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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
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 (S) 240.14a-11(c) or (S) 240.14a-12
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ENVIRONMENTAL POWER CORPORATION
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(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:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
The Annual Meeting of Stockholders of Environmental Power Corporation, a
Delaware corporation (the "Company" or "EPC"), will be held on Thursday, July
25, 2002 at 10:00 a.m. E.D.T., at the Le Meridien Hotel, 250 Franklin Street,
Boston, Massachusetts, for the following purposes:
1. To elect a Board of Directors to serve for the ensuing year and until their
respective successors have been duly elected and qualified. The nominees
the Board proposes to present for election are Joseph E. Cresci, Donald A.
Livingston, Peter J. Blampied, Robert I. Weisberg, Thomas M. Matthews,
Herman Brubaker, Jessie J. Knight, Jr. and August Schumacher, Jr.;
2. To approve a proposal to adopt the Environmental Power Corporation 2002
Director Option Plan;
3. To consider and act upon a proposal to ratify the selection of the firm of
Deloitte & Touche LLP as auditors for the Company for the fiscal year
ending December 31, 2002; and
4. To transact such other business as may properly come before the meeting or
any adjournments thereof.
Only stockholders of the Company's outstanding Common Stock of record on the
books of the Company at the close of business on June 1, 2002 will be entitled
to notice of and to vote at the meeting. In accordance with Delaware corporate
law, the Company will make available for examination by any stockholder entitled
to vote at the meeting, for any purpose germane to the meeting, during ordinary
business hours, for at least 10 days prior to the meeting, at the offices of the
Company, a complete list of the stockholders of record entitled to vote at the
meeting, arranged in alphabetical order. All stockholders are cordially invited
to attend the meeting.
Please sign, date and return the enclosed proxy in the enclosed envelope at your
earliest convenience. If you return your proxy, you may nevertheless attend the
meeting and vote your shares in person.
By Order of the Board of Directors,
Portsmouth, New Hampshire Joseph E. Cresci
June 25, 2002 Secretary
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY IN
THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IN THE UNITED STATES.
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
PROXY STATEMENT
June 25, 2002
Proxies in the form enclosed with this proxy statement are solicited by the
Board of Directors of Environmental Power Corporation, a Delaware corporation
(the "Company" or "EPC"), for use at the Annual Meeting of Stockholders to be
held on Thursday, July 25, 2002 at 10:00 a.m. E.D.T. Le Meridien, 250 Franklin
Street, Boston, Massachusetts, and any adjournments thereof (the "Meeting").
Any stockholder may revoke their proxy at any time prior to its exercise by
filing a later-dated proxy or a written notice of revocation with the Secretary
of the Company, or by voting in person at the Meeting. If a stockholder is not
attending the Meeting, any proxy or notice should be returned in time for
receipt no later than the close of business on the day preceding the Meeting.
The persons named as attorneys-in-fact in the proxies are officers of the
Company.
Only stockholders of the Company's Common Stock of record as of the close of
business on the record date of June 1, 2002 will be entitled to notice of and to
vote at the Meeting and any adjournments thereof.
As of June 1, 2002 there were 19,913,879 shares of Common Stock of the Company
outstanding, which is the only class or series of outstanding voting securities.
Each share of common stock is entitled to one vote; therefore the maximum number
of votes which may be cast on each proposal is 19,913,879. The presence of a
majority of the voting power of the outstanding shares of Common Stock
represented in person or by proxy at the meeting will constitute a quorum. All
matters to be voted on will be decided by the vote of a majority of the voting
power of the shares of Common Stock, present or represented at the Meeting and
entitled to vote.
All properly executed proxies returned in time to be cast at the Meeting will be
voted and, with respect to the election of the Board of Directors, will be voted
as stated under "Election of Directors" below. Where a choice has been specified
on the proxy with respect to a proposal, the shares represented by the proxy
will be voted in accordance with the specification and will be voted FOR each
proposal if no specification is indicated. If a stockholder returns a proxy
withholding authority to vote the proxy with respect to a nominee for director,
then the shares covered by such proxy shall be deemed present at the Meeting for
purposes of determining a quorum and for purposes of calculating the vote with
respect to each nominee, but shall not be deemed to have been voted for such
nominee. If a stockholder abstains from voting with respect to any matter, then
the shares held by such stockholder shall be deemed present at the Meeting for
purposes of determining a quorum and for purposes of calculating the vote with
respect to such matter, but shall not be deemed to have been voted in favor of
such matter. If a broker returns a non-vote proxy, indicating a lack of
authority to vote on any matter, then the shares covered by such non-vote shall
be deemed present at the Meeting for purposes of determining a quorum but shall
not be deemed to be present and entitled to vote at the Meeting for purposes of
calculating the vote with respect to such matter.
The Board of Directors of the Company knows of no other matters to be presented
at the Meeting. If any other matter should be presented at the Meeting upon
which a vote properly may be taken, shares represented by all proxies received
by the Board of Directors will be voted with respect thereto in accordance with
the judgment of the persons named in the proxies.
This proxy statement and the form of proxy were first mailed to stockholders on
or about the date hereof.
2
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of June 1, 2002 the name of each person who,
to EPC's knowledge, owned beneficially more than 5% of the shares of Common
Stock of EPC outstanding at such date, the number of shares owned by each of
such persons and the percentage of the class represented thereby.
Name and Address of Beneficial Amount and Nature of
------------------------------ --------------------
Owner Beneficial Ownership /(1)/ Percentage of Class
----- -------------------------- -------------------
Joseph E. Cresci 4,732,848 /(2)/ 23.8%
c/o Environmental Power Corporation
One Cate Street, 4/th/ Floor
Portsmouth, NH 03801
George A. Kast 2,823,188 14.2%
c/o Global Water Technologies
1767 Denver West Boulevard
Suite C-500
Golden, CO 80401
Benjamin J. Brant 2,415,292 /(3)/ 12.1%
7553 S. Gartner Road
Evergreen, CO 80439
Donald A. Livingston 2,461,739 12.4%
c/o Environmental Power Corporation
One Cate Street, 4/th/ Floor
Portsmouth, NH 03801
Daniel J. Eastman 1,120,882 /(4)/ 5.5%
c/o Microgy Cogeneration Systems
166 North Green Bay Road
Suite C
Thiensville, WI 53092
James F. Powers, as Trustee 1,000,000 5%
c/o Vitale Caturano and Company
210 Commercial Street
Boston, MA 02109
(1) Information with respect to beneficial ownership is based upon information
furnished by such stockholders. Except as indicated in notes 2 and 4, all
shares are held beneficially and of record.
(2) Includes 3,665,618 shares held in a revocable trust for the benefit of
members of Mr. Cresci's family, of which Mr. Cresci is the trustee, and
59,730 shares held in trust for the benefit of Mr. Cresci and his children,
as to which Mr. Cresci has shared voting and investment power; but does not
include 20,000 shares owned by Mr. Cresci's wife, as to which shares Mr.
Cresci has neither voting nor investment power and as to which shares he
disclaims beneficial ownership. Also includes 1,000,000 shares which
3
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
Mr. Cresci deposited into a voting trust on November 20, 1996 and in which
James F. Powers has beneficial ownership in his capacity as trustee with
sole voting power. Mr. Cresci also has beneficial ownership in such shares
which are evidenced by voting trust certificates held by The Cresci Family
Limited Partnership of which Mr. Cresci is the sole general partner with
sole dispositive power.
