Document:

EXHIBIT
10.3

    

    STATE
OF ISRAEL

    

    Petroleum
Law   5712-1952

    

    PRELIMINARY
PERMIT

    NUMBER
201 /”ISSACHAR-ZEBULUN”

    

    BY
VIRTUE OF MY AUTHORITY IN ACCORDANCE WITH SECTION 7 OF THE PETROLEUM LAW
5712-1952

    

    IT
IS HEREBY ISSUED TO ZION OIL & GAS INC (100%)

    

    
      	
              PELIMINARY
      PERMIT

            	
              To
      carry out preliminary inspections, including geologist and geophysics
      works so as to ascertain the possibility of discovering petroleum within
      the area as described in the First Addendum which is an integral part of
      the preliminary permit herein.

            

    

    

    
      	
              THIS
      PRELIMINARY PERMIT  

            	
              is
      granted pursuant to the provisions of the Petroleum Law 5712-1952 and
      regulations thereof, and subject to the permit owner complying with the
      law and regulations as aforesaid, as per the specific terms as set forth
      in the Second Addendum  which is an integral part of the
      preliminary permit herein.

            

    

    

    
      
        
          	
                  The
      validity of this preliminary permit shall expire on the
    date

                	 
      	
                  30 of Shevat 5772

                
	 
      	 
      	
                   23
      February 2011

                
	 
      	 
      	 
      
	
                  Issued
      in Jerusalem on the date

                	 
      	
                    4th of Elul 5769

                
	 
      	
                    

                	
                    24
      August 2009

                

        

      

    

    

    Dr.   Yaakov
Mimran

    Oil
Commissioner

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    STATE
OF ISRAEL

    

    Petroleum
Law   5712-1952

    

    PRELIMINARY
PERMIT

    NUMBER
201 /”ISSACHAR-ZEBULUN”

    For
Zion Coordinates FIRST ADDENDUM

    

    DESCRIPTION
OF THE AREA

    

    
      
        	
                From
      Zion coordinate

              	 
      	
                215000/730000

              	 
      	
                east

              
	
                To
      Zion coordinate

              	 
      	
                23000/730000

              	 
      	
                thence
      north east

              
	
                To
      Zion coordinate

              	 
      	
                259500/735000

              	 
      	
                thence
      south

              
	
                To
      Zion coordinate

              	 
      	
                259505/732160

              	 
      	
                then
      south along the international border

              
	
                To
      Zion coordinate

              	 
      	
                254041/707000

              	 
      	
                thence
      west

              
	
                To
      Zion coordinate

              	 
      	
                246000/707000

              	 
      	
                thence
      north west

              
	
                To
      Zion coordinate

              	 
      	
                242600/719000

              	 
      	
                thence
      west

              
	
                To
      Zion coordinate

              	 
      	
                223300/719000

              	 
      	
                thence
      south west along the green line

              
	
                To
      Zion coordinate

              	 
      	
                218322/715005

              	 
      	
                thence
      north

              
	
                To
      Zion coordinate

              	 
      	
                213000/722000

              	 
      	
                thence
      return north east

              
	
                To
      Zion coordinate

              	
                  

              	
                215000/730000

              	
                  

              	 
      

      

    

    

    The
entire area is 660,420 dunam( 660.42 square kilometers)

    

    The
coordinates are based on the new Israeli network.

    

    1. The
boundary of the area shall be as they are in the above description
notwithstanding any apparent change from the demarcation in the maps submitted
by the preliminary permit recipient.

    

    
      
        	
                Issued
      in Jerusalem on the date

              	 
      	
                  4th of Shevat 5769

              
	 
      	
                  

              	
                  24
      August 2009

              

      

    

    

    Dr.   Yaakov
Mimran

    Oil
Commissioner

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    STATE
OF ISRAEL

    

    Petroleum
Law   5712-1952

    

    PRELIMINARY
PERMIT

    NUMBER
201 /”ISSACHAR-ZEBULUN”

    

    Second
Addendum

    

    Specific
Terms

    

    During
the period of the permit the owner of the permit shall carry out the following
work program:

    

    1.
Execute an agreement with a contractor for geophysics works to perform
reprocessing of approximately 100 km of existing seismic lines -within a month
from the date that the permit was issued.

