BCON Beacon Power Corp (MM)

Use these links to rapidly review the document
TABLE OF CONTENTS

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

 

---

Table of Contents

BEACON POWER CORPORATION
65 Middlesex Road
Tyngsboro, MA 01879

---

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To be Held July 13, 2011

---

To the Stockholders of
Beacon Power Corporation:

        We are hereby notifying you that Beacon Power Corporation will be holding its Annual Meeting of Stockholders at the Stephentown Town Hall, located at 26 Grange Hall Road, Stephentown, New York 12168, on Wednesday, July 13, 2011, at 1:00 p.m., local time, followed by a tour of Beacon's Stephentown operation, located at 99 Grange Hall Road. The purpose of the Annual Meeting of Stockholders is as follows:

(1)

To elect five members of our Board of Directors for the ensuing year and until each of their successors is duly elected and qualified



(2)

To ratify the selection of Miller Wachman LLP as independent auditors to audit our books and accounts for the fiscal year ending December 31, 2011



(3)

To conduct a non-binding advisory vote on the compensation of our named executive officers



(4)

To conduct a non-binding vote to determine the frequency of conducting future advisory votes on executive compensation



(5)

To transact such other business as may properly come before the meeting or any adjournment thereof.

        Your vote is important. Whether or not you plan to attend the meeting, please vote as soon as possible. You may vote by mailing a completed proxy card, by telephone, or over the Internet. For specific voting instructions, please refer to the information provided with your proxy card and in this proxy statement.

June 10, 2011
Tyngsboro, Massachusetts

---

Table of Contents

TABLE OF CONTENTS

2

---

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Explanatory Note Regarding Share Amounts:

        All share amounts and per share prices in this Proxy Statement have been retroactively adjusted to reflect the effect of our reverse stock split, on a one-for-ten basis, effective February 25, 2011, unless otherwise indicated.

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on July 13, 2011. Our proxy statement and annual report to security holders for the fiscal year ended December 31, 2010, are available at www.beaconpower.com , under the "Investor" tab.

3

---

Table of Contents

BEACON POWER CORPORATION

PROXY STATEMENT

FOR THE ANNUAL MEETING OF STOCKHOLDERS
On July 13, 2011

        This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Beacon Power Corporation ("we", "us", "Beacon", "our", or the "Company") for use at the Annual Meeting of Stockholders to be held on July 13, 2011, beginning at 1:00 p.m. at the Stephentown Town Hall located at 28 Grange Hall Road, Stephentown, New York 12168, and at any adjournment or postponement of that meeting.

Introduction

        We are furnishing you with this Proxy Statement in connection with the solicitation of proxies to be used at the Annual Meeting of Beacon to be held on July 13, 2011 and at any adjournment of the Annual Meeting, for the purposes set forth in the accompanying notice of the meeting. All holders of record of our Common Stock at the close of business on May 27, 2011, will be entitled to vote at this meeting and any adjournments thereof. The stock transfer books have not been closed.

        We expect to mail this Proxy Statement, our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and the accompanying proxy card to our stockholders on or about June 10, 2011.

Methods of Voting

        You may vote by mail, by telephone, over the Internet or in person at the Annual Meeting.

        Voting by Mail.     By signing and returning the proxy card in the enclosed prepaid and addressed envelope, you are authorizing the individuals named on the proxy card to vote your shares at the Annual Meeting in the manner you indicate. We encourage you to sign and return the proxy card even if you plan to attend the meeting. Please sign and return your proxy card to ensure that all of your shares are voted.

        Voting by Telephone.     To vote by telephone, please follow the instructions included on your proxy card. If you vote by telephone, you do not need to complete and mail your proxy card.

        Voting over the Internet.     To vote over the Internet, please follow the instructions included on your proxy card. If you vote over the Internet, you do not need to complete and mail your proxy card.

        Voting in Person at the Annual Meeting.     If you plan to attend the Annual Meeting and vote in person, we will provide you with a ballot at the meeting. If your shares are registered directly in your name, you are considered the stockholder of record and you have the right to vote in person at the Annual Meeting. If your shares are held in the name of your broker or other nominee, you are considered the beneficial owner of shares held in street name. As a beneficial owner, if you wish to vote at the meeting, you will need to bring to the meeting a legal proxy from your broker or other nominee authorizing you to vote such shares.

Solicitation of Proxies

        We are soliciting proxies in the form enclosed on behalf of the Board of Directors. We will vote any such signed proxy, if received in time for the voting and not revoked, at the Annual Meeting according to your directions. We will vote any proxy that fails to specify a choice on any matter to be acted upon FOR the election of each nominee for director and FOR each other proposal to be acted upon. If you submit a signed proxy in the form enclosed, you will have the power to revoke it at any

4

---

Table of Contents

time before we use it by filing a later proxy with us, by attending the Annual Meeting and voting in person, or by notifying us of the revocation in writing addressed to the Secretary of Beacon Power Corporation at 65 Middlesex Road, Tyngsboro, MA 01879.

        We will pay for all expenses of preparing, assembling, printing and mailing the material used in the solicitation of proxies by the Board. Officers and regular Beacon employees may solicit proxies on behalf of the Board by telephone, telegram or personal interview, and we will bear the expenses of such efforts. We also may make arrangements with brokerage houses and other custodians, nominees and fiduciaries to forward soliciting materials to the beneficial owners of stock held of record by such persons at our expense.

Voting Rights

        As of May 27, 2011, we had 26,116,674 shares of our common stock, $0.01 par value ("Common Stock"), issued and outstanding. You may vote your shares of Common Stock at the Annual Meeting if you were a stockholder of record as the close of business on May 27, 2011. Each share of Common Stock that you held as of the record date entitles you to one vote on each matter to be voted upon at the Annual Meeting. All holders of Common Stock vote together as one class.

