Unassociated Document


    Exhibit
10.1

     

    LIMITED
LIABILITY COMPANY AGREEMENT

    OF

    BABCOCK
- THERMO CARBON CAPTURE LLC

     

    THIS
LIMITED LIABILITY COMPANY AGREEMENT is made effective as of the 25th day of
February, 2009, by and among Babcock Power Development, LLC, a Delaware limited
liability company (“Babcock”), as a member, and
ThermoEnergy Power Systems, LLC, a Delaware limited liability company (“TEPS”), as a
member.

     

    RECITALS

     

    A.          A
Certificate of Formation dated as of February 23, 2009 (the “Certificate”) has been filed
to form a limited liability company under the name “Babcock - Thermo Carbon Capture
LLC” (the “Company”) pursuant to and in
accordance with the Delaware Limited Liability Company Act, as amended (6 Del.
C. §18-101 et
seq.) (the
“Act”).

     

    B.           The
Company is formed for the purpose of developing and commercializing a clean
energy technology known as ThermoEnergy Integrated Power System (“TIPS”), which is a pressurized
oxy-fuel combustion technology for multi-pollutant capture that gasifies or
combusts fossil fuels (particularly coal and biomass) and facilitates conversion
into electricity without producing air emissions, and is aimed at competing with
conventional energy conversion technologies, in accordance with the terms of
this Agreement.  The development and commercialization of the TIPS
technology is referred to herein as the “Business”.

     

    C.           By
executing this Agreement, each of the Members hereby (i) ratifies the formation
of the Company and the filing of the Certificate, and (ii) continues the
existence of the Company.

     

    D.          The
undersigned Members desire to set forth the terms governing the affairs of the
Company and the conduct of its business, including the terms under which the
Company will take actions with respect to the Business.

     

    TERMS
OF AGREEMENT

     

    1.           General.

     

    1.01        Formation.  The
undersigned Members hereby confirm the formation and join together in a limited
liability company under the name of “Babcock - Thermo Carbon Capture
LLC” pursuant to the Act.  The Members shall take all action
required by law to maintain the Company as a limited liability company under the
Act and under the laws of all other jurisdictions in which the Company may elect
to conduct business.

     

    1.02        Place of
Business.  The principal place of business of the Company shall
be located at 5 Neponset Street, Worcester, MA 01606.  The Board of
Managers may change the principal place of business of the Company to such other
place or places within the United States as it may from time to time
determine.  The Board of Managers may establish and maintain such
other offices and additional places of business of the Company as it shall deem
appropriate.

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    


    1.03        Registered Office and
Agent.  The address of the Company’s registered office in the
State of Delaware is c/o The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.  The name of the Company’s registered
agent at such address is The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801.

     

    1.04        Rules of
Construction.  The following rules of construction shall apply
to this Agreement:

     

    (A)           All
section headings in this Agreement are for the convenience of reference only and
are not intended to qualify the meaning of any section.

     

    (B)           All
personal pronouns in this Agreement, whether used in the masculine, feminine or
neuter gender, shall include all genders, the singular shall include the plural,
and vice versa, as the
context may require.

     

    (C)           Each
provision of this Agreement shall be considered severable from the rest, and if
any provision of this Agreement or its application to any Person or circumstance
shall be held invalid and contrary to any existing or future law or
unenforceable to any extent, the remainder of this Agreement and the application
of any other provision to any Person or circumstance shall not be affected
thereby and shall be interpreted and enforced to the greatest extent permitted
by law so as to give effect to the original intent of the parties
hereto.

     

    (D)           Unless
otherwise specifically and expressly limited in the context, any reference
herein to a decision, determination, act, action, exercise of a right, power or
privilege, or other procedure by a Member shall mean and refer to the decision,
determination, act, action, exercise or other procedure by the Member in its
sole and absolute discretion acting in the best interest of such Member and not
as a fiduciary of the Company or the other Members.

     

    (E)           All
references in this Agreement to “Dollars” as a unit of currency
shall be deemed to be a reference to United States dollars and United States
currency.

     

    (F)           Each
party hereto and its counsel has reviewed this Agreement, and the normal rule of
construction that any ambiguities are to be resolved against the drafting party
shall not be applicable to the construction and interpretation of this
Agreement.

     

    (G)           Unless
explicitly stated to the contrary, the term “includes,” “including’ and other
expressions of inclusion shall be construed in each instance to mean “includes
without limitation,” “including but not limited to” or other phraseology
denoting the non-exclusive nature of the item to which reference is being
made.

     

    1.05         Members and LLC
Interests.

     

    (A)           Members.  The
names and address of the Members (as hereinafter defined) are as set forth on
Schedule A
hereto.

     

    
      
         


      

      
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    (B)           LLC
Interests/Members.  Each Member that is listed on Schedule A hereto as
a Member (the “Member”)
shall own a Membership Interest representing an ownership interest in the
Company, including the right to distributions and any other rights set forth in
this Agreement and all obligations set forth in this Agreement.

     

    2.           Definitions.

     

    Act:  As defined in
the recitals of this Agreement.

     

    Additional Capital
Contribution: As defined in Section 5.01(B)(i) of
this Agreement.

     

    Additional Contributions Due
Date: As defined in Section 5.01(B)(i) of
this Agreement.

     

    Affiliate:  With
respect to any referenced Person (i) such Person or a member of his immediate
family; and (ii) any Person directly or indirectly Controlling, Controlled by,
or under direct common Control with the Person in question.  For
purposes of this Agreement, the Company shall not be deemed an Affiliate of any
Member.

     

    Agreement:  This
Limited Liability Company Agreement and the Exhibits and Schedules attached
hereto, as the same may be amended and in effect from time to time.

     

    Approved Budget: Shall mean
any Operating Budget approved by the Board of Managers pursuant to Section 7.01(B) of
this Agreement, and any deviation therefrom that is permitted pursuant to the
terms of this Agreement.

     

    Babcock:  Babcock
Power Development, LLC, a Delaware limited liability company, and its successors
and permitted assigns.

     

    Babcock License
Agreement:  As defined in Section 8.01(B) of
this Agreement.

     

    Babcock Manager and Babcock
Managers:  As defined in Section 7.01(A) of
this Agreement.

     

    Bankruptcy:  Shall
mean, with respect to any Person, the filing by such Person of a voluntary
petition seeking liquidation, reorganization, arrangement or readjustment, in
any form, of its debts under Title 11 of the United States Code, or
corresponding provisions of future laws (or any other federal or state
insolvency law), (ii) the filing by such Person of an answer consenting to or
acquiescing in any such petition, (iii) the making by such Person of any
assignment for the benefit of its creditors or the admission by such Person in
writing of its inability to pay its debts as they mature, (iv) the filing of an
involuntary petition against such Person under Title 11 of the United States
Code (or corresponding provisions of future laws), an application for the
appointment of a receiver for the assets of such Person, or an involuntary
petition seeking liquidation, reorganization, arrangement or readjustment of its
debts under any other federal or state insolvency law, provided that the same shall
not have been vacated, set aside or stayed within a 60-day period after the
occurrence of such event, or (v) the entry against such Person of a final
non-appealable order for relief under any bankruptcy, insolvency or similar law
nor or hereafter in effect.

     

    
      
         


      

      
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    Board of
Managers:  As defined in Section 7.01(A) of
this Agreement.

     

    Business: As defined in the
recitals to this Agreement.

     

    Business
Days:  Shall mean any day, other than a Saturday or Sunday, on
which commercial banks in New York City are not authorized or required by law to
close.

     

    Business Plan:  The
plan for the concept, development and implementation of the Business approved by
the Board of Managers pursuant to Section 7.01(B) of
this Agreement and any updates or modifications thereto implemented in
accordance with the terms of this Agreement.

     

    Capital
Account:  With respect to any Member, the Capital Account
maintained for such Member in accordance with the following
provisions:

     

    (A)           To
each Member’s Capital Account there shall be credited such Member’s Capital
Contributions, such Member’s distributive share of Profits and, without
duplication, any items in the nature of income or gain which are specially
allocated pursuant to Section 2(C) of Exhibit 1 of this
Agreement, and the amount of any Company liabilities assumed in writing by such
Member or which are secured by any Company Property distributed to such
Member.

     

    (B)           To
each Member’s Capital Account there shall be debited the amount of cash and
Gross Asset Value of any Company Property distributed to such Member pursuant to
any provision of this Agreement, such Member’s distributive share of Losses (as
defined in Exhibit
1 to this Agreement) and, without duplication, any items in the nature of
expenses or losses that are specially allocated pursuant to Section 2(C) of Exhibit 1 to this
Agreement, and the amount of any liabilities of such Member assumed in writing
by the Company or which are secured by any property contributed by such Member
to the Company.

     

    (C)           In
the event any interest in the Company is transferred in accordance with the
terms of this Agreement, the transferee shall succeed to the Capital Account of
the transferor to the extent it relates to the transferred interest in the
Company.

     

    (D)           In
determining the amount of any liability for the purposes of this definition,
there shall be taken into account Code Section 752(c) and any other applicable
provisions of the Code and Regulations.

     

    The
foregoing provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Regulations Section
1.704-1(b), and shall be interpreted and applied in a manner consistent with
such Regulations.

     

    Capital
Contributions:  With respect to any Member, the amount of money
and the initial Gross Asset Value of any property (other than money) contributed
to the Company with respect to the Membership Interest in the Company held by
such Member.  The contribution to the Company of any property other
than money, and the licenses contributed pursuant to the Babcock License
Agreement and the TEPS License Agreement, shall require the consent of the Board
of Managers.

     

    
      
         


      

      
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    Cash Available for
Distribution:  means, with respect to any fiscal period, an
amount equal to the excess of (1) the gross cash revenues of the Company from
all sources (but excluding Capital Contributions) during such fiscal period
(including interest income on Company working capital) plus such reserves as
the Board of Managers determines are no longer necessary to provide for the
foreseeable needs of the Company, over (2) the sum of the following (in each
case, for or with respect to such fiscal period): (i) all cash expenditures made
by the Company or which the Company is obligated to make for or during such
period in connection with the operation of the Company or in connection with the
Company Property, including all fees, commissions, or other similar amounts paid
to the Members or their Affiliates pursuant to this Agreement, (ii) operating
expenses, (iii) taxes, (iv) assessments, (v) insurance premiums, (vi) debt
service, (vii) increases in reserves established by the Board of Managers and
(viii) any fees for management services and administrative expenses, except to
the extent paid from previously established Company reserves.

     

    Cash Shortfall: As defined in
Section
5.01(B)(i) of this Agreement.

     

    Certificate: As defined in the
recitals to this Agreement.

     

    Code: The Internal Revenue
Code of 1986 (or any succeeding law), as amended and in effect from time to
time.

     

    Company: As defined in the
preamble to this Agreement.

     

    Company Intellectual Property:
Shall mean all Intellectual Property conceived, created, made, or developed
during the term of this Agreement by one or more employees of the Company in
advancement of the Business.  The term “Company Intellectual Property”
shall not include any Intellectual Property of any Member (including, without
limitation, any Intellectual Property licensed to the Company pursuant to the
Babcock License Agreement or the TEPS License Agreement).

     

    Company
Property:  At any particular time, any assets or property
(tangible or intangible, choate or inchoate, fixed or contingent) held or owned
by or for the benefit of the Company, including Company Intellectual
Property.

     

    Competing
Activity:  As defined in Section 8.03 of this
Agreement.

     

    Consent:  The
written consent of a Member to do the act or thing for which the consent is
required or solicited, or the act of granting such a written consent, as the
context may require.

     

    Consumer Price
Index:  The 12-month change in the Consumer Price Index for All
Urban Consumers (CPI-U) for the Boston-Brockton-Nashua, MA-NH-ME-CT metropolitan
area as identified and published by the U.S. Department of Labor, Bureau of
Labor Statistics.

