM) wafers and solar cells can be
manufactured to virtually any desired size (at least up to 12" by 24").
This provides the ability to make a large variety of solar cell and
module designs, capturing economies of scale in both manufacturing and
material utilization.

Ease of scale-up. The Silicon-Film(TM) process uses equipment that is
easily scaled up for large volume production of wafers.

Technology base. The Silicon-Film(TM) process capitalizes on an
existing base of silicon material technology and market experience
already established for the solar cell and semiconductor industries.

29
<PAGE>

Potential for new products. Silicon-Film(TM) technology offers the
promise of a series of new products based on improvement of existing
technology and development of next-generation technologies.

RECYCLED SEMICONDUCTOR WAFER TECHNOLOGY. The Company also manufactures
silicon solar cells using wafers recycled from the semiconductor industry. The
Company has developed a sequence of proprietary processes that allows these
recycled wafers to be fabricated into high performance solar cells. By using
recycled wafers, it is not necessary to prepare bulk silicon which must be
subsequently sawed into wafers. In addition, an external source of supply
allows for flexible manufacturing, where production can be rapidly increased
without the purchase of expensive crystal growing, casting or sawing
equipment. As a result of these advantages, the Company believes that by
purchasing recycled wafers its silicon wafer costs are less than those for
wafers produced by other companies for the manufacture of solar cells.
Commercial sales of such products by the Company started in 1989. For the
first nine months of 1997 solar cell and module revenues from recycled wafers
represented 93.4% of the Company's total product sales.

BUSINESS STRATEGY

The Company's goal is to become the leading supplier of high-quality, low-
cost solar cells and modules. To achieve this goal, the Company intends to:

CAPITALIZE ON THE ADVANTAGES OF THE SILICON-FILM(TM) PROCESS. The Company
intends to capitalize on the advantages of its unique proprietary Silicon-
Film(TM) process. These include (i) lower cost, which the Company believes
will allow it to capture increasing market share while achieving favorable
gross margins, and (ii) size scaleability, providing a broader range of
product sizes, shapes and power ratings from a high-volume manufacturing
process that is amenable to extensive automation.

RAPIDLY EXPAND MANUFACTURING CAPACITY. The Company is scaling-up a 9 MW
capacity Silicon-Film(TM) plant, and is expanding the capacity of its existing
single crystal silicon solar cell manufacturing line. These two expansions
will approximately triple the Company's aggregate production capacity over the
next 12 months. The Company is also planning significant additional capacity
expansion in 1999 which would further increase capacity by a factor of two or
more, with anticipated full production reached in the year 2000. It has not
been decided whether this new capacity will be an expansion of existing
manufacturing locations or be constructed at a new manufacturing location or
locations.

ADD NEW STRATEGIC CUSTOMERS. The Company plans to continue to sequentially
add targeted new strategic customers including module manufacturing companies,
system integrators and distributors, as its manufacturing volume scale-up
allows. New customers will be selected to further broaden the Company's
presence in high growth market segments. The Company intends to use this
customer addition strategy to diversify its customer base geographically and
across all major market segments.

INCREASE SALES VOLUME WITH EXISTING CUSTOMERS. Following the initial
acquisition of a strategic customer, the Company seeks to build sales volume
over time by transitioning from a secondary supplier to a primary supplier to
each customer and by increasing each customer's volume through the referral of
sales leads.

DEVELOP THE ASTROPOWER BRAND. The Company intends to broaden and extend its
"AstroPowered" promotional campaign to (i) create brand identity and awareness
as a technology and cost leader in solar electric power products and (ii)
assist the Company's OEM customers and distributors in promoting their
products to end users through association with the Company's "AstroPowered"
brand and technical leadership.

DEVELOP NEXT-GENERATION SILICON-FILM(TM) TECHNOLOGIES. The Company believes
that its present Silicon-Film(TM) products are the first generation of a
series of new products that it will develop using its technical expertise and
proprietary technology. Intended future products will advance the state-of-
the-art in Silicon-Film(TM) solar cell technology and enhance its competitive
position in the solar electric power industry.

30
<PAGE>

PRODUCTS AND PRODUCT STRATEGY
The Company designs, manufactures, markets and sells solar cells, modules
and panels. Since their initial development, solar cells and modules have
progressively increased in size. This trend is primarily due to two factors:
(i) the ability to form and slice larger ingots of silicon has advanced
considerably over the past two decades, driven largely by the semiconductor
industry's switch from 4" wafers to 6" wafers, and most recently to 8" wafers;
and (ii) larger solar cells are generally more cost effective, since per-unit
handling and processing costs are spread over more watts per cell, and since
certain module assembly costs can be allocated over more watts.

SOLAR CELLS. From 1991 through 1995, the Company introduced three
generations of progressively larger single crystal silicon solar cells. The
latest of these products, the AP-106, was the first six inch solar cell to be
commercially introduced, and remains to this date the largest and most
powerful solar cell commercially available.

[PHOTOGRAPH TO BE INSERTED]

The AP-225 is the Company's first Silicon-Film(TM)solar cell to be produced
in volume. As of November 30, 1997, more than 130,000 of these solar cells
have been produced and shipped to customers as fully assembled modules and
panels. The Company has begun to supply its key solar cell customers with AP-
225 samples, and plans to formally introduce this product in the first half of
1998. The Company intends to introduce the AP-225 as a lower-cost, higher-
power alternative to five inch single crystal silicon solar cells, currently
the standard component for supply to independent module assembly companies.
Although larger in area than five inch single crystal solar cells, AP-225
Silicon-Film(TM) solar cells can be assembled into modules utilizing the same
basic equipment and production processes.

[PHOTOGRAPH TO BE INSERTED]

31
<PAGE>

One of the Company's key product strategies is to continue to exploit
economies of scale in solar cell manufacturing. The Company believes that
Silicon-Film(TM) technology is uniquely capable of achieving solar cell sizes
larger than any other crystalline silicon technology, and that this represents
a significant cost advantage for the Company. The Company has incorporated
this strategy into the marketing message printed on its promotional material,
which reads: "AstroPower--The Large Solar Cell Company."

The Company plans to continue to capitalize on the scaleability of the
Silicon-Film(TM) process by developing solar cell configurations larger than
6" . The Company has fabricated 12" by 24" Silicon-Film(TM) solar cells in the
laboratory. Such large-area solar cells may either be utilized directly in
panels for use in grid-connected applications, or cut into a variety of
smaller sizes for assembly into modules covering a range of rated power. The
Company believes that the planned next-generation product configuration will
have two primary advantages compared with other currently available solar
cells: (i) economies of scale to reduce manufacturing cost; and (ii)
flexibility of size to meet a broad range of end-use configuration
requirements more effectively than its competitors.

MODULES. Module sales represent an important complement to the Company's
solar cell business. Presently, the Company primarily manufactures and sells
two types of modules. The Company's AP-7105 contains 36 series-connected 5"
single crystal solar cells and is rated at 75 watts, which is the most common
type of 12-volt battery charging module sold today. The AP-1206 contains 36
series-connected 6" single crystal solar cells and is rated at 120 watts. The
Company has also begun selling limited quantities of modules incorporating
Silicon-Film(TM) solar cells.

The Company's strategy is to sell fully-assembled modules to distributors
and system integrators in those regions around the world such as the U.S.,
Japan and Central America which do not yet have a large number of independent
module assemblers. The Company currently sells approximately 50% of its total
solar cell production in the form of assembled modules.

PANELS. The Company recently introduced a large area panel consisting of
four individual modules mounted on a common mechanical support structure and
electrically interconnected at the factory. The rated power of this product
ranges from 300 watts to 450 watts, depending on the specific model, and is
designed to be the largest increment of PV capacity which can be handled and
installed by two people.

The Company's strategy is to design and sell panels for use in large arrays
such as the grid-connected residential rooftop systems being marketed by GPU
Solar, a joint venture between the Company and GPU International.

SOLAR ELECTRIC POWER APPLICATIONS

Solar cells, modules and panels are utilized in a wide range of end-use
applications, which can be grouped into three primary market segments: Remote
Electric Power, Grid-Connected Power and Consumer Electronics. The Remote
Electric Power market segment is typically divided into segments:
Communications and Transportation Infrastructure and Village & Home. The
following table shows (i) the breakdown of 1997 industry shipments into these
market segments, (ii) the historical compounded annual growth rate by segment
for the period 1993 through 1997 and (iii) the projected compounded annual
growth rate by segment through the year 2000, according to PV Energy Systems.

<TABLE>
<CAPTION>
ESTIMATED PROJECTED
1993 - 1997 -
ESTIMATED 1997 % OF TOTAL 1997 2000
MARKET SEGMENT SHIPMENTS SHIPMENTS CAGR CAGR
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Remote Electric Power 86MW 76% 13% 19%
Communications and
Transportation
Infrastructure 41 MW 36% 12% 13%
Village & Home 45 MW 40% 15% 23%
- ------------------------------------------------------------------------------
Grid-Connected Power 22 MW 19% 53% 40%
- ------------------------------------------------------------------------------
Consumer Electronics 6 MW 5% 5% 0%
</TABLE>

32
<PAGE>

REMOTE ELECTRIC POWER MARKET SEGMENT. The Remote Electric Power market
segment involves the use of solar electric power systems to supply electricity
in locations not served by the utility grid. Historically, the most common
method of supplying power in such locations has been diesel generator sets.
However, in remote locations where regular transportation of fuel is expensive
or impractical, or in locations where no trained maintenance personnel are
available, or if electricity is required only sporadically, or if only a
relatively small amount of electricity is required, solar electric power
systems can supply electricity at lower cost because of two inherent
advantages compared with diesel generators. These advantages include (i) solar
electric power systems require very little maintenance and no fuel, and (ii)
unlike diesel generators, which typically have a minimum rated output of 5,000
to 10,000 watts, and which do not operate efficiently when partially loaded or
sporadically utilized, solar electric power systems are highly modular, having
typical generating capacity increments of 50 to 75 watts. Accordingly, solar
electric power systems can be configured to supply the exact amount of energy
required for a particular application.

There are two primary application groups within the Remote Electric Power
market segment: Communication and Transportation Infrastructure and Village &
Home.

SELECTED SOLAR ELECTRIC POWER APPLICATIONS AND USES IN THE REMOTE ELECTRIC
POWER MARKET SEGMENT

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

<TABLE>
<S> <C>
Communication and . Repeater stations for line-of-sight data communication radio-
Transportation links
Infrastructure

. Repeater stations on fiber-optic data transmission lines
. Base stations and repeaters for cellular and personal
communication service ("PCS") networks
. Direct broadcast satellite communication networks
. Emergency call boxes located on highways or in other public
areas
. Monitoring, telemetry and remote actuation systems for
highways; railroads; oil and gas pipelines; water reservoirs,
tributaries and tanks; electricity transmission and
distribution networks
. Navigation radio beacons for airline traffic control,
illuminated obstruction lights on towers and chimneys, runway
lights for remote airfields and illuminated beacons for marine
navigation on buoys and lighthouses
. Portable warning signs used at highway construction sites
. Lighting systems for compounds, streets, parking lots,
billboards and signs
- -------------------------------------------------------------------------------------
Village & Home . "Solar Home Systems" supplying basic services such as light,
Applications radio and television

. Coleman(TM)-style "solar lanterns"
. Wireless pay telephones
. Deep-well pumps for potable water
. Vaccine refrigeration, lighting and medical equipment for
health clinics
. Schools
. Remote (off-grid) homes
. Vacation cabins
. Battery charging on boats and RVs
</TABLE>

33
<PAGE>

Growth in the Communication and Transportation Infrastructure market segment
is expected to be driven by the proliferation of wireless communications
products and services, and by increased efforts within the transportation
industry to optimize the economic utilization of fixed assets through system
automation. Growth in the Village & Home market is expected to be driven by
economic growth in the developing world, increasing availability of system
financing and maturation of the distribution infrastructure for system
installation and maintenance.

GRID-CONNECTED POWER MARKET SEGMENT. Grid-connected applications relate to
the utilization of solar electric power systems in locations where electricity
is already available from a utility grid. Most grid-connected solar electric
power systems are located on single-family homes or are integrated into the
exterior surface of commercial buildings. Power generated by such systems can
be utilized directly at the site or sold back into the utility grid for other
consumers to use. Grid-connected solar electric power systems may also include
a small amount of battery storage to provide power during a utility outage.
Most grid-connected solar electric power systems generate only a portion of
the annual electrical energy consumed at the site. However, in some cases,
homes or buildings with such systems actually become net providers of energy
to the utility grid.

There are many factors which affect the cost of solar electric power in
grid-connected installations, including system installation cost, sunlight
availability, financing cost and tax issues. However, the installed cost of
grid-connected solar electric power systems will have to be reduced by
approximately a factor of two before significant market penetration can be
expected. It is the Company's belief that if this cost goal can be achieved,
the market for grid-connected solar electric power systems could expand
dramatically.

The Company believes that growth in the Grid-Connected Power market segment
for the foreseeable future will be driven by public interest in the
environment, government policies and utility industry restructuring. Most
grid-connected solar electric power systems are currently installed in Japan,
Europe and the U.S. under a variety of subsidy programs. In Japan, over 10,000
residential grid-connected solar electric power systems are being installed
annually under a government program offering a subsidy of approximately 30% of
the total system cost. In Germany and Switzerland, over 40 municipalities and
states offer "rate-based" incentive programs for consumers who install solar
electric power systems. In the U.S., a utility consortium named Utility
PhotoVoltaic Group has funded over $64 million in projects since 1995, and
several states, including California and Arizona, have enacted legislation to
provide incentives for increased utilization of grid-connected solar electric
power systems. The U.S. federal government recently proposed a "Million Solar
Roofs" program which, if implemented, would sharply increase the number of
grid-connected solar electric power systems installed in the U.S.

CONSUMER ELECTRONIC MARKET SEGMENT. The Consumer Electronic market segment
comprises a variety of applications where solar electric power is used for
small consumer products such as calculators, radios, watches and toys. Such
applications are often novelty applications for solar electric power that
require only small amounts of electricity. They do not require higher-power
solar electric power products such as those manufactured by the Company.

CUSTOMERS

The Company sells its solar cells and modules to a limited group of key
customers. These customers are distribution or module manufacturing companies
that either sell to other marketing intermediaries or directly to end users.
The Company classifies its customers into one of three types: (i) independent
local module manufacturing companies ("MODCOs"); (ii) system integrators; and
(iii) distributors. The table below explains the role of each of these types
of customers in the distribution of the Company's products.

34
<PAGE>

<TABLE>
<CAPTION>
NUMBER OF THIS TYPE IN
THE COMPANY'S CURRENT
CUSTOMER TYPE CUSTOMER DESCRIPTION TOP TEN CUSTOMERS
------------------------------------------------------------------------------
<C> <S> <C>
MODCO Purchases solar cells from the 5
Company and assembles them into
finished modules
------------------------------------------------------------------------------
System Integrator Purchases finished modules from 3
the Company and incorporates them
into solar electric power
systems.
------------------------------------------------------------------------------
Distributor Purchases finished modules from 2
the Company and resells them to
lower volume users including home
owners, OEMs and other
professional customers.
</TABLE>

The Company uses a "tiered" customer acquisition and growth strategy aimed
at acquiring new key customers while growing volume with existing customers.
First, the Company targets new customers who provide access to high growth
market segments while maintaining geographical diversity. Often a new supply
relationship with such a customer is as a secondary product supplier. Once a
successful supply relationship has been established, the Company's objective
is to become the primary product supplier to each new key customer, growing
volume within each account through a progressively increased share of each
customer's business. The combination of growth within each account and
selective new customer acquisition drives the Company's strategy for rapid
sales growth.

Sales to the Company's ten largest customers accounted for approximately
41.7%, 44.0%, 46.0% and 70.2% of its total revenues in fiscal 1994, 1995 and
1996, and the nine months ended September 30, 1997, respectively.

During fiscal 1994 and 1995, Showa Solar Energy K.K., a Siemens AG affiliate
based in Singapore, accounted for 25.0% and 10.4% of the Company's total
revenues, respectively. During fiscal 1996, Tata BP Solar, an Indian joint
venture of British Petroleum Co. p.l.c. and the Tata Group, accounted for
12.9% of the Company's total revenues. During the nine months ended September
30, 1997, Solar Fabrik, an independent MODCO based in Germany; Photocomm,
Inc., a systems integrator located in Arizona and Atersa, an independent
Spanish MODCO, accounted for 19.2%, 13.8% and 10.9% of the Company's total
revenues, respectively. No other customers represented more than 10% of the
Company's total revenues for any such periods. The Company expects that sales
of its products to a limited number of customers will continue to result in a
high concentration of net sales to relatively few customers for the
foreseeable future, and that the loss of certain of these customers could have
a material adverse effect on the Company's business, results of operations and
financial condition. See "Risk Factors--Dependence on Key Customers; Customer
Concentration."

A large percentage of the Company's product sales are to international
customers. For the year ended December 31, 1996 and for the nine months ended
September 30, 1997, the approximate geographic breakdown of product revenue is
shown in the table below:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
REGION DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------------------------------------------------------------------------
<S> <C> <C>
North America 13.2% 29.3%
----------------------------------------------------------------------------------
Europe 49.4% 58.7%
----------------------------------------------------------------------------------
Africa 6.6% 6.0%
----------------------------------------------------------------------------------
Asia 30.7% 6.0%
</TABLE>

The Company anticipates that international customers will continue to
account for the majority of product sales for the foreseeable future.

35
<PAGE>

MARKETING, SALES AND CUSTOMER SUPPORT

The Company markets its products through trade shows, on-going customer
communications, promotional material, direct mail and advertising. In
addition, the Company's customer service and applications engineering
personnel provide support to customers and gather information on current
product performance and future product requirements. Sales of the Company's
solar cells and modules are handled by an internal sales force based at the
Company's offices in Newark, Delaware and in Germany.

MANUFACTURING AND RESEARCH FACILITIES

The Company's research and development and manufacturing facilities are
currently located at its Newark, Delaware headquarters. The solar cell line
used to manufacture solar cells, the module production facility and the pilot
Silicon-Film(TM) production line are located at this facility. The
manufacturing facility includes a full complement of equipment for solar cell
and module manufacturing and is continually upgraded to improve capacity and
product quality. Included in this facility are equipment to condition wafers
by mechanical and chemical means, tube furnaces for diffusion, equipment for
effecting junction edge-isolation, continuous process screen-printing and
firing equipment for applying electrical contacts to solar cells, coating
deposition equipment for applying anti-reflection coating on solar cells, a
solar cell tester and tabbing/stringing, lamination and test equipment for
assembling modules.

The Company is scaling-up a new 9 MW plant that will be primarily used for
the production of Silicon-Film(TM) wafers, solar cells and modules. This
facility will utilize manufacturing technology and equipment developed during
the pilot phase of Silicon-Film(TM) production with the addition of mechanized
and automated product handling and manufacturing enhancements to improve
productivity and quality. The Company believes that a dedicated high-volume
plant is necessary to manufacture the volume of Silicon-Film(TM) product it
expects to sell. Such a single-purpose plant is expected to improve quality by
focusing worker training and product improvement activities in a manner not
possible in a multi-product manufacturing facility. Initial production from
the new plant is planned to start in the second quarter of 1998 and to reach
capacity in 1999. The Company plans additional major capacity expansion in
1999 to accommodate increases in sales of Silicon-Film(TM) product anticipated
in future years. The Company anticipates that its new plants will be in the
immediate area of its existing Newark, Delaware location.

The research and development portion of the Newark, Delaware facility is
equipped with standard semiconductor device development, fabrication and
evaluation equipment, including wafer polishing facilities; seven liquid phase
epitaxial growth systems for silicon and III-V compounds; tube furnaces for
diffusion, oxidation, alloying, and heat treatment; photolithography
equipment, vacuum (thermal, e-beam, and magnetron sputtering) deposition for
metals and antireflection coatings; plating baths for obtaining low resistance
contacts; and standard process evaluation equipment including a scanning
electron microscope with energy dispersive spectroscopy capability. The wafer
production pilot line facility includes high volume wafer production equipment
that is being operated for pilot production of Silicon-Film(TM) wafers and
associated equipment for handling and sizing of wafers before they are
transferred to solar cell manufacturing.

QUALITY ASSURANCE

The Company intends to maintain its reputation as a manufacturer and
supplier of quality products and to continuously improve the quality of its
products and services. Quality testing starts with the wafer, is continued at
several steps during solar cell and module manufacturing, and is implemented
at each solar cell and module manufacturing step by the staff directly
responsible for the daily operation of the manufacturing line. Each operator
is trained to recognize and report on the quality of his or her work. Process
control issues are communicated to technicians, engineering personnel,
supervisors and co-workers and this team works together to effect an immediate
corrective action and eliminate the cause of the problem.

Quality assurance measures have enabled the Company to achieve international
and domestic product certifications for many of its modules. In June 1996, the
Commission of European Communities ("CEC") issued

36
<PAGE>

Qualification Certificates for environmental stability and performance for the
Company's standard module types AP-1106, AP-1206, AP-6105, and AP-7105. In
August, 1996 the Company received UL listing for the Company's standard module
types AP-1106, AP-1206, AP-6105 and AP-7105. In August 1997, the Company
received UL listing for Silicon-Film(TM)module products. UL listing confirms
that the Company's modules meets the UL 1703 Standard for Flat-Plate
Photovoltaic Modules and Panels. The Company intends to submit all new module
products for such approval.

STRATEGIC ALLIANCES

The Company has leveraged, and plans to continue to leverage, its resources
in manufacturing technology, marketing and sales of solar electric power
products through collaborative agreements with corporate partners and
customers. It has developed several strategic alliances which the Company
feels will substantially assist in commercializing its Silicon-Film(TM)
technology. Such strategic alliances aid the Company by providing access to
technology, markets, customers and useful competitive information that
otherwise would be difficult or expensive to obtain. The Company has the
following ongoing manufacturing and technology relationships:

CORNING INCORPORATED. In August 1997, the Company and Corning entered into
agreements (the "Corning Agreements") under which the Company borrowed $5.0
million from Corning and which provide that Corning will provide research,
development, engineering and manufacturing assistance to the Company for a
three year period. The two companies will work jointly to accelerate the
implementation and ramp-up of a new manufacturing facility for the Company
which will produce photovoltaic solar cells and modules based on the Company's
Silicon-Film(TM) technology.

Corning manufactures optical fiber and photonic components, high-performance
glass and components for televisions, and other electronic displays and
equipment; advanced materials for scientific and environmental markets; and
consumer products. Corning's total revenues in 1996 were $3.7 billion.

The Corning Agreements provide that the Company and Corning each grant to
the other a non-exclusive and royalty free worldwide license with respect to
new technology developed pursuant to the Corning Agreements which is either
owned by Corning or the Company or jointly owned by the Company and Corning
with respect to products relating to photovoltaic energy cells, modules and
arrays, but which does not involve a license to the Company's existing
technology including its Silicon-Film(TM) technology.

With respect to each project under the Corning Agreements in which Corning
elects to participate at the Company's request, Corning shall be compensated
monthly in the form of options to purchase shares of the Company's Common
Stock based on man-years of personnel contributed by Corning to the project.

The $5.0 million borrowed from Corning is to be used towards the
engineering, design, lease, construction or expansion of facilities and
purchase of equipment and related tooling or working capital devoted to the
manufacture of products derived from the Company's Silicon-Film(TM)
technology. The loan is for four years with interest at 7% per annum and is
convertible into Common Stock of the Company at a conversion price per share
equal to the lesser of (i) $8.00 or (ii) 75% of the price per share to the
public in an initial public offering of Common Stock by the Company. In the
event the loan remains unpaid after the due date, the Company, if requested by
Corning, shall grant to Corning a non-exclusive license to use all of the
Company's Silicon-Film(TM) intellectual property under fair market terms and
conditions as then shall be negotiated. Corning has a security interest in
certain physical assets.

Until the loan from Corning is repaid or converted by Corning into the
Company's capital stock, Corning has certain first offer rights to provide
equity financing for the Company and with respect to any sale or merger of the
Company or sale or licensing of its technology or assets.

If the Company sells more than 5% of its capital stock or other securities
convertible into more than 5% of its capital stock, Corning may, at its
option, purchase all or part of such securities. This option does not apply to
this Offering. On August 19, 1999, the 5% exclusion expires and thereafter
Corning's rights apply to all sales of the Company's equity securities.
Corning also has a right of first offer in respect of any merger,
consolidation or

37
<PAGE>

similar transaction involving the Company, or a sale of its assets or
business, or a sale or licensing of the Company's Silicon-Film(TM) technology.

The Company has the right to prepay the Corning loan anytime after August
19, 1999 upon sixty days notice to Corning. Upon prepayment or conversion of
the loan, Corning's rights described in the previous paragraph expire.

The Company must notify Corning of any subsequent financing needs or of any
plans or proposals involving any of the other transactions described above and
the terms on which the Company is willing to enter into any such transaction,
and Corning has thirty days to express its intent to participate and if so, to
what extent or not to participate in such transaction. In the event that
Corning declines to participate in such transaction, the Company is free for a
period of one year after the date of its notice to Corning to consummate such
transaction or transaction(s) with third parties under terms no more favorable
to such third parties as the Company had proposed to Corning. Corning has not
entered into a standstill agreement prohibiting its acquisition of Company
stock from third parties.

GPU INTERNATIONAL. In July 1997, the Company and GPU International, Inc.
("GPUI") concluded an agreement to form a 50/50 joint venture named GPU Solar
to develop, manufacture, and test market grid-connected residential rooftop PV
systems for the U.S. market using the Company's solar electric power modules.
GPUI is an unregulated subsidiary of General Public Utilities ("GPU"), a major
New Jersey based electric utility company and one of the top 10 independent
power developers world-wide. During the first year of operation, GPU Solar
plans to install between 20 and 40 pilot systems (approximately 100 kW total)
in several locations around the country. All of these systems will utilize the
Company's large area Silicon-Film(TM)panels. The Company believes that GPU's
expertise involving electrical system design and installation will help
facilitate the development of high reliability, low cost PV products
appropriate for use in typical U.S. residences, and that GPUI's power
marketing experience and credibility will help GPU Solar develop its strategy
for this rapidly growing market segment.

COMPETITION

The market for solar electric power components and systems is intensely
competitive. The Company believes that this market will continue to be
intensely competitive, particularly if products with significant cost or
performance advances are developed. The Company also believes that while a
single technology (crystalline silicon) has been dominant throughout the
industry's approximately 20 year history, this market will be characterized by
future technological change. See "Risk Factors -- Technological Change and
Competing Technology" and " -- Competition."

