-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F4uwy6WacQTTy6KaChrGaOH0UoqqO0ay7y0mETcs7r9oR3ZhByAbKwfarEMNdUoD PJ8i0A5Jrqt6jsM20l1L3g== 0000927016-01-502133.txt : 20030318 0000927016-01-502133.hdr.sgml : 20030318 20010802172628 ACCESSION NUMBER: 0000927016-01-502133 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20010802 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ENVIRONMENTAL POWER CORP CENTRAL INDEX KEY: 0000805012 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 042782065 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-39155 FILM NUMBER: 01696543 BUSINESS ADDRESS: STREET 1: 500 MARKET ST STREET 2: STE 1E CITY: PORTSMOUTH STATE: NH ZIP: 03801 BUSINESS PHONE: 6034311780 MAIL ADDRESS: STREET 1: 500 MARKET ST STREET 2: STE 1E CITY: PORTSMOUTH STATE: NH ZIP: 03801 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: EASTMAN DANIEL J CENTRAL INDEX KEY: 0001156301 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 166 N. GREEN BAY RD STREET 2: SUITE C CITY: THIENSVILLE STATE: WI ZIP: 53092 BUSINESS PHONE: 2622429430 MAIL ADDRESS: STREET 1: 166 N. GREEN BAY RD STREET 2: SUITE C CITY: THIENSVILLE STATE: WI ZIP: 53092 SC 13D 1 dsc13d.txt SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Rule 13d-101) (Amendment No.__) Environmental Power Corporation -------------------------------- (Name of Issuer) Common Stock, $.01 par value -------------------------------- (Title of Class of Securities) 29406-L-10-2 -------------------------------- (CUSIP Number) Steven I. Himelstein, Esq. Dorsey & Whitney LLP 250 Park Avenue New York, New York 10077 (212) 415-9200 ------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) July 23, 2001 -------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box. [_] (Continued on following pages) (Page 1 of ___ Pages) SCHEDULE 13D CUSIP NO. 29406-L-2 PAGE 2 OF 8 PAGES - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Daniel J. Eastman - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [_] (b) [X] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 N/A - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED 5 PURSUANT TO ITEMS 2(d) or 2(e) [_] N/A - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 United States - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 1,083,478 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 0 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 1,083,478 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 1,083,478 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] N/A - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 6.2% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 IN - ------------------------------------------------------------------------------ Page 3 of 8 SCHEDULE 13D ------------ CUSIP No. 29406-L-2 - -------------------- Item 1. Security and Issuer: Common Stock, $.01 par value per share of ------------------- Environmental Power Corporation, a Delaware corporation (the "Company"). The address of the Company's principal executive office is 500 Market Street, Suite 1E, Portsmouth, NH 03801. Item 2. Identity and Background: ----------------------- (a) The person filing this Statement is Daniel J. Eastman. (b) Mr. Eastman's business address is Microgy Cogeneration Systems, Inc., 1767 A Denver West Boulevard, Suite 15, Golden CO 80401. (c) Mr. Eastman is Senior Vice President of Business Development of Microgy Cogeneration Systems, Inc. ("Microgy"), 1767 A Denver West Boulevard, Suite 15, Golden CO 80401. Microgy's principal business is environmentally sound power generation, including biomass and distributed generation. (d) Criminal proceedings - none (e) Civil proceedings - none (f) Citizenship - Mr. Eastman is a United States citizen. Item 3. Source and Amount of Funds or Other Consideration: Not applicable. The ------------------------------------------------- transaction giving rise to the filing of this Amendment was an exchange of existing Microgy shares for securities of the Company. Mr. Eastman purchased the Microgy securities exchanged with personal funds. Item 4. Purpose of Transaction. ---------------------- On June 23, 2001 (the "Closing Date"), the Company acquired approximately 87.7% of the outstanding common stock of Microgy in exchange for securities of the Company pursuant to a Share Exchange Agreement (the "Exchange Agreement") dated as of June 20, 2001 among the Company, Microgy and the Principal Microgy Shareholders, as defined therein. Mr. Eastman is a Principal Microgy Shareholder. The Company issued an aggregate of 5,521,549 shares of the Company's common stock, $.01 par value ("Common Stock") and 197,760.7 shares of the Company's newly designated Series B Convertible Preferred Stock, $.01 par value (the "EPC Preferred Stock"), to the Principal