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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported): August 26, 1997
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Environmental Power Corporation
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(Exact name of registrant as specified in its charter)
Delaware 0-15472 04-2782065
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
500 Market Street, Suite 1-E, Portsmouth, New Hampshire 03801
(Address of principal executive offices)
(603) 431-1780
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
On August 26, 1997, the Company's subsidiary, Milesburg Energy, Inc.
("Milesburg"), entered into a Buy-Out Agreement with West Penn Power Company
("West Penn"). Pursuant to the Buy-Out Agreement, West Penn would purchase
Milesburg's rights to the Electric Energy Purchase Agreement (the "Energy
Contract") between the parties dated February 25, 1987 for the sum of $15
million plus 8% interest from the date (August 29, 1997) the Buy-Out Agreement
is filed for Pennsylvania Public Utility Commission ("PUC") approval (the "Cash
Proceeds"), plus West Penn would assume ownership of and responsibility for the
Milesburg Project facility. As additional consideration, West Penn has also
agreed to negotiate in good faith with EPC and U.S. Generating Company, EPC's
development partner, for an approximate five year, 200 megawatt market rate
contract for capacity and energy.
The Buy-Out Agreement is subject to, among other closing conditions, West Penn
obtaining a final non-appealable Order of the PUC approving the Buy-Out
Agreement and the pass-through of the Cash Proceeds to West Penn customers.
Under the terms of the Buy-Out Agreement, West Penn would pay the Cash Proceeds
within five days after the date (the "Termination Date") when West Penn obtains
a final non-appealable Order of the PUC approving the Buy-Out Agreement. The
Buy-Out Agreement also provides that Milesburg may terminate the Buy-Out
Agreement if the Termination Date does not occur by December 23, 1997 and that
either party may terminate the Buy-Out Agreement if the PUC has not issued a
final, non-appealable order approving the Buy-Out Agreement in it entirety by
the time the PUC has issued an order on the merits of the matter at PUC Docket
No. R-00973981, whether or not appealed by any party. Upon satisfaction of the
terms and conditions of the Buy-Out Agreement, the Project and the Energy
Contract, which has been the subject of ongoing litigation between the parties,
would thereby be terminated.
On a consolidated basis, the Company currently estimates that after paying
various project expenses and development costs and after distributing a portion
of the net proceeds to its joint development partner, it would retain
approximately $10 million of the Cash Proceeds after taxes. On a consolidated
basis, the Company also currently estimates that after expensing development
costs, it will realize a net gain of approximately $5.5 million after taxes from
this Buy-Out Agreement. Such figures are, however, subject to change in the
event additional costs or expenses are incurred prior to the Termination Date or
if cost or expense estimates otherwise change.
The Buy-Out Agreement is filed as an Exhibit to this Report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(C) EXHIBITS
10.1 Buy-Out Agreement dated August 26, 1997 between West Penn
Power Company and Milesburg Energy, Inc.
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CAUTIONARY STATEMENT
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements. Certain statements contained in
this Report, and in any other written or oral statements made by or on behalf of
the Company, such as statements concerning the regulatory approval of the buy-
out agreement, the potential market rate contract for capacity and energy, the
estimated net cash proceeds and net gain to be realized from the Buy-Out
Agreement and other statements regarding matters that are not historical facts,
are forward looking statements as such term is defined in the Act. Because such
statements involve risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors
that could cause actual results to differ materially include, but are not
limited to, the inability to predict the course or outcome of any contract or
other negotiations, uncertainties relating to government and regulatory policies
and approvals, volatile and unpredictable developments (including plant outages
and repair requirements), the difficulty of estimating repair and maintenance
costs and timeframes, the uncertainties involved in estimating insurance and
implied warranty recoveries, if any, the uncertainties relating to general
economic conditions and cyclical industry conditions, the amount and rate of
growth in expenses, the legal environment, and the competitive environment in
which the Company operates. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENVIRONMENTAL POWER CORPORATION
September 8, 1997 /s/ William D. Linehan
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William D. Linehan
Treasurer and
Chief Financial Officer
(principal accounting officer
and authorized officer)
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EXHIBIT 10.1
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BUY-OUT AGREEMENT
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THIS AGREEMENT, made and entered as of the 26th day of August 1997 by
and between WEST PENN POWER COMPANY, a Pennsylvania Corporation and a
public utility ("West Penn" or "Company") and MILESBURG ENERGY, INC., a
Pennsylvania Corporation ("Milesburg") ("collectively the "Parties").
