Exhibit
10.1

    


    ThermoEnergy
Corporation

    


    Securities
Purchase Agreement

    


    This Securities Purchase Agreement
(this “Agreement”) is
dated as of November 19, 2009, by and between ThermoEnergy Corporation, a
Delaware corporation (the
“Company”), and the investors listed on Schedule A, which is
attached hereto and incorporated herein by this reference (collectively referred
to herein as the
“Investors”).

    


    WHEREAS,
the Company has entered into a term sheet whereby the Company has agreed to
issue to the Investors up to 4,371,287 shares of the Company’s Series B
Preferred Stock (the “Offering”); and

    


    WHEREAS,
the Term Sheet provided for the closing of the Offering in four different
tranches; and

    


    WHEREAS,
the first tranche provided for the issuance of up to $1,800,000 in convertible
promissory notes (the “First
Tranche Notes”) and common stock purchase warrants (the “First Tranche Warrants”) to
certain of the Investors (the “First Tranche Investors”) and
for the amendment or adjustment of certain Prior Warrants (as such term is
hereinafter defined) held by the First Tranche Investors and their
Affiliates  (the ”Investor Prior Warrants”) in
exchange for the payment of cash and credit for legal fees of The Quercus Trust;
and

    


    WHEREAS,
the First Tranche Investors funded $1,680,000; and

    


    WHEREAS,
the Company and the Investors want to enter into this Agreement to set forth
their agreement as to the remaining three closings of the Offering;
and

    


    WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated
thereunder, the Company desires to issue and sell to the Investors, and the
Investors desire to purchase from the Company, certain securities of the
Company, as more fully described in this Agreement.

    


    NOW, THEREFORE, IN CONSIDERATION of the
mutual covenants contained in this Agreement, and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
Company and the Investors agree as follows:

    


    ARTICLE
1

    


    Definitions

    


    Section 1.1.  Definitions.  In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms have the meanings indicated in this Section
1.1:

    


    “Action” means any action,
suit, inquiry, notice of violation, proceeding (including any partial proceeding
such as a deposition) or investigation pending or threatened in writing against
or affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency,
regulatory authority (federal, state, county, local or foreign), stock market,
stock exchange or trading facility.


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

    


    “Affiliate” means any Person
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a Person, as such terms are used
in and construed under Rule 144.

    


    “Board” means the Board of
Directors of the Company.

    


    “Business Day” means any day
except Saturday, Sunday and any day which is a federal legal holiday or a day on
which banking institutions in the City of New York are authorized or required by
law or other governmental action to close.

    


    “Claim” has the meaning set
forth in Section
4.5(c).

    


    “Closing” means each closing
of the purchase and sale of the Securities pursuant to Article
2.

    


    “Closing Date” means, as the
context indicates, the Second Closing Date and the dates on which the Third
Closing, if any, and the Fourth Closing, if any, occur pursuant to Section 2.2
hereof.

    


    “Commission” means the
Securities and Exchange Commission.

    


    “Common Stock” means the
common stock of the Company, par value $0.001 per share, and any securities into
which such common stock may hereafter be reclassified.

    


    “Common Stock Equivalents”
means any securities of the Company or any Subsidiary which entitle the holder
thereof to acquire Common Stock at any time, including without limitation, any
debt, preferred stock, rights, options, warrants or other instrument that is at
any time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock or other securities that entitle the holder to
receive, directly or indirectly, Common Stock.

    


    “Company Counsel” means Nixon
Peabody LLP.

    


    “Company Deliverables” has the
meaning set forth in Section
2.2(a).

    


    “Company Stock Options” has the
meaning set forth in Section
3.1(g).

    


    “Contingent Obligations” has
the meaning set forth in Section
3.1(r).

    


    “Conversion Shares” means the
shares of Common Stock issuable upon conversion of the Series B Preferred
Stock.

    


    “Convertible Securities” has
the meaning set forth in Section
3.1(g).

    


    “Department of Energy
Acceptance” means the written notification of acceptance by the U.S.
Department of Energy or another government agency or commercial entity of an
application or proposal from Babcock-Thermo Carbon Capture LLC for
funding.

    


    “Development Contract” means a
fully executed contract between the Company and the City of New York, New York
(or any agency thereof) for the development of the 26th Ward
wastewater treatment plant substantially as set forth in the business plan
previously provided by the Company to the Investors.

    


    “Effective Date” means the
date that any Registration Statement filed pursuant to Article 4 is first
declared effective by the Commission.


    
      
         


      

      
        2

        
          

        

      

      
         


      

    

     

    “Effectiveness Period” has the
meaning set forth in Section
4.1(b).

    


    “Environmental Law” has the
meaning set forth in Section
3.1(aa).

    


    “ERISA” means the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder.

     

    “ERISA Affiliate” means any
trade or business, whether or not incorporated, that together with the Company
would be deemed to be a single employer for purposes of Section 4001 of ERISA or
Sections 414(b), (c), (m), (n) or (o) of the Internal Revenue Code of 1986, as
amended.

     

    “Evaluation Period” has the
meaning set forth in Section
3.1(r).

    


    “Event” has the meaning set
forth in Section
4.1(d).

    


    “Event Date” has the meaning
set forth in Section
4.1(d).

    


    “Exchange Act” means the
Securities Exchange Act of 1934, as amended.

    


    “Exempt Issuance” means the
issuance by the Company (a) to employees, officers, directors of, and
consultants to, the Company of shares of Common Stock or options for the
purchase of shares of Common Stock pursuant to the Company’s 2008 Incentive
Stock Plan or any other stock option or long-term incentive plans approved by
the Board, (b) of shares of Common Stock upon the exercise of Warrants issued
hereunder, (c) of shares of Common Stock upon conversion of shares of Series A
Preferred Stock, (d) of shares of Common Stock upon conversion of shares of
Series B Common Stock, (e) of shares of Common Stock upon exercise of Prior
Warrants or conversion of Prior Convertible Securities, (f) of securities
pursuant to acquisitions, licensing agreements, or other strategic transactions,
(g) of securities in connection with equipment leases, real property leases,
loans, credit lines, guaranties or similar transactions approved by the Board,
(h) of securities in connection with joint ventures or similar strategic
relationships approved by the Board, (i) of securities in a merger, or (j) of
securities in a public offering registered under the Securities
Act.

    


    “Financing Notice” has the
meaning set forth in Section
5.5(b).

    


    “First Tranche Investors” has
the meaning set forth in the Recitals.

    


    “First Tranche Notes” has the
meaning set forth in the Recitals.

    


    “First Tranche Warrants” has
the meaning set forth in the Recitals.

    


    “Fourth Closing Date” means
the fifth Business Day following the filing by the Company with the Commission
of a Current Report on Form 8-K reporting the Department of Energy Acceptance,
or such other date as the parties may agree.

    


    “GAAP” means generally
accepted accounting principles as in effect from time to time in the United
States of America.

    


    “Governmental Authority” has
the meaning set forth in Section
3.1(e).

    


    “Hazardous Substance” has the
meaning set forth in Section
3.1(aa).


    
      
         


      

      
        3

        
          

        

      

      
         


      

    

    


    “Indebtedness” has the meaning
set forth in Section
3.1(r).

    


    “Indemnified Party” has the
meaning set forth in Section
4.5(c).

    


    “Indemnified Person” has the
meaning set forth in Section
4.5(a).

    


    “Indemnifying Party” has the
meaning set forth in Section
4.5(c).

    


    “Intellectual Property Rights”
has the meaning set forth in Section
3.1(o).

    


    “Investor Deliverables” has
the meaning set forth in Section
2.2(b).

    


    “Investor Prior Warrants” has
the meaning set forth in the Recitals.

    


    “IRS” means the United States
Internal Revenue Service.

    


    “Lien” means any lien, charge,
encumbrance, security interest, right of first refusal or other restrictions of
any kind.

    


    “Losses” has the meaning set
forth in Section
5.7.

    


    “Majority Holders” mean the
holders of not less than sixty-six and two-thirds percent (66-2/3%) of the then
outstanding shares of Series B Preferred Stock

    


    “Material Adverse Effect”
means any of (i) a material and adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material and adverse effect
on the results of operations, assets, prospects, business or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (iii) a material impairment of the Company’s ability to perform on a timely
basis its obligations under any Transaction Document.

    


    “Offering” has the meaning set
forth in the Recitals.

    


    “OFAC” has the meaning set
forth in Section
3.1(ee).

    


    “Person” means an individual
or corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.

    


    “Post-Effective Amendment”
means a post-effective amendment to the Registration
Statement.

    


    “Prior Warrants” has the
meaning set forth in Section
3.1(g).

    


    “Proceeding” means an action,
claim, suit, investigation or proceeding (including, without limitation, an
investigation or partial proceeding, such as a deposition), whether commenced or
threatened.

    


    “Prospectus” has the meaning
set forth in Section
4.3.

    


    “Proposed Financing” has the
meaning set forth in Section
5.5(a).


    
      
         


      

      
        4

        
          

        

      

      
         


      

    

    


    “Purchase Price” means the
price payable by the Investors for the Shares and Warrants pursuant to Sections 2.1, 2.2, and 2.3.

    


    “Registrable Securities” means
the Conversion Shares, the Warrant Shares and all other shares of Common Stock
held by, or issuable to, the Investors at any time during the term of this
Agreement which have not been registered under the Securities Act pursuant to an
effective registration statement filed thereunder; provided, however, that the
Investors shall not be required to convert the Shares or exercise the Warrants
in order to have the Conversion Shares or the Warrant Shares included in any
Registration Statement.

    


    “Registration Period” means
the period commencing on the date hereof and ending on the date on which all of
the Registrable Securities may be sold to the public without registration under
the Securities Act in reliance on Rule 144.

    


    “Registration Statement” means
a registration statement filed on the appropriate form with, and declared
effective by, the Commission under the Securities Act and covering the resale by
the Investor of the Registrable Securities.

    


    “Requested Information” has
the meaning set forth in Section
4.3(a).

    


    “Rule 144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

    


    “SEC Reports” has the meaning
set forth in Section
3.1(h).

    


    “Second Closing Date” means
November 16, 2009 or such other date as the parties may agree.

    


    “Securities” means the
Warrants and the Shares.

    


    “Securities Act” means the
Securities Act of 1933, as amended.

    


    “Series A Preferred Stock”
means the shares of the preferred stock of the Company, par value $0.01 per
share, which have been designated as “Series A Convertible Preferred
Stock.”

    


    “Series B Preferred Stock”
means the shares of the preferred stock of the Company, par value $0.01 per
share, which have been designated as “Series B Convertible Preferred
Stock.”