Microgy Shareholders in exchange for 15,919,147 shares of Microgy common stock. Each share of Preferred Stock, which votes with the Common Stock on an as converted basis, will automatically be converted into ten shares of Common Stock upon an increase in the authorized common stock to an amount sufficient to allow conversion of the Preferred Stock. The exchange ratio (the "Exchange Ratio") used was 0.3468495 shares of Common Stock and 0.0124228 shares of Preferred Stock for each share of Microgy common stock. The Exchange Ratio was determined by negotiations among the Company, Microgy and the primary Principal Microgy Shareholders. The Exchange Ratio is based on all of the fully diluted equity of Microgy being exchanged for 45% of the fully diluted equity of the Company, assuming exercise or conversion of all derivative securities. Pursuant to Section 2.4 of the Agreement, the Exchange Ratio may be adjusted to reflect certain issuances of equity by the Company to generate funds to be available for financing Microgy. However, holders of approximately 94% of the Microgy common stock exchanged have waived their right to adjustments in the Exchange Ratio. The Principal Microgy Shareholders included two Microgy shareholders who executed Joinder Agreements, becoming parties to the Exchange Agreement. At the closing, Mr. Eastman also exchanged a warrant to purchase 800,000 shares of Microgy common stock for a warrant to purchase securities of the Company based on the Exchange Ratio. The Exchange Agreement provides that, within 30 days of the Closing Date, the Board of Directors of the Company will be enlarged from five to eight members and the three resulting vacancies will be filled by designees Page 4 of 8 of the Principal Microgy Shareholders (including replacements or substitutes similarly designated, the "Microgy Designees"). Under the Exchange Agreement, the Company agreed to offer (the "Subsequent Offer") the remaining shareholders of Microgy (who own an aggregate of 2,230,126 shares of Microgy Common, warrants to purchase 850,000 shares of Microgy common stock and options to purchase 290,000 shares of Microgy common stock) to exchange for EPC securities based on the Exchange Ratio. In connection with and as a condition to the Exchange Agreement, the following agreements relating to or bearing upon the securities were executed: A. A Stockholders' Agreement as of the Closing Date among the Company, the Principal Microgy Shareholders, Joseph E. Cresci and Donald A. Livingston (the "Stockholders' Agreement"). Messrs. Cresci and Livingston (the "Majority Stockholders") are Directors, officers and principal stockholders of the Company. The Stockholders' Agreement provides among other things, that: 1. The Company will arrange for a meeting of stockholders to present a proposal to increase the authorized Common Stock from 20 million shares to a greater number at least sufficient to permit the conversion of the Preferred Stock into Common Stock and the parties will vote the shares they own or control in favor thereof; 2. 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 any replacement or substitute designated by the Majority Stockholders, the "Incumbent Directors"), to remain approximately 3:5 and for the election of the Microgy Designees and the Incumbent Directors; 3. Each Party who is a director of the Company, in such capacity (subject to his fiduciary duties to the Company), unless agreed by a majority of the then Incumbent Directors, will retain Messrs. Cresci and Livingston as Chairman and Chief Executive Officer and President, respectively, and not take any action to alter the respective powers and functions of such offices; 4. Each Principal Microgy Shareholder agreed that, unless such Principal Microgy Shareholder has been specifically invited in writing by a majority of the then Incumbent Directors (or in the case of (a)(i) below, has obtained the consent of a majority of the then Incumbent Directors), such Principal Microgy Shareholder will not in any manner, directly or indirectly, (a) effect or seek, offer or propose (whether publicly or otherwise) to effect, or cause or participate in or in any way assist any other person to effect or seek, offer or propose (whether publicly or otherwise) to effect or participate in, (i) in the case of George A. Kast and Benjamin Brant, any acquisition of any securities (or beneficial ownership thereof) or assets of the Company, or any of its subsidiaries, except as contemplated in the Exchange Agreement; (ii) any tender or exchange offer or merger or other business combination involving the Company or any of its subsidiaries, (iii) any recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to the Company or any of its subsidiaries or (iv) any "solicitation" of "proxies" (as such terms are used in the proxy rules of the Securities and Exchange Commission) or consents to vote any voting securities of the Company, except as contemplated in the Stockholders' Agreement, (b) form, join or in any way participate in a "group" (as defined under the Securities Exchange Act of 1934, as amended), with respect to the securities of the Company, except as contemplated in the Stockholders' Agreement, (c) otherwise act, alone or in concert with others, to seek to control or influence the management, Board or policies of the Company, (other than acting as a shareholder or director in the ordinary course), (d) take any action which might force the Company to make a public announcement regarding any of the types of matters set forth in (a) above, (e) advise, assist or encourage any other persons in connection with the foregoing, or (f) enter into any discussions or arrangements with any third party with respect to any of the foregoing. 5. The Stockholders' Agreement terminates on June 30, 2003. Page 5 of 8 B. A Registration Rights Agreement as of the Closing Date with the Principal Microgy Shareholders, the Majority Stockholders and those Microgy security holders who exchange Microgy securities in the Subsequent Offer and execute counterpart signature pages thereto (collectively, the "Holders") (the "Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, the Company agreed to file, by November 30, 2001, a Registration Statement on behalf of the Holders allowing holders to resell Common Stock and granted the Holders piggyback registration rights. Except as described in this Item 4 and elsewhere in this Schedule 13D, Mr. Eastman does not have any plans or proposals (in his capacity as a stockholder of the Company) which relate to or would result in: (a) the acquisition by any person of additional securities of the Company, or the disposition of securities of the Company; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (d) any change in the present Board of Directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the Board; (e) any material change in the present capitalization or dividend policy of the Company; (f) any other material change in the Company's business or corporate structure; (g) changes in the Company's charter, by-laws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any person; (h) causing a class of securities exchange or cease to be authorized to be quoted in an interdealer quotation system of a registered national securities association; (i) a class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Act, as amended; or (j) any action similar to those enumerated above. Item 5. Interest in Securities of the Issuer: ------------------------------------ (a) Mr. Eastman may be deemed to own beneficially 1,083,478 shares of Common Stock as of July 23, 2001, consisting of (1) 520,274 shares of Common Stock issued under the Exchange Agreement, (2) 186,342 shares of Common Stock issuable upon conversion of EPC Preferred Stock issued under the Exchange Agreement, (3) 277,480 shares of Common Stock which is issuable upon the exercise of the Warrant that Mr. Eastman received in connection with the Exchange Agreement and (4) 99,382 shares of Common Stock issuable upon the conversion of the 9,938.24 shares of EPC Preferred Stock which is issuable upon the exercise of the Warrant that Mr. Eastman received in connection with the Exchange Agreement. The shares beneficially owned by Mr. Eastman represent 6.2% of the class; based on the 11,406,783 shares of Common Stock reported to be outstanding as of May 14, 2001 in the Company's Form 10-Q filed for the period ending March 31, 1998, plus the 5,521,549 shares of Common Stock issued on July 23, 2001 as described in Item 4, plus the 563,204 shares of Common Stock Mr. Eastman would receive upon exercise of his Warrant and conversion of EPC Preferred Stock. Mr. Eastman is a party to the Stockholders' Agreement described in Item 4. Within the meaning of Rule 13(d)(5) under the Securities Exchange Act of 1934, as amended (the "Act"), the terms of the Stockholders' Agreement could be deemed to provide for an agreement among the parties thereto to act together for the purpose of voting and disposing of equity securities of the Company. Accordingly, the parties thereto could be deemed to be members of a "group" and could be deemed to be beneficial owners of all of the securities held by such group. Mr. Eastman denies the existence of such a group and disclaims beneficial ownership of the securities held by any other person. As of the date hereof, to the best knowledge of Mr. Eastman, the table below identifies all of the parties to the Stockholders' Agreement, in addition to Mr. Eastman, and states their ownership interests in the Company as of July 23, 2001, based solely upon public filings and acquisition of the Company's securities pursuant to the Exchange Agreement. Page 6 of 8
