Exhibit 10.7

 

TAX SHARING AGREEMENT

 

This Agreement is made effective this 4th day of September, 2003 (the
“Agreement”) between EPC CORPORATION, a Delaware corporation (“EPC”) and
ENVIRONMENTAL POWER CORPORATION, a Delaware corporation (“EPC Holdings”).

 

RECITALS

 

WHEREAS, EPC is primarily engaged in the business of holding the equity interest
in Buzzard Power Corporation (“Buzzard”);

 

WHEREAS, EPC is a wholly-owned subsidiary of EPC Holdings;

 

WHEREAS, EPC, EPC Holdings and Buzzard file consolidated federal income tax
returns and would find it advantageous to file consolidated income tax returns
with state and other taxing authorities;

 

WHEREAS, certain states or other taxing authorities do not permit EPC and EPC
Holdings to file consolidated tax returns; and

 

WHEREAS, EPC contemporaneously herewith is engaging in a financing transaction
under that certain Note Purchase Agreement dated September     , 2003 between
Crystal Creek Coalpower Funding LLC (the “Purchaser”) and EPC (the “Note
Purchase Agreement”) that will have direct material benefits to EPC Holdings,
and one of the conditions of such transaction is that EPC Holdings undertake an
obligation to pay any and all taxes of any nature otherwise due and payable by
EPC or Buzzard (whether such payment obligation arises under a consolidated
return or under a separate return filed by EPC or Buzzard).

 

NOW, THEREFORE, in consideration of the above recitals and other good and
valuable consideration, the parties to this Agreement agree as follows:

 

1. Definitions. Capitalized terms not otherwise defined herein shall have the
meaning assigned to such terms in the Note Purchase Agreement.

 

2. Preparation of Tax Returns. EPC Holdings shall prepare, pursuant to the terms
of that certain Management Services Agreement executed contemporaneously
herewith, or if such agreement has been terminated, pursuant to the terms of
this Section 1, any and all tax returns required to be filed by EPC and Buzzard
with any taxing authority (federal, state, local or otherwise) regardless of
whether such tax returns can be prepared on a consolidated basis. EPC Holdings
shall undertake such preparation (as well as the preparation of its own tax
returns) in the manner which is necessary and advisable and shall timely file
such tax returns (including its own tax returns) as may be required by
applicable law to avoid any penalty or other negative consequence. EPC Holdings
shall only be compensated for the provision of such service as part of the
Management Services Agreement, or if such agreement is no longer outstanding,
the cost of such service shall be considered a capital contribution from EPC
Holdings to EPC. In no

--------------------------------------------------------------------------------

event shall EPC Holdings be entitled to such compensation in contravention with
the Note Purchase Agreement.

 

3. Payment of Tax Liability. Upon submission of any tax return, EPC Holdings
shall pay to the applicable taxing authority any tax (and any interest or
penalties related thereto) due from EPC Holdings, EPC or Buzzard whether such
amount arises from (i) an allocable share in a consolidated return, (ii) from a
wholly separate tax return being filed by EPC or Buzzard or (iii) from any tax
assessed or imposed by any taxing authority. The payment of such tax liability
shall be considered a capital contribution from EPC Holdings to EPC or from EPC
to Buzzard, as applicable, as opposed to a loan. Notwithstanding the foregoing,
EPC Holdings in its sole discretion shall have the right to withhold any payment
of taxes, interest or penalties to any taxing authority until a final
determination of liability has been rendered by the appropriate taxing authority
or a court of competent jurisdiction if EPC Holdings is in good faith contesting
the validity or amount of such taxes, interest or penalties claimed to be due
from EPC or Buzzard.

 

4. Term. The term of this Agreement shall commence on the date hereof and shall
continue through December 31, 2012; provided, however, that EPC Holdings may
terminate this Agreement if an Event of Default occurs under the Note Purchase
Agreement and the Purchaser exercises any remedies available to it under the
Note Purchase Agreement. Notwithstanding the foregoing, the Purchaser shall have
the right to cause EPC and EPC Holdings to terminate this Agreement at any time
for cause or if an Event of Default has occurred and is continuing.

 

5. Miscellaneous.

 

(a) Third Party Rights. The Purchaser and its successors and assigns shall enjoy
the rights and not the obligations of a third-party beneficiary hereunder. No
other third party beneficiary rights are created hereunder.

 

(b) Survival of Claims. Any claims that EPC or Buzzard may have against EPC
Holdings arising from the performance of EPC Holdings’ obligations hereunder
shall survive the termination of this Agreement. Notwithstanding anything to the
contrary contained herein, EPC Holdings’ obligation to pay any taxes (and any
interest or penalties related thereto) pursuant to this Agreement which arose or
were incurred during the term of this Agreement shall survive termination
hereof.

 

(c) Headings. Section and article headings used in this Agreement have no legal
significance and are used solely for convenience of reference.

 

(d) Governing Law. This Agreement shall be construed and enforced in accordance
with the internal laws of the State of New York, without regard to its
principles of conflicts of laws, and each party hereby submits to the
non-exclusive jurisdiction of the state courts of New York and the federal
courts of the United States of America sitting in the Southern District of New
York.

 

[Remainder of page intentionally left blank]

 

2

--------------------------------------------------------------------------------

IN WITNESS WHEREOF the parties have executed this Agreement the date first above
written. and agree to be bound by the terms hereof and the documents issued
pursuant hereto.

 

EPC CORPORATION

By

 

/S/ Joseph E. Cresci

--------------------------------------------------------------------------------

   

Its Joseph E. Cresci, President

--------------------------------------------------------------------------------

ENVIRONMENTAL POWER CORPORATION

By

 

/S/ Donald A. Livingston

--------------------------------------------------------------------------------

   

Its Donald A. Livingston, Vice President

--------------------------------------------------------------------------------

 

[Signature Page to Tax Sharing Agreement]