Exhibit 10.6

 

[Environmental Power Corporation Logo]  

Environmental Power Corporation

One Cate Street, 4th Floor

Portsmouth, New Hampshire 03801

Tel. (603) 431-1780

Fax (603) 431-2650

 

July 13, 2005

 

Mr. Donald A. Livingston

c/o Environmental Power Corporation

One Cate Street, 4th Floor

Portsmouth, NH 03801

 

Dear Andy:

 

The purpose of this letter is to set forth our understanding regarding certain
matters related to your continued employment with, and transition and retirement
from your employment with, Environmental Power Corporation (the “Corporation”).

 

1. You will continue to serve in your current position as an employee of the
Corporation until December 31, 2005 or such later date as the Board of Directors
of the Corporation (the “Board”) may determine, so long as all options referred
to in paragraph 8, below, have been fully vested (the “Retirement Date”),
provided that in no event may the Retirement Date be extended beyond June 30,
2006 without your consent. The period from the date of this letter to the
Retirement Date is referred to as the “Transition Period.”

 

2. Provided that you continue to provide services satisfactory to the Board
through the Retirement Date, your current salary and benefits will continue for
a period of one year after the Retirement Date. Thereafter, the Corporation will
provide family medical insurance, comparable to that provided to the
Corporation’s Chief Executive Officer, until such time as you become eligible
for Medicare.

 

3. During the Transition Period, you will:

 

  (a) Mentor the new President of the Corporation’s subsidiary, Microgy, Inc.
(“Microgy”);

 

  (b) Mentor such other employees of the Corporation or Microgy as the
Corporation may reasonably request; and

 

  (c) Provide such other support for the business development efforts of Microgy
and the Corporation as the Corporation may reasonably request, consistent with
the historical position, responsibilities and activities of the executive,
including pursuit of Microgy’s business development efforts in the Southwestern
United States.

 

4. You will execute and deliver to the Corporation its standard form of Employee
Proprietary Information and Inventions Agreement, which will include a
non-disclosure and non-competition covenant with a term of five years beginning
on the Retirement Date.

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Mr. Donald A. Livingston

July 13, 2005

Page 2

 

5. The Corporation will provide adequate office facilities and support for the
performance of the executive’s duties during the Transition Period. The location
of such office and support services will be at the election of the Corporation
so long as they are reasonably convenient to your principal residence.

 

6. You and the Corporation may mutually agree to additional duties to be
performed by you after the Retirement Date, for such compensation as you and the
Corporation may mutually agree.

 

7. In the event that you are terminated by the Board without cause prior to the
Retirement Date, you will be entitled to severance equal to 12 months’ of your
current base salary, paid in accordance with the Corporation’s usual payroll
practices and all other payments or benefits otherwise contemplated by this
letter. In addition, all options referred to in paragraph 8 below would vest
immediately, except to the extent that such termination occurs after the date
for satisfaction of the vesting criteria set forth therein and such vesting
criteria have not been satisfied on or prior to such date. For purposes of this
letter, “cause” shall mean willful misconduct by you or willful failure by you
to perform your responsibilities to the Corporation (including, without
limitation, breach by you of any provision of any employment, consulting,
advisory, nondisclosure, non-competition or other similar agreement between you
and the Corporation).

 

8. The Corporation will grant to you, subject to the approval of the
Corporation’s 2005 Equity Incentive Plan (the “Plan”) by the Corporation’s
stockholders, a non-statutory stock option under the Plan to purchase shares of
the Corporation’s common stock on the following terms:

 

  (a) Option Term: Exercisable for 5 years, to the extent vested.

 

  (b) Number of Shares of common stock subject to option: 200,000.

 

  (c) Exercise Price: The fair market value of a share of common stock on the
date of grant as determined by the Board in accordance with the terms of the
Plan.

 

  (d) Vesting Provisions:

 

  (i) 75% of the shares subject to the option will vest if, on or before October
31, 2005, (A) management has presented to the Board one or more agreements among
(1) Microgy or any affiliated or related entity, (2) South-Tex Treaters, Inc. or
any affiliate thereof or a comparable provider (or providers) of gas scrubbing
equipment and services, and/or (3) other project participants, which agreements
relate to one or more projects in the Southwestern United States providing for
the development or construction of the equivalent of an aggregate 10 digesters
having a capacity of 700,000 gallons each (it being understood that, for example
and by way of illustration only, projects calling for the construction of an
aggregate of 20 digesters having a capacity of 350,000 gallons each would
satisfy this criteria), and (B) on the basis of such presentation, the Board has
authorized further investment in such project or projects and, therefore,
determined that the shares should vest.

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Mr. Donald A. Livingston

July 13, 2005

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  (ii) 25% of the shares will vest if, on or before December 31, 2005, in
addition to the projects referred to in paragraph 8(d)(i), (A) management has
presented to the Board one or more agreements among Microgy or any affiliated or
related entity and one or more third parties and/or a report regarding completed
development steps pertaining to a second project or group of projects of an
aggregate size comparable to the project or projects contemplated by the
foregoing paragraph, and (B) on the basis of such presentation, the Board of
Directors has authorized further investment in such project or projects and,
therefore, determined that the shares should vest.

 

  (iii) Notwithstanding the foregoing, in the event that, (A) following the
presentation of any project or projects to the Board as described above, the
Board declines to authorize any further investment, and (B) at any time during
the 12-month period following such presentation, the Corporation, Microgy or any
of their affiliates should later determine to invest any corporate resources
(including the time of corporate personnel) in pursuit of such project or
projects, then such investment in such project or projects shall be deemed to
have been approved by the Board within the time periods set forth above and the
option shall be deemed to be vested as to the percentage of shares related
thereto.

 

9. It is understood that nothing in this letter is intended to affect your
status as a member of the Board of Directors of the Corporation.

 

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Mr. Donald A. Livingston

July 13, 2005

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If the foregoing accurately sets forth your understanding of the agreement
between you and the Corporation with regard to the subject matter of this
letter, please so indicate by executing a copy of this letter where indicated
below and returning it to me.

 

Very truly yours,

/s/ Kamlesh R. Tejwani

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Kamlesh R. Tejwani President and Chief Executive Officer Environmental Power
Corporation ACCEPTED:

/s/ Donald A. Livingston

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Donald A. Livingston Dated: July 13, 2005