     

    Contributing Member: As
defined in Section
5.01(B)(ii) of this Agreement.

     

    Control(s)(led)(ing):  As
applied to a referenced Person, the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through ownership of voting securities, by contract or
otherwise.

     

    
      
         


      

      
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    Depreciation: As defined in
Exhibit 1 to
this Agreement.

     

    Disposing Member: As defined
in Section
11.02(A) of this Agreement.

     

    Dispute Resolution
Agreement:  As defined in Section 8.01(C) of
this Agreement.

     

    Dissolution
Notice:  As defined in Section 11.01(C) of
this Agreement.

     

    Dollars: As defined in Section 1.04(E) of
this Agreement.

     

    Final PFDs: As defined in
Section 8.02(B)
of this Agreement.

     

    Fiscal Year:  The
twelve calendar month period ending September 30 or such other twelve (12)-month
period selected by the Board of Managers.

     

    Gross Asset
Value:  With respect to any asset, the asset’s adjusted basis
for federal income tax purposes, except as follows:

     

    (A)           The
initial Gross Asset Value of any asset contributed by a Member to the Company
shall be the gross fair market value of such asset, as agreed to by the
contributing Member and the Board of Managers;

     

    (B)           The
Gross Asset Values of all Company Property shall be adjusted to equal their
respective gross fair market values, as determined by the Board of Managers, as
of the following times: (1) the acquisition of an additional Membership Interest
by any new or existing Member in exchange for more than a de minimis capital
contribution; (2) the distribution by the Company to a Member of more than a de
minimis amount of Company Property as consideration for a Membership Interest;
(3) the issuance of more than a de minimis Membership Interest as consideration
for the provision of services to or for the benefit of the Company; and (4) the
liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that the
adjustments pursuant to clauses (1), (2) and (3) above shall be made only if the
Board of Managers determines that such adjustments are necessary or appropriate
to reflect the relative economic interests of the Members in the
Company;

     

    (C)           The
Gross Asset Values of all Company Property distributed to any Member shall be
the gross fair market value of such asset on the date of distribution;
and

     

    (D)           The
Gross Asset Values of Company Property shall be increased (or decreased) to
reflect any adjustments to the adjusted basis of such assets pursuant to Code
Section 734(b) or Code Section 743(b), but only to the extent that such
adjustments are taken into account in determining capital accounts pursuant to
Regulations Section 1.704-b(2)(iv)(m); provided, however, that Gross
Asset Values shall not be adjusted pursuant to this clause (D) to the extent
that the Board of Managers has determined that an adjustment pursuant to clause
(B) above is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this clause
(D).

     

    
      
         


      

      
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    If the
Gross Asset Value of an asset has been determined or adjusted pursuant to clause
(A), (B) or (D) above, such Gross Asset Value shall thereafter be adjusted by
the Depreciation (as defined in Exhibit 1) taken into
account with respect to such asset for purposes of computing
Profits  and Losses (and not by the depreciation, amortization or
other cost recovery deductions allowable with respect to that asset for federal
income tax purposes).

     

    Indemnified Parties: As
defined in Section
7.07(A) of this Agreement.

     

    Individual Non-Disclosure
Agreement: As defined in Section 8.01(D) of
this Agreement.

     

    Initial Capital Contribution:
As defined in Section
5.01(A) of this Agreement.

     

    Intellectual
Property:  Shall mean all patents, inventions, patent
applications, patent rights, trademarks, trademark registrations, trade names,
brand names, all other names and slogans embodying business or product goodwill
(or both), copyright registrations, copyrights (including those in computer
programs, software, including all source code and object code, development
documentation, programming tools, drawings, specifications and data), software,
trade secrets, know-how, mask works, industrial designs, formulae, processes and
technical information, including confidential and proprietary information,
whether or not subject to statutory registration or protection.

    


    IRS:  The United
States Internal Revenue Service.

     

    Losses: As defined in the
definition herein of Profits and Losses.

     

    Major Decision: As defined in
Section 7.01(C)
of this Agreement.

     

    Managers:  As
defined in Section
7.01(A) of this Agreement.

     

    Master Non-Disclosure
Agreement:  As defined in Section 8.01(D) of
this Agreement.

     

    Member: As defined in Section 1.05(B) of
this Agreement.

     

    Member Loan:  Any
loans made by a Member to the Company from time to time pursuant to Section 5.01(B)(ii)
of this Agreement.

     

    Member Loan Rate: As defined
in Section
5.01(B)(iii) of this Agreement.

     

    Member Parent: Shall mean (i)
with respect to Babcock, Babcock Power Inc., a Delaware corporation, (ii) with
respect to TEPS, ThermoEnergy Corporation, a Delaware corporation and (iii) with
respect to any other Member, the ultimate parent entity Controlling such
Member.

     

    Membership
Interest:  As to any Member, such Member’s Percentage of
Company Interest, its right to distributions under Article 6 of this
Agreement, and any other rights which such Member has in the Company under this
Agreement or the Act.

     

    Milestone: As defined in Section 11.01(A) of
this Agreement.

     

    Non-Contributing Member: As
defined in Section
5.01(B)(ii) of this Agreement.

     

    
      
         


      

      
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    Notice:  A writing
containing the information required by this Agreement shall be communicated to a
Person by (i) United States mail (postage prepaid, registered or certified mail,
return receipt requested), (ii) overnight courier, (iii) confirmed electronic
transmission, or (iv) in person, and addressed to such Person at the last known
address of such Person as shown on the books of the Company. Any Notice to the
Company shall be addressed to the principal office of the
Company.  Any Member may change its address or the address to which
copies of Notices should be sent by Notice to the other Members and the
Company.  Notice shall be deemed given (i) three (3) Business Days
after deposit in the United States mail, if sent by United States mail, (ii) the
Business Day immediately following deposit with an overnight courier, if sent by
overnight courier, (iii) upon receipt by the sender of confirmation of delivery,
if sent by electronic transmission or (iv) when delivered, if delivered in
person.

     

    Offer: As defined in Section 11.02(A) of
this Agreement.

     

    Officer:  Shall mean
a person holding the office of an Officer of the Company described in Section 7.04 of this
Agreement.

     

    Operating
Budget:  The projection of revenue and expenses as well as
other working capital needs for any Fiscal Year or portion thereof relating to
the Business approved by the Board of Managers pursuant to Section 7.01(B) of
this Agreement, and any updates or modifications thereto implemented in
accordance with the terms of this Agreement.  Any expenses within the
Operating Budget that are variable based on the amount and type of revenue
budgeted (“Variable
Expenses”) will be deemed to be adjusted pro rata for any changes
in amount or type of revenue budgeted throughout the Fiscal Year.

     

    Percentage of Company
Interest:  As of the date of this Agreement, as to any Member,
the percentage interest in the Company shown opposite the name of such Member on
Schedule A
attached to this Agreement.  At any time and from time to time, the
Percentage of Company Interest of any Member shall be equal to the percentage
determined by dividing the Member’s cumulative Capital Contributions by the
total Capital Contributions of all Members.

     

    Permitted Transfer: As defined
in Section
10.03 of this Agreement.

     

    Person:  Any
individual, partnership, limited liability company, corporation, trust or other
entity.

     

    Preliminary PFDs: As defined
in Section
8.02(B) of this Agreement.

     

    Profits:  As defined
in the definition herein of Profits and Losses.

     

    Profits and
Losses:  As defined in Exhibit 1
hereto.

     

    Regulations:  Shall
mean the income tax regulations, including temporary regulations, promulgated
under the Code, as such regulations may be amended from time to
time.

     

    Related
Agreements:  Each of the Babcock License Agreement, the TEPS
License Agreement, the Master Non-Disclosure Agreement, the Dispute Resolution
Agreement, each Individual Non-Disclosure Agreement and any other agreement
among the Company, any of the Members or their Affiliates which specifies that
it is a Related Agreement for purposes of this Agreement.

     

    
      
         


      

      
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    Securities Act: As defined in
Section
14.14(A) of this Agreement.

     

    Shortfall: As defined in Section 7.07(B) of
this Agreement.

     

    Specified
Person:  Shall mean each Manager and each other Person so
designated, from time to time, by the Board of Managers.

     

    Statement of Development
Work:  As defined in Section 8.02(A) of
this Agreement.

     

    Substituted
Member:  Shall mean any Person who is admitted to the Company
as an additional or substitute Member pursuant to Article 10 of this
Agreement.

     

    Subsystem IP Development: As
defined in Section
8.02(A) of this Agreement.

     

    Subsystems: As defined in
Section 8.02(A)
of this Agreement.

     

    Tax Matters
Member:  Babcock, or such other Member as may be designated
from time to time by the Board of Managers.

     

    TEPS: As defined in the
preamble to this Agreement.

     

    TEPS License
Agreement:  As defined in Section 8.01(A) of
this Agreement.

     

    TEPS Manager and TEPS Managers: As defined in
Section 7.01(A)
of this Agreement.

     

    TIPS: As defined in the
recitals to this Agreement.

     

    Transfer:  Any sale,
assignment, transfer, gift, bequest, succession through intestacy, contribution,
distribution, conveyance, pledge, hypothecation, mortgage, exchange or other
disposition, or other encumbrance whether voluntary, involuntary or by operation
of law.

     

    Variable
Expenses:  As defined in the definition herein of Operating
Budget.

     

    Variable Expense
Modifications:  Shall mean modifications made or deemed to be
made to any portion of the Operating Budget as a result of Variable
Expenses.

     

    Withdrawal
Notice:  As defined in Section 11.01(B) of
this Agreement.

     

    Withdrawing Member: As defined
in Section
11.01(A) of this Agreement.

     

    3.           Business; Authorized
Activities.

     

    3.01        Business.  The
business and purpose of the Company shall be to (i) take all actions associated
with owning, holding. leasing, financing, developing, redeveloping, selling,
mortgaging, assigning or otherwise transferring the Company Property and the
Business, pursuant to and in accordance with the terms of this Agreement, and
(ii) do all other acts and things as may be necessary, desirable, expedient,
convenient for or incidental to, the furtherance and accomplishment of the
foregoing objectives and purposes and for the protection and the benefit of the
Company.  The Company shall not engage in any other business without
the unanimous consent of all of the Members.

     

    
      
         


      

      
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    3.02        Authorized
Activities.  In carrying out the purposes and business of the
Company, but subject to all other provisions of this Agreement, the Board of
Managers is authorized to cause the Company, including by way of delegation of
such authority to one or more Officers of the Company, to take all such actions
necessary or appropriate to carry out the purposes and business of the Company,
including, but not limited to the following:

     

    (A)           Enter
into and perform all acts and carry out all obligations under all contracts and
agreements necessary or incidental to the accomplishment of the purposes and
business of the Company, as set forth in Section 3.01
above;

     

    (B)           Cause
the Company to borrow money and issue evidences of indebtedness from Persons in
furtherance of any or all of the purposes and businesses of the Company (which
Persons may include Persons holding a direct or indirect ownership interest in
any Member and Affiliates of any Member), to guaranty the same, and to secure
the same by mortgage, pledge or other lien on Company Property or any portion
thereof;

     

    (C)           Cause
the Company to employ Persons in the operation and management of the business of
the Company, including, without limitation, attorneys, accountants, mortgage
bankers, management and leasing agents, insurance brokers, real estate brokers,
mortgage brokers, engineers, architects, contractors and consultants, which
Persons may include Members and Affiliates of Members;

     

    (D)           Hold
title to all Company Property;

     

    (E)           Make
interim investments in appropriate banking or investment accounts with respect
to its funds;

     

    (F)           Bring,
defend, pay, extend, renew, modify, adjust, submit to arbitration, prosecute or
compromise any obligation, suit, liability, cause of action or claim with
respect to the Company or the Company Property; and

     

    (G)           Engage
in any kind of lawful activity, and perform and carry out contracts of any kind,
necessary or advisable in connection with the accomplishment of the purposes and
businesses of the Company.

