Document:

ThermoEnergy
Corporation

    2008
Incentive

    Stock
Plan, as amended

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    TABLE
OF CONTENTS

    

    
      
        
          	 
      	 
      	
                  Page

                
	 
      	 
      	 
      
	
                  Article
      1.

                	
                  Establishment,
      Objectives, and Duration

                	
                  1

                
	 
      	 
      	 
      
	
                  Article
      2.

                	
                  Definitions

                	
                  1

                
	 
      	 
      	 
      
	
                  Article
      3.

                	
                  Administration

                	
                  4

                
	 
      	 
      	 
      
	
                  Article
      4.

                	
                  Shares
      Subject to the Plan and Maximum Awards

                	
                  4

                
	 
      	 
      	 
      
	
                  Article
      5.

                	
                  Eligibility
      and Participation

                	
                  5

                
	 
      	 
      	 
      
	
                  Article
      6.

                	
                  Stock
      Options

                	
                  6

                
	 
      	 
      	 
      
	
                  Article
      7.

                	
                  Stock
      Appreciation Rights

                	
                  7

                
	 
      	 
      	 
      
	
                  Article
      8.

                	
                  Restricted
      Stock

                	
                  8

                
	 
      	 
      	 
      
	
                  Article
      9.

                	
                  Performance
      Units and Performance Shares

                	
                  9

                
	 
      	 
      	 
      
	
                  Article
      10.

                	
                  Performance
      Measures

                	
                  9

                
	 
      	 
      	 
      
	
                  Article
      11.

                	
                  Rights
      of Participants

                	
                  10

                
	 
      	 
      	 
      
	
                  Article
      12.

                	
                  Termination
      of Employment/Directorship

                	
                  10

                
	 
      	 
      	 
      
	
                  Article
      13.

                	
                  Change
      in Control

                	
                  11

                
	 
      	 
      	 
      
	
                  Article
      14.

                	
                  Amendment,
      Modification, and Termination

                	
                  11

                
	 
      	 
      	 
      
	
                  Article
      15.

                	
                  Withholding

                	
                  12

                
	 
      	 
      	 
      
	
                  Article
      16.

                	
                  Successors

                	
                  12

                
	 
      	 
      	 
      
	
                  Article
      17.

                	
                  General
      Provisions

                	
                  12

                

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Article
1. Establishment, Objectives, and Duration

     

    1.1          Establishment of the
Plan.  ThermoEnergy Corporation, a Delaware corporation (the
“Company”), hereby adopts the “ThermoEnergy Corporation 2008 Incentive Stock
Plan” (hereinafter referred to as the “Plan”), as set forth in this
document.  The Plan permits the grant of Nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares and Performance Units.

     

    1.2          Objectives of the Plan. The
objectives of the Plan are to optimize the profitability and growth of the
Company through incentives that are consistent with the Company’s goals and that
link the personal interests of Participants to those of the Company’s
stockholders, to provide Participants with an incentive for excellence in
individual performance, and to promote teamwork among Participants.

     

    The Plan
is further intended to provide flexibility to the Company and its
Subsidiaries in their ability to motivate, attract, and retain the services of
Participants who make significant contributions to the Company’s success and to
allow Participants to share in that success.

     

    1.3          Duration of the Plan. The Plan
shall remain in effect, subject to the right of the Committee to amend or
terminate the Plan at any time pursuant to Article 14 hereof, until all
Shares subject to it shall have been purchased or acquired according to the
Plan’s provisions.  However, in no event may an Award of an Incentive
Stock Option be granted under the Plan on or after the tenth (10th)
anniversary of the Effective Date.

     

    Article
2. Definitions

     

    Whenever
used in this Plan, the following terms shall have the meanings set forth below,
and when the meaning is intended, the initial letter of the word shall be
capitalized:

     

    2.1          “Award” means, individually or
collectively, a grant under this Plan of Nonqualified Stock Options,
Incentive Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares or Performance Units.

