ThermoEnergy
Corporation


 


Executive
Employment Agreement


 


AGREEMENT, dated the
10th day of December 2012, by and between ThermoEnergy Corporation, a Delaware corporation (together with all of its
subsidiaries, the “Company”) and James F. Wood (the “Executive”).


 


WHEREAS, the Company
desires to engage the services of the Executive as President and Chief Executive Officer of the Company on the terms herein set
forth and the Executive is willing to be employed by the Company in such capacities on such terms;


 


NOW, THEREFORE, in
consideration of the mutual covenants contained herein, the parties agree as follows:


 


ARTICLE
I


EMPLOYMENT
DUTIES AND BENEFITS


 


Section 1.1
Employment. The Company hereby employs the Executive as President and Chief Executive Officer as of January 2, 2013
(the “Commencement Date”). The Executive accepts such employment and agrees to perform the duties and responsibilities
assigned to him pursuant to this Agreement.


 


Section 1.2
Duties and Responsibilities. The Executive shall perform such lawful duties and have such responsibilities as are customarily
associated with the office in which he is employed. In addition thereto, the Executive shall undertake such duties as may reasonably
be assigned to him from time to time by the Board of Directors of the Company (the “Board of Directors”). The Executive
will serve as a member of the Board of Directors. The Executive shall devote his full professional time and attention to the business
of the Company and shall not be engaged in any other business activity; provided, however, that the Executive may serve as a Trustee
of Clarkson University and, with the prior consent of the Board of Directors (which consent shall not be unreasonably withheld),
engage in other activities, so long as such activities do not materially interfere with the Executive’s performance of his
responsibilities as Chief Executive Officer of the Company. The Executive’s service on governmental commissions and advisory
boards and his testimony before Congressional committees or regulatory bodies shall not require the consent of the Board of Directors.


 


Section 1.3
Office Facilities. The Company will provide to the Executive an appropriate office, which shall be located at the Company’s
principal executive offices in Worcester, Massachusetts.


 


ARTICLE
II


COMPENSATION
and benefits


 


Section 2.1
Base Salary. The Company shall pay to the Executive a salary of $230,000 (the “Base Salary”) payable in
equal installments in accordance with the Company’s payroll and withholding policies. The Base Salary shall be reviewed annually
and shall be subject to adjustment from time to time to reflect the Executive’s performance of his responsibilities hereunder,
employment market conditions, the Company’s financial condition and such other factors as the Compensation Committee of the
Board of Directors (the “Compensation Committee”) deems relevant. The Base Salary shall not be decreased without the
consent of the Executive.


 






    	-1-



    	 



    
 


Section 2.2
Relocation Expenses. The Company will reimburse the Executive (i) for up to $5,000 for moving and other reasonable relocation
expenses and (ii) for up to $3,000 per week for temporary lodging expenses reasonably incurred by the Executive during the six-week
period commencing on the Commencement Date.


 


Section 2.3
Performance Bonus. In addition to the Base Salary, the Executive shall be eligible to receive performance bonuses, from
time to time, in accordance with incentive compensation arrangements to be established by the Compensation Committee in consultation
with the Executive. Such performance bonuses shall be payable in cash, in shares of the Company’s Common Stock, in options
to purchase shares of the Company’s Common Stock, or in a combination thereof, at the discretion of the Compensation Committee;
provided, however, that, except under extraordinary circumstances, the Company will not pay performance bonuses in cash until such
time as the Company’s business operations are cash flow positive.


 


Section 2.4 
Expense Reimbursement. The Company will, in accordance with the Company’s general policies with respect to business
expenses, reimburse the Executive for all expenses (including travel and lodging) reasonably incurred by the Executive in the performance
of this duties under this Agreement.


 


Section 2.5
Benefit Plans. From and after the date of this Agreement, the Executive shall be entitled to receive, during the term
of the Executive’s employment and at the expense of the Company, health insurance for himself and his family and to participate
in any and all other benefit plans (including life and disability insurance plans and retirement programs) provided generally to
executive employees of the Company.