A number of large U.S., Japanese, and European companies are actively
engaged in the development, manufacturing and marketing of solar electric
power components and systems. These include Siemens Solar Industries,
Amoco/Enron Solar, Kyocera Corporation, British Petroleum Co. p.l.c., Sanyo
Electric Co., Ltd., Sharp Corp., Shell Solar Energy B.V., ASE GmbH (an
affiliate of RWE) and Canon. All of these companies have significantly greater
resources to devote to the research, development, manufacturing and marketing
than the Company. There are also a large number of smaller companies involved
in both the development of, as well as the ongoing manufacturing and marketing
of, solar electric power components and systems.

There are a variety of competing technologies currently under active
development by a large number of organizations. These technologies include
amorphous silicon, cadmium telluride and copper indium diselenide, as well as
advanced concepts for both bulk (ingot based) and thin film crystalline
silicon. Any of these competing technologies could theoretically achieve
manufacturing costs per watt lower than the Silicon-Film(TM) technology
developed by the Company.

The Company believes that the principal competitive factors in the market
for solar electric power components are the following: price per watt; long
term stability and reliability, product performance (primarily conversion
efficiency); ease of handling/installation; product quality; and reputation.

38
<PAGE>

CONTRACT RESEARCH AND DEVELOPMENT

The Company selectively pursues contract research programs funded by third
parties to help support the development of new technical capabilities and
products. These programs have been selected to complement and enhance the
Company's long-term development strategy under conditions that permit the
Company to retain the technology it develops. Substantial third-party funding
has been received from various agencies of the U.S. government. Total sums
expended for research, development and manufacturing engineering in the years
ended December 31, 1994, 1995 and 1996 and for the nine months ended September
30, 1997 were $2.5 million, $3.3 million, $3.3 million and $2.7 million,
respectively. Of those amounts, approximately $2.3 million, $3.0 million, $2.6
million and $2.0 million respectively, were externally funded and are a
component of contract revenue and approximately $220,000, $314,000, $776,000
and $755,000 respectively were internally funded expenditures by the Company.

The Company's research and development effort is divided into two areas:
Advanced Silicon-Film(TM) Solar Cell Products and Advanced Optoelectronic
Products.

ADVANCED SILICON-FILM(TM) SOLAR CELL PRODUCTS. The Company believes that its
present Silicon-Film(TM) products are the first generation of a series of
future products that it will develop using its technical expertise and
proprietary technology. The Company believes that these products will advance
the state-of-the-art in Silicon-Film(TM)solar cell technology and provide it
with new products to enhance the Company's competitive position in the solar
electric power business. A portion of this research has been and is currently
funded by the Department of Energy through subcontracts administered by the
National Renewable Energy Laboratory in Golden, Colorado.

The designs of future generation Silicon-Film(TM) products are characterized
by thin (less than 150 micrometer) layers of crystalline silicon on a low-cost
substrate and incorporate various other materials to enhance the current- and
power-generating efficiency of the solar cells. These advanced solar cells are
expected to result in materials and manufacturing cost reductions on a per
watt basis relative to the Silicon-Film(TM) products presently manufactured by
the Company. The Company is also developing new designs for solar modules
using its advanced solar cell technology which incorporate thin solar cells
and new interconnection methods. New designs will enable lower cost modules,
which the Company believes will lead to new portable solar power applications.

ADVANCED OPTOELECTRONIC PRODUCTS. Optoelectronic products combine optical
processing and electronic processing within a single device. Familiar examples
of optoelectronic products or devices are the remote channel switching unit
used to change channels on a television set and the numerical displays of
common digital home appliances such as microwave ovens or digital alarm
clocks.

The Company is developing several optoelectronic devices based upon energy
conversion from light into electrical signals. Funding for most of this
research has come from third parties, including the National Science
Foundation, the Department of Commerce through the National Institute of
Science and Technology, the Department of Energy, the Department of the Air
Force, the National Aeronautics and Space Administration, the Ballistic
Missile Defense Organization and the Defense Advanced Research Products
Agency. The optoelectronic products under investigation and development by the
Company are focused on specialized market opportunities, primarily military
applications at the present time. There can be no assurance that such products
will ever become revenue-generating commercial products.

PATENTS AND PROPRIETARY TECHNOLOGY

The Company's policy is to protect its technologies by filing patent
applications with respect to technology considered important to business
development. The Company also relies upon unpatented know-how, continuing
technological innovation and the pursuit of licensing opportunities in order
to develop and maintain its

39
<PAGE>

competitive position. The Company has been awarded ten U.S. patents in the
field of photovoltaics and had three patents pending as of September 30, 1997.
Seven of the ten U.S. patents that have been issued and two of the three
patents that are pending relate to the Silicon-Film(TM) technology. These
patents provide legal protection for key proprietary aspects of the Silicon-
Film(TM) product design and manufacturing process. Of the remaining three
patents that have been issued, two protect the design of high performance
solar cells using compound semiconductors, and one protects the design of an
optical sensor using a compound semiconductor that provides for sensor
operation at temperatures much higher than can be employed with conventional
elemental materials. The remaining pending patent covers the utilization of a
unique device design and process for manufacture that enhances the optical
efficiency of opto-electronic devices.

The Company decides on a case-by-case basis whether and in what countries it
will file foreign counterparts of a U.S. patent application. International
counterparts of four issued patents have been filed under the Patent
Cooperation Treaty. The Company will continue to file other U.S. and
international patent applications to protect technology it considers important
to providing a market advantage for its products. The Company believes that
its patents offer it a competitive advantage but there can be no assurance
that any patents, issued or in process, will not be intentionally circumvented
or infringed upon by others.

In addition to patent protection, the Company relies on the law of unfair
competition and trade secrets to protect its proprietary rights, including its
proprietary rights in its Silicon-Film(TM) technology. The Company considers
several elements of the Silicon-Film(TM) manufacturing process to be trade
secrets. The Company attempts to protect its trade secrets and other
proprietary information through non-disclosure agreements with customers,
suppliers and consultants and limits dissemination of information to a need-
to-know basis. Although the Company seeks to protect its proprietary
information, there can be no assurance that others will not either develop
independently the same or similar information or obtain access to information
that the Company believes is proprietary.

Employees are required to sign confidential information non-disclosure
agreements upon the commencement of employment with the Company. The Company's
non-disclosure agreements provide that all confidential information developed
or made known to the individual during the course of the individual's
relationship with the Company is to be kept confidential and not disclosed to
third parties except in specific circumstances. In the case of employees, the
agreements provide that all inventions made by the individual shall be the
exclusive property of the Company. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's trade
secrets or adequate remedies in the event of unauthorized use or disclosure of
such information.

Silicon-Film(TM) is a trademark of the Company.

SUPPLY AND COST OF SILICON WAFERS AND OTHER RAW MATERIALS

The Company purchases and recycles silicon wafers from the semiconductor
industry for use in its single crystal solar cell manufacturing processes.
Although the Company has generally been successful in obtaining sufficient
quantities of quality wafers in the past, there can be no assurance that such
wafers will be available at cost effective prices in the future. The absence
of cost effective sources of supply and the inability of the Company to locate
alternative sources of low-cost, high-quality wafers could have a material
adverse effect on the Company's business, results of operations and financial
condition.

The Company presently has multiple sources of supply for its required raw
materials, including silicon, although for economic and quality control
reasons the Company utilizes single sources of supply for certain materials.
In situations where it relies on single sources of supply, the Company
believes that an adequate supply of materials is available to meet its
foreseeable needs and, to date, the Company generally has been able to obtain
supplies of such materials in a timely manner. There can be no assurance that
supplies of the Company's critical materials will be adequate in the future or
that the cost of such materials will remain low enough for the Company to
maintain a cost-competitive market position for its solar electric power
products.

40
<PAGE>

ENVIRONMENTAL REGULATIONS

EMPLOYEES

As of September 30, 1997, the Company had 153 full time employees, of whom
31 were engaged in research and development, 104 in manufacturing, four in
sales and marketing and 14 in administration. None of the Company's employees
are covered by collective bargaining agreements. The Company has experienced
no work stoppages and believes that its employee relations are good.

Ten of the Company's management and professional employees have advanced
degrees in engineering and science, including six Ph.D.s. To date, the Company
has been able to attract the scientific, engineering, technical and other
personnel required by its business. Such experienced professionals are in
demand and the Company must compete for their services with other
organizations which may be able to offer more favorable salary and benefits.
Historically, turnover among technical and professional employees has been
low.

BACKLOG

Backlog for the Company's products as of September 30, 1996 and 1997 totaled
$2.4 million and $4.1 million, respectively. The Company's product backlog as
of October 31, 1997 was approximately $6.5 million. Backlog for the Company's
research contracts as of September 30, 1996 and 1997 totaled $3.5 million and
$1.1 million, respectively. Backlog for products consists of purchase orders
for which a customer has scheduled delivery within the next 12 months. Orders
included in the backlog may be canceled or rescheduled by customers without
significant penalty. Backlog for government contracts consists of signed, open
contracts only. Backlog as of any particular date should not be relied upon as
indicative of the Company's net revenues for any future period.

FACILITIES

Since July 1991, the Company's administrative, research and manufacturing
facilities have been located in a 40,000 square foot, one-story building built
by and leased from University of Delaware, Newark, Delaware. The term of the
lease is 20 years with an option by the Company to cancel at the end of nine
years (July 2000). The annual cash rental payment for 1996 was $187,800 and
increases approximately 6% each year. See "Note 8 of Notes to Financial
Statements."

In January 1998, the Company entered into a lease with Liberty Property
Limited Partnership for a 60,300 square foot facility in which it is
constructing its new 9 MW plant for the production of Silicon-Film(TM)
products. Completion is expected in the second quarter of 1998. The facility
is part of a 130,000 square foot one-story building located in Newark,
Delaware, which is approximately six miles from the Company's present
facility. The term of the lease is 10 years with two five year renewal
options. While the commencement date of the lease is June 1, 1998, occupancy
was immediate upon signing of the lease.

41
<PAGE>

The annual rental payment for the first year of the lease is $284,808 and
increases an average of approximately 2% each year thereafter. In addition,
the Company is responsible for its share of annual operating expenses of the
building presently estimated at $54,300. The lease also provides for rights of
first refusal for the Company to lease additional space in the building if it
becomes available, and to purchase the entire building if the owner decides to
sell it. See "Risk Factors--Scale-Up of New Manufacturing Plant", "Use of
Proceeds" and "Business--Manufacturing and Research Facilities."

LEGAL PROCEEDINGS

The Company is not a party to any material litigation and is not aware of
any pending or threatened litigation against the Company that could have a
material adverse affect upon the Company's business, operating results or
financial condition.

42
<PAGE>

MANAGEMENT

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dr. Allen M. Barnett............ 57 President and Chief Executive Officer
and Director
Dr. George W. Roland............ 58 President and Chief Executive Officer,
Solar Power Business and Director
Peter C. Aschenbrenner.......... 42 Vice President, Marketing and Sales
Louis C. DiNetta................ 47 Vice President, Advanced Optoelectronic
Products
Dr. Robert B. Hall.............. 56 Vice President, Chief Scientist
Thomas J. Stiner................ 43 Vice President and Chief Financial Officer
Dr. George S. Reichenbach (1)... 68 Director
Charles R. Schaller............. 61 Director and Secretary
Clare E. Nordquist (1) (2)...... 62 Director
Gilbert H. Steinberg (1) (2).... 66 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee

Dr. Allen M. Barnett is a founder of the Company and has served as its
President and Chief Executive Officer and as a director since the Company's
incorporation as a separate entity in 1989. From 1983 to 1989, Dr. Barnett
served as General Manager of the AstroPower Division of Astrosystems, Inc.
From 1976 to 1993, Dr. Barnett was a Professor of Electrical Engineering at
the University of Delaware. From 1976 to 1979, Dr. Barnett served as Director
of the Institute of Energy Conversion at the University of Delaware. Dr.
Barnett is a technical expert in thin-film materials and devices and has been
active in photovoltaic research and development since 1975, during which time
he has been awarded 21 U.S. patents, authored or co-authored numerous
technical publications and garnered several professional awards. Dr. Barnett
is Chairman of the Solar Energy Industries Association and serves on a number
of national and international committees in the field. Dr. Barnett received a
B.S. and M.S. in Electrical Engineering from the University of Illinois, and a
Ph.D. in Electrical Engineering from Carnegie Institute of Technology.

Dr. George W. Roland has served as President and Chief Executive Officer of
the Company's Solar Power Business since 1996 and was elected a director in
March 1997. From 1995 to 1996, Dr. Roland served as Vice President and General
Manager of the Company's Solar Power Business. From 1993 to June 1995 Dr.
Roland served as President of Siemens Solar Industries L.P., an affiliate of
Siemens Corporation (USA). Prior to that, Dr. Roland served in various
positions, including Vice President and Division Manager of the Metalworking
Systems Division, at Kennametal, Inc. Dr. Roland began his industry career in
1968 as a research and development engineer at Westinghouse Electric
Corporation's Research and Development Center in Pittsburgh, Pennsylvania,
throughout which time he has been awarded 15 U.S. patents and has authored
numerous technical publications. Dr. Roland received a B.S. in Geology from
Acadia University and a Ph.D. in Geological Science from Lehigh University.

Peter C. Aschenbrenner has served as Vice President, Marketing and Sales
since 1995. From 1994 to 1995 Mr. Aschenbrenner served as Director of
Marketing with the Company. From 1991 to 1994, Mr. Aschenbrenner served in a
number of capacities with Siemens Solar Industries, L.P., including Director
of Marketing from 1992 to 1994 and Director of Technology Development from
1991 to 1992. From 1988 to 1990, Mr. Aschenbrenner served as a Managing
Director of PV Electric GmBH, a joint venture between Siemens AG and Arco
Solar, Inc. He served in various positions with Arco Solar from 1978 to 1988.
Mr. Aschenbrenner received a B.A. in Product Design from Stanford University.

43
<PAGE>

Louis C. DiNetta has served as Vice President, Advanced Optoelectronic
Products since 1996. He joined the AstroPower Division of Astrosystems, Inc.
in 1985. Mr. DiNetta is responsible for the research and development of new
photonic energy conversion devices and related optoelectronic products. From
1976 to 1985, Mr. DiNetta worked at the Institute of Energy Conversion at the
University of Delaware, where he was responsible for planning and organization
of device fabrication, as well as process and equipment development to support
various research projects. Mr. DiNetta received a B.S.A.S. in Physics from the
University of Delaware.

Dr. Robert B. Hall has served as Vice President and Chief Scientist since
joining the AstroPower Division of Astrosystems, Inc. in 1983. Dr. Hall's
responsibilities include research and development of thin-film crystalline
materials and ceramic structures for thin-film polycrystalline devices. From
1974 to 1983, Dr. Hall served as Manager, Device Development at the Institute
of Energy Conversion at the University of Delaware. Dr. Hall has more than 18
years of solar cell development experience. His accomplishments include
development of copper sulfide/cadmium sulfide CdS as the first thin film solar
cell with greater than 10.0% conversion efficiency, development of the first
zinc phosphide solar cell and the development of a reliable deposition process
for copper indium selenide solar cells. Dr. Hall received a B.A. in Physics
from Gettysburg College and an M.S. and Ph.D. in Physics from the University
of Delaware.

Thomas J. Stiner has served as Chief Financial Officer of the Company since
December 1997. From June 1993 to November 1997, Mr. Stiner served as
Controller and Treasurer. Mr. Stiner was elected Vice President in 1995. From
1984 to 1993 Mr. Stiner served as a Senior Manager at KPMG Peat Marwick LLP.
Mr. Stiner is a Certified Public Accountant and received a B.S. in Business
Administration from Bloomsburg University.

Dr. George S. Reichenbach has served as a director of the Company since
1989. Mr. Reichenbach is a Senior Vice President of Advent International
Corporation, a venture capital firm, and serves as a director of Progressive
Systems Technology, a semiconductor capital equipment manufacturer.
Previously, Dr. Reichenbach worked at the Massachusetts Institute of
Technology where he served as an Assistant Professor and Associate Professor
of Mechanical Engineering. Dr. Reichenbach received a B.S. in Mechanical
Engineering from Yale University and a Ph.D. in Mechanical Engineering from
the Massachusetts Institute of Technology.

Charles R. Schaller has served as Secretary and a director of the Company
since 1989. Mr. Schaller is a management consultant specializing in the
petrochemicals industry and a venture developer concentrating in the area of
specialty materials, and serves as Chairman of the Board of Directors of
Medarex Inc., a publicly held biotechnology firm. From 1985 to 1989, Mr.
Schaller served as President and Chief Operating Officer of Essex Vencap,
Inc., a venture development subsidiary of Essex Chemical Corporation. Mr.
Schaller has more than 33 years of experience in sales, marketing, management,
business and venture development and management consulting in the chemical,
petrochemical and specialty materials areas. Mr. Schaller received a B.E. in
Chemical Engineering from Yale University and is a graduate of the Harvard
Business School Program for Management Development.

Clare E. Nordquist has served as a director of the Company since 1995. Mr.
Nordquist is the Managing General Partner of Materia Ventures Associates LP, a
venture capital partnership specializing in advanced technology materials
companies and serves as a director of Leading Edge Ceramics, LLC, a
manfacturer and distributor of ceramic powders and shapes; Minco Acquisition
Corporation, the parent of numerous companies which manufacture fused silica
and fused magnesia; and Viox Corporation, a custom producer of electronic
grade, high purity glass powders utilized primarily in electronics
applications. Mr. Nordquist received a B.S. in Ceramic Engineering from the
University of Washington and an M.B.A. from the University of Denver.

Gilbert Steinberg has served as a director of the Company since 1989. Mr.
Steinberg is Vice President and Chief Financial Officer of Astrosystems, Inc.,
which is a manufacturer of electronic, electromechanical and power conversion
devices. Mr. Steinberg is the founder of Mentortech, Inc., a publicly held
company specializing in software development and computer training consulting.
Mr. Steinberg received a B.S. in Industrial Engineering at the Massachusetts
Institute of Technology and an M.S. in Mathematics from Adelphi College.

44
<PAGE>

All directors hold office until the next annual meeting of stockholders or
until their successors have been elected. Officers serve at the discretion of
the Board of Directors. There are no family relationships between any of the
directors or executive officers of the Company. The Company does not currently
pay any cash or other compensation to its directors for serving in that
capacity. The Board of Directors has a Compensation Committee that makes
recommendations concerning salaries and incentive compensation for executive
officers of the Company and administers the Company's employee stock plans and
an Audit Committee that reviews the results and scope of the audit and other
services provided by the Company's independent auditors. Dr. Reichenbach and
Mr. Nordquist are the designees of Advent International Corporation and Arete
Ventures, Inc., respectively, and were elected directors pursuant to the 1989
Stock Purchase Agreement relating to the purchase of shares of Series A
Redeemable Convertible Preferred Stock.

The Amended and Restated By-Laws of the Company provide for a classified
Board of Directors. At the 1998 annual meeting of stockholders, the directors
shall be divided into three classes, as nearly equal in number as possible,
with the directors of the first class elected for a term of one year, the
directors of the second class elected for a term of two years, and the
directors of the third class elected for a term of three years. Thereafter,
following such initial classification and election, directors elected to
succeed those directors whose terms expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election.

The classified Board of Directors may have the effect of deterring or
delaying any attempt by any group to obtain control of the Company by a proxy
contest since a third party would be required to have its nominees elected at
two separate annual meetings of the Board of Directors in order to elect a
majority of the members of the Board of Directors. See "Risk Factors--Anti-
takeover Effect Delaware Law and of Certain Charter and By- Law Provisions."

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company and those other executive officers
of the Company whose total salary, bonus and other compensation earned for
1994, 1995 or 1996 exceeded $100,000:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATIONYEAR SECURITIES
--------------------------- UNDERLYING ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION($) (1)
- ------------------------- ---- ---------- --------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Dr. Allen M. Barnett..... 1996 $225,819(2) $25,275(2) 21,000 $2,375
President and Chief 1995 232,378(2) 43,531(2) 21,000 2,310
Executive Officer 1994 188,403(2) 29,039(2) 21,000 2,310
Dr. George W. Roland..... 1996 139,034 15,000 187,500 2,375
President and Chief 1995 63,173(3) 30,000 60,000 527
Executive Officer,
Solar Power Business
Peter C. Aschenbrenner... 1996 106,779 7,000 -- 1,416(4)
Vice President,
Marketing and Sales 1995 96,833 12,000 -- 1,626(4)
1994 79,285 10,000 37,500 45,712(4)
Thomas J. Stiner......... 1996 80,800 20,000 7,500 2,375
Vice President and Chief 1995 75,004 8,000 -- 2,168
Financial Officer 1994 64,509 10,000 15,000 --
</TABLE>
- --------
(1) Includes matching contributions by the Company under its 401(k) Plan.
(2) Dr. Barnett elected to postpone receipt of salary payments of $69,876,
$64,755 and $79,047, as well as all bonus amounts for the years ended
December 31, 1994, 1995 and 1996.
(3) Dr. Roland joined the Company in June 1995.
(4) Includes $1,200 annual expense allowance for all years and for 1994,
relocation reimbursement of $44,512. In addition to these amounts, the
Company paid moving expenses of $22,098 for Mr. Aschenbrenner.

45
<PAGE>

STOCK OPTIONS

The following table provides information regarding grants of stock options
made during the fiscal year ended December 31, 1996 to the persons named in
the Cash Compensation Table above:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
NAME GRANTED (#) FISCAL YEAR SHARE ($) DATE 5% ($) 10% ($)
---- ----------- ------------- --------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Allen M. Barnett.... 21,000 5.7% $3.12 1/1/06 $ 71,400 $ 152,320
Dr. George W. Roland.... 187,500 51.1% 4.00 5/1/06 472,500 1,195,000
Peter C. Aschenbrenner.. -- -- -- -- -- --
Thomas J. Stiner........ 7,500 2.0% 4.00 4/1/06 18,900 47,800
</TABLE>
- --------
(1) Options awarded under the Plan generally provide for vesting over a period
of four years, with vesting occurring 25% per year on the anniversary date
of the option award. The Board of Directors has the discretion, subject to
plan limits, to modify the terms of outstanding options. The options
listed for Dr. Barnett are immediately vested. The options listed for Dr.
Roland vest upon the effective date of the Registration Statement of which
this Prospectus is a part.
(2) All options were granted with an exercise price equal to the fair market
value of the Common Stock as determined by the Board of Directors on the
date of grant, other than those granted to Dr. Barnett. In determining the
fair market value of the Common Stock, for which no trading market
existed, the Board of Directors took into consideration such factors as
the most recent sale prices and preferences of the Company's Preferred
Stock, recent results of operations and other relevant data. The options
granted to Dr. Barnett were granted in connection with an amendment to his
employment agreement in 1991. The option price approximates the average
price per share paid by the purchasers of Series A Redeemable Convertible
Preferred Stock, which price was in excess of the fair market value of the
Common Stock on the date of grant.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the 10-year option term. The assumed 5%
and 10% rates of stock appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate of the future Common Stock price. This table does not take into
account any appreciation in the price of the Common Stock to date, which
exceeds the hypothetical gains shown in the table.

OPTION EXERCISES AND HOLDINGS

The following table sets forth, for each person named in the Cash
Compensation Table above, information regarding the exercise of stock options
during the fiscal year ended December 31, 1996 and the year-end value of
unexercised options. No options were exercised by the Named Executive Officers
during 1996:

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT YEAR-END (#) OPTIONS AT YEAR END ($)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Allen M. Barnett.... -- -- 147,000 -- $129,360 --
Dr. George W. Roland.... -- -- 15,000 232,500 -- --
Peter C. Aschenbrenner.. -- -- 18,750 18,750 -- --
Thomas J. Stiner........ -- -- 30,000 22,500 -- --
</TABLE>
- --------
(1) Calculated on the basis of the fair market value of the Common Stock at
December 31, 1996 of $4.00 per share, as determined by the Company's Board
of Directors, minus the per share exercise price, multiplied by the number
of shares underlying the option. See note 2, "Option Grants in Last Fiscal
Year."

46
<PAGE>

BENEFIT PLANS

STOCK OPTION PLAN. The Company adopted a Stock Option Plan (the "Plan") in
1989 under which a total of 1,200,000 shares are currently reserved for
issuance to employees, including officers and directors who are employees or
consultants. Options granted pursuant to the Plan may be either incentive
stock options or non-qualified stock options. The Plan is administered by the
Compensation Committee of the Board of Directors which selects the employees
to whom the options are granted, determines the number of shares subject to
each option, sets the time or times when the options will be granted,
determines the time when the options may be exercised and establishes the
market value of the shares at the date of grant and exercise date. The Plan
provides that the purchase price under the option shall be at least 100
percent of the fair market value of the shares of the Company's Common Stock
at the date of grant. The options are not transferable. There are limitations
on the amount of incentive stock options that an employee can be granted in a
single calendar year. The term of each option granted under the Plan is
determined by the Compensation Committee, but in no event may such term exceed
ten years. Options granted under the Plan generally provide for vesting in
four equal annual installments beginning on the first anniversary of the date
of grant. As of September 30, 1997, options to purchase an
aggregate of 1,149,778 shares were outstanding at a weighted average exercise
price of $3.87 per share and 30,021 shares remained available for future
option grants under the Plan.

COMPENSATORY STOCK PLAN. Prior to the adoption of the Plan in 1989, the
Company had a compensatory stock plan for the issuance of shares to employees
and consultants. At September 30, 1997, the only remaining obligation under
this plan was the reservation of 39,999 shares for issuance to a former
consultant of the Company.

RETIREMENT SAVINGS PLAN. The Company maintains a Retirement Savings Plan
(the "401(k) Plan") which is intended to qualify under Section 401(k) of the
Internal Revenue Code. Employees of the Company who have attained age 21 and
completed at least one month of service with the Company are eligible to make
contributions to the 401(k) Plan on a pre-tax basis of up to 15% of the
participant's compensation in any year in accordance with limitations defined
in the Code. Under the 401(k) Plan, the Company may make a discretionary
contribution to this plan. The total contribution made by a participant and by
the Company on behalf of that participant cannot exceed the lesser of 25% of
the participant's annual compensation or $30,000 for any one plan year. The
pre-tax contributions made by a participant, the discretionary contribution
made by the Company and the earnings thereon are at all times fully vested. A
participant's fully vested benefit under the 401(k) Plan may be distributed to
the participant upon his retirement, death, disability or termination of
employment or upon reaching age 59 1/2.