PARTY TO STOCKHOLDER COMMON STOCK EPC COMMON STOCK COMMON STOCK COMMON STOCK PERCENTAGE OF AGREEMENT OWNED PREFERRED ISSUABLE UPON BENEFICIALLY OUTSTANDING(2) COMMON STOCK STOCK OWNED CONVERSION OWNED(1) BENEFICIALLY OWNED(3) - ------------------------------------------------------------------------------------------------------------------------------ Joseph E. Cresci 4,725,348 0 0 4,725,348 16,928,332 27.9% - ------------------------------------------------------------------------------------------------------------------------------ Donald A. Livingston 2,461,739 0 0 2,461,739 16,928,332 14.5% - ------------------------------------------------------------------------------------------------------------------------------ George A. Kast 2,009,318 71,966 719,660 2,728,978 17,647,992 15.5% - ------------------------------------------------------------------------------------------------------------------------------ Benjamin Brant 1,959,411 70,178.5 701,785 2,661,196 17,630,117 15.1% - ------------------------------------------------------------------------------------------------------------------------------ Steven J. Brunner 390,206 13,975.7 139,757 529,963 17,068,089 3.0% - ------------------------------------------------------------------------------------------------------------------------------ John P. O'Shea 96,355 3,451.1 34,511 130,866 16,962,843 0.8% - ------------------------------------------------------------------------------------------------------------------------------ Henry S. Krauss 16,059 575.2 5,752 21,811 16,934,084 0.1% - ------------------------------------------------------------------------------------------------------------------------------ Frances Luskind and 16,059 575.2 5,752 21,811 16,934,084 0.1% Henry Krauss, as Trustees of the Trust U/W/O Jessie Daniels FBO Frances Luskind - ------------------------------------------------------------------------------------------------------------------------------ Smithson Ventures Inc. 32,118 1,150.4 11,504 43,622 16,939,836 0.3% Money Purchase Pension Plan DLJSC- Custodian FBO Deborah Salerno Trustee - ------------------------------------------------------------------------------------------------------------------------------ Amro International, S.A. 64,237 2,300.7 23,007 87,244 16,951,339 0.5% - ------------------------------------------------------------------------------------------------------------------------------ Frank Kramer 64,237 2300.7 23,007 87,244 16,951,339 0.5% - ------------------------------------------------------------------------------------------------------------------------------ John J. Burke 321,157 11,502.6 115,026 436,183 17,043,358 2.6% - ------------------------------------------------------------------------------------------------------------------------------ Hitel Group 32,118 1,150.4 11,504 43,622 16,939,836 0.3% - ------------------------------------------------------------------------------------------------------------------------------
(1) Section 13 of the Exchange Act deems a person to be the beneficial owner of a security, if that person has the right to acquire beneficial ownership of such security through the conversion of another security if such other security was acquired with the purpose or effect of changing or influencing the control of the issuer, or as a participant in any transaction having such purpose or effect. Therefore, the holders of EPC Preferred Stock may be deemed to be the beneficial owners of the underlying Common Stock. (2) Pursuant to Section 13, any shares of Common Stock not outstanding which are issuable upon conversion of EPC Preferred Stock held by a person have been deemed to be outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person but have not been deemed to be outstanding for the purpose of computing the percentage of the class by any other person. (3) Based on the 11,406,783 shares of Common Stock reported to be outstanding as of May 14, 2001 in the Company's Form 10-Q filed for the period ending March 31, 2001, plus the 5,521,549 shares of Common Stock issued on July 23, 2001 as described in Item 4, plus the number of Common Stock this holder will receive upon conversion of his EPC Preferred Stock (as described in Column 4 of the above table). Page 7 of 8 (b) The number of shares of Common Stock as to which Mr. Eastman may be deemed to (i) have sole power to vote or to direct the vote, (ii) shared power to vote or to direct the vote, (iii) sole power to dispose or direct the disposition, or (iv) shared power to dispose or direct the disposition is set forth in the cover pages and such information is incorporated herein by reference. (c) Not applicable. (d) Not applicable. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships With Respect --------------------------------------------------------------------- to Securities of the Issuer: ---------------------------- As of the date hereof, to the best knowledge of Mr. Eastman, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among any of the persons identified in this statement or between Mr. Eastman and any other person with respect to any securities of the Company, except as disclosed in Item 4 above. Item 7. Material to be Filed as Exhibits: --------------------------------- 1. Share Exchange Agreement dated as June 20, 2001, by and among the Company, Microgy Cogeneration Systems, Inc. and the Principal Microgy Shareholders referred to therein.(4) 2. Form of Waiver Agreement given by holders of exchanged Microgy common stock agreeing to waive their right to adjustments in the Exchange Ratio.(5) 3. Stockholders' Agreement dated as of July 23, 2001 among the Company, Joseph E. Cresci, Donald A. Livingston and the Principal Microgy Shareholders referred to therein.(6) 4. Registration Rights Agreement dated as of July 23, 2001 among the Company, Joseph E. Cresci, Donald A. Livingston and the Principal Microgy Shareholders referred to therein.(7) 5. Form of the Joinder to Share Exchange Agreement.(8) 6. Warrant to Purchase Common Stock and Series B Convertible Preferred Stock issued to Daniel J. Eastman on July 23, 2001. - ----------- (4) Incorporated by reference to Exhibit 2 to Amendment No. 7 to Joseph E. Cresci's Schedule 13D filed on August 2, 2001. (5) Incorporated by reference to Exhibit 3 to Amendment No. 7 to Joseph E. Cresci's Schedule 13D filed on August 2, 2001. (6) Incorporated by reference to Exhibit 4 to Amendment No. 7 to Joseph E. Cresci's Schedule 13D filed on August 2, 2001. (7) Incorporated by reference to Exhibit 5 to Amendment No. 7 to Joseph E. Cresci's Schedule 13D filed on August 2, 2001. (8) Incorporated by reference to Exhibit 6 to Amendment No. 7 to Joseph E. Cresci's Schedule 13D filed on August 2, 2001. Page 8 of 8 SIGNATURE --------- After reasonable inquiry to and to the best of the knowledge and belief of the undersigned, the undersigned certifies that the information set forth in this statement by or about the undersigned is true, complete and correct. Date August 2, 2001 /s/ Daniel J. Eastman ------------------------------ Daniel J.Eastman EX-6 3 dex6.txt COMMON STOCK PURCHASE WARRANT EXHIBIT 6 THIS WARRANT IS ISSUED IN EXCHANGE FOR THE REVISED EASTMAN WARRANT (THE "MICROGY WARRANT") TO PURCHASE 800,000 SHARES OF COMMON STOCK OF MICROGY COGENERATION SYSTEMS, INC. ("MICROGY"), PREVIOUSLY ISSUED BY MICROGY, WHICH MICROGY WARRANT IS OF NO FURTHER FORCE AND EFFECT. THIS WARRANT AND THE COMMON STOCK AND SERIES B CONVERTIBLE PREFERRED STOCK RECEIVABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("THE ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE TRANSFERRED OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED. VOID AFTER 5:00 P.M., EASTERN TIME, ON SEPTEMBER 30, 2002 WARRANT TO PURCHASE COMMON STOCK AND SERIES B CONVERTIBLE PREFERRED STOCK ENVIRONMENTAL POWER CORPORATION ORIGINAL ISSUE DATE: JULY 23, 2001 This is to Certify That, FOR VALUE RECEIVED, Daniel J. Eastman ("Holder") is entitled to purchase, subject to the provisions of this Warrant, from ENVIRONMENTAL POWER CORPORATION (the "Company"), at any time until 5:00 P.M., Eastern Time, on September 30, 2002 ("Expiration Date"), 800,000 units ("Units"), each Unit consisting of 0.3468495 shares (the "Common Exercise Rate") of the Company's Common Stock ("Common Shares") and 0.0124228 shares (the "Preferred Exercise Rate") of the Company's Series B Convertible Preferred Stock ("Preferred Shares," and, together with Common Shares, "Shares"). The exercise price ("Exercise Price") of the Warrant shall be $.50 per Unit through May 31, 2002, and $1.00 per Unit from June 1, 2002 through the Expiration Date. If, prior to the complete exercise of this Warrant, the Company's Series B Convertible Preferred Stock is automatically converted (the "Conversion") into Common Shares pursuant to Section 5(a) of the Company's related Certificate of Designations (the "Certificate of Designations") each Unit thereafter issued upon the exercise of this Warrant will include, in lieu of the 0.124228 Preferred Shares referred to above, the Common Shares such Preferred Shares would have been converted into if such Preferred Shares were outstanding immediately prior to the Conversion (assuming for this purpose that fractional shares of Common Stock were issuable upon exercise of the Preferred Shares). Such number of additional Common Shares on a per