        The presence at the Annual Meeting, either in person or by proxy, of the holders of a majority of the issued and outstanding shares of Common Stock on the record date is necessary to constitute a quorum to transact business at the Annual Meeting. If a quorum is not present, we expect that the Annual Meeting will be adjourned or postponed in order to solicit additional proxies. Shares of Common Stock represented at the Annual Meeting but not voted, including shares of Common Stock for which proxies have been received but for which the holders have abstained, will be treated as present at the Annual Meeting for purposes of determining the presence or absence of a quorum for the transaction of all business.

        Assuming a quorum is established, directors will be elected (under Proposal 1) by a plurality of votes cast. If a vote is withheld regarding the election of directors, such vote will have no effect.

        Proposal 2, the ratification of auditors, requires the affirmative vote of a majority of shares represented at the meeting.

        Proposal 3, which is a non-binding advisory vote on the compensation of our named executive officers, will be considered approved at the Annual Meeting if more votes are cast in favor than against.

        Proposal 4 is a non-binding advisory vote to determine the frequency of conducting future advisory votes on executive compensation. The option of one year, two years or three years that receives the highest number of votes cast by stockholders will be considered the frequency of the advisory vote on executive compensation that has been recommended by the stockholders.

        If you return your proxy with instructions to abstain from voting on any of the proposals, your shares will be counted for purposes of determining whether a quorum is present at the Annual Meeting. Abstaining from voting or withholding a vote on the election of directors proposal (Proposal 1) will have no effect because the directors who receive a plurality of votes are elected. An abstention with respect to the proposal to ratify our auditors (Proposal 2) has the effect of a vote "AGAINST" such proposal. Abstaining from voting on the advisory vote seeking approval of our executive compensation (Proposal 3) will have no effect because abstentions are not considered votes cast for or against the proposal. Abstaining from voting on the advisory vote relating to the frequency of future executive compensation votes will have no effect on the outcome of that vote. If your shares are held by your broker in "street name" and you do not vote your shares, your brokerage firm may not have the authority to vote your unvoted shares held by the firm on certain proposals, including on the election of directors or executive compensation matters. Since such "broker non-votes" are not considered cast on the proposals, they will not have any effect on the outcome of Proposals 1, 3 or 4.

5

---

Table of Contents

No Appraisal Rights

        There are no appraisal rights associated with any of the proposals being considered at the Annual Meeting.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth, as of June 2, 2011, certain information concerning the ownership of shares of our Common Stock by:

•

Each person or group that we know beneficially owns more than five percent of the issued and outstanding shares of common stock



•

Each director



•

Each executive officer for whom we are required to present compensation information in this proxy statement; and



•

All of our directors and executive officers as a group. Except as otherwise indicated, each person named has sole investment and voting power with respect to his, her or its shares of common stock shown.

        Each beneficial owner other than Capital Ventures International has an address c/o Beacon Power Corporation, 65 Middlesex Road, Tyngsboro, Massachusetts 01879.

6

---

Table of Contents

        Equity Compensation Plan Information.     The following table provides information about the securities authorized for issuance under the Company's equity compensation plans as of December 31, 2010:

        For additional information concerning our equity compensation plans, see discussion in footnote 16 to our consolidated financial statements.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires our directors and officers, and persons who beneficially own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our Common Stock. Directors, officers and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

        To our knowledge, during our fiscal year ended December 31, 2010, all Section 16(a) filing requirements applicable to our directors, officers and ten percent stockholders were satisfied.

7

---

Table of Contents

CORPORATE GOVERNANCE

Executive Officers

        The names, ages, current positions and principal occupations during the last five years of our current executive officers are described below:

F. William Capp

        Mr. Capp has served as our President, Chief Executive Officer and a member of the Board of Directors since December 1, 2001, when he joined the Company. Mr. Capp received his Bachelor of Science in Aeronautical Engineering from Purdue University, a Master of business Administration and a Master's Degree in Mechanical Engineering from the University of Michigan.

Matthew L. Lazarewicz

        Mr. Lazarewicz has served as our Vice President of Engineering since February 1999, and was named our Chief Technical Officer in September of 2001. Mr. Lazarewicz is a Registered Professional Engineer in the Commonwealth of Massachusetts and received both Bachelor's and Master's Degrees in Mechanical Engineering from the Massachusetts Institute of Technology. Mr. Lazarewicz also completed his Master's Degree in Management at the Massachusetts Institute of Technology Sloan School of Management.

James M. Spiezio

        Mr. Spiezio joined our Company in May 2000. He has served as Vice President of Finance, Chief Financial Officer and Treasurer since July 2000, Secretary since March 2001, and was our Corporate Controller from May 2000 to July 2000. He has over twenty-seven years of diversified manufacturing and financial management experience. Mr. Spiezio is a graduate of the Indiana University School of Business.

Judith F. Judson

        Ms. Judson joined our Company in January 2008 as Director of Regulatory and Market Affairs. She was appointed as Vice President, Asset Management and Market Development in April 2010. Prior to joining Beacon Power, Ms. Judson worked as a consultant to businesses in the energy sector from April 2007 through January 2008, and served as a Commissioner and Chairman of the Massachusetts Department of Telecommunications and Energy from 2005 through April 2007. Ms. Judson received a Bachelor of Science in Mechanical Engineering from Kettering University and a Master of Business Administration from Harvard Business School.

Board Leadership Structure

        In August 2009, the Board of Directors formally appointed a Chairman of the Board, to recognize the differences between the roles of Chief Executive Officer and of Chairman of the Board. The CEO articulates management's view of the Company's strategic direction and provides day-to-day leadership, while the Chairman of the Board provides guidance to the CEO, sets the agenda for Board meetings and presides over meetings of the full Board. Our Board is comprised of five directors, four of whom are independent directors. As discussed below, we have four standing Board committees, all of which

8

---

Table of Contents

are comprised entirely of, and are chaired by, independent directors. We believe that this leadership structure has been effective for the Company by providing a balance of power with strong independent leadership.