(3) Includes 1,660,426 shares that are subject to a 12 month transferable
option granted on May 2, 2002 to the Company to purchase such shares at
$0.35 per share. The Company is required to purchase at least 222,597 of
these shares by specified times. To the extent the option expires
unexercised, the Company will be granted a 12 month right of first refusal
on the sale of the underlying shares.
(4) Includes 389,872 shares which Mr. Eastman has the right to acquire pursuant
to stock warrants which are currently exercisable.
4
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
PROPOSAL ONE ~ ELECTION OF DIRECTORS
The directors of the Company are elected annually and hold office for the
ensuing year and until their successors have been elected and qualified. Joseph
E. Cresci, Donald A. Livingston, Peter J. Blampied, Robert I. Weisberg, Thomas
M. Matthews, Herman Brubaker, Jessie J. Knight, Jr. and August Schumacher, Jr.
have been nominated by management for election at the Meeting. All nominees,
except Messrs. Brubaker, Knight and Schumacher, are presently directors of the
Company, having been elected at the Annual Meeting of Stockholders held on
November 1, 2001. Edward B. Koehler, George A. Kast and Benjamin J. Brant, who
are currently directors, are not standing for reelection. The Company's by-laws
presently state that the number of directors constituting the entire Board of
Directors shall be determined by resolution of the Board of Directors. The
number of directors currently fixed by the Board of Directors is eight. This
number may be changed by resolution of the Board of Directors.
No proxy may be voted for more people than the number of nominees listed below.
Shares represented by all proxies received by the Board of Directors and not so
marked as to withhold authority to vote for any individual director (by striking
that individual director's name where indicated on the proxy) or for all
directors will be voted (unless one or more nominees are unable or unwilling to
serve) FOR the election of all the nominees named below. The Board of Directors
knows of no reason why any such nominee would be unable or unwilling to serve,
but if such should be the case, proxies may be voted for the election of some
other person.
On July 23, 2001, the Company acquired approximately 87.7% of the outstanding
common stock of Microgy Cogeneration Systems Inc. ("Microgy") in exchange for
securities of the Company pursuant to a Share Exchange Agreement (the "Exchange
Agreement") dated June 20, 2001 among the Company, Microgy and the Principal
Microgy Shareholders, as defined therein. Subsequently, the Company acquired the
remaining Microgy securities in exchange for securities of the Company.
Pursuant to the Exchange Agreement, the Board of Directors of the Company was
enlarged from five to eight members and the three resulting vacancies were
filled by designees of the Principal Microgy Shareholders (including
replacements or substitutes similarly designated, the "Microgy Designees"). The
Microgy Designees currently serving on the board are George A. Kast, Benjamin J.
Brant and Thomas M. Matthews, the Microgy Designees nominated for election at
the Meeting are Messrs. Brubaker, Knight, and Schumacher.
In connection with the Exchange Agreement, the Company, the Principal Microgy
Shareholders, Joseph E. Cresci and Donald A. Livingston entered into a
Stockholders' Agreement as of the Closing Date (the "Stockholders' Agreement").
Messrs Cresci and Livingston (the "Majority Stockholders") are Directors,
officers and principal stockholders of the Company. The Stockholders Agreement,
which terminates on June 30, 2003, provides among other things, that the parties
will take all lawful action, including voting the shares they own or control, to
cause the proportion of Microgy Designees to the existing five Directors
(including and replacement or substitute designated by the Majority
Stockholders, the "Incumbent Directors") to remain at approximately 3:5 and for
the election of the Microgy Designees and the Incumbent Directors. The Company
believes that the parties to the Stockholders' Agreement vote or control
outstanding shares with approximately 13,066,595 (or 65.6%) of the votes which
may be cast at the Meeting.
The Board of Directors of the Company held seven meetings during the fiscal year
ended December 31, 2001. The Compensation Committee, which consisted of Messrs.
Blampied, Koehler and Weisberg, determines the compensation of the Company's
Chief Executive Officer and Chief Operating Officer and
5
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
met once in 2001. The Audit Committee, which consisted of Messrs. Blampied,
Koehler and Weisberg, oversees the accounting and financial functions of the
Company, including matters relating to the appointment and activities of the
Company's independent auditors, and met twice in 2001. The Executive Committee,
which consists of Messrs. Cresci and Livingston, can act in place of the full
Board of Directors to the extent permitted by law and did not meet in 2001. Each
member of the Board of Directors attended at least 75% of the aggregate of the
total number of meetings of the Board of Directors and any Committee on which he
served.
The following table sets forth as of June 1, 2002 the number and percentage of
outstanding shares of Common Stock beneficially owned by our Named Executives,
Directors, nominees for Director, and Directors and Officers as a group. Mr.
Linehan, a Named Executive, who served as acting Chief Financial Officer until
May 2002, Messrs. Koehler and Matthews, both Directors, and Messrs. Brubaker,
Knight and Schumacher, who are nominees for Director, do not beneficially own
Common Stock.
Nominee's Name and Date Positions and Offices Amount and Nature of Percentage of
----------------------- --------------------- ------------------- -------------
First with EPC Beneficial Ownership Class
----- -------- -------------------- -----
Became a Director /(1)/
----------------- -----
Joseph E. Cresci Chairman, Chief Executive 4,732,848 /(2)/ 23.8%
1982 Officer, Secretary, and Director
George A. Kast Director 2,823,188 14.2%
2001
Benjamin J. Brant Director 2,415,292 /(3)/ 12.1%
2001
Donald A. Livingston President, Chief Operating 2,461,739 12.4%
1982 Officer and Director
Robert I. Weisberg Director 620,000 /(4)/ 3.0%
1994
Peter J. Blampied Director 150,300 /(5)/ 0.8%
1988
All Directors and Officers as a group (9 persons) 13,553,641 /(6)/ 66.0%
(1) Except as otherwise indicated, the named person has sole voting and
investment power with respect to the shares. Except as indicated in notes
2, 4, and 5 and 6 all shares are held beneficially and of record.
(2) Includes 3,665,618 shares held in a revocable trust for the benefit of
members of Mr. Cresci's family, of which Mr. Cresci is the trustee, and
1,000,000 shares held by the voting trust described above and 59,730 shares
held in trust for the benefit of Mr. Cresci and his children; but does not
include 20,000 shares owned by Mr. Cresci's wife as to which shares he
disclaims beneficial ownership. Mr. Cresci has shared voting and investment
power with respect to the 59,730 shares held in trust for the benefit of
himself and his children but no voting power with respect to the shares
held in the voting trust.
6
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
(3) Includes 1,660,426 shares that are subject to a 12 month transferable
option granted on May 2, 2002 to the Company to purchase such shares at
$0.35 per share. The Company is required to purchase at least 222,597 of
these shares by specified times. To the extent the option expires
unexercised, the Company will be granted a 12 month right of first refusal
on the sale of the underlying shares.
(4) Includes 490,000 shares which Mr. Weisberg has the right to acquire
pursuant to stock options and 50,000 shares which Alco Financial Services,
LLC has the right to acquire pursuant to warrants which are all currently
exercisable.
(5) Includes 50,000 shares which Mr. Blampied has the right to acquire pursuant
to stock options which are all currently exercisable.
(6) Includes 530,000 shares which Messrs. Blampied and Weisberg have the right
to acquire pursuant to stock options and 50,000 shares which Alco Financial
Services, LLC has the right to acquire pursuant to warrants which are all
currently exercisable.
Occupations of Directors
The following table sets forth the age and principal occupation of each of the
nominees for director during the past five years. Messrs. Koehler, Kast and
Brant are not standing for reelection. Messrs. Brubaker, Knight and Schumacher
are the only nominees not currently serving as directors. Except for Mr.
