ASTROPOWER INC
DEF 14A, 1998-05-20
SEMICONDUCTORS & RELATED DEVICES
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<PAGE>


                           SCHEDULE 14A INFORMATION

          Proxy Statement Pursuant to Section 14(a) of the Securities
                    Exchange Act of 1934 (Amendment No.  )
        
Filed by the Registrant [X]

Filed by a Party other than the Registrant [_] 

Check the appropriate box:

[_]  Preliminary Proxy Statement         [_]  CONFIDENTIAL, FOR USE OF THE
                                              COMMISSION ONLY (AS PERMITTED BY
                                              RULE 14A-6(E)(2))

[X]  Definitive Proxy Statement 

[_]  Definitive Additional Materials 

[_]  Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

                               Astro Power, Inc.
- --------------------------------------------------------------------------------
               (Name of Registrant as Specified In Its Charter)


- --------------------------------------------------------------------------------
   (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

   
Payment of Filing Fee (Check the appropriate box):

[X]  No fee required

[_]  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

   
     (1) Title of each class of securities to which transaction applies:

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


     (2) Aggregate number of securities to which transaction applies:

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     (3) Per unit price or other underlying value of transaction computed
         pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
         the filing fee is calculated and state how it was determined):

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

     (4) Proposed maximum aggregate value of transaction:

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


     (5) Total fee paid:

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

[_]  Fee paid previously with preliminary materials.
     
[_]  Check box if any part of the fee is offset as provided by Exchange
     Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
     was paid previously. Identify the previous filing by registration statement
     number, or the Form or Schedule and the date of its filing.
     
     (1) Amount Previously Paid:
 
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     (2) Form, Schedule or Registration Statement No.:

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     (3) Filing Party:
      
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     (4) Date Filed:

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<PAGE>
 
                                  SOLAR PARK
                         NEWARK, DELAWARE  19716-2000

                          Telephone:   (302) 366-0400

                   NOTICE OF ANNUAL MEETING OF SHAREHOLDERS


TAKE NOTICE that the 1998 Annual Meeting of Shareholders of AstroPower, Inc.,
(the "Company") will be held at the Company's Silicon-Film/TM/ manufacturing
plant at Pencader Corporate Center, Newark, Delaware on:

                            THURSDAY, JUNE 18, 1998

at the hour of 11:00 o'clock A.M. (local time) for the following purposes:

1.   To elect six directors.

2.   To amend the Company's 1989 Stock Option Plan so as to increase the number
     of shares available under the Plan.

3.   To approve the proposed 1998 AstroPower, Inc. Non-Employee Directors' Stock
     Option Plan.

4.   To ratify the appointment of independent accountants.

5.   To transact such other business as may properly come before the Meeting.


Accompanying this Notice is the Proxy Statement and Form of Proxy.


Only Shareholders of record at the close of business on May 19, 1998 will be
entitled to vote at the meeting and any adjournments thereof.

DATED:         Newark, Delaware, May 20, 1998


                      BY ORDER OF THE BOARD OF DIRECTORS


                     /s/ Allen M. Barnett
                     President and Chief Executive Officer



                            YOUR VOTE IS IMPORTANT

PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY SO THAT YOUR SHARES
WILL BE REPRESENTED AT THE MEETING. IF YOU CHOOSE TO ATTEND THE MEETING, YOU MAY
REVOKE YOUR PROXY AND PERSONALLY CAST YOUR VOTES.
<PAGE>
 
                               ASTROPOWER, INC.
                                  SOLAR PARK
                         NEWARK, DELAWARE  19716-2000


                                PROXY STATEMENT

                             REVOCABILITY OF PROXY

This Proxy Statement and accompanying proxy are first being sent to Shareholders
on or about May 20, 1998.

The accompanying proxy is solicited by the Board of Directors. It may be revoked
at any time before being voted by written notice given to the secretary of the
meeting or by the delivery of a later dated proxy. Shares represented by
properly executed proxies received by the Company prior to the meeting and not
revoked will be voted, and where a Shareholder specifies a choice with respect
to the matter to be voted upon, the shares will be voted in accordance with the
specifications so made. Where no specification is made, the proxies will be
voted For the election of directors (except to the extent that authority
therefore is withheld) and For Proposals 2, 3 and 4 described in this Proxy
Statement. The Board of Directors is not aware at the date hereof of any other
matter proposed to be presented at the meeting, and does not believe that any
matter may be properly presented other than the election of directors and
Proposals 2, 3 and 4. If any other matter is properly presented, the persons
named in the enclosed form of proxy will have discretionary authority to vote
thereon according to their best judgment. Presence at the meeting does not of
itself revoke the proxy.

                                    VOTING

The only securities of the Company entitled to be voted are shares of Common
Stock.

A quorum consisting of a majority of all shares outstanding and entitled to vote
at the meeting, present in person or by proxy, is required for the purpose of
considering the matters to come before the meeting. A quorum being present,
directors are elected by a plurality of shares present in person or represented
by proxy and entitled to vote. The amendment of the Company's 1989 Stock Option
Plan, the approval of the 1998 Non-Employee Directors' Stock Option Plan, and
the ratification of the appointment of independent accountants require the
affirmative vote of a majority of shares present in person or represented by
proxy and entitled to vote.

At the meeting, abstentions from voting and broker non-votes (as hereinafter
defined) will be counted as present for the purpose of determining the presence
of a quorum. However, for the purpose of computing the vote required for
approval of matters to be voted on at the meeting, shares held by Shareholders
who abstain from voting will be treated as being "present" and "entitled to
vote" on the matter and thus, an abstention has the same effect as a vote
against any business other than the election of directors. A "broker non-vote"
refers to shares represented at the meeting in person or by proxy by a broker or
nominee where such broker or nominee (i) has not received voting instructions on
a particular matter from the beneficial owners or persons entitled to vote and
(ii) the broker or nominee does not have discretionary voting power on such
matter.

The Company is authorized to issue 25,000,000 Common Shares, par value $.01 per
share, and 5,000,000 shares of Preferred Stock, par value $ .01 per share. There
are issued and outstanding 8,523,623 shares of Common Stock as of the close of
business May 19, 1998, the record date for the meeting, each of which is
entitled to one vote on each matter to be voted on at the meeting. There are no
shares of Preferred Stock outstanding.

                                       1
<PAGE>
 
                        PERSONS MAKING THE SOLICITATION


Solicitations will be made by mail and possibly supplemented by telephone or
other personal contact to be made without special compensation by regular
officers and employees of the Company. The Company may reimburse Shareholder's
nominees or agents (including brokers holding shares on behalf of clients) for
the cost incurred in obtaining from their principals authorization to execute
forms of proxy. No solicitation will be made by specifically engaged employees
or soliciting agents. The cost of solicitation will be borne by the Company.


                                 ANNUAL REPORT


The Annual Report for the year ended December 31, 1997 containing financial and
other information about the Company is enclosed.

Proposal 1.