Board's Role in Risk Oversight

        The Board's role in the Company's risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the Company, including operational, financial, legal and regulatory, and strategic and reputational risks. The full Board (or the appropriate committee in the case of risks that are under the purview of a particular committee) receives these reports from the appropriate "risk owner" within the organization to enable it to understand our risk identification, risk management and risk mitigation strategies. When a committee prepares a report, the Chairman of the relevant committee provides an overview discussion to the full Board at the next meeting of the Board. This enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships at the enterprise level.

Board of Directors' Meetings and Committees

        Meetings.     During the fiscal year ended December 31, 2010, our Board of Directors held 18 meetings. Each director attended more than 75% of the aggregate of (i) the total number of meetings of our Board held during the period for which he has been a director and (ii) the total number of meetings held by all committees of our Board on which he served during the period.

        Committees.     Our Board of Directors has established four standing committees: Audit, Compensation, Finance and Nominating and Governance. All members of these committees are independent directors and there is no representation on any of these committees by employees of the Company. The membership of each committee, is as follows:

        Audit Committee.     All members of our Audit Committee qualify as independent as defined in the Nasdaq Stock Market and SEC rules. Mr. Kletter is qualified as an audit committee financial expert, as defined by the SEC. The Audit Committee is appointed by and reports to our Board of Directors. Its responsibilities include, but are not limited to, the appointment, compensation and dismissal of our independent auditors, review of the scope and results of our independent auditors' audit activities, evaluation of the independence of our independent auditors and review of our accounting controls and policies, financial reporting practices and internal audit control procedures and related reports. During the last fiscal year, the Audit Committee held 5 meetings. The Audit Committee's charter can be found on our website at www.beaconpower.com .

        Compensation Committee.     Our Compensation Committee has the authority to set the compensation of our Chief Executive Officer and all other executive officers and has the responsibility to review the design, administration and effectiveness of all programs and policies concerning executive compensation and establishing and reviewing general policies relating to compensation and benefits of employees. The Compensation Committee administers our 2010 Stock Incentive Plan and Employee Stock Purchase Plan. Messrs. Smith, Rose and Weihman are non-employee directors who have no interlocking relationships as defined by the SEC, and are all independent pursuant to the rules of the Nasdaq Stock Exchange applicable to members of this committee. The Compensation Committee held 12 meetings during the last fiscal year. The Compensation Committee's charter can be found on our website at www.beaconpower.com .

9

---

Table of Contents

        Nominating and Governance Committee.     The Nominating and Governance Committee recommends to the Board corporate governance guidelines applicable to the Board and to the Company and oversees the effectiveness of our corporate governance in accordance with those guidelines. The committee also identifies individuals qualified to become Board members, reviews the qualifications of nominee directors and recommends to the Board the director nominees for annual meetings of stockholders and candidates to fill vacancies on the Board. Additionally, the committee recommends to the Board the directors to be appointed to Board committees. While the committee does not have a formal diversity policy for Board membership, the Board seeks directors who represent a mix of backgrounds, perspectives and experiences that will enhance the quality of the Board's deliberations and decisions.

        A stockholder may nominate a person for election as a director by complying with Section 2.2 of our By-Laws, which provides that advance notice of a nomination must be delivered to us and must contain the name and certain information concerning the nominee and the stockholders who support the nominee's election. A copy of this By-Law provision may be obtained by writing to Beacon Power Corporation, Attn: James M. Spiezio, Secretary, 65 Middlesex Road, Tyngsboro, Massachusetts 01879. Director nominees recommended by our stockholders will be considered on the same terms as other nominees. All members of our Nominating and Governance Committee qualify as independent pursuant to the rules of the Nasdaq Stock Market. The Nominating and Governance Committee held 7 meetings during the last fiscal year. The charter for our Nominating and Governance Committee can be found on our web site at www.beaconpower.com .

        Finance Committee.     The Finance Committee is appointed by the Board of Directors to assist the Board in monitoring material financial matters involving: (1) debt undertaken by the Company; (2) equity raised by the Company; (3) share splits or retirement of shares by the Company; (4) cash dividends or share dividends paid by the Company; (5) acquisitions and divestures; (6) significant changes in Company ownership; (7) project finance for the Company and/or for affiliates that it may sponsor; and (8) such other matters as are similar or related to these matters, or which the Board considers to be necessary or advisable. While the Committee has the responsibilities and powers set forth in its Charter, it is not the duty of the Committee to plan or conduct financial transactions nor does the Committee have any oversight responsibility with respect to the Company's financial reporting. The Finance Committee held 6 meetings during the last fiscal year. The Finance Committee's Charter can be found on our website at www.beaconpower.com .

Director Independence

        There are no family relationships among any of our directors or executive officers. Messrs. Smith, Kletter, Weihman and Rose, representing a majority of our directors, are independent under the rules of the Nasdaq Stock Market. Our board holds regularly scheduled meetings at which only these independent directors are present.

Limitation of Liability and Indemnification

        Our Certificate of Incorporation limits the liability of our directors, officers and various other parties whom we have requested to serve as directors, officers, trustees or in similar capacities with other entities to us or our stockholders for any liability arising from an action to which such persons are a party by reason of the fact that they were serving Beacon or at our request to the fullest extent permitted by the Delaware General Corporation Law.