Blampied, who is a director for Access Capital Strategies, 124 Mount Auburn
Street, Cambridge, MA 02138 and a trustee for Northeast Investors Trust, 50
Congress Street, Boston, MA 02109, Mr. Weisberg who is a trustee for Monterey
Mutual Fund, 1299 Ocean Avenue, Suite 210, Santa Monica, California 90401, Mr.
Thomas M. Matthews, who is a director of Global Water Technologies, 1767 Denver
West Boulevard, Golden, CO 80401 and Mr. Knight who is a director of DBS
Industries Inc., 100 Shoreline Hwy, Suite 190A, Mill Valley, CA 94941 and Avista
Corporation, PO Box 3727, Spokane, WA 99220, none of the other nominees for
director holds any other directorships in any company subject to the reporting
requirements of the Securities Exchange Act of 1934 or in any company registered
as an investment company under the Investment Company Act of 1940.
Name Age Principal Occupation
Joseph E. Cresci 60 Chairman and Chief Executive Officer of EPC
(1982 - present)
Donald A. Livingston 59 President and Chief Operating Officer of
EPC (1991 - present); President of Microgy
(July 2001 - present)
Peter J. Blampied 59 Trustee, Northeast Investors Trust (2000 to
present); President, Corcoran Management
Company (1998-present); Director, A.W.
Perry, Inc. (1998 - present); Director,
Access Capital Strategies (1997 - present);
Director, Nellie Mae (1982 - present);
Director, Citizens Bank of Massachusetts
(1996 - 1999); Director, Citizens Financial
Group, Inc. (1994- 1996)
Robert I. Weisberg 55 President and Chief Executive Officer, Alco
Financial Services, LLC (1997 - present);
Trustee, Monterey Mutual Fund (1998 -
present); President and Chief Executive
Officer, Pro-Care Financial Group, Inc.
(1994 - 1997)
7
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
Name Age Principal Occupation
Thomas M. Matthews 59 Chairman and Director, EOTT Energy Corp
(2002 - present); Director, Global Water
Technologies, Inc. (1999 - present);
Chairman and Chief Executive Officer,
Avista Corporation (1998 - 2001);
President, Dynegy Corporation (1996 -
1998); Vice President, Texaco, Inc. (1989 -
1996)
August Schumacher, Jr. 62 Managing Director, Washington D.C.
Operations, SJH and Co, (2001 - present);
Consultant, W.K.K. Kellogg Foundation (2001
- present); Under Secretary of Farm and
Foreign Agricultural Service, U.S. Dept of
Agriculture (1997 - 2001); Administrator,
Foreign Agricultural Service, U.S. Dept. of
Agriculture (1994 - 1997); Senior
Agricultural Project Manager, World Bank
(1990 - 1994); Commissioner of Food and
Agriculture, Commonwealth of Massachusetts
(1984 - 1990)
Jessie J. Knight, Jr. 51 President and Chief Executive Officer, San
Diego Regional Chamber of Commerce (1998 -
Present); Executive Vice President,
Navillus Associates, LLC (1998 - Present);
Managing Commissioner, Electric, Gas and
Telecommunications, California Public
Utilities Commission (1993 - 1998)
Herman Brubaker 71 Lifetime dairy farmer; Chairman of the
Board, Dairy Farmers of America ( 1998 -
Present ); Member, Board of Directors,
National Milk Producers Federation (1977 -
Present); Chairman of the Board, United
Dairy Industry Association (1980 -
Present); Chairman of the Board, Dairy
Management, Inc. (1992 - Present)
8
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
Compensation of Executive Officers
Summary Compensation Table: The following table sets forth certain information
with respect to the annual and long-term compensation of our Chief Executive
Officer, Chief Operating Officer and each other executive officer earning in
excess of $100,000 in salary and bonus in 2001 for the three fiscal years ended
December 31, 2001. Such persons are referred to as the Named Executives.
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name Restricted
---- ----------
Principal Position Year Salary Bonus Stock Awards Options
------------------ ---- ------ ----- ------------ -------
Joseph E. Cresci 2001 $285,417 -- -- --
Chairman, Chief Executive 2000 $150,000 $350,000 -- --
Officer and Secretary 1999 $150,000 -- -- --
Donald A. Livingston 2001 $285,417 -- -- --
President and Chief Operating 2000 $150,000 $350,000 -- --
Officer 1999 $150,000 -- -- --
William D. Linehan 2001 $107,609 -- -- --
Former Acting Chief Financial 2000 $ 91,708 $ 10,000 -- --
Officer and Former Acting 1999 $ 71,500 -- -- --
Treasurer
Stock Options: We granted no options during 2001 to the Named Executives. As of
December 31, 2001, there were no unexercised options held by the Named
Executives.
Defined Benefit Pension Plan: In December 1998, we established a noncontributory
defined benefit pension plan covering all eligible employees of EPC. The pension
plan is subject to the provisions of the Employee Retirement Income Security Act
of 1974. Employees aged 21 or older who have completed twelve months of service
during which they worked a minimum of 1,000 hours are eligible to participate.
Employees earn a year of service for vesting purposes in each employment year in
which they complete at least 1,000 hours of employment. Employees become vested
in the pension plan over a 6 year period. Vesting is 20% after 2 years and 20%
per year thereafter, to 100% after 6 years. Benefits are based upon the
participant's annual compensation, including bonuses and similar special pay, as
more fully defined in the pension plan, over the number of years of service up
to a maximum of 25 years.
9
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
The following table shows the estimated annual pension benefits payable upon
retirement to a participant of the pension plan for various salary levels and
years of service.
Average Annual Years of Service
-------------- ----------------
Compensation 10 15 20 25
------------ -- -- -- --
100,000 11,000 24,750 44,000 55,000
150,000 16,500 37,125 66,000 82,500
200,000 18,700 42,075 74,800 93,500
250,000 18,700 42,075 74,800 93,500
During fiscal year 2001, the maximum amount of annual compensation which may be
included for pension plan purposes was $170,000. The figures shown above apply
under the pension plan as of December 31, 2001. The benefit amounts listed are
not subject to any deduction for Social Security or other offset amounts. As a
result of limitations imposed under the Federal income tax law, the maximum
annual benefit payable under the pension plan for the fiscal year ending
December 31, 2001 is $140,000, although the amount will be actuarially adjusted
in accordance with Federal income tax regulations if payments commence prior to
or following the date that unreduced Social Security benefits become payable. As
of December 31, 2001, Messrs. Cresci and Livingston each had nineteen years of
credited service under the pension plan and Mr. Linehan had six years of
credited service under the pension plan.
Compensation of Directors
Each director of EPC who is not an officer or employee of EPC receives $2,000,
plus expenses, for each scheduled meeting of the Board of Directors or
non-coincident meeting of a board committee which he or she attends.
Additionally, each non-employee director may receive option grants under our
1993 Director Option Plan: 40,000 options on the first anniversary of service
and 10,000 options on subsequent anniversaries. The 1993 Director Option Plan
will expire on July 13, 2003. Under the 2002 Director Option Plan, which is
being voted upon as Proposal Two at the Meeting and is described below, each
non-employee director first elected on or after the date of the Meeting will
receive 50,000 options on the date of such first election or appointment. In
addition, each non-employee director would receive a grant of 50,000 options on
each anniversary date of such director's election or appointment.
During 2001, Messrs. Blampied and Weisberg each received option grants under our
1993 Director Option Plan to purchase 10,000 shares which are exercisable at per
share prices of $0.57 and $0.83, respectively, based on the market prices of the
Common Stock on their anniversary dates of becoming directors. Mr. Matthews will
receive options based upon his respective anniversary date. Mr. Koehler, under
the policies of the law firm in which he is a partner, which law firm
periodically provides services to EPC, is prohibited from owning shares in EPC.
