Option Agreement dated as of March 29, 2004



 EXHIBIT 10.2 
  
 ENVIRONMENTAL POWER CORPORATION 
 NONSTATUTORY STOCK OPTION AGREEMENT 
  
 Grant of Option 
  
 This agreement evidences the grant by
Environmental Power Corporation, a Delaware corporation (the “Company”), on March 29, 2004, to Donald A. Livingston, an employee of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms
provided herein, a total of 1,000,000 shares (the “Shares”) of common stock, $0.01 par value per share, of the Company (“Common Stock”) at the exercises prices per Share set forth in Section 3(a) of this Agreement. Unless earlier
terminated, this option shall expire at 5:00 p.m., Eastern time, on March 29, 2014 (the “Final Exercise Date”). It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of
the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”). Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any
person who acquires the right to exercise this option validly under its terms. 
  
 Vesting Schedule 
  
 Subject to the terms of this
Agreement, this option will become exercisable (“vest”) in full upon the commencement of construction by the Company’s subsidiary, Microgy Cogeneration Systems, Inc. (“Microgy”), of the Requisite Number of power generation
projects based upon Microgy’s anaerobic digester technology (“Projects”) having a capacity of at least 775 KW on or before June 30, 2004. For purposes of this Agreement, the “Requisite Number” of Projects shall be determined
based upon the amount of gross proceeds received by the Company, in the aggregate, as a result of any debt or equity financings completed on or before June 30, 2004, as follows: 
  

			
	 Aggregate Gross Proceeds of Debt or Equity Financing

	 	 Requisite
Number


	 •      $0 to $1,999,999
	 	One
	 •      $2,000,000 to $2,999,999
	 	Two
	 •      $3,000,000 to $3,999,999
	 	Three
	 •      $4,000,000 or more
	 	Four

  
 The right of exercise shall be
cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares for which it is vested until the earlier of the Final
Exercise Date or the termination of this option under Section 3 hereof. The Board of Directors of the Company (the “Board”) may at any time provide that this option shall become immediately exercisable in full or in part, free of some or
all restrictions or conditions, or otherwise realizable in full or in part, as the case may be 
  
 Exercise Prices and Exercise of Option 
  
 Exercise Price – The exercise price for the Shares shall be $1.00 per share. 
  
 Form of Exercise – Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office located at One Cate Street, 4th Floor, Portsmouth, New Hampshire 03801, accompanied by this agreement, and payment in full in one or more of the following
manners: 
  

	 	•	in cash or by check, payable to the order of the Company; 

  

	 	•	by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any
required tax withholding or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and
any required tax withholding, provided that the Company shall be under no obligation to deliver any Shares to the Participant or such broker until the Company has received payment in full therefor; 

  

	 	•	by delivery of shares of Common Stock owned by the Participant valued at their fair market value on the date of exercise as determined by (or in a manner approved by) the Board in
good faith (“Fair Market Value”), provided (i) such method of payment is then permitted under applicable law and (ii) such Common Stock, if acquired directly from the Company, was owned by the Participant at least six months prior to such
delivery; and 

  

	 	•	by a combination of the above permitted forms of payment. 

  
 The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share or for fewer
than one thousand whole shares. 







 Continuous Relationship with the Company Required – Except as otherwise provided in this Section 3,
this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the date of this Agreement, an employee, director or officer of, or consultant or advisor to, the Company or
any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an “Eligible Participant”). 
  
 Termination of Relationship with the Company – Except as otherwise set forth in paragraph (e), below, if the Participant ceases to be an Eligible
Participant for any reason, then the right to exercise this option shall terminate three months after such cessation (but in no event after the Final Exercise Date). 
  
 Exercise Period Upon Death or Disability – If the Participant dies or becomes disabled (within the meaning of Section
22(e)(3) of the Code) prior to the Final Exercise Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “Cause” as defined in the Employment Agreement, this option shall be exercisable,
within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent
that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Final Exercise Date. 
  