        We have entered into indemnification agreements with our directors and executive officers. Subject to certain limited exceptions, under these agreements, we will be obligated, to the fullest extent not prohibited by the Delaware General Corporation Law, to indemnify such directors and officers against all expenses, judgments, fines and penalties incurred in connection with the defense or settlement of any actions brought against them by reason of the fact that they were Beacon directors or executive

10

---

Table of Contents

officers. We also maintain liability insurance for our directors and executive officers in order to limit our exposure to liability for indemnification of our directors and executive officers.

Communication with Our Board of Directors

        Our Board of Directors provides a process for our stockholders and other interested parties to send communications directly to our non-employee directors. Any person who desires to contact the non-employee directors may do so by writing to: Board of Directors, c/o Beacon Power Corporation, 65 Middlesex Road, Tyngsboro, Massachusetts 01879.

        Communications received will be forwarded directly to the Chair of the Nominating and Governance Committee. The Chair of the Nominating and Governance Committee will, in his discretion, forward such communications to other directors, members of our management or such other persons as he deems appropriate. The Chair of the Nominating and Governance Committee, or, if appropriate, our management, will respond in a timely manner to any substantive communications from a stockholder or interested party.

        Our Audit Committee also provides a process to send communications directly to the committee about our accounting, internal accounting controls or auditing matters. Any person who desires to contact the Audit Committee regarding such matters may do so by writing to Audit Committee of the Board of Directors, c/o Beacon Power Corporation, 65 Middlesex Road, Tyngsboro, Massachusetts 01879.

        Communications received by mail will be forwarded directly to the Chair of the Audit Committee. The Chair of the Audit Committee, in his discretion, will forward such communications to other directors, members of our management or such other persons as he deems appropriate. The Chair of the Audit Committee, or, if appropriate, our management, will respond in a timely manner to any substantive communications from a stockholder or an interested party.

AUDIT COMMITTEE REPORT

        The Audit Committee of our Board of Directors is composed of three members and acts under a written charter. All members of the Audit Committee are independent directors, as defined by its charter and the rules of the Securities and Exchange Commission and Nasdaq Stock Market.

        In connection with the preparation and filing of our Annual Report on Form 10-K for the year ended December 31, 2010, the Audit Committee (i) reviewed and discussed the audited financial statements with management, (ii) discussed with Miller Wachman LLP, our independent auditors for the fiscal year ending December 31, 2010, the matters required to be discussed by Statement of Auditing Standards 61, as amended, as adopted by the Public Company Accounting Oversight Board and (iii) received the written disclosures and the letter from Miller Wachman LLP required by applicable requirements of the Public Company Accounting Oversight board regarding Miller Wachman LLP's communications with the audit committee concerning independence, and has discussed the independence of Miller Wachman LLP with such firm. Based on the review and discussions referred to above, among other things, the Audit Committee recommended to our Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2010.

11

---

Table of Contents

EXECUTIVE OFFICER AND DIRECTOR COMPENSATION

Compensation Discussion and Analysis

Executive Summary

Compensation Philosophy

        Our executive compensation and benefit program has been designed to encourage our named executive officers (our chief executive officer, or CEO; our chief financial officer, or CFO; our chief technology officer, or CTO, and our Vice President of Asset Development and Market Development) to pursue our strategic objectives while effectively managing the risks and challenges inherent in a development stage company transitioning into a commercial company. We have created a compensation package that combines short and long-term components through a mix of base salary, bonus and equity compensation, in the proportions we believe are most appropriate to incentivize and reward our executive officers for achieving our strategic objectives. Moreover, the program is designed to be competitive with comparable employers and to align management's incentives with the long-term interests of our stockholders. Our compensation-setting process consists of establishing targeted overall compensation for each executive officer and then allocating that compensation among fixed and variable elements. At the executive level, we design the incentive compensation to reward company-wide performance, shareholder value creation, and the achievement of specific financial, operational and strategic objectives.

Summary of 2010 Results

        The Compensation Committee provided an increase in the executive officers' salaries for 2010, to better align compensation to our peer group, and shifted executive compensation to a more performance-based mechanism. There was no salary adjustment in 2009. The Compensation Committee decided to better align executive compensation with shareholder interests by eliminating RSUs and to focus on annual grants of stock options and performance-based Restricted Stock Units (PSUs) which have no value unless the stock price appreciates (in the case of stock options) or important long term goals are achieved (in the case of PSUs). Accordingly, our Compensation Committee believes that our compensation program is a performance-oriented structure, with a significant portion of compensation at risk for our executive officers.

        In 2010 our executive officers' performance relative to strategic objectives resulted in a 25% payout of the targeted bonus amount. The objectives for 2010, as described in more detail below, had four primary components: (1) funding, including a stretch objective for funding, (2) the sale of a turn-key plant, (3) the build and operation of our Stephentown facility and (4) attracting a strategic partner. The overall performance of our common stock price was also considered in evaluating executive performance.

•

Funding:   The target related to closing the DOE loan guarantee, which was achieved in August of 2010. On the stretch objectives, the target was specifically to obtain a DOE loan guarantee for our second plant in Glenville, NY and getting a change in DOE rules to allow the possibility of a loan guarantee for our third plant in Hazle Township, PA. Neither stretch target was achieved.



•

The sale of a plant:   The target was to sign and announce the sale of a facility by the end of the year which was not achieved.



•

The build and operation of the Stephentown facility:   The target had two components (i) operation of the first 4MW and (ii) cost control consistent with the DOE loan guarantee estimate. The target for 4 MW being operational by year end was not achieved, but 4 MW became operational in January. The cost control target was achieved.

12

---

Table of Contents

•

Obtaining a strategic partner:   The target was to successfully close an agreement with a strategic partner by year end, which was not achieved.



•

Increasing the stock price:   The stock price increase did not occur. This part of the bonus formula contained both a positive and negative component. Based on stock price in the fourth quarter of the year, the adjustment was negative, resulting in a decrease in the bonus percentage awarded to the executives for 2010.