 


Section 2.6 
Equity Incentive. Effective as of the date of this Agreement, the Executive shall be granted a stock option for the
purchase of 13,750,000 shares of the Company’s common stock at an exercise price per share equal to the closing price of
a share of such common stock in the over-the-counter market on the trading day immediately preceding the Commencement Date (the
“Stock Option”). The Stock Option shall have a term of ten years, subject to the Executive’s continued employment
by the Company, and will include a net surrender cashless exercise provision. To the extent that the Stock Option may be treated
as an Incentive Stock Option (an “ISO”) under the Internal Revenue Code and the Treasury Regulations promulgated thereunder
(the “ISO Rules”), the Stock Option shall be granted under the Company’s 2008 Incentive Stock Plan (the “Plan”).
The right to exercise the Stock Option shall vest, with respect to 859,375 shares, on March 31, 2013 and thereafter, with respect
to an additional 859,375 shares on the last day of each subsequent calendar quarter through and including December 31, 2016, subject
to the Executive’s continued employment by the Company; provided, however, that if, prior to December 31, 2016, the Executive’s
employment is terminated other than by the Company for Cause (as such term is defined in Section 3.2 below) or by the Executive
without Good Reason (as such term is defined in Section 3.2 below) within ninety days after a Change of Control, then, effective
as of the date on which the Executive’s employment is terminated, the Stock Option shall vest with respect to fifty percent
(50%) of the shares that were unvested on the date of the Change of Control. Except to the extent that the Plan or the ISO Rules
limit the right to exercise the ISO portion of the Stock Option following termination of the Executive’s employment, the
vested portion of the Stock Option may be exercised at any time prior to the tenth anniversary of the date of this Agreement, notwithstanding
the earlier termination of the Executive’s employment. As used herein, the term “Change of Control” shall mean
any of the following: (i) the completion by the Company of a reorganization, merger, consolidation, share exchange, or a sale,
lease, exchange or other disposition of all or substantially all of the Company’s assets, unless immediately following
such transaction the holders of the Company’s voting stock immediately prior to the transaction own voting securities representing
a majority of the votes entitled to be cast for the election of directors of the successor entity; (ii) the acquisition, after
the date of this Agreement, by any person or “group” (as defined under the federal securities laws) of “beneficial
ownership” (as defined under the federal securities laws) of a majority of (a) the outstanding shares of the Company’s
common stock or (b) the combined voting power of the then outstanding voting securities of the Company which are entitled to elect
a majority of the members of the Board of Directors; or (iii) the approval by the Company’s shareholders of a complete liquidation
or dissolution of the Company; provided, however, that if an event that otherwise would constitute a Change of Control results
from or arises out of a purchase or other acquisition of the Company, directly or indirectly, by a corporation or other entity
in which the Executive has a greater than five percent (5%) direct or indirect equity interest (other than Babcock Power Inc.,
so long as, at the time of such purchase or other acquisition, the Executive is not an officer or director of Babcock Power Inc.
or any of its affiliates), such event shall not constitute a Change of Control.


 






    	-2-



    	 



    
 


Section 2.7 
Vacation. The Executive shall be entitled to four weeks of paid vacation per calendar year. The Executive may not roll
over unused vacation time from year to year.


 


ARTICLE
III


TERM OF
EMPLOYMENT AND TERMINATION


 


Section 3.1
Term. The term of the Executive’s employment hereunder shall commence on the Commencement Date and shall continue
indefinitely.