Mr. Weisberg received a total of 450,000 options under special grants in
recognition of extraordinary efforts on financing matters, as follows: In May
2001, Mr. Weisberg was granted options to purchase 100,000 shares at $0.43 per
share. In September 2001, Mr. Weisberg was granted options to purchase 350,000
shares at $0.72 per share.
Compensation Committee Interlocks and Insider Participation
10
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
The Compensation Committee is comprised of Peter J. Blampied, Edward B. Koehler
and Robert I. Weisberg. No member of the Compensation Committee is now an
officer or an employee of EPC or any of its subsidiaries or has been at any time
an officer or employee of EPC or any of its subsidiaries.
Mr. Koehler is a partner with Hunton & Williams, Hong Kong, a law firm which
periodically provides services to EPC.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors determines the Company's
executive compensation policy and sets compensation for the Chief Executive
Officer (the "CEO") and Chief Operating Officer (the "COO").
The Compensation Committee's policy is to offer the CEO and COO competitive
compensation packages that will permit the Company to attract and retain
individuals with superior abilities and to motivate and reward such individuals
on the basis of the Company's performance in an appropriate fashion in the
long-term interests of the Company and its shareholders. Currently, executive
compensation is comprised of salary and cash bonuses which may be awarded from
time to time. In previous years, the Company offered its executive officers
long-term incentive opportunities in the form of stock options under the
Company's now expired 1990 Stock Plan and restricted stock awards. The Board of
Directors determined that it was in the best interest of the Company to
establish another stock plan, which will offer other long-term incentive
opportunities for executive officers and other employees. In November 2001, the
Company's stockholders approved the 2001 Stock Incentive Plan.
The Compensation Committee takes into account various qualitative and
quantitative indicators of corporate and individual performance in determining
the level and composition of compensation for the CEO and COO. The Compensation
Committee does not utilize any specific quantitative formula or targets in
making compensation decisions. While the Compensation Committee considers
corporate performance measures such as net income, earnings per share, return on
assets and return on equity, the Compensation Committee also appreciates the
importance of achievements that may be difficult to quantify, and accordingly
recognizes qualitative factors, such as successful supervision of major projects
and demonstrated leadership ability. Base salaries for the CEO and COO are
established at levels considered appropriate in light of the duties and scope of
responsibilities of each officer's position. Salaries are generally reviewed
periodically and adjusted as warranted to reflect individual officer
performance. The Compensation Committee focuses primarily on total annual
compensation, including incentive awards and benefits derived from other fringe
benefits such as the Pension Plan, rather than base salary alone, as the
appropriate measure of executive officer performance and contribution.
Compensation decisions regarding executive officers other than the CEO and COO
are made by the CEO and COO.
As discussed in the section "Compensation of Executive Officers", the Company
established in December 1998 a Pension Plan to provide retirement benefits to
all of its eligible employees including the CEO and COO. The Company funded its
1998 contribution to the Pension Plan of $255,062 during 1999, which
contribution benefited the CEO and COO in the amounts of $132,416 and $109,431,
respectively. In December 1998, in anticipation of receiving this benefit from
the Pension Plan, the CEO and COO each elected to repay to the Company a portion
of their 1998 compensation in an amount equal to the benefit they would receive
from the 1998 contribution to the Pension Plan. As a result, the 1998 annual
compensations
11
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
of the CEO and COO were reduced from $200,000 and $200,000, respectively, to
$67,584 and $90,569, respectively. The Company is currently reviewing the
Pension Plan and may consider revision to the pension program in 2002.
During 1999, the responsibilities of the CEO and COO became less complex after
the settlement of the Milesburg litigation, therefore the Compensation Committee
set a lower base salary for the CEO and COO and established a policy of
rewarding these executive officers with cash bonuses which were tied to
successful achievements, improvements in results and the fulfillment of
corporate goals. In March 1999, to further these objectives, the Compensation
Committee ratified the establishment of the Pension Plan, reduced the annual
base salaries for the CEO and COO from $200,000 to $150,000, and considered
various bonus incentives for these executive officers. The Compensation
Committee considered the lower base salaries, when combined with the estimated
benefits that the CEO and COO would receive from the Pension Plan and bonus
incentives, to be an appropriate compensation package for the CEO and COO at
that time.
In April 2000, the Compensation Committee awarded the CEO and COO each a bonus
of $100,000. In deciding to award this bonus, the Compensation Committee
considered factors including the very successful results achieved by the CEO and
COO in the settlement of the long-standing litigation with Pennsylvania Electric
Company.
In December 2000, the Compensation Committee awarded the CEO and COO each a
bonus of $250,000 to acknowledge the significant progress made toward the
settlement of the Sunnyside litigation as well as the increase in their duties
to formulate and assess restructuring options, consider sale and merger
proposals, and evaluate prospects for business expansion. However, due to
concerns about the Company's ongoing cash requirements, the Compensation
Committee requested that the CEO and COO use substantially all of the proceeds
from these cash bonuses to repay their outstanding loans due to the Company. The
Compensation Committee agreed, however, to allow the CEO and COO to borrow back
sufficient funds to pay their individual tax obligations resulting from these
bonuses subject to the Company's receipt of a settlement payment from the
Sunnyside litigation. The Compensation Committee felt this arrangement properly
compensated the CEO and COO for their present achievements, duties and
responsibilities while also preserving the Company's cash resources for ongoing
business activities.
April 2001, the Company received $1,500,000 pursuant to a settlement of the
Sunnyside litigation and the CEO and COO each borrowed back $100,000 from the
Company. On June 15, 2001 in order to reflect the increase in their workload and
responsibility due the imminent acquisition of Microgy, the salaries of the CEO
and COO were increased to their present level of $400,000. There were no cash
bonuses paid to these executives in 2001.
In 1993, Congress enacted Section 162(m) of the Internal Revenue Code, which
prevents publicly held corporations from deducting compensation in excess of $1
million paid to CEO's and the four highest compensated officers unless the
compensation is performance-based. The Company's compensation program currently
is not of a level such that this limit would apply.
Respectfully submitted by the Compensation Committee:
Peter J. Blampied Edward B. Koehler Robert I. Weisberg
12
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
STOCK PERFORMANCE GRAPH
The following graph compares the Company's cumulative stockholder return on its
Common Stock with the return on the NASDAQ Market Index and with the SIC Code
4911 (Electric Services) Index for the five year period ended December 31, 2001.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG ENVIRONMENTAL POWER CORP.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
1996 1997 1998 1999 2000 2001
ENVIRONMENTAL POWER CORP 100.00 282.40 166.14 140.08 119.35 132.76
SIC CODE INDEX 100.00 123.38 140.37 117.99 148.71 125.32
NASDAQ MARKET INDEX 100.00 122.32 172.52 304.29 191.25 152.46
ASSUMES $100 INVESTED ON JAN. 1, 1997
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2001
Other Transactions
During 1993 and 1995, Messrs. Cresci and Livingston exercised options to
purchase shares of the Company's Common Stock. As payment for the exercise price
of these stock options, EPC accepted promissory notes payable upon our demand
from Messrs. Cresci and Livingston aggregating $332,875 and $428,281,
respectively. In 2000, EPC asked that a portion of these notes be repaid using
the proceeds from bonuses due to concerns about ongoing cash requirements. In
April 2001, the Company received $1,500,000 pursuant to a settlement of the
Sunnyside litigation and Messrs. Cresci and Livingston were allowed to each
borrow $100,000 from EPC. As of December 31, 2001, Messrs. Cresci and Livingston
had aggregate balances due to EPC of $186,875 and $410,498, respectively under
these notes and loans. Interest on these notes and loans, which is payable
monthly at the Applicable Federal Rate, amounted to $21,312 in the aggregate
during 2001 and has been fully collected from Messrs. Cresci and Livingston.