     

    4.           Representations and
Warranties.

     

    4.01        Representations and
Warranties.  In addition to any representations and warranties
contained elsewhere in this Agreement, each Member hereby represents and
warrants to the Company and the other Members, with respect to itself,
that:

     

    (A)           (i)
it is a limited liability company validly existing and in good standing under
the laws of the State of Delaware, and has the full power and authority to carry
out the business now conducted by it and to enter into and carry out the terms
of this Agreement; and (ii) the Persons executing this Agreement on its behalf
have full power and authority and legal right to bind such Member to this
Agreement;

     

    
      
         


      

      
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    (B)           as
of the date of this Agreement, there are no judgments, injunctions, decrees or
arbitration awards against it, or any action, suit or proceeding pending or, to
the best of its knowledge and belief, threatened against it, which would,
directly or indirectly, materially adversely affect its ability to perform its
obligations under this Agreement;

     

    (C)           as
of the date of this Agreement, except as otherwise set forth in this Agreement,
the execution and performance of this Agreement by such Member does not, and
will not with the passage of time, violate the terms of any material agreement
to which it is a party or by which it is bound; and

     

    (D)           it
is Controlled, directly or indirectly, by its Member Parent and its Member
Parent has the power and authority to Control all decisions, of any nature, with
respect to the Member.

     

    4.02           Actions for
Breach.  The representations, warranties and covenants in Section 4.01 are
being made by each Member in consideration for its undertakings and rights under
this Agreement.  Upon the breach of any such representation, warranty
or covenant contained in Section 4.01, any
other Member of the Company may pursue any available legal or equitable remedy
against the breaching Member without being required to dissolve the Company and
notwithstanding the availability of any other remedy.

     

    5.           Capital Accounts.

     

    5.01       Capital Contributions/Member
Loans.

     

    (A)           In
consideration for its Membership Interest, each of the Members is making on the
date of this Agreement, initial Capital Contributions in the amounts set forth
on Schedule A
to this Agreement (the “Initial
Capital Contributions”).

     

    (B)           Additional
Required Capital.

     

    (i)   
        In addition to the Initial
Capital Contributions set forth above, each Member agrees to make additional
capital contributions to the Company from time to time, provided that (1) the
Members shall have previously Consented to the amount of such additional capital
contributions (whether pursuant to the Operating Budget approved pursuant to the
terms hereof, by Consenting to a new Operating Budget or otherwise) or (2) if
the Board of Managers unanimously determines that the Company requires funding
from its Members for payments to be made by the Company, and sufficient reserves
therefor and Cash Available for Distribution are not available (the amount of
any such deficiency being hereinafter referred to as a “Cash Shortfall”, and the
amount of any additional capital contribution required to be made pursuant to
the foregoing referred to as an “Additional Capital
Contribution”).  In the case of an Additional Capital
Contribution described in clause (2) above, each Member shall contribute
capital, in an aggregate amount equal to the amount of the applicable Cash
Shortfall, in accordance with their respective Percentages of Company Interest
except to the extent that the Board of Managers elects to cause the Company to
borrow additional funds in lieu of such Additional Capital
Contribution.  The Board of Managers shall provide each Member with
written notice at least fifteen (15) days prior to the date (the “Additional Contributions Due
Date”) such Additional Capital Contributions are to be made; provided, however, that
Additional Capital Contributions paid prior to the Additional Contributions Date
shall be deemed to be made on the relevant Additional Contributions Due
Date.

     

    
      
         


      

      
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    (ii)           In
the event that any Member (a “Non-Contributing Member”) does
not contribute its full Additional Capital Contribution by the Additional
Contributions Due Date, then any other Member which is not a Non-Contributing
Member (a “Contributing
Member”) shall have, in addition to all remedies provided by law or
equity, the right to: (1) declare due and payable all or any portion of the
unpaid balance of the Additional Capital Contribution of the Non-Contributing
Member and to sue, or cause the Company to sue, such Non-Contributing Member for
the amount due and payable (together with interest thereon from the date such
installment was due, at the Member Loan Rate (as defined below)); (2) make a
loan to the Company (a “Member
Loan”) for an amount up to an amount equal to (x) the aggregate required
Additional Capital Contribution, less (y) the amount of the
Additional Capital Contribution actually contributed to the Company by the
Non-Contributing Member and a corresponding amount of the Additional Capital
Contribution actually contributed to the Company by the Contributing Member; (3)
cause the Board of Managers to reduce the required Additional Capital
Contribution amount from each Member to the amount equal to the sum of the
Additional Capital Contributions actually received by the Company from the
Non-Contributing Member, and return the excess contributed by the Contributing
Member to the Contributing Member; or (4) if the Non-Contributing Member has not
contributed any part of its required Additional Capital Contribution, cause the
Board of Managers to return any payment of the Additional Capital Contribution
made by the Contributing Member, to such Contributing Member.  For
purposes of this Section 5.01(B)(ii),
any single Member which is not a Non-Contributing Member shall have the right
and power under this Agreement to unilaterally cause the Company to sue a
Non-Contributing Member, without the consent of any other Member.  In
no event shall any Member be entitled to make any Capital Contribution in excess
of the Capital Contributions received from other Members.

     

    (iii)           In
the event that a Member Loan is made by a Contributing Member, the Company shall
use the first distributions otherwise payable or distributable to the Members
pursuant to Section
6 hereof to repay any such Member Loan, which distributions shall be used
first to pay any and all accrued and unpaid interest due under such Member Loan
on a pro rata basis based on
the amount of interest owing on all Member Loans to the Company, then to repay
the principal balances outstanding thereunder pro rata as to all Member
Loans made to the Company in accordance with the amount of principal due to each
Member making such Member Loans.  Such Member Loans shall bear
interest at a rate equal to the lesser of (a) twenty-five percent (25%) per
annum and (b) the highest annual interest rate permitted under applicable law
(the “Member Loan
Rate”).

     

    (C)           Except
as specifically set forth in this Agreement, no Member shall be required, under
any circumstance, to make a Member Loan or contribute to the capital of the
Company any amount beyond the sum which the Member has already contributed to
the Company as described in Section 5.01(A) of
this Agreement and the amount to be contributed in Section 5.01(B) of
this Agreement.  No Member shall be required or permitted to make any
loans to the Company (other than such loans described in this Section 5.01, and
loans approved by the Board of Managers).

     

    
      
         


      

      
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    (D)           No
interest shall accrue or be payable to any Member by reason of any Capital
Contribution or Capital Account.

     

    (E)           No
Member Loans or Capital Contributions made by any Member to the Company shall
increase or decrease any Member’s Membership Interest.

     

    5.02       No Third Party
Beneficiaries.  The provisions of this Agreement are not
intended to be for the benefit of any creditor of the Company or other Person
(other than a Member in its capacity as a Member) to whom any debts, liabilities
or obligations are owed by (or who otherwise has any claim against) the Company
or any of the Members; and no such creditor of the Company or other Person shall
obtain any right under any such foregoing provision against the Company or any
of the Members by reason of any debt, liability or obligation (or
otherwise).

     

    5.03       Return of Capital
Account.  Except as otherwise specifically provided in this
Agreement, (i) no Member shall have any right to withdraw its Capital
Contributions or Capital Account, or to demand and receive property other than
cash from the Company in return for its Capital Contributions or Capital
Account, (ii) no Member shall have any priority over any other Members as to the
return of its Capital Contributions or Capital Account, and (iii) any return of
Capital Contributions or Capital Accounts to the Members shall be solely from
the Company Property, and no Member shall be personally liable for any such
return.

     

    5.04       Limited
Liability.  No Member shall be liable for losses, costs,
expenses, liabilities or obligations of the Company in excess of its Capital
Contribution required under this Agreement.

     

    6.           Allocations and
Distributions.

     

    This
Article 6 is
intended to address the allocation of Profits and Losses of the
Company.

     

    6.01       Allocations.  The
Profits and any tax credits of the Company shall be shared and the Losses of the
Company shall be borne by the Members as provided in Exhibit 1
hereto.

     

    6.02       Distributions.  Each
distribution of Cash Available for Distribution shall be made in such amounts as
the Board of Managers shall determine, and shall be distributed to the Members
in accordance with their then respective Percentage of Company Interest (except
that no distributions shall be made hereunder until all Member Loans, including
interest thereon, as set forth in Section 5.01(B), and
any loans deemed to have been made pursuant to Section 7.07(B), have
been paid in full).

     

    6.03       Transfers During Fiscal
Year.  In the event of a transfer of all or any part of a
Membership Interest (in accordance with the provisions of this Agreement) during
a Fiscal Year, the share of income, profits, gains, losses, deductions and
credits attributable to such Membership Interest shall be allocated among the
holders of the transferred Membership Interest based on the actual attributions
to such Membership Interest for any whole months that each such holder was
recognized as the owner of the Membership Interest.  For any partial
month, the share of income, profits, gains, losses, deductions and credits
attributable to such Interest shall be allocated among the holders of the
transferred Membership Interest in proportion to the number of days that each
such holder was recognized as the owner of the Membership Interest during such
partial month without regard to the results of Company operations during the
period of such partial month in which each such holder was recognized as the
owner of such Membership Interest, and without regard to the date, amount or
recipient of any distributions which may have been made with respect to such
Membership Interest during such partial month.

     

    
      
         


      

      
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    6.04       Allocation of
Distributions.  Except as expressly provided otherwise in this
Agreement, distributions shall be made to the Members of record on the date
established by the Board of Managers for the distribution, without regard to the
length of time such Persons have been Members.

     

    6.05       Taxes
Withheld.  For purposes of this Agreement, any amount of taxes
required by the Code or by any state or other taxing authority to be withheld by
the Company with respect to any amount distributable by the Company to any
Member shall, upon payment to the IRS or to any such state or other taxing
authority, be deemed to be a distribution of such payment to such Member and
shall reduce the amount otherwise distributable to such Member pursuant to this
Agreement.

     

    7.           Management.

     

    This
Article 7 is
intended to address the management of the business affairs of the
Company.

     

    7.01       Management and Control of
Company Business.

     

    (A)           Except
as specifically provided to the contrary in this Agreement, the Company shall be
managed by a Board of Managers (the “Board of
Managers”).  The Board of Managers shall be comprised of six
individual managers, three (3) designated by Babcock (each, a “Babcock Manager” and
collectively, the “Babcock
Managers”), and three (3) designated by TEPS (each, a “TEPS Manager”, and collective,
the “TEPS Managers”, and
together with the Babcock Managers, the “Managers”).  Any
Manager may be removed from the Board of Managers, whether with or without
cause, only by the Member that appointed him or her.  In the event of
a vacancy in a Babcock Manager’s position for any reason (including, without
limitation, a Babcock Manager’s resignation or removal), such vacancy shall be
filled by the designation of a successor Manager by Babcock.  In the
event of a vacancy in a TEPS Manager’s position for any reason (including,
without limitation, a TEPS Manager’s resignation or removal), such vacancy shall
be filled by the designation of a successor Manager by TEPS.  Subject
to the right of a Member to unilaterally cause the Company to sue a
Non-Contributing Member as set forth in Section 5.01(B)(ii),
any action to be taken by the Board of Managers shall be taken by the unanimous
vote of the Managers present and voting at a meeting at which a quorum is
present.  The Board of Managers shall meet from time at the request of
any one member of the Board of Managers, but at least once every
quarter.  Any member of the Board of Managers calling a meeting shall
give each other member of the Board of Managers Notice of the purpose of such
proposed meeting not less than two (2) Business Days nor more than sixty (60)
days before the meeting.  Meetings shall be held at a reasonable time
and place selected by the Board of Managers.  Meetings of the Board of
Managers may be held in person or by teleconference where each party is able to
hear and participate.  At any meeting of the Board of Managers, the
presence of at least one Babcock Manager and at least one TEPS Manager shall be
necessary to constitute a quorum.  Any action that may be taken at a
meeting of the Board of Managers may be taken without a meeting if all of the
Managers consent thereto in writing.  As of the date hereof, Babcock
has appointed James Wood, William J. Ferguson, Jr. and Eric Balles as the
initial Babcock Managers to serve until his or her removal or resignation as a
Babcock Manager.  As of the date hereof, TEPS has appointed Dennis C.
Cossey, Alexander G. Fassbender and Shawn R. Hughes as the initial TEPS Managers
to serve until his or her removal or resignation as a TEPS Manager.