    


    “Shares” means the Series B
Preferred Stock issuable hereunder.

    


    “Subsidiary” means any
“significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X
promulgated by the Commission under the Exchange Act.

    


    “Tax Liabilities” has the
meaning set forth in Section
5.4.

    


    “Third Closing Date” means
fifth Business Day following the filing by the Company with the Commission of a
Current Report on Form 8-K reporting the execution and delivery of the
Development Contract, or such other date as the parties may
agree.


    
      
         


      

      
        5

        
          

        

      

      
         


      

    

    


    “Trading Day” means (i) a day
on which the Common Stock is traded on a Trading Market, or (ii) if the Common
Stock is not listed on a Trading Market, a day on which the Common Stock is
traded in the over-the-counter market, as reported by the OTC Bulletin Board, or
(iii) if the Common Stock is not then listed or quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices); provided, that in the
event that the Common Stock is not listed or quoted as set forth in (i), (ii)
and (iii) hereof, then Trading Day shall mean a Business Day.

    


    “Trading Market” means
whichever of the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market, or the Nasdaq Over-the-Counter Market on which the
Common Stock is listed or traded on the date in question.

    


    “Transaction Documents” means
this Agreement, the Warrants, and any other documents or agreements executed in
connection with the transactions contemplated hereunder.

    


    “Voting Agreement” means that
certain Voting Agreement by and among the Company and the Investors in the form
of Exhibit B.

    


    “Warrant” means the First
Tranche Warrants and any of the Common Stock Purchase Warrants, in the form of
Exhibit C,
which are issuable to the Investors at the Closings.

    


    “Warrant Shares” means the
shares of Common Stock issuable upon exercise of the Warrants or the Investor
Prior Warrants.

    


    ARTICLE
2

    


    Purchase and
Sale

    


    Section
2.1.  Issuance
of Securities at the Second Closing.  Upon the terms and
subject to the conditions set forth in this Agreement, and in accordance with
applicable law, the Company agrees to sell to the Investors, and each Investor
agrees to purchase from the Company, on the Second Closing Date, for the
aggregate Purchase Price set forth opposite such Investor’s name on Schedule A hereto
under the heading “Second Closing Purchase Price”, the number of Shares set
forth opposite such Investor’s name on Schedule A hereto
under the heading “Second Closing Shares” (ii) a Warrant to purchase that number
of shares of Common Stock set forth opposite such Investor’s name on Schedule A hereto
under the heading “Second Closing Warrant Shares”. The parties agree that
Purchase Price payable by each Investor on the Second Closing Date shall consist
of cash in the amount set forth opposite such Investor’s name on Schedule A hereto
under the heading “Second Closing Cash Payment” and surrender for cancellation
of promissory notes, in the principal amount set forth opposite such Investor’s
name on Schedule
A hereto under the heading “Second Closing Surrendered Notes”, and
conversion of the accrued and unpaid interest on such notes in the amount set
forth opposite such Investor’s name on Schedule A hereto
under the heading “Second Closing Converted Interest”.

    


    Section
2.2.  Issuance
of Securities at the Third Closing.  On the fifth Business Day
following the filing by the Company with the Commission of a Current Report on
Form 8-K reporting the execution and delivery of the Development Contract, the
Company will sell to the Investors, and each Investor will purchase from the
Company, for the aggregate Purchase Price set forth opposite such Investor’s
name on Schedule
B hereto under the heading “Third Closing Purchase Price”, the number of
Shares set forth opposite such Investor’s name on Schedule B hereto
under the heading “Third Closing Shares” (ii) a Warrant to purchase that number
of shares of Common Stock set forth opposite such Investor’s name on Schedule B hereto
under the heading “Third Closing Warrant Shares”.


    
      
         


      

      
        6

        
          

        

      

      
         


      

    

     

    Section
2.3.  Issuance
of Securities at the Fourth Closing.  On the fifth Business Day
following the filing by the Company with the Commission of a Current Report on
Form 8-K reporting the Department of Energy Acceptance, the Company will sell to
the Investors, and each Investor will purchase from the Company, for the
aggregate Purchase Price set forth opposite such Investor’s name on Schedule C hereto
under the heading “Fourth Closing Purchase Price”, the number of Shares set
forth opposite such Investor’s name on Schedule C hereto
under the heading “Fourth Closing Shares” (ii) a Warrant to purchase that number
of shares of Common Stock set forth opposite such Investor’s name on Schedule C hereto
under the heading “Fourth Closing Warrant Shares”.

     

    Section
2.4.  Payment
of Purchase Price.  As consideration for the issuance of the
Securities being purchased at each Closing, each Investor shall on the
respective Closing Date pay to the Company, by wire transfer or other form of
immediately available funds, an amount equal to the applicable aggregate
Purchase Price for the Securities being purchased by such Investor at such
Closing; provided, however, that the
parties agree that Purchase Price payable on the Second Closing Date shall
include the surrender of promissory notes and the conversion of accrued and
unpaid interest on such notes, as provided in Section 2.1.

     

    Section
2.5. Delivery
of Securities.  At each Closing, the Company shall, against
payment by each Investor of the applicable Purchase Price, issue to such
Investor the Shares and the Warrants being purchased at such
Closing.

     

    Section 2.6. Additional
Closing Deliveries.  At each Closing,
the Company shall deliver or cause to be delivered to the Investors the
following (the “Company
Deliverables”):

    


    
      	
               
      

            	
              (i)

            	
              The
      legal opinion of Company Counsel, in substantially the form of Exhibit D
      hereto, addressed to the Investors;

            


    

    


    
      	
               
      

            	
              (ii)

            	
              The
      Certificate of Incorporation of the Company, together with all amendments
      thereto, certified by the Secretary of State of the State of Delaware as
      of a date not more than five Business Days prior to the Closing
      Date;

            


    

    


    
      	
               
      

            	
              (iii)

            	
              Copies
      of each of the following documents, in each case certified by the
      Secretary of the Company to be in full force and effect on the Closing
      Date:

            


    

    


    
      	
               
      

            	
              (A)

            	
              resolutions
      of the Board approving the execution, delivery and performance of the
      Transaction Documents and the transactions contemplated
      thereby;

            


    

    


    
      	
               
      

            	
              (B)

            	
              the
      By-laws of the Company; and

            


    

    


    
      	
               
      

            	
              (C)

            	
              irrevocable
      instructions to the Company’s transfer agent as to the reservation and
      issuance of the Conversion Shares and the Warrant Shares;
    and

            


    

    


    
      	
               
      

            	
              (iv)

            	
              A
      good standing certificate of the Company issued by the Secretary of State
      of the State of Delaware dated as of a date no earlier than five Business
      Days prior to the Closing Date.

            


    

     

    
      
        
           


        

        
          7

          
            

          

        

        
           


        

      

    

    


    ARTICLE
3

    


    Representations and
Warranties

    


    Section 3.1.  Representations
and Warranties of the Company. The Company hereby makes the
following representations and warranties to the Investors:

    


    
      	
               
      

            	
              (a)

            	
              Subsidiaries. The Company has no
      direct or indirect Subsidiaries other than as specified in the SEC
      Reports. Except as disclosed in the SEC Reports, the Company owns,
      directly or indirectly, all of the capital stock of each Subsidiary free
      and clear of any and all Liens other than Liens disclosed in the SEC
      Reports, and all the issued and outstanding shares of capital stock of
      each Subsidiary are validly issued and are fully paid, non-assessable and
      free of preemptive and similar
rights.

            


    

    


    
      	
               
      

            	
              (b)

            	
              Organization
      and Qualification. Each of the Company
      and each Subsidiary is duly incorporated or otherwise organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      incorporation or organization (as applicable), with the requisite power
      and authority to own and use its properties and assets and to carry on its
      business as currently conducted. Neither the Company nor any Subsidiary is
      in violation of any of the provisions of its respective certificate or
      articles of incorporation, bylaws or other organizational or charter
      documents. Each of the Company and each Subsidiary is duly qualified to
      conduct its respective business and is in good standing as a foreign
      corporation or other entity in each jurisdiction in which the nature of
      the business conducted or property owned by it makes such qualification
      necessary, except where the failure to be so qualified or in good
      standing, as the case may be, could not, individually or in the aggregate,
      have or reasonably be expected to result in a Material Adverse Effect, and
      no proceedings have been instituted in any such jurisdiction revoking,
      limiting or curtailing, or seeking to revoke, such power and authority or
      qualification.

            


    

    


    
      	
               
      

            	
              (c)

            	
              Authorization;
      Enforcement. The Company has the
      requisite corporate power and authority to enter into and to consummate
      the transactions contemplated by each of the Transaction Documents and
      otherwise to carry out its obligations thereunder. The execution and
      delivery of each of the Transaction Documents by the Company and the
      consummation by it of the transactions contemplated thereby have been duly
      authorized by all necessary action on the part of the Company and no
      further action is required by the Company in connection therewith. Each
      Transaction Document has been (or upon delivery will have been) duly
      executed by the Company and, when delivered in accordance with the terms
      hereof, will constitute the valid and binding obligation of the Company
      enforceable against the Company in accordance with its terms, except as
      such enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation or similar laws relating to, or
      affecting generally the enforcement of, creditors’ rights and remedies or
      by other equitable principles of general
  application.

            


    


    
      
         


      

      
        8

        
          

        

      

      
         


      

    


    
      	
               
      

            	
              (d)

            	
              No
      Conflicts.
      The execution, delivery and performance of the Transaction Documents by
      the Company and the consummation by the Company of the transactions
      contemplated thereby do not and will not (i) conflict with or violate any
      provision of the Company’s or any Subsidiary’s certificate or articles of
      incorporation, bylaws or other organizational or charter documents, or
      (ii) conflict with, or constitute a default (or an event that with notice
      or lapse of time or both would become a default) under, or give to others
      any rights of termination, amendment, acceleration or cancellation (with
      or without notice, lapse of time or both) of, or result in the imposition
      of any Lien upon any of the material properties or assets of the Company
      or of any Subsidiary pursuant to, any agreement, credit facility, debt or
      other instrument (evidencing a Company or Subsidiary debt or otherwise) or
      other understanding to which the Company or any Subsidiary is a party or
      by which any property or asset of the Company or any Subsidiary is bound
      or affected, or (iii) result in a violation of any law, rule, regulation,
      order, judgment, injunction, decree or other restriction of any court or
      governmental authority to which the Company or a Subsidiary is subject
      (including federal and state securities laws and regulations), or by which
      any property or asset of the Company or a Subsidiary is bound or affected;
      except in the case of each of clauses (ii) and (iii), such as could not,
      individually or in the aggregate, have or reasonably be expected to result
      in a Material Adverse Effect.

