Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”), made as of the 12th day of July,
2006, is entered into by Environmental Power Corporation, a Delaware corporation
with its principal place of business at One Cate Street, 4th Floor, Portsmouth,
New Hampshire 03801 (the “Company”), and Richard E. Kessel, residing at 100
Springhurst Road, Bedford Hills, NY 10507 (the “Executive”).

The Company desires to employ the Executive, and the Executive desires to be
employed by the Company. In consideration of the mutual covenants and promises
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties to this
Agreement, the parties agree as follows:

1. Term of Employment. The Executive’s employment with the Company will commence
on July 17, 2006 (the “Commencement Date”). The Executive shall be an “at will”
employee of the Company, and either the Company or the Executive may terminate
the Executive’s employment with the Company at any time in the manner, and with
the effects, set forth in Section 4 of this Agreement.

2. Title; Capacity. The Executive shall serve as President and Chief Executive
Officer of the Company. The Executive shall be based in New York, New York, but
will spend such time at the Company’s headquarters in Portsmouth, New Hampshire
as may be reasonably necessary to carry out his duties under this Agreement. The
Executive shall be subject to the supervision of, and shall have such authority
as is delegated to the Executive by, the Board of Directors of the Company (the
“Board”).

The Executive hereby accepts such employment and agrees to undertake the duties
and responsibilities inherent in such position and such other duties and
responsibilities as the Board shall from time to time assign to the Executive,
provided that such additional duties and responsibilities are reasonably
consistent with the duties and responsibilities of similarly-situated executives
of companies comparable to the Company. The Executive agrees to devote his
entire business time, attention and energies to the business and interests of
the Company during such time as he is employed by the Company. The Executive
agrees to abide by the rules, regulations, instructions, personnel practices and
policies of the Company and any changes therein which may be adopted from time
to time by the Company.

Promptly following the later of (i) execution of this Agreement by the Company
and the Executive and (ii) the identification, if necessary, of an additional
candidate to serve on the Board who is “independent” within the meaning of the
rules and regulations adopted by the Securities and Exchange Commission and the
American Stock Exchange, the Executive shall be appointed to the Board. In
addition, at each meeting of the stockholders of the Company held for the
purposes of electing directors after the Executive’s initial appointment to the
Board, the Company will cause the Executive to be nominated to stand for
election as a director of the Company at such meeting, provided the Executive is
then serving as the Company’s Chief Executive Officer.

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3. Compensation and Benefits.

3.1 Salary. The Company shall pay the Executive, in periodic installments in
accordance with the Company’s customary payroll practices, an initial annual
base salary of $300,000. Such base salary shall be subject to adjustment
annually thereafter as determined by the Compensation Committee of the Board in
accordance with its then-current policies regarding compensation of the
Company’s Chief Executive Officer, provided that in no event shall the
Executive’s base salary be reduced from its then-current level during the term
of employment without the Executive’s consent.

3.2 Bonus. In addition to the base salary payable to the Executive hereunder,
the Executive also shall be entitled to receive bonus compensation, to be
awarded at such times and be in such amounts, as shall be determined in the sole
discretion of the Board in consultation with the Executive (provided that the
Board’s final deliberations regarding any such bonus need not include the
Executive), consistent with the management bonus plan of the Company in effect
from time to time for senior executives, if any.

3.3 Fringe Benefits. The Executive shall be entitled to participate in all
benefit programs that the Company establishes and makes available to its senior
executives generally from time to time, including, but not limited to, medical
and pension benefits, in accordance with the terms and conditions of such plans,
as well as an automobile allowance in an amount not to exceed $750.00 per month.
In addition, the Company shall reimburse the Executive for annual premiums paid
by the Executive for his personal long-term disability and term life insurance
coverage, provided that the Company’s reimbursement obligation with respect to
such coverage shall not exceed $6,500 per annum. The Executive shall be entitled
to five (5) weeks paid vacation per year, to be accrued and taken in accordance
with the Company policy in effect from time to time.