13
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
In September 1997, Mr. Weisberg exercised options to purchase 80,000 shares of
the Company's Common Stock. As payment for the exercise price of these stock
options, we accepted a promissory note which is payable upon our demand from Mr.
Weisberg in the amount of $48,575. Interest on this note, which is payable
quarterly at the Applicable Federal Rate, amounted to $1,969 in 2001 and has
been fully collected from Mr. Weisberg.
On September 14, 2001, after an extensive search for financing, the Company
borrowed $750,000 from Alco Financial Services, LLC. Robert Weisberg, a director
of EPC, is President, a Director and a member of Alco. The loan is evidenced by
a one-year promissory note which bears interest at the prime rate plus 3.5%. The
Company also pays an administrative fee of 0.6% per month and paid a commitment
fee of $7,500 to secure the loan. The loan is secured by all of the Company's
assets (other than the stock of the Company's subsidiary, Buzzard Power
Corporation). In connection with the loan, the Company granted Alco five year
warrants to purchase 50,000 shares of Common Stock at $0.60 per share. In April
2002, the principal repayment terms of the loan were modified so that all
principal is now due by April 1, 2003.
In 2001, Mr. Kast advanced $177,000 to Microgy on a short-term basis prior to
its becoming a subsidiary of EPC. In September 2001, the loan was repaid, at a
discount, for $150,000 by EPC.
On November 14, 2001 EPC entered into a consulting agreement with SJH & Company
Inc. ("SJH"). August Schumacher, Jr., a nominee for the Board of Directors, is a
managing director of SJH. SJH provides EPC consulting services on an hourly
basis regarding the agricultural and agribusinesses. EPC paid SJH fees of
$30,000 and $118,367 in 2001 and year to date 2002, respectively.
On May 2, 2002, Benjamin Brant, a director of EPC and a former officer of our
Microgy subsidiary, granted to EPC a transferable one-year option to purchase
1,802,486 shares of his Common Stock at $0.35 per share. EPC is required to
exercise the option to purchase at least 342,857 of such shares by specified
times. To the extent any portion of the option expires unexercised, Mr. Brant
would grant EPC a transferable right of first refusal for the underlying shares
for a 12 month period beginning upon expiration of the option. Mr. Brant also
agreed to deliver an additional 197,514 shares of his Common Stock to EPC in
satisfaction of an obligation in the amount of $69,129 to Microgy by a company
of which Mr. Brant is a principal. Mr. Brant had previously guaranteed this
obligation to Microgy under a June 2001 agreement. Mr. Brant also agreed to a 24
month standstill whereby an additional 753,066 shares of his Common Stock would
not be sold into the public markets.
On May 3, 2002, EPC exercised the option to purchase 120,000 shares of Mr.
Brant's Common Stock by a cash payment of $42,000. On May 3, 2002, Mr. Brant
also delivered 197,514 shares of his Common Stock to EPC in full satisfaction of
the obligation to Microgy described in the previous paragraph. On May 17, 2002,
EPC exercised the option to purchase 20,260 shares of Mr. Brant's Common Stock
by a cash payment of $7,091. The shares acquired by the Company from Mr. Brant
are being held as treasury shares, reducing the outstanding Common Stock.
Edward B. Koehler is a partner with Hunton & Williams, Hong Kong, a law firm
which periodically provides services to EPC.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers and Directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file initial statements
of beneficial ownership (Form 3), and statements of changes in beneficial
ownership (Forms 4 or 5), of Common Stock and other equity securities of the
Company with
14
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
the Securities and Exchange Commission (the "SEC"). Officers, directors and
greater than ten percent stockholders are required by SEC regulations to furnish
the Company with copies of all such forms they file.
The Company believes, based solely on its review of the copies of forms received
by it, or written representations from certain reporting persons that no
additional forms were required for those persons, that its officers, directors
and greater than ten-percent beneficial owners complied with all filing
requirements applicable to them for 2001.
REPORT OF THE AUDIT COMMITTEE
Audit Committee Responsibilities
The Audit Committee, which met twice during 2001, operates under a written
charter adopted by the Board of Directors in April 2001. Management is
responsible for the Company's internal controls and the financial reporting
process. The Company's independent accountants are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with auditing standards generally accepted in the United States of
America and issuing an independent accountants' report on such financial
statements. The Audit Committee reviews with management the Company's
consolidated financial statements; reviews with the independent accountants
their independent accountants' report; and reviews the activities of the
independent accountants. The Audit Committee recommends to the Board of
Directors, subject to shareholder ratification, the appointment of the Company's
independent accountants each year. The Audit Committee also considers the
adequacy of the Company's internal controls and accounting policies. Mr.
Blampied is the chairman of the Audit Committee and Messrs. Weisberg and Koehler
are members. The chairman and members of the Audit Committee are all independent
directors of the Company within the meaning of Rule 4200(a)(15) of the NASD
listing standards. The Company incurred the following fees for services
performed by Deloitte & Touche LLP pertaining to the fiscal year ended December
31, 2001.
Audit Fees
Deloitte & Touche LLP billed aggregate fees of $118,750 for the annual audit and
three quarterly reviews pertaining to the fiscal year ended December 31, 2001
("Audit Services").
Financial Information System Design and Implementation Fees
Deloitte & Touche LLP did not perform any services related to financial
information systems design and implementation during the fiscal year ended
December 31, 2001.
All Other Fees
Deloitte & Touche LLP billed aggregate fees of $4,682 for all other services
rendered during the fiscal year ended December 31, 2001.
Audit Committee Report
The Audit Committee has reviewed and discussed the audited financial statements
with management of the Company. The Audit Committee has discussed with the
Company's independent auditors the matters required to be discussed by SAS 61.
In addition, the Audit Committee has received the written disclosures
15
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
and letter from the Company's independent accountants required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
as may be modified or supplemented, and has discussed with the independent
accountants matters pertaining to their independence. The Audit Committee also
considered whether the additional services unrelated to Audit Services performed
by Deloitte & Touche LLP were compatible with maintaining their independence in
performing their Audit Services. Based upon the reviews and discussions referred
to above, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-K for 2001 for filing with the Securities and Exchange Commission. The Audit
Committee and Board of Directors have also recommended, subject to stockholder
approval, the selection of Deloitte & Touche LLP as the Company's independent
accountants for the fiscal year ending December 31, 2002.
Respectfully submitted by the Audit Committee:
Peter J. Blampied Edward B. Koehler Robert I. Weisberg
16
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
PROPOSAL TWO - APPROVAL OF THE 2002 DIRECTOR OPTION PLAN
On June 17 , 2002, pursuant to authority granted on May 22, 2002 by the
Board of Directors, a Special Committee of the Board of Directors (consisting of
Messrs. Weisberg, Kast, Matthews and Cresci) approved the 2002 Director Option
Plan (the " Director Plan"). Effectiveness of the Director Plan is subject to
approval of the stockholders and the full Board of Directors. Under the Director
Plan, eligible Directors of the Company first elected on or after the date of
the 2002 Annual Meeting will automatically receive non-qualified options to
purchase 50,000 shares of Common Stock as of the close of business on the date
of their election. Each eligible Director will, regardless of when first
elected, automatically receive an option to purchase 50,000 shares upon each
anniversary of service as an eligible Director, which anniversary occurs after
the date of the 2002 Annual Meeting.