At December 31, 1996, the Company had accrued a contribution to the 401(k)
Plan of $66,822. The Company's contribution on behalf of the Named Executive
Officers were as follows: Dr. Allen M. Barnett--$2,375; Dr. George W. Roland--
$2,375; Peter Aschenbrenner--$216; Thomas J. Stiner--$2,375.

EMPLOYMENT ARRANGEMENTS

Dr. Allen M. Barnett entered into a new employment agreement with the
Company effective April 1, 1997 providing for a base salary of $175,000 per
year. The agreement is for an initial term ending March 31, 2000. After the
initial term, the agreement will continue in effect for an indefinite period
until the Company or Dr. Barnett elects to terminate the agreement by written
notice to the other party at least six months prior to the effective date of
termination. Other principal terms of the agreement provide for yearly vesting
of options to purchase 37,500 shares of the Company's Common Stock at $5.33
per share and yearly bonuses of not less than $50,000 if contemplated
financial or other objectives determined each year by the Board of Directors
and Dr. Barnett are achieved. In the event of the termination of the agreement
due to disability or death, Dr. Barnett or his estate would be entitled to
receive his base salary for the longer of the remaining term of the agreement
or two years plus all other compensation and benefits in the case of
disability and a pro rata portion in the case of death. In the event of
termination due to a change of control of the Company, Dr. Barnett would be
entitled to a lump sum payment of one year's salary and bonus, a payment of
salary and bonus from the date of termination through the remaining term of
the agreement and the immediate vesting of all remaining options. In the event
of termination, other than for death or disability, Dr. Barnett is restricted
from competing with the Company for one year thereafter.

47
<PAGE>

Dr. George W. Roland entered into an employment agreement with the Company
effective May 1, 1996, providing for a base salary of $155,000 per year for an
unspecified term. In the event of termination for any reason other than cause,
as defined in the employment agreement, the Company must pay him nine months
salary. Dr. Roland was granted a non-qualified option to acquire 187,500
shares of the Company's Common Stock, all of which will vest and be
exercisable upon the effective date of a registration statement covering the
Company's first bona fide, firm commitment, public offering of Common Stock
("Public Offering") or if the Company merges or consolidates into or with, or
sells or transfers all or substantially all of its assets to, or transfers all
of its capital stock to, another corporation or entity which is not an
affiliate of the Company ("Sale"). If the Company terminates his employment
within twelve months prior to such Public Offering or Sale and he was not
terminated for cause, he shall continue to be vested with respect to all his
options upon the effective date of the Registration Statement relating to the
Public Offering or the effective date of a Sale. If he voluntarily terminates
his employment prior to such Public Offering or Sale he forfeits all rights to
such options. All vested options are exercisable, in whole or part in, at a
price of $4.00 per share upon the following terms and conditions (i) at any
time for a period of seven years following the completion of the Public
Offering or Sale, provided that he is employed by the Company at the time of
such exercise, (ii) at any time for a period of two years following the
completion of the Public Offering or Sale provided that he shall have been
terminated by the Company, other than for cause, within the twelve months
preceding such Public Offering or Sale, or (iii) at any time for a period
equal to the lesser of two years from the date of his termination from the
Company, or seven years from the date of the Public Offering or Sale, provided
that he shall not have been terminated by the Company for cause and he shall
have been employed by the Company at the time of such Public Offering or Sale.
Dr. Roland also was granted a qualified option to purchase 60,000 shares of
the Company's Common Stock at $4.00 per share in connection with his initial
employment in June 1995.

The Board of Directors has approved a 1997 bonus plan for Drs. Barnett and
Roland in an amount of up to $50,000 each, measured against a set of
performance criteria relating to product revenue, profitability and shipments
of Silicon-Film(TM) products agreed to by Drs. Barnett and Roland and the
Board of Directors.

The Company's employment agreements with Dr. Barnett and Dr. Roland and its
employment arrangements with other executive officers and significant
employees impose customary confidentiality obligations and provide for the
assignment to the Company of all rights to any technology developed by the
employee during the time of his or her employment.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Pursuant to the Delaware General Corporation Law the Company has adopted
provisions in its Amended and Restated Certificate of Incorporation that
eliminate the personal liability of its directors and officers to the Company
and its stockholders for monetary damages for breach of the directors'
fiduciary duties in certain circumstances. The Company's Amended and Restated
By-Laws require the Company to indemnify its directors, officers, employees
and other agents to the fullest extent permitted by law.

The Company believes that the limitation of liability provisions in its
Amended and Restated Certificate of Incorporation and the indemnification
provisions of its Amended and Restated By-Laws will enhance the Company's
ability to continue to attract and retain qualified individuals to serve as
directors and officers.

There is no pending litigation or proceeding involving a director, officer
or employee of the Company to which the indemnification agreements would
apply. The Company plans to procure officers' and directors' liability
insurance coverage.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Company consists of Messrs. Nordquist,
Reichenbach and Steinberg. During the fiscal year ended December 31, 1996, no
executive officer of the Company served on the board of directors or
compensation committee of another company that had an executive officer
serving on the Company's Board of Directors or Compensation Committee.

48
<PAGE>

CERTAIN TRANSACTIONS

At September 30, 1997, the Company owed its President $554,357, in the form
of salary, bonus and automobile reimbursements. The amounts are related to the
excess of his salary and bonus and auto allowance over the amounts actually
paid from July 1990 to March 1997. On December 15, 1997, the Company agreed
that one-third of this amount will be paid per year in each of 1998, 1999 and
2000, with interest on the unpaid balance at 6% per annum from January 1,
1998.

At September 30, 1997, the Company owed Astrosystems, Inc. $58,000 in
principal and $39,523 in accrued interest under the terms of an unsecured
promissory note.

49
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of September
30, 1997, and as adjusted to reflect the sale of the Common Stock being
offered hereby (assuming no exercise of the Underwriters' over-allotment
option) by (i) each shareholder who is known by the Company to own
beneficially 5% or more of the outstanding shares of Common Stock, (ii) each
of the Company's directors, (iii) each Named Executive Officer and (iv) all
directors and officers of the Company as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OWNED AFTER OFFERING
----------------------------- ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT (1) NUMBER PERCENT (1)
- ------------------------------------ -------------- -------------- --------- -----------
<S> <C> <C> <C> <C>
Astrosystems, Inc. (2)..... 1,193,750 21.2% 1,193,750 14.3%
1220 Market Street, Suite
603
Wilmington, DE 19801
The Dow Chemical Company... 560,833 10.0% 560,833 6.7%
2030 Dow Center
Midland, MI 48674
Entities Affiliated with
Advent International
Corp.(3).................. 477,081 8.5% 477,081 5.7%
101 Federal Street
Boston, MA 02110
Entities Affiliated with
Materia Ventures
Associates (4)............ 162,819 2.9% 162,819 2.0%
3435 Carillon Point
Kirkland, WA 98033
Dr. Allen M. Barnett (5)... 1,435,206 25.5% 1,435,206 17.2%
Dr. George W. Roland (6)... 30,000 * 30,000 *
Peter C. Aschenbrenner
(7)....................... 28,125 * 28,125 *
Louis C. DiNetta (8)....... 14,625 * 14,625 *
Robert B. Hall (9)......... 87,251 1.6% 87,251 1.1%
Thomas J. Stiner (10)...... 40,313 * 40,313 *
Dr. George S. Reichenbach
(3)....................... 477,081 8.5% 477,081 5.7%
Charles R. Schaller........ 5,250 * 5,250 *
Clare E. Nordquist (4)..... 159,069 2.8% 159,069 1.9%
Gilbert Steinberg (2)...... 1,193,750 21.2% 1,193,750 14.3%
All directors and officers
as a group
(ten persons) (11)........ 3,474,420 61.7% 3,474,420 41.7%
</TABLE>
- --------
* Less than one percent.

(1) Applicable percentage of ownership is based on 5,630,504 shares of Common
Stock outstanding (assuming conversion of all the outstanding shares of
Series A Redeemable Convertible Preferred Stock and Series B Convertible
Preferred Stock on a one-for-one basis) as of September 30, 1997 and
8,330,504 shares of Common Stock outstanding after completion of the
Offering and treats as outstanding all shares (277,313) issuable on
exercise of options exercisable within 60 days of the date of this
Prospectus held by beneficial owners that are included in the first
column.

50
<PAGE>

(2) Represents 1,193,750 shares held by Astrosystems, Inc. Mr. Steinberg, a
director of the Company, is an officer, director and shareholder of
Astrosystems, Inc. and disclaims beneficial ownership of shares held by
Astrosystems, Inc. except to the extent of his pecuniary interest therein.
Astrosystems, Inc. is a publicly owned company, the principal shareholders
of which are Mr. Steinberg, Seymour Barth and Elliot J. Bergman.
Collectively, Messrs. Steinberg, Barth and Bergman own in excess of 50% of
Astrosystems, Inc. common stock.

(3) Includes the ownership by the following venture capital funds managed by
Advent International Corporation: 89,095 shares owned by Adhill Limited
Partnership, 59,396 shares owned by Adval Limited Partnership, 59,396
shares owned by Advent Future Limited Partnership, 1,909 shares owned by
Advent International Investors Limited Partnership, 89,095 shares owned by
Advent Performance Materials Limited Partnership, 89,095 shares owned by
Adwest Limited Partnership and 89,095 shares owned by World Technology
Limited Partnership. In its capacity as manager of these funds, Advent
International Corporation exercises sole voting and investment power with
respect to all shares held by these funds. Dr. Reichenbach is a Senior
Vice President of Advent International Corporation, a venture capital
firm, which is the manager of the funds affiliated with the Advent
International Group. Dr. Reichenbach disclaims beneficial ownership of the
shares held by the Advent International Group except to the extent of his
pecuniary interest therein.

(4) Represents an aggregate of 162,819 shares held by two limited partnerships
of which Materia Ventures Associates is the general partner. Mr. Nordquist
is the Managing General Partner of Materia Ventures Associates and
disclaims beneficial ownership of the shares held by Materia Ventures
Associates except to the extent of his pecuniary interest therein.

(5) Includes 1,181,365 shares held by a family trust of which Dr. Barnett is a
beneficiary and also 162,750 shares subject to currently exercisable
options within 60 days from the date of this Prospectus.

(6) Includes 30,000 shares subject to options within 60 days from the date of
this Prospectus.

(7) Includes 28,125 shares subject to options within 60 days from the date of
this Prospectus.

(8) Includes 10,125 shares subject to options within 60 days from the date of
this Prospectus.

(9) Includes 6,000 shares subject to options within 60 days from the date of
this Prospectus.

(10) Includes 40,313 shares subject to options within 60 days from the date of
this Prospectus.

(11) Includes an aggregate of 277,313 shares held by all directors and
officers that are subject to options exercisable within 60 days from the
date of this Prospectus. See notes 4 through 9 above.

51
<PAGE>

DESCRIPTION OF CAPITAL STOCK

CAPITAL STOCK

Effective upon the consummation of the Offering, the Company's authorized
capital stock will consist of 25,000,000 shares of Common Stock, par value
$.01 per share, and 5,000,000 shares of Preferred Stock, par value $.01 per
share.

As of September 30, 1997, there are 3,707,156 shares of Common Stock
outstanding (5,353,191 after giving effect to the conversion of outstanding
shares of Preferred Stock) held by approximately 200 stockholders of record.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders.
Accordingly, holders of a majority of the shares of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Subject to preferential rights with respect to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor and are entitled to share ratably in the assets of the
Company legally available, after payments of all debts and other liabilities,
for distribution to its stockholders in the event of a liquidation,
dissolution or winding up of the Company. Holders of Common Stock have no
cumulative voting rights nor any preemptive, subscription, redemption or
conversion rights. All outstanding shares of Common Stock are, and the shares
of Common Stock offered hereby by the Company upon completion of the Offering
will be, validly issued, fully paid and non-assessable. The rights,
preferences and privileges of holders of Common Stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.

PREFERRED STOCK

Prior to the Offering, there were issued and outstanding two series of
Preferred Stock, consisting of 1,309,626 shares of Series A Redeemable
Convertible Preferred Stock and 336,409 shares of Series B Convertible
Preferred Stock. The two series of Preferred Stock were held by 36 and 58
shareholders, respectively. Each share of Series A Redeemable Convertible
Preferred and Series B Convertible Preferred Stock will be automatically
converted into one share of Common Stock (1,646,035 shares of Common Stock in
the aggregate) upon the completion of the Offering and such shares of
Preferred Stock will no longer be outstanding.

Upon the completion of the Offering, the Company will have the authority to
issue up to 5,000,000 shares of so-called "blank-check" preferred stock which
authorizes the Board of Directors to establish one or more series of Preferred
Stock and to fix and determine the relative rights, preferences and
limitations of each class or series so authorized without any further vote or
action by the stockholders. The Board of Directors may issue Preferred Stock
with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock and have the effect of delaying or
preventing a change of control of the Company. After the completion of the
Offering, no shares of Preferred Stock will be outstanding. All of the shares
of Series A Redeemable Convertible Preferred Stock and Series B Convertible
Preferred Stock that are currently outstanding will be considered as retired
after the conversion. The Company has no current intention to issue any shares
of Preferred Stock.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

CERTAIN ANTI-TAKEOVER PROVISIONS. The Company is subject to the provisions
of Section 203 of the Delaware General Corporation Law. Section 203 prohibits
certain publicly held Delaware corporations from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an "interested
stockholder", unless the business combination is approved in a prescribed
manner. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person or
entity who, together with affiliates and associates, owns or within the three
years prior to the date on which the determination of whether such person is
an interested stockholders is being made, did own 15% or more of the
corporation's voting stock. This statute contains provisions enabling a
corporation to avoid the statute's restrictions if the stockholders holding a
majority of the corporation's voting stock approve an amendment to the
corporation's Certificate of Incorporation or By-Laws. Parallel provisions

52
<PAGE>

have been included in the Company's Amended and Restated Certificate of
Incorporation. These provisions may make it more difficult for a third party
to acquire, or discourage acquisition bids for the Company.

The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated By-Laws contain provisions that may have the effect of
discouraging a third party from making an acquisition proposal for the
Company. The Amended and Restated Certificate of Incorporation and Amended and
Restated By-Laws of the Company, among other things, (i) classify the Board of
Directors into three classes, with directors of each class serving for a
staggered three-year period, (ii) provide that directors may be removed only
for cause and only upon the affirmative vote of the holders of at least 80% of
the outstanding shares of Common Stock entitled to vote for such directors,
(iii) permit the Board of Directors, but not the Company's stockholders, to
fill vacancies and newly created directorships on the Board of Directors and
(iv) provide that any action required or permitted to be taken by the
stockholders of the Company must be effected at an annual or special meeting
of stockholders and not by any consent in writing by such stockholders.
Special meetings of stockholders may be called only by the Board of Directors.
Such provisions would make the removal of incumbent directors more difficult
and time-consuming and may have the effect of discouraging a tender offer or
other takeover attempt not previously approved by the Board of Directors.

ELIMINATION OF MONETARY LIABILITY FOR OFFICERS AND DIRECTORS. The Company's
Amended and Restated Certificate of Incorporation also incorporates certain
provisions permitted under the General Corporation Law of Delaware relating to
the liability of directors. The provisions eliminate a director's liability
for monetary damages for a breach of fiduciary duty, including gross
negligence, except in circumstances involving certain wrongful acts, such as
the breach of a director's duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law. These provisions do not
eliminate a director's duty of care nor do they prevent recourse against
directors through equitable remedies such as injunctive relief. Moreover, the
provisions do not apply to claims against a director for violations of certain
laws, including federal securities laws.

INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Company's Amended and
Restated Certificate of Incorporation also contains provisions to indemnify
the directors, officers, employees or other agents to the fullest extent
permitted by the General Corporation Law of Delaware. These provisions may
have the practical effect in certain cases of eliminating the ability of
shareholders to collect monetary damages from directors. The Company believes
that these provisions will assist the Company in attracting or retaining
qualified individuals to serve as directors.

REGISTRATION RIGHTS

The holders of approximately 1,646,035 shares of Series A Redeemable
Convertible Preferred Stock and Series B Convertible Preferred Stock are
entitled to certain rights with respect to the registration of such shares
under the Securities Act. Corning also holds certain rights with respect to
the registration of the shares into which its note may be converted. Corning
may, on and after six months from the date of this Prospectus, require the
Company to use its best reasonable efforts to file within thirty days
thereafter a registration statement for all shares of Common Stock issued or
issuable upon conversion of such note. The Company is required to issue
740,741 shares of Common Stock upon conversion of the note, assuming an
initial public offering price of $9.00 per share. Furthermore, if the Company
proposes to register any of its securities under the Securities Act, either
for its own account or the account of other security holders exercising
registration rights, Corning is entitled to notice of such registration and is
entitled to include its shares of Common Stock therein, provided, among other
conditions, that the underwriters of any offering have the right to limit the
number of such shares included in such registration. The Company has also
granted registration rights to Dr. Barnett and Dr. Roland in connection with
certain options which may be granted pursuant to their employment agreements.
See "Management-- Employment Arrangements."

TRANSFER AGENT AND REGISTRATION

The Transfer Agent and Registrar for the Common Stock of the Company is
American Stock Transfer & Trust Company.

53
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding 8,053,191
shares of Common Stock. Of these shares, the 2,700,000 shares sold in the
Offering (plus up to 405,000 additional shares if the Underwriters exercise
their over-allotment option) will be freely tradeable without restriction or
further registration (except by affiliates of the Company or persons acting as
underwriters) under the Securities Act. The remaining 5,353,191 shares of
Common Stock (the "Restricted Shares") may not be sold publicly unless they
are registered under the Securities Act or are sold pursuant to an exemption
from registration, such as the exemption provided by Rule 144 promulgated
under the Securities Act.

In general, commencing 90 days after the completion of the Offering, Rule
144 allows a person who has beneficially owned Restricted Shares for at least
one year, including persons who may be deemed affiliates of the Company, to
sell, within any three-month period, up to the number of Restricted Shares
that does not exceed the greater of (i) one percent of the then outstanding
shares of Common Stock, and (ii) the average weekly trading volume during the
four calendar weeks preceding the date on which notice of the sale is filed
with the Securities and Exchange Commission. A person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding
a sale and who has beneficially owned his or her Restricted Shares for at
least two years would be entitled to sell such Restricted Shares without
regard to the volume limitations described above and the other conditions of
Rule 144. Upon the completion of the Offering, 1,474,566 of the shares of
Common Stock held by existing shareholders will be eligible for sale without
restriction in the public market and an additional 3,854,834 shares will be
eligible for sale in the public market subject to compliance with the volume
limitations and other limitations of Rule 144. The remaining 23,791 shares may
not be sold pursuant to Rule 144 until such shares have been held for at least
one year.

Notwithstanding the foregoing, the Company, its executive officers and
directors and certain stockholders of the Company, who upon completion of the
Offering will own an aggregate of 3,474,420 shares of Common Stock, (41.7% of
the shares outstanding after the Offering), assuming that the Underwriters'
over-allotment option is not exercised, have agreed with the Underwriters not
to sell, contract to sell or otherwise dispose of any shares of Common Stock
owned or controlled by them for a period of 180 days after the date of this
Prospectus without permission of the Representatives of the Underwriters,
except for certain issuances by the Company. See "Underwriting."

The Company intends to file a registration statement on Form S-8 to register
shares subject to the 1989 Stock Option Plan after 90 days following the date
of this Prospectus. In addition, after the Offering, certain holders of
Restricted Shares will be entitled to certain rights with respect to
registration of such shares under the Securities Act. Registration of such
Restricted Shares under the Securities Act would result in such shares
becoming freely tradeable without restriction under the Securities Act
immediately upon the effectiveness of such registration. See "Description of
Capital Stock--Registration Rights."

Market sales of a substantial number of shares of Common Stock, or the
availability of such shares for sale in the public market, could adversely
affect prevailing market prices of the Common Stock.

54
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions of the Underwriting Agreement,
the Underwriters named below, represented by Needham & Company, Inc. and First
Albany Corporation (the "Representatives"), have severally agreed to purchase
from the Company, and the Company has agreed to sell to each Underwriter, the
aggregate number of shares of Common Stock set forth opposite their respective
names on the table below. The Underwriting Agreement provides that the
obligations of the Underwriters to pay for and accept delivery of the shares
of Common Stock are subject to certain conditions precedent, and that the
Underwriters are committed to purchase and pay for all shares if any shares
are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Needham & Company, Inc.........................................
First Albany Corporation.......................................
---------
Total........................................................ 2,700,000
=========
</TABLE>

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public
offering price per share set forth on the cover page of this Prospectus and to
certain dealers (who may include the Underwriters) at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession to certain other dealers (who may
include the Underwriters) not in excess of $ per share. After the Offering
to the public, the Offering price and other selling terms may be changed by
the Representatives.

The Company has granted an option to the Underwriters exercisable during the
30-day period after the date of this Prospectus, to purchase up to a maximum
of 405,000 shares of Common Stock at the public offering price per share, less
the underwriting discounts and commissions, set forth on the cover page of
this Prospectus. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the Common Stock offered
hereby. To the extent the Underwriters exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares of Common Stock to be purchased by such Underwriters, as shown in the
above table, bears to the total shown.

In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection
with the Offering, including liabilities under the Securities Act, or to
contribute payments that the Underwriters may be required to make in respect
thereof.

The Company has agreed, without the prior written consent of Needham &
Company, Inc. not to offer, sell, contract to sell, grant options to purchase,
or otherwise dispose of, any equity securities of the Company or any other
securities exchangeable for or convertible into shares of Common Stock or any
other equity security of the Company for a period of 180 days after the date
of this Prospectus, subject to certain limited exceptions. The Company's
directors, officers and certain other stockholders of the Company, who
collectively hold in the aggregate 4,804,655 shares of Common Stock, have
agreed, without the prior written consent of Needham & Company, Inc. not to,
directly or indirectly, sell, contract to sell, make any short sale, pledge,
or otherwise dispose of, any shares of Common Stock, options to acquire shares
of Common Stock or securities exchangeable for or convertible into shares of
Common Stock, for a period of 180 days after the effective date of the
Registration Statement to which this Prospectus relates. Needham & Company,
Inc. may, in its sole discretion and at any time without notice, release all
or any portion of the securities subject to such lock-up agreements. See
"Shares Eligible for Future Sale."

The Representatives have informed the Company that the Underwriters do not
expect to make sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.

55
<PAGE>

In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may over-allot in connection with the Offering,
creating a short position in the Common Stock for their own account. To cover
over-allotments or to stabilize the price of the Common Stock, the
Underwriters may bid for, and purchase, Common Stock in the open market. The
Underwriters may also impose a penalty bid whereby they may reclaim selling
concessions allowed to an underwriter or a dealer for distributing Common
Stock in the Offering if the Underwriters repurchase previously distributed
Common Stock in transactions to cover their short position, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and
purchase, shares of Common Stock in market making transactions including
"passive" market making transactions (see below). These activities may
stabilize or maintain the market price of the Common Stock at a level above
that which might otherwise prevail in the absence of these activities. The
Underwriters are not required to engage in these activities, and may
discontinue any of these activities at any time without notice.

Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined by
negotiations among the Company and the Representatives. Among the factors to
be considered in such negotiations are the history of, and the prospects for,
the Company and the industry in which it competes, an assessment of the
Company's management, the Company's past and present operations, its past and
present earnings and the trend of such earnings, financial performance, the
prospects for future earnings of the Company, the present state of the
Company's development, the general condition of the securities markets at the
time of the Offering and the market prices of and demand for publicly traded
common stock of comparable companies in recent periods.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Opton Handler Feiler & Landau, LLP, New York, New
York. Certain legal matters with respect to the Offering are being passed upon
for the Underwriters by Choate, Hall & Stewart, Boston Massachusetts. Members
of the firm of Opton Handler Feiler & Landau, LLP own an aggregate of 129,900
shares of Common Stock of the Company.

EXPERTS

The financial statements of the Company as of December 31, 1995, 1996 and
September 30, 1997 and each of the years in the three year period ended
December 31, 1996 and the nine months ended September 30, 1997 have been
included herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Securities and Exchange Commission (the "Commission")
in Washington D.C. with respect to the shares of Common Stock offered hereby.
This Prospectus, which is part of the Registration Statement, does not contain
all the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the Common Stock offered hereby, reference is hereby made to the Registration
Statement and such exhibits and schedules which may be inspected without
charge at, or copies of such material may be obtained at prescribed rates
from, the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W. Washington, D.C. 20549, and at the Commission's regional
offices located at Citicorp Center, 550 W. Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, at Seven World Trade Center, 13th Floor, New
York, New York 10048, and at 5757 Wilshire Boulevard, Los Angeles, California
90024. Copies of such material also may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street,

56
<PAGE>

N.W., Judiciary Plaza, Washington, D.C. 20549 and are also available on the
Commission's web site at http://www.sec.gov. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and in each instance reference is made to
the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.

The Company intends to furnish its stockholders with annual reports
containing financial statements certified by its independent auditors and
quarterly reports for the three quarters of each fiscal year containing
unaudited financial information.

57
<PAGE>

ASTROPOWER, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick, LLP, Independent Auditors..................... F-1
Balance Sheets............................................................. F-2
Statements of Operations................................................... F-4
Statements of Stockholders' Deficit........................................ F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>

58
<PAGE>

When the transaction referred to in Note 15 of the Notes to Financial
Statements has been consummated, we will be in a position to render the
following report.

/s/ KPMG Peat Marwick LLP
_____________________________________

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
AstroPower, Inc.:

We have audited the accompanying balance sheets of AstroPower, Inc. as of
September 30, 1997, December 31, 1996 and 1995, and the related statements of
operations, stockholders' deficit, and cash flows for the nine-month period
ended September 30, 1997 and each of the years in the three-year period ended
December 31, 1996. 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 generally accepted auditing
standards. 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 AstroPower, Inc. as of
September 30, 1997, December 31, 1996 and 1995, and the results of its
operations and its cash flows for the nine-month period ended September 30,
1997 and each of the years in the three-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.