ELECTION OF DIRECTORS


The Amended and Restated By-Laws of the Company provide for a classified Board
of Directors. At the 1998 Annual Meeting of Shareholders, the directors shall be
divided into three classes, 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 Shareholders
after their election and until their successors are duly elected and qualified.
In the absence of instructions to the contrary, the shares represented by proxy
will be a vote FOR the nominees listed below. All the nominees are currently
               ---
directors, and all have consented to be named and to serve if elected.


MANAGEMENT DOES NOT CONTEMPLATE THAT ANY OF THE NOMINEES WILL BE UNABLE TO SERVE
AS A DIRECTOR. IN THE EVENT THAT PRIOR TO THE MEETING ANY VACANCIES OCCUR IN THE
SLATE OF NOMINEES LISTED BELOW, IT IS INTENDED THAT DISCRETIONARY AUTHORITY
SHALL BE EXERCISED BY THE PERSON NAMED IN THE PROXY AS NOMINEE TO VOTE THE
SHARES REPRESENTED BY PROXY FOR THE ELECTION OF ANY OTHER PERSON OR PERSONS AS
DIRECTORS.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE NOMINEES NAMED
BELOW.

<TABLE>
<CAPTION>
 
 
               Name                          Class     Term to Expire
               ----                          -----     --------------
               <S>                           <C>       <C>
               CLARE E. NORDQUIST            I               1999
               CHARLES R. SCHALLER           I               1999
               DR. GEORGE W. ROLAND          II              2000
               DR. GEORGE S. REICHENBACH     II              2000
               DR. ALLEN M. BARNETT          III             2001
               GILBERT H. STEINBERG          III             2001
 
</TABLE>

A PLURALITY OF THE VOTES CAST AT THE MEETING IS REQUIRED TO ELECT EACH DIRECTOR.

                                       2
<PAGE>
 
CERTAIN INFORMATION REGARDING EACH NOMINEE FOR DIRECTOR AND EACH EXECUTIVE
OFFICER OF THE COMPANY IS GIVEN BELOW.


                                  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              57     Vice President, Chief Scientist
                          
Richard C. McDowell             58     Vice President, Manufacturing
                          
Thomas J. Stiner                43     Vice President and Chief Financial
                                       Officer
 
Dr. George S. Reichenbach (2)   68     Director
 
Charles R. Schaller (2*)        62     Director
 
Clare E. Nordquist (1) (2)      62     Director
 
Gilbert H. Steinberg (1) (2)    67     Director
</TABLE>

___________________

(1)   Member of Audit Committee
(2)   Member of Compensation Committee
*effective March 26, 1998

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.

                                       3
<PAGE>
 
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 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, 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, LP, 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 Co-Managing Director of Photovoltaic
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.

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 and 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.

Richard K. McDowell was elected Vice President, Manufacturing in March, 1998. He
joined AstroPower in October of 1996. Most of his career was spent with Unisys
Corporation in various management positions. His last assignment was Director of
Operations, Plant Manager - Huntsville. Mr. McDowell received a B.S. in Physics
from Lasalle College.

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.
Dr. 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 has 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.

                                       4
<PAGE>
 
Charles R. Schaller has served as director of the Company since 1989 and as
Secretary from 1989 through March 1998. 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 Material Ventures Associates LP, a
venture capital partnership specializing in advanced technology materials
companies and serves as a director of Leading Edge Ceramics, LLC, a manufacturer
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, electromechancial 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.


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of March 31,
1998, (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.

                                       5
<PAGE>
 
<TABLE>
<CAPTION>
     Name and Address of Beneficial Owner                       Shares        Percent of Total
     ------------------------------------                      ---------      ----------------
<S>                                                            <C>            <C>
Cede & Company*...................................             3,098,523           34.2%   
    P.O. Box 20                                                                           
    Bowling Green Station                                                                 
    New York, NY  10004                                                                   
                                                                                          
Astrosystems, Inc. (2)............................             1,193,750           13.2%   
    1220 Market Street, Suite 603                                                         
    Wilmington, DE  19801                                                                 
                                                                                          
Entities Affiliated with (3)......................               477,081            5.3%   
    Advent International Corp.                                                            
    101 Federal Street                                                                    
    Boston, MA  02110                                                                     
                                                                                          
Entities Affiliated with (4)......................               162,819            1.8%   
    Materia Ventures Associates                                                           
    3435 Carillon Point                                                                   
    Kirkland, WA  98033                                                                   
                                                                                          
Dr. Allen M. Barnett (5)..........................             1,472,706           16.2%   
Dr. George W. Roland (6)..........................               217,500            2.4%   
Peter C. Aschenbrenner (7)........................                42,469             **    
Louis C. DiNetta (8)..............................                20,625             **    
Dr. Robert B. Hall (9)............................                91,001           1.00%   
Thomas J. Stiner (10).............................                54,375             **    
Richard K. McDowell (11)..........................                 5,625             **    
Dr. George S. Reichenbach (3).....................               477,081            5.3%   
Charles R. Schaller...............................                 5,250             **    
Clare E. Nordquist (4)............................               162,819            1.8%   
Gilbert Steinberg (2).............................             1,193,750           13.2%   
                                                                                          
All directors and officers as a group (eleven persons) (12)    3,743,201           41.3%    
</TABLE>

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

*   This company is nominee for beneficial owners of these shares purchased in
    the Company's initial public offering on February 12, 1998 and in open
    market transactions thereafter, and whose identity is unknown to the
    Company.
**  Less than one percent.

(1)  Applicable percentage of ownership is based on 9,067,449 shares of Common
     Stock outstanding as of March 31, 1998 and treats as outstanding all shares
     (546,094) issuable on exercise of options exercisable within 60 days of the
     date hereof held by beneficial owners that are included in the first
     column.

(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.

(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,

                                       6
<PAGE>
 
     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 Advent 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, the 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 159,069 shares held by two limited partnerships
     of which Materia Ventures Associates is the general partner and 3,750
     shares held by Materia Ventures Associates. 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 200,250 shares subject to currently exercisable
     options within 60 days from the date hereof. Dr. Barnett disclaims
     beneficial ownership of the shares held by the trust except to the extent
     of his pecuniary interest therein.

(6)  Includes 217,500 shares subject to options exercisable within 60 days from
     the date hereof.

(7)  Includes 42,469 shares subject to options exercisable within 60 days from
     the date hereof.

(8)  Includes 16,125 shares subject to options exercisable within 60 days from
     the date hereof.

(9)  Includes 9,750 shares subject to options exercisable within 60 days from
     the date hereof.

(10) Includes 54,375 shares subject to options exercisable within 60 days from
     the date hereof.

(11) Includes 5,625 shares subject to options exercisable within 60 days from
     the date hereof.

(12) Includes an aggregate of 546,094 shares held by all directors and officers
     that are subject to options exercisable within 60 days from the date
     hereof. See Notes (5) through (11) above.


DIRECTOR'S MEETINGS

The Board of Directors of the Company met seven (7) times during the year ended
December 31, 1997. In 1997, the Company had an Audit Committee and a
Compensation Committee. The Audit Committee reviews the scope and plan of the
annual audit, reviews the audit results and report thereon, oversees action
taken by the Company's independent accountants and reviews the Company's
internal controls. In 1997, the Audit Committee was composed of Messrs.
Nordquist and Steinberg. One meeting of the Audit Committee was held in 1997.