        On average, the Compensation Committee's objective is to target our executive officers' compensation at the median (between the 40 ^th  and 60 ^th  percentiles) within its peer group. Because the structure of our executive compensation program includes a significant portion of compensation that is performance-based, we believe the compensation paid to our executives fairly reflects the performance of our company.

Role of Our Compensation Committee

        Our Compensation Committee approves, administers and interprets our executive compensation policies. Our Compensation Committee is appointed by our Board of Directors, and consists entirely of directors who are "outside directors" for purposes of Section 162(m) of the Internal Revenue Code, "non-employee directors" for purposes of Rule 16b-3 under the Exchange Act and "independent directors" for purposes of the rules of the Nasdaq Stock Market. Our Compensation Committee has three members: Mr. Edward A. Weihman, Mr. Virgil G. Rose and Mr. Jack P. Smith, who chairs the committee.

        Our Compensation Committee reviews and makes recommendations to our Board of Directors to ensure that our compensation program is consistent with our compensation philosophy and corporate governance guidelines and, subject to the approval of our Board (without the participation of the CEO), establishes the compensation paid or granted to our executive officers, which include our CEO, CFO, CTO and Vice President, Asset Management and Market Development. The Compensation Committee also establishes an overall pool of compensation for non-executive management and other employees.

        Messrs. Weihman, Smith and Rose are non-employee directors who have no interlocking relationships as defined by the SEC, and are all independent pursuant to the rules of the Nasdaq Stock Market applicable to members of this committee.

Role of Compensation Consultant

        The Compensation Committee generally engages an independent compensation consultant to provide a market perspective on executive compensation matters. In November of 2010, the Board passed a resolution to engage Pearl Meyers & Partners LLC as our compensation consultants. Previously, Towers Watson (formerly known as Watson Wyatt) had served as the Compensation Committee's consultant since 2005. The Compensation Committee utilizes its consultants for various activities, including but not limited to peer group development, competitive market analysis, incentive plan design and assistance in pay determination. During 2010, we did not make any payments to Pearl Meyers & Partners but did pay Towers Watson approximately $80,000 for services provided. None of these services related to matters outside of our executive compensation program. The Compensation Committee expects to continue to engage an outside advisor in the development of programs and pay setting activities.

Role of our Executive Officers

        After consideration of input received from its compensation consultant, the Compensation Committee determines the compensation to be awarded to our CEO. The CEO and Compensation

13

---

Table of Contents

Committee jointly discuss the compensation for the other executive officers. However, the final decisions regarding compensation for all of the Executives are made by the Compensation Committee. The CEO and CFO, however, allocate the compensation pool approved by the Compensation Committee among all our other non-executive employees and provide recommendations to the Compensation Committee in regard to any equity compensation to be granted to non-executive employees.

        During the transition from development stage to commercial production, we have aligned the compensation structure of all other employees to the same company-wide strategic objectives and performance as the executive officers' compensation. As we move into volume production of commercial products, we will continue to evaluate the effectiveness of company-wide strategic objectives. If we determine that company performance would be improved by combining these objectives with specific operational goals within areas, we will modify our programs.

Program Participants

Our named executive officers in 2010 were:

•

F. William Capp, Chief Executive Officer (CEO)



•

James M. Spiezio, Chief Financial Officer (CFO)



•

Matthew L. Lazarewicz, Chief Technical Officer (CTO)



•

Judith F. Judson, Vice President, Asset Management and Market Development.

        On April 26, 2010, our Board of Directors promoted Judith Judson from Director of Regulatory and Market Affairs to Vice President, Asset Management and Market Development. As an executive officer of the Company, she was eligible to participate in our 2010 executive officer compensation programs.

Development of a Formal Compensation Program

        Our Compensation Committee has taken the following steps to ensure that our compensation and benefit programs for executive officers are consistent with our compensation philosophy and our corporate governance guidelines:

•

Beginning in 2005, the committee has engaged and directed independent executive compensation and benefits consultants to assess the competitiveness of our compensation program and provide a high-level review of our long-term incentive plan



•

With the assistance of ongoing input from these consultants, we have developed appropriate compensation packages by targeting a competitive level of pay as measured against our peer group



•

We have maintained a practice of reviewing the performance and determining the total compensation earned, paid or awarded to our Chief Executive Officer independent of input from him



•

We have developed compensation guidelines for our Chief Financial Officer, our Chief Technical Officer and our Vice President, Asset Management and Market Development with assistance from our Chief Executive Officer, and determined what we believe to be appropriate total compensation based on competitive levels as measured against our peer group



•

We have maintained the practice of holding executive Board sessions, without executive officers present, at every Compensation Committee meeting

14

---

Table of Contents

•

For the remainder of the management team, the Compensation Committee and executive officers review the compensation program to insure consistency with our compensation philosophy and governance guidelines.

        Based on these efforts and examinations, the Compensation Committee developed a compensation program intended to be in place for the next several years and continues to monitor this program to ensure its effectiveness.

Market Referencing

        To test the competitiveness of our compensation program, our consultants have been engaged to compare our compensation practices and levels to a group of specific peer companies, representative of companies of similar size and industry. As our company continues to grow, this analysis continues to be assessed, and when appropriate, updates to the compensation benchmarking peer group are made. The recommended changes, if any, in the peer group is then presented to the Compensation Committee for approval. In the most recent evaluation, a comparison group was selected using the following criteria:

•

Publicly-traded companies subject to disclosure requirements governed by the SEC



•

Companies that operate in the capital goods sectors or select companies in the clean technology industry



•

Companies that are similar in size to the company:



•

Market capitalization—generally within a range of .5X - 2.5X of our own



•

Revenue—generally within a range of $0 to $50 million



•

Companies that are generally in a similar business stage.