     

    
      
         


      

      
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    (B)           The
Board of Managers shall be responsible for approving and adopting the Business
Plan and the Operating Budget, including any updates or modifications thereto
implemented in accordance with the terms of this Agreement.  Within
three (3) months after the date of this Agreement, the Board of Managers shall
adopt (i) an initial Business Plan, and (ii) an initial Operating
Budget.  The Board of Managers may update or amend the Business Plan
and Operating Budget from time to time as the need arises; provided, however, that it will
update such documents no less than annually.

     

    (C)           The
President and Chief Executive Officer of the Company shall be responsible for
managing the day-to-day affairs of the Company with respect to all matters,
subject to the general supervision of the Board of Managers and subject to any
consent of the Board of Managers required under the terms of this
Agreement.  The consent of the Board of Managers shall be obtained
prior to the President and Chief Executive Officer of the Company or any
Officer, acting upon the delegated authority of the President and Chief
Executive Officer, causing the Company to take action with respect to the
following matters (individually, a “Major Decision”, and collectively,
the “Major Decisions”):

     

    (i)           
 Adopting any Operating Budget or modifying any then current Operating
Budget;

     

    (ii)           
Adopting any Business Plan or modifying any then current Business
Plan;

     

    (iii)           Entering  into
a contract for (a) the sale or exchange of all or any substantial part of the
Company Property, or (b) any other disposition of all or any substantial part of
the Company Property;

     

    (iv)           Entering
into any agreement to license or sublicense any (i) Company Intellectual
Property and (ii) Intellectual Property licensed under the TEPS License
Agreement or the Babcock License Agreement.

     

    (v)           
Incurring or refinancing any indebtedness of the Company other than trade
payables incurred in the ordinary course of business, unless authorized by the
then current Approved Budget;

     

    (vi)           Using
the name or credit of the Company, or any Company Property, for any purpose
other than a proper Company purpose;

     

    (vii)          Possessing
any Company Property or assigning the rights of the Company in specific Company
Property for other than a Company purpose;

     

    (viii)         Acquiring
or disposing of any assets of the Company in one or a series of transactions of
greater than $100,000, unless authorized by the then current Approved
Budget;

     

    
      
         


      

      
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    (ix)           Acquiring
any other entity or business, or the equity of any business;

     

    (x)           
Entering into a contract with an annual expense in excess of $100,000 (increased
annually by an amount equal to the positive change of the Consumer Price Index)
or with a term in excess of two (2) years, unless authorized by the then current
Approved Budget;

     

    (xi)           Permitting
the Company to merge or consolidate with any other entity;

     

    (xii)           Dissolution
or liquidation of the Company;

     

    (xiii)          Making,
executing or delivering on behalf of the Company any assignment for the benefit
of creditors, any guarantee, indemnity bond or surety bond; or obligating the
Company or any Member as a surety, guarantor or accommodation party to any
obligation; provided, however, that the
Board of Managers is authorized to cause the Company to indemnify Affiliates of
any Member against the Company’s share of costs, expenses (including but not
limited to costs of financing the insurance premiums), claims and damages in
connection with the Member’s Affiliate’s owner controlled insurance program
provided that the guaranty or extension of credit triggering such
indemnification was previously approved as a Major Action
hereunder;

     

    (xiv)         Lending
funds belonging to the Company to any Member or third party or extending to any
Person credit on behalf of the Company;

     

    (xv)          Confessing
any judgment on behalf of the Company;

     

    (xvi)         Filing
any petition, or consent to the appointment of a trustee or receiver or any
judgment or order, under federal, state or local bankruptcy laws;

     

    (xvii)        Determination
of Cash Available for Distribution;

     

    (xviii)       Distributing
any property in kind to any Member;

     

    (xix)          Hiring,
removal and, unless authorized by the then current Approved Budget, establishing
or changing the compensation of any Officer;

     

    (xx)           Retaining
or removing independent public accountants or amending accounting methods or
practices or changing the Fiscal Year;

     

    (xxi)          Any
transaction with any Affiliate of either Member with an annual cost to the
Company in excess of $50,000 (increased annually by an amount equal to the
positive change of the Consumer Price Index), unless authorized by the then
current Approved Budget;

     

    (xxii)         The
adoption, amendment, modification or termination (other than in accordance with
its terms) of any agreement by and between the Company and any Affiliate of
either Member including without limitation those agreements identified in Section 8.01
hereof;

     

    (xxiii)        Any
offering of securities of the Company, except pursuant to this
Agreement;

     

    
      
         


      

      
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    (xxiv)        Forming
any subsidiaries;

     

    (xxv)         Deviating
from or taking any action inconsistent with, in any material respect, any then
approved Business Plan; and

     

    (xxvi)        Deviating
from or making a material expenditure inconsistent with any then approved
Operating Budget.  Notwithstanding the foregoing sentence, the Board
of Managers’ consent to an expenditure payable by the Company to a third party
exceeding the amount specified for such expenditure in any Operating Budget
shall not be required in any of the following circumstances: (i) the President
and Chief Executive Officer, in his or her reasonable judgment, deems there to
be an emergency requiring such expenditures to effectuate immediate action
necessary for the protection of the Company Property or Persons; (ii) such
expenditure would not (A) cause the line item (other than Variable Expense
Modifications) in the applicable Operating Budget to which such expenditure
relates to exceed 115% of the budgeted amount of such line item in such
Operating Budget (taking into account the amounts expended to date and
reasonably anticipated expenses in connection with such line item), or (B) cause
the aggregate amount of the expenses (other than Variable Expense Modifications
and excluding the expenses described in clause (iii) below) within such
Operating Budget to exceed 110% of the entire amount of budgeted expenses (other
than Variable Expense Modifications and excluding the expenses described in
clause (iii) below) in such Operating Budget (taking into account the amounts
expended to date and reasonably anticipated expenses); or (iii) expenditures for
real property taxes and assessments, utilities and insurance for the Company and
compliance with applicable laws and regulations.  Expenditures
described in clauses (i) through (iii) above shall not be deemed material
deviations from the Operating Budget.  To the extent that an
expenditure in a particular line item will directly result in a savings under
another line item, the amount of such line item under which such expenditure is
made shall be deemed to be increased by the amount of such savings and the
amount of such line item under which the savings shall occur shall be deemed to
be decreased by the amount of such savings.  The Board of Managers
shall promptly notify the Members of each expenditure made pursuant to this
subsection (xxvi) and shall promptly supply the Members with such information
with respect thereto as Members may reasonably
request.  Notwithstanding the foregoing, any payments, reimbursements
or other compensation to any Officer or any Affiliate thereof shall be strictly
in accordance with the applicable Operating Budget, unless otherwise approved by
the Board of Managers or made pursuant to an agreement made in accordance with
the provisions hereof.

     

    (D)           Except
to the extent provided otherwise in, or limited by, this Agreement, the Members
shall have all of the rights and powers of members in a limited liability
company as provided by applicable law, and any action taken by a Member acting
on behalf of the Company in accordance with this Agreement shall constitute the
act of and bind the Company.  The Members shall use commercially
reasonable efforts to carry out the purposes of the Company  and shall
devote to the attention of the business and affairs of the Company such time as
is commercially reasonable.

     

    7.02       Notices.  The
Board of Managers shall give such notices, reports and advice to the Members
with respect to the Company Property as may, from time to time, be required or
be advisable.

     

    
      
         


      

      
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    7.03       Meetings of
Members.  Meetings of Members may be called by any Member for
informational purposes or for any purpose permitted by this
Agreement.  Any Member calling a meeting shall give each other Member
Notice of the purpose of such proposed meeting not less than two (2) Business
Days nor more than sixty (60) days before the meeting.  Meetings shall
be held at a reasonable time and place selected by the Members.  In
addition, the Members may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in a meeting can hear each other.

     

    7.04       Officers.  The
initial Officers of the Company shall be as set forth on Schedule B to this
Agreement.  The additional or successor Officers of the Company shall
be chosen by the Board of Managers and shall consist of at least a President and
Chief Executive Officer, a Secretary and a Treasurer.  The Board of
Managers may also choose a Chairman of the Board, a Chief Financial Officer and
one or more Vice Presidents, Assistant Secretaries and Assistant
Treasurers.  Any number of offices may be held by the same
person.  The Board of Managers may appoint such other Officers and
agents as it shall deem necessary or advisable who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Managers.  The salaries
of all Officers and agents of the Company shall be fixed by or in the manner
prescribed by the Board of Managers.  The Officers of the Company
shall hold office at the pleasure of the Board of Managers.  In
addition, at least annually the Board of Managers shall elect or re-elect, as
the case may be, all Officers.  Any Officer may be removed at any
time, with or without cause, by the unanimous affirmative vote of the Board of
Managers.  Any vacancy occurring in any office of the Company shall be
filled by the Board of Managers.  For the avoidance of doubt, and
notwithstanding anything to the contrary in this Agreement, no Officer shall
have any authority not (i) specifically delegated to him or her by the Board of
Managers or (ii) properly delegated to him or her by an Officer to whom such
delegated authority was designated by the Board of Managers with express
authority to delegate such authority to one or more other Officers.

     

    (A)           Chairman of the
Board.  The Board of Managers may appoint a Chairman of the
Board.  If the Board of Managers appoints a Chairman of the Board, he
shall preside at all meetings of the Board of Managers and of the Members and
shall perform such other duties and possess such other powers as the Board of
Managers may from time to time prescribe.

     

    (B)           President and Chief
Executive Officer.  The President shall be the Chief Executive
Officer of the Company, shall be responsible for the general and active
management of the business of the Company and shall see that all orders and
resolutions of the Board of Managers are carried into effect.  The
President or any other Officer authorized by the President or the Board of
Managers shall execute all bonds, mortgages and other contracts, except: (i)
where required or permitted by law or this Agreement to be otherwise signed,
approved by the Board of Managers and executed, and (ii) where signing and
execution thereof shall be expressly delegated by the Board of Managers to some
other Officer or agent of the Company.  The President shall have full
authority to take all actions authorized and consistent with the then Approved
Budget and Business Plan without any further authorization being necessary from
the Board of Managers.

     

    
      
         


      

      
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    (C)           Vice
President.  In the absence of the President or in the event of
the President’s inability to act, the Vice President, if any (or in the event
there be more than one Vice President, the Vice Presidents in the order
designated by the Board of Managers, or in the absence of any designation, then
in the order of their election), shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President.  The Vice Presidents, if any, shall
perform such other duties and have such other powers as the Board of Managers
may from time to time prescribe.

     

    (D)           Chief Financial
Officer.  The Chief Financial Officer, if any, shall perform
such duties and have such powers as the Board of Managers may from time to time
prescribe.

     

    (E)           Secretary and Assistant
Secretary.  The Secretary shall be responsible for filing legal
documents and maintaining records for the Company.  The Secretary
shall attend all meetings of the Board of Managers and record all the
proceedings of the meetings of the Company and of the Board of Managers in a
book to be kept for that purpose and shall perform like duties for the standing
committees when required.  The Secretary shall give, or shall cause to
be given, notice of all meetings of the Members, if any, and special meetings of
the Board of Managers, and shall perform such other duties as may be prescribed
by the Board of Managers or the President, under whose supervision the Secretary
shall serve.  The Assistant Secretary, or if there be more than one,
the Assistant Secretaries in the order determined by the Board of Managers (or
if there be no such determination, then in order of their election), shall, in
the absence of the Secretary or in the event of the Secretary’s inability to
act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Managers
may from time to time prescribe.