    

    2.
Reprocessing the above lines and presenting a report to the Commissioner within
6 months.

    

    3.
Execute an agreement with a contractor for geophysics works to perform a survey
of new seismic lines having a length of approximately 30 km within 8 months from
the date that the permit was issued.

    

    4. Carry
out a seismic survey and interpretation thereof- within 12 months from the date
that the permit was issued.

    

    5.
Integrating all of the data and presenting a drilling prospect within the permit
area up to the date that the permit expires.

    

    6.
Submitting quarterly reports  pursuant to regulation 4  of
the Petroleum Regulations and a month before the expiration of the preliminary
permit a report will be submitted, 2 copies, with respect to the works that have
been performed in the area and the findings therein, and the investment that the
company invested. The report shall include the following:

    a.
Prospect evaluation of the various plays.

    b.
Structural maps (time and depth) and isopach maps regarding Mesozoic and
Cenozoic   key horizons.

    c.
Attribute maps with the appropriate context, in the event that these are
prepared.

    d.
Paleogeographical maps of the structural units which constitute the various
plays.

    e.
Evaluating the petroleum potential and movement path of the
hydrocarbons.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    7. The
final report shall include all the works that were performed in the permit area
and the following items shall be attached (in the event that they have not been
submitted previously in the quarterly reports or pursuant to clause 5 above):
all the geophysics material, including copies of field tapes of magnetic data,
accompanied documentary material such as surveyor reports, operator reports,
location reports, results from processing new seismic lines and reprocessing old
seismic lines. The relevant material shall be submitted by magnetic film and
semi original – mailer type.

    No
original geophysics material such as magnetic films etc’ shall be taken out of
the country – only copies may be taken out of the country.

    

    Non
compliance with the above terms shall bring about the immediate termination of
the permit from the date of non compliance of the terms.

    

    
      
        	
                Issued
      in Jerusalem on the date

              	 
      	
                  4th of Shevat 5769

              
	 
      	
                  

              	
                  24
      August 2009

              

      

    

    

    Dr.   Yaakov
Mimran

    Oil
Commissioner

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Ministry
of National Infrastructure

    

    August
24, 2009

    4th Elul
5769

    

    Richard
Rinberg

    Zion Oil
& Gas Inc.

    

    Re:
Preliminary Permit With Priority Rights -201/”Issachar- Zebulun”

    

    1.           We
hereby inform you that pursuant to my authority  in accordance
with  section 7A of the Petroleum Law 5712-1952  (
hereinafter “the Petroleum Law”) and after consultation with the advisory
council in accordance with the said Law  and in view of
the  work program  as set forth in  the second
Addendum  to the Preliminary Permit 201/”Issachar – Zebulun”(
hereinafter the “Preliminary Permit”) , with an estimated cost of $450,000 I
have resolved to grant priority rights to receive petroleum rights in the area
as set forth in  the Preliminary Permit to Zion Oil & Gas Ltd ,
subject to execution  of the aforesaid plan.

    

    2.           Priority
rights to receive petroleum rights in the area of the Preliminary Permit is
subject to fulfillment of the terms of the Preliminary Permit, in execution of
the work programs and fulfillment of the relevant provisions of the Petroleum
Law with respect to the subject matter.

    

    3.           The
priority rights shall be valid for 18 months or until expiration of the
Preliminary Permit the earlier of the two dates.

    

    4.           The
grant of the priority rights shall not be deemed to exempt the permit holder
from fulfilling all of the requirements to receive a license in accordance with
the Law, including requirements with respect to financial stability or
undertaking to invest that will be required as a condition precedent to the
grant of a license. You are referred also to sections 17, 27 and 56 of the
Petroleum Law.

    

    Sincerely

    

    Dr. Uzi
Landau

    Minister
of National InfrastructureThermoEnergy
Corporation

    

    Bridge
Loan Agreement

    

    This Bridge Loan Agreement (this “Agreement”) made this 10th day of
March 2010 but effective as of March 1, 2010 by and among ThermoEnergy
Corporation, a Delaware corporation having its principal place of business in
Little Rock, Arkansas (the “Borrower”) and the individual and entities named on
Schedule I hereto  (collectively, the “Lenders”).