Wilmington, Delaware

December 5, 1997, except as
to the first paragraph of
Note 15 and the last
sentence of Note 6, which
are as of December 15, 1997,
and the second paragraph of
Note 15 which is as of
January 16, 1998

F-1
<PAGE>

ASTROPOWER, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER
1995 1996 30, 1997
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash (including restricted cash of
$5,000,000 at September 30, 1997)..... $ 29,017 $ 24,930 $ 5,131,691
Accounts receivable:
Trade, net of allowance for doubtful
accounts of $44,683 in 1995, $47,836
in 1996 and $57,998 in 1997.......... 2,291,100 2,012,936 2,824,654
Other, including amounts due from
employees and a stockholder.......... 50,052 32,223 49,513
Inventories............................ 2,136,043 1,214,188 1,203,044
Prepaid expenses....................... 47,028 59,270 124,781
----------- ----------- -----------
Total current assets................ 4,553,240 3,343,547 9,333,683
PROPERTY AND EQUIPMENT:
Machinery and equipment............... 5,136,448 6,038,393 6,629,555
Furniture and fixtures................ 156,052 145,882 147,489
Leasehold improvements................ 38,204 184,077 196,918
Construction in progress.............. 555,261 488,044 256,504
----------- ----------- -----------
5,885,965 6,856,396 7,230,466
Less accumulated depreciation and
amortization......................... (1,838,560) (2,313,129) (2,712,177)
----------- ----------- -----------
4,047,405 4,543,267 4,518,289
OTHER ASSETS............................ 14,411 -- --
----------- ----------- -----------
Total assets........................ $ 8,615,056 $ 7,886,814 $13,851,972
=========== =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-2
<PAGE>

ASTROPOWER, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable..................... $ 1,334,937 $ 1,799,973 $ 1,876,104
Note payable--stockholder............ 58,000 58,000 58,000
Note payable--bank................... 475,050 531,200 75,000
Current maturities of long-term
debt................................ 279,401 365,683 335,589
Accrued payroll and payroll taxes
(includes $422,326 in 1995, $530,412
in 1996 and $184,786 in 1997, due to
the Company's President and Chief
Executive Officer).................. 704,157 1,034,841 807,119
Accrued expenses..................... 59,332 190,086 239,057
Advance from customer................ 222,276 333,536 584,607
----------- ----------- -----------
Total current liabilities.......... 3,133,153 4,313,319 3,975,476
OTHER LIABILITIES:
Long-term debt, excluding current
maturities.......................... 651,398 527,811 5,797,317
Deferred compensation and other
(including amounts due to officers
and a stockholder).................. 109,006 106,493 467,729
Advance from customer--non-current... -- -- 153,096
----------- ----------- -----------
760,404 634,304 6,418,142
----------- ----------- -----------
Total liabilities.................. 3,893,557 4,947,623 10,393,618
----------- ----------- -----------
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series A Convertible Preferred Stock,
1,331,250 shares authorized,
1,309,626 shares issued and
outstanding, $.0l per share par
value, liquidation preference of
$8,808,188, redeemable, 8% dividend
rate, non-cumulative................ 5,798,725 5,798,725 5,798,725
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Series B Convertible Preferred Stock,
750,000 shares authorized; 252,001
in 1995, 328,909 in 1996 and 336,409
in 1997 shares issued and
outstanding, $.01 per share par
value, 8% dividend rate, non-
cumulative.......................... 2,520 3,289 3,364
Common Stock, 15,000,000 shares
authorized, 3,697,632 in 1995,
3,701,775 in 1996 and 3,707,156 in
1997 shares issued and outstanding,
$.01 per share par value............ 36,977 37,018 37,072
Additional paid-in capital........... 2,117,529 2,697,396 2,761,967
Accumulated deficit.................. (3,234,252) (5,597,237) (5,142,774)
----------- ----------- -----------
Total stockholders' deficit........ (1,077,226) (2,859,534) (2,340,371)
----------- ----------- -----------
Total liabilities and
stockholders' deficit........... $ 8,615,056 $ 7,886,814 $13,851,972
=========== =========== ===========
</TABLE>

F-3
<PAGE>

ASTROPOWER, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Product sales......... $3,434,170 $5,355,710 $ 6,237,349 $ 4,580,662 $9,333,817
Research contracts.... 3,675,339 4,589,098 4,346,118 3,359,281 2,778,211
---------- ---------- ----------- ----------- ----------
Total revenues...... 7,109,509 9,944,808 10,583,467 7,939,943 12,112,028
COST OF REVENUES:
Product sales......... 2,953,494 4,482,957 6,896,109 5,483,924 6,747,199
Research contracts.... 2,298,759 3,028,488 2,579,994 1,976,610 1,953,654
---------- ---------- ----------- ----------- ----------
Total cost of
revenues........... 5,252,253 7,511,445 9,476,103 7,460,534 8,700,853
Gross profit........ 1,857,256 2,433,363 1,107,364 479,409 3,411,175
OPERATING EXPENSES:
Product development
expenses............. 220,191 313,551 775,963 565,350 754,645
General and
administrative
expenses............. 1,172,110 1,468,779 1,858,862 1,447,169 1,396,708
Selling expenses...... 376,842 444,393 660,468 486,443 624,478
---------- ---------- ----------- ----------- ----------
Income (loss) from
operations......... 88,113 206,640 2,187,929 (2,019,553) 635,344
OTHER EXPENSE (INCOME):
Interest expense...... 42,126 115,593 168,782 106,948 217,340
Interest income....... (9,266) (6,695) (5,685) (4,147) (40,909)
Other expense
(income)............. 38,404 (228) 11,959 -- (4,550)
---------- ---------- ----------- ----------- ----------
Total other
expense............ 71,264 108,670 175,056 102,801 171,881
NET INCOME (LOSS) BEFORE
INCOME TAXES........... 16,849 97,970 (2,362,985) (2,122,354) 463,463
INCOME TAXES............ -- -- -- -- (9,000)
---------- ---------- ----------- ----------- ----------
NET INCOME (LOSS)....... $ 16,849 $ 97,970 $(2,362,985) $(2,122,354) $ 454,463
========== ========== =========== =========== ==========
PRO FORMA DATA:
Pro forma income
(loss) per share..... $ (0.40) $ 0.08
=========== ==========
Pro forma weighted
average shares
outstanding.......... 5,892,549 6,025,747
=========== ==========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

ASTROPOWER, INC.

STATEMENTS OF STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- ------- --------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1994................... 158,251 $ 1,583 3,667,588 $36,677 $1,429,319 $(3,349,071) $(1,881,492)
Issuance of Series B
Convertible Preferred
Stock,
net of issuance
costs................. 76,500 765 -- -- 509,235 -- 510,000
Common Stock issued.... -- -- 11,732 117 46,809 -- 46,926
Net income............. -- -- -- -- -- 16,849 16,849
-------- ------- --------- ------- ---------- ----------- -----------
BALANCE, DECEMBER 31,
1994................... 234,751 2,348 3,679,320 36,794 1,985,363 (3,332,222) (1,307,717)
Issuance of Series B
Convertible Preferred
Stock,
net of issuance
costs................. 17,250 172 -- -- 82,318 -- 82,490
Common Stock issued.... -- -- 18,312 183 49,848 -- 50,031
Net income............. -- -- -- -- -- 97,970 97,970
-------- ------- --------- ------- ---------- ----------- -----------
BALANCE, DECEMBER 31,
1995................... 252,001 2,520 3,697,632 36,977 2,117,529 (3,234,252) (1,077,226)
Issuance of Series B
Convertible Preferred
Stock,
net of issuance
costs................. 76,908 769 -- -- 574,736 -- 575,505
Common Stock issued.... -- -- 4,143 41 5,131 -- 5,172
Net loss............... -- -- -- -- -- (2,362,985) (2,362,985)
-------- ------- --------- ------- ---------- ----------- -----------
BALANCE, DECEMBER 31,
1996................... 328,909 3,289 3,701,775 37,018 2,697,396 (5,597,237) (2,859,534)
Issuance of Series B
Convertible Preferred
Stock................. 11,250 112 -- -- 89,888 -- 90,000
Purchase and retirement
of Series B
Convertible Preferred
Stock................. (3,750) (37) -- -- (29,963) -- (30,000)
Common Stock issued.... 5,381 54 4,646 -- 4,700
Net income............. -- -- -- -- -- 454,463 454,463
-------- ------- --------- ------- ---------- ----------- -----------
BALANCE, SEPTEMBER 30,
1997................... 336,409 $ 3,364 3,707,156 $37,072 $2,761,967 $(5,142,774) $(2,340,371)
======== ======= ========= ======= ========== =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

ASTROPOWER, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- -----------------------
1994 1995 1996 1996 1997
--------- --------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)...... $ 16,849 $ 97,970 $(2,362,985) $(2,122,355) $ 454,463
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization......... 304,603 432,842 474,569 375,606 399,048
Common stock issued
for services......... -- 37,500 -- -- --
Changes in working
capital items:
Accounts receivable.. 234,265 (740,700) 278,164 18,708 (811,718)
Inventories.......... (728,164) (267,408) 921,855 855,750 11,144
Prepaid expenses..... (35,910) 20,862 5,587 (71,087) (68,751)
Accounts payable and
accrued expenses.... 412,684 16,945 595,790 1,044,334 125,101
Accrued payroll and
payroll taxes....... 49,679 140,562 330,684 339,388 141,849
Estimated costs to
complete loss
contracts........... (298,997) (19,956) -- -- --
Advance from
customer............ 20,756 151,520 111,260 404,167
Other................ 14,019 41,493 12,143 (50,657) (22,384)
--------- --------- ----------- ----------- ----------
Net cash provided by
(used in) operating
activities........... (10,216) (88,370) 367,067 389,687 632,919
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures... (946,557) (863,881) (970,431) (745,106) (374,070)
--------- --------- ----------- ----------- ----------
Net cash used in
investing activities.. (946,557) (863,881) (970,431) (745,106) (374,070)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from long-term
debt.................. -- 600,000 202,097 202,097 5,618,077
Proceeds from line of
credit................ 95,000 380,050 175,000 175,000 --
Debt repayments........ (104,735) (161,036) (358,200) (169,111) (834,865)
Proceeds from issuance
of common stock....... -- 3,031 4,875 4,100 4,700
Proceeds from issuance
of preferred stock.... 510,000 82,490 575,505 138,125 90,000
Repurchase of preferred
stock................. -- -- -- -- (30,000)
--------- --------- ----------- ----------- ----------
Net cash provided by fi-
nancing activities..... 500,265 904,535 599,277 350,211 4,847,912
--------- --------- ----------- ----------- ----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (456,508) (47,716) (4,087) (5,208) 5,106,761
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD.... 532,841 76,733 29,017 29,017 24,930
--------- --------- ----------- ----------- ----------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................. $ 76,333 $ 29,017 $ 24,930 $ 23,809 $5,131,691
========= ========= =========== =========== ==========
SUPPLEMENTAL DISCLOSURE:
Interest paid.......... $ 34,798 $ 102,203 $ 129,555 $ 97,703 $ 124,766
========= ========= =========== =========== ==========
OTHER NONCASH FINANCING
AND INVESTING
ACTIVITIES:
During 1995, 2,375
shares of Common Stock
valued at $9,500 were
issued to settle a
liability accrued at
December 31, 1994.
During 1995, the
Company acquired
approximately $131,000
of equipment under a
capital lease
agreement.
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

ASTROPOWER, INC.

NOTES TO FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

AstroPower, Inc. was incorporated in April 1989. In September 1989 it
purchased the assets and assumed certain liabilities of the AstroPower
Division, an unincorporated division of Astrosystems, Inc., a public company.

The Company develops, manufactures, markets and sells PV solar cells,
modules and panels for generating solar electric power. Solar cells are
semiconductor devices which convert sunlight directly into electricity. Solar
electric power is used off the electric utility grid for many applications in
the communications and transportation industries and in remote villages and
homes. Solar electric power is also used in on-grid applications by existing
electric utility customers to provide a clean, renewable source of alternative
or supplementary electric power. Availability of silicon wafers, a significant
raw material in the Company's manufacturing process, is subject to market
conditions in the semiconductor industry, however, the Company is not
dependent on a single supplier or only a few suppliers. See Note 11.

INTERIM FINANCIAL STATEMENTS

The financial statements for the nine months ended September 30, 1996 are
unaudited and, in the opinion of the management of the Company, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results for the interim period. The results of
operations for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year.

CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable, accrued expenses, note payable-stockholder and
borrowings. The carrying values of cash, accounts receivable, accounts
payable, accrued expenses and note payable-stockholder are considered to be
representative of their respective fair values because of the short-term
nature of these balances. The carrying value of the Company's bank borrowings
are considered to approximate their fair values, due to the market rates of
interest on the borrowings. The Company's convertible note does not have a
readily ascertainable market value due to the conversion feature of the note
and the various rights granted to the noteholder with respect to certain
future transactions. See Note 13.

INVENTORIES

Inventories are reported at lower of cost or market. Cost is determined
using the weighted average method.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method based on the assets estimated useful lives, ranging
from 5 to 15 years. Maintenance, repairs and minor renewals are charged to
expense as incurred.

Included in machinery and equipment at September 30, 1997 is $4,560,146
representing self-constructed assets. In costing the equipment, the Company
uses a full cost approach whereby direct material, direct labor

F-7
<PAGE>

ASTROPOWER, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

and related overhead costs are capitalized. The total labor and overhead costs
of self-constructed assets capitalized for the years ended December 31, 1995
and 1996 and the nine months ended September 30, 1997, were $307,833,
$303,677, and $86,134 respectively. Capitalization of cost begins after the
equipment design is established.

REVENUE RECOGNITION

Revenue from product sales is recognized when products are shipped. Revenue
related to the Company's fixed price, cost-plus and cost-sharing research
contracts are recognized at the time costs benefiting the contracts are
incurred, which approximates the percentage of completion method. Provisions
for estimated losses are made in the period in which losses are determined.
Accounts receivable includes unbilled accounts receivable consisting of
material, labor and overhead expended on contracts.

PRODUCT DEVELOPMENT EXPENSES

These expenses represent the material, labor and overhead costs incurred to
develop processes in support of the Company's Silicon-FilmTM wafer, solar cell
and module engineering effort which are not funded by research contracts.

INCOME TAXES

The Company accounts for income taxes in accordance with the asset and
liability method of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
revenues and expense, and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.

PRO FORMA INCOME PER SHARE

Pro forma income per share is calculated using the weighted average number
of shares of common stock and common stock equivalents outstanding during the
year and the assumed conversion of all outstanding preferred shares into
common shares at or prior to the Company's proposed initial public offering.
The pro forma fully diluted income per share, which includes the effect of the
shares issuable upon the conversion of the convertible promissory note and
advance from customer, would not have been materially different from pro forma
income per share.

Pursuant to the requirements of the Securities and Exchange Commission, all
options to purchase common shares issued in the twelve months preceding the
initial filing of the Company's Registration Statement for its initial public
offering have been treated as if they were outstanding for all periods using
the treasury stock method. The Financial Accounting Standards Board issued
SFAS No. 128, Earnings Per Share, in February 1997, effective for financial
statements for periods ending after December 15, 1997.

F-8
<PAGE>

ASTROPOWER, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(2) INVENTORIES

A summary of inventories is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
Raw materials............................ $ 839,494 $ 491,085 $ 902,542
Work-in-process.......................... 89,180 105,538 162,623
Finished goods........................... 1,207,369 617,565 137,879
---------- ---------- ----------
$2,136,043 $1,214,188 $1,203,044
========== ========== ==========
</TABLE>

(3) DEBT

A summary of the Company's long-term debt follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Bank term loans--primary lender; initial
interest to be prime plus 1% (9.5% at
September 30, 1997); secured by accounts
receivable, inventory and equipment;
payable in principal installments of
$17,500 per month through March 31, 1999,
at which time the balance is due......... $ 807,143 $ 641,428 $ 487,143
Bank term loan, with interest at prime
plus 1.5% (10.0% at September 30, 1997)
secured by property and equipment and the
guarantee of the Company's President and
Chief Executive Officer; payable in
principal installments of $10,000 per
month beginning February 10, 1997 through
January 10, 1999, at which time the
balance is due........................... -- 202,097 640,174
Delaware Economic Development Authority
term loan, with interest at 4.8%, due in
60 equal installments of $1,878,
commencing February 1, 1993, secured by
property and equipment................... 42,894 21,961 5,589
Capital lease obligation, payable through
June 1997, with interest at 9%, secured
by equipment............................. 80,762 28,008 --
7% convertible promissory note due August
19, 2001, collateralized by certain
physical assets, as described in Note
13....................................... -- -- 5,000,000
--------- --------- ----------
930,799 893,494 6,132,906
Less current maturities................... (279,401) (365,683) (335,589)
--------- --------- ----------
$ 651,398 $ 527,811 $5,797,317
========= ========= ==========
</TABLE>

The aggregate maturities of long-term debt for each of the twelve month
periods subsequent to September 30, 1997 are as follows:

<TABLE>
<CAPTION>
PERIODS ENDING SEPTEMBER 30,
----------------------------
<S> <C>
1998............................ $ 335,589
1999............................ 797,317
2000............................ --
2001............................ 5,000,000
----------
$6,132,906
==========
</TABLE>

The unsecured note payable to a stockholder bears interest at the rate of
9.01% and is payable on demand. The Company has not made any interest payments
on the note since October 31, 1990. The accrued interest on the note was
$30,374, $35,615 and $39,523 at December 31, 1995 and 1996 and at September
30, 1997, respectively, and is included in the caption "Accrued expenses" in
the balance sheet.

F-9
<PAGE>

ASTROPOWER, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 1996, the Company was not in compliance with covenants
contained in borrowing agreements with its primary lender. During 1997, the
Company entered into several forebearance agreements with the lender, and on
November 24, 1997, the Company entered into an amended and restated loan
agreement providing for an increase in its line of credit from $400,000 to
$600,000, subject to borrowing base limitations, and an increase in its term
loan facility to $737,000. The Company must comply with covenants to measure
Tangible Net Worth, Ratio of Liabilities to Tangible Net Worth and Cash Flow
Coverage, as defined in the agreement. As a result of this amended and
restated agreement, approximately $277,000 of long-term debt originally
scheduled to mature through September 1998 has been excluded from current
maturities. Amounts available under line of credit and term loan facilities as
of September 30, 1997 were approximately $525,000 and $250,000, respectively.

In January 1997, the Company renegotiated its borrowing agreement with
another bank, which provided for a loan of $750,000 for capital improvements
secured by equipment and requires the Company to maintain a maximum ratio of
total liabilities to total net worth, of 2.25 to 1. At September 30, 1997, the
outstanding balance was $640,174.

(4) INCOME TAXES

No income tax provision was recorded for the years ended December 31, 1994,
1995 and 1996. An income tax provision of $9,000 was recorded for the nine
months ended September 30, 1997. Income tax expense (benefit) differed from
the amounts computed by applying the U.S. federal income tax rate of 34% to
pretax income (loss) from operations as a result of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------- -------- --------- -------------
<S> <C> <C> <C> <C>
Computed "expected" tax expense
(benefit)......................... $ 5,729 $ 33,310 $(803,415) 157,577
Reduction in income taxes resulting
from utilization of net operating
loss carryforwards................ (5,729) (33,310) -- (148,577)
Increase in valuation allowance for
deferred tax assets--net operating
loss carryforwards ............... -- -- 770,392 --
Other.............................. -- -- 33,023 --
------- -------- --------- --------
Actual tax expense................. $ -- $ -- $ -- $ 9,000
======= ======== ========= ========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1995 1996 1997
---------- ----------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Deferred revenue.................. $ 85,247 $ 133,000 $ 293,178
Advances from customer............ 133,690 161,958 193,288
Federal and state net operating
loss carryforward................ 1,015,000 1,750,000 1,801,598
Other............................. 8,188 -- 263,111
---------- ----------- -----------
Total gross deferred tax assets... 1,242,125 2,044,958 2,551,175
Less valuation allowance.......... (902,995) (1,673,387) (1,896,867)
---------- ----------- -----------
Net deferred tax assets............. 339,130 371,571 654,308
Deferred tax liabilities:
Plant and equipment, due to
differences in depreciation
methods and basis................ (339,130) (371,571) (654,308)
---------- ----------- -----------
Net deferred amount................. $ -- $ -- $ --
========== =========== ===========
</TABLE>

F-10
<PAGE>

ASTROPOWER, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The change in the valuation allowance results from management's assessment
of whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. At
September 30, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $4.5 million which are available
to offset future federal and state taxable income, if any, through 2012.

(5) OPERATING LEASE OBLIGATIONS

The Company leases a 40,000 square foot building from the University of
Delaware (the "University"). Although the lease agreement is for a term of 20
years (expiring June 30, 2011), the Company may cancel the lease after nine
years (June 30, 2000). Under the agreement with the University, the scheduled
cash payments over the next five years differ from rental expense calculated
under the straight-line method. The following summarizes expected charges to
rent expense contrasted with expected cash outflow as required by the lease
agreement:

<TABLE>
<CAPTION>
ANNUAL RENT EXPECTED
EXPENSE CASH PAYMENTS
----------- -------------
<S> <C> <C>
December 31, 1998............................... $184,489 $209,200
December 31, 1999............................... 184,489 220,800
December 31, 2000............................... 184,489 233,600
December 31, 2001............................... 184,489 245,800
December 31, 2002............................... 184,489 259,400
</TABLE>

In addition, the Company has agreed to fund anticipated renovations to the
facility after lease expiration. The amounts to be paid to the University for
this purpose are $26,000 annually through 2001.

Total rent expense charged to operations for the years ended December 31,
1994, 1995, and 1996 and for the nine months ended September 30, 1997 amounted
to approximately $205,000, $229,000, $219,000 and $174,000, respectively.

(6) RELATED PARTIES

At December 31, 1995 and 1996 and September 30, 1997, the Company owed its
President and Chief Executive Officer $422,326, $530,412 and $554,357,
respectively, in the form of salary and automobile reimbursements. The amounts
are related to the excess of the negotiated annual salary and monthly auto
allowance under a contract which ended March 31, 1997 over the amounts
actually paid to such person. On December 15, 1997, the Company agreed that
one-third of this amount will be paid per year in each of 1998, 1999 and 2000,
with interest on the unpaid balance at 6% per year from January 1, 1998.

(7) EMPLOYEE BENEFIT PLAN

The Company maintains a defined contribution plan under the provisions of
Internal Revenue Code Section 401(k). Employees having attained the age of 21
and with one month of service are eligible to participate and make voluntary
contributions to the plan. The amount charged to expense for the years ended
December 31, 1994, 1995 and 1996 and the nine months ended September 30, 1997
was $26,900, $50,600, $66,800 and $105,000, respectively. The Company does not
provide any postemployment benefits.

F-11
<PAGE>

ASTROPOWER, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(8) CAPITAL STOCK

In 1995, 17,250 shares of Series B Convertible Preferred Stock were issued,
resulting in gross proceeds to the Company of $120,000.

In 1996 the Company distributed a private placement memorandum providing for
the sale of up to $4.0 million of Series B Convertible Preferred Stock. The
Company raised gross proceeds of $615,000 through the private placement
offering in 1996 and $90,000 in 1997.

The Company may, at its option, require the conversion of all Series A
Redeemable Convertible Preferred Stock and Series B Convertible Preferred
Stock to Common Stock upon the closing of the sale of shares of Common Stock
in an initial public offering at a price of at least $10.00 per share,
resulting in gross proceeds to the Company of at least $12.0 million. In
October 1997, the Series A Redeemable Convertible Preferred Stock and Series B
Convertible Preferred Stock holders agreed to waive the requirement for an
initial public offering price of $10.00 as it relates to the Offering
described in Note 15. The Company has granted to the Series A Redeemable
Convertible Preferred Stock and Series B Convertible Preferred Stock holders
certain registration rights with respect to these securities.

Upon any liquidation, dissolution or winding up of the Company, holders of
Series B Convertible Preferred Stock shall rank on a parity with the holders
of Series A Redeemable Convertible Preferred Stock and both the holders of
Series A Redeemable Convertible Preferred Stock and Series B Convertible
Preferred Stock will be entitled to receive a distribution out of the assets
of the Company available for distribution equal to the price per share paid
for the Series A Redeemable Convertible Preferred Stock and Series B
Convertible Preferred Stock (subject to any appropriate adjustment), after and
subject to the payment in full of all amounts required to be distributed to
the holder of any other class or series of stock of the Company ranking on
liquidation prior and in preference to the Series A Redeemable Convertible
Preferred Stock and Series B Convertible Preferred Stock, but before any
payment shall be made to the holders of Common Stock. Thereafter, and before
any payments to the holders of Common Stock, the holders of Series A
Redeemable Convertible Preferred Stock shall be entitled to an additional
payment equal to the price per share paid for the Series A Redeemable
Convertible Preferred Stock.

The Series A Redeemable Convertible Preferred Stock and Series B Convertible
Preferred Stock may be converted into common stock on a one-for-one basis
subject to anti-dilution adjustments with respect to any stock splits,
dividends, reclassifications and similar transactions. Upon any sale of Common
Stock, or other securities convertible into Common Stock for less than the
conversion price then in effect, the conversion price will be reduced
automatically to such lower price. Shares issued as a dividend or distribution
on Series A Redeemable Convertible Preferred Stock and shares, not to exceed
1,200,000, issued to directors, employees or consultants pursuant to a stock
option plan or other stock plan or agreement or shares issued by reason of a
dividend, stock split, split-up or other distribution on shares of common
stock issued pursuant to any of the foregoing are excluded from the anti-
dilution adjustments. Shares of Series A Redeemable Convertible Preferred
Stock and Series B Convertible Preferred Stock are entitled to the number of
votes equal to the number of shares of Common Stock into which they are
convertible.

Pursuant to a redemption provision, the Series A Redeemable Convertible
Preferred stockholders could, at their option, request that the Company redeem
the Series A Redeemable Convertible Preferred Stock on May 15, 1994. Although
the Company did not provide a required redemption offer, it advised the
holders of the Series A Redeemable Convertible Preferred Stock that it
recognizes the continuing right as of May 15, 1994, of each holder of the
Series A Redeemable Convertible Preferred Stock to require the Company to
redeem all of the shares of Series A Redeemable Convertible Preferred Stock
held by such holder on such date at the redemption price that would have been
in effect on such date or such lesser number of shares of Series A Redeemable
Convertible Preferred Stock as the holder may determine. The redemption price
is to be paid in cash out of funds

F-12
<PAGE>

ASTROPOWER, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

legally available and is to be determined based on the original price paid per
share plus an amount equal to 8% compounded annually for each year a dividend
is not declared and paid upon the Series A Redeemable Convertible Preferred
Stock.

At December 31, 1995 and 1996 and as of September 30, 1997, the value of the
Series A Redeemable Convertible Preferred Stock has been accreted to its
redemption value of $5,798,725.

The terms of the Series A Redeemable Convertible Preferred Stock require
that 66 2/3% of the Series A Redeemable Convertible Preferred Stockholders
approve dividends other than those paid in common stock.