  


Section 3.2
Termination of Employment. The Executive’s employment hereunder may be terminated, at any time, by either party
upon thirty days’ written notice; provided, however, that the Company may terminate the Executive’s employment immediately
for Cause and the Executive may terminate his employment immediately with Good Reason. As used herein, the term “Cause”
for termination of the Executive’s employment by the Company shall mean any of the following: (a) willful or gross misconduct
(including fraud) that is materially harmful to the Company; (b) willful neglect of duties and responsibilities consistent with
the terms of this Agreement that have been reasonably assigned to the Executive by the Board of Directors, which continues for
a period of at least ten days after the Executive receives written notice thereof from the Board of Directors; or (c) conviction
of the Executive of, or a plea of nolo contendere by the Executive to, a crime punishable by imprisonment; provided, however, that
any action taken by the Executive in his capacity as an officer of the Company will not be deemed to constitute Cause even if subsequently
determined to be criminal if, prior to taking such action, the executive consulted with the Board of Directors or the Company’s
legal counsel and was advised that such action was permissable. As used herein, the term “Good Reason” for the Executive’s
voluntary termination of his employment shall mean either of the following: (a) the Company’s failure to perform the terms
of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and remedied by the
Company promptly (but not later than ten days) after receiving written notice thereof from the Executive; (b) a material reduction
in the Executive’s duties or responsibilities, including, without limitation, if the Executive is removed from, or not elected
or re-elected, to the Board of Directors; or (c) a material reduction of the Base Salary.


  


In the event the Executive’s
employment is terminated for any reason other than (i) by the Company for Cause or (ii) voluntarily by the Executive without Good
Reason, the Executive shall be entitled to receive, in addition to any unpaid salary and accrued and unused vacation pay through
the last day of the month in which such termination occurs, as the Executive’s sole and exclusive entitlement upon termination
of his employment under such circumstances, (i) severance payments in the amount of $19,167 per month for a period of six months
commencing on the first day of the month immediately following the date of termination, payable in accordance with the Company’s
standard payroll and withholding policies and (ii) continuation of health insurance benefits as set forth in the following sentence.
For a period of six months commencing on the first day of the month immediately following the date of termination of the Executive’s
employment (other than termination (i) by the Company for Cause or (ii) voluntarily by the Executive without Good Reason) the Company
shall keep in full force and effect all health insurance benefits afforded to the Executive at the time of the termination of his
employment, which benefits shall be provided on terms identical to those provided to full time employees of the Company who are
in good standing; provided, however, that the Company’s obligation to provide continuing health insurance benefits to the
Executive shall terminate at such time as the Executive becomes eligible to receive from any other employer, at a cost to the Executive
no greater than the cost that would have been borne by the Executive had he remained a full time employee of the Company, health
insurance benefits with equivalent or better coverage.


 






    	-3-



    	 



    
 


Section 3.3Section
409A. Notwithstanding anything herein to the contrary, (i) if at the time of the termination of the Executive’s employment
the Executive is a “specified employee” (as such term is defined in Section 409A of the Internal revenue Code of 1986,
as amended (the “Code”)) and the deferral of the commencement of any payments or benefits otherwise payable hereunder
as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section
409A of the Code, then the company will defer the commencement of the payment of any such payments or benefits hereunder (without
any reduction in such payments or benefits ultimately paid or provided to the executive) until the date that is six months following
the date of termination of the Executive’s employment (or the earliest date as is permitted under Section 409A of the Code
without any accelerated or additional tax) and (ii) if any other payments of money or other benefits due to the Executive hereunder
could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits
shall be restructured, to the extent possible, in a manner, determined by the Compensation Committee, that is reasonably expected
not to cause such accelerated or additional tax. Any payments deferred pursuant to the preceding sentence (other than deferred
amounts that will continue to accrue earnings under the terms of the applicable deferral arrangement) shall be paid together with
interest thereon at a rate equal to the applicable Federal rate for short-term instruments. For purposes of Section 409A of the
Code, each payment made under this Agreement shall be designated as a “separate payment” within the meaning of Section
409A of the Code and references herein to the “termination of the Executive/s Employment” shall refer to the Executive’s
separation from service with the Company within the meaning of Section 409A of the Code. To the extent any reimbursements or in-kind
benefits due to the Executive under this Agreement constitute “deferred compensation” under Section 409A of the Code,
any such reimbursements or in-kind benefits shall be paid to the Executive in a manner consistent with Treas. Reg. 1.409A-3(i)(1)(iv).
Additionally, to the extent that the Executive’s receipt of any in-kind benefits from the Company or its affiliates must
be delayed pursuant to this Section 3.3 due to the Executive’s status as a “specified employee,” the Executive
may elect to instead purchase and receive such benefits during the period in which the provision of benefits would otherwise be
delayed by paying the Company (or its affiliates) for the fair market value of such benefits (as determined by the Company in good
faith) during such period. Any amounts paid by the Executive pursuant to the preceding sentence shall be reimbursed to the Executive
(with interest thereon) as described above on the date that is six months following the Executive’s separation from service.
The company shall consult with the Executive in good faith regarding the implementation of the provisions of this Section 3.3;
provided that neither the Company nor any of its employees or representatives shall have any liability to the Executive with respect
thereto.