            


    

    


    
      	
               
      

            	
              (e)

            	
              Filings,
      Consents and Approvals. The Company is not
      required to obtain any consent, waiver, authorization or order of, give
      any notice to, or make any filing or registration with, any court or other
      federal, state, local or other governmental authority (a “Governmental
      Authority”) or other Person in connection with the execution,
      delivery and performance by the Company of the Transaction Documents and
      the consummation of the transactions contemplated thereby, other than (i)
      the filing of a Notice of Sale of Securities on Form D with the Commission
      (ii) filings required under applicable state securities laws, (iii) the
      filing of a Current Notice on Form 8-K with the Commission and (iv) the
      filing with the Commission of one or more Registration Statements in
      accordance with the requirements of Article 4 of
      this Agreement,.

            


    

    


    
      	
               
      

            	
              (f)

            	
              Issuance
      of the Securities. The Securities have
      been duly authorized.  Each Share and Warrant, when issued and
      paid for in accordance with this Agreement, will be duly and validly
      issued and fully paid and non-assessable. The Company has reserved and set
      aside from its duly authorized capital stock a sufficient number of shares
      of Common Stock to satisfy in full the Company’s obligations to issue (i)
      the Conversion Shares upon conversion of the Series B Preferred Stock, and
      (ii) the Warrant Shares upon exercise of the Warrants.  The
      Conversion Shares and the Warrant Shares, when issued upon conversion of
      the Shares or exercise of the Warrants in accordance with their respective
      terms, will be duly and validly issued, fully paid and nonassessable, free
      and clear of all Liens.

            


    

    


    
      	
               
      

            	
              (g)

            	
              Capitalization. The authorized capital
      stock of the Company consists of 150,000,000 shares of Common Stock and
      20,000,000 shares of Preferred Stock, par value $0.01, of which 10,000,000
      shares have been designed Series A Preferred Stock, 4,371,287 shares have
      been designated Series B Preferred Stock and 5,666,666 shares are
      undesignated.  As of the close of business on the Business Day
      immediately prior to the date hereof, (i) 208,334 shares of Series A
      Preferred Stock were issued and outstanding, all of which are validly
      issued, fully-paid and non-assessable, (ii) 53,679,473 shares of Common
      Stock were issued and outstanding, all of which are validly issued,
      fully-paid and non-assessable, (iii) 83,797 shares of Common Stock were
      held by the Company in Treasury, (iv) 11,083,800 shares of Common Stock
      were reserved for issuance upon exercise of outstanding options granted to
      employees, directors, and consultants of the Company (the “Company Stock Options”);
      (v) 41,894,794 shares of Common Stock were reserved for issuance upon
      exercise of outstanding warrants to purchase Common Stock (the “Prior Warrants”); (vi)
      208,334 shares of Common Stock were reserved for issuance upon conversion
      of outstanding shares of Series A Preferred Stock, and (vii) 24,219,521
      shares of Common Stock were reserved for issuance upon conversion of other
      convertible notes, debentures or securities (“Prior Convertible
      Securities”).  No Person has any right of first refusal,
      preemptive right, right of participation, or any similar right to
      participate in the transactions contemplated by the Transaction
      Documents.  Except pursuant to (i) the outstanding shares of Series A
      Preferred Stock, (ii) the Company Stock Options, (iii) the Prior Warrants
      or (iv) the Prior Convertible Securities, or as a result of the purchase
      and sale of the Securities as contemplated by this Agreement, there are no
      outstanding options, warrants, script rights to subscribe to, calls or
      commitments of any character whatsoever relating to, or securities, rights
      or obligations convertible into or exchangeable for, or giving any Person
      any right to subscribe for or acquire, any shares of Common Stock, or
      contracts, commitments, understandings or arrangements by which the
      Company or any Subsidiary is or may become bound to issue additional
      shares of Common Stock or Common Stock Equivalents.  The issue and
      sale of the Securities will not obligate the Company to issue shares of
      Common Stock or other securities to any Person (other than the Investor)
      and will not result in a right of any Investor of Company securities to
      adjust the exercise or conversion price under such securities. No further
      approval or authorization of any stockholder, the Board of Directors of
      the Company or any other Person  is required for the issuance
      and sale of the Securities.  There are no stockholders agreements,
      voting agreements or other similar agreements with respect to the
      Company’s capital stock to which the Company is a party or, to the
      knowledge of the Company, between or among any of the Company’s
      stockholders.

            


    


    
      
         


      

      
        9

        
          

        

      

      
         


      

    

    


    
      	
               
      

            	
              (h)

            	
              SEC
      Reports; Financial Statements.  The Company
      has filed all reports required to be filed by it under the Securities Act
      and the Exchange Act, including pursuant to Section 13(a) or 15(d)
      thereof, since January 1, 2009 (the foregoing materials, being
      collectively referred to herein as the “SEC
      Reports”).  As of their respective dates, the SEC Reports
      complied in all material respects with the requirements of the Securities
      Act and the Exchange Act and the rules and regulations of the Commission
      promulgated thereunder, and none of the SEC Reports, when filed, contained
      any untrue statement of a material fact or omitted to state a material
      fact required to be stated therein or necessary in order to make the
      statements therein, in light of the circumstances under which they were
      made, not misleading.  The financial statements of the Company
      included in the SEC Reports comply in all material respects with
      applicable accounting requirements and the rules and regulations of the
      Commission with respect thereto as in effect at the time of
      filing.  Such financial statements have been prepared in
      accordance with GAAP applied on a consistent basis during the periods
      involved, except as may be otherwise specified in such financial
      statements or the notes thereto, and fairly present in all material
      respects the financial position of the Company and its consolidated
      Subsidiaries as of and for the dates thereof and the results of operations
      and cash flows for the periods then ended, subject, in the case of
      unaudited statements, to normal, immaterial, year-end audit
      adjustments.

            


    

    


    
      	
               
      

            	
              (i)

            	
              Material
      Changes.
      Since the date of the latest audited financial statements included within
      the SEC Reports, except as specifically disclosed in the SEC Reports, (i)
      there has been no event, occurrence or development that has had or that
      could reasonably be expected to result in a Material Adverse Effect, (ii)
      the Company has not incurred any liabilities (contingent or otherwise)
      other than (A) trade payables, accrued expenses and other liabilities
      incurred in the ordinary course of business consistent with past practice
      and (B) liabilities not required to be reflected in the Company’s
      financial statements pursuant to GAAP or required to be disclosed in
      filings made with the Commission, (iii) the Company has not altered its
      method of accounting or the identity of its auditors, (iv) the Company has
      not declared or made any dividend or distribution of cash or other
      property to its stockholders or purchased, redeemed or made any agreements
      to purchase or redeem any shares of its capital stock, and (v) the Company
      has not issued any equity securities to any officer, director or
      Affiliate, except pursuant to existing Company stock option plans. The
      Company does not have pending before the Commission any request for
      confidential treatment of
information.

            


    


    
      
         


      

      
        10

        
          

        

      

      
         


      

    

    


    
      	
               
      

            	
              (j)

            	
              Litigation
      and Investigations. There is no Action
      which (i) adversely affects or challenges the legality, validity or
      enforceability of any of the Transaction Documents or the Securities or
      (ii) except as specifically disclosed in the SEC Reports, could, if there
      were an unfavorable decision, individually or in the aggregate, have or
      reasonably be expected to result in a Material Adverse Effect. Neither the
      Company nor any Subsidiary, nor any director or officer thereof (in his
      capacity as such), is or has been the subject of any Action involving a
      claim of violation of or liability under federal or state securities laws
      or a claim of breach of fiduciary duty, except as specifically disclosed
      in the SEC Reports. There has not been, and to the knowledge of the
      Company, there is not pending any investigation by the Commission
      involving the Company or any current or former director or officer of the
      Company (in his or her capacity as such). The Commission has not issued
      any stop order or other order suspending the effectiveness of any
      registration statement filed by the Company or any Subsidiary under the
      Exchange Act or the Securities Act.  There are no outstanding
      comments by the Staff of the Commission on any filing by the Company or
      any Subsidiary under the Exchange Act or the Securities
    Act.

            


    

    


    
      	
               
      

            	
              (k)

            	
              Labor
      Relations.
      No material labor dispute exists or, to the knowledge of the Company, is
      imminent with respect to any of the employees of the
    Company.

            


    

    


    
      	
               
      

            	
              (l)

            	
              Compliance. Except as set forth in
      the SEC Reports, neither the Company nor any Subsidiary (i) is in default
      under or in violation of (and no event has occurred that has not been
      waived that, with notice or lapse of time or both, would result in a
      default by the Company or any Subsidiary under), nor has the Company or
      any Subsidiary received notice of a claim that it is in default under or
      that it is in violation of, any indenture, loan or credit agreement or any
      other agreement or instrument to which it is a party or by which it or any
      of its properties is bound (whether or not such default or violation has
      been waived), (ii) is in violation of any order of any court, arbitrator
      or governmental body, or (iii) is or has been in violation of any statute,
      rule or regulation of any governmental authority, including without
      limitation all foreign, federal, state and local laws relating to taxes,
      environmental protection, occupational health and safety, product quality
      and safety and employment and labor matters, except in each case as could
      not, individually or in the aggregate, have or reasonably be expected to
      result in a Material Adverse
Effect.

            


    

    


    
      	
               
      

            	
              (m)

            	
              Regulatory
      Permits.
      The Company and the Subsidiaries possess all certificates, authorizations
      and permits issued by the appropriate federal, state, local or foreign
      regulatory authorities necessary to conduct their respective businesses as
      described in the SEC Reports, except where the failure to possess such
      permits could not, individually or in the aggregate, have or reasonably be
      expected to result in a Material Adverse Effect, and neither the Company
      nor any Subsidiary has received any notice of proceedings relating to the
      revocation or modification of any such
permits.

            


    

    


    
      	
               
      

            	
              (n)

            	
              Title
      to Assets.
      The Company and the Subsidiaries have good and marketable title in fee
      simple to all real property owned by them that is material to their
      respective businesses and good and marketable title in all personal
      property owned by them that is material to their respective businesses, in
      each case free and clear of all Liens, except for Liens that do not
      materially affect the value of such property and do not materially
      interfere with the use made and proposed to be made of such property by
      the Company and the Subsidiaries. All real property and facilities held
      under lease by the Company and the Subsidiaries are held by them under
      valid, subsisting and enforceable leases of which the Company and the
      Subsidiaries are in material compliance, except as could not, individually
      or in the aggregate, have or reasonably be expected to result in a
      Material Adverse Effect.