(9) EMPLOYEE STOCK OPTION PLAN

The Company adopted a Stock Option Plan ("the Plan") in 1989 under which a
total of 1,200,000 shares are currently reserved for issuance to employees,
including officers and directors who are employees or consultants. Options
granted pursuant to the Plan may be either incentive stock options or non-
qualified stock options. The Plan is administered by the Board of Directors
which selects the employees to whom the options are granted, determines the
number of shares subject to each option, sets the time or times when the
options will be granted, determines the time when the options may be exercised
and establishes the market value of the shares at the date of grant and
exercise date. The Plan provides that the purchase price under the option
shall be at least 100 percent of the fair market value of the shares of the
Company's Common Stock at the date of grant. The options are not transferable.
There are limitations on the amount of incentive stock options that an
employee can be granted in a single calendar year. The terms of each option
granted under the Plan are determined by the Board of Directors, but in no
event may such term exceed ten years. The Plan provides for vesting of the
incentive stock options over a four-year period, with vesting occurring 25%
per year on the anniversary date of the option award.

Stock option transactions during the years ended December 31, 1994, 1995 and
1996 and the nine months ended September 30, 1997 under the 1989 Plan, are
summarized below:

<TABLE>
<CAPTION>
WEIGHTED
EXERCISE PRICE AVERAGE
SHARES RANGE PER SHARE EXERCISE PRICE(1)
------- --------------- -----------------
<S> <C> <C> <C>
Balance, December 31, 1993....... 322,838 $0.33-$4.00 $2.43
Granted........................ 115,800 3.12- 4.00 3.84
Cancelled...................... (46,284) 0.33- 4.00 1.89
-------
Balance, December 31, 1994....... 392,354 0.33- 4.00 2.91
Granted........................ 125,475 3.12- 4.00 3.86
Exercised...................... (6,561) 0.33- 4.00 0.47
Cancelled...................... (12,480) 0.33- 4.00 3.01
-------
Balance, December 31, 1995....... 498,788 0.33- 4.00 3.17
Granted........................ 179,325 3.12- 4.00 3.95
Exercised...................... (4,069) 0.33- 4.00 1.20
Cancelled...................... (45,132) 0.67- 4.00 3.57
-------
Balance, December 31, 1996....... 628,912 0.33- 4.00 3.51
Granted........................ 352,950 3.12- 5.33 4.67
Exercised...................... (5,381) 0.33- 4.00 0.88
Cancelled...................... (14,203) 0.67- 4.00 3.83
------- -----
Balance, September 30, 1997...... 962,278 0.33- 5.33 $3.87
======= =====
</TABLE>
- --------
(1)Includes options described below.

F-13
<PAGE>

ASTROPOWER, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The following is a summary of stock options exercisable as of December 31,
1994, 1995 and 1996 and September 30, 1997:

<TABLE>
<CAPTION>
WEIGHTED
EXERCISE PRICE AVERAGE
SHARES RANGE PER SHARE EXERCISE PRICE
------- --------------- --------------
<S> <C> <C> <C>
December 31, 1994..................... 202,940 $ 0.33-$4.00 $2.00
December 31, 1995..................... 269,747 0.33- 4.00 2.64
December 31, 1996..................... 357,825 0.33- 4.00 2.88
September 30, 1997.................... 467,857 0.33- 4.00 3.15
</TABLE>

Prior to the adoption of the Plan, the Company had a compensatory stock plan
for the issuance of shares to employees and consultants. At September 30,
1997, the Company had reserved 39,999 shares for a commitment under this plan.
The balance sheet caption "Accrued payroll and payroll taxes" contains a
provision for these shares.

In addition to the options in the table above, during 1996 the Company
granted an option for 187,500 shares to an officer of the Company, at an
exercise price of $4.00 per share. All of the options vest upon the effective
date of the Company's initial public offering.

The Company applies APB Opinion 25 and related interpretations in accounting
for stock options issued to employees. Accordingly, because the exercise price
equaled the estimated fair value of the Company's stock at the measurement
date, no compensation cost has been recognized for the plan. Had compensation
cost for the plan been determined based on the fair value at the grant dates
for awards consistent with the method required by FASB Statement 123, the
Company's net income (loss) would have been changed to the pro forma amounts
for the periods indicated below:

<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
Net loss for the year ended December 31, 1996.... $(2,362,985) $(2,442,769)
Net income for the nine months ended September
30, 1997........................................ 454,463 227,562
</TABLE>

As a private entity the Company uses the minimum value method for valuing
options and an interest rate of 6.5%.

(10) GOVERNMENT CONTRACTS

During the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1997, substantially all of the Company's contract revenues
were attributable to U.S. government contracts under which the Company was
either a prime contractor or a subcontractor.

To date, a large percentage of the Company's revenues have been generated by
research and development contracts, principally with the U.S. government.
Orders under government prime or subcontracts are customarily subject to
termination at the convenience of the government, in which event the
contractor is normally entitled to reimbursement for allowable costs and to a
reasonable allowance for profits, unless the termination of a contract was due
to a default on the part of the contractor. No termination of contracts by the
government occurred during the years ended December 31, 1994, 1995 and 1996
and the nine months ended September 30, 1997.

Substantially all of the Company's revenues from government contracts are
subject to audit under various federal statutes. The Company has received
final approval of its overhead rates through 1993. Audits of 1994 and 1995
rates began in December 1997. It is management's opinion that adjustments to
such revenue, if any, will not have a material effect on the Company's
financial position or results of operation.

F-14
<PAGE>

ASTROPOWER, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Certain of the Company's contracts contain retainage provisions. At December
31, 1996 and September 30, 1997, retainage amounts included in accounts
receivable were approximately $112,000 and $165,000, respectively. The Company
estimates that approximately 30% of the retainage amounts at December 31, 1996
will be collected during 1997. At December 31, 1996 and September 30, 1997,
unbilled accounts receivable were approximately $211,000.

(11) BUSINESS AND CREDIT CONCENTRATIONS

The following table shows the percentage of total revenues contributed by
significant customers for the periods presented. A significant customer is
defined as one contributing 10% or more of total revenues:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1994 1995 1996 1997
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Customer A...................................... 51% 46% 41% 23%
Customer B...................................... 25% 10% 12% 19%
Customer C...................................... -- -- -- 14%
Customer D...................................... -- -- -- 11%
Customer E...................................... -- -- -- 10%
</TABLE>

Customer A represents the U.S. government. Included in the September 30,
1997 amount is a total of 13 contracts totaling $2,778,211 administered by six
agencies of the U.S. government, with contract revenues ranging from 0.1% to
11.2% of total revenues.

During the nine months ended September 30, 1997, the five largest product
sales customers accounted for approximately 58% of revenues and 75% of product
sales. At September 30, 1997, approximately 91% of accounts receivable were
due from the Company's six largest customers, of which 35% represented amounts
due from agencies of the U.S. government representing Customer A and 56%
represented amounts due from the Company's five largest product sales
customers in 1997. The loss of one or more of these major customers could have
a material adverse effect on the Company's business, results of operations and
financial conditions.

(12) GEOGRAPHIC DISTRIBUTION OF PRODUCT SALES

Total product sales are summarized as a percentage by geographic area as
follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ----------------------
1994 1995 1996 1996 1997
------- ------- ------- ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Domestic:............ 20% 32% 14% 15% 29%
Export:
Europe............. 11% 22% 49% 43% 59%
Asia............... 69% 46% 30% 38% 6%
Africa............. 0% 0% 7% 4% 6%
</TABLE>

All of the Company's research contract revenues are within the United
States.

F-15
<PAGE>

ASTROPOWER, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(13) STRATEGIC ALLIANCES

CORNING INCORPORATED

In August 1997, the Company and Corning Incorporated ("Corning") entered
into a Research and Development Umbrella Agreement ("R&D Agreement") under
which Corning will provide research, development, engineering and
manufacturing assistance to the Company for a three year period. Corning will
be compensated for such services as services are performed in the form of
options to purchase shares of the Company's Common Stock based upon man-years
of personnel contributed by Corning to the project. The value of such options,
when granted, will be included in operating expenses. Unless otherwise agreed,
such services shall not exceed the equivalent of five man-years for each year
of the R&D Agreement. The exercise price per share and the options per man-
year follow:

<TABLE>
<CAPTION>
OPTIONS PER
EXERCISE PRICE MAN-YEAR
-------------- -----------
<S> <C> <C>
Year 1......................................... $ 8.00 50,000
Year 2......................................... 10.67 30,000
Year 3......................................... 13.33 21,428
</TABLE>

At September 30, 1997, no options were issued to Corning.

As part of the R&D Agreement, the Company received $5.0 million in cash in
exchange for its four-year secured 7% note collateralized by all physical
assets described below, which is convertible into common stock of the Company
at a conversion price equal to the lesser of (i) $8.00 per share or (ii) 75%
of the price per share received by the Company in an initial public offering
of its stock. The Company may repay the note in full without penalty after two
years from its date of issuance. In the event the note remains outstanding
after its four-year due date, the Company shall grant to Corning a non-
exclusive license to use all of the Company's Silicon-Film(TM) intellectual
property under fair market terms and conditions as shall be then negotiated.
The granting of the license does not prevent Corning from seeking payment of
the note. The proceeds of the note are restricted for the engineering, design,
lease, construction or expansion of facilities and purchase of equipment and
related tooling or working capital devoted to the manufacture of products
derived from the Company's Silicon-Film(TM) technology.

In addition, under certain circumstances, Corning has future rights to
participate in (i) equity or other financings involving instruments
convertible into equity of the Company; (ii) proposals in respect of any
merger, consolidation or similar transaction involving the Company, or any
sale of other disposition of a material portion of the capital stock of the
Company or its assets of business; and (iii) any plans or proposals to sell or
license any intellectual property relating to the Company's Silicon-Film(TM)
technology.

GPU SOLAR

In July 1997, the Company entered into a joint venture with GPU
International to form GPU Solar to develop, manufacture and test market grid-
connected residential rooftop photovoltaic systems for the U.S. market using
the Company's modules. The Company's contribution to the joint venture will be
specified services and reduced pricing on sales to the joint venture.

(14) ADVANCE FROM CUSTOMER

On March 26, 1997, the Company entered into a supply agreement with a
customer for the purchase of solar cells through December 31, 1998, for a
total sales value of approximately $5.0 million. The advance payment of $1.0
million, which bears interest at 6%, will be credited to the customer against
future shipments during 1997, with the balance at December 31, 1997 to be
credited to the customer's account in equal monthly

F-16
<PAGE>

ASTROPOWER, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

amounts during 1998. The customer has the right to convert any or all of the
unapplied advance payment for an equivalent amount of the Company's common
stock at the then prevailing market price. The balance of the advance at
September 30, 1997 was $735,816.

(15) SUBSEQUENT EVENT

On December 15, 1997, the Company's Board of Directors authorized the filing
of a Registration Statement on Form S-1 in connection with a planned initial
public offering of the Company's Common Stock and increased the authorized
shares of Common Stock and Preferred Stock to 25,000,000 and 5,000,000,
respectively. The Company intends to effect a stock split in the form of a
stock dividend in the amount of three shares for every four shares outstanding
as of the effective date of the initial public offering. All share and per
share information in the accompanying financial statements have been
retroactively adjusted to give effect to the planned modification to the
Company's capital structure.

On January 16, 1998, the Company entered into an operating lease agreement
for a 60,300 square foot facility to be used in its manufacturing expansion.
The lease commencement date is June 1, 1998. The annual rental rate for the
first year of the lease is $284,808 with increases of approximately 2% each
year thereafter. The term of the lease is 10 years with two five-year renewal
options.

F-17
<PAGE>

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURI-
TIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH THIS PROSPECTUS RELATES,
OR AN OFFER IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AU-
THORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 28
Management............................................................... 43
Certain Transactions..................................................... 49
Principal Shareholders................................................... 50
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 55
Legal Matters............................................................ 56
Experts.................................................................. 56
Additional Information................................................... 56
Index to Financial Statements............................................ 58
</TABLE>

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

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK TO WHICH THIS PROSPECTUS RELATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

2,700,000 Shares

LOGO

ASTROPOWER

Common Stock

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

PROSPECTUS
----------------

Needham & Company, Inc.

First Albany Corporation

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

, 1998

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following expenses are estimated:

<TABLE>
<S> <C>
SEC Registration Fee*........................................... $ 9,160
Accounting Fees................................................. $125,000
Legal Fees...................................................... $100,000
Printing, Engraving and Mailing................................. $125,000
Transfer agent and registrar's fees............................. $ 10,000
Blue Sky fees and expenses...................................... $ 7,500
Miscellaneous expenses.......................................... $ 23,340
--------
TOTAL....................................................... $400,000
========
</TABLE>
- --------
* Actual

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article VIII of the Company's Amended and Restated Certificate of
Incorporation provides in part as follows:

The corporation shall, to the fullest extent permitted by 145 of the General
Corporation Law of the State of Delaware, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said section, and
the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any By-Law,
agreement, vote of stockholders of disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee, or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the registrant's By-Laws, Certificate of Incorporation,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnifications against public
policy as expressed in the act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person in connection with the securities being registered), the
Registrant will, unless in the opinion of its counsel, the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, the following securities were sold or issued by
the Company without registration under the Securities Act of 1933, as amended
(the "Act"):

In the period January 5th through December 25th, 1995, the Company issued an
aggregate of 6,561 shares of Common Stock to twelve (12) employees and one (1)
officer upon the exercise of stock options granted pursuant to the Company's
1989 Stock Option Plan for an aggregate consideration of $3,031.

On February 24, 1995, the Company issued 2,250 shares of its Series B
Convertible Preferred Stock to one (1) person in consideration for services
rendered in the amount of $15,000.

II-1
<PAGE>

On April 21, 1995, the Company issued 9,375 shares of Common Stock to one
(1) person in consideration for services rendered in the amount of $37,500. On
December 15, 1995 the Company issued an aggregate of 2,000 shares of Common
Stock to three (3) individuals in consideration of consulting services
rendered, having an aggregate value of $8,000. Also on December 15, 1995, the
Company issued an aggregate of 15,000 shares of its Series B Convertible
Preferred Stock to two (2) individuals for an aggregate consideration of
$120,000.

On June 30, 1995, the Company issued 375 shares of Common Stock to one (1)
employee pursuant to its obligations under a prior compensatory stock plan
which was terminated in 1989.

In the period February 8, 1996 through December 5, 1996, the Company issued
an aggregate of 4,069 shares of Common Stock to nineteen (19) employees upon
the exercise of stock options granted pursuant to the Company's 1989 Stock
Option Plan for an aggregate consideration of $4,875 and issued 75 shares of
Common Stock as a gift to one (1) employee.

In the period April, 1996 through January 30, 1997 the Company issued 88,158
shares of Series B Convertible Preferred Stock in a private offering for total
proceeds aggregating $705,270 to twenty-three (23) persons, all of whom the
Company reasonably believes were "accredited" investors as that term is
defined in Regulation D under the Act.

In the period January 2, 1997 through October 31, 1997, the Company issued
an aggregate of 5,381 shares of its Common Stock to nine (9) employees upon
the exercise of stock options granted pursuant to the Company's 1989 Stock
Option Plan for an aggregate consideration of $4,700.

The above securities were issued in reliance on the exemption from
registration under Section 4(2) as not involving any public offering. Claims
of such exemptions are based upon the following: (i) all of the purchasers in
such transactions were sophisticated investors with the requisite knowledge
and experience in financial and business matters to evaluate the merits and
risk of an investment in the Company, were able to bear the economic risk of
an investment in the Company, had access to or were furnished with the kinds
of information that registration under the Act would have provided and
acquired securities for their own accounts in transactions not involving any
general solicitations or advertising, and not with a view to the distribution
thereof, (ii) a restrictive legend was placed on each certificate evidencing
the securities; and (iii) each purchaser acknowledged in writing that he knew
the securities were not registered under the Act or any State securities laws,
and were "RESTRICTED SECURITIES" as that term defined in Rule 144 under the
Act, that the securities may not be offered for sale, sold or otherwise
transferred within the United States except pursuant to an effective
Registration Statement under the Act and any applicable State securities laws,
or pursuant to any exemption from registration under the Act, the availability
of which is to be established to the satisfaction of the Company.

ITEM 16. EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES

Unless otherwise noted, the following exhibits were filed on December 18,
1997 with the Registration Statement to which this Amendment relates.

16 (A) EXHIBITS

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Series A Preferred Stock Purchase Agreement dated September 20, 1989 by
and among AstroPower, Inc., et al and the Purchasers named therein.
2.2 Series B Stock Purchase Agreement dated between August 1993 and September
1996 by and among AstroPower, Inc. et al and the Purchasers named
therein.
3.1 Certificate of Incorporation of the Registrant, as Amended.
3.2 By-Laws of the Registrant.
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S>
3.3 Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be effective immediately prior to the effectiveness of
the Offering.
3.4 Form of Amended and Restated By-Laws of the Registrant, to be effective
immediately prior to the effectiveness of the Offering.
4.1 Specimen certificate representing the Common Stock of the Registrant.*
5.1 Opinion of Opton Handler Feiler & Landau, LLP with respect to the
legality of the securities being registered.*
10.1 1989 Stock Option Plan, as amended.
10.2 Lease for premises at Solar Park, Newark, Delaware dated July 1, 1991
between the Company and the University of Delaware.
10.3 Employment Agreement between the Company and Dr. Allen M. Barnett dated
April 1, 1997.
10.4 Employment Agreement between the Company and Dr. George W. Roland dated
May 1, 1996.
10.5 1997 Bonus Plan for Drs. Barnett and Roland.
10.6 Amended and Restated Loan Agreement between the Company and Mellon Bank
(DE), N.A. dated November 24, 1997.
10.7 Amended and Restated Security Agreement between the Company and Mellon
Bank (DE), N.A. dated November 24, 1997.
10.8 Amended and Restated Line of Credit Note between the Company and Mellon
Bank (DE), N.A. dated November 24, 1997.
10.9 Amended and Restated Term Loan Note between the Company and Mellon Bank
(DE), N.A. dated November 24, 1997.
10.10 Business Loan Agreement between the Company and Artisans' Savings Bank
dated January 10, 1997.
10.11 Promissory Note between the Company and Artisans' Savings Bank dated
January 10, 1997.
10.12 Commercial Security Agreement between the Company and Artisans' Savings
Bank dated January 10, 1997.
10.13 Commercial Guaranty between Allen M. Barnett and Artisans' Savings Bank
dated January 10, 1997.
10.14 Operating Agreement between the Company and GPU International dated July
1, 1997.
10.15 Performance Agreement between the Company and GPU International dated
July 1, 1997.
10.16 Note Purchase Agreement between the Company and Corning Inc. dated
August 19, 1997.
10.17 Security Agreement between the Company and Corning Inc. dated August 19,
1997.
10.18 Promissory Note between the Company and Corning Inc. dated August 19,
1997.
10.19 Research and Development Umbrella Agreement between the Company and
Corning Inc. dated August 19, 1997.
10.20 Promissory note to Astrosystems, Inc.
10.21 Lease for premises at 231 Lake Drive, Newark, Delaware dated January 16,
1998 between the Company and Liberty Property Limited Partnership.*
23.1 Consent of KPMG Peat Marwick, LLP.*
23.2 Consent of Opton Handler Feiler & Landau, LLP (contained in Exhibit
5.1).
27.1 Financial Data Schedule.
</TABLE>
- --------

* Filed with this Amendment.

II-3
<PAGE>

(16) (B) FINANCIAL STATEMENT SCHEDULES

Schedule II--Valuation and Qualifying Accounts

Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities being offered
therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.

(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the registrant's By-Laws,
Certificate of Incorporation, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission,
such indemnifications against public policy as expressed in the act and
is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or
controlling person in connection with the securities being registered),
the Registrant will, unless in the opinion of its counsel, the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.

(4) To provide to the Underwriter at the closing specified in the
Underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriter to permit
prompt delivery to each purchaser.

II-4
<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 THE CITY OF NEWARK, DELAWARE, ON
JANUARY 23, 1998.

AstroPower, Inc.

/s/ Allen M. Barnett
By: _________________________________________
ALLEN M. BARNETT
PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED:

SIGNATURE TITLE DATE

/s/ Allen M. Barnett President, Chief
- ------------------------------------- Executive Officer January 23,
ALLEN M. BARNETT and Director 1998

/s/ George S. Reichenbach Director
- ------------------------------------- January 23,
GEORGE S. REICHENBACH 1998

/s/ Thomas J. Stiner Vice President,
- ------------------------------------- Chief Financial January 23,
THOMAS J. STINER Officer and 1998
Principal
Accounting Officer

/s/ George W. Roland President and Chief
- ------------------------------------- Executive Officer January 23,
GEORGE W. ROLAND of the Solar Power 1998
Business and
Director

/s/ Gilbert Steinberg Director
- ------------------------------------- January 23,
GILBERT STEINBERG 1998

/s/ Clare E. Nordquist Director
- ------------------------------------- January 23,
CLARE E. NORDQUIST 1998

/s/ Charles R. Schaller Director
- ------------------------------------- January 23,
CHARLES R. SCHALLER 1998

II-5

<PAGE>

EXHIBIT 4.1
AP

COMMON STOCK ASTROPOWER, INC. CUSIP 04644A 10 1
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS

This Certifies that

is the owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH OF THE COMMON
STOCK OF

===============================ASTROPOWER, INC.=================================
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held subject to all of
the provisions of the Certificate of Incorporation and of any amendments thereto
(copies of which are on file at the office of the Transfer Agent) to all of
which the holder, by acceptance hereof, assents. This certificate is not valid
unless countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.

Dated

/s/ Thomas J. Stiner /s/ Allen M. Barnett
ASTROPOWER, INC.
CORPORATE SEAL
1989
DELAWARE
TREASURER PRESIDENT

COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.)
TRANSFER AGENT
AND REGISTRAR
BY

AUTHORIZED SIGNATURE
<PAGE>

ASTROPOWER, INC.

A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE
CORPORATION OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS WILL BE FURNISHED BY THE
CORPORATION, WITHOUT CHARGE, TO EACH STOCKHOLDER WHO SO REQUESTS, UPON
APPLICATION TO ITS TRANSFER AGENT, OR TO THE SECRETARY OF THE CORPORATION.

KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN OR
DESTROYED THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right
of survivorship and not as tenants
in common

UNIF GIFT MIN ACT-_______________Custodian___________________
(Cust) (Minor)

under Uniform Gifts to Minors
Act__________________________
(State)

Additional abbreviations may be used though not in the above list.

For value received, __________________________ hereby sell, assign and transfer
unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

[ ]

- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

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

Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
---------------------------

-----------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

SIGNATURE(S) GUARANTEED:
------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.

<PAGE>

EXHIBIT 5.1

[LETTERHEAD OF OPTON HANDLER FEILER & LANDAU, LLP]

January 23, 1998

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

RE: AstroPower, Inc.
Registration No. 333-42591 on Form S-1
filed on December 18, 1997

Gentlemen:

We refer to the Registration Statement on Form S-1, Registration No. 333-42591
(the "Registration Statement") filed by AstroPower, Inc., a Delaware corporation
(the "Company"), with the Securities and Exchange Commission (the "Commission")
on December 18, 1997, relating to the issuance by the Company of a maximum of
3,105,000 shares of Common Stock, par value $ .01 per share (the "Common
Stock").

We have reviewed the Form of Amended and Restated Certificate of Incorporation
and form of Amended and Restated By-Laws of the Company, (both of which are to
become effective as of the effective date of the Registration Statement),
records of certain of the Company's corporate proceedings as reflected in the
Company's minute books and have examined such authorities and statutes as we
have deemed relevant to the opinion set forth hereinafter.
<PAGE>

Securities and Exchange Commission
January 23, 1998
Page Two

Based upon the foregoing, it is our opinion that:

The maximum of 3,105,000 shares of Common Stock proposed to be issued by
the Company will, when issued pursuant to, and in the manner contemplated
by the Registration Statement, be legally issued, fully paid and non-
assessable.

We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to us under the heading "Legal Matters" in the
Prospectus which forms a part thereof.

Respectfully submitted,

OPTON HANDLER FEILER AND LANDAU, LLP

/s/ Peter Landau
- ----------------
Peter Landau

PL:jm

<PAGE>

LEASE AGREEMENT

(Multi-Tenant Industrial)

INDEX
- -----

(S) SECTION PAGE
- --- ------- ----

1. Summary of Terms and Certain Definitions................. 1
2. Premises................................................. 2
3. Acceptance of Premises................................... 2
4. Use; Compliance.......................................... 2
5. Term..................................................... 2
6. Minimum Annual Rent...................................... 3
7. Operation of Property; Payment of Expenses............... 3
8. Signs.................................................... 4
9. Alterations and Fixtures................................. 5
10. Mechanics' Liens......................................... 5
11. Landlord's Right of Entry................................ 5
12. Damage by Fire or Other Casualty......................... 5
13. Condemnation............................................. 6
14. Non-Abatement of Rent.................................... 6
15. Indemnification of Landlord.............................. 6
16. Waiver of Claims......................................... 6
17. Quiet Enjoyment.......................................... 6
18. Assignment and Subletting................................ 6
19. Subordination; Mortgagee's Rights........................ 7
20. Recording; Tenant's Certificate.......................... 7
21. Surrender; Abandoned Property............................ 8
22. Curing Tenant's Defaults................................. 8
23. Defaults - Remedies...................................... 8
24. Representations of Tenant................................ 9
25. Liability of Landlord.................................... 9
26. Interpretation; Definitions.............................. 10
27. Notices.................................................. 10
28. Security Deposit......................................... 11
29. R-1
<PAGE>

THIS LEASE AGREEMENT is made by and between LIBERTY PROPERTY LIMITED
PARTNERSHIP, a Pennsylvania limited partnership ("LANDLORD") with its address at

65 Valley Stream Parkway, Malvern, PA 19355 and Astropower, Inc. a corporation
- --------------------------------------------- ---------------- -----------
organized under the laws of Delaware ("TENANT") with its address at Solar Park,
--------- ------------
Newark, DE 19716-2000 and is dated as of the date on which this lease has been
- ----------------------
fully executed by Landlord and Tenant.