        Based on this analysis, the Compensation Committee determined that that the existing peer group of 11 companies listed below, as determined in prior years, continues to be appropriate and no changes were recommended:

•

Active Power Inc.



•

Akeena Solar Inc.



•

Ascent Solar Technologies



•

Capstone Turbine Corporation



•

Daystar Technologies Inc.



•

Evergreen Energy Inc.



•

Hoku Scientific Inc.



•

Ocean Power Technologies Inc.



•

Satcon Technology Corporation



•

Spire Corporation



•

UQM Technologies, Inc.

        The Compensation Committee engaged Towers Watson in December 2009 to update its 2007 benchmarking analysis. Pearl Meyers & Partners did not perform this analysis at the end of 2010. The analysis consisted of assessing our named executive officer compensation against that of the peer group. The analysis specifically reviewed base salaries, annual incentive targets, long-term incentive levels and overall total direct compensation. As a group, our named executive officers' base salaries in 2009 were

15

---

Table of Contents

between the 25 ^th  and 50 ^th  percentile of the peer group, while target total direct compensation (TDC) was closer to the market 50 ^th  percentile (CEO TDC approximated the market 30 ^th  percentile). The Committee also reviewed annual and three year Total Shareholder Return (TSR) performance of the company versus its peer group and the Russell 2000 (small cap index). It was determined that the Company underperformed the peer group and index with regards to shareholder return.

        We intend to continue our strategy of providing competitive compensation opportunities to our executive officers, through programs that emphasize performance-based incentive compensation in the form of cash and equity. To that end, total executive compensation is structured to ensure that, due to the nature of our business, there is an equal focus on our operational and financial performance and stockholder return. We believe that the positioning of our executive officer compensation was consistent with our financial performance, the individual performance of each of our executives and the interests of our stockholders. We also believe that the total compensation was reasonable in the aggregate. Further, in light of our compensation philosophy, we believe that the total compensation package for our executive officers should continue to consist of base salary, annual cash incentive awards (bonuses), long-term equity-based incentive compensation, and certain other benefits.

        The competitive posture of our total annual direct compensation will vary from year to year based on our results and individual performance, as compared to the performance of the peer group companies and the respective level of annual performance bonus awards made to their executives.

Components of Compensation Program

        Our performance-driven compensation program has both short-term and long-term components. Our executive officers' compensation is defined in the Executive Agreements (which are further detailed in the section titled "Executive Officer Employment Agreements" below.) All of our other employees are employees at will. However, all of our employees participate in the compensation programs as noted below.

Current Compensation Components

        We utilize current compensation components that include base salary and cash bonuses to motivate and reward our employees, including our executive officers, in accordance with our defined objectives. Our Compensation Committee has established this program to set and refine management objectives and to measure performance against those objectives. The Compensation Committee reviews its conclusions on short term compensation with the Board (without the participation of the CEO), and once a consensus is reached, the short term compensation decisions are presented to the executive officers.

Base Salary

        Base salary rewards the experience, skills, knowledge and responsibilities required of each of our executive officers and reflects competitive market conditions. The factors considered in determining salary and annual increases to salary are:

•

Experience



•

Functional role



•

Level of responsibility



•

Performance and accomplishments



•

Comparisons against market benchmarks described earlier in this discussion



•

Trends in compensation for the geographic region

16

---

Table of Contents

•

Professional effectiveness including leadership, commitment, creativity and team building



•

Knowledge, skills, attitude and focus



•

Competitive market for corresponding positions within comparable geographic areas and industries.

        Using the criteria outlined above, our Compensation Committee works directly with its independent compensation consultant to determine the compensation recommendations that our Compensation Committee makes to our Board of Directors regarding specific compensation actions for the executive officers. The Compensation Committee evaluates each executive officer's base salary in terms of his or her individual performance and his or her compensation relative to the peer group. The Compensation Committee decided on April 26, 2010, to increase the executive officers' base salaries as follows:

        There was no base salary adjustment in 2009. The Compensation Committee determined that it was necessary to increase Mr. Capp's salary by 9.8% as it had fallen to the lowest within our peer group. Ms. Judson's increase was a result of her promotion on April 26, 2010, to an officer's position. Messrs. Spiezio and Lazarewicz received merit increases, consistent with information provided by our compensation consultant.

Performance Bonus

Overview of Performance Bonus Program

        Awards under the performance bonus program are based on a quantitative and qualitative review of all of the facts and circumstances related to the Company and each executive's performance. An executive officer may receive awards from zero to 100% of his or her target bonus based on the review of results. Additional compensation may be awarded for performance at levels above targeted goals and objectives or improvement in the timing of achieving certain results. The criteria for these potential additions to the bonus are clearly defined as part of establishing the potential bonus structure each year. For 2010 the potential additional award was 55% of which none was achieved.

        On an individual level, the Compensation Committee attempts to set clearly defined goals for each executive officer, focusing on the categories mentioned below, with an emphasis on quantifiable and achievable goals. Once the defined goals have been identified, the Compensation Committee engages in a collaborative process with the executive officers to reach agreement on the following aspects of the short term goals:

•

Agreement that the goals formulated are viewed by the executive officers as the correct drivers for the business from their perspectives



•

Consistency of these goals with our short and long term strategies



•

Timing, measurability and relative values that should be ascribed to each goal; and



•

Agreement that the goals are difficult yet realistically attainable.

17

---

Table of Contents

        The Compensation Committee sees this process both as the optimal means of assembling accurate information regarding the expectation and realization of performance, as well as an integral part of our culture of collaborative, team-oriented management.