WITNESSETH:
WHEREAS, pursuant to Section 210 of the Public Utility Regulatory
Policies Act of 1978, 16 U.S.C. (S)826.3, West Penn and Milesburg entered
into an Electric Energy Purchase Agreement for the Milesburg Project, a waste
coal-fired qualifying facility with a proposed design capacity of
approximately 43 megawatts ("Facility" or "Project"), dated February 25,
1987; and
WHEREAS, the Pennsylvania Public Utility Commission ("PUC") issued
orders at Docket No. P-870216 which re-established the lapsed Electric Energy
Purchase Agreement, and which became the subject of extended litigation (such
agreement, as reestablished, modified and subsumed by PUC Orders, is
hereinafter referred to as the "EEPA"); and
WHEREAS, the Parties currently have filed Reply Exceptions for the most
recent Commission Tentative Order dated August 3, 1995 in this litigation;
and
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WHEREAS, in the course of the extended litigation over the EEPA, West
Penn has maintained that the Project would result in West Penn's customers
paying more than avoided costs and more than market price; and
WHEREAS, Milesburg has been proceeding and is prepared to continue to
proceed with the development and construction of the Project upon receipt of
a final nonappealable order from the PUC; and
WHEREAS, West Penn is willing to purchase from Milesburg and Milesburg
is willing to sell to West Penn all of Milesburg's right, title and interest
in the EEPA for the sum of $15 Million ($15,000,000.00) plus interest as
described herein, plus West Penn assuming ownership of the Project property,
subject to certain terms and conditions ("Offers"), and thereby terminate
the Project; and
WHEREAS, West Penn believes that such a purchase price, including
assuming ownership of the Project property, and termination of the Project
would result in substantial savings to West Penn's customers; and
WHEREAS, the Parties wish to terminate all litigation concerning the
Project.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth below, the Parties hereto, intending to be legally bound, hereby
covenant, promise and agree as follows:
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A. EFFECTIVE DATE OF AGREEMENT; PRELIMINARY ACTS OF THE PARTIES:
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1. Effective Date. This Agreement shall be effective as of the
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date first written above (the "Effective Date").
2. Filing Date. The date on which West Penn files with the PUC a
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petition for approval of settlement and Pass-Through to customers.
B. PURCHASE
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1. Subject to the terms and conditions set forth herein, (i)
effective on the Termination Date (as defined in Section C.3. below),
Milesburg hereby agrees to sell, assign and transfer to West Penn, and West
Penn, for the benefit of its customers, hereby agrees to purchase from
Milesburg, all right, title and interest of Milesburg in and to the EEPA, and
(ii) in consideration thereof, West Penn shall, consistent with Section C
below, pay, by electronic transfer to an account(s) designated by Milesburg,
the cash portion of the Termination Consideration and shall assume ownership
of the Project property (as defined in Section C below), and Milesburg shall
convey ownership of the Project property to West Penn, consistent with
Section B.3. herein. The purchase by West Penn shall be contingent upon
receipt by West Penn of an Order of the PUC approving this Buy-Out Agreement
in its entirety, including approval of the pass-through of the full cash
portion of the Termination Consideration to West Penn customers through (i)
the immediate transfer of an amount equal to the full cash portion of the
Termination
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Consideration from the existing over-recovery balance in West Penn's energy
cost rate (" ECR") or, (ii) to the extent that the deferred fuel balance is
insufficient to accomplish full recovery of the cash portion of the
Termination Consideration by West Penn, any remaining unrecovered amount
shall be recovered as a cancellation or mitigation cost pursuant to 66 Pa.