3.4 Reimbursement of Expenses. The Company shall reimburse the Executive for all
reasonable travel, entertainment and other expenses (including, but not limited
to, all lodging and other expenses associated with the Executive’s travel to and
from the Company’s headquarters in Portsmouth, New Hampshire) incurred or paid
by the Executive in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, in accordance with
policies and procedures, and subject to limitations, adopted by the Company from
time to time.

3.5 Options. Promptly following the Commencement Date, the Company will
recommend to the Compensation Committee of the Board that the Executive be
granted one or more options, substantially in the form attached to this
Agreement as Exhibit A (the “Option”), under the Company’s 2005 Equity Incentive
Plan and/or 2006 Equity Incentive Plan, to purchase up to 400,000 shares of the
Company’s common stock, $0.01 par value per share (“Common Stock”), at an
exercise price per share equal to the fair market value of a share of the Common
Stock on the date of grant, as determined in accordance with the terms of the
applicable Plan. The Option shall vest as set forth in Exhibit A. The Executive
also shall be eligible to receive future awards under the equity compensation
plans, if any, adopted by the Company from time to time for which senior
executives are generally eligible. The level of the Executive’s participation in
any such plan and the terms and conditions of such participation shall be
determined in the sole discretion of the Board.

 

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3.6 Withholding. All salary, bonus and other compensation payable to the
Executive shall be subject to applicable withholding taxes.

4. Termination of Employment.

4.1 By the Company Without Cause. The Company may terminate the Executive’s
employment without Cause (as defined in this Agreement) effective on sixty
(60) days’ prior written notice. In such event and subject to the other
provisions of this Agreement, Executive will be entitled to:

(a) continued coverage under the Company’s benefit plans through the termination
date;

(b) payment of all earned but unpaid compensation (including any base salary,
accrued and unused vacation, and any premium reimbursements in accordance with
Section 3.3 hereof) through the effective date of termination, payable on or
before the termination date;

(c) reimbursement of any monies advanced or incurred by Executive in connection
with his employment for reasonable and necessary Company-related business
expenses incurred on or before the termination date in accordance with
Section 3.4 hereof (Sections 4.1(b) and 4.1(c) hereof being referred to herein
as “Accrued Obligations”);

(d) payment of the equivalent of the base salary he would have earned over the
next eighteen (18) months (less necessary tax withholdings) at his then current
base salary rate (“Severance Payment”), payable in a lump sum (i) on the first
business day following the six (6) month anniversary of the effective date of
termination, to the extent required by Section 409A of the Internal Revenue Code
of 1986, as amended (the “Code”), or (ii) if Section 409A of the Code is not
then applicable, in a lump sum promptly following the date of termination;

(e) that portion of any annual bonus that the Executive would have been eligible
to earn for the fiscal year in which his employment terminated in accordance
with Section 3.2 hereof, assuming that the Company’s performance is deemed to
continue at the same rate for the remainder of the fiscal year, as is
represented by the number of days the Executive was employed up to the date of
termination divided by 365 (the “Pro-Rata Bonus”).

(f) benefit continuation (or, in the case of health benefits, COBRA
reimbursement) for a period of eighteen (18) months at the same level and on the
same basis as Executive was receiving prior to the termination; and

(g) a number of outstanding unvested stock options and restricted stock, if any,
previously granted to the Executive shall vest upon such termination in an
amount equal to the stock options and restricted stock that would have vested
solely as a result of the passage of time (but not as the result of any other
performance measure, stock price or other target) over the twelve (12) month
period after such termination if the Executive remained employed by the Company.

 

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(h) The Executive will have no obligation to mitigate his damages in terms of
finding other employment, and there shall be no offset against any amounts due
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that the Executive may obtain, except that the benefit
continuation described in subsection (f) above shall cease at such time as the
Executive accepts employment with another employer.