The Compensation Committee makes recommendation concerning salaries and
incentive compensation for executive officers of the Company and administers the
Company's employee stock plans.

In 1997, the Compensation Committee was composed of Messrs. Nordquist,
Reichenbach and Steinberg. The Audit and Compensation Committees are composed of
directors who are not officers or employees of the Company ("Outside
Directors").

In addition to participation at Board and Committee Meetings, the Company's
directors discharge their responsibilities throughout the year through personal
meetings and other communications, including considerable telephone contact with
the CEO and others regarding matters of interest and concern to the Company.

                                       7
<PAGE>
 
COMPENSATION OF DIRECTORS

For the year ended December 31, 1997, the Company did not pay any compensation
to its directors for service in that capacity. Beginning April 1, 1998, the
Company has agreed to pay each non-employee director $1,000 per Board Meeting
attended in person, $250 per meeting attended telephonically, and $250 for each
Committee meeting attended. Directors who are also employees of the Company
receive no additional compensation for serving as directors. The Company
reimburses all of its directors for travel and out-of-pocket expenses in
connection with their attendance at meetings of the Board of Directors or
Committees thereof. The Company's outside directors will also be eligible to
receive stock options under the Company's proposed 1998 Non-Employee Directors
Stock Option Plan, subject to approval of Shareholders at the 1998 Annual
Meeting of Shareholders.


                            EXECUTIVE COMPENSATION


REPORT OF COMPENSATION COMMITTEE

In 1997, the Company's executive compensation program was administered by the
Compensation Committee of the Board of Directors. The Committee makes
recommendations on all of the three key components of the Company's executive
compensation program: base salary, contractual incentive awards and long-term
incentives.

The Company's executive compensation program is structured to help the Company
achieve its business objectives by:

     -    providing compensation opportunities that will attract, motivate and
          retain highly qualified managers and executives

     -    linking executives' total compensation to company and individual job
          performance

     -    providing an appropriate balance between incentives focused on
          achievement of annual business plans and longer term incentives tied
          to increases in Shareholder value

The Company's executive compensation program is designed to provide competitive
compensation opportunities for all corporate officers. The Company's total
compensation levels falls in the low to middle of the range of rates paid by
other employers of similar size and complexity, although complete comparative
information is not easily obtainable, and no formal survey or analysis of
compensation paid by other companies was undertaken.

BASE SALARIES

The Company's salary levels are intended to be consistent with competitive
practices and levels of responsibility, with
salary increases reflecting competitive trends, the overall financial
performance of the Company, and the performance of
the individual.


STOCK OPTIONS

The Company periodically grants incentive and non-qualified stock options to
purchase the Company's Common Stock in order to provide employees of the Company
with a competitive total compensation package and to reward them for their
contribution to the Company's short and long-term stock performance. These stock
options are designed to align the employees' interest with those of the
Shareholders. All options have an option price that is not less than the fair
market value of the stock on the date of grant. The terms of the options and the
dates after which they become exercisable are established by the Board with
respect to incentive stock options, within the parameters of the 1989 Stock
Option Plan. The Company does not grant stock appreciation rights.

                                       8
<PAGE>
 
1997 COMPENSATION

The President and CEO of the Company and the President and CEO of the Company's
Solar Power Business are compensated on a salary and pay-for-performance
approach. Taken into consideration are the achievement of financial and other
objectives determined each year by the Board of Directors, and the executive.
Contractual incentive awards of $ 50,000 were paid to each of these executives
for 1997.


COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986

DEDUCTIBILITY OF COMPENSATION  Effective January 1, 1994, the Internal Revenue
Service under Section 162 (m) of the Internal Revenue Code will generally deny
the deduction of compensation paid to the President and the four other highest
paid executive officers required to be named in the Summary Compensation Table
to the extent such compensation exceeds $ 1 million per executive per year
subject to an exception for compensation that meets certain "performance-based"
requirements. Whether the Section 162 (m) limitations with respect to an
executive will be exceeded and whether the Company's tax deduction for
compensation paid in excess of the $ 1 million limit will be denied will depend
upon the resolution of various factual and legal issues that cannot be resolved
at this time. As to options granted under the 1989 Stock Option Plan, the
Committee intends to qualify to the extent practicable, such options under the
rules governing the Section 162 (m) limitation so that compensation attributable
to such options will not be subject to limitation under such rules. As to other
compensation, while it is not expected that compensation to executives of the
Company will exceed the Section 162 (m) limitation in the foreseeable future
(and no officer of the Company received compensation in 1997 which resulted
under Section 162 (m) in the non-deductibility of such compensation to the
Company), various relevant considerations will be reviewed from time to time,
taking into account the interests of the Company and its Shareholders, in
determining whether to endeavor to cause such compensation to be exempt from the
Section 162 (m) limitation.

                                        Respectfully submitted,



                                        Compensation Committee

                                        Clare E. Nordquist
                                        Dr. George S. Reichenbach
                                        Gilbert H. Steinberg

                                       9
<PAGE>
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Membership of the Compensation Committee for 1997 is set forth under "Report
of Compensation Committee." Except with respect to their compensation
arrangements, Dr. Barnett, President and CEO and Dr. Roland, President and CEO
of the Company's Solar Power Business, participated in executive compensation
deliberations and recommendations of the Board of Directors. During the fiscal
year ended December 31, 1997, 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.


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

At December 31, 1997, the Company owed its President $555,482 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 December 31, 1997, the Company owed Astrosystems, Inc. $58,000 in principal
and $40,846 in accrued interest under the terms of an unsecured promissory note.


SUMMARY COMPENSATION TABLE

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 1995, 1996
or 1997 exceeded $100,000:

<TABLE> 
<CAPTION> 
                                                                                 Long Term
                                                                               Compensation
                                             Annual Compensation                  Awards
                                    ------------------------------------          ------
                                                                                 Securities
                                                                                 Underlying         All Other 
Name & Principal Position           Year     Salary ($)         Bonus ($)        Options (#)   Compensation($) (1) 
- -------------------------           ----     ----------         ---------       ------------   -------------------
<S>                                 <C>      <C>                <C>             <C>            <C> 
Allen M. Barnett.................   1997     $191,458  (2)      $ 50,000 (2)       203,250           $ 4,750
   President and Chief Executive    1996      225,819  (2)        25,275 (2)        21,000             2,375
   Officer                          1995      232,378  (2)        43,531 (2)        21,000             2,310

George W. Roland.................   1997      151,840             50,000               ---             4,750
   President and Chief Executive    1996      139,034             15,000           187,500             2,375
   Officer, Solar Power Business    1995       63,173  (3)        30,000            60,000               527

Peter C. Aschenbrenner...........   1997      116,449             20,000            19,875             1,353  (4)
   Vice President, Marketing        1996      106,779              7,000                 0             1,416  (4)
   and Sales                        1995       96,833             12,000                 0             1,626  (4)

Thomas J. Stiner.................   1997       88,670             25,000            22,500             4,750
   Vice President and Chief         1996       80,800             20,000             7,500             2,375
   Financial Officer                1995       75,004              8,000                 0             2,168
</TABLE> 

(1)  Includes matching contributions by the Company under its 401(k) Plan. 