            


    


    
      
         


      

      
        11

        
          

        

      

      
         


      

    

    


    
      	
               
      

            	
              (o)

            	
              Patents
      and Trademarks. The Company and the
      Subsidiaries have, or have rights to use, all patents, patent
      applications, trademarks, trademark applications, service marks, trade
      names, copyrights, licenses and other similar rights that are necessary or
      material for use in connection with their respective businesses as
      described in the SEC Reports and which the failure to so have could,
      individually or in the aggregate, have or reasonably be expected to result
      in a Material Adverse Effect (collectively, the “Intellectual Property
      Rights”). No claims or Actions have been made or filed by any
      Person against the Company to the effect that Intellectual Property Rights
      used by the Company or any Subsidiary violate or infringe upon the rights
      of such claimant. To the knowledge of the Company, all of the Intellectual
      Property Rights are enforceable and there is no existing infringement by
      another Person of any of the Intellectual Property
  Rights.

            


    

    


    
      	
               
      

            	
              (p)

            	
              Insurance. The Company and the
      Subsidiaries are insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are
      prudent and customary in the businesses in which the Company and the
      Subsidiaries are engaged. The Company has no reason to believe that it
      will not be able to renew its and the Subsidiaries’ existing insurance
      coverage as and when such coverage expires or to obtain similar coverage
      from similar insurers as may be necessary to continue its business on
      terms consistent with the market for the Company’s and such Subsidiaries’
      respective lines of business.

            


    

    


    
      	
               
      

            	
              (q)

            	
              Transactions
      With Affiliates and Employees. Except as set forth in
      the SEC Reports, none of the officers or directors of the Company and, to
      the knowledge of the Company, none of the employees of the Company is a
      party to any transaction with the Company or any Subsidiary (other than
      for services as employees, officers and directors), including any
      contract, agreement or other arrangement providing for the furnishing of
      services to or by, providing for rental of real or personal property to or
      from, or otherwise requiring payments to or from any officer, director or
      such employee or, to the knowledge of the Company, any entity in which any
      officer, director, or any such employee has a substantial interest or is
      an officer, director, trustee or
partner.

            


    

    


    
      	
               
      

            	
              (r)

            	
              Sarbanes-Oxley;
      Internal Accounting Controls.  The Company is
      in material compliance with all provisions of the Sarbanes-Oxley Act of
      2002 (including the rules and regulations of the Commission adopted
      thereunder) which are applicable to it as of the Closing Date.  The
      Company’s certifying officers have evaluated the effectiveness of the
      Company’s controls and procedures as of the filing date of the most
      recently filed periodic report under the Exchange Act (such date, the
      “Evaluation
      Date”).  The Company presented in its most recently filed
      periodic report under the Exchange Act the conclusions of the certifying
      officers about the effectiveness of the disclosure controls and procedures
      based on their evaluations as of the Evaluation Date.  Since the
      Evaluation Date, there have been no significant changes in the Company’s
      internal controls (as such term is defined in Item 307(b) of Regulation
      S-K under the Exchange Act) or, to the Company’s knowledge, in other
      factors that could significantly affect the Company’s internal
      controls.

            


    


    
      
         


      

      
        12

        
          

        

      

      
         


      

    

    


    
      	
               
      

            	
              (s)

            	
              Certain
      Fees. No
      brokerage or finder’s fees or commissions are or will be payable by the
      Company to any broker, financial advisor or consultant, finder, placement
      agent, investment banker, bank or other Person with respect to the
      transactions contemplated by this Agreement. The Investors shall have no
      obligation with respect to any fees or with respect to any claims (other
      than such fees or commissions owed by the Investors pursuant to written
      agreements executed by the Investors which fees or commissions shall be
      the sole responsibility of the respective Investor) made by or on behalf
      of any Persons for fees of a type contemplated in this Section that may be
      due in connection with the transactions contemplated by this
      Agreement.

            


    

    


    
      	
               
      

            	
              (t)

            	
              Investment
      Company.
      The Company is not, and is not an Affiliate of, and immediately following
      the Closing will not have become, an “investment company” within the
      meaning of the Investment Company Act of 1940, as
  amended.

            


    

    


    
      	
               
      

            	
              (u)

            	
              No
      Additional Agreements. The Company does not
      have any agreement or understanding with the Investor with respect to the
      transactions contemplated by the Transaction Documents other than as
      specified in the Transaction
Documents.

            


    

    


    
      	
               
      

            	
              (v)

            	
              Full
      Disclosure.  All
      disclosures provided to the Investors regarding the Company, its business
      and the transactions contemplated hereby, furnished by or on behalf of the
      Company (including the Company’s representations and warranties set forth
      in this Agreement) are true and correct in all material respects and do
      not contain any untrue statement of a material fact or omit to state any
      material fact necessary in order to make the statements made therein, in
      light of the circumstances under which they were made, not
      misleading.

            


    

    


    
      	
               
      

            	
              (w)

            	
              Environmental
      Matters.  To the Company’s knowledge: (i) the Company and
      its Subsidiaries have complied with all applicable Environmental Laws;
      (ii) the properties currently owned or operated by Company (including
      soils, groundwater, surface water, buildings or other structures) are not
      contaminated with any Hazardous Substances; (iii) the properties formerly
      owned or operated by Company or its Subsidiaries were not contaminated
      with Hazardous Substances during the period of ownership or operation by
      Company and its Subsidiaries; (iv) Company and its Subsidiaries are not
      subject to liability for any Hazardous Substance disposal or contamination
      on any third party property; (v) Company and its Subsidiaries have not
      been associated with any release or threat of release of any Hazardous
      Substance; (vi) Company and its Subsidiaries have not received any notice,
      demand, letter, claim or request for information alleging that Company and
      its Subsidiaries may be in violation of or liable under any Environmental
      Law; and (vii) Company and its Subsidiaries are not subject to any orders,
      decrees, injunctions or other arrangements with any Governmental Authority
      or subject to any indemnity or other agreement with any third party
      relating to liability under any Environmental Law or relating to Hazardous
      Substances.

            


    

     

    As used in this Agreement, the term “Environmental Law” means any federal, state, local or foreign law,
regulation, order, decree, permit, authorization, opinion, common law or agency
requirement relating to: (A) the protection, investigation or restoration of the
environment, health and safety, or natural resources; (B) the handling, use,
presence, disposal, release or threatened release of any Hazardous Substance or
(C) noise, odor, wetlands, pollution, contamination or any injury or threat of
injury to persons or property.


    
      
         


      

      
        13

        
          

        

      

      
         


      

    

     

    As used in this Agreement, the term “Hazardous Substance” means any substance that is: (i) listed, classified or
regulated pursuant to any Environmental Law; (ii) any petroleum product or
by-product, asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive materials or radon; or (iii) any other
substance which is the subject of regulatory action by any Governmental
Authority pursuant to any Environmental Law.

     

    
      	
               
      

            	
              (x)

            	
              Taxes.  Except as set forth in the SEC
      Reports, the Company and its Subsidiaries have filed all necessary
      federal, state and foreign income and franchise tax returns when due (or
      obtained appropriate extensions for filing) and have paid or accrued all
      taxes shown as due thereon, and the Company has no knowledge of a tax
      deficiency which has been or might be asserted or threatened against it or
      any Subsidiary which would have a Material Adverse
      Effect.

            


    

     

    
      	
               
      

            	
              (y)

            	
              Private
      Offering.  Assuming the correctness of the
      representations and warranties of the Investors set forth in this
      Agreement, the offer and sale of the Shares and the Warrants hereunder
      are, and upon (i) exercise of the Warrants, the issuance of the Warrant
      Shares, and (ii) upon conversion of the Shares, the issuance of the
      Conversion Shares, such issuance will be, exempt from registration under
      the Securities Act.  The Company has offered the Shares and the
      Warrants for sale only to the
Investors.

            


    

     

    
      	
               
      

            	
              (z)

            	
              ERISA.  Neither the Company nor any ERISA
      Affiliate maintains, contributes to or has any liability or contingent
      liability with respect to any employee benefit plan subject to
      ERISA.

            


    

     

    
      	
               
      

            	
              (aa)

            	
              Foreign
      Assets Control Regulations and Anti-Money Laundering.

            


    

     

                     (i)OFAC.  Neither the issuance of the Shares and
Warrant to the Investors, nor the use of the respective proceeds thereof, shall
cause the Investors or any of them to violate the U.S. Bank Secrecy Act, as
amended, and any applicable regulations thereunder or any of the sanctions
programs administered by the U.S. Department of the Treasury’s Office of Foreign
Assets Control (“OFAC”) of the United States Department of Treasury, any
regulations promulgated thereunder by OFAC or under any affiliated or successor
governmental or quasi-governmental office, bureau or agency and any enabling
legislation or executive order relating thereto.  Without limiting the
foregoing, neither the Company nor any Subsidiary (i) is a person whose property
or interests in property are blocked or subject to blocking pursuant to
Section 1 of Executive Order 13224 of September 23, 200l Blocking Property
and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or
Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or
transactions prohibited by Section 2 of such executive order, or is
otherwise associated with any such person in any manner violative of
Section 2, or (iii) is a person on the list of Specially Designated
Nationals and Blocked Persons or subject to the limitations or prohibitions
under any other OFAC regulation or executive order.


    
      
         


      

      
        14

        
          

        

      

      
         


      

    

     

                     (ii)USA
PATRIOT Act.  The Company and
each of its Subsidiaries are in compliance, in all material respects, with the
USA PATRIOT Act.  No part of the proceeds of the sale of the Shares
and the Warrants hereunder will be used, directly or indirectly, for any
payments to any governmental official or employee, political party, official of
a political party, candidate for political office, or anyone else acting in an
official capacity, in order to obtain, retain or direct business or obtain any
improper advantage, in violation of the United States Foreign Corrupt Practices
Act of 1977, as amended.

    


    Section
3.2.  Representations
and Warranties of the Investors.  Each Investor,
severally and not jointly, hereby represents and warrants to the Company as
follows:

    


    
      	
               
      

            	
              (a)

            	
              Authority. This Agreement has
      been duly executed by such Investor, and when delivered by the Investor in
      accordance with terms hereof, will constitute the valid and legally
      binding obligation of the Investor, enforceable against it in accordance
      with its terms, except as such enforceability may be limited by applicable
      bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
      laws relating to, or affecting generally the enforcement of, creditors’
      rights and remedies or by other equitable principles of general
      application.