4.2 By Company with Cause. The Company may terminate Executive’s employment at
any time and without prior notice, written or otherwise, for Cause, subject to
the Executive’s opportunity to cure as provided below. As used in this
Agreement, “Cause” shall mean any of the following: (i) material breach of this
Agreement by the Executive; (ii) demonstrated and material neglect of duties, or
willful and continued failure or refusal to attempt to perform the material
duties of his position, in each case, following written notice from the Board
and a reasonable opportunity to cure of not less than twenty (20) days, or the
failure to follow a reasonable and lawful instruction of the Board following
written notice from the Board and an opportunity to cure of at least twenty
(20) days (if capable of cure); (iii) willful misconduct, violation of a
material Company policy, dishonesty, self-dealing or fraud with regard to the
Company; (iv) conviction of, or plea of guilty or nolo contendere to, any
felony; or (v) conviction of, or plea of guilty or nolo contendere to, any
misdemeanor involving moral turpitude. In the event of termination for Cause,
Executive will be entitled only to payment of any Accrued Obligations through
the effective date of such termination, except as provided in Section 4.6
hereof. The Company will have no further obligation to pay any compensation of
any kind (including without limitation any bonus or portion of a bonus that
otherwise may have become due and payable to the Executive with respect to the
year in which such termination date occurs), or severance payment of any kind
nor to make any payment in lieu of notice.

4.3 Incapacity or Death.

(a) If the Executive becomes unable, due to physical or mental illness or
injury, to perform the essential duties of his position for more than 12
consecutive weeks in any 12-month period during this Agreement with or without
reasonable accommodation (“Incapacity”), the Company has the right to terminate
Executive’s employment on thirty (30) days’ written notice. In the event of
termination for Incapacity, Executive will be entitled to receive: (i) payment
of all Accrued Obligations, (ii) the Pro-Rata Bonus, and (iii) whatever benefits
to which he may be entitled pursuant to the Company’s benefit plans in
accordance with Section 4.6 hereof; and

(b) Executive’s employment pursuant to this Agreement shall be immediately
terminated without notice by the Company upon the death of the Executive. If
Executive should die while actively employed pursuant to this Agreement, the
Company will pay to his estate or designated beneficiaries within ten (10) days
after termination: (i) payment of all Accrued Obligations, (ii) the Pro-Rata
Bonus, and (iii) whatever benefits to which he or his estate may be entitled
pursuant to the Company’s benefit plans in accordance with Section 4.6 hereof.

 

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4.4 Resignation for Good Reason. Executive may terminate this Agreement for Good
Reason (as defined in this Agreement) by giving written notice of such
termination, which termination will become effective on the thirtieth day
following receipt. As used in this Agreement, “Good Reason” shall mean any one
of the following, provided that with respect to (iii), (iv) and (v) below, the
Company has failed to cure the occurrence within twenty (20) days of receiving
written notice from Executive specifying in reasonable detail the event or
condition constituting the Good Reason and the specific reasonable cure
requested by the Executive: (i) any material adverse change in the Executive’s
then positions or titles, or a material diminution of his then duties,
responsibilities or authority or the assignment to the Executive of duties or
responsibilities that are materially adversely inconsistent with his then
position; (ii) the Executive’s removal from the Board; (iii) any reduction in
the Executive’s base salary without the Executive’s consent; (iv) any material
reduction in the Executive’s employee benefits without the Executive’s consent,
except as part of a general change in plans or benefits for all upper-level
executives; (v) any failure by the Company to comply with a material provision
of this Agreement; (vi) the relocation of the Executive’s principal place of
business beyond 50 miles from its then-current location (which, as of the date
of this Agreement, shall be 100 Springhurst Road, Bedford Hills, NY 10507)
without the Executive’s consent; (vii) failure of any successor to the Company
to assume in a writing delivered to the Executive upon the assignee becoming
such, the obligations of the Company hereunder; or (viii) the Executive’s
resignation for any reason (or no reason) within 180 days after a Change of
Control (as defined in this Agreement). In the event of resignation for Good
Reason, the Executive will be entitled to the benefits and payments set forth in
Section 4.1 above in the event of termination by the Company without Cause. As
used in this Agreement, a “Change in Control” shall mean any of the following
events:

(a) the acquisition by any person (as such term is defined in Section 13(c) or
14(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)),
other than (i) a trustee or other fiduciary holding securities of the Company
under an employee benefit plan of the Company or (ii) an entity in which the
Company directly or indirectly beneficially owns 50% or more of the voting
securities of such entity (an “Affiliate”), of any securities of the Company,
immediately after which such Person has beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the 1934 Act) of more than fifty percent
(50%) of (i) the outstanding shares of Common Stock or (ii) the combined voting
power of the Company’s then outstanding securities entitled to vote generally in
the election of directors;

(b) the Company is a party to a merger or consolidation with a person other than
an Affiliate which results in the holders of voting securities of the Company
outstanding immediately before such merger or consolidation failing to continue
to represent (either by remaining outstanding or being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of the then outstanding voting securities of the corporation resulting from such
merger or consolidation; or

(c) all or substantially all of the assets of the Company are, in any
transaction or series of transactions, sold or otherwise disposed of (other than
to an Affiliate);

(d) the following individuals cease for any reason to constitute a majority of
the number of directors then serving: individuals who, on the Commencement Date,
constitute

 

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the Board and any new director (other than a director whose initial assumption
of office is in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by the Board or
nomination for election by the Company’s stockholders was approved or
recommended by a vote of at least two-thirds of the directors then still in
office who either were directors on the Commencement Date or whose appointment,
election or nomination for election was previously so approved or recommended;

provided, however, that in no event shall a “Change in Control” be deemed to
have occurred for purposes of this Agreement solely because the Company engages
in an internal reorganization, which may include a transfer of assets to, or a
merger or consolidation with, one or more Affiliates.

4.5 Payments following Change in Control. Executive agrees that the payments and
benefits hereunder, and all other contracts, arrangements or programs that apply
to him (the “Company Payments”), shall be reduced to an amount that is one
dollar less than the amount that would trigger an excise tax under Section 4999
of the Code, as determined in good faith by the Company’s nationally recognized
independent auditors, provided, however, that the reduction shall occur only if
the reduced Company Payments received by the Executive (after taking into
account further reductions for applicable federal, state and local income,
social security and other taxes) would be greater than the unreduced Company
Payments to be received by the Executive minus (i) the excise tax payable with
respect to such Company Payments under Section 4999 of the Code; and (ii) all
applicable federal, state and local income, social security and other taxes on
such Company Payments. The Company and Executive agree to cooperate in good
faith with each other in connection with any administrative or judicial
proceedings concerning the existence or amount of golden parachute penalties
with respect to payments or benefits Executive receives.

4.6 Release. As a condition of Executive or his estate receiving any severance
payment by the Company made pursuant to this Section 4, whether in a lump sum
payment or a string of payments or in the form of payment of benefits, the
Executive or his estate shall, in consideration for payment of such amount or
benefit, release, remise and forever discharge, indemnify and hold harmless the
Company, its officers, directors, and employees, pursuant to a form of release
customarily used by the Company for senior executives for such purpose.
Notwithstanding the foregoing, such release and indemnification shall not
include any ancillary provisions and will not include: (i) any release of any
indemnification rights Executive may have against the Company pursuant to the
Company’s certificate of incorporation, bylaws, any indemnification agreement or
otherwise; (ii) any release of any rights the Executive may have to enforce this
Agreement or any other agreement with the Company; or (iii) any release of any
rights the Executive may have under applicable law. As a further condition of
Executive receiving any severance payment by the Company made pursuant to this
Section 4, he will specifically reaffirm the provisions of Sections 6 and 7
below. Such release shall be substantially in the form attached to this
Agreement as Exhibit B.

4.7 Other Benefits. The benefits payable to the Executive hereunder are not in
lieu of any benefits payable under any employee benefit plan, program or
arrangement of the Company, except as provided specifically herein, and upon
termination of employment, the

 

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Executive will receive such benefits or payments, if any, as the Executive may
be entitled to receive pursuant to the terms of such plans, programs and
arrangements. Except for the obligations of the Company provided hereunder
(including, without limitation, pursuant to the preceding sentence hereof), the
Company shall have no further obligations to the Executive upon termination of
employment.