(2)  Dr. Barnett elected to postpone receipt of salary payments of $23,945,
     $79,047 and $64,755, for the years ended December 31, 1997, 1996 and 1995,
     respectively, as well as all bonus amounts for the years ended

                                       10
<PAGE>
 
     December 31, 1996 and 1995.
(3)  Dr. Roland joined the Company in June 1995.
(4)  Includes $1,200 annual expense allowance for all years.


STOCK OPTIONS

The following table provides information regarding grants of stock options made
during the fiscal year ended December 31, 1997 to the persons named in the
Summary Compensation Table above:

                       OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
 
                                                   Term
 
                         Number of      % of Total Options    
                         Securities          Granted to                                    
                         Underlying         Employees in                                    Potential Realizable Value at     
                          Options             Fiscal                                        Assumed Annual Rates of Stock     
                                                             Exercise         Expiration    Price Appreciation for Option 
                                                                                                        Term
                                                                                           ------------------------------- 
     Name                 Granted (#)          Year         Price ($/share)     Date          5%  ($)           10%  ($)
- -------------            ------------   ------------------  ---------------   ----------   -------------    --------------
<S>                      <C>            <C>                  <C>              <C>          <C>                <C>
 Dr. Allen M. Barnett...     15,750             4.4%           $3.12            1/1/07        $ 30,904         $   78,317
                            187,500            52.3%            5.33            4/1/07         628,502          1,592,746
 Dr. George W. Roland..          -               -                -              -                  -                  -
 Peter C. Aschenbrenner.     19,875             5.5%            4.00            4/1/07          49,997            126,703
 Thomas J. Stiner.......     22,500             6.3%            4.00            4/1/07          56,601            143,437
</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 with an exercise price of $3.12 per share are immediately
     vested. The options listed for Dr. Barnett with an exercise price of $5.33
     per share vest over a five-year period.

(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 the 15,750 granted to Dr. Barnett as of January 1,
     1997. 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 Preferred
     Stock, recent results of operations and other relevant data. The 15,750
     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 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 Summary
Compensation Table above, information regarding the exercise of stock options
during the fiscal year ended December 31, 1997 and the year-end value of
unexercised options. No options were exercised by the Named Executive Officers
during 1997:

                                       11
<PAGE>
 
                AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
                          AND FISCAL YEAR-END VALUES
<TABLE> 
<CAPTION> 
                                 Shares                                                   Value of Unexercised
                                Acquired                   Number of Unexercised              In-the-money
                                   on          Value      Options at Year-End (#)        Options at Year End ($)
                                                         -------------------------    ---------------------------  
     Name                       Exercise      Realized   Exercisable Unexercisable    Exercisable   Unexercisable
- ---------------------------     ---------     --------   ----------- -------------    -----------   -------------  
<S>                             <C>           <C>        <C>         <C>              <C>           <C>  
  Allen M. Barnett..........         -          -        162,750      187,500           468,720       125,625 
  George W. Roland..........         -          -         30,000      217,500            60,000       435,000
  Peter C. Aschenbrenner....         -          -         28,125       29,250            56,250        58,500
  Thomas J. Stiner..........         -          -         43,125       31,875            86,250        63,750
</TABLE> 

(1)  Calculated on the basis of the fair market value of the Common Stock at
     December 31, 1997 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 (3) of the preceding table .


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 December 31, 1997, options to purchase an aggregate of
1,088,938 shares were outstanding at a weighted average exercise price of $4.00
per share and 32,889 shares remained available for future option grants under
the Plan.

COMPENSATORY STOCK PLAN

Prior to the adoption of the 1989 Plan, the Company had a compensatory stock
plan for the issuance of shares to employees and consultants. At December 31,
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 the Plan. The total
contribution made by a

                                       12
<PAGE>
 
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 and the earnings
thereon are at all times fully vested. The participant's interest in Company
contributions and the earnings thereon will become vested at the rate of 20% per
year for each year of service with the Company or, if earlier, upon such
participant's death or disability. 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, 1997, the Company had accrued a contribution to the 401(k) Plan of
$145,000. The Company's contribution on behalf of the officers named under
"Executive Compensation" were as follows: Dr. Allen M. Barnett - $4,750; Dr.
George W. Roland - $4,750; Peter Aschenbrenner - $153; Thomas J. Stiner -
$4,750.


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 years
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.

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 which vested on February 12, 1998 the effective
date of a registration statement covering the Company's public offering of
Common Stock. 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, provided that he is employed by the Company at the time of such
exercise; (ii) 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, 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. 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 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.

                                       13
<PAGE>
 
PROPOSAL 2.

AMENDMENT TO 1989 STOCK OPTION PLAN

In December 1989, the Board of Directors and a majority of the Shareholders
adopted a Stock Option Plan ("Plan"). Under the Plan, the Company's Board of
Directors is currently authorized to grant options to purchase up to 1,200,000
shares of Common Stock to employees of the Company, including officers (See
"Benefit Plans - Stock Option Plan" herein).

The Plan is intended to induce new employers to become associated with the
Company, and to provide a closer identity of interest between present employees
and the Company by encouraging their ownership of Common Stock of the Company.
Consistent with this intention, the Board of Directors believed it would be in
the best interest of the Company and its Shareholders to increase the number of
shares currently available under the Plan from 1,200,000 to 1,800,000, subject
to Shareholder approval. Options have been granted in excess of the 1,200,000
shares available, subject to such approval.


THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE FOLLOWING
RESOLUTION, APPROVAL OF WHICH REQUIRES AN AFFIRMATIVE VOTE OF A MAJORITY OF THE
OUTSTANDING SHARES:

     RESOLVED, that the first sentence of paragraph 4 of the 1989 Stock Option
Plan adopted by the Board of Directors and approved by a majority of the
Shareholders, in December 1989 be amended to read as follows:

     4.   Stock Subject to Plan
          ---------------------

          Subject to adjustment as provided in Section 15 below, the maximum
          number of shares of Common Stock of the Company which may be issued
          and sold under the Plan is 1,800,000 shares.


PROPOSAL 3.

APPROVAL OF THE COMPANY'S 1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

On May 14, 1998, the Board of Directors of the Company adopted the 1998 Non-
Employee Directors' Stock Option Plan (the "Directors' Plan"), subject to
approval by the Shareholders of the Company.


SUMMARY OF THE DIRECTORS' PLAN

The complete text of the Directors' Plan is attached as Exhibit A to this Proxy
Statement. The following summary is qualified in its entirety by reference to
Exhibit A.

Purpose   The Directors' Plan is intended to encourage non-employee directors of
the Company to acquire or increase their ownership of Common Stock of the
Company on reasonable terms, and to foster a strong incentive to put forth
maximum effort for the continued success and growth of the Company and its
subsidiaries. The Directors' Plan provides for the granting of non-qualified
stock options to purchase an aggregate of 160,000 shares of the Common Stock to
current and future non-employee directors of the Company. As of May 14, 1998,
all of the directors other than Messrs. Barnett and Roland were eligible to
receive stock options under the Directors' Plan.