    

    WHEREAS, the Borrower and certain of
the Lenders are parties to a certain Securities Purchase Agreement dated as of
November 19, 2009 (the “Series B Agreement”) pursuant to which such Lenders have
purchased from the Borrower shares of the Series B Convertible Preferred Stock
of the Borrower (the “Series B Stock”) and Common Stock Purchase Warrants
entitling the holders thereof to purchase shares of the Common Stock of the
Borrower (the “Warrants”); and

    

    WHEREAS,
pursuant to the Series B Agreement, certain of the Lenders are obligated, upon
the satisfaction of certain conditions set forth in the Series B Agreement (the
“Third and Fourth Tranche Conditions”), to purchase from the Borrower additional
shares of Series B Stock and additional Warrants (the “Third and Fourth Tranche
Securities”);  and

    

    WHEREAS,
the Borrower requires cash to fund their operations prior to the satisfaction of
the Third and Fourth Tranche Conditions; and

    

    WHEREAS,
the Lenders are prepared to make loans to the Borrower on the terms and
conditions herein set forth;

    

    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
Borrowers and the Lenders agree as follows:

     

    ARTICLE
1

    

    Loans

    

    Section
1.1.  Issuance
of Notes.  The Borrower hereby agrees to issue to each Lender a
Convertible Promissory Note in substantially the form attached here to Exhibit A
(the “Notes”) in the original principal amount set forth opposite the name of
such Lender on Schedule I attached hereto under the heading
“Commitment”.

    

    Section
1.2. Draw
Downs.  No later than 5 business days prior to the end of each
month, the Borrower will deliver to the Lenders an operating budget for the
succeeding month  (the “Monthly Budgets”) indicating the amount of
cash that the Borrower desires to be advanced by the Lenders under the Notes to
fund operations for such month (the “Draw”).  Unless the Lenders
(acting by the vote of the holders of at least 662⁄3% of the then outstanding
principal amounts of the Notes) reject a Monthly Budget no later than 3 business
days after delivery, on the first business day of such succeeding month each
Lender shall deliver to the Borrower, by wire transfer, its applicable
percentage of the Draw, as calculated in accordance with the Lenders’ respective
Participation Percentages as set forth on Schedule I attached hereto under the
heading “Participation Percentage”). Notwithstanding the foregoing, any Lender
may, but shall not be obligated to, advance under the Notes an amount greater
than its respective Participation Percentage of any Draw (an “Advance”) and the
amount of any such Advance shall be credited against subsequent
Draws.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
1.3.  Security
Interest in Collateral.  The obligation of the Lenders to
advance funds against any Draw is expressly conditioned on the Borrower’s
execution and delivery of a Security Agreement in substantially the form
attached hereto as Exhibit B (the “Security Agreement” and, together with this
Agreement and the Notes, the “Transaction Documents”) granting to the lenders a
security interest in substantially all of the assets of the
Borrower.

     

    Section 1.4. Additional
Closing Deliveries.  At the Closing,
the Borrower shall deliver or cause to be delivered to each Lender the
following:

    

    
      	
               
      

            	
              (i)

            	
              The
      Security Agreement; and

            

    

    

    
      	
               
      

            	
              (ii)

            	
              The
      Notes; and

            

    

    

    
      	
               
      

            	
              (iii)

            	
              Copies
      of resolutions of the board of directors of the Borrower approving the
      execution, delivery and performance of the Transaction Documents and the
      transactions contemplated thereby, in each case certified by the Secretary
      of the Borrower to be in full force and effect on the Closing
      Date.

            

    

     

    ARTICLE
2

    

    Representations and
Warranties

    

    Section 2.1.  Representations
and Warranties of the Borrower. The Borrower hereby makes
the following representations and warranties to the Lenders:

    

    
      	
               
      

            	
              (a)

            	
              Organization
      and Qualification. The Borrower is duly
      incorporated, validly existing and in good standing under the laws of the
      State of Delaware, with the requisite power and authority to own and use
      its properties and assets and to carry on its business as currently
      conducted. The Borrower is not in violation of any of the provisions of
      its certificate of incorporation, bylaws or other organizational or
      charter documents. The Borrower is duly qualified to conduct its
      respective business and is in good standing as a foreign corporation 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.  For purposes of this Agreement, the term
      “Material Adverse Effect” shall mean 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
      Borrower, taken as a whole, or (iii) a material impairment of the
      Borrower’s ability to perform on a timely basis their obligations under
      any Transaction Document.

