8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): June 3, 2008

ENVIRONMENTAL POWER CORPORATION

(Exact name of company as specified in its charter)

Delaware	001-32393	75-3117389
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification Number)

120 White Plains Road, 6^th Floor, Tarrytown, New York 10591

(Address of principal executive offices, including zip code)

(914) 631-1435

(Company’s telephone number, including area code)

NONE

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Company under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 5.02 – DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS

The following disclosure is made pursuant to Item 5.02(e) of Form 8-K:

On June 3, 2008, the Compensation Committee of the Board of Directors (the “Committee”) of Environmental Power Corporation (the “Company”), approved the following compensation arrangements with its executive officers:

Changes to Base Salaries

The Committee approved the following changes to base salaries for the following executive officers, retroactive to May 1, 2008:

Name and Title	Old Base Salary	New Base Salary
Richard E. Kessel President and Chief Executive Officer	$300,000	$318,800
Michael E. Thomas Senior Vice President, Chief Financial Officer and Treasurer	$220,000	$227,700
Dennis Haines Vice President, General Counsel and Secretary	$210,000	$221,000

Option Grants

The Committee approved the following options grants under the Company’s 2006 Equity Incentive Plan, each of which has an exercise price of $5.52 per share, the closing price of the Company’s common stock as reported on The NASDAQ Capital Market on the date of grant, which the Committee determined to be the fair market value of a share of the Company’s common stock:

Name	Number of Shares	Vesting
Richard E. Kessel	150,000	- 75,000 shares vested immediately - 75,000 shares vesting on December 31, 2008
Dennis Haines	25,000	Vested immediately

Awards Under Long-term Incentive Plan

The Committee approved combined awards of stock appreciation rights and restricted stock to the Company’s executive officers. Pursuant to the guidelines set forth in the Company’s 2008 Long-Term Incentive Plan, in the case of Mr. Kessel the award reflects a value of 65% of his salary in order to assure maximum alignment with shareholder interests. The stock appreciation rights were awarded under the Company’s 2006 Equity Incentive Plan, each of which has an exercise price of $5.52 per share, the closing price of the Company’s common stock as reported on The NASDAQ Capital Market on the date of grant, which the Committee determined to be the fair market value of a share of the Company’s common stock. The Committee also made restricted stock awards under the Company’s 2006 Equity Incentive Plan, at a purchase price of $0.01 per share. The Committee chose a vesting-schedule of 50% per year over a two-year period, commencing as of May 1, 2008, for both the stock appreciation rights and the restricted stock awards:

Name	Number of Shares Subject to SARs	Number of Restricted Shares	Vesting
Richard E. Kessel	33,278	16,500	50% on May 1, 2009; balance on May 1, 2010
Michael E. Thomas	11,665	5,000	Same
Dennis Haines	11,089	5,000	Same

The form of restricted stock agreement that we will enter into with our executive officers is filed as Exhibit 99.1 to this Current Report on Form 8-K, and we refer you to such exhibit for the complete terms of the agreement. The complete terms of the form of restricted stock agreement are incorporated herein by reference.

The following disclosure is made pursuant to Item 5.02(f) of Form 8-K:

On June 3, 2008, the Committee approved a cash bonus to Richard E. Kessel, the Company’s President and Chief Executive Officer, in the amount of $100,000 in respect of Mr. Kessel’s performance in 2007 (the “2007 Bonus”).

As the Committee did not take the above actions until after the filing of the Company’s definitive proxy materials on Schedule 14A for its 2008 Annual Meeting of Stockholders with the Securities and Exchange Commission on April 29, 2008 (the “Proxy Materials”), information regarding Mr. Kessel’s bonus was omitted from the Summary Compensation Table included in the Proxy Materials, in reliance on Instruction 1 to Item 402(c)(2)(iii) and (iv) of Regulation S-K. The following Summary Compensation Table, taken from the Proxy Materials, is updated to reflect the 2007 Bonus:

SUMMARY COMPENSATION TABLE

Name and Principal Position	Year	Salary		Bonus(1)		Stock Awards(2)	Option Awards(3)		Non-Equity Incentive Plan Compensation(4)	Change in Pension Value and Nonqualified Deferred Compensation Earnings(5)	All Other Compensation(6)		Total
Richard E. Kessel	2007	$	300,000	$	100,000	—	$	917,374	—	—	$	38,909	$	1,356,283
President and Chief Executive Officer and President of Microgy, Inc.	2006		137,500		—	—		578,423	—	—		6,319		722,242
Michael E. Thomas(7)	2007		134,680	$	15,500	—		106,559	—	—		17,295		274,034
Senior Vice President, Chief Financial Officer and Treasurer	2006		—		—	—		—	—	—		—		—
Dennis Haines	2007		210,000		22,000	—		91,699	—	—		20,532		344,231
Vice President, General Counsel and Secretary	2006		43,750		—	—		20,058	—	—		3,661		67,469
John F. O’Neill	2007		83,330		—	—		297,006	—	—		133,521		513,857
Former Chief Financial Officer and Treasurer	2006		200,000		—	—		167,066	—	—		31,401		398,467

(1) We did not pay any bonuses in 2006. In March 2008, Messrs. Thomas and Haines were paid the bonuses reflected above in respect of their services in 2007. In June 2008, Mr. Kessel was paid the bonus reflected above in respect of his services in 2007.

(2) We did not make any awards of stock in 2006 or 2007.

(3) The amounts in the “Option Awards” column reflect the dollar amounts recognized as compensation expense for financial statement reporting purposes for stock options or stock appreciation rights for the fiscal years ended December 31, 2007 and December 31, 2006 in accordance with SFAS 123(R), using a Black-Scholes option-pricing model employing certain variables and related assumptions, including stock price volatility. The amounts shown in this column are, therefore, projections that do not necessarily reflect the actual cash compensation to be received by the option

holder upon exercise of the option. The assumptions we used to calculate these amounts are discussed in Note J to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2007. Please see the table below under the heading “Outstanding Equity Awards at Fiscal Year-End” for further detail regarding the option awards underlying these amounts, including the exercise price and the number of shares subject to such options.

(4) We did not pay any non-equity incentive plan compensation in 2006 or 2007.

(5) We no longer maintain a pension plan, nor did we maintain any nonqualified deferred compensation plans in 2006 or 2007.

(6) The amounts in the “All Other Compensation” column represent the following amounts for the following individuals:

Richard E. Kessel	2007:	Automobile expense reimbursement: $13,500 (includes amounts to which Mr. Kessel was entitled in 2006 but which were paid in 2007); 401-K corporate matching contribution: $7,750 Medical insurance premiums: $9,627; Dental insurance premiums: $1,505 Life insurance premiums and stipend for life insurance: $6,527.
	2006:	Life insurance premium: $6,319. Mr. Kessel is entitled to (a) up to $750 a month in reimbursement for automobile lease payments*, (b) reimbursement for automobile insurance, and (c) coverage under our medical and dental insurance policies. Mr. Kessel did not take any of these benefits in 2006.
Michael E. Thomas	2007:	Automobile expense reimbursement: $5,625; 401-K corporate matching contribution: $5,500 Medical insurance premiums: $5,617; Dental insurance premiums: $553.
Dennis Haines	2007:	Automobile expense reimbursement: $9,750 (includes amounts to which Mr. Kessel was entitled in 2006 but which were paid in 2007); Medical insurance premiums: $4,643; Dental insurance premiums: $1,103 Life insurance premiums and stipend for life insurance: $5,036.
	2006:	Automobile expense reimbursement: $2,250; Medical insurance premiums: $774; Dental insurance premiums: $92; Life insurance premiums: $545.
John F. O’Neill	2007:	Automobile lease payments: $3,657; Medical insurance premiums: $7,354; Dental insurance premiums: $828 Life insurance premiums: $15; severance payments: $121,667.
	2006:	Automobile lease payments: $7,296; Automobile insurance premiums: $1,580; 401(k) match: $7,500; Medical insurance premiums: $13,075; Dental insurance premiums: $1,914; Life insurance premiums: $36.

(7) Mr. Thomas commenced employment in May 2007. Accordingly, no information is provided for 2006.

* Previously filed Summary Compensation Table incorrectly reported monthly reimbursement amount of $1,000.