 



    	-4-



    	 



    

 


ARTICLE
IV


COVENANTS


 


Section 4.1Confidentiality
and Non-Use of Proprietary Information. To protect the Company’s proprietary interest in the Company’s intellectual
property and proprietary information and to protect the goodwill and value of the Company, the Executive hereby agrees that the
Executive will preserve as confidential all Confidential Information pertaining to the Company’s business that has been
or may be obtained or learned by him by reason of his employment or otherwise. The Executive will not, without the written consent
of the Company either use for his own benefit or for the benefit of any third parties, either during the term of his employment
hereunder or thereafter (except as required in fulfilling the duties of his employment), any Confidential Information pertaining
to the business of the Company. As used herein, the term “Confidential Information” shall include without limitation
any and all financial, cost and pricing information and any and all information contained in any drawings, designs, plans, proposals,
customer lists, records of any kind, data, formulas, specifications, concepts or ideas related to the business of the Company.
Confidential Information shall not include information which (a) is disclosed in a publication available to the public, is otherwise
in the public domain at the time of disclosure, or becomes publicly known through no wrongful act on the part of the Executive,
(b) is obtained by the Executive lawfully from a third party who is not under an obligation of secrecy to the Company and is not
under any similar restrictions as to use, or (c) is generally disclosed to third parties by the Company without similar restrictions
on such third parties. The Executive acknowledges that all documents, reports, files, analyses, drawings, designs tools, equipment,
plans (including, without limitation, marketing and sales plans), proposals, customer lists, computer software or hardware, patents,
license agreements, and similar materials that are made by him or come into his possession by reason of his employment by the
Company are the property of the Company and shall not be used by him in any way adverse to the Company’s interests. The
Executive will not cause any such documents or other things, or any copies, reproductions or summaries thereof, to by delivered
to or used by any third party without the specific consent of the Company. The Executive will deliver to the Chairman of the Board
of Directors, or his designee, upon demand, and in any event upon the termination of the Executive’s employment, all such
documents and other things which are in the Executive’s possession or under his control. Notwithstanding anything to the
contrary set forth in this Section 4.1, to the extent the Executive received Confidential Information of the Company’s subsidiary,
ThermoEnergy Power Systems, LLC, a Delaware limited liability company (“TEPS”) or of its affiliate Babcock-Thermo
Clean Carbon LLC (“BTCC”) pursuant to the Master Non-Disclosure Agreement dated as of February 25, 2009 by and among
BTCC, the Company and certain other parties including Babcock Power, Inc. (“Babcock”), as supplemented by the written
confidentiality agreement the Executive and Babcock (the “BTCC Confidentiality Agreements”), the terms of the BTCC
Confidentiality Agreements shall govern the Executive’s possession and use of such Confidential Information.