     

    (F)           Treasurer and Assistant
Treasurer.  The Treasurer shall have the custody of the Company
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company and shall deposit all moneys and
other valuable effects in the name and to the credit of the Company in such
depositories as may be designated by the Board of Managers.  The
Treasurer shall disburse the funds of the Company as may be ordered by the Board
of Managers, taking proper vouchers for such disbursements, and shall render to
the President and to the Board of Managers, at its regular meetings or when the
Board of Managers so requires, an account of all of the Treasurer’s transactions
and of the financial condition of the Company.  The Assistant
Treasurer, or if there if there shall be more than one, the Assistant Treasurers
in the order determined by the  Board of Managers (or if there be no
such determination, then in the order of their election), shall, in the absence
of the Treasurer or in the event of the Treasurer’s inability to act, perform
the duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Managers may from time to time
prescribe.

     

    (G)           Officers as
Agents.  The Officers, to the extent of their powers set forth
in this Agreement or otherwise vested in them by action of the Board of Managers
not inconsistent with this Agreement, are agents of the Company for the purpose
of the Company’s business.  The actions of the Officers taken in
accordance with such powers shall bind the Company.

     

    7.05       Limitations on
Members.

     

    (A)           No
Member shall have any authority to perform (i) any act in violation of any
applicable law or regulation thereunder, or (ii) any act without any Consent or
ratification which is required to be Consented to or ratified by the Members
pursuant to this Agreement.

     

    
      
         


      

      
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    (B)           No
action shall be taken by a Member if it would cause the Company to be classified
as an association taxable as a corporation for federal income tax
purposes.

     

    7.06       No Compensation;
Reimbursement of Expenses.

     

    (A)           No
Manager or Officer of the Company, and no Member shall be paid any salary, fee
or other compensation for serving as a Member.  The fact that a Member
or a member of any Member’s family, or an officer, director, shareholder,
partner or employee of any Member, is employed by, or is directly interested in
or connected with any Person employed by the Company to render or perform any
service, or from whom or which the Company may buy merchandise or other
property, shall not prohibit the Company from so dealing with such Person, so
long as the costs, expenses, fees or other payment or compensation for, and the
terms of any agreement (including any amendments thereto) relating to, such
services, merchandise or property are reasonable, on arms’ length terms and at
competitive rates or have otherwise been approved by the
Members.  Each Member shall use its best efforts to apprise the other
Members of dealings between the Company (whether acting directly or through an
agent) and any of the persons referred to in this subsection.

     

    (B)           Except
as otherwise set forth in this Agreement, no Member shall be reimbursed by the
Company for direct or indirect costs or expenses incurred in connection with the
Company’s business, except as may be included in the Approved Budget or as
otherwise approved by the Board of Managers.  No Member’s central or
other office overhead or general or administrative expense shall be deemed to be
an expense of the Company.

     

    7.07       Liability for Acts and
Omissions.

     

    (A)           No
Manager or Officer of the Company, and no Member, or any officers, directors,
employees and agents of any Member (together, the “Indemnified Parties”), shall be liable,
responsible or accountable in damages or otherwise to the Company or any of the
Members for any act or omission performed or omitted in good faith on behalf of
the Company which any Indemnified Party reasonably believed to be within the
scope of the authority granted by this Agreement and in the best interests of
the Company, provided that such
act or omission is in good faith and with such care as an ordinarily prudent
person in a like position would use under similar circumstances.  The
Indemnified Parties shall nevertheless be liable, responsible or accountable for
actual fraud, gross negligence or intentional misconduct.

     

    (B)           Subject
to Section
7.07(D) below, the Company shall indemnify and make advances for expenses
to the Indemnified Parties to the fullest extent permitted under the Act (to the
extent of available assets, but without the requirement that any Member make
additional Capital Contributions or Member Loans for this purpose) against any
loss or damage incurred by the Indemnified Parties by reason of any act or
omission performed or omitted by any Indemnified Party which is consistent with
the first sentence of Section 7.07(A)
above.  To the extent the liquid assets of the Company are
insufficient to satisfy the indemnification obligation of the Company to any
Member under this Section 7.07(B) at
the time such Member incurs any loss or damage described in this Section 7.07(B) (the
“Shortfall”), such
Member shall be treated as having made a loan to the Company in the amount of
the Shortfall (which loan shall be repaid, with interest at the rate equal to
the lower of (x) twenty-five percent (25%) per annum or (y) the highest annual
interest rate permitted under applicable law, until paid, prior to the
distribution of Cash Available for Distribution under Section
6.02.)

     

    
      
         


      

      
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    (C)           Each
Member shall indemnify and hold harmless the Company, the other Members and
their respective Affiliates against any damage or loss incurred by the Company
and/or such Members and/or their respective Affiliates by reason of such
Member’s fraud, gross negligence or intentional misconduct with respect to the
Company and/or any Company Property.  In addition, concurrently with
the execution of this Agreement, each Member shall cause its Member Parent to
deliver to each other Member and to the Company a written agreement,
substantially in the form attached as Exhibit 7 hereto,
whereby such Member Parent agrees to the indemnification obligations set forth
in this Section
7.07(C) with respect to the applicable Member.

     

    (D)           Each
Member acknowledges that the assets of the Company available to satisfy the
indemnity of the Company set forth in Section 7.07(B) shall
be limited to the Company Property.

     

    7.08        Response
Time.  Except as otherwise expressly provided in this
Agreement, the Members shall provide all approvals, disapprovals, Consents and
other information and cooperation required in this Agreement or otherwise
requested from time to time within five (5) business days after receipt of
written request therefor.  Such written request shall state the date
by which the Member must respond, and a statement that a failure to respond by
such date will result in a deemed approval of the request.

     

    8.           Related Agreements and Development of
Business.

     

    8.01        Related
Agreements.

     

    (A)           The
Members and the Board of Managers hereby authorize the President and Chief
Executive Officer to cause the Company to enter into a License Agreement with
TEPS substantially in the form attached as Exhibit 2 to this
Agreement (the “TEPS License
Agreement”).

     

    (B)           The
Members and the Board of Managers hereby authorize the President and Chief
Executive Officer to cause the Company to enter into a License Agreement with
Babcock substantially in the form attached as Exhibit 3 to this
Agreement (the “Babcock License
Agreement”).

     

    (C)           The
Members and the Company will enter into a Dispute Resolution Agreement in the
form attached as Exhibit 4 to this
Agreement (the “Dispute
Resolution Agreement”).

     

    (D)           The
Members, the Company, Babcock Power Inc. and ThermoEnergy Corporation will enter
into a Master Non-Disclosure Agreement in the form attached as Exhibit 5 to this
Agreement (the “Master
Non-Disclosure Agreement”), and each Specified Person will enter into an
Individual Non-Disclosure Agreement in the form of Exhibit 6 to this
Agreement (the “Individual
Non-Disclosure Agreement”).

     

    
      
         


      

      
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    8.02        Babcock Obligations with
Respect to Intellectual Property Development.

     

    (A)           Babcock
hereby agrees to develop, at Babcock’s cost and expense, Intellectual Property
in connection with three critical subsystems (the “Subsystem IP Development”)
relating to the TIPS technology: a Combustor subsystem, a Steam Generating
Heating Surface subsystem and a Condensing Heat Exchangers subsystem (the “Subsystems”).  Babcock’s
obligations under this Section 8.02 shall
include development of Intellectual Property for the elements with respect to
each Subsystem as approved by the Board of Managers on the date hereof and as
amended and/or modified from time to time by the Board of Managers (the “Statement of Development
Work”).

     

    (B)           All
Subsystem IP Development to be undertaken by Babcock shall be undertaken in
accordance with the preliminary process flow diagrams (the “Preliminary PFDs”) as approved
by the Board of Managers on the date hereof and as amended and/or modified from
time to time by the Board of Managers, until such time as final process flow
diagrams (the “Final
PFDs”) are mutually agreed, in writing, by the Board of
Managers.  The Board of Managers agree to cause the Final PFDs to be
agreed upon no later than the date that is two (2) months after the date of this
Agreement.  If the Final PFDs have not been mutually agreed upon by
the Board of Managers by the date that is two (2) months after the date of this
Agreement, then Babcock shall have no obligation to provide Subsystem IP
Development until such time as the Final PFDs have been agreed.

     

    (C)           Babcock
shall provide the Subsystem IP Development at no cost to the Company until it
has completed the scope of work set forth in the Statement of Development Work
based on the Final PFDs.  In addition, pursuant to the Babcock License
Agreement, Babcock will license any Intellectual Property resulting from the
Subsystem IP Development to the Company at no cost to the Company.

     

    8.03        Restrictive
Covenants.

     

    (A)           (i)           For
so long as this Agreement is in effect, without the prior written consent of the
other Members hereto, no Member shall, and no Member shall permit any of its
respective Affiliates to, directly or indirectly enter into any other agreement,
memorandum of understanding or any other agreement with respect to, or otherwise
pursue the design, development or commercialization of, pressurized oxy-fuel
combustion technology for fossil fuels which facilitates conversion into
electricity without producing air emissions, to be commercialized in the
electric utility, behind the fence power generation and transportation sectors
worldwide (a “Competing
Activity”).

     

    (ii)           The
restrictions contained in paragraph (i) above shall not prevent (1) the
ownership by any Member or its respective Affiliates of any voting securities or
other voting equity interest in a business that engages in a Competing Activity,
if such voting securities or other equity interest represents less than 5% of
all the voting power of the stock or equity in a business that engages in such
Competing Activity, and if such stock or equity interest is listed on a national
securities exchange or subject to quotation through The Nasdaq Stock Market or
(2)  the provision by any Member and any of its respective Affiliates
of other services that do not compete directly or indirectly with the
Company.

     

    
      
         


      

      
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    (iii)           Each
Member shall notify the Board of Managers of any proposed activity that could
reasonably be considered a violation of paragraph (i) of this Section
8.03.  The Board of Managers shall at the request of any Member
meet to discuss any proposed activities of any Member or its respective
Affiliates to determine whether such activities are prohibited by
paragraph (i) of this Section
8.03.

     

    8.04        Insurance.  As
of the date of this Agreement, the Members have implemented a plan of insurance,
as described on Schedule C, for the
Company.  The Board of Managers shall review the Company’s plan of
insurance on a yearly basis and adopt and implement any desired
changes.  The Company’s plan of insurance shall be funded by the
Company and included in the annual Operating Budget.

     

    9.           Administration.

     

    9.01        Books and
Records.  The Company shall maintain or shall cause to be
maintained full and accurate books of the Company showing all receipts and
expenditures, assets and liabilities, profits and losses, names and current
addresses of Members, and all other records necessary for recording the
Company’s business and affairs.  All Members and their duly authorized
representatives shall have access to all books, records and files of the Company
(whether in hard copy or electronic form) during the Company’s normal business
hours.  The Board of Managers shall prepare and distribute to each
Member no less frequently than on a quarterly basis, a report on Company
operations for the most-recently ended fiscal quarter.

     

    9.02        Annual
Audit and Tax Matters.

     

    (A)           The
Tax Matters Member shall maintain physical possession of the books and records
of the Company.  The books and records of the Company shall be kept on
the cash basis or such other accounting method selected by the Board of
Managers.  Upon the request and at the expense of any requesting
Member, the books and records of the Company will be audited, but not more
frequently than annually.

     

    (B)           The
financial statements of the Company, as of the end of each Fiscal Year, shall be
audited, at the Company’s expense, by an independent certified public accountant
selected by the Board of Managers.  The Company shall provide to each
Member such additional information available to the Company as such Member may
reasonably request in connection with the preparation of the financial
statements or tax returns of such Member or of such Member’s Member
Parent.