            


    

    


    
      	
               
      

            	
              (b)

            	
              Investment
      Intent.
      Such Investor is acquiring the Securities as principal for its own account
      for investment purposes only and not with a view to or for distributing or
      reselling such Securities or any part thereof, without prejudice, however,
      to the Investor’s right at all times to sell or otherwise dispose of all
      or any part of such Securities in compliance with applicable federal and
      state securities laws. The Investor does not have any agreement or
      understanding, directly or indirectly, with any Person to distribute any
      of the Securities.

            


    

    


    
      	
               
      

            	
              (c)

            	
              Investor
      Status.
      Such Investor is an “accredited investor” as defined in Rule 501(a) under
      the Securities Act.   The Investor is not a registered
      broker-dealer under Section 15 of the Exchange
  Act.

            


    

    


    
      	
               
      

            	
              (d)

            	
              Access
      to Information. Each Investor
      acknowledges that it has reviewed the SEC Reports and has been afforded
      (i) the opportunity to ask such questions as he has deemed necessary of,
      and to receive answers from, representatives of the Company concerning the
      terms and conditions of the offering of the Securities and the merits and
      risks of investing in the Securities; (ii) access to information about the
      Company and the Subsidiaries and their respective financial condition,
      results of operations, business, properties, management and prospects
      sufficient to enable him to evaluate his investment; and (iii) the
      opportunity to obtain such additional information that the Company
      possesses or can acquire without unreasonable effort or expense that is
      necessary to make an informed investment decision with respect to the
      investment.

            


    

    


    
      	
               
      

            	
              (e)

            	
              General
      Solicitation.  Such
      Investor is not purchasing the Securities as a result of any
      advertisement, article, notice or other communication regarding the
      Securities published in any newspaper, magazine or similar media or
      broadcast over television or radio or presented at any seminar or any
      other general solicitation or general
  advertisement.

            


    

     

    
      	
               
      

            	
              (f)

            	
              Disclosure.  Such
      Investor acknowledges and agrees that the Company neither makes nor has
      made any representations or warranties with respect to the transactions
      contemplated hereby other than those specifically set forth in Section
      3.1.

            


    


    
      
         


      

      
        15

        
          

        

      

      
         


      

    


    ARTICLE
4

    


    Registration
Rights

    


    Section
4.1.         Notice of
Registration.  If the Company
shall determine to register any of its securities under the Securities Act in
connection with the public offering of such securities, either for its own
account or the account of a security holder, other than (A) a registration
relating to employee benefit plans, (B) a registration relating to a Commission
Rule 145 or similar transaction, or (C) a registration on any form that does not
include substantially the same information as could be required to be included
in a registration statement covering the sale of Registrable Securities, the
Company will:

    


    
      	
               
      

            	
              (a)

            	
              promptly
      give to each Investor written notice thereof;
  and

            


    

    


    
      	
               
      

            	
              (b)

            	
              use
      best efforts to include in such registration (and any related
      qualification under blue sky laws or other compliance), and in any
      underwriting involved therein, all the Registrable Securities specified in
      a written request or requests, made within twenty (20) days after receipt
      of such written notice from the Company, by any such Investor, except as
      set forth in Section 4.2
      below.  In the event that the Company decides for any reason not
      to complete the registration of securities other than Registerable
      Securities as part of an underwritten public offering shall specify that
      such Registerable Securities are to be included in the underwriting on the
      same terms and conditions as the securities otherwise being sold through
      underwriters under such
registration.

            


    

    


    Section
4.2.         Registration
Process.  In connection with the registration of the
Registrable Securities pursuant to Section 4.1, the
Company shall:

     

                     (a)Prepare
and file with the Commission the
Registration Statement and such amendments (including post-effective
amendments) to the Registration Statement and supplements to the prospectus
included therein (a “Prospectus”) as the Company may deem
necessary or appropriate and take all lawful action such that the Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, not misleading
and that the Prospectus forming part of the Registration Statement, and any
amendment or supplement thereto, does not at any time during the Registration
Period include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.;

     

                     (b)Comply with the provisions of the
Securities Act with respect to the Registrable Securities covered by the
Registration Statement until the earlier of (i) such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by each Investor as set forth in the Prospectus forming
part of the Registration Statement or (ii) the date on which the Registration
Statement is withdrawn;

     

                     (c)Prior to the filing with the Commission
of the Registration Statement (including
any amendments thereto) and the distribution or delivery of any Prospectus
(including any supplements thereto), provide draft copies thereof to the
Investor and reflect in such documents all such comments as each Investor (and
its respective counsel) reasonably may propose and furnish to each Investor and
its legal counsel identified to the Company (i) promptly after the same is
prepared and publicly distributed, filed with the Commission, or received by the
Company, one copy of the Registration Statement, each Prospectus, and each
amendment or supplement thereto, and (ii) such number of copies of the
Prospectus and all amendments and supplements thereto and such other documents,
as the Investor may reasonably request in order to facilitate the disposition of
the Registrable Securities;

     

    
      
         


      

      
        16

        
          

        

      

      
         


      

    

     

                     (d)Register or qualify the Registrable
Securities covered by the Registration Statement under such securities or “blue
sky” laws of such jurisdictions as the Investors reasonably request,
(ii) prepare and file in such jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take all such other lawful
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all such
other lawful actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not
be required in connection therewith or as a condition thereto to
(A) qualify to do business in any jurisdiction where it would not otherwise
be required to qualify, (B) subject itself to general taxation in any such
jurisdiction or (C) file a general consent to service of process in any
such jurisdiction;

     

                     (e)As promptly as practicable after
becoming aware of such event, notify each Investor of the occurrence of any
event, as a result of which the Prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and promptly prepare an amendment to the Registration
Statement and supplement to the Prospectus to correct such untrue statement or
omission, and deliver a number of copies of such supplement and amendment to
each Investor as such Investor may reasonably request;

     

                     (f)As promptly as practicable after
becoming aware of such event, notify each Investor (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the
Commission of any stop order or other suspension of the effectiveness of the
Registration Statement and take all lawful action to effect the withdrawal,
rescission or removal of such stop order or
other suspension;

     

                     (g)Take all such other lawful actions
reasonably necessary to expedite and facilitate the disposition by the Investor
of his Registrable Securities in accordance with the intended methods therefor
provided in the Prospectus which are customary under the
circumstances;

     

                     (h)Make generally available to each
Investor as soon as practicable, but in any event not later than 18 months after the Effective Date of the
Registration Statement, an earnings statement of the Company and its
subsidiaries complying with Section 11(a) of the Securities Act and the
rules and regulations of the Commission thereunder;

     

                     (i)       
In the event of an underwritten offering, promptly include or incorporate in a
Prospectus supplement or post-effective amendment to the Registration Statement
such information as the underwriters reasonably agree should be included therein
and to which the Company does not reasonably object and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
practicable after it is notified of the matters to be included or incorporated
in such Prospectus supplement or post-effective amendment;

     

    
      
         


      

      
        17

        
          

        

      

      
         


      

    

     

                     (j)        
Make reasonably available for inspection by each Investor, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by such Investors or any such
underwriter all relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
Company’s officers, directors and employees to supply all information reasonably
requested by such Investor or any such underwriter, attorney, accountant or
agent in connection with the Registration Statement, in each case, as is
customary for similar due diligence examinations; provided, however, that all records,
information and documents that are designated in writing by the Company, in good
faith, as confidential, proprietary or containing any nonpublic information
shall be kept confidential by such Investors and any such underwriter, attorney,
accountant or agent (pursuant to an appropriate confidentiality agreement in the
case of any such Investor or agent), unless such disclosure is made pursuant to
judicial process in a court proceeding (after first giving the Company an
opportunity promptly to seek a protective order or otherwise limit the scope of
the information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided, further, that, if the foregoing
inspection and information gathering would otherwise disrupt the Company’s
conduct of its business, such inspection and information gathering shall, to the
maximum extent possible, be coordinated on behalf of the Investors and the other
parties entitled thereto by one firm of counsel designated by and on behalf of the majority in
interest of Investors and other parties;

     

                     (k)In connection with any offering, make
such representations and warranties to the Investors and to the underwriters if an underwritten offering, in
form, substance and scope as are customarily made by a company to underwriters
in secondary underwritten offerings;

     

                     (l)        
In connection with any underwritten offering, deliver such documents and
certificates as may be reasonably required by the underwriters; 

     

                     (m)      Cooperate with the Investors to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold pursuant to the Registration
Statement, which certificates shall, if required under the terms of this
Agreement, be free of all restrictive legends, and to enable such
Registrable Securities to be in such
denominations and registered in such names as any Investor may request and
maintain a transfer agent for the Common Stock; and

     

                     (n)       Use its commercially reasonable efforts to cause all
Registrable Securities covered by the
Registration Statement to be listed or qualified for trading on the principal
Trading Market, if any, on which the Common Stock is traded or listed on the
Effective Date of the Registration Statement.

     

    Section
4.3.       Obligations
and Acknowledgements of the Investors.  In
connection with the registration of the Registrable Securities, each Investor
shall have the following obligations and hereby make the following
acknowledgements:

     

    
      
         


      

      
        18

        
          

        

      

      
         


      

    

     

                     (a)It shall be a condition precedent to
the obligations of the Company to include
the Registrable Securities in the Registration
Statement that each Investor wishing to participate in the Registration
Statement (i) shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and
(ii) shall execute such documents in connection with such registration as
the Company may reasonably request.  At least five Business Days prior
to the first anticipated filing date of a Registration Statement, the Company
shall notify each Investor of the information the Company requires from such
Investor (the “Requested Information”) if such Investor elects to
have any of its Registrable Securities included in the Registration
Statement.  If at least two Business Days prior to the anticipated
filing date the Company has not received the Requested Information from an
Investor, then the Company may file the Registration Statement without including
any Registrable Securities of such Investor.  If an Investor notifies the Company and
provides the Company the information required hereby prior to the time the
Registration Statement is declared effective, the Company will file an amendment
to the Registration Statement that includes the Registrable Securities of such
Investor; provided, however, that the Company shall not
be required to file such amendment to the Registration Statement at any time
less than five (5) Business Days prior to the Effectiveness Date.

     

                     (b)Each Investor agrees to cooperate with
the Company in connection with the preparation and filing of a Registration
Statement hereunder, unless such Investor has notified the Company in writing of
its election to exclude all of its Registrable Securities from such Registration
Statement;

     

                     (c)Each Investor agrees that, upon receipt
of any notice from the Company of the occurrence of any event of the kind
described in Section 4.2(e)
or 4.2(f), such
Investor shall immediately discontinue its disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until the Investor’s receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 4.2(e)
and, if so directed by the Company, the Investor shall deliver to the Company
(at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor’s possession, of the
Prospectus covering such Registrable Securities current at the time of receipt
of such notice; and

     

                     (d)Each Investor acknowledges that it may
be deemed to be a statutory underwriter within the meaning of the Securities Act
with respect to the Registrable Securities being registered for resale by it,
and if an Investor includes Registrable Securities for offer and sale within a
Registration Statement such Investor hereby consents to the inclusion in such
Registration Statement of a disclosure to such effect.