 


Section 4.2Non-Competition
and Non-Solicitation. To protect the Company’s proprietary interest in the Company’s intellectual property
and proprietary information and to protect the goodwill and value of the Company, the Executive hereby agrees that during his
employment by the Company and, following the date on which his employment is terminated, for a period of (i) one year if the Executive’s
employment is terminated by the Company for Cause or voluntarily by the Executive without Good Reason or (ii) six months if the
Executive’s employment is terminated for any other reason (in either case, the “Non-Compete Term”), the Executive
will not, individually, or in association or in combination with any other person or entity, directly or indirectly, as proprietor
or owner, or officer, director or shareholder of any corporation, or as an employee, agent, independent contractor, consultant,
advisor, joint venturer, partner or otherwise, whether or not for monetary benefit, except on behalf of the Company, solicit,
sell to, provide services to, or assist the solicitation of, sale to, or providing to, or encourage, induce or entice any other
person or entity to solicit, sell to or provide services to, any person or entity who is a customer of the Company or who, at
any time within 18 months prior to the date of termination of the Executive’s employment, or whom the Company has, within
six months prior to the date of such termination, solicited to become a customer of Company, for the purpose of (a) providing
such customer with any product or service which directly competes with the products or services provided by the Company to such
customer or is in substitution for or in replacement of such products or services; (b) altering, modifying or precluding
the development of such customer’s business relationship with the Company; or (c) reducing the volume of business which
such customer transacts with the Company. To further protect the Company’s proprietary interest in the Company’s intellectual
property and proprietary information and to protect the goodwill of the Company (including the Company’s beneficial business
relationships with the Company’s employees), the Executive hereby agrees that, during the Non-Compete Term, the Executive
will not, individually or in association or in combination with any other person or entity, directly or indirectly, encourage,
induce or entice any employee or independent contractor of the Company to terminate or modify such person’s or entity’s
employment, engagement or business relationship with the Company or, without the prior written consent of the Company, hire or
retain any employee or independent contractor then performing services for the Company to perform the same or substantially similar
services.


 






    	-5-



    	 



    
 


Section 4.3Scope
of Covenants. The Executive agrees that the products and services of the Company can be, and are being designed and developed
to be, manufactured, distributed and/or sold throughout the world. Consequently, the Executive and the Company agree that it is
not possible to limit the geographic scope of the non-competition covenant contained in this Article IV to particular countries,
states, cities or other geographic subdivisions. Further, the Executive agrees that the length of the Non-Compete Term is reasonable,
in light of the position in which the Executive is being employed by the Company and the amount and duration of severance payments
payable to him under this Agreement.


 


article
v


 


GENERAL
MATTERS


 


Section 5.1
Governing Law. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts and shall be construed
in accordance therewith.


 


Section 5.2
No Waiver. No provision of this Agreement may be waived except by an agreement in writing signed by the waiving party.
A waiver of any term or provision shall not be construed as a waiver of any other term or provision.


 


Section 5.3
Amendment. This Agreement may be amended, altered or revoked at any time, in whole or in part, only by a written instrument
setting forth such changes, signed by each of the parties.


 


Section 5.4
Benefit. This Agreement shall be binding upon the Executive and the Company, and shall not be assignable by either party
without the other party’s written consent.


 


Section 5.5
Text to Control. The headings of articles and sections are included solely for convenience in reference. If any conflict
between any heading and the text of this Agreement exists, the text shall control.


 


Section 5.6
Severability. If any provision of this Agreement is declared by any court of competent jurisdiction to be invalid for
any reason, such invalidity shall not affect the remaining provisions. On the contrary, such remaining provisions shall be fully
severable, and this Agreement shall be construed and enforced as if such invalid provisions had not been included in the Agreement.


 


Section 5.6
Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive with respect
to the Executive’s employment by the Company and supersedes any and all prior agreements and understandings (whether written
or oral) between the parties with respect to such employment.


 






    	-6-



    	 



    
 


In Witness Whereof,
the Company and the Executive have executed this Agreement as of the date first above written.


 





	 	 	ThermoEnergy Corporation	 
	 	 	 	 
	 	 	 	 
	  /s/  James F. Wood                                    	 	By:   /s/ Cary G. Bullock                 	 
	        James F. Wood	 	       Cary G. Bullock	 
	 	 	       Chairman of the Board of Directors	 







 






    	-7-