5. Survival of Certain Provisions. The provisions of Sections 6 and 7 shall
survive any termination of this Agreement or the Executive’s employment with the
Company hereunder.

6. Non-Competition and Non-Solicitation.

6.1 Restricted Activities. While the Executive is employed by the Company and
for a period of eighteen (18) months after the termination or cessation of such
employment for any reason, the Executive will not, directly or indirectly,
anywhere in North America:

(a) Engage in any business or enterprise (whether as owner, partner, officer,
director, employee, consultant, investor, lender or otherwise, except as the
holder of not more than 1% of the outstanding stock of a publicly-held company)
that develops, manufactures, markets, licenses, sells or provides any product or
service that utilizes or relates to any digester technology; or

(b) Either alone or in association with others (i) solicit, or permit any
organization directly or indirectly controlled by the Executive to solicit, any
employee of the Company to leave the employ of the Company, or (ii) solicit for
employment, hire or engage as an independent contractor, or permit any
organization directly or indirectly controlled by the Executive to solicit for
employment, hire or engage as an independent contractor, any person who was
employed by the Company at any time during the term of, or at the time of the
termination or cessation of, the Executive’s employment with the Company;
provided, that this clause (ii) shall not apply to the solicitation, hiring or
engagement of any individual whose employment with the Company has been
terminated for a period of six (6) months or longer.

6.2 Extension. If the Executive violates the provisions of Section 6.1, the
Executive agrees that the 18-month restriction period under Section 6.1 shall be
extended by a time equal to the period of such violation by the Executive, it
being the intent of the parties hereto that the running of the 18-month
restriction period under Section 6.1 shall be tolled during any period of such
violation.

6.3 Interpretation. If any restriction set forth in Section 6.1 is found by any
court of competent jurisdiction to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.

6.4 Equitable Remedies. The restrictions contained in this Section 6 are
necessary for the protection of the business and goodwill of the Company and are
considered by the Executive to be reasonable for such purpose. The Executive
agrees that any breach of this Section 6 is likely to cause the Company
substantial and irrevocable damage which is difficult to measure. Therefore, in
the event of any such breach or threatened breach, the Executive agrees

 

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that the Company, in addition to such other remedies which may be available,
shall have the right to obtain an injunction from a court restraining such a
breach or threatened breach and the right to specific performance of the
provisions of this Section 6 and the Executive hereby waives the adequacy of a
remedy at law as a defense to such relief.

7. Proprietary Information and Developments.

7.1 Proprietary Information.

(a) The Executive agrees that all information, whether or not in writing, of a
private, secret or confidential nature concerning the Company’s business,
business relationships or financial affairs (collectively, “Proprietary
Information”) is and shall be the exclusive property of the Company. By way of
illustration, but not limitation, Proprietary Information (i) may include
inventions, products, processes, methods, techniques, formulas, compositions,
projects, developments, plans, research data, financial data, personnel data,
computer programs, customer and supplier lists, and contacts at or knowledge of
lenders, contractors and customers or prospective customers of the Company and
(ii) shall include any information that would be deemed to be subject to the
confidentiality provisions of that certain Technology Licensing Agreement, dated
May 12, 2000, between Microgy, Inc. and Danish Biogas Technology, A.S., as such
agreement may be amended from time to time. The Executive will not disclose any
Proprietary Information to any person or entity other than employees of the
Company or use the same for any purposes (other than in the performance of his
duties as an Executive of the Company) without written approval by the Chairman
of the Board of Directors, either during or after his employment with the
Company, unless and until such Proprietary Information has become public
knowledge without fault by the Executive or the Executive is compelled to
disclose such Proprietary Information pursuant to the order of a court or other
governmental or legal body.