C.S. (S)527(b) in Docket No. R-00973981. The transfer of the cash portion of
the Termination Consideration by West Penn to Milesburg shall also be
contingent upon Milesburg conveying the same quality of title to the Project
property to West Penn as conveyed by West Penn to Milesburg originally.
2. The EEPA shall, by virtue of its sale, assignment and transfer
to West Penn on the date when Milesburg receives the cash portion of the
Termination Consideration, become null and void and of no further force or
effect. and the Parties shall request the PUC to mark Docket No. P-870216
settled and closed.
3. Upon transfer of the cash portion of the Termination
Consideration to Milesburg, pursuant to Sections B and C hereof, Milesburg
shall transfer fee simple ownership of the Project property, exactly as
described at Centre County Deed Book, Volume 468, P. 328, and exactly as
conveyed by West Penn to Milesburg originally, for the stated deed
consideration of one dollar ($1.00). Milesburg shall retain responsibility
for any claims made by and liabilities to third parties arising out of acts
or omissions occurring during Milesburg's ownership of said property; all
other claims shall be the exclusive responsibility of West Penn and not
Milesburg. West Penn shall provide Milesburg with notice of and an
opportunity to defend in the event of any claim involving
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Milesburg by any third party. Notwithstanding Milesburg's indemnity in
Section B.3., to the extent any environmental remediation is required or
performed, the remediation will be at West Penn's sole cost.
4. West Penn and Milesburg acknowledge that this Agreement is
contingent upon approval by the PUC, including Section B.1. above.
Accordingly, within five (5) business days of the Effective Date, West Penn
shall prepare and file documents with the PUC seeking approval of this Buy-
Out Agreement, including the provisions of Section B.1. above. Milesburg
shall timely intervene in support of the relief requested in the West Penn
filing. The Parties shall each cooperate fully and act in good faith to
obtain the approval of the PUC of this Agreement in its entirety and to
obtain recovery of the Termination Consideration as set forth in Section C.
below, as well as to prepare, execute and file, jointly if necessary, any
additional applications or petitions reasonably required to be filed with the
PUC or other regulatory body in connection with such approval. West Penn and
Milesburg mutually recognize the need to proceed before the PUC in an
expeditious manner and the Parties agree to take action before the Commission
that is consistent with this recognition. In the event that the PUC issues
any order in the litigated proceeding at Docket No. P-870216 other than
approval of this Buy-Out Agreement, either West Penn or Milesburg may, but
are not obligated to, oppose, support, appeal or otherwise challenge any
portion of any such order.
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C. TERMINATION CONSIDERATION
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1. The "Termination Consideration" consists of two parts. First,
the cash portion of the "Termination Consideration" shall be $15 Million
($15,000,000.00), plus interest accrued at the rate of eight percent (8%) per
annum (not compounded) from the Filing Date until payment of the cash
portion of the Termination Consideration to Milesburg. Second, the
"Termination Consideration' includes the conveyance in accordance with
Section B.3. by Milesburg of the Project property to the ownership of West
Penn, which Project property, if undeveloped, the Parties believe has a
negative net worth.
2. The Termination Consideration resulted from substantial
negotiation between the Parties. These negotiations evaluated and considered,
among other things, (a) the risk of continued litigation; (b) the likelihood
of Milesburg successfully financing, building and operating the Project; (c)
the need for environmental remediation of the Project property; and (d) the
need for and the cost of alternative sources of capacity and energy to West
Penn's customers
3. The "Termination Date" shall be thirty-one (31) days after
the date on which West Penn obtains a final Order of the PUC approving this
Agreement in its entirety, including Section B.1. above which has not been
appealed and for which reconsideration has not been requested.
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4. West Penn shall pay to Milesburg the full amount of the cash
portion of the Termination Consideration within five (5) days following the
Termination Date.