 Adjustments for Changes in Common Stock and Certain Other Events 
  
 Changes in Capitalization – In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a normal cash dividend, the
number and class of securities and exercise price per Share subject to this Option shall be appropriately adjusted by the Company (or a substituted option grant may be made, if applicable) to the extent the Board shall determine, in good faith, that
such an adjustment (or substitution) is necessary and appropriate. If this Section 4(a) applies and Section 4(c) also applies to any event, Section 4(c) shall be applicable to such event, and this Section 4(a) shall not be applicable. 
  
 Liquidation or Dissolution – In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the Participant provide that this option, to the extent unexercised, will (i) become exercisable in full as of a specified time at least 10 business days prior to the effective date
of such liquidation or dissolution and (ii) terminate effective upon such liquidation or dissolution, except to the extent exercised before such effective date. 
  

Reorganization Events 
  
 Definition – A “Reorganization Event” shall mean: (a) any merger or consolidation of the Company with or into another entity as a
result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or (b) any exchange of all of the Common Stock of the Company for cash, securities or other property
pursuant to a share exchange transaction. 
  
 Consequences of a
Reorganization Event on Options – Upon the occurrence of a Reorganization Event, or the execution by the Company of any agreement with respect to a Reorganization Event, the Board shall provide that this option shall be assumed,
or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof). For purposes hereof, this option shall be considered to be assumed if, following consummation of the Reorganization Event, the option
confers the right to purchase, for each share of Common Stock subject to the option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the
Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of this option to consist solely of common stock of the acquiring or succeeding corporation (or an
affiliate thereof) equivalent in fair market value to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event. 
  
 Notwithstanding the foregoing, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute
for, this option, then the Board shall, upon written notice to the Participant, provide that this option, to the extent unexercised, will become exercisable in full as of a specified time prior to the Reorganization Event and will terminate
immediately prior to the consummation of such Reorganization Event, except to the extent exercised by the Participant before the consummation of such Reorganization Event; provided, however, that in the event of a Reorganization Event under the
terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of 
  

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 Common Stock surrendered pursuant to such Reorganization Event (the “Acquisition Price”), then the Board may
instead provide that this option shall terminate upon consummation of such Reorganization Event and that the Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied
by the number of Shares subject to this option (whether or not then exercisable), exceeds (B) the aggregate exercise price of this options. To the extent all or any portion of this option becomes exercisable solely as a result of the first sentence
of this paragraph, upon exercise of this option the Participant shall receive shares subject to a right of repurchase by the Company or its successor at the applicable exercise price. Such repurchase right (1) shall lapse at the same rate as this
option would have become exercisable under its terms and (2) shall not apply to any shares subject to this option that were already exercisable under its terms without regard to the first sentence of this paragraph. 
  
 Withholding 
  
 No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision
satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option. 
  
 Non-Transferability of Option 
  
 This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the
laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant. 
  
 Miscellaneous 
  
 No Right To Employment or Other Status – The grant of this option shall not be construed as giving the Participant the right to continued employment or any other relationship with the Company. The
Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with the Participant free from any liability or claim under this Agreement, except as expressly provided herein. 
  
 No Rights As Stockholder – The Participant shall have no rights as a
stockholder with respect to any Shares to be distributed upon exercise of this option until becoming the record holder of such Shares. Notwithstanding the foregoing, in the event the Company effects a split of the Common Stock by means of a stock
dividend and the exercise price of and the number of Shares subject to this Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then, if the Participant exercises this option
between the record date and the distribution date for such stock dividend, the Participant shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such exercise,
notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend. 
  
 Governing Law – The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State
of Delaware, without regard to any applicable conflicts of law. 
  
 IN WITNESS
WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument. 
  

					
	 	 	 ENVIRONMENTAL POWER CORPORATION

			
	 Dated: March 29, 2004
	 	 By:
	 	 /s/ Jeffrey Macartney


	 	 	 Name:
	 	 R. Jeffrey Macartney

	 	 	 Title:
	 	 Chief Financial Officer


  
 *** 
  
 PARTICIPANT’S ACCEPTANCE 
  
 The undersigned hereby accepts the foregoing option and agrees to the terms and conditions
thereof. 
  

	
	 PARTICIPANT:

	
	 /s/ Donald A. Livingston


	 Donald A. Livingston

	 Address:



  

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