(b) The Executive agrees that all files, letters, memoranda, reports, records,
data, sketches, drawings, laboratory notebooks, program listings, or other
written, photographic, or other tangible material containing Proprietary
Information, whether created by the Executive or others, which shall come into
his custody or possession, shall be and are the exclusive property of the
Company to be used by the Executive only in the performance of his duties for
the Company. All such materials or copies thereof and all tangible property of
the Company in the custody or possession of the Executive shall be delivered to
the Company, upon the earlier of (i) a request by the Company or
(ii) termination of his employment. After such delivery, the Executive shall not
retain any such materials or copies thereof or any such tangible property.
Notwithstanding anything herein to the contrary, the Executive may retain his
rolodex and similar address and telephone directories.

(c) The Executive agrees that his obligation not to disclose or to use
information and materials of the types set forth in paragraphs (a) and
(b) above, and his obligation to return materials and tangible property, set
forth in paragraph (b) above, also extends to such types of information,
materials and tangible property of customers of the Company or suppliers to the
Company or other third parties who may have disclosed or entrusted the same to
the Company or to the Executive.

 

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7.2 Developments.

(a) The Executive will make full and prompt disclosure to the Company of all
inventions, improvements, discoveries, methods, developments and works of
authorship, whether copyrightable, patentable or not, which are created, made,
conceived or reduced to practice by him or under his direction or jointly with
others during his employment by the Company, whether or not during normal
working hours or on the premises of the Company (all of which are collectively
referred to in this Agreement as “Developments”).

(b) The Executive agrees to assign and does hereby assign to the Company (or any
person or entity designated by the Company) all his right, title and interest in
and to all Developments and all related patents, patent applications, copyrights
and copyright applications. However, this paragraph (b) shall not apply to
Developments which do not relate to the business or research and development
conducted or planned to be conducted by the Company at the time such Development
is created, made, conceived or reduced to practice and which are made and
conceived by the Executive not during normal working hours, not on the Company’s
premises and not using the Company’s tools, devices, equipment or Proprietary
Information. The Executive understands that, to the extent this Agreement shall
be construed in accordance with the laws of any state which precludes a
requirement in an Executive agreement to assign certain classes of inventions
made by an Executive, this paragraph (b) shall be interpreted not to apply to
any invention which a court rules and/or the Company agrees falls within such
classes. The Executive also hereby waives all claims to moral rights in any
Developments.

(c) The Executive agrees to cooperate fully with the Company, both during and
after his employment with the Company, with respect to the procurement,
maintenance and enforcement of copyrights, patents and other intellectual
property rights (both in the United States and foreign countries) relating to
Developments. The Company shall provide the Executive with reasonable
compensation for his cooperation under this Section 7.2(c) to the extent such
cooperation is requested by the Company following the Executive’s termination of
employment and shall reimburse any reasonable out-of-pocket expenses incurred by
the Executive in connection with any such cooperation. The Executive shall sign
all papers, including, without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignments of priority
rights, and powers of attorney, which the Company may deem necessary or
desirable in order to protect its rights and interests in any Development. The
Executive further agrees that if the Company is unable, after reasonable effort,
to secure the signature of the Executive on any such papers, any executive
officer of the Company shall be entitled to execute any such papers as the agent
and the attorney-in-fact of the Executive, and the Executive hereby irrevocably
designates and appoints each executive officer of the Company as his agent and
attorney-in-fact to execute any such papers on his behalf, and to take any and
all actions as the Company may deem necessary or desirable in order to protect
its rights and interests in any Development, under the conditions described in
this sentence.

7.3 Equitable Remedies. The restrictions contained in this Section 7 are
necessary for the protection of the business and goodwill of the Company and are
considered by the Executive to be reasonable for such purpose. The Executive
agrees that any breach of this Section 7 is likely to cause the Company
substantial and irrevocable damage which is difficult to measure. Therefore, in
the event of any such breach or threatened breach, the Executive agrees

 

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that the Company, in addition to such other remedies which may be available,
shall have the right to obtain an injunction from a court restraining such a
breach or threatened breach and the right to specific performance of the
provisions of this Section 7 and the Executive hereby waives the adequacy of a
remedy at law as a defense to such relief.