5. In the event that the Termination Date has not been achieved by
December 23, 1997, then Milesburg has the right, but not the obligation, to
terminate this Agreement. If the PUC has issued a final, non-appealable Order
denying, altering or amending in whole or in part the terms of this
Agreement, including Section B.1. above, then either party may terminate the
Agreement. If the PUC has not issued a final, non-appealable Order approving
this Agreement in its entirety, including Section B. 1. above by the time the
PUC has issued an order on the merits of the matter at Docket No. R-00973981,
whether or not appealed by any party, then either party may terminate the
Agreement.
D. REPRESENTATIONS AND WARRANTIES
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1. Milesburg hereby represents and warrants to West Penn that;
(i) it has the full power and authority to execute, deliver
and perform its obligations under this Agreement and to carry out
the transactions contemplated hereby;
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(ii) it has duly authorized, executed and delivered this
Agreement and this Agreement constitutes its legal, valid and
binding obligation, enforceable against it in accordance with the
terms hereof except as such enforceability (a) may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights and
remedies generally and b) is subject to general principles of
equity (regardless of whether enforceability is considered in a
proceeding in equity or at law);
(iii) except as provided herein, no authorization, consent,
approval or order of, or notice to or registration, qualification,
declaration or filing with, any governmental authority is required
for its execution, delivery and performance of this Agreement; and
(iv) the execution, delivery and performance by it of this
Agreement, and the compliance by it with the terms and provisions
hereof do not conflict with or result in a breach or violation or
constitute a default under (a) any of the terms, conditions or
provisions of any partnership agreement and/or any other agreements
or documents between and among any parties now or previously
involved in the development of the Project, (b) any applicable law,
rule, regulation, order, writ, injunction, judgment or decree of
any court or governmental agency or authority, or (c) any loan
agreement, indenture, mortgage, contract or other agreement or
instrument
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to which it is a party or by which or any of its properties is
bound (including, without limitation, those relating to the
Project); nor will any such action result in the imposition of any
lien, mortgage or other encumbrance upon any of its properties.
(v) that subject to Section B.1. above, prior to transferring
title to the Project to West Penn, it will satisfy and discharge
and obtain releases for any outstanding or threatened liens against
or encumbrances of the Project property including, but not limited
to, taxes, secured interests, judgments and mortgages.
(vi) that it will indemnify West Penn, and West Penn's
officers, employees, agents and affiliates against any claims or
demands made by any other person or entity arising out of or in
connection with the EEPA.
2. West Penn hereby represents and warrants to Milesburg that:
(i) it has the full power and authority to execute, deliver
and perform its obligations under this Agreement and to carry out
the transactions contemplated hereby;
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(ii) it has duly authorized, executed and delivered this
Agreement and this Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with the terms and
conditions hereof;
(iii) except as provided herein, no authorization, consent,
approval or order of, or notice to or registration, qualification,
declaration or filing with, any governmental authority is required for its
execution, delivery and performance of this Agreement;
(iv) the execution, delivery and performance by it of this
Agreement and the compliance by it with the terms and provisions hereof, do
not conflict with or result in a breach or violation of or constitute a
default under any of the terms and provisions hereof, do not conflict with
or result in a breach or violation of or constitute a default under any of
the terms, conditions or provisions of (a) its articles of incorporation or
bylaws, (b) any applicable law, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental agency or authority, or (c)
any loan agreement, indenture, mortgage, contract or other agreement or
instrument to which it is a party or by which it or any of its properties
is bound; nor will any such action result in the imposition of any lien,
mortgage or other encumbrance upon any of its properties.
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(v) that it will indemnify Milesburg and Milesburg's
officers, employees, agents and affiliates against any claims or demands
made by any other person or entity arising out of or in connection with the
EEPA, excluding claims by Richard Mase, Sylvia B. Mase, Neil W. Hedrick
and/or Antrim Mining, Inc. or any affiliate thereof, and also excluding
claims made by any entity or entities, through Milesburg.
E. COVENANTS
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1. Effective on the receipt by Milesburg of the Termination
Consideration, Milesburg on behalf of itself and its successors, assigns and
affiliates shall cease developing any Project for West Penn or any of its
affiliates based upon or arising out of the EEPA or the Project.