Options granted under the Company's 1993 Director Option Plan within twelve
months prior to a grant under the Director Plan will reduce the size of the
grant under the Director Plan. The 1993 Director Option Plan will expire on July
13, 2003.
Assuming election of the nominees at the Meeting and effectiveness of the
Director Plan, Messrs. Brubaker, Knight and Schumacher, as non-employee
Directors elected for the first time at the Meeting, would each receive options
to purchase 50,000 shares. Messrs. Blampied, Brubaker, Knight, Matthews,
Schumacher and Weisberg, as non-employee directors, would thereafter receive
options to purchase 50,000 shares of Common Stock on each anniversary of their
first election to the Board.
The purpose of the Director Plan is to encourage ownership in the Company
by non-employee directors whose services are considered essential to the
Company's future progress and efforts to capitalize on new opportunities. While
Directors are eligible for grants under the Company's 2001 Stock Incentive Plan,
the Special Committee believes that the Director Plan, which provides for
formula grants, will benefit the Company and its stockholders by encouraging
non-employee Directors to serve on the Board and providing them incentives and,
thus, recommends approval of the Director Plan. The following is a summary of
the principal terms of the Director Plan.
Administration, Eligibility and Number of Shares. The Board of Directors
will supervise and administer the Director Plan. Directors of the Company who
are not employees of the Company or any subsidiary of the Company will be
eligible to participate in the Director Plan. A total of 2,000,000 shares of the
Company's Common Stock may be issued under the Director Plan.
Terms of Options. All options granted under the Director Plan are
immediately exercisable. The exercise price for each option is at the fair
market value per share of the Company's common stock on the date the Director
becomes eligible for the option. Options granted under the Director Plan may
provide for the payment of the exercise price in cash, by check (bank check,
certified check or personal check), by money order, or with the approval of the
Company in its sole and absolute discretion (and upon such terms and conditions
as the Company may require) (i) by delivering to the Company for cancellation
Common Stock with a fair market value as of the date of exercise equal to the
option price or the portion thereof being paid by tendering such shares, (ii) by
delivering to the Company the full option price in a combination of cash and the
holder's full recourse liability promissory note with a principal amount not to
exceed 80% of the option price and a term not to exceed five years or (iii) by
delivering to the Company with an aggregate fair market value and a principal
amount equal to the option price. Each option granted is not transferable except
by the laws of descent and distribution or pursuant to a qualified domestic
17
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
relations order (as defined in the Internal Revenue Code). If the optionee
becomes disabled or dies while serving as a Director, his or her representative
may exercise the option in full during the year following his or her disability
or death. Otherwise, no option may be exercised more than ten years after the
date of grant or 90 days after the Director ceases to be a Director of the
Company.
Federal Income Tax Consequences. Options granted under the Director Plan
are non-qualified stock options. No taxable income is recognized by the Optionee
upon the grant of a non-statutory stock option. Generally, the optionee must
recognize as ordinary income in the year in which the option is exercised the
amount by which the fair market value of the purchased shares on the date of
exercise exceeds the option price. The Company will be entitled to a business
expense deduction equal to the amount of ordinary income recognized by the
optionee. Any additional gain or any loss recognized upon the subsequent
disposition of the purchase shares will be a capital gain or loss, and will be a
long-term gain or loss if the shares are held for more than one year.
Amendment of the Plan. The Board of Directors may suspend or discontinue
the Director Plan or amend it in any respect; provided, however, that without
approval of the stockholders of the Company, the Board may not (i) change the
number of shares subject to the Director Plan (ii) change the designation of the
class of Directors eligible to receive options, or (iii) materially increase the
benefits accruing to participants under the Director Plan. Notwithstanding the
foregoing, the provisions of the Director Plan may not be amended more than once
every six months.
Securities Authorized for Issuance Under Equity Compensation Plans.
The following table sets forth information, as of December 31, 2001, with
respect to compensation plans (including individual compensation arrangements)
under which equity securities of the company are authorized for issuance: the
number of securities to be issued upon the exercise if outstanding options,
warrants and rights; the weighted-average exercise price of such options,
warrants and rights; and, other than the securities to be issued upon the
exercise of such options, warrants and rights, the number of securities
remaining available for the future issuance under the plan.
-------------------------------------------------------------------------------------------------------
(a) (b) (c)
-------------------------------------------------------------------------------------------------------
Plan category Number of Weighted- Number of
securities to be issued average exercise price securities remaining
upon exercise of of outstanding available for future
outstanding options, options, warrants and issuance under equity
warrants and rights rights compensation (excluding
securities reflected in
the column (a)
-------------------------------------------------------------------------------------------------------
Equity 221,329 $2.29 3,198,671
compensation plans
approved by security
holders
-------------------------------------------------------------------------------------------------------
18
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
--------------------------------------------------------------------------------
Equity 450,000 $0.66
compensation plans
not approved by
security holders
--------------------------------------------------------------------------------
Total 671,329 $1.19 3,198,671
--------------------------------------------------------------------------------
In addition to the options and warrants in the table above, non
compensatory options to purchase 50,000 shares of common stock at an exercise
price of $0.60 per share were issued to Alco Financial Services on September 14,
2001 in conjunction with Alco providing a working capital loan facility to the
Company, in the amount of $750,000. As of December 31, 2001 the balance borrowed
under this facility was $750,000. Furthermore non compensatory warrants to
purchase an aggregate amount of 821,170 shares of common stock (including
warrants to purchase 389,872 shares to Daniel Eastman, an officer of Microgy)
were issued to warrant holders of Microgy in 2001 in exchange for their Microgy
warrants in connection with the Company's acquisition of Microgy.
Recommendation. The Special Committee of the Board of Directors believes
that approval of the Director Plan is in the best interests of the Company and
its stockholders and recommends a vote FOR this proposal.
19
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
PROPOSAL THREE ~ RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Deloitte & Touche LLP,
independent certified public accountants, to serve as auditors for the fiscal
year ending December 31, 2002. The Board of Directors recommends a vote FOR the
ratification of this selection.
It is expected that a member of the firm of Deloitte & Touche LLP, the
independent certified public accountants who audited the Company's financial
statements included in the 2001 Annual Report, will be available either by
telephone or present at the Meeting with the opportunity to make a statement if
so desired and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement to be
furnished to all stockholders entitled to vote at the 2003 Annual Meeting of
Stockholders of the Company must be received at the Company's principal
executive offices (i) not later than February 25, 2003 or (ii) in the event the
date of the 2003 Annual Meeting changes by more than 30 days from the Meeting, a
reasonable time before the Company mails its proxy materials for the 2003 Annual
Meeting. In order to curtail controversy as to the date on which a proposal was
received by the Company, it is suggested that proponents submit their proposals
by certified mail-return receipt requested. Such proposals must also meet the
other requirements established by the Securities and Exchange Commission for
stockholder proposals. If the Company does not receive notice of any matter that
is to come before the stockholders at the 2003 Annual Meeting of Stockholders on
or before (i) May 12, 2003, which corresponds to forty-five days before the date
on which the Company first mailed this proxy statement, or (ii) in the event the
date of the 2003 Annual Meeting changes by more than 30 days from the Meeting, a
reasonable time before the Company mail its proxy materials for the 2003 Annual
Meeting, the proxy for the 2003 Annual Meeting of Stockholders may, pursuant to
Rule 14a-4(c) of the Proxy Rules under the Securities Exchange Act of 1934,
confer discretionary authority to vote on the matters presented.