        The Compensation Committee evaluates each executive officer as well as our other key employees once each year based on the achievement of set goals. This review is typically done during the first quarter of the year. We review final results for the year versus pre-determined objectives and begin discussions regarding performance objectives for the current fiscal year. Performance bonuses, at the discretion of the Compensation Committee, may be awarded in the form of cash or RSUs and equity-based awards. During recent years, the performance bonuses have been paid in cash.

        Total compensation for our executive officers may vary significantly from year to year, based on the percentage of achievement of goals. In addition, the value of equity awards in either PSUs or stock options may vary significantly in value based on the performance of our stock price.

Discretionary Bonus

        Additional discretionary awards of the target bonus may be awarded for performance to targets that emerge subsequent to the establishment of the year's bonus program or other achievements not previously identified, or performance to existing targets that is greater or timelier than the target.

2010 Performance Bonus and Resulting Bonus Payout

        Our business strategy is to become a leader in providing frequency regulation services to the electrical grid. We expect to increase our revenues from the commercialization of our flywheel energy storage systems to supply frequency regulation services to the electricity grid in North America and from the sale of turnkey systems outright or on a fractional basis, both within the United States and on a global basis. In order to accomplish these goals, we will need to expand manufacturing capabilities, acquire appropriate locations for installation of our flywheel systems and raise additional financing. We must also focus on continually strengthening our management and technical teams, in order to provide the human resources necessary to carry out our business objectives.

18

---

Table of Contents

        In 2010, we made progress in executing our strategic plan. For 2010, the target performance goals and results were as follows:

19

---

Table of Contents

        The overall evaluation of performance to targets for 2010 was that as a percentage of targeted objectives, an appropriate rating would be approximately 50%. However, the Compensation Committee, upon reviewing the results of executive performance for 2010 determined that an award of 25% was appropriate due to the stock price adjustment resulting from the low stock value for the last three months of 2010. The Compensation Committee determined that 25% was a fair payout. Accordingly, for our executive officers, the targeted and actual bonuses paid in cash in April 2011 for our 2010 performance plan were as follows:

        The bonus potential as a percent of salary is defined in the executive officers' Employment Agreements with the Company. These agreements are further described below.

Long-term Compensation

        In prior years, our long-term compensation for executive officers has consisted of a combination of common stock options and RSUs, all with a three year vesting period, and performance stock units (PSUs) tied to achieving specific longer term objectives. Our practice had been to grant stock options and RSUs on an annual basis at the time of annual performance review. All options, RSUs and PSUs are granted under our Third Amended and Restated 1998 Stock Incentive Plan, which was amended, restated and renamed the 2010 Stock Incentive Plan at our 2010 Annual Meeting on July 21, 2010. Given market conditions and our stock price as of the beginning of 2010, the Compensation Committee decided to change the 2010 executive equity awards structure. The Compensation Committee opted to utilize two long-term incentive vehicles (PSUs and stock options) and not to use RSUs any longer. The Compensation Committee chose to discontinue RSUs and focus on annual grants of PSUs and stock options which are inherently performance-based because they have no value unless the stock price appreciates (in the case of stock options) or important long term goals are achieved (in the case of PSUs.) The Compensation Committee strongly believes that executive share ownership further ensures shareholder alignment and it was the Compensation Committee's intention that the proposed long-term incentive program would allow for management to earn above market equity ownership levels when Company mid- and long-term financial goals are met. Aligning executive compensation with the Company's long-range objectives should limit the executives' incentive to make decisions that improve short-term metrics but increase the Company's risk exposure. Thus, we believe this strategy aligns the interests of our executive officers with those of our stockholders over the long-term, focuses on attaining key operational milestones, and provides an effective retention feature.

        Prior to 2010, PSUs were last granted in 2006 as a special grant to motivate the executives to achieve specific long-term financial objectives. These 2006 PSUs were scheduled to cliff vest in 2009 or 2010 based upon the achievement of the specified objectives. Management did not meet those objectives for 2009 or 2010, so none of the PSUs from the 2006 grant vested, and instead such PSUs were forfeited. See " Performance Stock Unit Grants" below for details regarding the PSUs granted in 2010.

20

---

Table of Contents

        We analyze the following when we set the number of options or PSUs to be granted to each executive. On an individual basis, we compare:

•

The fair value of the grants valuation for equity awards that is consistent with Accounting Standards Codification Topic 718



•

The number of common stock options and PSUs granted by position



•

The competitive level of our equity-based compensation practices versus the market based upon our peer group, including levels, share usage levels, dilution and overall equity plan expense.

        Each of the elements of our LTI program—stock options and performance stock units—is discussed in more detail below.

Targeted Pay Mix and Determination of Long Term Incentive (LTI) Equity Grants

        During recent years, the Compensation Committee had targeted the long-term incentive equity grants (options and RSUs) to the executive officers at 100% of base salary for our CEO and at 55% of base salary for our other executive officers. In 2009, the Compensation Committee determined to grant 75% of the LTI value in options, and the remainder in RSUs. The number of options granted was calculated by dividing the targeted dollar amount by the average closing price for our stock for the preceding calendar year, and multiplying this value by 75%. The number of RSUs was calculated by multiplying the remaining number of shares by a 3:1 conversion ratio. The use of the prior year average stock price to calculate the size of the LTI grant was a change from prior years, when the Black-Scholes value of the current stock price at date of grant was used to calculate the number of options/RSUs granted. This change was taken in response to a decrease in the company's stock price. The result of this process in 2009 was to grant the executives 120% of the number of shares they had been granted in 2008, but considerably fewer shares than would have been granted under the prior formula. The Black-Scholes value per share of the options granted was only 22% of the value used to calculate the grant size. Consequently, the actual LTI value as a percent of salary was significantly lower than the targeted percentage.