8. Other Agreements. The Executive represents that his performance of all the
terms of this Agreement and the performance of his duties as an Executive of the
Company do not and will not breach any agreement with any prior employer or
other party to which the Executive is a party (including without limitation any
nondisclosure or non-competition agreement). Any agreement to which the
Executive is a party relating to nondisclosure, non-competition or
non-solicitation of employees or customers is listed on Schedule I attached
hereto.

9. Indemnification and Insurance. The Company will indemnify the Executive for
actions undertaken by him in his capacity as an officer or director of the
Company, to the fullest extent permitted by the laws of the State of Delaware,
in accordance with the terms of the Indemnification Agreement attached hereto as
Exhibit C. While employed by the Company, and while liability exists thereafter,
the Company shall, at its cost, provide insurance coverage to Executive at least
to the same extent as other senior executives of the Company with respect to
(a) officers and directors liability, (b) errors and omissions and (c) general
liability. The foregoing rights conferred upon Executive shall not be exclusive
of any other right which Executive may have or hereafter may acquire under any
statute, provision of the certificate of incorporation or bylaws of the Company,
agreement, vote of the stockholders or directors or otherwise.

10. Dispute Resolution. The parties agree that all disputes, claims or
controversies between them and between Executive and any of the Company’s
affiliated entities and the successor of all such entities, including any
dispute, claim or controversy arising from or otherwise in connection with this
Agreement and/or Executive’s employment with the Company, other than a dispute
arising under Sections 6 or 7 of this Agreement, will be resolved as follows:

10.1 Statement of Claim. Prior to initiating any other proceeding, the
complaining party will provide the other party with a written statement of the
claim identifying any supporting witnesses or documents and the requested
relief. The responding party shall within forty-five (45) days furnish a
statement of the relief, if any, that it is willing to provide, and identify
supporting witnesses or documents.

10.2 Mediation. If the matter is not resolved by the exchange of statements of
claim and statements of response as provided herein, the parties shall submit
the dispute to non-binding mediation, the cost of the mediator and
administrative expenses to be paid by the Company, before a mediator and/or
service to be jointly selected by the parties. The Company shall pay the
Executive’s reasonable attorneys’ fess (and expenses) in connection with such
mediation unless the mediator determines that the Executive’s position was
frivolous or otherwise taken in bad faith.

10.3 Binding Arbitration. If the parties cannot agree on a mediator and/or if
the matter is not otherwise resolved by mediation, any controversy or claim
arising out of or relating to this Agreement or breach thereof shall be settled
by final and binding arbitration in the county

 

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in which the Executive last worked, or elsewhere as mutually agreed by the
parties, by a single arbitrator pursuant to the Employment Dispute Rules of the
JAMS Endispute. The parties may conduct discovery to the extent permitted in a
court of law; the arbitrator will render an award together with a written
opinion indicating the bases for such opinion; and the arbitrator will have full
authority to award all remedies that would be available in court. Judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The Company will pay the arbitrator’s fees and any
administrative expenses of the arbitration service. The Company shall pay the
Executive’s reasonable attorneys’ fess (and expenses) in connection with such
arbitration unless the arbitrator determines that the Executive’s position was
frivolous or otherwise taken in bad faith.

10.4 EXCLUSIVE PROCEDURE. EXECUTIVE AND THE COMPANY AGREE THAT THIS ARBITRATION
PROCEDURE WILL BE THE EXCLUSIVE MEANS OF REDRESS FOR ANY DISPUTES RELATING TO OR
ARISING FROM EXECUTIVE’S EMPLOYMENT WITH THE COMPANY OR TERMINATION THEREFROM,
INCLUDING DISPUTES OVER UNPAID WAGES, BREACH OF CONTRACT OR TORT, VIOLATION OF
PUBLIC POLICY, RIGHTS PROVIDED BY FEDERAL, STATE OR LOCAL STATUTES, REGULATIONS,
ORDINANCES, AND COMMON LAW, LAWS THAT PROHIBIT DISCRIMINATION BASED ON ANY
PROTECTED CLASSIFICATION, AND ANY OTHER STATUTES OR LAWS RELATING TO AN
EXECUTIVE’S RELATIONSHIP WITH THE COMPANY. THE FOREGOING NOTWITHSTANDING, CLAIMS
FOR WORKERS’ COMPENSATION BENEFITS OR UNEMPLOYMENT INSURANCE, OR ANY OTHER
CLAIMS WHERE MANDATORY ARBITRATION IS PROHIBITED BY LAW, ARE NOT COVERED BY THIS
ARBITRATION PROVISION. THE PARTIES EXPRESSLY WAIVE THE RIGHT TO A JURY TRIAL,
AND AGREE THAT THE ARBITRATOR’S AWARD SHALL BE FINAL AND BINDING ON BOTH
PARTIES. THIS ARBITRATION PROVISION IS TO BE CONSTRUED AS BROADLY AS IS
PERMISSIBLE UNDER APPLICABLE LAW.