OTHER BUSINESS
The Board of Directors knows of no business that will be presented for
consideration at the Meeting other than that stated above. If any other business
should come before the Meeting, votes may be cast pursuant to proxies in respect
to any such business in the best judgment of the person or persons acting under
the proxies.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company. Proxies will
be solicited principally through the mail. Further solicitation of proxies from
some stockholders may be made by directors, officers and regular employees of
the Company personally, by telephone, or special letter. No additional
compensation, except for reimbursement of reasonable out-of-pocket expenses,
will be paid for any such further solicitation. In addition, the Company may
request banks, brokers, and other custodians, nominees and fiduciaries to
solicit customers of theirs who have shares of the Company registered in the
name of a nominee. The Company will reimburse any such persons for their
reasonable out-of-pocket expenses.
20
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
ANNUAL REPORT ON FORM 10-K
You may obtain a copy of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001 filed with the Securities and Exchange Commission
without charge by writing to: Investor Relations, Environmental Power
Corporation, One Cate Street, Portsmouth, New Hampshire 03801. The Company's
Annual Report on Form 10-K, as well as additional public filings, press releases
and information about the Company, are also available on the internet from the
Company's web site which is located at www.environmentalpower.com.
Portsmouth, New Hampshire By order of the Board of Directors
June 25, 2002 Joseph E Cresci
Secretary
21
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
EXHIBIT A
ENVIRONMENTAL POWER CORPORATION
2002 DIRECTOR OPTION PLAN
1. PURPOSE
The purpose of this 2002 Director Option Plan (the "Plan") of
Environmental Power Corporation (the "Company") is to encourage ownership in the
Company by outside directors of the Company whose continued services are
considered essential to the Company's future progress and to provide them with a
further incentive to remain as directors of the Company.
2. ADMINISTRATION
The Board of Directors shall supervise and administer the Plan. Grants
of stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic and non-discretionary in accordance with Section 5.
However, all questions of interpretation of the Plan or of the any options
issued under it shall be determined by the Board of Directors and such
determination shall be final and binding upon all persons having an interest in
the Plan.
3. DIRECTORS ELIGIBLE FOR PARTICIPATION
Each director of the Company (serving as such on or after the close of
business on the Effective Date of this Plan) who is not an employee of the
Company or any subsidiary of the Company shall be eligible to participate in the
Plan.
4. STOCK SUBJECT TO THE PLAN
(a) The maximum numbers of shares which may be issued under the Plan
shall be two million (2,000,000) shares of the Company's Common Stock, $.01 par
value per share ("Common Stock").
(b) If any outstanding option under the Plan for any reason expires
or is terminated without having been exercised in full, the shares allocable to
the unexercised portion of such option shall again become available for grant
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory options
not entitled to special tax treatment under Section 422 of the Internal revenue
Code of 1986, as amended to date and as may be amended from time to time (the
"Code").
5. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) Option Grants and Dates. Upon effectiveness of the Plan, options
to purchase 50,000 shares shall be granted automatically to any eligible
director (as defined in Section 3) on the close of business on the date of his
or her initial election or appointment to the Board of Directors if such initial
22
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
election or appointment occurs on or after the date of the 2002 Annual Meeting.
Furthermore, options to purchase 50,000 shares shall be granted automatically to
each eligible director (regardless of whether such eligible director was first
elected or appointed before, on or after the date of the 2002 Annual Meeting),
upon each anniversary date of his or her initial election or appointment, which
anniversary date occurs on or after the date of the 2002 Annual Meeting;
provided that such eligible director's service is scheduled to continue beyond
such anniversary date.
(b) Reduction of Shares Subject to Option; Exercisability.
Notwithstanding Section 5(a) above, any options which have been granted to an
eligible director under the Company's 1993 Director Option Plan within twelve
months prior to any grant under this Plan shall be deducted from the option
grant due such director under the Plan. All options granted under the Plan will
be immediately exerciseable.
(c) Option Exercise Price. The option exercise price per share for
each option granted under the Plan shall equal (i) if the Shares are then listed
on a national securities exchange or reported on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") OTC Bulletin Board, or
other system reporting a close price, the closing price of a Share on the date
of grant (or, if no such price is reported on such date, such price as reported
on the nearest preceding day) (ii) if the shares are then not so listed or
reported but traded in the over-the-counter market, the average closing bid and
asked prices per share on such date; or (iii) the fair market value of the stock
on the date of grant, as determined by the Board of Directors, if the shares are
not publicly traded.
(d) Option Non-Transferable. Each option granted under the Plan by
its terms shall not be transferable by the optionee otherwise than by will, or
by the laws of descent and distribution, or pursuant to a qualified domestic
relations order (as defined in section 414(p) of the Code), and shall be
exercised during the lifetime of the optionee only by him. No option or interest
therein may be transferred, assigned, pledged or hypothecated by the optionee
during his lifetime, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process.
(e) Exercise Period. Except as otherwise provided in the Plan, each
option may be exercised fully on the date of grant of such option, provided,
that subject to the provisions of Section 5(f), no option may be exercised more
than 90 days after the optionee ceases to serve as a director of the Company. No
option shall be exercisable after the expiration of ten (10) years from the date
of grant or prior to approval of the Plan by the stockholders of the Company.
(f) Exercise Period Upon Disability or Death. Notwithstanding the
provisions of Sections 5(e), any option granted under the Plan:
(i) may be exercised in full by an optionee who becomes disabled
(within the meaning of Section 22(e) (3) of the Code or any successor
provision thereto) while serving as a Director of the Company; or
(ii) may be exercised
(x) in full upon the death of an optionee while serving as
a director of the Company, or
(y) to the extent then exercisable upon the death of an
optionee within 90 days of ceasing to serve as a director of the Company,
23
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
by the person to whom it is transferred by will, by the laws of
descent and distribution, or by written notice filed pursuant to Section
5(i);
in each such case within the period of one year after the date the
optionee ceases to be such a director; provided, that no option shall be
exercisable after the expiration of ten (10) years from the date of grant.
(g) Exercise Procedure. Option may be exercised only by written notice to
the Company at its principal office accompanied by payment of the full
consideration for the shares as to which they are exercised.
(h) Payment of Purchase Price. Options granted under the Plan may provide
for the payment of the exercise price in cash, by check (bank check, certified
check or personal check), by money order, or with the approval of the Company in
its sole and absolute discretion (and upon such terms and conditions as the
Company may require) (i) by delivering to the Company for cancellation Common
Stock of the Company with a fair market value as of the date of exercise equal
to the option price or the portion thereof being paid by tendering such shares,
(ii) by delivering to the Company the full option price in a combination of cash
and Holder's full recourse liability promissory note with a principal amount not
to exceed eighty percent (80%) of the option price and a term not to exceed five
(5) years, which promissory note shall provide for interest on the unpaid
balance thereof which at all times is not less than the minimum rate required to
avoid the imputation of income, original issue discount or a below-market rate
loan pursuant to Sections 483, 1274 or 7872 of the Code or any successor
provisions thereto or (iii) by delivering to the Company a combination of cash,
the holder's promissory note and Common Stock of the Company with an aggregate
fair market value and a principal amount equal to the option price. The fair
market value of any shares or other non-cash consideration which may be
delivered upon exercise of an option shall be determined by the Board of
Directors.
(i) Exercise by Representative Following Death of Director. A director, by
written notice to the Company, may designate one or more persons (and from time
to time change such designation) including his legal representative, who, by
reason of his death, shall acquire the right to exercise all or a portion of the
option. If the person or persons so designated wish to exercise any portion of
the option they must do so within the term of the option as provided herein. Any
exercise by a representative shall be subject to the provisions of the Plan.