ITEM 9.01 – FINANCIAL STATEMENTS AND EXHIBITS

Exhibit No.	Description
99.1	Form of Restricted Stock Agreement granted under the Company’s 2005 Equity Incentive Plan or 2006 Equity Incentive Plan

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

ENVIRONMENTAL POWER CORPORATION
By:	/s/  Michael E. Thomas
	Michael E. Thomas Senior Vice President, Chief Financial Officer and Treasurer

Dated: June 6, 2008

EX-99.1

Exhibit 99.1

ENVIRONMENTAL POWER CORPORATION

Restricted Stock Agreement

Name of Recipient:

Number of shares of restricted common stock awarded:

Grant Date:

Environmental Power Corporation (the “Company”) has selected you to receive the restricted stock award described above, which is subject to the provisions of the Company’s 200[5][6] Equity Incentive Plan (the “Plan”), and the terms and conditions contained in this Restricted Stock Agreement (the “Agreement”). Please confirm your acceptance of this restricted stock award and of the terms and conditions of this Agreement by signing a copy of this Agreement where indicated below.

ENVIRONMENTAL POWER CORPORATION

By:

Name:

Title:

Accepted and Agreed:

[Name of Recipient]

ENVIRONMENTAL POWER CORPORATION

Restricted Stock Agreement

Terms and Conditions

The terms and conditions of the award of shares of restricted common stock of the Company (the “Restricted Shares”) made to the Recipient, as set forth on the cover page of this Agreement, are as follows:

1. Issuance of Restricted Shares.

(a) The Restricted Shares are issued to the Recipient, effective as of the Grant Date (as set forth on the cover page of this Agreement), in consideration of employment services rendered and to be rendered by the Recipient to the Company.

(b) As promptly as practicable following the Grant Date, the Company shall issue one or more certificates in the name of the Recipient for the Restricted Shares. Such certificate(s) shall initially be held on behalf of the Recipient by the Secretary of the Company. Following the vesting of any Restricted Shares pursuant to Section 2 below, the Secretary shall, if requested by the Recipient, deliver to the Recipient a certificate representing the vested Restricted Shares. The Recipient agrees that the Restricted Shares shall be subject to the forfeiture provisions set forth in Section 3 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement.

2. Vesting.

Unless otherwise provided in this Agreement or the Plan, the Restricted Shares shall vest in accordance with the following vesting schedule:

Date	Percentage Vested
[(as applicable)]

3. Forfeiture of Unvested Restricted Shares upon Employment Termination.

In the event that the Recipient ceases to be employed by the Company for any reason or no reason, with or without cause, all of the Restricted Shares that are unvested as of the time of such employment termination shall be forfeited immediately and automatically to the Company, without the payment of any consideration to the Recipient, effective as of such termination of employment. The Recipient hereby authorizes the Company to take any actions necessary or appropriate to cancel any certificate(s) representing forfeited Restricted Shares and transfer ownership of such forfeited Restricted Shares to the Company; and if the Company or its transfer agent requires an executed stock power or similar confirmatory instrument in connection with

such cancellation and transfer, the Recipient shall promptly execute and deliver the same to the Company. The Recipient shall have no further rights with respect to any Restricted Shares that are so forfeited. If the Recipient is employed by a subsidiary of the Company, any references in this Agreement to employment with the Company shall instead be deemed to refer to employment with such subsidiary.

4. Restrictions on Transfer.

The Recipient shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “transfer”) any Restricted Shares, or any interest therein, until such Restricted Shares have vested, except that the Recipient may transfer such Restricted Shares: (a) to or for the benefit of any spouse, children, parents, uncles, aunts, siblings, grandchildren and any other relatives approved by the Board (as defined below) (collectively, “Approved Relatives”) or to a trust established solely for the benefit of the Recipient and/or Approved Relatives, provided that such Restricted Shares shall remain subject to this Agreement (including without limitation the forfeiture provisions set forth in Section 3 and the restrictions on transfer set forth in this Section 4) and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement; or (b) as part of the sale of all or substantially all of the shares of capital stock of the Company (including pursuant to a merger or consolidation). The Company shall not be required (i) to transfer on its books any of the Restricted Shares which have been transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Restricted Shares or to pay dividends to any transferee to whom such Restricted Shares have been transferred in violation of any of the provisions of this Agreement.

5. Restrictive Legends.

All certificates representing Restricted Shares shall have affixed thereto a legend in substantially the following form, in addition to any other legends that may be required under applicable law:

“These shares of stock are subject to forfeiture provisions and restrictions on transfer set forth in a certain Restricted Stock Agreement between Environmental Power Corporation (the “Corporation”) and the registered owner of these shares (or his or her predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the Corporation.”