Administration   The Directors' Plan will be administered by the Administrator
chosen by a Committee of the Board invested with responsibility for the
administration of the Directors' Plan. The principal terms of the option grants
are

                                       14
<PAGE>
 
fixed in the Directors' Plan, therefore, the Administrator will have no
discretion to select which directors receive options, the number of shares of
Common Stock subject to such grants, or the exercise price of options.

Grants   Each of the directors on May 14, 1998, identified above as being
eligible to receive stock options under the Directors' Plan was granted an
option, subject to Shareholder approval of the Directors' Plan, to purchase
20,000 shares of Common Stock, 5,000 of which vest as of that date, and 5,000 of
which vest on each of the first, second and third anniversary of such date,
provided such director is still a director on each such date. Each director who
joins the Board of Directors after the Directors' Plan was originally adopted
will be granted an option, on the first day of his term, to purchase 20,000
shares of Common Stock, 5,000 of which vest on the date he or she becomes a
Director, and 5,000 of which vest on each of the first, second and third
anniversary of such date, provided he or she is still a director on such date.
If the number of shares available to grant under the Directors' Plan on a
scheduled date of grant is insufficient to make all the grants, then each
eligible director will receive an option to purchase a pro rata number of the
available shares.

The option price per share for options granted on the date the Directors' Plan
was adopted was $10.25 (the fair market value of the Common Stock on the date
the Directors' Plan was adopted) and the option price per share for later grants
will be the fair market value of the shares of Common Stock on the date of
grant. Under the Directors' Plan, fair market value is generally the closing
price of the Common Stock on the NASDAQ National Market on the last business day
prior to the date on which the value is to be determined.

Exercise   The options granted under the Directors' Plan will be exercisable for
a term of ten years from the date of grant, subject to earlier termination, and
may be exercised as follows: 25% immediately, and 25% on each of the first,
second and third anniversary of the date of grant, provide he or she is still a
director on such date.

In the event that a director ceases to be a member of the Board of Directors
(other than by reason of death or disability), an option may be exercised by the
director (to the extent the director was entitled to do so at the time he ceased
to be a member of the Board of Directors) at any time within three months after
he ceases to be a member of the Board of Directors, or, if later, within nine
months after the most recent grant, but not beyond the term of the option. If
the director dies or becomes disabled while he is a member of the Board of
Directors, an option may be exercised in full by a legatee of the director under
his will, or by him or his personal representative or distributees, as the case
may be, at any time within twelve months after his death or disability, but not
beyond the term of the option. If the director dies within three months after he
ceases to be a member of the Board of Directors (or, if later, within nine
months after the most recent grant), an option may be exercised (to the extent
the director was entitled to do so at the time he ceased to be a member of the
Board of Directors) by a legatee of the director under his will, or by his
personal representative or distributees, as the case may be, at any time within
twelve months after his death, but not beyond the term of the option.

Adjustments;  Transferability Options granted under the Directors' Plan will be
subject to adjustment upon a recapitalization, stock split, stock dividend,
merger, reorganization, liquidation, extraordinary dividend, or other similar
event affecting the Common Stock. Options will not be transferable other than by
will or pursuant to the laws of descent and distribution or pursuant to a
qualified domestic relations order, and will be exercisable during the lifetime
of an option holder only by such holder or his personal representative in the
event of disability.

Change in Control   Upon a "change in control" of the Company, each option
granted under the Directors' Plan will terminate 90 days after the occurrence of
such "change in control" (or, if later, seven months after the grant of the
option) and an option holder will have the right, commencing at least five days
prior to the "change in control" and subject to any other limitation on the
exercise of the option in effect on the date of exercise, to immediately
exercise any options in full to the extent they previously have not been
exercised.

Termination   The Directors' Plan will terminate May 13, 2008 and options may
not be granted under the Directors' Plan after that date although the terms of
any option may be amended in accordance with the Directors' Plan at any date
prior to the end of the term of such option. Any options outstanding at the time
of termination of the Directors' Plan will continue in full force and effect
according to the terms and conditions of the option and the Directors' Plan.

                                       15
<PAGE>
 
Amendments The Directors Plan may be amended by the Board of Directors, provided
that Shareholder approval will be necessary if required under Rule 16b-3 and no
amendment may impair any of the rights of any holder of an option previously
granted under the Directors' Plan without the holder's consent, and provided
that certain provisions of the Directors' Plan may not be amended more than once
every six months.

The federal income tax consequences to the Company and eligible Directors in the
Directors' Plan of the grant and exercise of options under currently applicable
provisions of the Code are as described below.


FEDERAL INCOME TAX CONSEQUENCES

The issuance of a non-qualified stock option under the Directors' Plan will not
result in any taxable income to the recipient director or a tax deduction to the
Company at the time it is granted. Generally, a director to whom a non-qualified
stock option has been granted will recognize ordinary income on the first date
following the date the Director exercises the option on which the shares of
Common Stock first become transferable and are no longer subject to a
substantial risk of forfeiture. On that date, the director will recognize income
in an amount equal to the excess of the fair market value of the shares of
Common Stock on the date the shares of Common Stock first become transferable or
are no longer subject to forfeiture over the option price. For tax purposes, the
Common Stock is considered to be non-transferable and subject to a substantial
risk of forfeiture as long as the sale of the shares could subject the director
to suit under the "short swing profit" rules pursuant to Section 16.

Alternatively, if the director so elects, he will recognize ordinary income on
the date of exercise in an amount equal to the excess of the fair market value
of the shares of Common Stock (without taking into account any lapse
restrictions) on the date of exercise over the option price.

The Company is entitled to a tax deduction corresponding to the amount of income
recognized by the director as a result of the exercise of an option for the year
in which the director recognizes such income for federal income tax purposes.

VOTE REQUIRED

The proposal to approve the Directors' Plan requires the affirmative vote of a
majority of the shares of Common Stock present or represented, in person or by
proxy, and entitled to vote at the Annual Meeting.

       THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
                               DIRECTORS' PLAN.


PROPOSAL 4

APPOINTMENT OF INDEPENDENT ACCOUNTANTS

Management proposes the appointment of KPMG Peat Marwick, LLP as independent
accountants to examine the financial statements of the Company for the fiscal
year 1998. The Board of Directors has directed that such appointment be
submitted for ratification by the Shareholders at the Meeting.

KPMG Peat Marwick has served as the independent accountants for the Company
since 1992. A representative of KPMG Peat Marwick, LLP is expected to be present
at the Meeting and will have the opportunity to make a statement if he desires
to do so and will be available to respond to appropriate questions.

The affirmative vote of a majority of the Common Shares present, in person or by
proxy, is required for ratification of the appointment of KPMG Peat Marwick, LLP
as the independent accountants.

                                       16
<PAGE>
 
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR RATIFICATION OF THE
                                                         ---
APPOINTMENT OF KPMG PEAT MARWICK, LLP.


COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of the
Company's common stock, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (the "SEC"). Such persons are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.

During 1997, Section 16(a) filing requirements were not yet applicable to the
officers and directors of the Company.



                                 ANNUAL REPORT


        A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
        ENDED DECEMBER 31, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE
        COMMISSION, WILL BE MAILED WITHOUT CHARGE TO SHAREHOLDERS UPON
        REQUEST.  REQUESTS SHOULD BE ADDRESSED TO THE COMPANY AT SOLAR
        PARK, NEWARK, DELAWARE, ATTENTION: THOMAS J. STINER, CFO.  THE FORM
        10-K INCLUDES CERTAIN EXHIBITS WHICH WILL BE PROVIDED ONLY UPON
        PAYMENT OF A FEE COVERING THE COMPANY'S REASONABLE EXPENSES.



                               FUTURE PROPOSALS

The 1999 Annual Meeting is expected to be held on Thursday, June 17, 1999. If
any Shareholder wishes to submit a proposal for inclusion in the Proxy Statement
for the Company's 1999 Annual Meeting, the rules of the United States Securities
and Exchange Commission require that such proposal be received at the company's
principal executive office by December 31, 1998.


                                 OTHER MATTERS

Management knows of no other matters to come before the meeting other than those
referred to in the Notice of Meeting. However, should any other matters properly
come before the meeting, the shares represented by the proxy solicited hereby
will be voted on such matters in accordance with the best judgment of the
persons voting the shares represented by the proxy.


                      BY ORDER OF THE BOARD OF DIRECTORS


                     /s/ Allen M. Barnett
                     President and Chief Executive Officer

                                       17
<PAGE>
 
                                                                       EXHIBIT A

                               ASTROPOWER, INC.
                         1998 NON-EMPLOYEE DIRECTORS'
                               STOCK OPTION PLAN

1.   PURPOSE OF THE PLAN

This AstroPower, Inc., 1998 Non-Employee Directors' Stock Option Plan adopted on
this 14th day of May, 1998 is intended to encourage Directors of the Company who
are not officers or key employees of the Company or any of its subsidiaries to
acquire or increase their ownership of common stock of the Company. The
opportunity so provided is intended to foster in participants an incentive to
put forth maximum effort for the continued success and growth of the Company and
its subsidiaries, to aid in retaining individuals who put forth such efforts,
and to assist in attracting the best available individuals to the Company in the
future.


2.   DEFINITIONS

When used herein, the following terms shall have the meaning set forth below:

        2.1    "Affiliate" means an "affiliate" within the meaning of Rule 12b-2
of the General Rules and Regulations under the Exchange Act (as in effect on the
date the Plan is adopted by the Board).

        2.2    "Associate" means an "associate" within the meaning of Rule 12b-2
of the General Rules and Regulations under the Exchange Act (as in effect on the
date the Plan is adopted by the Board).

        2.3    "Beneficial Owner" means with respect to any Person, and a Person
shall be deemed to "beneficially own" and be the beneficial owner of, any
securities (i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly; (ii) which such Person or
any of such Person's Affiliates or Associates has (A) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), or upon the exercise
of conversion rights, exchange rights, right, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange;
or (b) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed the
Beneficial owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or (3) which are beneficially owned, directly or indirectly,
by any other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to (2)(B)
above) or disposing of any securities of the Company. Notwithstanding anything
in this definition of beneficial ownership to the contrary, the phrase "then
outstanding", when used with reference to a Person's beneficial ownership of
securities of the Company, shall mean the number of such securities then issued
and outstanding together with the number of such securities not then actually
issued and outstanding which such Person would be deemed to own beneficially
hereunder.

        2.4    "Board" means the Board of Directors of AstroPower, Inc.

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<PAGE>
 
        2.5    "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act (as in effect
on the date the Plan is adopted by the Board), whether or not the Company is
then subject to such reporting requirement; provided, that, without limitation,
such a change in control shall be deemed to have occurred if:

               (a)    any "person" (as defined in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the combined voting power of the
Company's then outstanding securities; or

               (b)    During any period of two (2) consecutive years (not
including any period prior to the date the Plan is adopted by the Board) there
shall cease to be a majority of the Board comprised of Continuing Directors; or

               (c)    (i)    the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least eighty percent (80%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or

                      (ii)   the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.

        2.6    "Code" means the Internal Revenue Code of 1986, as in effect at
the time of reference, or any successor revenue code which may hereafter be
adopted in lieu thereof, and any reference to any specific provisions of the
Code shall refer to the corresponding provisions of the Code as it may hereafter
be amended or replaced.

        2.7    "Committee" means a Committee of the Board appointed by the Board
which is invested by the Board with responsibility for the administration of the
Plan.

        2.8    "Company" means AstroPower, Inc.

        2.9    "Continuing Directors" means individuals who at the beginning of
any period of two (2) consecutive years (not including any period prior to the
adoption of this Plan) constitute the Board and any new director(s) whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved.

        2.10   "Directors" means directors who serve on the Board and who are
not officers or key employees of the Company or any of its 50% or more direct or
indirect subsidiaries.

        2.11   "Effective Date" means May 14, 1998.

        2.12   "ERISA" means the Employee Retirement Income Security Act of
1974, as in effect at the time of reference, or any successor law which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of ERISA shall refer to the corresponding provisions of ERISA as it
may hereafter be amended or replaced.

        2.13   "Exchange Act" means the Securities Exchange Act of 1934, as in
effect at the time of reference, or any successor law which may hereafter be
adopted in lieu thereof, and any reference to any specific provisions of the
Exchange Act shall refer to the corresponding provisions of the Exchange Act as
it may be amended or replaced.

        2.14   "Exempt Person" means the Company, any subsidiary of the Company,
any employee benefit plan of the Company or any subsidiary of the Company, any
entity holding Shares for or pursuant to the terms of any such 

                                      A-2
<PAGE>
 
plan, and director of the Company holding office as of the close of business on
the Effective Date who are also officers of the Company on such date, any
immediate family member of or Person controlled by any such director.

        2.15   "Fair Market Value" means, with respect to the Shares, the
closing price of the Shares on the NASDAQ National Market or a national
securities exchange, on the last business day prior to the date on which the
value is to be determined, as reported in the Wall Street Journal or such other
source of quotations for, or reports of trading of, the Shares as the Committee
may reasonably select from time to time; provided, however if the Shares are not
then traded on the NASDAQ National Market or on a national securities exchange,
but are then traded on the over-the-counter market, Fair Market Value means the
mean between the high and the low bid and asked prices for the Shares on the
over-the-counter market on the last business day prior to the date on which the
value is to be determined (or the next preceding day on which sales occurred if
there were no sales on such date); provided further, however, if no sales have
occurred in the over-the-counter market during the three week period preceding
the date on which the value is to be determined, Fair Market Value means the
average of the mean between the high and low bid and asked prices for the Shares
on the over-the-counter market for the three (3) month period ending on the last
business day prior to the date on which the value is to be determined.

        2.16   "Initial Grant Date" means the date a Director joins the Board,
but only if the Director was not a Director on the Effective Date.