     

    Section
4.4.Expenses
of Registration.  All expenses (other than underwriting
discounts and commissions and the fees an expenses of the Investor’s counsel)
incurred in connection with registrations, filings or qualifications pursuant to
this Article 4,
including, without limitation, all registration, listing, and qualifications
fees, printing and engraving fees, accounting fees, and the fees and
disbursements of counsel for the Company, shall be borne by the
Company.

    

      
        
           


        

        
          19

          
            

          

        

        
           


        

      

    

     

    Section
4.5.         Indemnification
and Contribution

     

    (a)Indemnification
by the Company.  The Company
shall indemnify and hold harmless each Investor and each underwriter, if any,
which facilitates the disposition of Registrable Securities, and each of their
respective officers and directors and each Person who controls such underwriter
within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act (each such Person being sometimes hereinafter referred to as
an “Indemnified Person”) from and against any
losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the Company shall not
be liable to any such Indemnified Person in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon (i) an
untrue statement or alleged untrue statement made in, or an omission or alleged
omission from, such Registration Statement or Prospectus in reliance upon and in
conformity with written information furnished to the Company by such Indemnified
Person expressly for use therein or (ii) in the case of the occurrence of
an event of the type specified in Section 4.3(e),
the use by the Indemnified Person of an outdated or defective Prospectus after
the Company has provided to such Indemnified Person an updated Prospectus
correcting the untrue statement or alleged untrue statement or omission or
alleged omission giving rise to such loss, claim, damage or
liability.

     

    (b)Indemnification
by the Investor and Underwriters.  Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, severally and not jointly, as a consequence of
facilitating such disposition of Registrable Securities to (i) indemnify
and hold harmless the Company, its directors (including any person who, with his
or her consent, is named in the Registration Statement as a director nominee of
the Company), its officers who sign any Registration Statement and each Person,
if any, who controls the Company within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, against any losses,
claims, damages or liabilities to which the Company or such other persons may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in such Registration Statement or Prospectus or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein (in
light of the circumstances under which they were made, in the case of the
Prospectus), not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by the Investor or underwriter expressly for use
therein, and (ii) reimburse the Company for
any legal or other expenses incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that such Investor shall
not be liable under this Section 4.5(b)
for any amount in excess of the net proceeds paid to such Investor in respect of
Registrable Securities sold by it.

     

    
      
         


      

      
        20

        
          

        

      

      
         


      

    

     

    (c)Notice of
Claims, etc.  Promptly after receipt
by a Person seeking indemnification pursuant to this Section 4.5 (an
“Indemnified Party”) of written notice of any
investigation, claim, proceeding or other action in respect of which
indemnification is being sought (each, a “Claim”), the Indemnified Party
promptly shall notify the Person against whom indemnification pursuant to this
Section 4.5 is
being sought (the
“Indemnifying
Party”) of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such
failure.  In connection with any Claim as to which both the
Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party
shall be entitled to assume the defense thereof.  Notwithstanding the
assumption of the defense of any Claim by the Indemnifying Party, the
Indemnified Party shall have the right to employ separate legal counsel and to
participate in the defense of such Claim, and the Indemnifying Party shall bear
the reasonable fees, out-of-pocket costs and expenses of such separate legal
counsel to the Indemnified Party if (and only if): (i) the Indemnifying
Party shall have agreed to pay such fees, costs and expenses, (ii) the
Indemnified Party shall reasonably have concluded that representation of the
Indemnified Party by the Indemnifying Party by the same legal counsel would not
be appropriate due to actual or, as reasonably determined by legal counsel to
the Indemnified Party, potentially differing interests between such parties in
the conduct of the defense of such Claim, or if there may be legal defenses
available to the Indemnified Party that are in addition to or disparate from
those available to the Indemnifying Party, or (iii) the Indemnifying Party
shall have failed to employ legal counsel reasonably satisfactory to the
Indemnified Party within a reasonable period of time after notice of the
commencement of such Claim.  If the Indemnified Party employs separate
legal counsel in circumstances other than as described in the preceding
sentence, the fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party.  Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of
counsel for the Indemnified Party (together with appropriate local
counsel).  The Indemnified Party shall not, without the prior written
consent of the Indemnifying Party (which consent shall not unreasonably be
withheld), settle or compromise any Claim or consent to the entry of any
judgment that does not include an unconditional release of the Indemnifying
Party from all liabilities with respect to such Claim or judgment or contain any admission of
wrongdoing.

     

    (d)Contribution.  If
the indemnification provided for in this Section 4.5 is
unavailable to or insufficient to hold harmless an Indemnified Party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each Indemnifying Party shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and the
Indemnified Party in connection with the statements or omissions or alleged statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations.  The relative
fault of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by such Indemnifying Party or by such
Indemnified Party, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.  The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 4.5(d)
were determined by pro rata allocation (even if the Investors or any
underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in this Section 4.5(d).  The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim.  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.

     

    (e)Limitation
on Investors’ and Underwriters’ Obligations.  Notwithstanding
any other provision of this Section 4.5, in
no event shall (i) any Investor have
any liability under this Section 4.5 for
any amounts in excess of the dollar amount of the proceeds actually received by such Investor from the sale
of Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are registered under the Securities Act and (ii) any
underwriter be required to undertake liability to any Person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration
Statement.

     

    
      
         


      

      
        21

        
          

        

      

      
         


      

    

     

    (f)Other
Liabilities.  The obligations of the Company under this Section 4.5
shall be in addition to any liability which the Company may otherwise have to
any Indemnified Person and the obligations of any Indemnified Person under this
Section 4.5
shall be in addition to any liability which such Indemnified Person may
otherwise have to the Company.  The remedies provided in this Section 4.5 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.

     

    Section
4.6.Rule
144.  With a view to making available to the Investors the
benefits of Rule 144, the Company agrees to use its best efforts
to:

     

                     (i)
comply with the provisions of
paragraph (c)(1) of Rule 144; and

     

                     (ii)file with the Commission in a timely
manner all reports and other documents required to be filed by the Company
pursuant to Section 13 or 15(d) under the Exchange Act; and, if at any time
it is not required to file such reports but in the past had been required to or
did file such reports, it will, upon the request of any Investor, make available
other information as required by, and so long as necessary to permit sales of,
its Registrable Securities pursuant to Rule 144.

     

    Section 4.7.Common
Stock Issued Upon Stock Split, etc.  The provisions of this Article 4 shall apply to any shares of Common Stock or any other
securities issued as a dividend or distribution in respect of the Conversion
Shares or the Warrant Shares.

    


    ARTICLE
5

    


    Other Agreements of the
Parties

    


    Section 5.1.  Certificates;
Legends.

    


    (a)           The
Securities may only be transferred in compliance with state and federal
securities laws. In connection with any transfer of the Securities other than
(i) pursuant to an effective registration statement, (ii) to the Company, or
(iii) to an Affiliate of the respective Investor, the Company may require the
transferor thereof to provide to the Company an opinion of
counsel selected by the transferor and reasonably acceptable to the Company, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act.

    


    (b)           The
certificates representing the Shares and the Warrants to be delivered at the
Closings and the certificates evidencing the Warrant Shares to be delivered upon
exercise of the Warrants and the certificates evidencing the Conversion Shares
to be delivered upon conversion of the Series B Preferred Stock will contain
appropriate legends referring to restrictions on transfer relating to the
registration requirements of the Securities Act and applicable state securities
laws.

    


    Section 5.2.  Integration.  The Company has
not and shall not, and shall use its best efforts to ensure that no Affiliate of
the Company shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the sale
of the Securities to the Investor, or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of any Trading
Market in a manner that would require stockholder approval of the sale of the
securities to the Investor.


     

    
      
         


      

      
        22

        
          

        

      

      
         


      

    


    Section 5.3.  Securities
Laws Disclosure; Publicity.  By 9:00 a.m. (New
York time) on the Trading Day following the execution of this Agreement, and by
5:00 p.m. (New York time) on the Second Closing Date, the Company shall issue
press releases disclosing the transactions contemplated hereby and the Closing.
On the Trading Day following the execution of this Agreement the Company will
file a Current Report on Form 8-K disclosing the material terms of the
Transaction Documents (and attach the Transaction Documents as exhibits
thereto), and on each Closing Date the Company will file an additional Current
Report on Form 8-K to disclose the Closing. In addition, the Company will make
such other filings and notices in the manner and time required by the Commission
and the Trading Market on which the Common Stock is listed.

    


    Section
5.4.  Use of
Proceeds.  The Company shall
use the net proceeds from the sale of the Securities hereunder (i) for working
capital purposes, (ii) to purchase fixed assets used in the development or
production of the Company’s products, (iii) for investment in new technologies
related to the Company’s business, or (iv) to satisfy the outstanding
obligations of the Company to the IRS and other taxing authorities (the “Tax Liabilities”); provided,
however, that not more than $400,000 of such proceeds may be applied to satisfy
the Tax Liabilities.

    


    Section
5.5.  Right of
First Refusal

     

    (a)  Proposed
Financings.  In the event
that, during the period commencing on the date of this Agreement and continuing
to the second anniversary of the Second Closing Date, the Company seeks to raise
additional funds through a private placement of its securities (a “Proposed Financing”), other
than Exempt Issuances, each Investor shall have the right to participate in the
Proposed Financing on a pro rata basis, based on
the percentage that (a) the number of shares of Common Stock issuable upon
conversion of such Investor’s Series B Preferred Stock then held by each such
Investor plus the
number of shares of Common Stock issuable upon conversion of the Warrants bears
to (b) the total number of shares of Common Stock outstanding plus the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock, the
Series B Preferred Stock, and the Prior Convertible Securities and exercise of
the Warrants and the Prior Warrants.

     

    (b)  Investment
Terms.  The terms on
which the Investors shall purchase securities pursuant to the Proposed Financing
shall be the same as such securities are purchased by other investors in such
Proposed Financing.  The Company shall give each Investor written
notice, no later than the date of the initial closing of the Proposed Financing,
setting forth the terms of the Proposed Financing (the “Financing
Notice”).  In the event that the terms of the Proposed
Financing are changed, the Company shall provide the Investors with the same
notice of the revised terms that are provided to the other investors in such
Proposed Financing.