1. SUMMARY OF TERMS AND CERTAIN DEFINITIONS.
----------------------------------------
(a) "PREMISES": Approximate rentable square feet: 60,300
-------
(Section 2) Suite: 3
---------

(b) "BUILDING": Approximate rentable square feet: 130,800
---------
(S2) Address: 231 Lake Drive, Newark , DE 19702
------------------------------------
------------------------------------

<TABLE>
<S> <C>
(c) "TERM": One hundred twenty (120) months plus any partial month from the Commencement
------------------ ---
(S5) Date until the first day of the first full calendar month during the Term

</TABLE>
(I) "COMMENCEMENT DATE": June 1, 1998
-------------

(II) "EXPIRATION DATE": See Section 5

(D) MINIMUM RENT (S6) & OPERATING EXPENSES (S7)

(I) "MINIMUM ANNUAL RENT": $284,808.00 (Two hundred eighty four thousand
---------- ---------------------------------
eight hundred eight and 00/100 Dollars), payable in monthly installments
- ------------------- ---
of $23,734.00 (Twenty three thousand seven hundred thirty-four and 00/100
----------------------------------------------------------- --
Dollars), increased as follows:

<TABLE>
<CAPTION>
Lease Year Annual Monthly Lease Year Annual Monthly
- ----------------- ------------------ ------------------ ---------------- -------------------- ------------------
<S> <C> <C> <C> <C> <C>
2 $291,444.00 $24,287.00 6 $314,964.00 $26,247.00
3 296,868.00 24,739.00 7 320,988.00 26,749.00
4 302,904.00 25,242.00 8 327,624.00 27,302.00
5 308,928.00 25,744.00 9 334,260.00 27,855.00
10 340,896.00 28,408.00
</TABLE>

<TABLE>
<S> <C>
(II) Estimated "ANNUAL OPERATING EXPENSES":$54,264.00 (Fifty four thousand two hundred sixty-four
---------- ------------------------------------------
and 00/100 Dollars), payable in monthly installments of $4,522.00 (Four thousand five hundred
-- -------- --------------------------
twenty-two and 00/100 Dollars), subject to adjustment ((S)7(a))
-------------- --
</TABLE>
<TABLE>
<S> <C>
(E) "PROPORTIONATE SHARE" (S7(a)): 46.10% (Ratio of approximate rentable square feet in the
-----
Premises to approximate rentable square feet in the
Building)

(F) "USE" (S4): Warehouse, light assembly, manufacturing and
----------------------------------------------
distribution with appurtenant offices
- -------------

(G) "SECURITY DEPOSIT" (S28): $28,256.00 (Twenty eight thousand two hundred fifty-six and 00/100
------------------------------------------------------- --
Dollars)

(H) CONTENTS: This lease consists of the Index, pages 1 through 11 containing Sections 1 through 28 and
the following, all of which are attached hereto and made a part of this lease:
Rider with Sections 29 through 35
---
Exhibits: "A" - Plan showing Premises "C" - Building Rules
"B" - Commencement Certificate Form "D" - Estoppel Certificate Form
"E" - Plan "F" - Form of Letter of Credit
</TABLE>

1
<PAGE>

2. PREMISES. Landlord hereby leases the Property including to Tenant and Tenant
--------
hereby leases any driveways, sidewalks from Landlord the Premises as and
parking, loading and shown on attached Exhibit "A" landscaped areas (the within
the Building (the Building "COMMON AREAS"). and the lot on which it is located,
the "PROPERTY"), together with the non-exclusive right with Landlord and other
occupants of the Building to use all areas and facilities provided by Landlord
for the use of all tenants in the Property including any driveways, sidewalks
and parking, loading and landscaped areas (the "COMMON AREAS").

3. ACCEPTANCE OF PREMISES. Tenant has examined and knows the condition of the
----------------------
Property, the zoning, streets, sidewalks, parking areas, curbs and access ways
adjoining it, visible easements, any surface conditions and the present uses,
and Tenant accepts them in the condition in which they now are, without relying
on any representation, covenant or warranty by Landlord. Tenant and its agents
shall have the right, at Tenant's own risk, expense and responsibility, at all
reasonable times prior to the Commencement Date, to enter the Premises for the
purpose of taking measurements and installing its furnishings and equipment;
provided that the Premises are vacant and Tenant obtains Landlord's prior
written consent.

4. USE; COMPLIANCE.
---------------

(a) PERMITTED USE. Tenant shall occupy and use the Premises for and only for
the Use specified in Section 1(f) above and in such a manner as is lawful,
reputable and will not create any nuisance or otherwise interfere with any other
tenant's normal operations or the management of the Building. Without limiting
the foregoing, such Use shall exclude any use that would cause the Premises or
the Property to be deemed a "place of public accommodation" under the Americans
with Disabilities Act (the "ADA") as further described in the Building Rules
(defined below). All Common Areas shall be subject to Landlord's exclusive
control and management at all times. Tenant shall not use or permit the use of
any portion of the Property for outdoor storage or installations outside of the
Premises nor for any use that would interfere with any other person's use of any
portion of the Property outside of the Premises.

(b) COMPLIANCE. Landlord represents that, as of the date of this lease,
there is no action required with respect to the Premises or Common Areas under
any laws (including Title III of the ADA), ordinances, notices, orders, rules,
regulations and requirements applicable to the Premises or to the Common Areas.
From and after the Commencement Date, Tenant shall comply promptly, at its sole
expense, (including making any alterations or improvements) with all laws
(including the ADA), ordinances, notices, orders, rules, regulations and
requirements regulating the Property during the Term which impose any duty upon
Landlord or Tenant with respect to Tenant's use, occupancy or alteration of, or
Tenant's installations in or upon, the Property including the Premises, (as the
same may be amended, the "LAWS AND REQUIREMENTS") and the building rules
attached as Exhibit "C", as amended by Landlord from time to time (the "BUILDING
RULES"). Provided, however, that Tenant shall not be required to comply with the
Laws and Requirements with respect to the footings, foundations, structural
steel columns and girders forming a part of the Property unless the need for
such compliance arises out of Tenant's use, occupancy or alteration of the
Property, or by any act or omission of Tenant or any employees, agents,
contractors, licensees or invitees ("AGENTS") of Tenant. With respect to
Tenant's obligations as to the Property, other than the Premises, at Landlord's
option and at Tenant's expense, Landlord may comply with any repair, replacement
or other construction requirements of the Laws and Requirements and Tenant shall
pay to Landlord all costs thereof as additional rent.

(c) ENVIRONMENTAL. Tenant shall comply, at its sole expense, with all Laws
and Requirements as set forth above, all manufacturers' instructions and all
requirements of insurers relating to the treatment, production, storage,
handling, transfer, processing, transporting, use, disposal and release of
hazardous substances, hazardous mixtures, chemicals, pollutants, petroleum
products, toxic or radioactive matter (the "RESTRICTED ACTIVITIES"). Tenant
shall deliver to Landlord copies of all Material Safety Data Sheets or other
written information prepared by manufacturers, importers or suppliers of any
chemical and all notices, filings, permits and any other written communications
from or to Tenant and any entity regulating any Restricted Activities.

(d) NOTICE. If at any time during or after the Term, Tenant becomes aware of
any inquiry, investigation or proceeding regarding the Restricted Activities or
becomes aware of any claims, actions or investigations regarding the ADA, Tenant
shall give Landlord written notice, within 5 days after first learning thereof,
providing all available information and copies of any notices.

5. TERM. The Term of this lease shall commence on the Commencement Date and
----
shall end at 11:59 p.m. on the last day of the Term (the "EXPIRATION DATE"),
without the necessity for notice from either party, unless sooner terminated in
accordance with the terms hereof. At Landlord's request, Tenant shall confirm
the Commencement Date and Expiration Date by executing a lease commencement
certificate in the form attached as Exhibit "B".

6. MINIMUM ANNUAL RENT. Tenant agrees to pay to Landlord the Minimum Annual
-------------------
Rent in equal monthly installments in the amount set forth in Section 1(d) (as
increased at the beginning of each lease year as set forth in Section 1(d)), in
advance, on the first day of each calendar month during the Term, without
notice, demand or setoff, at Landlord's address designated at the beginning of

2
<PAGE>

this lease unless Landlord designates otherwise; provided that rent for the
first full month shall be paid at the signing of this lease. If the Commencement
Date falls on a day other than the first day of a calendar month, the rent shall
be apportioned pro rata on a per diem basis for the period from the Commencement
Date until the first day of the following calendar month and shall be paid on or
before the Commencement Date. As used in this lease, the term "LEASE YEAR" means
the period from the Commencement Date through the succeeding 12 full calendar
months (including for the first lease year any partial month from the
Commencement Date until the first day of the first full calendar month) and each
successive 12 month period thereafter during the Term.

7. OPERATION OF PROPERTY; PAYMENT OF EXPENSES.
------------------------------------------

(a) PAYMENT OF OPERATING EXPENSES. Tenant shall pay to Landlord the Annual
Operating Expenses in equal monthly installments in the amount set forth in
Section 1(d) (prorated for any partial month), from the Commencement Date and
continuing throughout the Term on the first day of each calendar month during
the Term, as additional rent, without notice, demand or setoff; provided that
the monthly installment for the first full month shall be paid at the signing of
this lease. Landlord shall apply such payments to the operating expenses owed to
Landlord by Tenant pursuant to the following Sections 7(b)-(f). The amount of
the Annual Operating Expenses set forth in Section 1(d) represents Tenant's
Proportionate Share of the estimated operating expenses during the first
calendar year of the Term on an annualized basis; from time to time Landlord may
adjust such estimated amount if the estimated operating expenses increase. By
April 30th of each year (and as soon as practical after the expiration or
termination of this lease or at any time in the event of a sale of the
Property), Landlord shall provide Tenant with a statement of the actual amount
of such expenses for the preceding calendar year or part thereof. Landlord or
Tenant shall pay to the other the amount of any deficiency or overpayment then
due from one to the other or, at Landlord's option, Landlord may credit Tenant's
account for any overpayment. Tenant's obligation to pay the Annual Operating
Expenses pursuant to this Section 7 shall survive the expiration or termination
of this lease.

(b) TAXES AND OTHER IMPOSITIONS. Tenant shall pay prior to delinquency all
levies, taxes (including sales taxes and gross receipt taxes), assessments,
liens, license and permit fees, which are applicable to the Term, and which are
imposed by any authority or under any law, ordinance or regulation thereof, or
pursuant to any recorded covenants or agreements, and the reasonable cost of
contesting any of the foregoing (the "IMPOSITIONS") upon or with respect to the
Premises, or any improvements thereto, or directly upon this lease or the Rent
(defined in Section 7(f)) or amounts payable by any subtenants or other
occupants of the Premises, or against Landlord because of Landlord's estate or
interest herein. Additionally, Tenant shall pay as aforesaid its Proportionate
Share of any Imposition which is not imposed upon the Premises as a separate
entity but which is imposed upon all or part of the Property or upon the leases
or rents relating to the Property.

(i) Nothing herein contained shall be interpreted as requiring Tenant to
pay any income, excess profits or corporate capital stock tax imposed or
assessed upon Landlord, unless such tax or any similar tax is levied or assessed
in lieu of all or any part of any Imposition or an increase in any Imposition.

(ii) If it shall not be lawful for Tenant to reimburse Landlord for any
of the Impositions, the Minimum Annual Rent shall be increased by the amount of
the portion of such Imposition allocable to Tenant, unless prohibited by law.

(i) PROPERTY. Landlord shall keep in effect, and Tenant shall pay to
Landlord its Proportionate Share of the cost of, insurance against loss or
damage to the Building or the Property by fire and such other casualties as may
be included within fire, extended coverage and special form insurance covering
the full replacement cost of the Building (but excluding coverage of Tenant's
personal property in, and any alterations by Tenant to, the Premises), and such
other insurance as Landlord may reasonably deem appropriate or as may be
required from time-to-time by any mortgagee.

(ii) LIABILITY. Tenant, at its own expense, shall keep in effect
comprehensive general public liability insurance with respect to the Premises
and the Property, including contractual liability insurance, with such limits of
liability for bodily injury (including death) and property damage as reasonably
may be required by Landlord from time-to-time, but not less than a combined
single limit of $1,000,000 per occurrence and a general aggregate limit of not
less than $3,000,000 (which aggregate limit shall apply separately to each of
Tenant's locations if more than the Premises); however, such limits shall not
limit the liability of Tenant hereunder. The policy of comprehensive general
public liability insurance also shall name Landlord and Landlord's agent as
insured parties with respect to the Premises, shall be written on an
"occurrence" basis and not on a "claims made" basis, shall provide that it is
primary with respect to any policies carried by Landlord and that any coverage
carried by Landlord shall be excess insurance, shall provide that it shall not
be cancelable or reduced without at least 30 days prior written notice to
Landlord and shall be issued in form satisfactory to Landlord. The insurer shall
be a responsible insurance carrier which is authorized to issue such insurance
and licensed to do business in the state in which the Property is located and
which has at all times during the Term a rating of no less than A VII in the
most current edition of Best's Insurance Reports. Tenant shall deliver to
Landlord on or before the

3
<PAGE>

Commencement Date, and subsequently renewals of, a certificate of insurance
evidencing such coverage and the waiver of subrogation described below.

(iii) WAIVER OF SUBROGATION. Landlord and Tenant shall have included in
their respective property insurance policies waivers of their respective
insurers' right of subrogation against the other party. If such a waiver should
be unobtainable or unenforceable, then such policies of insurance shall state
expressly that such policies shall not be invalidated if, before a casualty, the
insured waives the right of recovery against any party responsible for a
casualty covered by the policy.

(iv) INCREASE OF PREMIUMS. Tenant agrees not to do anything or fail to
do anything which will increase the cost of Landlord's insurance or which will
prevent Landlord from procuring policies (including public liability) from
companies and in a form satisfactory to Landlord. If any breach of the preceding
sentence by Tenant causes the rate of fire or other insurance to be increased,
Tenant shall pay the amount of such increase as additional rent promptly upon
being billed.

(d) REPAIRS AND MAINTENANCE; COMMON AREAS; BUILDING MANAGEMENT. Except as
specifically otherwise provided in this Section (d), Tenant at its sole expense
shall maintain the Premises in good order and condition, promptly make all
repairs necessary to maintain such condition, and repair any damage to the
Premises caused by Tenant or its Agents. All repairs made by Tenant shall
utilize materials and equipment which are comparable to those originally used in
constructing the Building and Premises. When used in this Section (d), the term
"REPAIRS" shall include replacements and renewals when necessary.

(i) Landlord, at its sole expense, shall make all necessary repairs to
the footings, foundations, structural steel columns and girders forming a part
of the Premises, provided that Landlord shall have no responsibility to make any
repair until Landlord receives written notice of the need for such repair.

(ii) Landlord, at Tenant's sole expense, shall maintain and repair the
HVAC systems appurtenant to the Premises.

(iii) Landlord shall make all necessary repairs to the roof, exterior
portions of the Premises and the Building, utility and communications lines,
equipment and facilities in the Building, which serve more than one tenant, and
to the Common Areas, the cost of which shall be an operating expense of which
Tenant shall pay its Proportionate Share, provided that Landlord shall have no
responsibility to make any repair until Landlord receives written notice of the
need for such repair. Landlord shall operate and manage the Property and shall
maintain all Common Areas and any paved areas appurtenant to the Property in a
clean and orderly condition. Landlord reserves the right to make alterations to
the Common Areas from time to time. Operating expenses also shall include (A)
all sums expended by Landlord for the supervision, maintenance, repair,
replacement and operation of the Common Areas (including the costs of utility
services), (B) any costs of building improvements made by Landlord to the
Property that are required by any governmental authority or for the purpose of
reducing operating expenses and (C) a management and administrative fee
applicable to the overall operation of the Property.

(iv) Notwithstanding anything herein to the contrary, repairs and
replacements to the Property including the Premises made necessary by Tenant's
use, occupancy or alteration of, or Tenant's installation in or upon the
Property or by any act or omission of Tenant or its Agents shall be made at the
sole expense of Tenant to the extent not covered by any applicable insurance
proceeds paid to Landlord. Tenant shall not bear the expense of any repairs or
replacements to the Property arising out of or caused by any other tenant's use,
occupancy or alteration of, or any other tenant's installation in or upon, the
Property or by any act or omission of any other tenant or any other tenant's
Agents.

(e) UTILITY CHARGES. Tenant shall pay for water, sewer, gas, electricity,
heat, power, telephone and other communication services and any other utilities
supplied to or consumed in or on the Premises. Landlord shall not be responsible
or liable for any interruption in utility service, nor shall such interruption
affect the continuation or validity of this lease.

(f) NET LEASE. Except for the obligations of Landlord expressly set forth
herein, this lease is a "triple net lease" and Landlord shall receive the
Minimum Annual Rent as net income from the Premises, not diminished by any
expenses other than payments under any mortgages, and Landlord is not and shall
not be required to render any services of any kind to Tenant. The term "RENT" as
used in this lease means the Minimum Annual Rent, Annual Operating Expenses and
any other additional rent or sums payable by Tenant to Landlord pursuant to this
lease, all of which shall be deemed rent for purposes of Landlord's rights and
remedies with respect thereto. Tenant shall pay all Rent to Landlord within 30
days after Tenant is billed, unless otherwise provided in this lease, and
interest shall accrue on all sums due but unpaid.

8. SIGNS. Except for signs which are located wholly within the interior of the
-----
Premises and not visible from the exterior of the Premises, no signs shall be
placed on the Property without the prior written consent of Landlord. All signs
installed by Tenant shall

4
<PAGE>

be maintained by Tenant in good condition and Tenant shall remove all such signs
at the termination of this lease and shall repair any damage caused by such
installation, existence or removal.

9. ALTERATIONS AND FIXTURES.
------------------------

(a) Subject to Section 10, Tenant shall have the right to install its trade
fixtures in the Premises, provided that no such installation or removal thereof
shall affect any structural portion of the Property nor any utility lines,
communications lines, equipment or facilities in the Building serving any tenant
other than Tenant. At the expiration or termination of this lease and at the
option of Landlord or Tenant, Tenant shall remove such installation(s) and, in
the event of such removal, Tenant shall repair any damage caused by such
installation or removal; if Tenant, with Landlord's written consent, elects not
to remove such installation(s) at the expiration or termination of this lease,
all such installations shall remain on the Property and become the property of
Landlord without payment by Landlord.

(b) Except for non-structural changes which do not exceed $5000 in the
aggregate, Tenant shall not make or permit to be made any alterations to the
Premises without Landlord's prior written consent. Tenant shall pay the costs
of any required architectural/engineering reviews. In making any alterations,
(i) Tenant shall deliver to Landlord the plans, specifications and necessary
permits, together with certificates evidencing that Tenant's contractors and
subcontractors have adequate insurance coverage naming Landlord and Landlord's
agent as additional insureds, at least 10 days prior to commencement thereof,
(ii) such alterations shall not impair the structural strength of the Building
or any other improvements or reduce the value of the Property or affect any
utility lines, communications lines, equipment or facilities in the Building
serving any tenant other than Tenant, (iii) Tenant shall comply with Section 10
and (iv) the occupants of the Building and of any adjoining property shall not
be disturbed thereby. All alterations to the Premises by Tenant shall be the
property of Tenant until the expiration or termination of this lease; at that
time all such alterations shall remain on the Property and become the property
of Landlord without payment by Landlord unless Landlord gives written notice to
Tenant to remove the same, in which event Tenant will remove such alterations
and repair any resulting damage. At Tenant's request prior to Tenant making any
alterations, Landlord shall notify Tenant in writing, whether Tenant is required
to remove such alterations at the expiration or termination of this lease.

10. MECHANICS' LIENS. Tenant shall pay promptly any contractors and
----------------
materialmen who supply labor, work or materials to Tenant at the Property and
shall take all steps permitted by law in order to avoid the imposition of any
mechanic's lien upon all or any portion of the Property. Should any such lien
or notice of lien be filed for work performed for Tenant other than by Landlord,
Tenant shall bond against or discharge the same within 5 days after Tenant has
notice that the lien or claim is filed regardless of the validity of such lien
or claim. Nothing in this lease is intended to authorize Tenant to do or cause
any work to be done or materials to be supplied for the account of Landlord, all
of the same to be solely for Tenant's account and at Tenant's risk and expense.
Throughout this lease the term "MECHANIC'S LIEN" is used to include any lien,
encumbrance or charge levied or imposed upon all or any portion of, interest in
or income from the Property on account of any mechanic's, laborer's,
materialman's or construction lien or arising out of any debt or liability to or
any claim of any contractor, mechanic, supplier, materialman or laborer and
shall include any mechanic's notice of intention to file a lien given to
Landlord or Tenant, any stop order given to Landlord or Tenant, any notice of
refusal to pay naming Landlord or Tenant and any injunctive or equitable action
brought by any person claiming to be entitled to any mechanic's lien.

11. LANDLORD'S RIGHT OF ENTRY. Tenant shall permit Landlord and its Agents
-------------------------
to enter the Premises at all reasonable times following reasonable notice
(except in the event of an emergency), for the purpose of inspection,
maintenance or making repairs, alterations or additions as well as to exhibit
the Premises for the purpose of sale or mortgage and, during the last 12 months
of the Term, to exhibit the Premises to any prospective tenant. Landlord will
make reasonable efforts not to inconvenience Tenant in exercising the foregoing
rights, but shall not be liable for any loss of occupation or quiet enjoyment
thereby occasioned.

12. DAMAGE BY FIRE OR OTHER CASUALTY.
--------------------------------

(a) If the Premises or Building shall be damaged or destroyed by fire or
other casualty, Tenant promptly shall notify Landlord and Landlord, subject to
the conditions set forth in this Section 12, shall repair such damage and
restore the Premises to substantially the same condition in which they were
immediately prior to such damage or destruction, but not including the repair,
restoration or replacement of the fixtures or alterations installed by Tenant.
Landlord shall notify Tenant in writing, within 30 days after the date of the
casualty, if Landlord anticipates that the restoration will take more than 180
days from the date of the casualty to complete; in such event, either Landlord
or Tenant may terminate this lease effective as of the date of casualty by
giving written notice to the other within 10 days after Landlord's notice.
Further, if a casualty occurs during the last 12 months of the Term or any
extension thereof, Landlord may cancel this lease unless Tenant has the right to
extend the Term for at least 3 more years and does so within 30 days after the
date of the casualty.

5
<PAGE>

(b) Landlord shall maintain a 12 month rental coverage endorsement or other
comparable form of coverage as part of its fire, extended coverage and special
form insurance. Tenant will receive an abatement of its Minimum Annual Rent and
Annual Operating Expenses to the extent the Premises are rendered untenantable
as determined by the carrier providing the rental coverage endorsement.

13. CONDEMNATION.
------------

(a) TERMINATION. If (i) all of the Premises are taken by a condemnation or
otherwise for any public or quasi-public use, (ii) any part of the Premises is
so taken and the remainder thereof is insufficient for the reasonable operation
of Tenant's business or (iii) any of the Property is so taken, and, in
Landlord's opinion, it would be impractical or the condemnation proceeds are
insufficient to restore the remainder of the Property, then this lease shall
terminate and all unaccrued obligations hereunder shall cease as of the day
before possession is taken by the condemnor.

(b) PARTIAL TAKING. If there is a condemnation and this lease has not been
terminated pursuant to this Section, (i) Landlord shall restore the Building and
the improvements which are a part of the Premises to a condition and size as
nearly comparable as reasonably possible to the condition and size thereof
immediately prior to the date upon which the condemnor took possession and (ii)
the obligations of Landlord and Tenant shall be unaffected by such condemnation
except that there shall be an equitable abatement of the Minimum Annual Rent
according to the rental value of the Premises before and after the date upon
which the condemnor took possession and/or the date Landlord completes such
restoration.

(c) AWARD. In the event of a condemnation affecting Tenant, Tenant shall have
the right to make a claim against the condemnor for moving expenses and business
dislocation damages to the extent that such claim does not reduce the sums
otherwise payable by the condemnor to Landlord. Except as aforesaid and except
as set forth in (d) below, Tenant hereby assigns all claims against the
condemnor to Landlord.

(d) TEMPORARY TAKING. No temporary taking of the Premises shall terminate
this lease or give Tenant any right to any rental abatement. Such a temporary
taking will be treated as if Tenant had sublet the Premises to the condemnor and
had assigned the proceeds of the subletting to Landlord to be applied on account
of Tenant's obligations hereunder. Any award for such a temporary taking during
the Term shall be applied first, to Landlord's costs of collection and, second,
on account of sums owing by Tenant hereunder, and if such amounts applied on
account of sums owing by Tenant hereunder should exceed the entire amount owing
by Tenant for the remainder of the Term, the excess will be paid to Tenant.

14. NON-ABATEMENT OF RENT. Except as otherwise expressly provided as to
---------------------
damage by fire or other casualty in Section 12(b) and as to condemnation in
Section 13(b), there shall be no abatement or reduction of the Rent for any
cause whatsoever, and this lease shall not terminate, and Tenant shall not be
entitled to surrender the Premises.

15. INDEMNIFICATION OF LANDLORD. Subject to Sections 7(c)(iii) and 16,
---------------------------
Tenant will protect, indemnify and hold harmless Landlord and its Agents from
and against any and all claims, actions, damages, liability and expense
(including fees of attorneys, investigators and experts) in connection with loss
of life, personal injury or damage to property in or about the Premises or
arising out of the occupancy or use of the Premises by Tenant or its Agents or
occasioned wholly or in part by any act or omission of Tenant or its Agents,
whether prior to, during or after the Term, except to the extent such loss,
injury or damage was caused by the negligence of Landlord or its Agents. In
case any action or proceeding is brought against Landlord and/or its Agents by
reason of the foregoing, Tenant, at its expense, shall resist and defend such
action or proceeding, or cause the same to be resisted and defended by counsel
(reasonably acceptable to Landlord and its Agents) designated by the insurer
whose policy covers such occurrence or by counsel designated by Tenant and
approved by Landlord and its Agents. Tenant's obligations pursuant to this
Section 15 shall survive the expiration or termination of this lease.

16. WAIVER OF CLAIMS. Landlord and Tenant each hereby waives all claims for
----------------
recovery against the other for any loss or damage which may be inflicted upon
the property of such party even if such loss or damage shall be brought about by
the fault or negligence of the other party or its Agents; provided, however,
that such waiver by Landlord shall not be effective with respect to any
liability of Tenant described in Sections 4(c) and 7(d)(iv).

17. QUIET ENJOYMENT. Landlord covenants that Tenant, upon performing all of
---------------
its covenants, agreements and conditions of this lease, shall have quiet and
peaceful possession of the Premises as against anyone claiming by or through
Landlord, subject, however, to the exceptions, reservations and conditions of
this lease.