     

    (C)           An
independent certified public accountant selected by the Board of Managers shall
prepare all tax returns required of the Company at the Company’s
expense.  The Tax Matters Member shall act as the tax matters partner
within the meaning of Code Section 6231(a)(7) and shall give prompt Notice to
each Member of any and all notices it receives from the IRS concerning the
Company, including without limitation any notice of audit, any notice of action
with respect to a revenue agent’s report, any notice of a thirty (30)-day appeal
letter and any notice of a deficiency in tax concerning the Company’s federal
tax return, and will furnish each Member with status reports regarding any
negotiation between the IRS and the Company.  The Tax Matters Member
shall be entitled to take such actions on behalf of the Company in any and all
proceedings with the IRS as it, in its reasonable business judgment, deems to be
in the best interests of the Company.  The Tax Matters Member shall be
entitled to be reimbursed by the Company for all costs and expenses incurred in
connection with any such proceeding and to be indemnified by the Company (solely
out of Company Property) with respect to any action brought against it in
connection with any such proceeding.

     

    
      
         


      

      
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    9.03        Reports and
Notices.  The Company will prepare or cause to be prepared each
year for the prior Fiscal Year, IRS Form 1065 for the Company, and
simultaneously distribute to the Members: (i) the associated Schedule K-1,
or similar forms as may be required by the IRS, stating each Member’s allocable
share of income, gain, loss, deduction or credit for the prior Fiscal Year, and
(ii) a balance sheet and the related statements of income, cash flow, Members’
capital and changes in financial position for the previous year, prepared on a
cash basis or such other method selected by the Board of Managers.

     

    9.04        Company
Funds.  The funds of the Company shall not be commingled with
the funds of any other Person, and Company funds shall be used solely for the
benefit of the Company.  All funds of the Company not otherwise
invested shall be deposited in one of more accounts maintained in such banking
institutions as the Board of Managers shall determine, and withdrawals shall be
made only in the regular course of Company business on such signatures as the
Board of Managers may, from time to time, determine.

     

    10.           Transfers.

     

    10.01      Transfers by
Members.

     

    No Member
may Transfer all or any portion of its Membership Interest (directly or
indirectly, including via a transfer of direct or indirect interests in a
Member) to any Person, other than pursuant to a Permitted Transfer (as
hereinafter defined), without the Consent of Babcock and TEPS, which consent may
be conditioned on such Member’s compliance with Section
11.02.  Any purported Transfer in violation of the terms of
this Section
10.01 shall be void ab initio.  The provisions of this Section 10.01 are not
intended to prohibit any change in ownership of Babcock Power Inc. or
ThermoEnergy Corporation.

     

    10.02      Additional or Substituted
Member.

     

    (A)         A
Person will be admitted to the Company as an additional or Substituted Member
if, and only if, the following conditions are satisfied:

     

    (i)           The
admission of such Person (a) shall have been consented to by the Board of
Managers, or (b) the Person shall have received its interest in a Permitted
Transfer and provided all relevant evidence of such fact to the Board of
Managers;

     

    (ii)           The
Person shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement and shall have executed and delivered such
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a Member;

     

    (iii)           The
assignor and assignee shall pay all costs and fees incurred by the Company to
effect the transfer and substitution;

     

    (iv)           Such
admission will not cause a violation of Section 10.05 of this
Agreement; and

     

    
      
         


      

      
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     (v)           The
assignor and assignee submit to the Board of Managers a Notice or other evidence
of transfer and such other information reasonably required by the
non-Transferring Members, including, without limitation, names, addresses and
telephone numbers of the assignor and assignee.

     

    (B)           Unless
named in this Agreement, or unless admitted to the Company as a Substituted
Member as provided above in this Section 10.02, no
Person shall be considered a Member, and the Company, each Member and any other
Persons having business with the Company need deal only with the Members so
named or so admitted and shall not be required to deal with any other Person by
reason of a Transfer by a Member.  If an assignee of a Member does not
become a Substituted Member pursuant to this Section 10.02, the
assignee shall not have any rights to require any information on account of the
Company’s business, to inspect the Company’s books, or to vote on or otherwise
take part in the affairs of the Company.  A Substituted Member, upon
admission as such, shall succeed to the rights, privileges and liabilities of
its predecessor in interest as a Member.

     

    10.03      
Permitted
Transfers.

     

    For
purposes of this Article 10, the term
“Permitted Transfer”
shall mean (subject at all times to the provisions of Section 10.05) as
follows: with respect to Babcock, any Transfer of a Membership Interest to any
Person Controlled by Babcock Power Inc., a Delaware corporation; and with
respect to TEPS, any Transfer of a Membership Interest to any Person Controlled
by ThermoEnergy Corporation, a Delaware corporation.  Any Permitted
Transfer shall be expressly conditioned upon obtaining an agreement that if, at
any time after such Transfer,  the transferee ceases to be Controlled
by Babcock Power Inc. (in the case of a Transfer by Babcock) or by ThermoEnergy
Corporation (in the case of a Transfer by TEPS), then such transferee shall
immediately Transfer such Membership Interest to a Person Controlled by Babcock
Power, Inc. or ThermoEnergy Corporation (as the case may be).  In the
event of a Permitted Transfer by a Member, the Member to whom such Permitted
Transfer relates shall promptly provide evidence of compliance with Article 10 to the
Board of Managers.

     

    10.04     
Effect of Bankruptcy
or Dissolution of a Member.  The dissolution or adjudication of
bankruptcy of a Member shall not dissolve the Company.  Each of the
parties hereto agrees that any Transfer of a Member’s interest in the
adjudication of a bankruptcy of such Member shall be (i) subject to the consent
requirement in Section
10.01 and (ii) to the extent that the consent requirement in Section 10.01 is
unenforceable, subject to compliance with the provisions of Section 11.02 as if
the bankrupt Member were a Disposing Member, to the extent permitted by
law.

     

    10.05      
Additional
Restrictions on Transfer.

     

    No
Transfer of a Membership Interest by a Member (or by any Person owning any
interest, directly or indirectly, in a Member) shall be a Permitted Transfer if
such disposition would (i) cause the Company to be treated as an association
taxable as a corporation (rather than a partnership) or as a publicly traded
partnership for federal income tax purposes; (ii) violate the provisions of any
federal or state securities laws; (iii) violate the terms of any law, rule or
regulation binding on the Company; (iv) result in the termination of the Company
under Section 708(b) of the Code; or (v) contravene any provision of, or trigger
consent rights under, any other agreement of the Company (including without
limitation any loan document or license agreement), unless consent is actually
obtained, at the sole cost of the Member or Person seeking to Transfer, and such
Transfer does not cause the Company to incur any costs or be in breach of any
agreement, and does not render any agreement to which the Company is a party to
be rendered terminable or be otherwise negatively affected.


    
      
         


      

      
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    10.06   
Good Faith
Cooperation.  If any third party consent is necessary to
satisfy any requirement of this Article 10, the
Members agree to cooperate in good faith in order to obtain such
consent.

     

    11.     
   Withdrawal of
Members; Right of First Refusal.

     

    11.01      Withdrawal of
Members.

     

    (A)           A
Member (the “Withdrawing
Member”) may withdraw from the Company if an agreed upon milestone (a
“Milestone”), as
approved by the Board of Managers on the date hereof and as amended and/or
modified from time to time by the Board of Managers, is not met, unless the
failure to meet the Milestone is primarily attributable to the failure of such
Member to perform its obligations under this Agreement or any Related
Agreements.

     

    (B)           A
Member who intends to withdraw from the Company shall have three (3) months from
the date on which a Milestone is not met to give each other Member at least 30
days prior written notice of its intent to withdraw from the Company (a “Withdrawal
Notice”).  Upon withdrawal from the Company, the Withdrawing
Member shall be entitled to receive a distribution of its Capital Account
balance, subject to prior satisfaction of any outstanding Member Loans and any
other obligations of the Company.  The Company shall also grant a
perpetual, non-exclusive royalty-free license to the Withdrawing Member with
respect to all Company Intellectual Property owned by the Company, for use in
Competing Activities, as of the date on which the Withdrawing Member notified
the other Members of its intent to withdraw from the Company.

     

    (C)           Upon
receipt of a Withdrawal Notice from a Withdrawing Member, any other Member may
cause a termination and dissolution of the Company in accordance with Article 12 of this
Agreement by giving written notice thereof (a “Dissolution Notice”) to all of
the other Members of the Company, including the Withdrawing Member.

     

    11.02      Right
of First Refusal.

     

    (A)           If
at any time any Member, who has previously obtained the other Members’ Consent
to Transfer in accordance with Section 10.01 (the
“Disposing Member”),
conditioned on compliance with this Section 11.02, wishes
to Transfer any or all of its Membership Interests pursuant to the terms of a
bona fide offer received from a third party, such Disposing Member shall submit
a written offer to sell such Membership Interests to each of the other Members
on terms and conditions, including price, not less favorable to the Members than
those on which such Disposing Member proposes to sell such Membership Interest
to such third party (the “Offer”).  The Offer
shall disclose the identity of the proposed purchaser or transferee, the
Percentage of Company Interests proposed to be sold or transferred and the
agreed terms of the Transfer.  Within fifteen (15) days after receipt
of the Offer (after which time the Offer shall expire), a Member shall give
notice to the Disposing Member of its intent to purchase all or any portion of
the offered Membership Interests on the same terms and conditions as set forth
in the Offer.  Any statement of intent to buy all or part of a
Membership Interest may be made subject to the satisfaction of any condition
included in good faith in the notice of intent to purchase, such as obtaining
financing.


    
      
         


      

      
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    (B)           In
the event that the Members do not purchase all of the Membership Interests
offered by a Disposing Member pursuant to and within ninety (90) days after
receipt of the Offer, such Disposing Member may Transfer unpurchased Membership
Interests at any time within ninety (90) days after the expiration of the Offer,
but subject to the provisions of Article 10
above.  Any such Transfer shall be made only to the proposed purchaser
or transferee identified in the Offer and shall be at not less than the price
and upon other terms and conditions, if any, not more favorable to the purchaser
or transferee than those specified in the Offer.  Any part of the
Membership Interest not sold or transferred within such ninety (90) day period
shall continue to be subject to the requirements of a prior offer pursuant to
this Section
11.02.  In the event that Membership Interests are sold or
transferred pursuant to this Section 11.02, said
Membership Interests shall continue to be subject to this
Agreement.

     

    (C)           If
any attempted or purported Transfer of any Membership Interest is made without
compliance with this Section 11.02, such
Transfer shall be null and void.

     

    12.       
 Term.

     

    12.01      Term and
Dissolution.  The existence of the Company shall continue until
the earlier of:

     

    (A)           An
election to dissolve the Company is made in writing by the Members;

     

    (B)           A
Dissolution Notice is sent by a Member to all of the other Members of the
Company following receipt of a Withdrawal Notice;

     

    (C)           A
date to be selected by the Board of Managers following the sale, exchange or
other disposition of all or substantially all of the Company Property;
or

     

    (D)           Any
other event causing a dissolution of the Company under the Act unless, subject
to applicable law, within 90 days thereafter, the Members elect to reconstitute
the Company, which election shall be evidenced by such writing as is required by
law.

     

    12.02      Liquidation of Company
Property.

     

    (A)           In
the event of dissolution and final termination of the Company, a full accounting
of the assets and liabilities shall be taken and, subject to clause (B) of this
Section 12.02,
the assets shall be liquidated, with the proceeds therefrom distributed by the
later of (i) the last day of the Fiscal Year in which the termination occurs or
(ii) ninety (90) days after the date on which the termination
occurs.  Subject to clause (B) of this Section 12.02, the
assets of the Company available for distribution to the Members shall be
distributed to the Members in proportion to their positive Capital Accounts
(after giving effect to adjustments attributable to all Company transactions
prior to any such distributions and any amounts credited to the Capital Account
of any Member).  Upon the complete liquidation and distribution of the
Company Property, the Members shall cease to be Members of the Company and the
Members shall execute, acknowledge and cause to be filed any certificates and
notices required by law to terminate the Company.