6. ASSIGNMENTS
The rights and benefits under the Plan may not be assigned except for
the designation of a beneficiary as provided in Section 5.
7. TAKE TIME FOR GRANTING OPTIONS
All options for shares subject to the Plan shall be granted, if at
all, not later than December 31, 2007.
8. LIMITATION OF RIGHTS
24
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
(a) No Right to Continue as a Director. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no
rights as a stockholder with respect to the shares covered by his options under
the date of the issuance to him of a stock certificate therefore, and no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such certificate is issued.
9. CHANGES IN CAPITAL STOCK
(a) If (x) the outstanding shares are increased, decreased or
exchanged for a different number or kind of shares or other securities of the
Company, or (y) additional shares or new or different shares or other securities
of the Company or other non-cash assets are distributed with respect to such
shares or other securities, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company reorganization,
recapitalization, reclassification, stock dividend, stock split, reserve stock
split or other similar transaction with respect to such shares or other
securities, an appropriate and proportionate adjustment shall be made in (i) the
maximum number and kind of shares reserved for issuance under the Plan, and (ii)
the number and kind of shares or other securities subject to then outstanding
options under the Plan and (iii) the price for each share subject to any then
outstanding options under the Plan, without changing the aggregate purchase
price as to which such options remain exercisable. No fractional shares will be
issued under the Plan on account of any such adjustments. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 9 if such
adjustment would cause the Plan to fail to comply with Rule 16b-3 or any
successor rule promulgated pursuant to Section 16 of the Securities Exchange Act
of 1934.
(b) In the event that the Company is merged or consolidated into or
with another corporation (in which consolidation or merger the stockholders of
the Company receive distributions of cash or securities of another issuer as a
result thereof), or in the event that all or substantially all of the assets of
the Company are acquired by any other person or entity, or in the event of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the Board of Directors of any corporation assuming the obligations
of the Company, shall, as to outstanding options, take one or more of the
following actions: (i) provide that such options shall be assumed, or equivalent
options shall be substituted, by the acquiring or succeeding corporation (or an
unexercised options will terminate immediately prior to the consummation of such
transaction unless exercised by the optionee within a specified period following
the date of such notice, or (iii) if, under the terms of a merger transactions,
holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment for each share surrendered in the merger (the "Merger
Price"), make or provide for a cash payment to the optionees equal to the
difference between (A) the Merger Price times the number of shares of Common
Stock subject to such outstanding options (to the extent then exercisable at
prices not in excess of the Merger Price) and (B) the aggregate exercise price
of all such outstanding options in exchange for the termination of such options.
10. AMENDMENT OF THE PLAN
The Board of Directors may suspend or discontinue the Plan or review
or amend it in any respect whatsoever; provided, however, that without approval
of the stockholders of the Company no revision or amendment shall change the
number of shares subject to the Plan or the number of shares issuable to any
director of the Company under the Plan (except as provided in Section 9), change
the
25
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
designation of the class of directors eligible to receive options, or materially
increase the benefits accruing to participants under the Plan. The Plan may not
be amended more than once in any six-month period.
11. WITHHOLDING
The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee, any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan.
12. EFFECTIVE DATE AND DURATION OF THE PLAN
(a) Effective Date. The Plan shall become effective when approved by
the Board of Directors and the Company's shareholders. Amendments to the Plan
not requiring shareholder approval shall become effective when adopted by the
Board of Directors; amendments requiring shareholder approval shall become
effective when adopted by the Board of Directors, but no option granted after
the date of such amendment shall become exercisable (to the extent that such
amendment to the Plan was required to enable the Company to grant such option to
a particular optionee) unless and until such amendment shall have been approved
by the Company's shareholders. If such shareholder approval is not obtained
within twelve months of the Board's adoption of such amendment, any options
granted on or after the date of such amendment shall terminate to the extent
that such amendment to the Plan was required to enable the Company to grant such
option to a particular optionee.
(b) Termination. Unless sooner terminated in accordance with Section
9, the Plan shall terminate upon the earlier of (i) the close of business on
December 31, 2007, or (ii) the date on which all shares available for issuance
under the plan shall have been issued pursuant to the exercise or cancellation
or options granted the Plan. If the date of termination is determined under (i)
above, the options outstanding on such date shall thereafter continue to have
full force and effect in accordance with the provisions of the instruments
evidencing such options.
13. NOTICE
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
14. GOVERNMENTAL REGULATION
The Company's obligation to sell and deliver shares of the Common
Stock under the Plan is subject to the approval of or requirements of any
governmental authority applicable in connection with the authorization, issuance
or sale of such shares.
15. COMPLIANCE WITH RULE 16B-3
Transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b or its successor promulgated pursuant to Section 16 of
the Securities Exchange Act of 1934. To the extent any provision of the plan or
action by the Board of Directors in administering the Plan fails to so comply,
it shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Board of Directors.
26
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
16. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
27
ENVIRONMENTAL POWER CORPORATION
One Cate Street
Portsmouth, New Hampshire 03801
The undersigned hereby appoints Joseph E. Cresci and R. Jeffrey Macartney,
and each of them, proxies, with full power of substitution, to vote all shares
of stock of the Corporation which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of Environmental Power Corporation, a Delaware
corporation (the "Company"), to be held on July 25, 2002, at 10:00 a.m. at the
Le Meridien Hotel, 250 Franklin Street, Boston, Massachusetts, and at any
adjournments thereof, upon matters set forth in the Notice of Annual Meeting of
Stockholders and Proxy Statement.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE
PROPOSALS IN ITEM 2 AND ITEM 3 AND AUTHORITY WILL BE DEEMED GRANTED UNDER
PROPOSAL 4.
--------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON RESERVE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
--------------------------------------------------------------------------------
Please sign exactly as your name(s) appear(s) on the books of the Company. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
--------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
_____________________________________ ____________________________________
_____________________________________ ____________________________________
_____________________________________ ____________________________________
(continued on the reverse side)
--------------------------------------------------------------------------------
[X] Please mark your
votes as in this
example.
FOR ALL
NOMINEES WITHHOLD
(except as AUTHORITY
marked to the to vote for
contrary below) all nominees Nominees:
FOR AGAINST ABSTAIN
1. To elect a Board Joseph E. Cresci 2. To approve
of Directors to Donald A. Livingston a proposal to adopt the Environmental
serve the ensuing Peter J. Blampied Power Corporation 2002 Director Stock
year and until Robert I. Weisberg Option Plan.
their respective Thomas M. Matthews
successors have Herman Brubaker
been duly elected. Jessie J. Knight, Jr.
August Schumacher, Jr.
NOTE: To withhold authority to vote for any individual nominee(s),
mark the "FOR ALL" box and strike a line through the name(s) 3. To consider
of the nominee(s) you wish to withhold. Your shares will be voted
for the remaining nominee(s). and act upon a proposal to ratify the
selection of the firm of Deloitte &
Touche LLP as auditors for the Company
for the fiscal year ending December 31,
2002.
4. To transact
such other business which may properly
come before the meeting or any
adjournments thereof.
Please sign, date and return the enclosed
proxy in the enclosed envelope at your
earliest convenience. If you return your
proxy, you may nevertheless attend the
meeting and vote your shares in person.
IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED AT THE MEETING, WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE SIGN, DATE AND MAIL THE ENCLOSED
PROXY IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IN THE UNITED STATES
Stockholder sign here _____________________________ Co-owner sign here ________________________________ Date _____________
NOTE: Please be sure to sign and date this Proxy.
2