11. Miscellaneous.

11.1 Notices. Any notices delivered under this Agreement shall be deemed duly
delivered four business days after it is sent by registered or certified mail,
return receipt requested, postage prepaid, or one business day after it is sent
for next-business day delivery via a reputable nationwide overnight courier
service, in each case to the address of the recipient set forth in the
introductory paragraph hereto. Either party may change the address to which
notices are to be delivered by giving notice of such change to the other party
in the manner set forth in this Section 11.1.

11.2 Pronouns. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.

11.3 Entire Agreement. Except as specifically provided herein or otherwise
contemplated herein, this Agreement constitutes the entire agreement between the
parties and supersedes all prior agreements and understandings, whether written
or oral, relating to the subject matter of this Agreement.

 

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11.4 Amendment. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Executive.

11.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without reference to the
conflicts of laws provisions thereof). The Company and the Executive each hereby
irrevocably waive any right to a trial by jury in any action, suit or other
legal proceeding arising under or relating to any provision of this Agreement.

11.6 Section 409A. To the extent applicable, it is intended that this Agreement
comply with the provisions of Section 409A of the Code, and this Agreement shall
be construed and applied in a manner consistent with this intent. In the event
that any severance payments or benefits under Section 4 hereof are determined by
the Company to be in the nature of nonqualified deferred compensation payments,
the Company and the Executive hereby agree to take such actions as may be
mutually agreed between the parties to ensure that such payments or benefits
comply with the applicable provisions of Section 409A of the Code and the
official guidance issued thereunder. Notwithstanding the foregoing, the
Executive acknowledges and agrees that compliance with Section 409A of the Code
is the responsibility of the Executive, and the Company shall have no liability
to the Executive whatsoever in the event that any payments made to the Executive
hereunder are subject to any excise tax under Section 409A of the Code.

11.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of both parties and their respective successors and assigns,
including any corporation with which, or into which, the Company may be merged
or which may succeed to the Company’s assets or business, provided, however,
that the obligations of the Executive are personal and shall not be assigned by
him. Notwithstanding the foregoing, if the Company is merged with or into a
third party which is engaged in multiple lines of business, or if a third party
engaged in multiple lines of business succeeds to the Company’s assets or
business, then for purposes of Section 6.1(a), the term “Company” shall mean and
refer to the business of the Company as it existed immediately prior to such
event and as it subsequently develops and not to the third party’s other
businesses.

11.8 Waivers. No delay or omission by the Company in exercising any right under
this Agreement shall operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion shall be effective only in that
instance and shall not be construed as a bar or waiver of any right on any other
occasion.

11.9 Captions. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.

11.10 Severability. In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired thereby.

11.11 Counterparts; Facsimile Signatures. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all

 

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of which together shall constitute but one and the same Agreement. Only one such
counterpart need be produced to evidence the existence of this Agreement. This
Agreement may be executed by facsimile signatures.

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THE EXECUTIVE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year set forth above.

 

THE COMPANY: ENVIRONMENTAL POWER CORPORATION By:  

/s/ Joseph E. Cresci

  Joseph E. Cresci   Chairman THE EXECUTIVE:

/s/ Richard E. Kessel

Richard E. Kessel

 

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