    
      
         


      

      
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    (B)           Notwithstanding
clause (A) of this Section 12.02, in the
event of a dissolution and final termination of the Company, any Company
Intellectual Property shall be jointly owned by the Members, and the Members
shall enter into a joint ownership agreement evidencing such
arrangement.

     

    (C)           Upon
the dissolution of the Company pursuant to Section 12.01, the
Board of Managers shall prepare or cause to be prepared and furnished to each
Member a statement setting forth the assets and liabilities of the Company and,
promptly following the complete liquidation and distribution of the Company
Property, a statement showing the manner in which the Company Property was
liquidated and distributed.

     

    13.         Disclosure and
Publicity.

     

    The
Members hereby agree that all public disclosures concerning the parties or
transactions contemplated by this Agreement and the Related Agreements, such as
press releases or written information distributed to financial intermediaries,
shall require unanimous prior approval of all Members.  However, to
the extent any party determines in the exercise of its good faith judgment that
any such disclosure is required by law, such party shall be entitled after
notice to the other party to make such disclosure even if it has not obtained
such approval.

     

    14.         Miscellaneous.

     

    14.01       Amendment
Procedure.  Except with respect to changes of an administrative
nature and which do not adversely affect the Members in any material respect or
to cure any ambiguity, or correct or supplement any provision in this Agreement
such as confirming a Transfer of Membership Interests hereunder, which changes
may be made by the Board of Managers without the prior consent of the Members,
this Agreement may not be amended without the unanimous Consent of the
Members.

     

    14.02       Company
Property.  All Company Property, whether real or personal,
tangible or intangible, shall be deemed to be owned by the Company as an entity,
and no Member, individually, shall have any ownership of such
property.  The Company may hold any of the Company Property in its own
name or in the name of its nominee, which nominee may be one ore more
individuals, corporations, partnerships, trusts or other entities.

     

    14.03       Other
Activities.  Except as expressly provided otherwise in this
Agreement, any of the Members or their Affiliates may engage in, or possess an
interest in, other business ventures of every nature and description,
independently or with others, whether or not such other enterprises shall be in
competition with any activities of the Company; and neither the Company nor the
other Members shall have any right by virtue of this Agreement in and to such
independent ventures or to the income or profits derived
therefrom.  Nothing herein shall be construed to constitute any Member
hereof the agent of any other Member hereof or to limit the Members in any
manner in the carrying on of their own respective businesses or
activities.

     

    
      
        
        

      

      
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    14.04      Dispute
Resolution.

     

    (A)          All
disputes or claims arising under or in any way relating to this Agreement or the
Business shall be resolved in accordance with the terms of the Dispute
Resolution Agreement.

     

    (B)           The
parties hereto acknowledge that a breach of this Section 14.04 would
result in irreparable injury to the non-breaching party, and the non-breaching
party will be entitled to seek equitable relief, including specific performance,
to enforce the provisions of this Section
14.04.

     

    14.05      
Applicable
Law.  It is the intent of the parties hereto that all questions
with respect to the construction of this Agreement and the rights and
liabilities of the parties hereto shall be determined in accordance with the
provisions of the laws of the Commonwealth of Massachusetts without giving
effect to the choice of law rules thereof that, except to the extent that any
provision hereof is mandatorily required to be governed by the provisions of the
Act.

     

    14.06       Binding
Agreement.  Subject to the restrictions on Transfers set forth
herein, this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, legal or personal
representatives, successors and assigns.  Whenever in this Agreement a
reference is made to any party or Member, such reference shall be deemed to
include a reference to the heirs, executors, legal or personal representatives,
successors and assigns of such party or Member.

     

    14.07       Waiver of
Partition.  Unless otherwise specifically provided in this
Agreement, no Member will, either directly or indirectly, take any action to
require partition or appraisal of the Company Property or the Company, and
notwithstanding any provision of applicable law to the contrary, each Member
(and its estate, personal or legal representative, heirs, beneficiaries,
distributees and successors and assigns) hereby irrevocably waives any and all
right to maintain any action for partition or to compel any sale with respect to
its interest in the Company or with respect to the Company
Property.

     

    14.08       Counterparts and
Effectiveness.  This Agreement may be executed in several
counterparts, each of which shall be treated as originals for all purposes, and
all so executed shall constitute one agreement, binding on all of the parties
hereto, notwithstanding that all the parties are not signatory to the original
or the same counterpart.  Any such counterpart shall be admissible
into evidence as an original hereof against the Person who executed
it.  The execution of this Agreement by facsimile signature shall be
sufficient for all purposes and shall be binding on any Person who so
executes.

     

    14.09       Survival of
Representations.  All representations and warranties herein
shall survive the dissolution and final liquidation of the Company.

     

    14.10       Entire
Agreement.  This Agreement (and all Exhibits and Schedules
hereto, which are hereby incorporated by reference into this Agreement) contains
the entire understanding among the parties hereto and supersedes all prior
written or oral agreements among them respecting the within subject matter,
unless otherwise provided herein.  There are no representations,
agreements, arrangements or understandings, oral or written, between the Members
hereto relating to the subject matter of this Agreement which are not fully
expressed herein and in said Exhibits and Schedules.

     


    
      
         


      

      
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    14.11      Waiver.  No
consent or waiver, express or implied, by any Member to or of any breach or
default by any other Member in the performance by the other of its obligations
hereunder shall be deemed or construed to be a consent or waiver to or of any
other breach or default by the other in the performance by such other party of
the same or any other obligations of such Member hereunder.  Failure
on the part of any Member to object to or complain of any act or failure to act
of the other Members or to declare the other Members in default, irrespective of
how long such failure continues, shall not constitute a waiver by such Member of
its rights hereunder.

     

    14.12      Time
Periods.  Any time period hereunder which expires on, or any
date for performance hereunder which occurs on, a Saturday, Sunday or legal
United States holiday, shall be deemed to be postponed to the next Business
Day.  The first day of any time period hereunder which runs “from” or
“after” a given day shall be deemed to occur on the day subsequent to that given
day.

     

    14.13       Waiver of Trial by
Jury.  In the event that any dispute is brought before any
court of competent jurisdiction for resolution of any dispute, each of the
parties hereto fully and freely waives trial by jury.  Any such action
shall be tried by a judge as the finder of fact.

     

    14.14      Securities Law
Representations, Warranties and Agreements.

     

    (A)         Each
Member represents and warrants to the Company and the other Members as
follows:

     

    (i)           It
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment involved in the
purchase of a Membership Interest in the Company and it has so evaluated this
purchase.

     

    (ii)           It
is aware that this investment is speculative and represents a substantial risk
of loss.

     

    (iii)           It
is able to bear the economic risk of this investment.

     

    (iv)           In
connection with the purchase of its Membership Interest, it has been fully
informed as to the circumstances under which it is required to take and hold its
Membership Interest pursuant to the requirements of the Securities Act of 1933
(the “Securities Act”) and applicable state
securities laws.

     

    (v)           It
understands that its Membership Interest is not registered under the Securities
Act or any state securities law and may not be transferred, assigned or
otherwise disposed of unless its Membership Interest is so registered or unless
an exemption from registration is available.

     

    (B)         Each
Member agrees as follows:

     

    (i)           The
Company is not under any obligation to register any Membership Interest under
the Securities Act or any state securities laws.


    
      
         


      

      
        30

        
          

        

      

      
         


      

    

     

    (ii)           The
Company will not be required to supply any Member or other person with any
information necessary to enable any Member to make a casual sale of its
Membership Interest under Rule 144 under the Securities Act or any corresponding
rule under any state securities law.

     

    (C)          Each
Member shall indemnify and hold harmless the Company and the other Members from
and against any and all loss, damage, liability, cost or expense, including
costs of defense and attorneys’ fees, arising or resulting from or attributable
to any breach of his representations, warranties or agreements set forth in this
Section
14.14.

     

    [SIGNATURE
PAGE FOLLOWS]


    
      
         


      

      
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    IN
WITNESS WHEREOF, this Agreement has been executed as of the day and year first
written above.

     

    
      
        
          
            
              
                
                  
                    	
                            MEMBERS:

                          
	 
	
                            BABCOCK
      POWER DEVELOPMENT, LLC, a

                            Delaware
      limited liability company

                          
	 
	
                            By:

                          	
                            /s/ E N Balles

                          
	
                            Name:

                          
	
                            Title:

                          
	 
      	 
      
	
                            THERMOENERGY
      POWER SYSTEMS, LLC, a

                            Delaware
      limited liability company

                          
	 
	
                            By:

                          	
                            /s/ Dennis C. Cossey

                          
	
                            Name:  Dennis
      C. Cossey

                          
	
                            Title:  Chairman

                          


                  

                

              

            

          

        

      

    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    SCHEDULE
A

    TO

    LIMITED
LIABILITY COMPANY AGREEMENT

     

    Schedule
of Members

     

    
      
        
          
            
              
                
                  
                    	
                            Member

                          	 	
                            Percentage of

                            Company Interests

                          	 	
                            
                              Initial
      Capital Contributions1

                            

                          
	 	 	 	 	 
	
                            Babcock
      Power Development, LLC

                          	 	 	
                            50%

                          	 	
                            $50,000
      in cash and the grant of the license pursuant to the Babcock License
      Agreement

                          
	 	 	 	 	 	 
	
                            ThermoEnergy
      Power Systems, LLC

                          	 	 	
                            50%

                          	 	
                            $50,000
      in cash and the grant of the license pursuant to the TEPS License
      Agreement

                          
	 	 	 	 	 	 
	
                            TOTAL

                          	 	 	
                            100%

                          	 	 
      


                  

                

              

            

          

        

      

    

    

      
        


    

    
      1 Promptly
after the date of this Agreement, the Members and the Board of Managers will
agree on the value of the non-cash Initial Capital Contributions described
below.  Unless the Members otherwise agree, the same value will be
attributed to each such non-cash Initial Capital
Contribution..

    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    SCHEDULE
B

    TO

    LIMITED
LIABILITY COMPANY AGREEMENT

     

    
      
        
          
            	
                    NAME

                  	 
      	
                    OFFICE

                  
	
                    Alex
      Fassbender

                  	 
      	
                    Chairman
      and Chief Technology Officer

                  
	
                    Eric
      Balles

                  	 
      	
                    President
      and Chief Executive Officer

                  
	
                    Shawn
      Hughes

                  	 
      	
                    Executive
      Vice President

                  
	
                    Earl
      Mason

                  	
                      

                  	
                    Chief
      Financial Officer, Treasurer and
Secretary

                  


          

        

      

    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    SCHEDULE
C

    TO

    LIMITED
LIABILITY COMPANY AGREEMENT

    


    [PLAN OF
INSURANCE]

    



    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBIT
1

    TO

    LIMITED
LIABILITY COMPANY AGREEMENT

     

    Allocation
Provisions - Members

     

    1.           Definitions.  The
following terms shall have the meaning ascribed to them for purposes of this
Exhibit 1
and for purposes of the Agreement:

     

    “Adjusted Capital Account Deficit” shall mean, with
respect to any Member, the deficit balance, if any in such Member’s Capital
Account as of the end of the relevant Fiscal Year, after giving effect to the
following adjustments:

     

    (A)           Credit
to such Capital Account any amounts which such Member is obligated to restore or
is deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

     

    (B)           Debit
to such Capital Account the items described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

     

    The
foregoing definition of Adjusted Capital Account Deficit is intended to comply
with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.

     

    “Company Minimum Gain” has the meaning set
forth in Regulations Sections 1.704-2(b)(2) and (d) for “partnership minimum gain.”