     

    (c)  Financings.  In the event that
an Investor does not exercise, within ten Business Days after receipt of the
Financing Notice, its right to participate in the Proposed Financing, the
Company may sell the securities in the Proposed Financing at a price and on
terms which are no more favorable to the investors in such Proposed Financing
than the terms offered to the Investors.  If the Company subsequently
changes the price or terms so that the terms are at a price or more favorable to
the investors in the Proposed Financing, the Company shall re-offer the
securities to the Investors as provided in this Section
5.5.


     

    
      
         


      

      
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    Section
5.6    New CEO
and CFO.  The Company has appointed Teodor Klowan, Jr. as its
Chief Financial Officer.  The Company covenants and agrees that it has
launched a search for a new Chief Executive Officer.

    


    Section
5.7   New
Employment Agreements.  The Company agrees to use its best
efforts to enter into new employment agreements, effective September 15, 2009,
with Dennis C. Cossey, Shawn Hughes, Alex Fassbender, and David Delasanta, each
for a base annual compensation of $150,000, and with Morton Orentlicher, with a
base annual compensation of $90,000. The employment agreement for Messrs.
Cossey, Hughes, and Fassbender shall provide for one year severance in the event
of an involuntary termination.  The agreements with Messrs. Delasanta
and Orentlicher will provide for severance in the event of involuntary
termination of six (6) months and 90 days, respectively.

    


    Section
5.8.  Board
Constitution.  The initial directors designated by the holders
of Common Stock shall be Dennis C. Cosey, Arthur S. Reynolds, and J. Winder
Hughes III.  The initial Series B Preferred Stock directors designated
by the Quercus Trust shall be David Anthony, Joseph Bartlett and David
Gelbaum.  The initial Series B Preferred Stock director designated by
Robert S. Trump shall be Shawn Hughes.  The Board shall be set at
seven, with three directors being selected by the Common Stockholders and four
directors being selected by the Series B Preferred Stockholders.  The
parties further agree that the Quercus Trust shall designate three of the four
Series B Stockholder directors and that Mr. Trump shall designate the fourth
Series B Preferred Stockholder director.  J. Winder Hughes III shall
resign and be replaced by the new CEO at such time such individual is
hired.  Additionally, at least one representative of the Quercus Trust
shall have a seat on the board of managers of the Company’s subsidiary,
Babcock-Thermo Carbon Capture, LLC.

    


    Section
5.9.  Negative
Covenants.  As long as at 50%
of the Shares issued pursuant to this Agreement remain outstanding, the Company
shall not, without the prior written consent of the Majority Holders (which
consent may be granted or withheld by each Investor in its sole discretion),
take any of the following actions:

    


    
      	
               
      

            	
              (a)

            	
              Increase
      or decrease the size of the Board;

            


    

     

    
      	
               
      

            	
              (b)

            	
              Merge
      with or into any other entity;

            


    

     

    
      	
               
      

            	
              (c)

            	
              Alter,
      amend or repeal any provision of the Certificate of Incorporation or
      By-Laws of the Company in a manner adverse to the Series B Preferred
      Stock;

            


    

     

    
      	
               
      

            	
              (d)

            	
              Sell
      all or substantially all of the assets of the
  Company;

            


    

     

    
      	
               
      

            	
              (e)

            	
              Liquidate,
      dissolve or wind-up the affairs of the Company;
  or

            


    

     

    
      	
               
      

            	
              (f)

            	
              Create
      or authorize the creation of or issue any other security convertible into
      or exercisable for any equity security, having rights, preferences or
      privileges senior to or on parity with the Series B Preferred
      Stock.

            


    

     

    
      
         


      

      
        24

        
          

        

      

      
         


      

    


    ARTICLE
6

    


    Conditions Precedent to
Closing

    


    Section 6.1.  Conditions
Precedent to the Obligations of the Investors to Purchase Securities.  The obligation of
the Investors to acquire Securities at any Closing is subject to the
satisfaction or waiver by each Investor, at or before such Closing, of each of
the following conditions:

    


    
      	
               
      

            	
              (a)

            	
              Representations
      and Warranties. The Company shall have
      delivered a certificate of the Company’s Chief Executive Officer
      certifying that the representations and warranties of the Company
      contained herein are true and correct in all material respects as of the
      date when made and as of the Closing Date as though made on and as of such
      Closing Date;

            


    

    


    
      	
               
      

            	
              (b)

            	
              Performance. The Company shall have
      performed, satisfied and complied in all material respects with all
      covenants, agreements and conditions required by the Transaction Documents
      to be performed, satisfied or complied with by it at or prior to the
      Closing;

            


    

    


    
      	
               
      

            	
              (c)

            	
              No
      Injunction.
      No statute, rule, regulation, executive order, decree, ruling or
      injunction shall have been enacted, entered, promulgated or endorsed by
      any court or governmental authority of competent jurisdiction that
      prohibits the consummation of any of the transactions contemplated by the
      Transaction Documents;

            


    

    


    
      	
               
      

            	
              (d)

            	
              No
      Adverse Changes. Since the date of
      execution of this Agreement, no event or series of events shall have
      occurred that reasonably could have or result in a Material Adverse
      Effect;

            


    

    


    
      	
               
      

            	
              (e)

            	
              Company
      Deliverables. The Company shall have
      delivered the Company Deliverables in accordance with Section 2.6;
      and

            


    

    


    
      	
               
      

            	
              (f)

            	
              Voting
      Agreement.  The Company and each of the other Investors
      shall have executed and delivered the Voting Agreement and such Voting
      Agreement shall be in full force and
effect.

            


    

    


               Section
6.2.  Conditions
Precedent to the Obligations of the Company to Sell Securities.  The obligation of
the Company to sell Securities at any Closing is subject to the satisfaction or
waiver by the Company, at or before the Closing, of each of the following
conditions:

    


    
      	
               
      

            	
              (a)

            	
              Representations
      and Warranties. The representations
      and warranties of the Investors contained herein shall be true and correct
      in all material respects as of the date when made and as of the Closing
      Date as though made on and as of such  Closing
    Date;

            


    

    


    
      	
               
      

            	
              (b)

            	
              Performance. Each Investor shall
      have performed, satisfied and complied in all material respects with all
      covenants, agreements and conditions required by the Transaction Documents
      to be performed, satisfied or complied with by such Investor at or prior
      to the Closing;

            


    

    


    
      	
               
      

            	
              (c)

            	
              No
      Injunction.
      No statute, rule, regulation, executive order, decree, ruling or
      injunction shall have been enacted, entered, promulgated or endorsed by
      any court or governmental authority of competent jurisdiction that
      prohibits the consummation of any of the transactions contemplated by the
      Transaction Documents; and

            


    

     

    
      
         


      

      
        25

        
          

        

      

      
         


      

    


    
      	
               
      

            	
              (d)

            	
              Purchase
      Price. Each
      Investor shall have paid the Purchase Price payable by it at such
      Closing.

            


    

    


    ARTICLE
7

    


    Miscellaneous

    


    Section 7.1.  Fees and
Expenses.  Each party shall
pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of the Transaction
Documents. The Company shall pay all stamp and other taxes and duties levied in
connection with the sale of the Shares.

    


    Section 7.2.  Entire
Agreement.  The Transaction
Documents, together with the Exhibits and Schedules thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements, understandings, discussions and representations,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents and exhibits.  The Company and
the Investors hereby agree that all rights and obligations of the Company and
the Investors with respect to investments by the Investors in the Company shall
be governed by this Agreement, except as specifically provided under any Prior
Warrants held by Investors, and that the Company shall have no obligation to any
Investor under any prior securities purchase agreement.

    


    Section 7.3. Notices.  Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile, e-mail or other means of electronic communication
(provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number or e-mail address specified in this
Section prior to 6:30 p.m. (New York time) on a Business Day, (b) the next
Business Day after the date of transmission, if such notice or communication is
delivered via facsimile, e-mail or other means of electronic communication at
the facsimile number or e-mail address specified in this Section on a day that
is not a Business Day or later than 6:30 p.m. (New York time) on any Business
Day, (c) the Business Day following the date of transmission, if sent by a
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is given. The address for such notices and
communications shall be as follows:

    


    
      
        	
                If
      to the Company:

              	
                ThermoEnergy
      Corporation

              
	 
      	
                Attn.:  Teodor
      Klowan, Jr., CFO

              
	 
      	
                124
      W. Capitol Avenue, Suite 880

              
	 
      	
                Little
      Rock, Arkansas 72201

              
	 
      	 
      
	 
      	
                Telephone:  (501)
      376.6477

              
	 
      	
                Facsimile:  (501)
      375-5249

              
	 
      	
                E-mail:  ted.klowan@thermoenergy.com

              
	 
      	 
      
	
                With
      a copy to:

              	
                Nixon
      Peabody, LLP

              
	 
      	
                Attn.:  William
      E. Kelly, Esq.

              
	 
      	
                100
      Summer Street

              
	 
      	
                Boston,
      Massachusetts  02110

              


      

    

    


    If to any
Investor, at the address of such Investor set forth on Schedule
A,


     

    
      
         


      

      
        26

        
          

        

      

      
         


      

    


    Or, in
any case, to such other address as may be designated in writing hereafter, in
the same manner, by such Person.

    


    Section
7.4.        Amendments;
Waivers; No Additional Consideration.  No provision of
this Agreement may be waived or amended except in a written instrument signed by
the Company and the Majority Holders.  No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.

    


    Section
7.5         Termination.  This Agreement
may be terminated prior to the Second Closing:

    


    
      	
               
      

            	
              (a)

            	
              by
      written agreement of the Investors and the Company;
  or

            


    

    


    
      	
               
      

            	
              (b)

            	
              by
      the Company or any Investor, upon written notice to the other, if the
      Closing shall not have taken place by 6:30 p.m., New York time, on
      November 30, 2009; provided, that
      the right to terminate this Agreement under this Section 7.5(b)
      shall not be available to any Person whose failure to comply with its
      obligations under this Agreement has been the cause of or resulted in the
      failure of the Closing to occur on or before such
  time.

            


    

    


    Upon a termination in accordance with
this Section
7.5, the Company and the Investors shall have no further obligation or
liability (including as arising from such termination) to the
other.

    


    Section 7.6.   Construction.  The headings
herein are for convenience only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party. This Agreement shall be construed as if drafted
jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement or any of the Transaction Documents.

    


    Section 7.7.   Successors
and Assigns.  This Agreement
shall be binding upon and inure to the benefit of the parties and their
successors and permitted assigns. Neither party may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other
party.

    


    Section 7.8.   No
Third-Party Beneficiaries.  This Agreement is
intended for the benefit of the parties hereto and their respective successors
and permitted assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person, except as otherwise set forth in Section 4.5 (with
respect to rights to indemnification and contribution).