        2.17   "Option" means the right to purchase the number of Shares
specified by the Plan at a price and for a term fixed by the Plan, and subject
to such other limitations and restrictions as the Plan and the Committee
imposes.

        2.18   "Option Agreement" means a written agreement in such form as may
be from time to time, hereafter approved by the Committee, which shall be duly
executed by the Company and the Director and which shall set forth the terms and
conditions of an Option under the Plan.

        2.19   "Person" means any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.

        2.20   "Plan" means the AstroPower, Inc. Non-Employee Directors' Stock
Option Plan.

        2.21   "Regulation T" means Part 220, chapter II, title 12 of the Code
of Federal Regulations, issued by the Board of Governors of the Federal Reserve
System pursuant to the Exchange Act, as amended from time to time.

        2.22   "Rule 16b-3" means Rule 16b-3 of the General Rules and
Regulations under the Exchange Act as in effect at the time of reference, or any
successor rules or regulations which may hereafter be adopted in lieu thereof,
and any reference of any specific provisions of Rule 16b-3 shall refer to the
corresponding provisions of Rule 16b-3 as it may hereafter be amended or
replaced.

        2.23   "Shares" means shares of the Company's no par value common stock,
or, if by reason of the adjustment provisions contained herein, any rights under
an Option under the Plan pertain to any other security, such other security.

        2.24   "Successor" means the legal representative of the estate of a
deceased Director of the person or persons who shall acquire the right to
exercise or receive an Option by bequest or inheritance or by reason of the
death of the Director.

        2.25   "Term" means the period during which a particular Option may be
exercised.

3.   STOCK SUBJECT TO THE PLAN

There will be reserved for use, upon the exercise of Options to be granted 
from time to time under the Plan, 

                                      A-3
<PAGE>
 
an aggregate of one hundred sixty thousand (160,000) Shares, which Shares may
be, in whole or in part, as the Board shall from time to time determine,
authorized but unissued Shares, or issue Shares which shall have been reacquired
by the Company. Any Shares subject to issuance upon exercise of Options but
which are not issued because of a surrender, lapse, expiration or termination of
any such Option prior to issuance of the Shares shall once again be available
for issuance in satisfaction of Options.


4.   ADMINISTRATION OF THE PLAN

The Board shall select the Committee, which shall consist of not less than two
(2) disinterested directors as defined in Rule 16b-3. Subject to the provisions
of the Plan, the Committee shall have full authority, in its discretion, to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to appoint an Administrator and generally to interpret and
determine any and all matters whatsoever relating to the administration of the
Plan and the granting of Options hereunder. The Board may, from time to time,
appoint members to the Committee in substitution for or in addition to members
previously appointed and may fill vacancies, however caused in the Committee.
The Committee shall select one of its members as its chairman and shall hold its
meetings at such times and places as it shall deem advisable. A majority of its
members shall constitute a quorum. Any action of the Committee may be taken by a
written instrument signed by all of the members, and any action so taken shall
be fully as effective as if it had been taken by a vote of a majority of the
members at a meeting duly called and held. The Committee shall make such rules
and regulations for the conduct of its business as it shall deem advisable and
shall appoint a Secretary who shall keep minutes of its meetings and records of
all action taken in writing without a meeting. No member of the Committee shall
be liable, in the absence of bad faith, for any act or omission with respect to
his service on the Committee.


5.   GRANT OF OPTIONS

        5.1    Existing Directors   Each Director who is a Director on the
Effective Date shall be granted an Option on such date to purchase 20,000 Shares
without further action by the Board or the Committee; 5,000 of which shall vest
immediately, and 5,000 of which shall vest on each of the first, second and
third anniversary dates of the Effective Date, provided such Director is still a
Director on each such anniversary dates.

        5.2    Future Directors   Each Director who joins the Board after the
Effective Date shall be granted an Option on the Initial Grant Date to purchase
20,000 Shares without further action by the Board or the Committee which shall
vest in the same manner and in the same amounts as those granted to Existing
Directors in Section 5.1 above.

        5.3    Limitations   If the number of Shares available to grant under
the Plan on a scheduled date of grant is insufficient to make all automatic
grants required to be made pursuant to the Plan on such date, then each eligible
Director shall receive an Option to purchase a pro rata number of the remaining
Shares available under the Plan; provided further, however, that if such
proration results in fractional Shares, then such Option shall be rounded down
to the nearest number of whole Shares.


6.   BASIC STOCK OPTION PROVISIONS

        6.1    Option Price   The option price per Share of any Option granted
under the Plan shall be the Fair Market Value of the Shares covered by the
Option on the date the Option is granted.

        6.2    Terms of Options
               (a)  Options granted hereunder shall be exercisable for a Term of
                    ten (10) years from the date of grant thereof, but shall be
                    subject to earlier termination as herein-after provided, and
               (b)  Except as otherwise provided in the Plan, prior to its
                    expiration or termination, any Option granted hereunder may
                    be exercised within the following time limitations:
 

                                      A-4
<PAGE>
 
               (i)   5,000 shares shall be immediately exercisable.
 
               (ii)  After one (1) year from the date of grant, it may be
                     exercised as to not more than one-half (1/2) of the Shares
                     originally subject to the Option.
 
               (iii) After two (2) years from the date of grant, it may be
                     exercised as to not more than an aggregate of three-fourth
                     (3/4) of the Shares originally subject to the Option.
 
               (iv)  After three (3) years from the date of grant, it may be
                     exercised as to any part or all of the Shares originally
                     subject to the Option
 
        6.3    Termination of Directorship   In the event a Director ceases to
be a member of the Board (other than by reason of death or disability), then (a)
an Option may be exercised by the Director (to the extent that the Director was
entitled to do so at the termination of his directorship) at any time within the
later of (i) three (3) months after he ceases to be a member of the Board, and
(ii) nine (9) months after the most recent grant of an Option to the Director
pursuant to the Plan, but not beyond the Term of the Option, and (b) the portion
of any Option that has not vested as of the date the Director ceases to be a
member of the Board shall automatically terminate.

        6.4    Death or Disability of Director   If a Director dies or becomes
disabled while he is a member of the Board, an Option may be exercised in full,
but his Successor in the event of death, or by him or his personal
representative, as the case may be, in the event of disability, at any time
within twelve (12) months after he ceases to be a member of the Board on account
of such death or disability, but not beyond the Term of the Option; provided,
however, in the event of disability, the Option may not be exercised prior to
the six month anniversary of the date the Option was granted. If a Director,
following the termination of his directorship, shall die within the later of (i)
three (3) months after the date he ceases to be a member of the Board, and (ii)
nine (9) months after the most recent grant of an Option to the Director
pursuant to the Plan, an Option may be exercised (to the extent the Director
shall have been entitled to do so at the time of his death), by his Successor,
at any time within twelve (12) months after his death, but not beyond the Term
of the Option.