Unit basis are referred to as -1- the "Additional Common Exercise Rate." The number of Shares to be received upon the exercise of this Warrant may be adjusted from time to time as hereinafter set forth. (a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part ------------------- at any time or from time to time until the Expiration Date or if the Expiration Date is a day on which banking institutions are authorized by law to close, then on the next succeeding day which shall not be such a day, by presentation and surrender hereof to the Company or at the office its stock transfer agent, if any, with the Purchase Form annexed hereto as Exhibit A duly executed and accompanied by payment of the Exercise Price for the number of Shares specified in such Form, together with all federal and state taxes applicable upon such exercise, in cash or by certified or official bank check payable to the order of the Company. The Company agrees not to merge, reorganize or take any action that would terminate this Warrant unless provisions are made as part of such merger, reorganization or other action which would provide the holders of this Warrant with an equivalent of this Warrant as specified in Section (f)(3) hereof. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the Shares purchasable hereunder. Upon receipt by the Company of this Warrant at the office of the Company, in proper form for exercise and accompanied by the Exercise Price, the Holder shall be deemed to be the holder of record of the Shares issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Shares shall not then be actually delivered to the Holder. (b) RESERVATION OF SHARES. The Company hereby agrees that at all times --------------------- there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of Shares as shall be required for issuance or delivery upon exercise of this Warrant. (c) LIMIT ON FRACTIONAL SHARES. No fractional Common Shares, shares or -------------------------- scrip representing fractional shares shall be issued upon the exercise of this Warrant. Fractional Preferred Shares may only be issued in tenths. The number of Shares issuable upon exercise of this Warrant involving an aggregate Exercise Price of less than $25,000 shall be rounded to the next lowest whole Common Share and the next lowest tenth of a Preferred Share and the number of Shares issuable upon exercise of this Warrant involving an aggregate exercise price of $25,000 or more shall be rounded to the nearest Common Share and the nearest tenth of a Preferred Share. (d) EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, --------------------------------------- without expense, at the option of the Holder, upon presentation and surrender hereof to the Company for other Warrants of different denominations entitling the Holder thereof to purchase (under the same terms and conditions as provided by this Warrant) in the aggregate the same number of Shares purchasable hereunder. Subject to Sections (i) and (1), any transfer or assignment shall be made by surrender of this Warrant to the Company with the Assignment Form annexed hereto as Exhibit B duly executed and with funds sufficient to pay any transfer tax; whereupon the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be -2- canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any warrants issued in substitution for or replacement of this Warrant, or into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Subject to such right of indemnification, any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. (e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be -------------------- entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. (f) ADJUSTMENT PROVISIONS. The Common Exercise Rate and the Additional --------------------- Common Exercise Rate shall be subject to adjustment from time to time as follows: 1. If, at any time after the Original Issue Date (in the case of the Common Exercise Rate) or the date of the Conversion (in the case of the Additional Common Exercise Rate), the number of shares of Common Stock outstanding is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, following the record date for the determination of holders of Common Stock entitled to receive such stock dividend, subdivision or split-up, the Common Exercise Rate (and the Additional Common Exercise Rate, if applicable) shall be appropriately increased so that the number of shares of Common Stock issuable on exercise of the Warrants shall be increased in proportion to such increase in outstanding shares. 