     

    “Depreciation” means, for each
Fiscal Year or other period, an amount equal to the depreciation, amortization,
or other cost recovery deduction allowable with respect to an asset for such
year or other period, except that if the Gross Asset Value of an asset differs
from its adjusted basis for federal income tax purposes at the beginning of such
year or other period, Depreciation shall be an amount which bears the same ratio
to such beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such year or other period
bears to such beginning adjusted tax basis; provided, however, that if the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the Board of
Managers.

     

    “Member Minimum Gain” means, an amount, with
respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Member Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Regulations
Section 1.704-2(i).

     

    “Member Nonrecourse Debt” has the meaning set
forth in Regulations Section 1.704-2(b)(4) for “partner nonrecourse debt.”

     

    “Member Nonrecourse Deductions” has the meaning
set forth in Regulations Section 1.704-2(i) for “partner nonrecourse deductions.”


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    “Nonrecourse Deductions” has the meaning
set forth in Regulations Sections 1.704-2(b)(1) and (c).

     

    “Nonrecourse Liability” has the meaning set
forth in Regulations Section 1.752-1(a)(2).

     

    “Profits and Losses” means, for each Fiscal
Year or other period, an amount equal to the Company’s taxable income or loss
for such year or period, determined in accordance with Code Section 703(a)
(for this purpose, all items of income, gain, loss, or deduction required to be
stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments:

     

    (A)          Any
income of the Company that is exempt from federal income tax and not otherwise
taken into account in computing Profits or Losses pursuant to this definition
shall be taken into account in computing such taxable income or
loss;

     

    (B)           Any
expenditures of the Company described in Code Section 705(a)(2)(B) or
treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Profits or Losses pursuant to this definition shall be taken into
account in computing such taxable income or loss;

     

    (C)           In
the event the Gross Asset Value of any Company Property is adjusted pursuant to
(B) or (C) of the definition of Gross Asset Value, the amount of such adjustment
shall be taken into account as gain or loss from the disposition of such asset
for purposes of computing Profits or Losses;

     

    (D)           Gain
or loss resulting from any disposition of Company Property with respect to which
gain or loss is recognized for federal income purposes shall be computed by
reference to the Gross Asset Value of the property disposed of, notwithstanding
that the adjusted tax basis of such property differs from its Gross Asset
Value;

     

    (E)           To
the extent an adjustment to the adjusted tax basis of any Company Property
pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as a result of a distribution other than in
liquidation of a Member’s Interest in the Company, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the basis of
such asset) or loss (if the adjustment decreases such basis) from the
disposition of such asset and shall be taken into account for purposes of
computing Profits and Losses;

     

    (F)           In
lieu of the depreciation, amortization, and other cost recovery deductions taken
into account in computing such taxable income or loss, there shall be taken into
account Depreciation for such Fiscal Year or other period, computed in
accordance with the definition of Depreciation; and

     

    (G)           Notwithstanding
any other provisions of this definition, any items which are specially allocated
pursuant to Section 2(C)
hereof shall not be taken into account in computing Profits or
Losses.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    The
amounts of the items of Company income, gain, loss, expense or deduction
available to be specially allocated pursuant to Section 2(C) hereof shall be
determined by applying rules analogous to those set forth in paragraphs (A)
through (F) above.

     

    2.           Allocation of Profit and
Loss.

     

    (A)      
   After giving effect to the special allocations set forth in
Section 2(C),
Profits and Losses for each Fiscal Year or other period shall be allocated among
the Members such that the Capital Account of each Member, immediately after
giving effect to such allocations, shall equal, as nearly as possible, (i) the
amount of the distributions that would be made to such Member if (A) the Company
were dissolved and terminated, (B) its affairs were wound up and each of its
remaining assets were sold for their respective Gross Asset Values, (C) all
liabilities of the Company were satisfied (limited with respect to each
Nonrecourse Liability to the Gross Asset Value of the Company Property securing
such liability); and (D) the net assets of the Company were distributed to the
Members in accordance with Section 6.02 of this Agreement immediately after
making the allocations provided for in this Exhibit 1, minus (ii) the Member’s share
of Company Minimum Gain and Member Minimum Gain, computed immediately before the
hypothetical sale of assets.

     

    (B)          Tax
credits, tax credit recapture and related items shall be allocated in accordance
with Regulations Sections 1.704-1(b)(4)(ii) and 1.704-1(b)(4)(viii), as
applicable.

     

    (C)          Special
Allocations.  The following special allocations shall be made
in the following order:

     

    (1)           Minimum Gain
Chargeback.  Notwithstanding any other provision of this Exhibit 1, if there
is a net decrease in Company Minimum Gain during any taxable year of the
Company, then, to the extent required by Regulations Section 1.704-2(f),
each Member shall be specially allocated items of Company income and gain
relating to the Company Property for such taxable year (and, if necessary,
subsequent taxable years) in an amount equal to such Member’s share of the net
decrease in Company Minimum Gain, determined in accordance with Regulations
Section 1.704-2(g)(2). The items to be so allocated shall be determined in
accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j). This
Section 2(C)(1)
is intended to comply with the minimum gain chargeback requirement in
Regulations Section 1.704-2(f) and shall be interpreted consistently
therewith.

     

    (2)           Member Minimum Gain
Chargeback.  Notwithstanding any other provision of this Exhibit 1 except
Section 2(C)(1),
if there is a net decrease in Member Minimum Gain during any taxable year of the
Company, then, to the extent required by Regulations Section 1.704-2(i)(4),
each Member who has a share of the Member Minimum Gain determined in accordance
with Regulations Section 1.704-2(i)(5), shall be specially allocated items
of Company income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such Member’s share of the net decrease in Member Minimum
Gain attributable to such Member Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(4).  The items to be so allocated
shall be determined in accordance with Regulations Sections 1.704-2(i)(4)
and 1.704-2(j). This Section 2(C)(2)
is intended to comply with the partner nonrecourse debt minimum gain chargeback
requirement in Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.

     


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    (3)           Qualified Income
Offset.  In the event any Member unexpectedly receives any
adjustments, allocations, or distributions described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and
gain (consisting of a pro rata portion of each
item of Company income, including gross income, and gain for such year) shall be
specially allocated to such Member in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the Adjusted Capital
Account Deficit of such Member as quickly as possible, provided that an
allocation pursuant to this Section 2(C)(3)
shall be made if and only to the extent that such Member would have a Adjusted
Capital Account Deficit after all other allocations provided for in Section 2 of
this Exhibit 1
have been tentatively made as if this Section 2(C)(3)
were not in this Exhibit.

     

    (4)           Gross Income
Allocation.  In the event any Member has an Adjusted Capital
Account Deficit at the end of any Fiscal Year, such Member shall be specially
allocated items of Company income and gain (consisting of a pro rata portion of each
item of income, including gross income, and gain for such year) relating to the
Company Property, in the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Section 2(C)(4)
shall be made if and only to the extent that such Member would have an Adjusted
Capital Account Deficit after all other allocations provided for in Section 2 of
this Exhibit 1
have been tentatively made as if Section 2(C)(3)
and this Section 2(C)(4)
were not in this Exhibit.

     

    (5)           Nonrecourse
Deductions.  Nonrecourse Deductions for any Fiscal Year or
other period relating to the Company Property shall be specially allocated to
the Members in proportion to their Percentages of Company Interest.

     

    (6)           Member Nonrecourse
Deductions.  Any Member Nonrecourse Deductions for any Fiscal
Year or other period relating to the Company Property shall be specially
allocated to the Member who bears the economic risk of loss with respect to the
Member Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable in accordance with Regulations
Section 1.704-2(i)(1).

     

    (7)           Section 754
Adjustment.  To the extent an adjustment to the adjusted tax
basis of any Company Property pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as a result of a distribution to a Member in complete liquidation of
its Membership Interest, the amount of such adjustment to the Capital Accounts
shall be treated as an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases such basis), and such gain or
loss shall be specially allocated to the Members in accordance with their
interests in the Company in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to which such distribution
was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4)
applies.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    (D)         Other Allocation
Rules.

     

    (1)           For
purposes of determining the Profits, Losses or any other items allocable to any
period, Profits, Losses and any such other items shall be determined on a daily,
monthly, or other basis, as determined by the Members using any permissible
method under Code Section 706 and the Regulations thereunder.

     

    (2)           Except
as otherwise provided in this Agreement, all items of Company income, gain,
loss, deduction and any other allocations not otherwise provided for shall be
divided among the Members in the same proportions as they share Profits and
Losses, as the case may be, for the year.

     

    (3)           The
Members are aware of the income tax consequences of the allocations made
pursuant to the provisions of this Exhibit 1 hereof and
hereby agree to be bound by the provisions of this Exhibit 1 hereof in
reporting their shares of Company income and loss for income tax
purposes.

     

    (4)           Solely
for purposes of determining a Member’s proportionate share of the “excess nonrecourse liabilities” of the Company
relating to the Company Property within the meaning of Regulations
Section 1.752-3(a)(3), the Members’ interests in Company profits shall be
equal to their Percentages of Company Interests.

     

    (E)           It
is the intent of the Members that each Member’s distributive share of Profits
and Losses (and items thereof) and credit shall be allocated in accordance with
this Exhibit 1
to the fullest extent permitted by Section 704(b) of the Code.

     

    3.           Tax Allocations: Code
Section 704(c).

     

    (1)           In
accordance with Code Section 704(c) and the Regulations thereunder, income,
gain, loss and deduction with respect to any property contributed to the capital
of the Company by the Members shall, solely for tax purposes, be allocated among
the Members so as to take account of any variation between the adjusted basis of
such property to the Company for federal income tax purposes and its initial
Gross Asset Value (computed in accordance with the definition
herein).

     

    (2)           In
the event the Gross Asset Value of any Company Property is adjusted, subsequent
allocations of income, gain, loss and deduction with respect to such asset shall
take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.

     

    (3)           Any
elections or other decisions relating to such allocations to the Members shall
be made by the Board of Managers in any manner that reasonably reflects the
purpose and intention of this Agreement.  Allocations pursuant to this
Section 3
are solely for purposes of federal, state and local taxes and shall not affect,
or in any way be taken into account in computing, any Member’s Capital Account
or share of Profits, Losses, other items, or distributions pursuant to any
provision of this Agreement.

     


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    4.           Special Basis
Adjustments

     

    In the
event of a Transfer of all or any part of the Member Interest of any Member for
an amount in excess of the adjusted basis for such Membership Interest for
federal income tax purposes, the Company shall elect, pursuant to Section 754 of
the Code to adjust the basis of the Company Property.  Notwithstanding
anything contained in this Agreement, any adjustments made pursuant to Section
754 shall affect only the successor in interest to the transferring
Member.  Each successor in interest to the transferring Member will
furnish the Company with all information necessary to give effect to such
election and shall pay all out-of-pocket costs and expenses of the Company
associated with any election applicable as to such Member.  Unless
otherwise specifically provided, neither adjustments to basis, nor adjustments
to the taxable income of a Member as a result of this Section 4, shall
affect its positive Capital Account.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBIT
2

    TO

    LIMITED
LIABILITY COMPANY AGREEMENT

     

    [TEPS
LICENSE AGREEMENT]


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBIT
3

    TO

    LIMITED
LIABILITY COMPANY AGREEMENT

     

    [BABCOCK
LICENSE AGREEMENT]


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBIT
4

    TO

    LIMITED
LIABILITY COMPANY AGREEMENT

     

    [DISPUTE
RESOLUTION AGREEMENT]


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBIT
5

    TO

    LIMITED
LIABILITY COMPANY AGREEMENT

     

    [MASTER
NON-DISCLOSURE AGREEMENT]


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBIT
6

    TO

    LIMITED
LIABILITY COMPANY AGREEMENT

    


    [INDIVIDUAL
NON-DISCLOSURE AGREEMENT]


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBIT
7

    TO

    LIMITED
LIABILITY COMPANY AGREEMENT

    


    [MEMBER
PARENT LETTER OF INDEMNIFICATION]