7.   EXERCISE OF RIGHTS UNDER AWARDS

        7.1    Notice of Exercise   A Director entitled to exercise an Option
may do so by delivery of a written notice to that effect specifying the number
of Shares with respect to which the Option is being exercised an any other
information the Committee may require. The notice shall be accompanied by
payment in full of the purchase price of any Shares to be purchased, which
payment shall be made in cash or by certificates of Shares held for more than
six (6) months, duly endorsed in blank, equal in value to the purchase price of
the Shares to be purchased based on their Fair Market Value at the time of
exercise or a combination thereof. No Shares shall be issued upon exercise of an
Option until full payment has been made therefor. All notices or request
provided for herein shall be delivered to the Company's Secretary, or such other
person as the Committee may designate. No fractional Shares shall be issued.

        7.2    Cashless Exercise Procedures   The Company, in its sole
discretion, may establish procedures whereby a Director, subject to the
requirements of Regulation T, federal income tax laws, and other federal, state
and local tax and securities laws, can exercise an Option or a portion thereof
without making a direct payment of the option price to the Company. If the
Company elects to establish a cashless exercise program, a Director may utilize
such program but only in accordance with such administrative procedures and
policies as the Company deems appropriate and such procedures and policies shall
be binding on any Director wishing to utilize the cashless exercise program.

                                      A-5
<PAGE>
 
8.   RIGHTS OF OPTION HOLDER

The holder of an Option shall not have any of the rights of shareholder with
respect to the Shares subject to purchase or receipt under his Option, except to
the extent that one or more certificates for such Shares shall be issuable to
the holder upon the due exercise of the Option and the payment in full of the
purchase price therefor.


9.   NONTRANSFERABILITY OF OPTIONS

An Option shall not be transferable, other than (a) by will or the laws of
descent and distribution, and an Option may be exercised, during the lifetime of
the holder of the Option, only but the holders, or in the event of death, the
holder's Successor, or in the event of disability, the holder's personal
representative, or (b) pursuant to a qualified domestic relation order, as
defined in the Code or ERISA or the rules thereunder.


10.  ADJUSTMENTS UPON CHANGES IN CAPITALIZATION

In the event of changes in all of the outstanding Shares by reason of stock
dividends, stock splits, reclassification, recapitalizations, mergers,
consolidations, combinations, or exchanges of shares, separations,
reorganizations or liquidations, or similar events, or in the event of
extraordinary cash or non-cash dividends being declared with respect to the
Shares, or similar transactions or events, the number and class of Shares
available under the Plan in the aggregate the number and class of Shares subject
to Options theretofore granted, applicable purchase prices and all other
applicable provisions, shall, subject to the provisions of the Plan, be
equitably adjusted by the Committee (which adjustment may, but need not, include
payment to the holder of an Option, in cash or in Shares, in an amount equal to
the difference between the price at which such Option may be exercised and the
then current Fair Market Value of the Shares subject to such Option as equitably
determined by the Committee). The foregoing adjustment and the manner of
application of the foregoing provisions shall be determined by the Committee, in
its sole discretion. Any such adjustment may provide for the elimination of any
fractional Share which might otherwise become subject to an Option.


11.  CHANGE IN CONTROL

Notwithstanding anything to the contrary herein or in any Option Agreement, in
the case of a Change in Control of the Company, each Option granted under the
Plan shall terminate on the later of (i) ninety (90) days after the occurrence
of such Change in Control, and (ii) seven (7) months following the date of grant
of each such Option, and an Option holder shall have the right, commencing at
least five (5) days prior to such Change in Control and subject to any other
limitation on exercise of an Option in effect on the date of exercise, to
immediately exercise any Option in full, without regard to any vesting
limitations, to the extent it shall not have been previously exercised.


12.  FORMS OF OPTIONS

An Option shall be granted hereunder on the date or dates specified in the Plan.
Whenever the Plan provides for the receipt of an Option by a Director, the
Secretary of the Company, or such other person as the Committee shall appoint,
shall forthwith send notice thereof to the Director, in such form as the
Committee shall approve, stating the number of Shares subject to the Option, its
Term, and the other terms and conditions thereof. The notice shall be
accompanied by a written Option Agreement, in such form as may from time to time
hereafter be approved by the Committee, which shall have been duly executed by
or on behalf of the Company. Execution by the Director to whom such Option is
granted of said Option Agreement in accordance with the provisions set forth in
this Plan shall be a condition precedent to the exercise of any Option.

                                      A-6
<PAGE>
 
13.  TAXES

The Company shall have the right to require a person entitled to receive Shares
pursuant to the exercise of an Option under the Plan to pay the Company the
amount of any taxes which the Company is or will be required to withhold, if
any, with respect to such Shares before the certificate for such Shares is
delivered pursuant to the Option.


14.  TERMINATION OF THE PLAN

The Plan shall terminate ten (10) years from the date the Plan is adopted by the
Board, and an Option shall not be granted under the Plan after that date
although the terms of any Option may be amended at any date prior to the end of
its Term in accordance with the Plan. Any Option outstanding at the time of
termination of the Plan shall continue in full force and effect according to the
terms and conditions of the Option and this Plan.


15.  AMENDMENT OF THE PLAN

The Plan may be amended at any time and from time to time by the Board, but no
amendment without the approval of the shareholders of the Company shall be made
if shareholder approval under Rule 16b-3 would be required. Notwithstanding the
foregoing, the Plan may not be amended more than once every six (6) months to
change the Plan provisions listed in section (c)(2)(ii)(A) of Rule 16b-3, other
than to comport with changes in the Code, ERISA or Rule 16b-3. Notwithstanding
any discretionary authority granted to the Committee in Section 4 of the Plan,
no amendment of the Plan or any Option granted under the Plan shall impair any
of the rights of any holder, without the holder's consent, under any Option
theretofore granted under the Plan.


16.  DELIVERY OF SHARES ON EXERCISE

Delivery of certificates for Shares pursuant to an Option exercise may be
postponed by the Company for such period as may be required for it with
reasonable diligence to comply with any applicable requirements of any federal,
state or local law or regulation or any administrative or quasi-administrative
requirement applicable to the sale, issuance, distribution or delivery of such
Shares. The Committee may, in its sole discretion, require a Director to furnish
the Company with appropriate representations and a written investment letter
prior to the exercise of an Option or the delivery of any Shares pursuant
thereto.


17.  FEES AND COSTS

The Company shall pay all original issue taxes on the exercise of any Option
granted under the Plan and all other fees and expenses necessarily incurred by
the Company in connection therewith.


18.  EFFECTIVENESS OF THE PLAN

The Plan was approved by the Board on May 14, 1998, and shall become effective
on the Effective Date.


19.  OTHER PROVISIONS

As used in the Plan, and in Option Agreements and other documents prepared in
implementation of the Plan, references to the masculine pronoun shall be deemed
to refer to the feminine or neuter, and references in the singular or the plural
shall refer to the plural or the singular, as the identity of the person or
persons or entity or entities being referred to may

                                      A-7
<PAGE>
 
require. The captions used in the Plan and in such Option Agreements and other
documents prepared in implementation of the Plan are for convenience only and
shall not affect the meaning of an provision hereof or thereof.


20.  DELAWARE LAW TO GOVERN

This Plan shall be governed by and construed in accordance with the laws of the
State of Delaware.

                                      A-8


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