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (b)

            	
              Authorization;
      Enforcement. The Borrower 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 Borrower and the
      consummation by the Borrower of the transactions contemplated thereby have
      been duly authorized by all necessary action on the part of the Borrower
      and no further action is required by the Borrower in connection therewith.
      Each Transaction Document has been (or upon delivery will have been) duly
      executed by the Borrower and, when delivered in accordance with the terms
      hereof, will constitute the valid and binding obligation of the Borrower
      enforceable against the Borrower 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.

            

    

    

    
      	
               
      

            	
              (c)

            	
              No
      Conflicts.
      The execution, delivery and performance of the Transaction Documents by
      the Borrower and the consummation by the Borrower of the transactions
      contemplated thereby do not and will not (i) conflict with or violate any
      provision of the Borrower’s certificate 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 (except as contemplated by the Security Agreement)
      result in the imposition of any lien upon any of the material properties
      or assets of the Borrower pursuant to, any agreement, credit facility,
      debt or other instrument or other understanding to which the Borrower is a
      party or by which any property or asset of the Borrower 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 Borrower is subject (including federal
      and state securities laws and regulations), or by which any property or
      asset of the Borrower 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.

            

    

    

    
      	
               
      

            	
              (d)

            	
              Filings,
      Consents and Approvals. The Borrower 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 Borrower of the Transaction Documents and the
      consummation of the transactions contemplated thereby, other than the
      filing of a financing statement on Form UCC-1 with the Secretary of State
      of the State of Delaware.

            

    

    

    
      	
               
      

            	
              (e)

            	
              Issuance
      of the Notes. The Notes have been
      duly authorized.  Each Note, when issued in accordance with this
      Agreement, will be duly and validly
issued.

            

    

    

    
      	
               
      

            	
              (f)

            	
              SEC
      Reports; Financial Statements.  The
      Borrower has filed all reports required to be filed by it under the
      Securities Act of 1933 (the “Securities Act”) and the Securities Exchange
      Act of 1934 (the “Exchange Act”) for the twelve months preceding the date
      hereof (or such shorter period as the Borrower was required by law to file
      such reports) (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 Securities and Exchange 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 Borrower
      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 Borrower 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.

            

    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (g)

            	
              Compliance. Except as has been
      disclosed to the Lenders in writing, the Borrower (i) is not 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 Borrower under), nor has the Borrower 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 not in
      violation of any order of any court, arbitrator or governmental body, or
      (iii) is not and has not 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.

            

    

    

    
      	
               
      

            	
              (h)

            	
              Title
      to Assets.
      Except as has been disclosed to the Lenders in writing, the Borrower has
      good and marketable title in fee simple to all real property owned by it
      that is material to its businesses and good and marketable title in all
      personal property owned by it that is material to its businesses, in each
      case free and clear of all liens, except for liens as 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 Borrower. Any
      real property and facilities held under lease by the Borrower and its
      subsidiaries are held by them under valid, subsisting and enforceable
      leases of which the Borrower and its subsidiaries are in compliance,
      except as could not, individually or in the aggregate, have or reasonably
      be expected to result in a Material Adverse
  Effect.

            

    

    

    
      	
               
      

            	
              (i)

            	
              Patents
      and Trademarks. The Borrower and its
      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”). The SEC
      Reports describe all claims and Actions made or filed by others against
      the Borrower deemed material by the Borrower to the effect that
      Intellectual Property Rights used by the Borrower or any subsidiary
      violate or infringe upon the rights of such claimant. Except as set forth
      in the SEC Reports, to the knowledge of the Borrower, all of the
      Intellectual Property Rights are enforceable and there is no existing
      infringement by another Person of any of the Intellectual Property
      Rights.

            

    

    

    
      	
               
      

            	
              (j)

            	
              Insurance. The Borrower and its
      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 Borrower and its
      subsidiaries are engaged. The Borrower 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 Borrower’s and such subsidiaries’
      respective lines of business.