2. If, at any time after the Original Issue Date (in the case of the Common Exercise Rate) or the Conversion Date (in the case of the Additional Common Exercise Rate), the number of shares of Common Stock outstanding is decreased by a combination of the outstanding shares of Common Stock, then, following the record date for such combination, the Common Exercise Rate (and the Additional Common Exercise Rate, if applicable) shall be appropriately decreased so that the number of shares of Common Stock issuable on exercise of the Warrants shall be decreased in proportion to such decrease in outstanding shares. 3. In the event of any capital reorganization of the Company, any reclassification of the stock of the Company (other than a change in par value or from no par value to par value or from par value to no par value or as a result of a stock dividend or subdivision, split-up or combination of shares), any consolidation or merger of the Company, or any sale, lease, conveyance to another person of the property of the Company pursuant to which the Company's Common Stock and/or Series B Convertible Preferred Stock is converted into other -3- securities, cash or assets, each Warrant shall after such reorganization, reclassification, consolidation, merger or conveyance be exercisable into the kind and number of shares of stock or other securities or property of the Company or of the Company resulting from such consolidation or surviving such merger to which the holder of the number of shares of Common Stock (and/or Series B Convertible Preferred Stock, if applicable) deliverable (immediately prior to the time of such reorganization, reclassification, consolidation or merger) upon exercise of such Warrant would have been entitled upon such reorganization, reclassification, consolidation, merger or conveyance. The provisions of this clause shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers or conveyances. 4. The provisions of this Section (f) shall be interpreted so as not to duplicate the effect of adjustments made to the conversion rate of the Preferred Shares into Common Stock under the Certificate of Designations. In the event an event comparable to those described in Sections f(1) or (2) occurs with respect to the Preferred Shares themselves, appropriate adjustment will be made in the Preferred Exercise Rate, preceding sentence of this Section (f)(4). (g) STATEMENT OF ADJUSTMENT. Whenever a Conversion Rate shall be ----------------------- adjusted as provided in paragraph (f), the Company shall make available for inspection by the Holder during regular business hours, at its principal executive offices or at such other place as may be designated by the Company, a statement, signed by its chief executive officer or president, showing in detail the facts requiring such adjustment and the Conversion Rate that shall be in effect after such adjustment. The Company shall also cause a copy of such statement to be sent by first class certified mail, return receipt requested and postage prepaid, to Holder at such Holder's address appearing on the Company's records. (h) NOTICES. Unless otherwise provided herein, any notice, request, ------- instruction or other document to be given hereunder by any party shall be in writing and delivered in person or by courier or by facsimile transmission (followed by mailing certified mail, postage prepaid, return receipt requested) or mailed by certified mail, postage prepaid, return receipt requested, as follows: (1) to the Holder at the Holder's address as it appears in the records of the Company or at such other address as the Holder may otherwise indicate in a written notice delivered to the Company or (2) to the Company, at 500 Market Street, Suite 1E, Portsmouth, New Hampshire 03801, Telephone: (603) 431-1780, Facsimile: (603) 431-2650, or at such other address as the Company may otherwise indicate in a written notice delivered to Holder. All such notices, requests, instructions, documents and other communications will (2) if delivered personally to the address as provided in this Section (h), be deemed given upon delivery, (2), if delivered by facsimile transmission to the facsimile number as provided in this Section (h), be deemed given upon receipt, and (3) if delivered by mail in the manner described above to the address as provided in this Section (h), be deemed given upon receipt (in each case regardless of whether such notice is received by any other Person to whom a copy of such communication is to be delivered pursuant to this Section (h). (i) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. The Company -------------------------------------------------- may cause the following legend, or one similar thereto, to be set forth on each certificate representing the Shares or any other security issued or issuable upon exercise of this Warrant or conversion of underlying Preferred Shares not theretofore distributed to the public or sold to underwriters for -4- distribution