6. Rights as a Shareholder.

Except as otherwise provided in this Agreement, for so long as the Recipient is the registered owner of the Restricted Shares, the Recipient shall have all rights as a shareholder with respect to the Restricted Shares, whether vested or unvested, including, without limitation, any rights to vote the Restricted Shares and act in respect of the Restricted Shares at any meeting

of shareholders and to receive dividends and distributions with respect to such Restricted Shares; provided, however, that if any such dividends or distributions are paid in shares, or consist of a dividend or distribution to holders of Common Stock other than an ordinary cash dividend, the shares, cash or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid. Each dividend payment will be made no later than the end of the calendar year in which the dividends are paid to other holders of that class of stock or, if later, the 15^th day of the third month following the date the dividends are paid to other holders of that class of stock.

7. Provisions of the Plan.

This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Recipient with this Agreement.

8. Tax Matters.

(a) Acknowledgments; Section 83(b) Election. The Recipient acknowledges that he or she is responsible obtaining the advice of the Recipient’s own tax advisors with respect to the acquisition of the Restricted Shares and the Recipient is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with respect to the tax consequences relating to the Restricted Shares. The Recipient understands that the Recipient (and not the Company) shall be responsible for the Recipient’s tax liability that may arise in connection with the acquisition, vesting and/or disposition of the Restricted Shares. The Recipient acknowledges that he or she has been informed of the availability of making an election under Section 83(b) of the Internal Revenue Code, as amended, with respect to the issuance of the Restricted Shares and that the Recipient has decided not to file a Section 83(b) election.

(b) Withholding. The Recipient acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Recipient any federal, state, local or other taxes of any kind required by law to be withheld with respect to the vesting of the Restricted Shares. On each date on which Restricted Shares vest, the Company shall deliver written notice to the Recipient of the amount of withholding taxes due with respect to the vesting of the Restricted Shares that vest on such date; provided, however, that the total tax withholding cannot exceed the Company’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). The Recipient shall satisfy such tax withholding obligations by making a cash payment to the Company on the date of vesting of the Restricted Shares, in the amount of the Company’s withholding obligation in connection with the vesting of such Restricted Shares. The Recipient may, if the Board, in its sole discretion, so approves in writing in advance of the applicable vesting date, satisfy such tax withholding obligations by transferring to the Company, on each date on which Restricted Shares vest under this Agreement, such number of Restricted Shares that vest on such date as have a fair market value (calculated using the last reported sale price of the common stock of the Company on The NASDAQ Capital Market (or such other principal trading market on which the Company’s common stock is then traded) on the trading date immediately prior to such vesting date) equal to

the amount of the Company’s tax withholding obligation in connection with the vesting of such Restricted Shares. In the event that the Board approves such method of satisfying the tax withholding, to effect such delivery of Restricted Shares, the Recipient shall be required to authorize the Company to take any actions necessary or appropriate to cancel any certificate(s) representing such Restricted Shares and transfer ownership of such Restricted Shares to the Company; and if the Company or its transfer agent requires an executed stock power or similar confirmatory instrument in connection with such cancellation and transfer, the Recipient shall promptly execute and deliver the same to the Company.

9. Miscellaneous.

(a) Authority of the Board. In making any decisions or taking any actions with respect to the matters covered by this Agreement, the Board of Directors of the Company or a designated committee of the Board, including, but not limited to, the Compensation Committee of the Board (collectively, the “Board”) shall have all of the authority and discretion, and shall be subject to all of the protections, provided for in the Plan. All decisions and actions by the Board with respect to this Agreement shall be made in the Board’s discretion and shall be final and binding on the Recipient.

(b) No Right to Continued Employment. The Recipient acknowledges and agrees that, notwithstanding the fact that the vesting of the Restricted Shares is contingent upon his or her continued employment by the Company, this Agreement does not constitute an express or implied promise of continued employment or confer upon the Recipient any rights with respect to continued employment by the Company.

(c) Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws provisions.

(d) Recipient’s Acknowledgments. The Recipient acknowledges that he or she has read this Agreement, has received and read the Plan, and understands the terms and conditions of this Agreement and the Plan.