            

    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (k)

            	
              Solvency. Based on the financial
      condition of the Borrower as of the Closing Date (and assuming that the
      Closing shall have occurred), (i) the Borrower’s assets do not constitute
      unreasonably small capital to carry on its business for the current fiscal
      year as now conducted and as proposed to be conducted including its
      capital needs taking into account the particular capital requirements of
      the business conducted by the Borrower, and projected capital requirements
      and capital availability thereof; and (ii) the current cash flow of the
      Borrower, together with the proceeds the Borrower would receive, were it
      to liquidate all of its assets, after taking into account all anticipated
      uses of the cash, would be sufficient to pay all amounts on or in respect
      of its debt when such amounts are required to be paid. The Borrower does
      not intend to incur indebtedness beyond its ability to pay such debts as
      they mature (taking into account the timing and amounts of cash to be
      payable on or in respect of its
debt).

            

    

    

    
      	
               
      

            	
              (l)

            	
              Certain
      Fees. No
      brokerage or finder’s fees or commissions are or will be payable by the
      Borrower 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 Lenders shall have no
      obligation with respect to any fees or with respect to any claims (other
      than such fees or commissions owed by the Lenders pursuant to written
      agreements executed by the Lenders which fees or commissions shall be the
      sole responsibility of the Lenders) made by or on behalf of other persons
      for fees of a type contemplated in this Section that may be due in
      connection with the transactions contemplated by this
      Agreement.

            

    

     

    Section
2.2.  Representations
and Warranties of the Lenders.  Each Lender,
severally and not jointly, hereby represents and warrants to the Borrower as to
itself as follows:

    

    
      	
               
      

            	
              (a)

            	
              Authority. This Agreement has
      been duly executed by such Lender, and when delivered by the Lender in
      accordance with terms hereof, will constitute the valid and legally
      binding obligation of the Lender, enforceable against him or 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)

            	
              Investor
      Status.
      Such Lender is an “accredited investor” as defined in Rule 501(a) under
      the Securities Act.

            

    

    

    
      	
               
      

            	
              (c)

            	
              Access
      to Information. Such Lender
      acknowledges that he or it has been afforded (i) the opportunity to ask
      such questions as he has deemed necessary of, and to receive answers from,
      representatives of the Borrower concerning the terms and conditions of the
      offering of the Notes and the merits and risks of making loans to the
      Borrower under the Notes; (ii) access to information about the Borrower
      and its 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 Borrower possesses or can acquire
      without unreasonable effort or expense that is necessary to make an
      informed investment decision with respect to the
    investment.

            

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    ARTICLE
3

    

    Series B
Agreement

     

    Section
3.1    Amendment
of Series B Agreement. The Series B Agreement
is hereby amended (i) to add as parties thereto the Lenders who were not,
heretofore, parties to such Series B Agreement and (ii) to delete in there
entirety Schedules B and C to such Series B Agreement and to substitute in place
thereof the Schedules B and C attached hereto.  In all other respects,
the Series B Agreement shall remain in full force and effect without alteration
or amendment.

    

    Section
3.2    Conversion
of Notes.  The outstanding
principal amount, and all accrued and unpaid interest thereon, shall be
surrendered by the Lenders in satisfaction of their obligations pursuant to
Section 2.4 of the Series B Agreement to the Borrower the “Purchase Price” (as
such term is defined in the Series B Agreement) for the “Securities” (as such
term is defined in the Series B Agreement) to be purchased by such Lender at the
“Third Tranche Closing” (as such term is defined in the Series B Agreement) and,
if the principal amount and accrued and unpaid interest on such Lender’s Note
exceeds the Purchase Price payable by such Lender at the Third Tranche Closing,
the balance shall be applied against the Purchase Price payable by such lender
for the Securities to be purchased by such Lender at the “Fourth Tranche
Closing” (as such term is defined in the Series B Agreement).  Accrued
and unpaid interest on the Notes shall be applied against the Purchase Prices
first, with the principal amounts of the Notes being applied against any
remaining portion of the Purchase Prices.