6
<PAGE>

18. ASSIGNMENT AND SUBLETTING.
-------------------------

(a) LIMITATION. Tenant shall not transfer this lease, voluntarily or by
operation of law, without the prior written consent of Landlord which shall not
be withheld unreasonably. However, Landlord's consent shall not be required in
the event of any transfer by Tenant to an affiliate of Tenant which is at least
as creditworthy as Tenant as of the date of this lease and provided Tenant
delivers to Landlord the instrument described in Section (c)(iii) below,
together with a certification of such creditworthiness by Tenant and such
affiliate. Any transfer not in conformity with this Section 18 shall be void at
the option of Landlord, and Landlord may exercise any or all of its rights under
Section 23. A consent to one transfer shall not be deemed to be a consent to
any subsequent transfer. "Transfer" shall include any sublease, assignment,
license or concession agreement, change in ownership or control of Tenant,
mortgage or hypothecation of this lease or Tenant's interest therein or in all
or a portion of the Premises.

(b) OFFER TO LANDLORD. Tenant acknowledges that the terms of this lease,
including the Minimum Annual Rent, have been based on the understanding that
Tenant physically shall occupy the Premises for the entire Term. Therefore, upon
Tenant's request to transfer all or a portion of the Premises, at the option of
Landlord, Tenant and Landlord shall execute an amendment to this lease removing
such space from the Premises, Tenant shall be relieved of any liability with
respect to such space and Landlord shall have the right to lease such space to
any party, including Tenant's proposed transferee.

(c) CONDITIONS. Notwithstanding the above, the following shall apply to any
transfer, with or without Landlord's consent:

(i) As of the date of any transfer, Tenant shall not be in default under
this lease nor shall any act or omission have occurred which would constitute a
default with the giving of notice and/or the passage of time.

(ii) No transfer shall relieve Tenant of its obligation to pay the Rent
and to perform all its other obligations hereunder. The acceptance of Rent by
Landlord from any person shall not be deemed to be a waiver by Landlord of any
provision of this lease or to be a consent to any transfer.

(iii) Each transfer shall be by a written instrument in form and
substance satisfactory to Landlord which shall (A) include an assumption of
liability by any transferee of all Tenant's obligations and the transferee's
ratification of and agreement to be bound by all the provisions of this lease,
(B) afford Landlord the right of direct action against the transferee pursuant
to the same remedies as are available to Landlord against Tenant and (C) be
executed by Tenant and the transferee.

(iv) Tenant shall pay, within 10 days of receipt of an invoice which
shall be no less than $250, Landlord's reasonable attorneys' fees and costs in
connection with the review, processing and documentation of any transfer for
which Landlord's consent is requested.

19. SUBORDINATION; MORTGAGEE'S RIGHTS.
----------------------------------

(a) This lease shall be subordinate to any first mortgage or other primary
encumbrance now or hereafter affecting the Premises. Although the subordination
is self-operative, within 10 days after written request, Tenant shall execute
and deliver any further instruments confirming such subordination of this lease
and any further instruments of attornment that may be desired by any such
mortgagee or Landlord. However, any mortgagee may at any time subordinate its
mortgage to this lease, without Tenant's consent, by giving written notice to
Tenant, and thereupon this lease shall be deemed prior to such mortgage without
regard to their respective dates of execution and delivery; provided, however,
that such subordination shall not affect any mortgagee's right to condemnation
awards, casualty insurance proceeds, intervening liens or any right which shall
arise between the recording of such mortgage and the execution of this lease.

(b) It is understood and agreed that any mortgagee shall not be liable to
Tenant for any funds paid by Tenant to Landlord unless such funds actually have
been transferred to such mortgagee by Landlord.

(c) Notwithstanding the provisions of Sections 12 and 13 above, Landlord's
obligation to restore the Premises after a casualty or condemnation shall be
subject to the consent and prior rights of Landlord's first mortgagee.

20. RECORDING; TENANT'S CERTIFICATE. Tenant shall not record this lease or a
-------------------------------
memorandum thereof without Landlord's prior written consent. Within 10 days
after Landlord's written request from time to time:

(a) Tenant shall execute, acknowledge and deliver to Landlord a written
statement certifying the Commencement Date and Expiration Date of this lease,
that this lease is in full force and effect and has not been modified and
otherwise as set forth in the

7
<PAGE>

form of estoppel certificate attached as Exhibit "D" or with such modifications
as may be necessary to reflect accurately the stated facts and/or such other
certifications as may be requested by a mortgagee or purchaser. Tenant
understands that its failure to execute such documents may cause Landlord
serious financial damage by causing the failure of a financing or sale
transaction.

(b) Tenant shall furnish to Landlord, Landlord's mortgagee, prospective
mortgagee or purchaser reasonably requested financial information.

21. SURRENDER; ABANDONED PROPERTY.
-----------------------------

(a) Subject to the terms of Sections 9(b), 12(a) and 13(b), at the expiration
or termination of this lease, Tenant promptly shall yield up in the same
condition, order and repair in which they are required to be kept throughout the
Term, the Premises and all improvements thereto, and all fixtures and equipment
servicing the Building, ordinary wear and tear excepted.

(b) Upon or prior to the expiration or termination of this lease, Tenant
shall remove any personal property from the Property. Any personal property
remaining thereafter shall be deemed conclusively to have been abandoned, and
Landlord, at Tenant's expense, may remove, store, sell or otherwise dispose of
such property in such manner as Landlord may see fit and/or Landlord may retain
such property as its property. If any part thereof shall be sold, then Landlord
may receive and retain the proceeds of such sale and apply the same, at its
option, against the expenses of the sale, the cost of moving and storage and any
Rent due under this lease.

(c) If Tenant, or any person claiming through Tenant, shall continue to
occupy the Premises after the expiration or termination of this lease or any
renewal thereof, such occupancy shall be deemed to be under a month-to-month
tenancy under the same terms and conditions set forth in this lease, except that
the monthly installment of the Minimum Annual Rent during such continued
occupancy shall be double the amount applicable to the last month of the Term.
Anything to the contrary notwithstanding, any holding over by Tenant without
Landlord's prior written consent shall constitute a default hereunder and shall
be subject to all the remedies available to Landlord.

22. CURING TENANT'S DEFAULTS. If Tenant shall be in default in the
------------------------
performance of any of its obligations hereunder, Landlord, without any
obligation to do so, in addition to any other rights it may have in law or
equity, may elect to cure such default on behalf of Tenant after written notice
(except in the case of emergency) to Tenant. Tenant shall reimburse Landlord
upon demand for any sums paid or costs incurred by Landlord in curing such
default, including interest thereon from the respective dates of Landlord's
incurring such costs, which sums and costs together with interest shall be
deemed additional rent.

23. DEFAULTS - REMEDIES.
-------------------

(a) Defaults. It shall be an event of default:

(i) If Tenant does not pay in full when due any and all Rent;

(ii) If Tenant fails to observe and perform or otherwise breaches
any other provision of this lease;

(iii) If Tenant abandons the Premises, which shall be conclusively
presumed if the Premises remain unoccupied for more than 10 consecutive days, or
removes or attempts to remove Tenant's goods or property other than in the
ordinary course of business; or

(iv) If Tenant becomes insolvent or bankrupt in any sense or makes a
general assignment for the benefit of creditors or offers a settlement to
creditors, or if a petition in bankruptcy or for reorganization or for an
arrangement with creditors under any federal or state law is filed by or against
Tenant, or a bill in equity or other proceeding for the appointment of a
receiver for any of Tenant's assets is commenced, or if any of the real or
personal property of Tenant shall be levied upon; provided, however, that any
proceeding brought by anyone other than Landlord or Tenant under any bankruptcy,
insolvency, receivership or similar law shall not constitute a default until
such proceeding has continued unstayed for more than 60 consecutive days.

(b) REMEDIES. Then, and in any such event, Landlord shall have the following
rights:

(i) To charge a late payment fee equal to the greater of $100 or 5% of
any amount owed to Landlord pursuant to this lease which is not paid within 5
days after the due date.

(II) To enter and repossess the Premises, by breaking open locked doors
if necessary, and remove all persons and all or any property therefrom, by
action at law or otherwise, without being liable for prosecution or damages
therefor, and Landlord may,

8
<PAGE>

at Landlord's option, make alterations and repairs in order to relet the
Premises and relet all or any part(s) of the Premises for Tenant's account.
Tenant agrees to pay to Landlord on demand any deficiency that may arise by
reason of such reletting. In the event of reletting without termination of this
lease, Landlord may at any time thereafter elect to terminate this lease for
such previous breach.

(iii) To accelerate the whole or any part of the Rent for the balance of
the Term, and declare the same to be immediately due and payable.

(iv) To terminate this lease and the Term without any right on the part
of Tenant to save the forfeiture by payment of any sum due or by other
performance of any condition, term or covenant broken.

(c) GRACE PERIOD. Notwithstanding anything hereinabove stated, neither party
will exercise any available right because of any default of the other, except
those remedies contained in subsection (b)(i) of this Section, unless such party
shall have first given 10 days written notice thereof to the defaulting party,
and the defaulting party shall have failed to cure the default within such
period; provided, however, that:

(i) No such notice shall be required if Tenant fails to comply with the
provisions of Sections 10 or 20(a), in the case of emergency as set forth in
Section 22 or in the event of any default enumerated in subsections (a)(iii) and
(iv) of this Section.

(ii) Landlord shall not be required to give such 10 days notice more than
2 times during any 12 month period.

(iii) If the default consists of something other than the failure to pay
money which cannot reasonably be cured within 10 days, neither party will
exercise any right if the defaulting party begins to cure the default within the
10 days and continues actively and diligently in good faith to completely cure
said default.

(IV) Tenant agrees that any notice given by Landlord pursuant to this
Section which is served in compliance with Section 27 shall be adequate notice
for the purpose of Landlord's exercise of any available remedies.

(d) NON-WAIVER; NON-EXCLUSIVE. No waiver by Landlord of any breach by Tenant
shall be a waiver of any subsequent breach, nor shall any forbearance by
Landlord to seek a remedy for any breach by Tenant be a waiver by Landlord of
any rights and remedies with respect to such or any subsequent breach. Efforts
by Landlord to mitigate the damages caused by Tenant's default shall not
constitute a waiver of Landlord's right to recover damages hereunder. No right
or remedy herein conferred upon or reserved to Landlord is intended to be
exclusive of any other right or remedy provided herein or by law, but each shall
be cumulative and in addition to every other right or remedy given herein or now
or hereafter existing at law or in equity. No payment by Tenant or receipt or
acceptance by Landlord of a lesser amount than the total amount due Landlord
under this lease shall be deemed to be other than on account, nor shall any
endorsement or statement on any check or payment be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of Rent due, or Landlord's right to
pursue any other available remedy.

(e) COSTS AND ATTORNEYS' FEES. If either party commences an action against
the other party arising out of or in connection with this lease, the prevailing
party shall be entitled to have and recover from the losing party attorneys'
fees, costs of suit, investigation expenses and discovery costs, including costs
of appeal.

24. REPRESENTATIONS OF TENANT. Tenant represents to Landlord and agrees that:
-------------------------

(a) The word "TENANT" as used herein includes the Tenant named above as well
as its successors and assigns, each of which shall be under the same obligations
and liabilities and each of which shall have the same rights, privileges and
powers as it would have possessed had it originally signed this lease as Tenant.
Each and every of the persons named above as Tenant shall be bound jointly and
severally by the terms, covenants and agreements contained herein. However, no
such rights, privileges or powers shall inure to the benefit of any assignee of
Tenant immediate or remote, unless Tenant has complied with the terms of Section
18 and the assignment to such assignee is permitted or has been approved in
writing by Landlord. Any notice required or permitted by the terms of this lease
may be given by or to any one of the persons named above as Tenant, and shall
have the same force and effect as if given by or to all thereof.

(b) If Tenant is a corporation, partnership or any other form of business
association or entity, Tenant is duly formed and in good standing, and has full
corporate or partnership power and authority, as the case may be, to enter into
this lease and has taken all corporate or partnership action, as the case may
be, necessary to carry out the transaction contemplated herein, so that when
executed, this lease constitutes a valid and binding obligation enforceable in
accordance with its terms. Tenant shall provide

9
<PAGE>

Landlord with corporate resolutions or other proof in a form acceptable to
Landlord, authorizing the execution of this lease at the time of such execution.

25. LIABILITY OF LANDLORD. The word "LANDLORD" as used herein includes the
---------------------
Landlord named above as well as its successors and assigns, each of which shall
have the same rights, remedies, powers, authorities and privileges as it would
have had it originally signed this lease as Landlord. Any such person or
entity, whether or not named herein, shall have no liability hereunder after it
ceases to hold title to the Premises except for obligations already accrued
(and, as to any unapplied portion of Tenant's Security Deposit, Landlord shall
be relieved of all liability therefor upon transfer of such portion to its
successor in interest) and Tenant shall look solely to Landlord's successor in
interest for the performance of the covenants and obligations of the Landlord
hereunder which thereafter shall accrue. Neither Landlord nor any principal of
Landlord nor any owner of the Property, whether disclosed or undisclosed, shall
have any personal liability with respect to any of the provisions of this lease
or the Premises, and if Landlord is in breach or default with respect to
Landlord's obligations under this lease or otherwise, Tenant shall look solely
to the equity of Landlord in the Property for the satisfaction of Tenant's
claims. Notwithstanding the foregoing, no mortgagee or ground lessor succeeding
to the interest of Landlord hereunder (either in terms of ownership or
possessory rights) shall be (a) liable for any previous act or omission of a
prior landlord, (b) subject to any rental offsets or defenses against a prior
landlord or (c) bound by any amendment of this lease made without its written
consent, or by payment by Tenant of Minimum Annual Rent in advance in excess of
one monthly installment.

26. INTERPRETATION; DEFINITIONS.
---------------------------

(a) CAPTIONS. The captions in this lease are for convenience only and are not
a part of this lease and do not in any way define, limit, describe or amplify
the terms and provisions of this lease or the scope or intent thereof.

(b) ENTIRE AGREEMENT. This lease represents the entire agreement between the
parties hereto and there are no collateral or oral agreements or understandings
between Landlord and Tenant with respect to the Premises or the Property. No
rights, easements or licenses are acquired in the Property or any land adjacent
to the Property by Tenant by implication or otherwise except as expressly set
forth in the provisions of this lease. This lease shall not be modified in any
manner except by an instrument in writing executed by the parties. The masculine
(or neuter) pronoun and the singular number shall include the masculine,
feminine and neuter genders and the singular and plural number. The word
"INCLUDING" followed by any specific item(s) is deemed to refer to examples
rather than to be words of limitation. Both parties having participated fully
and equally in the negotiation and preparation of this lease, this lease shall
not be more strictly construed, nor any ambiguities in this lease resolved,
against either Landlord or Tenant.

(c) COVENANTS. Each covenant, agreement, obligation, term, condition or other
provision herein contained shall be deemed and construed as a separate and
independent covenant of the party bound by, undertaking or making the same, not
dependent on any other provision of this lease unless otherwise expressly
provided. All of the terms and conditions set forth in this lease shall apply
throughout the Term unless otherwise expressly set forth herein.

(d) INTEREST. Wherever interest is required to be paid hereunder, such
interest shall be at the highest rate permitted under law but not in excess of
15% per annum.

(e) SEVERABILITY; GOVERNING LAW. If any provisions of this lease shall be
declared unenforceable in any respect, such unenforceability shall not affect
any other provision of this lease, and each such provision shall be deemed to be
modified, if possible, in such a manner as to render it enforceable and to
preserve to the extent possible the intent of the parties as set forth herein.
This lease shall be construed and enforced in accordance with the laws of the
state in which the Property is located.

(f) "MORTGAGE" AND "MORTGAGEE." The word "MORTGAGE" as used herein includes
any lien or encumbrance on the Premises or the Property or on any part of or
interest in or appurtenance to any of the foregoing, including without
limitation any ground rent or ground lease if Landlord's interest is or becomes
a leasehold estate. The word "MORTGAGEE" as used herein includes the holder of
any mortgage, including any ground lessor if Landlord's interest is or becomes a
leasehold estate. Wherever any right is given to a mortgagee, that right may be
exercised on behalf of such mortgagee by any representative or servicing agent
of such mortgagee.

(g) "PERSON." The word "person" is used herein to include a natural person, a
partnership, a corporation, an association and any other form of business
association or entity.

(h) PROPORTIONATE SHARE. At any time or times, upon request of Landlord or of
any tenant of the Building, the method for allocating Tenant's Proportionate
Share of any Impositions, cost, charge, rent, expense or payment then or
thereafter payable shall be redetermined by an independent qualified expert. The
cost of such redetermination shall be borne by the tenants of the Building in

10
<PAGE>

the same proportion as that determined by such expert for reallocation of said
relevant sum; except that if such redetermination is requested by a tenant, the
cost thereof shall be borne entirely by such tenant if the proportionate share
of said relevant sum allocable to such tenant as the result of such
redetermination shall not vary by at least 5% from the amount which would have
been allocable to such tenant in accordance with the percentage based on square
foot area.

27. NOTICES. Any notice or other communication under this lease shall be in
-------
writing and addressed to Landlord or Tenant at their respective addresses
specified at the beginning of this lease, except that after the Commencement
Date Tenant's address shall be at the Premises, (or to such other address as
either may designate by notice to the other) with a copy to any mortgagee or
other party designated by Landlord. Each notice or other communication shall be
deemed given if sent by prepaid overnight delivery service or by certified mail,
return receipt requested, postage prepaid or in any other manner, with delivery
in any case evidenced by a receipt, and shall be deemed received on the day of
actual receipt by the intended recipient or on the business day delivery is
refused. The giving of notice by Landlord's attorneys, representatives and
agents under this Section shall be deemed to be the acts of Landlord; however,
the foregoing provisions governing the date on which a notice is deemed to have
been received shall mean and refer to the date on which a party to this lease,
and not its counsel or other recipient to which a copy of the notice may be
sent, is deemed to have received the notice.

28. SECURITY DEPOSIT. At the time of signing this lease, Tenant shall deposit
----------------
with Landlord the Security Deposit to be retained by Landlord as cash security
for the faithful performance and observance by Tenant of the provisions of this
lease. Tenant shall not be entitled to any interest whatever on the Security
Deposit. Landlord shall have the right to commingle the Security Deposit with
its other funds. Landlord may use the whole or any part of the Security Deposit
for the payment of any amount as to which Tenant is in default hereunder or to
compensate Landlord for any loss or damage it may suffer by reason of Tenant's
default under this lease. If Landlord uses all or any portion of the Security
Deposit as herein provided, within 10 days after written demand therefor, Tenant
shall pay Landlord cash in amount equal to that portion of the Security Deposit
used by Landlord. If Tenant shall comply fully and faithfully with all of the
provisions of this lease, the Security Deposit shall be returned to Tenant after
the Expiration Date and surrender of the Premises to Landlord.

IN WITNESS WHEREOF, and in consideration of the mutual entry into this lease
and for other good and valuable consideration, and intending to be legally
bound, Landlord and Tenant have executed this lease.

Date signed: LANDLORD:

LIBERTY PROPERTY LIMITED PARTNERSHIP
________________________
By: Liberty Property Trust, Sole General Partner

By: _______________________________________
Name: James J. Mazzarelli
Title: Senior Vice President

Date signed: TENANT:

________________________ __________________________________________

Attest:

________________________ By:_________________________________________
Name: Name: Allen M. Barnett
Title: Title: President

11
<PAGE>

RIDER
-----

(Section numbers used herein refer to Section numbers used in the Lease
Agreement. In the event of any inconsistency between the terms of the Lease
Agreement and the terms of this Rider, the terms of this Rider shall control)

1.(c)(iii) Insert a new Section 1.(c)(iii) as follows:

"`Possession Date': The date of this lease."

3. On the first (1st) line, delete "knows the" and substitute therefor "is
familiar with the observable".

7.(a) At the end of this Section, add:

"Operating Expenses shall not include the following:

(i) Landlord's home office expense;

(ii) Leasing commissions;

(iii) Specific costs billed to and paid by specific tenants
or other third parties;

(iv) Depreciation;

(v) Principal, interest, and other costs directly related to
financing the Property;

(vi) The cost of any repairs or general maintenance to the
extent of the proceeds of insurance paid to Landlord;

(vii) The wages and salaries of any employee of Landlord
above the level of building manager and not involved in the day-to-day operation
and maintenance of the Building and the Property;

(viii) fit-up work performed and paid for by other tenants;

(ix) interest on debt or amortization or other payment on
any mortgage or rental under any ground lease or other underlying lease;
R-1
<PAGE>

(x) materials and services in substantial and material
amounts or to a substantial or material degree provided to other Building
tenants other than those which are also provided to Tenant without additional
charge;

(xi) cost of electricity furnished to areas not included in
Common Areas of the Property and paid for by other tenants;

(xii) rent credits;

(xiii) advertising expenditures;

(xiv) costs incurred by Landlord for curing intentional
violations of law by Landlord;

(xv) brokerage, accounting, legal, architectural,
engineering and other costs incurred in leasing or procuring tenants;

(xvi) costs of curing defects in the original design or
construction of the Building;

(xvii) costs of sale of the Property or any part thereof;

(xviii) any costs for which Landlord is otherwise entitled
to and receives reimbursement;

(xix) any interest and penalties incurred by Landlord by
reason of late payments, to the extent such payments are made late on an
intentional basis by Landlord; and

(xx) fees or charges paid to any party affiliated with
Landlord on account of the provision by such entity of goods or services
constituting Operating Expenses of the Building to the extent such fees or
charges exceed the fees or charges that would have been incurred to an
independent entity in an arms' length transaction."

7.(b)(i) On the first (1st) line after "income", add "corporation
business, estate, succession, inheritance, corporate franchise, real estate
transfer, mortgage, recording,".

7.(e) Landlord reserves the right to require Tenant to install, at
Tenant's sole cost and expense, a submeter to measure Tenant's water consumption
and to pay to Landlord all amounts for water usage indicated on such submeter.

R-2
<PAGE>

8. At the end of this Section, add:
--------------------------------

"Landlord shall provide, at its sole cost and expense, Building
standard tenant identification signs at the front and rear entrances to the
Premises and on the Building directory sign."

9.(b) On the first (1st) line after "aggregate", add "and the
alterations provided for in Exhibit `E'."

On the second (2nd) line after "consent", add "which
consent shall not be unreasonably withheld or denied".

12. On the fifth (5th) line, change "180" to "120".

13.(c) On the second (2nd) line after "expenses", add"..., trade
fixtures".

15. On the first (1st) line, delete "of Landlord" in the
caption and insert "(a)" prior to "Subject."

Add subsection (b) as follows:

"(b) Subject to Section 7(c)(iii), Landlord will protect,
indemnify, and hold harmless Tenant and its Agents from and against any and all
claims, actions, damages, liability and expense (including fees of attorneys,
investigators and experts) in connection with loss of life, personal injury or
damage to property in or about the Property (other than the Premises) which is
occasioned wholly or in part by any act or omission of Landlord or its Agents,
whether prior to, during or after the Term, except to the extent such loss,
injury or damage was caused by the negligence of Tenant or its Agents. In case
any action or proceeding is brought against Tenant and/or its Agents by reason
of the foregoing, Landlord, at its expense, shall resist and defend such action
or proceeding, or cause the same to be resisted and defended by counsel
(reasonably acceptable to Tenant and its Agents) designated by the insurer
whose policy covers such occurrence or by counsel designated by Landlord and
approved by Tenant and its Agents. Landlord's obligations pursuant to this
Section 15 shall survive the expiration or termination of this lease."

16. At the beginning of this Section, add "To the extent of insurance
proceeds actually collected under insurance policies required to be or
maintained by the parties hereunder,".

18. On the second (2nd) line after "withheld", add "or denied".

R-3
<PAGE>

19.(a) Add at the end of this Section:

"Notwithstanding the foregoing, the subordination provisions of this
-------------------------------------------------------------------
Section 19(a) are subject to the express condition that so long as Tenant is not
- --------------------------------------------------------------------------------
in default in its obligations hereunder, (a) Tenant's possession shall not be
- --------------------------------------------------------------------------------
disturbed by any such mortgagee, and (b) this Lease shall not be cancelled by
- --------------------------------------------------------------------------------
any such mortgagee and shall continue in full force and effect upon such
- --------------------------------------------------------------------------------
foreclosure or recovery of possession as a direct lease between Tenant and the
- --------------------------------------------------------------------------------
party acquiring the interest of Landlord, upon all of the terms, conditions and
- --------------------------------------------------------------------------------
agreements set forth in this lease."
- ------------------------------------

25. On the fifth (5th) line after "successor in interest", add "and
assumption in writing by such successor of the obligations of Landlord
hereunder", and after "Tenant shall", add "then".

29. Completion by Tenant. The Premises shall be completed by
---------------------
Tenant and its contractor(s), at Tenant's sole expense, in accordance with plans
(the "Plans") to be attached hereto, which shall be prepared based upon the
plans or the description of the improvements and the specifications (the
"Specifications") attached hereto as Exhibit "E". Landlord hereby consents to
the alterations Tenant intends to make to the Premises in accordance with
Exhibit "E", provided that Tenant complies with Sections 9 and 10 of this lease
and subject to the following conditions:

(a) Promptly after the date hereof, Landlord shall cause its
architect (the "Architect") to prepare the Plans which shall be in sufficient
detail to obtain building permits for construction of the improvements. Landlord
shall pay up to $15,000 for the preparation of the Plans and any other plans or
specifications required by Tenant to complete the improvements, any excess to be
paid by Tenant to the Architect within 30 days after receipt of invoice.

(b) Prior to commencement of construction, Tenant shall
deliver to Landlord a certificate of insurance for each of Tenant's contractors
evidencing adequate insurance coverage and naming Liberty Property Limited
Partnership and Liberty Property Trust, Landlord's agent, as additional
insureds.

(c) Prior to commencement of construction, Tenant shall
deliver to Landlord a copy of the building permit for construction of the
improvements.

(d) In addition to the right of Landlord and its Agents to
inspect the Premises set forth in Section 11 of this

R-4
<PAGE>

lease, Landlord and its Agents shall have the right to conduct a walk-through
inspection of the Premises as completed by Tenant.

(e) The warranties from Tenant's contractor(s) shall be for
the benefit of Landlord as well as Tenant and Tenant shall deliver such
warranties to Landlord upon receipt. Receipt of such warranties shall be a
condition precedent to Landlord's payment obligation set forth in subsection
(g)(ii).

(f) All construction shall be done in a good and workmanlike
manner and shall comply at the time of completion with all Laws and
Requirements. Tenant shall deliver to Landlord copies of all certificates of
occupancy, permits, inspection reports, approvals and licenses required to be
issued by any governmental or quasi-governmental authority in connection with
Tenant's construction, all of which shall be obtained at Tenant's sole cost and
expense. It is expressly understood that exterior pads and tanks are subject to
the approval of the Pencader Owners' Association Architectural Review Committee,
which approval Landlord will endeavor to obtain on Tenant's behalf.