     

    
      
         


      

      
        27

        
          

        

      

      
         


      

    


    Section 7.9.  Governing
Law.  All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by and construed and enforced in accordance with the
internal laws of the State of Delaware, without regard to the principles of
conflicts of law thereof. Each party agrees that all Proceedings concerning the
interpretations, enforcement and of the transactions contemplated by this
Agreement and any other Transaction Documents (whether brought against a party
hereto or its respective Affiliates, employees or agents)
shall be commenced exclusively in the state or federal courts sitting in, or
having jurisdiction over, Wilmington, Delaware (the “Delaware Courts”). Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the Delaware
Courts for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of the any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any Proceeding, any claim that
it is not personally subject to the jurisdiction of any such Delaware Court, or
that such Proceeding has been commenced in an improper or inconvenient forum.
Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such Proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby. If either party shall commence a Proceeding to enforce any provisions of
a Transaction Document, then the prevailing party in such Proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such Proceeding.

    


    Section
7.10.  Survival.  The
representations, warranties, agreements and covenants contained herein shall
survive the Closings and the delivery of the Securities.

    


    Section 7.11.  Execution.  This Agreement
may be executed in two or more counterparts, all of which when taken together
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile signature page were an original thereof, notwithstanding any
subsequent failure or refusal of the signatory to deliver an original executed
in ink.

    


    Section 7.12.  Severability.  If any provision
of this Agreement is held to be invalid or unenforceable in any respect, the
validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affected or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.

    


    Section 7.13.  Replacement
of Securities.  If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement Securities.
If a replacement certificate or instrument evidencing any Securities is
requested due to a mutilation thereof, the Company may require delivery of such
mutilated certificate or instrument as a condition precedent to any issuance of
a replacement.

    


    Section 7.14.  Remedies.  In addition to
being entitled to exercise all rights provided herein or granted by law,
including recovery of damages, each of the Investors and the Company will be
entitled to specific performance under the Transaction Documents. The parties
agree that, except as expressly set forth herein with respect to liquidated
damages, monetary damages may not be adequate compensation for any loss incurred
by reason of any breach of obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.


     

    
      
         


      

      
        28

        
          

        

      

      
         


      

    


    IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

    


    
      
        
          
            
              	
                      ThermoEnergy
      Corporation

                    	 
      	
                      The
      Quercus Trust

                    
	 
      	 
      	 
      
	
                      By:  

                    	
                      /s/ Dennis C. Cossey

                    	 
      	
                      By:  

                    	
                      /s/ David Gelbaum

                    
	 
      	
                       Dennis
      C. Cossey

                    	 
      	 
      	
                       David
      Gelbaum

                    
	 
      	
                       Chairman
      and CEO

                    	 
      	 
      	
                       Trustee

                    
	 
      	 
      	 
      
	
                      Empire
      Capital Partners, lp

                    	 
      	
                      Empire
      Capital Partners, ltd

                    
	
                      By:
      Empire
      gp,
      llc, its General Partner

                    	 
      	
                      By:
      Empire
      Capital
      Management,
      llc,

                    
	 
      	 
      	
                      its
      Investment Manager

                    
	 
      	 
      	 
      
	
                      By:  

                    	
                      /s/ Peter J. Richards

                    	 
      	 
      
	 
      	
                       Peter
      J. Richards

                    	 
      	
                      By:

                    	
                      /s/ Peter J.
  Richards

                    
	 
      	 
      	 
      	
                      Peter
      J. Richards

                    
	 
      	 
      	 
      
	
                      Empire
      Capital Partners Enhanced Master Fund, ltd

                    	 
      	 
      
	
                      By:
      Empire
      Capital
      Management,
      llc,

                    	 
      	 
      
	
                      its
      Investment Manager

                    	 
      	
                      /s/  Scott A. Fine 
      

                    
	 
      	 
      	
                      Scott A. Fine

                    
	
                      By:  

                    	
                      /s/ Peter J. Richards

                    	 
      	
                       

                    
	 
      	
                       Peter
      J. Richards

                    	 
      	 
      
	 
      	 
      	 
      
	
                        /s/ Peter J.
      Richards

                    	 
      	
                      /s/ Robert S. Trump

                    
	
                      Peter
      J. Richards

                    	 
      	
                      Robert
      S. Trump

                    
	 
      	 
      	 
      
	 
      	 
      	
                      Focus
      Fund, l.p.

                    
	 
      	 
      	 
      
	 
      	 
      	
                      By:

                    	
                      /s/  J. Winder Hughes
      III

                    
	 
      	 
      	 
      	
                        J.
      Winder Hughes
III

                    


            

          

        

      

    

     

    
      
        
          
             


          

          
            29

            
              

            

          

          
             


          

        

      

       

    

    Schedule
A

    


    
      
        
          
            
              	
                      Investor

                    	 	
                      Second Closing Purchase

                      Price

                    	 	 	
                      Second Closing Cash Payment

                    	 	 	
                      Second Closing Surrendered

                      Notes

                    	 	 	
                      Second Closing Converted

                      Interest

                    	 	
                      Second Closing Shares

                    	 	
                      Second Closing Warrant

                      Shares

                    	 
	
                      The
      Quercus Trust

                      1835
      Newport Blvd.

                      A109-PMC
      467

                      Costa
      Mesa, CA 92627

                    	 	$	3,500,690	 	 	$	700,000	 	 	$	2,680,000	 	 	$	120,690	 	
                      1,458,621
      shares

                    	 	
                      2,800,000
      shares

                    	 
	
                      Robert
      S. Trump

                      89
      10th
      Street

                      Garden
      City, NY 11530

                    	 	$	1,948,000	 	 	$	400,000	 	 	$	1,500,000	 	 	$	48,000	 	
                      811,667
      shares

                    	 	
                      1,600,000
      shares

                    	 
	
                      Focus
      Fund L.P.

                      P.O.
      Box 389

                      Ponte
      Vedra, FL 32004

                    	 	$	614.597	 	 	 	0	 	 	$	600,000	 	 	$	14,597	 	
                      256,082
      shares

                    	 	 	0	 
	
                      Empire
      Capital Partners, LP

                      One
      Gorham Island, Suite 201

                      Westport,
      CT 06880

                    	 	$	339,562	 	 	$	100,000	 	 	$	233,333	 	 	$	6,226	 	
                      141,484
      shares

                    	 	
                      400,000
      shares

                    	 
	
                      Empire
      Capital Partners, Ltd

                      One
      Gorham Island, Suite 201

                      Westport,
      CT 06880

                    	 	$	339,562	 	 	$	100,000	 	 	$	233,333	 	 	$	6,226	 	
                      141,484
      shares

                    	 	
                      400,000
      shares

                    	 
	
                      Empire
      Capital Partners Enhanced Master Fund, Ltd

                      One
      Gorham Island, Suite 201

                      Westport,
      CT 06880

                    	 	$	339,562	 	 	$	100,000	 	 	$	233,333	 	 	$	6,226	 	
                      141,484
      shares

                    	 	
                      400,000
      shares

                    	 
	
                      Peter
      J. Richards

                      One
      Gorham Island, Suite 201

                      Westport,
      CT 06880

                    	 	$	104,559	 	 	 	0	 	 	$	100,000	 	 	$	4,559	 	
                      43,566
      shares

                    	 	 	0	 
	
                      Scott
      A. Fine

                      One
      Gorham Island, Suite 201

                      Westport,
      CT 06880

                    	 	$	104,559	 	 	 	0	 	 	$	100,000	 	 	$	4,559	 	
                      43,566
      shares

                    	 	 	0	 


            

          

        

      

    


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

     

    Schedule
B

    


    
      
        
          
            
              
                	
                        Investor

                      	 	
                        Third Closing Purchase Price

                      	 	
                        Third Closing Shares

                      	 	
                        Third Closing Warrant

                        Shares

                      
	
                        The
      Quercus Trust

                        1835
      Newport Blvd.

                        A109-PMC
      467

                        Costa
      Mesa, CA 92627

                      	 	$	1,200,000	 	
                        500,000
      shares

                      	 	
                        4,800,000
      shares

                      
	
                        Robert
      S. Trump

                        89
      10th
      Street

                        Garden
      City, NY 11530

                      	 	$	300,000	 	
                        125,000
      shares

                      	 	
                        1,200,000
      shares

                      
	
                        Empire
      Capital Partners, LP

                        One
      Gorham Island,

                        Suite
      201

                        Westport,
      CT 06880

                      	 	$	100,000	 	
                        41,667
      shares

                      	 	
                        400,000
      shares

                      
	
                        Empire
      Capital Partners, Ltd

                        One
      Gorham Island,

                        Suite
      201

                        Westport,
      CT 06880

                      	 	$	100,000	 	
                        41,667
      shares

                      	 	
                        400,000
      shares

                      
	
                        Empire
      Capital Partners

                        Enhanced
      Master Fund, Ltd

                        One
      Gorham Island,

                        Suite
      201

                        Westport,
      CT 06880

                      	 	$	100,000	 	
                        41,667
      shares

                      	 	
                        400,000
      shares

                      


              

            

          

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    Schedule
C

    


    
      
        
          
            
              
                	
                        Investor

                      	 	
                        Fourth Closing Purchase

                        Price

                      	 	
                        Fourth Closing Shares

                      	 	
                        Fourth Closing Warrant

                        Shares

                      
	
                        The
      Quercus Trust

                        1835
      Newport Blvd.

                        A109-PMC
      467

                        Costa
      Mesa, CA 92627

                      	 	$	700,000	 	
                        291,667
      shares

                      	 	
                        2,800,000
      shares

                      
	
                        Robert
      S. Trump

                        89
      10th
      Street

                        Garden
      City, NY 11530

                      	 	$	300,000	 	
                        125,000
      shares

                      	 	
                        1,200,000
      shares

                      
	
                        Empire
      Capital Partners, LP

                        One
      Gorham Island,

                        Suite
      201

                        Westport,
      CT 06880

                      	 	$	133,333	 	
                        55,555
      shares

                      	 	
                        533,332
      shares

                      
	
                        Empire
      Capital Partners, Ltd

                        One
      Gorham Island,

                        Suite
      201

                        Westport,
      CT 06880

                      	 	$	133,333	 	
                        55,555
      shares

                      	 	
                        533,332
      shares

                      
	
                        Empire
      Capital Partners Enhanced Master Fund, Ltd

                        One
      Gorham Island,

                        Suite
      201

                        Westport,
      CT 06880

                      	 	$	133,333	 	
                        55,555
      shares

                      	 	
                        533,332
      shares