    

    Section
3.3    Warrant
Exercise Price.   Notwithstanding
anything to the contrary contained in the Series B Agreement or the schedules
thereto, the exercise price of the “Warrants” (as such term is defined in the
Series B Agreement) issuable to the Lenders at the Third Tranche Closing or the
Fourth Tranche Closing for which the Purchase Price is paid by surrender of
Notes as provided in Section 3.1 shall be $0.30 per share.  The
exercise price of any Warrants issuable to the Lenders at the Third Tranche
Closing or the Fourth Tranche Closing for which the Purchase Price is paid other
than by surrender of Notes shall remain $0.50.

    

    Section
3.4     Additional
Warrant Coverage.  In the event a
Lender makes an Advance pursuant to Section 1.2, the number of “Warrant Shares”
(as such term is defined in the Series B Agreement) issuable upon exercise of
Warrants issued at the Third Tranche Closing or the Fourth Tranche Closing
attributable to the portion of the Purchase Price paid by such Advance shall be
increased by a factor of 25% over the number of Warrant Shares issuable to such
Lender as set forth on Schedule B or Schedule C to the Series B Agreement, as
the case may be, so that with respect to the amount of any Advance the Warrant
coverage shall be 250% rather than 200%.

    

    ARTICLE
4

    

    Miscellaneous

     

    Section
4.1.     Additional
Parties.    From
time to time on or before the “Third Tranche Closing Date” (as such term is
defined in the Series B Agreement), this Agreement may be amended by the
Borrower, with the consent of Lenders holding at least 662⁄3% of the principal
amount of the then outstanding Notes, to add as parties hereto one or more
persons or entities as additional Lenders and/or to permit any Lender to
increase the amount of his or its Commitment; provided, however, that the
aggregate amount of such additional Commitments (whether from Lenders already
party hereto or from new Lenders) shall not exceed $2,000,000.  Upon
any such amendment, (i) Schedule I hereto shall be amended to reflect the
addition of such additional Lender or Lenders and/or such increase in the
Commitment of a Lender, and the Participation Percentage of all Lenders shall be
adjusted proportionately and (ii) such additional Lender or Lenders shall become
parties to the Series B Agreement and Schedules B and C to the Series B
Agreement shall be amended to reflect such additional Commitments.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

    Section
4.2.     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 Borrower shall pay all stamp and other taxes and duties levied in
connection with the sale of the Shares.

    

    Section
4.3.      Entire
Agreement. The
Transaction Documents 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.

     

    Section 4.4.      Notices.  Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder or under the other Transaction Documents 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 or
other electronic transmission (provided the sender receives a machine-generated
confirmation of successful transmission) prior to 5:30 p.m. (Eastern time) on a
business day, (b) the next business day after the date of transmission, if such
notice or communication is delivered via facsimile or other electronic
transmission later than to 5:30 p.m. (Eastern time) on a business day or on a
day that is not a business day, (c) the business day following the date of
mailing, if sent by U.S. Express Mail or other nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom such notice is
addressed. The address for such notices and communications shall be as follows,
if to the Borrower, at its corporate offices in Worcester, Massachusetts, and if
to any Lender, at his or its address set forth Schedule I hereto, or such other
address as may be designated in writing hereafter, in the same manner, by the
addressee.

    

    Section
4.5.       Amendments;
Waivers; No Additional Consideration.  No provision of
this Agreement may be waived or amended except in a written instrument signed by
the Borrower and by Lenders holding at least 662⁄3% of the principal amount of the
then outstanding Notes.  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. No consideration shall be offered or paid
to any Lender to amend or consent to a waiver or modification of any provision
of any Transaction Document unless the same consideration is also offered to all
Lenders who then hold Notes.

    

    Section
4.6.       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.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    

    Section
4.7.       Successors
and Assigns.  This Agreement
shall be binding upon and inure to the benefit of the parties and their
successors and permitted assigns. The Borrower may not assign this Agreement or
any rights or obligations hereunder without the prior written consent of Lenders
holding at least 662⁄3% of the principal amount of the then outstanding Notes. A
Lender may assign any or all of his rights under this Agreement to any person to
whom such Lender assigns or transfers its Note, provided such transferee agrees
in writing to be bound by the provisions hereof that apply to a
“Lender.”

    

    Section
4.8.        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.