(g) The parties further agree as follows:

(i) On the Possession Date, Landlord shall deliver the
Premises to Tenant in its "as is" "where is" condition.

(ii) Upon substantial completion of the improvements and
occupancy by Tenant, Landlord shall pay to Tenant a construction allowance in
the amount of $400,000 to be used solely to pay for costs of construction of the
improvements shown on the Plans and for no other purpose, subject to Landlord's
prior receipt of the Letter of Credit (as hereinafter defined) and subject
further, at Landlord's election, to inspection by Landlord or its representative
to confirm completion of the work, as set forth in subparagraph (d) above.
Except as set forth in this subsection and in subsection 29(a), Landlord shall
have no further obligation whatsoever to pay for any costs incurred in
connection with such improvements.

(iii) During the period between the Possession Date and
the Commencement Date, Tenant shall have the right to perform improvements to
the Premises and, upon substantial completion thereof to occupy the Premises,
and Tenant shall abide by the terms and conditions of this lease as if the Term
of this lease had already commenced, except that Tenant shall have no obligation
to pay the minimum annual rent or Tenant's Proportionate Share of those
Operating Expenses set forth in Sections 7(b), (c) and (d), it being understood
that Tenant
R-5
<PAGE>

shall, during such period, be responsible for payment of its Proportionate Share
of site lighting and water and sewer, as well as all electric and gas consumed
on the Premises.

30. Letter of Credit. On or before 30 days prior to the anticipated date of
----------------
substantial completion of the improvements to be performed pursuant to Section
29, Tenant shall deliver to Landlord, as security for the performance of
Tenant's obligations under the lease, an unconditional, irrevocable letter of
credit in the amount of $200,000 (the "Letter of Credit") issued to Landlord by
a reputable commercial bank reasonably acceptable to Landlord having offices in
the Philadelphia or Wilmington area, which Letter of Credit shall be in
substantially the form attached hereto as Exhibit "F." The Letter of Credit
shall have a term of not less than 1 year from the Commencement Date and Tenant
shall cause renewals of such Letter of Credit for not less than 1 year periods
to be delivered to Landlord at least 30 days prior to the original or any
extended expiration date of the Letter of Credit. In the event Landlord has not
received any renewal of the Letter of Credit within 15 days prior to the then
expiration date thereof, Landlord shall have the right to present the Letter of
Credit for payment and to hold the proceeds in cash pursuant to the terms of
Section 28 of the lease. At any time that Landlord has the right to exercise its
rights and remedies based upon an event of default by Tenant under the lease,
Landlord may, in addition to all of its other rights and remedies provided for
in the lease, present the Letter of Credit for payment and apply the proceeds
thereof (or cash held by Landlord in lieu thereof as above set forth) on account
of sums due to Landlord under the lease. In the event Tenant shall fully and
faithfully comply with all of the covenants, agreements and conditions of the
lease, Landlord shall return the Letter of Credit, undrawn (or the proceeds
thereof if the Letter of Credit was previously presented for payment), to Tenant
as herein set forth.

Provided Tenant is not then and has not been in default under the lease,
the amount of the Letter of Credit shall be reduced to the following amounts at
the indicated times:

Upon payment of the monthly installment of Rent due for the 37th full
month after the Commencement Date - $157,891.00.

Upon payment of the monthly installment of Rent due for the 49th full
month after the Commencement Date - $141,487.00.

Upon payment of the monthly installment of Rent due for the 61st full
month after the Commencement Date - $123,367.00.
R-6
<PAGE>

Upon payment of the monthly installment of Rent due for the 73rd full
month after the Commencement Date - $103,348.00.

Upon payment of the monthly installment of Rent due of the 85th full
month after the Commencement Date - $81,234.00.

Upon payment of the monthly installment of Rent due for the 97th full
month after the Commencement Letter, the Letter of Credit shall no longer be
required and shall be returned to Tenant.

31. Brokers. The parties agree that they have dealt with no
-------
brokers in connection with this lease, except for McConnell Real Estate whose
-----------
commission shall be paid by Landlord pursuant to separate agreement. Each party
agrees to indemnify and hold the other harmless from any and all claims for
commissions or fees in connection with the Premises and this lease from any
other real estate brokers or agents with whom they may have dealt. The parties
acknowledge that approximately 1 year ago Tenant contacted Landlord through
Deaton McCue Commercial Real Estate ("Deaton McCue") with respect to property
owned by Landlord in Delaware. In the event Deaton McCue makes a claim for a
--
commission in connection with this lease, Tenant shall indemnify, defend and
hold Landlord harmless from any liabilities or expenses (including reasonable
attorneys' fees) incurred by Landlord in connection with such claim.

32. Option to Renew.
---------------

(a) Provided Tenant is not then in default hereunder, Tenant shall have
the right and option, exercisable by giving Landlord prior written notice
thereof more than 10 months in advance of the Expiration Date of the original
term or the first additional term, as the case may be, to extend the term of
this lease under the same terms and conditions (except for minimum annual rent
and this option to renew) as herein set forth for 2 additional terms of 5 years,
the additional terms to begin on the Expiration Date of the original term or the
first additional term, as the case may be.

(b) The minimum annual rent for the additional term shall be equal to
the fair market rental value of the Premises. If Landlord and Tenant cannot
agree as to the fair market rental value within 30 days after receipt of
Tenant's notice to Landlord under subsection 32(a), this Section 32 shall be of
no further force or effect and Landlord shall have the right to market the
Premises to third parties.
R-7
<PAGE>

33. Additional Contiguous Space. If and when either of the spaces
---------------------------
which are contiguous to the Premises and shown as "Additional Space" on Exhibit
"A" (individually, the "Additional Space") first becomes available for rental
during the term or any additional term of this lease and provided that Landlord
has not given Tenant notice of default more than 2 times during the immediately
preceding 12 months, that there then exists no event of default by Tenant under
this lease nor any event that with the giving of notice and/or the passage of
time would constitute a default, and that Tenant is the sole occupant of the
Premises, Tenant shall have the right of first offer to lease all of the
Additional Space, subject to the following:

(a) Landlord shall notify Tenant when the Additional Space first
becomes available for rental by any party other than the tenant then in
occupancy of the Additional Space and Tenant shall have 7 days following receipt
of such notice within which to notify Landlord in writing that Tenant is
interested in negotiating terms for leasing such Additional Space and to have
its offer considered by Landlord prior to the leasing by Landlord of the
Additional Space to a third party. If Tenant notifies Landlord within such time
period that Tenant is so interested, then Landlord and Tenant shall have 30 days
following Landlord's receipt of such notice from Tenant within which to
negotiate mutually satisfactory terms for the leasing of the Additional Space by
Tenant and to execute an amendment to this lease incorporating such terms or a
new lease for the Additional Space.

(b) If Tenant does not notify Landlord within such 7 days of its interest in
leasing the Additional Space or if Tenant does not execute such amendment or
lease within such 30 days, if applicable, then this right of first offer to
lease the Additional Space will lapse and be of no further force or effect and
Landlord shall have the right to lease all or part of the Additional Space to
any other party at any time on any terms and conditions acceptable to Landlord.

(c) This right of first offer to lease the Additional Space is a one-time
right if and when each Additional Space first becomes available, is personal to
Tenant and is non-transferable to any assignee or sublessee (regardless of
whether any such assignment or sublease was made with or without Landlord's
consent) or other party.

34. Right Of First Refusal To Purchase.
-----------------------------------

(a) If at any time during the term of this lease, except as set forth
in subsections (b) and (c) below, Landlord desires to sell the Premises
to a non-related entity for full consideration, Landlord agrees to notify Tenant
of such desire.
R-8
<PAGE>

Tenant shall advise Landlord within 10 days after receiving such notice if
Tenant is interested in negotiating terms for purchase of the Premises by
Tenant. If Tenant fails to respond within such time period and/or if Tenant is
not interested in purchasing the Premises, then Tenant shall have no further
right hereunder to purchase the Premises. However, if Tenant notifies Landlord
within such time period that Tenant is interested in purchasing the Premises,
then Landlord and Tenant shall have 30 days following Landlord's receipt of such
notice from Tenant within which to negotiate and execute a mutually satisfactory
agreement for the sale of the Premises to Tenant.

(i) In the event that Landlord and Tenant fail to enter into an
agreement of sale and purchase within such 30 days, then Tenant shall have no
further right hereunder to purchase the Premises. Thereafter, Landlord may
negotiate with any third party for the sale and purchase of the Premises;
provided, however, that Landlord will not finally enter into an agreement of
sale with any third party for a purchase price equal to or less than the highest
price offered by Tenant during the 30 day negotiating period between Landlord
and Tenant unless Landlord first allows Tenant 10 days within which to agree to
purchase the Premises pursuant to all of the terms and conditions agreed to by
such third party.

(ii) If Landlord and Tenant enter into an agreement of sale and purchase
but transfer of the Premises to Tenant is not consummated for any reason other
than Landlord's default under such agreement of sale and purchase, then Tenant
shall have no further right hereunder to purchase the Premises.

(b) Tenant's right of first refusal set forth above shall not apply to
any transfer of the Premises in mortgage foreclosure, by deed in lieu of
foreclosure or as part of a settlement with the mortgagee nor shall such right
apply to any efforts by Landlord to sell the Premises as part of a package
transaction which includes one or more other properties owned by Landlord or its
affiliates. In the case of any such mortgage related or package transaction,
Tenant shall have no rights relating to the purchase of the Premises and no such
rights shall survive the conveyance of the Premises by Landlord pursuant to a
mortgage related or package transaction.

(c) Landlord shall have no obligation to notify Tenant of Landlord's
intention to sell and Tenant shall have no right to purchase the Premises at any
time during which Tenant is in default under any of the provisions of this
lease. The right of first refusal set forth in this Section shall terminate
automatically if at any time during the Term, including without limitation at
any time after Landlord and Tenant enter into an
R-9
<PAGE>

agreement of sale and purchase, Tenant defaults under any of the provisions of
this lease and Landlord gives Tenant written notice of such default; in which
event this Section shall be deemed to be null and void and of no further force
or effect. In addition, Tenant's right of first refusal shall terminate
automatically if Tenant transfers this lease (as described in Section 18) or if
the Premises is wholly or partially destroyed by casualty or taken by a
condemnation or otherwise for any public or quasi-public use.

Lease Commencement Certificate (Exhibit "B")
- --------------------------------------------

3. At the end of this paragraph, add "(subject to renewal option)".

R-10
<PAGE>

Location:
. Easy access to I-95, I-295, the New Jersey Turnpike and the Pennsylvania
Turnpike.
. Philadelphia International Airport - 30 minutes.
. AMTRAK service just 15 miles away in nearby Wilmington.
. Delaware Port just minutes away.
. 1 hour north of the Baltimore/Washington D.C. corridor.

[FLOOR PLAN]

[MAP]

Features:
. 130,785 square foot, high bay warehouse.
. 30' clear height.
. 40' x 42' column spacing.
. ESFR sprinkler system.
. 120' truck service court.
. 6" concrete floors.
. 1200 amp, 277/480 volt, 3 phase electrical service.
. 168'-210' building depths.
. Tailgate loading w/deck leveler capability.
. Public water and sewer.
. M-1 zoning.

LIBERTY
------------------
PROPERTY TRUST
Fax: (302) 325-9297
18 Boulden Circle Suite 4 New Castle, Delaware Office: (302) 322-4142
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------

EXHIBIT "A"
<PAGE>

EXHIBIT "B"
LEASE COMMENCEMENT CERTIFICATE

The undersigned, as duly authorized officers and/or representatives of LIBERTY
PROPERTY LIMITED PARTNERSHIP ("Landlord") and Astropower, Inc. ("Tenant"),
________________
hereby agree as follows with respect to the Lease Agreement (the "Lease")
between them for premises located at 231 Lake Drive, Suite 3, Newark, DE 19702
_________________________________________
(the "Premises"):
<TABLE>
<CAPTION>

<S> <C> <C>
1. DATE OF LEASE: __________________________, 19____

2. COMMENCEMENT DATE: __________________________, 19____

3. EXPIRATION DATE: __________________________, 19____
</TABLE>
4. Rent and operating expenses due on or before the Commencement Date for
the period from the Commencement Date until the first day of the next
calendar month (Not applicable if the Commencement Date is the first day
___
of the calendar month):

APPORTIONED MINIMUM RENT: $______________
APPORTIONED OPERATING EXPENSES: $______________
TOTAL: $______________

Thereafter regular monthly payments due in the following amounts until
adjusted in accordance with the Lease:

MONTHLY RENT INSTALLMENT: $______________
MONTHLY OPERATING PAYMENT: $______________
TOTAL MONTHLY PAYMENT: $______________

5. Tenant certifies that, as of the date hereof, (a) the Lease is in full
force and effect and has not been amended, (b) Tenant has no offsets or
defenses against any provision of the Lease and (c) Landlord has
substantially completed any improvements to be performed by Landlord in
accordance with the Lease, excepting the Punch List items set forth on the
Schedule attached hereto and initialed by Landlord and Tenant, if any.

IN WITNESS WHEREOF, Landlord and Tenant, intending to be legally bound,
have executed this Certificate as of ___________________, 19____.

LANDLORD:

LIBERTY PROPERTY LIMITED PARTNERSHIP

By: Liberty Property Trust, Sole General Partner

By:___________________________________________
Name: James J. Mazzarelli
Title: Senior Vice President

Witness/Attest:

TENANT: Astropower, Inc.

By: ____________________________________
Name: Allen M. Barnett
Title: President

23
<PAGE>

EXHIBIT "C"

BUILDING RULES

1. As stated in the lease, Tenant shall not use the Premises as a "place of
public accommodation" as defined in the Americans with Disabilities Act of 1990,
which identifies the following categories into one or more of which a business
must fall to be a "place of public accommodation":

a. Places of lodging (examples: hotel, motel)
b. Establishments serving food or drink (examples: bar, restaurant)
c. Places of exhibition or entertainment (examples: motion picture
house, theater, stadium, concert hall)
d. Places of public gathering (examples: auditorium, convention
center, lecture hall)
e. Sales or rental establishments (examples: bakery, grocery store,
hardware store, shopping center)
f. Service establishments (examples: bank, laundromat, barber shop,
funeral parlor, hospital, gas station, business offices such as
lawyer, accountant, healthcare provider or insurance office)
g. Stations used for specified public transportation (examples: bus
terminal, depot)
h. Places of public display or collection (examples: museum,
library, gallery)
i. Places of recreation (examples: park, zoo, amusement park)
j. Places of education (examples: nursery, elementary, secondary,
private or other undergraduate or postgraduate school)
k. Social service center establishments (examples: day-care center,
senior citizen center, homeless shelter, food bank, adoption
agency)
l. Places of exercise or recreation (examples: gym, health spa,
bowling alley, golf course)

2. Any sidewalks, lobbies, passages and stairways shall not be obstructed or
used by Tenant for any purpose other than ingress and egress from and to the
Premises. Landlord shall in all cases retain the right to control or prevent
access by all persons whose presence, in the judgment of Landlord, shall be
prejudicial to the safety, peace or character of the Property.

3. The toilet rooms, toilets, urinals, sinks, faucets, plumbing or other
service apparatus of any kind shall not be used for any purposes other than
those for which they were installed, and no sweepings, rubbish, rags, ashes,
chemicals or other refuse or injurious substances shall be placed therein or
used in connection therewith or left in any lobbies, passages, elevators or
stairways.

4. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
No person shall go on the roof without Landlord's permission.

5. Skylights, windows, doors and transoms shall not be covered or obstructed
by Tenant, and Tenant shall not install any window covering which would affect
the exterior appearance of the Building, except as approved in writing by
Landlord. Tenant shall not remove, without Landlord's prior written consent,
any shades, blinds or curtains in the Premises.

6. Without Landlord's prior written consent, Tenant shall not hang, install,
mount, suspend or attach anything from or to any sprinkler, plumbing, utility or
other lines. If Tenant hangs, installs, mounts, suspends or attaches anything
from or to any doors, windows, walls, floors or ceilings, Tenant shall spackle
and sand all holes and repair any damage caused thereby or by the removal
thereof at or prior to the expiration or termination of the lease. If Tenant
elects to seal the floor, Tenant shall seal the entire unfinished floor area
within the Premises. If Tenant elects to paint all or any portion of the
Premises, Tenant, prior to the termination of the lease, shall restore all or
such portion(s) of the Premises to the painted or unpainted condition thereof as
of the Commencement Date.

7. Tenant shall not change any locks nor place additional locks upon any
doors and shall surrender all keys and passes at the end of the Term.

8. Tenant shall not use nor keep in the Building any matter having an
offensive odor, nor explosive or highly flammable material, nor shall any
animals other than seeing eye dogs in the company of their masters be brought
into or kept in or about the Premises.

C-1
<PAGE>

9. If Tenant desires to introduce electrical, signalling, telegraphic,
telephonic, protective alarm or other wires, apparatus or devices, Landlord
shall direct where and how the same are to be placed, and except as so directed,
no installation boring or cutting shall be permitted. Landlord shall have the
right to prevent and to cut off the transmission of excessive or dangerous
current of electricity or annoyances into or through the Building or the
Premises and to require the changing of wiring connections or layout at Tenant's
expense, to the extent that Landlord may deem necessary, and further to require
compliance with such reasonable rules as Landlord may establish relating
thereto, and in the event of non-compliance with the requirements or rules,
Landlord shall have the right immediately to cut wiring or to do what it
considers necessary to remove the danger, annoyance or electrical interference
with apparatus in any part of the Building. All wires installed by Tenant must
be clearly tagged at the distributing boards and junction boxes and elsewhere
where required by Landlord, with the number of the office to which said wires
lead, and the purpose for which the wires respectively are used, together with
the name of the concern, if any, operating same.

10. Tenant shall not place weights anywhere beyond the safe carrying capacity
of the Building.

11. The use of rooms as sleeping quarters is strictly prohibited at all
times.

12. Tenant shall have the right, at Tenant's sole risk and responsibility, to
use its proportional share of the parking spaces at the Property as reasonably
determined by Landlord. Tenant shall comply with all parking regulations
promulgated by Landlord from time to time for the orderly use of the vehicle
parking areas, including without limitation the following: Parking shall be
limited to automobiles, passenger or equivalent vans, motorcycles, light four
wheel pickup trucks and (in designated areas) bicycles. No vehicles shall be
left in the parking lot overnight. Parked vehicles shall not be used for
vending or any other business or other activity while parked in the parking
areas. Vehicles shall be parked only in striped parking spaces, except for
loading and unloading, which shall occur solely in zones marked for such
purpose, and be so conducted as to not unreasonably interfere with traffic flow
within the Property or with loading and unloading areas of other tenants.
Employee and tenant vehicles shall not be parked in spaces marked for visitor
parking or other specific use. All vehicles entering or parking in the parking
areas shall do so at owner's sole risk, and Landlord assumes no responsibility
for any damage, destruction, vandalism or theft. Tenant shall cooperate with
Landlord in any measures implemented by Landlord to control abuse of the parking
areas, including without limitation access control programs, tenant and guest
vehicle identification programs, and validated parking programs, provided that
no such validated parking program shall result in Tenant being charged for
spaces to which it has a right to free use under its lease. Each vehicle owner
shall promptly respond to any sounding vehicle alarm or horn, and failure to do
so may result in temporary or permanent exclusion of such vehicle from the
parking areas. Any vehicle which violates the parking regulations may be cited,
towed at the expense of the owner, temporarily or permanently excluded from the
parking areas, or subject to other lawful consequence.

13. If Landlord designates the Building as a non-smoking building and
provides outdoor smoking area(s), Tenant and its Agents shall not smoke in the
Building.

14. If at Tenant's request, Landlord consents to Tenant having a dumpster at
the Property, Tenant shall locate the dumpster in the area designated by
Landlord and shall keep and maintain the dumpster clean and painted with lids
and doors in good working order and, at Landlord's request, locked.

15. Tenant shall provide Landlord with a written identification of any
vendors engaged by Tenant to perform services for Tenant at the Premises
(examples: cleaners, security guards/monitors, trash haulers,
telecommunications installers/maintenance).

16. Tenant shall cause all of Tenant's Agents to comply with these Building
Rules.

17. Landlord reserves the right to rescind, suspend or modify any rules or
regulations and to make such other rules and regulations as, in Landlord's
reasonable judgment, may from time to time be needed for the safety, care,
maintenance, operation and cleanliness of the Property. Notice of any action by
Landlord referred to in this paragraph, given to Tenant, shall have the same
force and effect as if originally made a part of the foregoing lease. New rules
or regulations will not, however, be unreasonably inconsistent with the proper
and rightful enjoyment of the Premises by Tenant under the lease.

18. These Building Rules are not intended to give Tenant any rights or claims
in the event that Landlord does not enforce any of them against any other
tenants or if Landlord does not have the right to enforce them against any other
tenants and such non-enforcement will not constitute a waiver as to Tenant.

19. Tenant shall be deemed to have read these Building Rules and to have
agreed to abide by them as a condition to Tenant's occupancy of the Premises.

C-2
<PAGE>

EXHIBIT "D"
TENANT ESTOPPEL CERTIFICATE
---------------------------

Please refer to the documents described in Schedule 1 hereto, (the "Lease
Documents") including the "Lease" therein described; all defined terms in this
Certificate shall have the same meanings as set forth in the Lease unless
otherwise expressly set forth herein. The undersigned Tenant hereby certifies
that it is the tenant under the Lease. Tenant hereby further acknowledges that
it has been advised that the Lease may be collaterally assigned in connection
with a proposed financing secured by the Property and/or may be assigned in
connection with a sale of the Property and certifies both to Landlord and to any
and all prospective mortgagees and purchasers of the Property, including any
trustee on behalf of any holders of notes or other similar instruments, any
holders from time to time of such notes or other instruments, and their
respective successors and assigns (the "Mortgagees") that as of the date hereof:

1. The information set forth in attached Schedule 1 is true and correct.

2. Tenant is in occupancy of the Premises and the Lease is in full force and
effect, and, except by such writings as are identified on Schedule 1, has not
been modified, assigned, supplemented or amended since its original execution,
nor are there any other agreements between Landlord and Tenant concerning the
Premises, whether oral or written.

3. All conditions and agreements under the Lease to be satisfied or performed
by Landlord have been satisfied and performed.

4. Tenant is not in default under the Lease Documents, Tenant has not
received any notice of default under the Lease Documents, and, to Tenant's
knowledge, there are no events which have occurred that, with the giving of
notice and/or the passage of time, would result in a default by Tenant under the
Lease Documents.

5. Tenant has not paid any Rent due under the Lease more than 30 days in
advance of the date due under the Lease and Tenant has no rights of setoff,
counterclaim, concession or other rights of diminution of any Rent due and
payable under the Lease except as set forth in Schedule 1.

6. To Tenant's knowledge, there are no uncured defaults on the part of
Landlord under the Lease Documents, Tenant has not sent any notice of default
under the Lease Documents to Landlord, and there are no events which have
occurred that, with the giving of notice and/or the passage of time, would
result in a default by Landlord thereunder, and that at the present time Tenant
has no claim against Landlord under the Lease Documents.

7. Except as expressly set forth in Part G of Schedule 1, there are no
provisions for any, and Tenant has no, options with respect to the Premises or
all or any portion of the Property.

8. Except as set forth on Part M of Schedule 1, no action, voluntary or
involuntary, is pending against Tenant under federal or state bankruptcy or
insolvency law.

9. The undersigned has the authority to execute and deliver this Certificate
on behalf of Tenant and acknowledges that all Mortgagees will rely upon this
Certificate in purchasing the Property or extending credit to Landlord or its
successors in interest.

10. This Certificate shall be binding upon the successors, assigns and
representatives of Tenant and any party claiming through or under Tenant and
shall inure to the benefit of all Mortgagees.

IN WITNESS WHEREOF, Tenant has executed this Certificate this _____ day of
___________, 19____.

______________________________________________
Name of Tenant

By:_________________________________________

Title:______________________________________

D-1
<PAGE>

SCHEDULE 1 TO TENANT ESTOPPEL CERTIFICATE

Lease Documents, Lease Terms and Current Status
_______________________________________________

A. Date of Lease:

B. Parties:

1. Landlord:

2. Tenant d/b/a:

C. Premises known as:

D. Modifications, Assignments, Supplements or Amendments to Lease:

E. Commencement Date:

F. Expiration of Current Term:

G. Options:

H. Security Deposit Paid to Landlord: $

I. Current Fixed Minimum Rent (Annualized): $

J. Current Additional Rent (and if applicable, Percentage Rent)(Annualized): $

K. Current Total Rent: $

L. Square Feet Demised:

M. Tenant's Bankruptcy or other Insolvency Actions:

D-2
<PAGE>

EXHIBIT "F"

FORM OF LETTER OF CREDIT

Liberty Property Limited Partnership, its successors and assigns
65 Valley Stream Parkway, Suite 100
Great Valley Corporate Center
Malvern, PA 19355

Re: Irrevocable Letter of Credit No. _____
For U.S. $200,000.00

Gentlemen:

We hereby issue our Irrevocable Letter of Credit No. ______ in favor of
Liberty Property Limited Partnership, its successors and assigns for the account
of AstroPower, Inc.

We undertake to honor your drafts At Sight on us not to exceed U.S.
$200,000 when accompanied by:

1. Statement on letterhead of the beneficiary that the amount of the
accompanying draft is due and owing to Liberty Property Limited Partnership
pursuant to the terms of Section 30 of that certain Lease Agreement dated
___________________, 1998 between Liberty Property Limited Partnership and
AstroPower, Inc.

This Letter of Credit is valid until _______________________ and drafts
drawn hereunder, when accompanied by the statement referred to above, will be
honored if presented to us at our office at
________________________________________ on or before that date.

All drafts must be marked "Drawn under Letter of Credit No.
___________________ dated _________________________."

We hereby agree with the drawers, endorsers, and bona fide holders of all
drafts drawn under and in compliance with the terms of this credit, that such
drafts will be duly honored upon presentation to the drawee.

There are no other conditions to this Letter of Credit.

Very truly yours,

[NAME OF BANK]

By:___________________________
[Title]

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EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
AstroPower, Inc.:

The audits referred to in our report dated December 5, 1997, included the
related financial statement schedule for the nine-month period ended September
30, 1997 and each of the years in the three-year period ended December 31,
1996, included in the registration statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.

We consent to the use of our reports included herein and to the references
to our firm under the heading "Experts" in the prospectus.

/s/ KPMG Peat Marwick LLP
_________________________

Wilmington, Delaware
January 23, 1998