to the public pursuant to Section (i) hereof; unless legal counsel for the Company is of the opinion as to any such certificate that such legend, or one similar thereto, is unnecessary: The securities represented by this certificate may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement made under the Securities Act of 1933 (the "Act") and under any applicable state securities law, or pursuant to an exemption from registration under the Act and under any applicable state securities law, the availability of which is to be established to the satisfaction of the Company. The Holder(s) agree that this Warrant and all Shares acquired upon exercise hereof or conversion of underlying Preferred Shares will be disposed of only in accordance with the Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. (j) EXEMPTION FROM REGISTRATION FOR WARRANT EXERCISE. ----------------------------------------------- The Company and the Holder acknowledge that the Company will be relying on an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Act"), to deliver Shares to the Holder(s) upon the exercise of the Warrant or upon conversion of underlying Preferred Shares. The Holder agrees to provide the Company with such information and representations as may be requested by the Company in order to establish a claim to an exemption from the registration requirements of the Act, and any applicable state securities laws, including, a representation that the Holder(s) are taking the Shares for investment, and not with a view to distribution. (k) APPLICABLE LAW. This Warrant shall be governed by, and construed -------------- in accordance with, the laws of the state of New York. (l) TRANSFER AND ASSIGNMENT. This Warrant may not be transferred or ----------------------- assigned, in whole or in part without the written consent of the Company. Neither this Warrant nor any Shares issued upon the exercise hereof or upon conversion of underlying Preferred Shares shall be transferred other than pursuant to an effective registration statement under the Securities Act or an exemption from the registration provisions thereof. Each certificate, if any, evidencing such shares of restricted stock issued upon any such transfer other than in a public offering pursuant to an effective registration statement shall bear the restrictive legend set forth in Section (i), and each Warrant issued upon such assignment or transfer shall bear the restrictive legend set forth in this Warrant, unless in the opinion of counsel delivered at the request of the Holder, which opinion shall be reasonably acceptable to the Company, such legend is not required for the purposes of compliance with the Act. (m) SUCCESSORS AND ASSIGNS. The rights evidenced hereby shall inure to ---------------------- the benefit of and be binding upon the successors of the Company and the successors and assigns of the Holder hereof. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder. -5- (n) AMENDMENT. This Warrant and all other Warrants may not be modified --------- or amended or the provisions hereof waived except by the written consent of the Company and the Holder(s). ENVIRONMENTAL POWER CORPORATION By: ________________________________________ Name: Title: Agreed and Accepted: __________________________ Daniel J. Eastman -6- EXHIBIT A PURCHASE FORM ------------- DATED: __________________________, 200_ The undersigned hereby irrevocably elects to exercise the Warrant to the extent of purchasing ______________ Common Shares [and _______ Preferred Shares] of Environmental Power Corporation, and hereby makes payment of $_____________ in payment of the actual Exercise Price thereof. INSTRUCTIONS FOR REGISTRATION OF SHARES --------------------------------------- Name: ________________________________________________________________________ (Please typewrite or print in block letters) Address: ____________________________________________________________________ Signature: __________________________________________________________________ -7- EXHIBIT B ASSIGNMENT FORM --------------- Dated: __________________________, 200__ FOR VALUE RECEIVED, _____________________________________________ hereby sells, assigns and transfers unto Name: ____________________________________________________________________ (Please typewrite or print in block letters) Address: __________________________________________________________________ the right to purchase Shares represented by this Warrant to the extent of _________________________ Shares as to which such right is exercisable and does hereby irrevocably constitute and appoint __________________, attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Signature: _____________________________________ -8- -----END PRIVACY-ENHANCED MESSAGE-----