    

    Section
4.9.        Governing
Law and Jurisdiction.  This Agreement
and the rights of the parties hereunder shall be construed and enforced in
accordance with the laws of the State of Delaware applicable to agreements
executed and to be performed wholly within such state and without regard to
principles of conflicts of law.  Each party irrevocably (a) consents
to the jurisdiction of the federal and state courts situated in or having
jurisdiction over Wilmington, Delaware in any action that may be brought for the
enforcement of this Agreement, and (b) submits to and accepts, with respect to
its properties and assets, generally and unconditionally, the in personam
jurisdiction of the aforesaid courts, waiving any defense that such court is not
a convenient forum  In any such litigation to the extent permitted by
applicable law, each party waives personal service of any summons, complaint or
other process, and agrees that the service thereof may be made either (i) in the
manner for giving of notices provided in the Notes or (ii) in any other manner
permitted by law.

    

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

    

    Section
4.11.      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 to deliver an original signed in ink.

    

    Section
4.12.      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
4.13.      Payment
Set Aside.  To the extent
that the Borrower makes a payment or payments to any Lender pursuant to any
Transaction Document or any Lender enforces or exercises its rights thereunder,
and such payment or payments or the proceeds of such enforcement or exercise or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Borrower, a trustee, receiver or
any other person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action), then to the
extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    

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

     

    
      
        	ThermoEnergy
      Corporation	 	The
      Quercus Trust
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/
      Cary G. Bullock      	 	By:   	/s/
      David Gelbaum     
	 	 	 	 	 

      

    

     

    
      
        
          	
                  Empire
      Capital Partners, ltd

                  By:
      Empire
      Capital Management, llc,

                  its
      Investment Manager

                	 	
                  Empire
      Capital Partners, lp

                  By:
      Empire
      gp, llc, its General Partner

                
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/
      Peter Richards       	 	By:   	/s/
      Peter
    Richards         
	 	 	 	 	 
	 	 	 	 	 

        

      

      
        	
                Empire
      Capital Partners Enhanced Master Fund, ltd

                By:
      Empire
      Capital Management, llc,

                its
      Investment Manager

              	 	
                 

              
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/
      Peter Richards       	 	 	/s/
      Robert S. Trump    
	 	 	 	 	Robert
      S. Trump

      

    

     

    
      
        	Focus Fund, l.p.	 	 
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/
      J. Winder Hughes
      III         	 	 	
              
	 	 	 	 	 

      

    

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    Schedule
I

    

    
      	
              Lender

            	
              Commitment

            	
              3rd
      Tranche Participation Percentage

            	
              4th
      Tranche Participation Percentage

            
	
              The
      Quercus Trust

              1835
      Newport Blvd.

              A109-PMC
      467

              Costa
      Mesa, CA 92627

            	
               

              $1,200,000

            	
               

              63.16%

            	
               

              0%

            
	
              Robert
      S. Trump

              89
      10th
      Street

              Garden
      City, NY 11530

            	
               

              $600,000

            	
               

              15.79%

            	
               

              37.50%

            
	
              Focus
      Fund L.P.

              P.O.
      Box 389

              Ponte
      Vedra, FL 32004

            	
               

              $200,000

            	
               

              5.26%

            	
               

              12.50%

            
	
              Empire
      Capital Partners, LP

              One
      Gorham Island, Suite 201

              Westport,
      CT 06880

            	
               

              $233,333

            	
               

              5.26%

            	
               

              16.67%

            
	
              Empire
      Capital Partners, Ltd

              One
      Gorham Island, Suite 201

              Westport,
      CT 06880

            	
               

              $233,333

            	
               

              5.26%

            	
               

              16.67%

            
	
              Empire
      Capital Partners Enhanced Master Fund, Ltd

              One
      Gorham Island, Suite 201

              Westport,
      CT 06880

            	
               

              $233,333

            	
               

              5.26%

            	
               

              16.67%

            

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    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

            
	
              Focus
      Fund L.P.

              P.O.
      Box 389

              Ponte
      Vedra, FL 32004

            	
              $100,000

            	
              41,667
      shares

            	
              400,000
      shares

            

    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    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

            	
              0

            	
              0  shares

            	
              0
      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

            
	
              Focus
      Fund L.P.

              P.O.
      Box 389

              Ponte
      Vedra, FL 32004

            	
              $100,000

            	
              41,667
      shares

            	
              400,000
      shares

            

    

     

    
      
        
        

      

      
        12

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