2. West Penn, by itself and/or its affiliates, and Environmental
Power Corp. and U.S. Generating Company and/or their respective affiliates,
agree to negotiate in good faith concerning a potential power market agreement
to buy and/or to sell about 200 MW of capacity and/or energy for approximately
five (5) years at market rates to be determined. If such negotiations do not
result in a binding agreement by June 30, 1998, any and all rights, obligations
and/or duties to negotiate under or arising out of this Section shall cease and
become null and void.
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F. RELEASE AND INDEMNIFICATION
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1. Except with respect to any obligations set forth in Sections
B.3., D.1.(v), D.1.(vi) and D.2.(v) above, and Section F2., hereafter,
effective upon the receipt by Milesburg of the Termination Consideration,
Milesburg and West Penn, for themselves and their successors, hereby
irrevocably and unconditionally, fully and forever acquit, release and
discharge the other and the other's affiliates parent, subsidiaries, officers,
directors, employees, agents, representatives, successors and assigns from any
and all actions, claims, causes of action, suits, charges, complaints,
controversies, costs, expenses, agreements, judgments, damages, liabilities,
guarantees, alleged defaults or obligations of any kind whatsoever in law or
in equity related to or arising from (i) the assignment, sale and termination
of the EEPA pursuant to this Agreement, (ii) the EEPA, (iii) the Project, or
(iv) the Project property as described in Section B.3. above.
2. From and after the Effective Date, Milesburg and West Penn at
all times shall defend, indemnify, protect and save harmless the other party
and its affiliates, subsidiaries, officers, directors, employees, agents,
representatives, successors and assigns from and against any and all claims,
damages, liabilities, losses, costs, fines and expenses (including, but not
limited to attorneys' fees and investigative costs) arising out of or relating
to a breach by the indemnifying party of any of its covenants and agreements,
set forth herein.
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G. MISCELLANEOUS
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1. This Agreement shall be construed and interpreted in accordance
with the laws of the Commonwealth of Pennsylvania without giving effect to
conflict of law principles.
2. This Agreement shall enure to the benefit of and be binding upon
West Penn and Milesburg and their respective successors and assigns.
3. The parties agree that each Party shall bear its own costs and
expenses relating to this Agreement, except as provided in Section B.3., D.l
.(v), D.l.(vi), D.2.(v), and F.2. above.
4. The Parties shall cooperate with one another and do those things.
and execute such documents as are reasonably necessary to effectuate the terms
and intent of this Agreement.
5. This Agreement may be executed in two or more counterparts, each
of which shall be deemed as an original, but all which together shall constitute
one and the same instrument.
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6. This Agreement constitutes the entire Agreement between the
Parties hereto, with respect to the matters contained herein. Each Party
confirms that it is not relying upon any representations or warranties of
the other Party except as specifically set forth herein.
7. The representations, warranties, covenants and agreements of
the Parties set forth herein shall survive the Termination Date.
8. All notices and other communications required or permitted
under this Agreement shall be in writing and shall be deemed to have been
duly given on the date of delivery, if delivered personally, by a recognized
overnight delivery service or by facsimile transmission, and properly
addressed to the Party at the address set forth below, or such other address
set forth in a written notice pursuant hereto.
If to Milesburg:
Environmental Power Corporation
500 Market Street
Suite 1E
Portsmouth, NH 03801
With copy to:
U.S. Generating Company
Attn: General Counsel
7500 Old Georgetown Road
Bethesda, MD 20814
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If to West Penn:
Allegheny Power
Attn: Legal Services
800 Cabin Hill Drive
Greensburg, PA 15601
8. Neither this Agreement nor any of the terms hereof may be amended,
waived or modified orally, but only by an instrument in writing signed by the
Parties hereto.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the day and year first above written.
MILESBURG ENERGY, INC.
Attest:
/s/ William D. Linehan By: /s/ Joseph E. Cresci
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Joseph E. Cresci, President
Milesburg Energy, Inc.
WEST PENN POWER COMPANY
Attest:
/s/ Eileen M. Beck By: /s/ M. P. Morrell
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M. P. Morrell, Vice President
West Penn Power Company
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