        In 2010, the Compensation Committee continued to target the long-term incentive equity grants to the executive officers at 100% of base salary for our CEO and at 55% of base salary for our other executive officers, excluding the value of the PSUs. The number of options granted was calculated by multiplying the executive's base salary by the LTI target percentage (100% or 55%), and then dividing the resulting amount by our average stock price for 2009, consistent with the methodology used in 2009. The Black-Scholes value per share for the 2010 grants was 44% of the value used to calculate the grant size. In addition, in 2010, the executives were also granted PSUs. As a result, although the actual LTI value as a percent of salary is still lower than the targeted percentage, the LTI as a percent of base salary for 2010 is more than double the percentage granted in 2009.

        The charts below show long-term incentive (LTI) grants as a percentage of base salary for 2009 and 2010:

21

---

Table of Contents

(1)

Ms. Judson was not an officer in 2009, and thus was not eligible for the LTI grants to the executive officers in that year.

        In total, we believe that our executives' pay mix reflects a significant percentage of pay at risk and allows for appropriate risk-taking.

Common Stock Option Grants

        Our common stock option grants are designed to align our executives' performance objectives with the interests of our stockholders. We believe that these options provide an important component of executive compensation which is fully aligned with our shareholders' interests whereby the impact of any business setbacks, whether Company-specific or industry based, achievement of objectives or other performance matters impacts the executive officers as well as shareholders directly. Our Compensation Committee also grants options to key employees based on this same rationale and enables these key employees to participate in the long term appreciation of our stockholder value. In addition, all new permanent, full-time employees are granted options when they join the Company. We further believe that our option grants provide a means to assist in the retention of key employees, inasmuch as they are in almost all cases subject to vesting over an extended period of time.

        In 2010, we granted options vesting over three years to our executive officers pursuant to the Executive Agreements as follows: Mr. Capp, 97,335 options; Mr. Spiezio, 35,767 options; Mr. Lazarewicz, 32,114 options and Ms. Judson, 26,356 options. These options had exercise prices based on the stock closing price on the date of grant, which was $4.46.

Restricted Stock Unit Grants

        In prior years, RSUs were granted to our executive officers pursuant to the Executive Agreements, which historically had been renegotiated annually. Our issuance of RSUs was a further effort to align management's performance objectives with the interest of shareholders by having the same attributes as our vesting stock options with the additional alignment of each executive officer owning actual shares. These RSUs vest quarterly over a three year period, and are generally converted to common stock on the vesting dates. In 2010, rather than issue RSUs that vest based on time, a new, multi-year performance stock units (PSU) plan was implemented, under which the executive officers were granted PSUs as described below.

Performance Stock Unit Grants

        Our Performance Stock Units (PSUs) are also designed to align management's performance objectives to shareholder interest by providing stock grants that cliff-vest upon achievement of specific longer term, multi-year objectives of interest to our investors.

        The executive officers were granted PSUs as part of their Executive Agreements in 2006 to incentivize the executive team to maintain a sustained drive and focus on moving the development-stage company successfully into production. The 2006 PSUs were structured to provide Mr. Capp with potential awards valued at $1,000,000 and Mr. Spiezio and Mr. Lazarewicz with potential awards valued

22

---

Table of Contents

at $500,000 each, where the unit price used to calculate the number of units was $15.80, the average of the high and the low stock price on the date of grant. This equated to a potential award of 63,291 shares to Mr. Capp and 31,646 shares each to Mr. Spiezio and Mr. Lazarewicz. There were no additional PSUs granted in 2007, 2008 or 2009. We did not meet the award conditions as of December 31, 2009, and our executive management did not believe that it was probable that the award would be earned in 2010 based on the business plan at that time. Therefore, on April 26, 2010, the 2006 PSUs were forfeited by the executives.

        The Compensation Committee believes that it is important to align management's performance with the objectives of shareholder interest by providing stock grants that cliff-vest upon achievement of specific longer term performance objectives of interest to our investors. Hence, a new annual PSU plan was put in place April 26, 2010. The new PSU grants cliff vest upon the achievement of specific longer-term performance objectives, e.g., PSUs granted in 2010 cliff vest upon the achievement of certain performance conditions in 2011 or 2012. We anticipate that PSU grants will be made on an annual basis going forward.

        Under the new PSU plan that became effective on April 26, 2010, we granted PSUs to the executives on June 30, 2010, for a number of shares of common stock that were determined by dividing $125,000 for Mr. Capp and $62,500 for the other executive officers by the twelve month VWAP (volume weighted average price) of our stock immediately preceding June 30, 2010. When calculating the number of shares the PSU granted, the number of shares granted is subject to a 25,000 maximum share limit (for Mr. Capp) or a 12,500 share limit (for the other officers), unless the share limit is waived by the Board of Directors, and further subject to a 5,000 minimum share limit (for Mr. Capp) or a 2,500 minimum share limit (for the other officers). The number of PSUs granted may be converted into that number of shares of common stock equal to up to 150% of the PSUs granted.

        The PSUs granted in 2010 will vest as of December 31, 2012, subject to the achievement of the performance requirements described below, which are based on the achievement of certain Adjusted EBITDA targets. Adjusted EBITDA is defined as our income before the effect of interest expenses, income taxes, depreciation, amortization and equity compensation expenses as set forth in our audited Consolidated Statement of Operations and the related Notes. Any portion of the PSUs that does not vest as of the determination date shall be forfeited. The PSUs granted in 2010 were granted contingent upon shareholder approval of the 2010 Stock Incentive Plan. This approval was obtained at the 2010 Shareholder Meeting held July 21, 2010, thus the grant date for accounting valuation purposes is considered to be July 21, 2010. The closing price of our stock on July 21, 2010, was $3.20. The PSUs granted for 2010 were as follows:

23

---

Table of Contents