     

    2.2          “Award Agreement” means a
written or electronic agreement entered into by the Company and a Participant
setting forth the terms and provisions applicable to an Award granted under this
Plan.

     

    2.3          “Beneficial Owner” or “Beneficial Ownership” shall
have the meaning ascribed to such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.

     

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

     

    2.5          “Change in Control” shall be
deemed to have occurred under any one or more of the following
conditions:

     

    
      	
               
      

            	
              i.

            	
              if,
      within one year of any merger, consolidation, sale of a substantial part
      of the Company’s assets, or contested election, or any combination of the
      foregoing transactions (a “Transaction”), the persons who were directors
      of the Company immediately before the Transaction shall cease to
      constitute a majority of the Board of Directors (x) of the Company or (y)
      of any successor to the Company, or (z) if the Company becomes a
      subsidiary of or is merged into or consolidated with another corporation,
      of such corporation (the Company shall be deemed a subsidiary of such
      other corporation if such other corporation owns or controls, directly or
      indirectly, a majority of the combined voting power of the outstanding
      shares of the capital stock of the Company entitled to vote generally in
      the election of directors (“Voting
Stock”));

            

    

     

    
      	
               
      

            	
              ii.

            	
              if,
      as a result of a Transaction, the Company does not survive as an entity,
      or its shares are changed into the shares of another corporation unless
      the stockholders of the Company immediately prior to the Transaction own a
      majority of the outstanding shares of such other corporation immediately
      following the Transaction;

            

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              iii.

            	
              if
      any Person becomes, after the date this Plan is adopted, a beneficial
      owner directly or indirectly of securities of the Company representing 50%
      or more of the combined voting power of the Company’s Voting
      Stock;

            

    

     

    
      	
               
      

            	
              iv.

            	
              the
      dissolution or liquidation of the Company is approved by its stockholders;
      or

            

    

     

    
      	
               
      

            	
              v.

            	
              if
      the members of the Board as of the date this Plan is adopted (the
      “Incumbent Board”) cease to represent at least two-thirds of the Board;
      provided, that any person becoming a director subsequent to the date
      hereof whose election, or nomination for election by the Company’s
      stockholders, was approved by at least two-thirds of the members
      comprising the Incumbent Board (either by a specific vote or by approval
      of the proxy statement in which such person is named as a nominee for
      director without objection to such nomination) shall be, for purposes of
      this paragraph (v), treated as though such person were a member of the
      Incumbent Board.

            

    

     

    2.6          “Code” means the Internal
Revenue Code of 1986, as amended from time to time.

     

    2.7          “Committee” means the
Compensation Committee of the Company’s Board of Directors, or such other
committee appointed from time to time by the Board of Directors to administer
the Plan.  The full Board of Directors, in its discretion, may act as
the Committee under the Plan, whether or not a Committee has been appointed, and
shall do so with respect to grants of Awards to non-employee
Directors.  The Committee may delegate to one or more members of the
Committee or officers of the Company, individually or acting as a committee, any
portion of its authority, except as otherwise expressly provided in the
Plan.  In the event of a delegation to a member of the Committee,
officer or a committee thereof, the term "Committee" as used herein shall
include the member of the Committee, officer or committee with respect to the
delegated authority.  Notwithstanding any such delegation of
authority, the Committee comprised of members of the Board of Directors and
appointed by the Board of Directors shall retain overall responsibility for the
operation of the Plan.

     

    2.8          “Company” means ThermoEnergy
Corporation, a Delaware corporation, together will all subsidiaries thereof, and
any successor thereto as provided in Article 16 hereof.

     

    2.9          “Covered Employee” means a
Participant who, as of the date of vesting and/or payout of an Award, or the
date the Company or any of its Subsidiaries is entitled to a tax deduction as a
result of the Award, as applicable, is one of the group of “covered employees,”
as defined in the regulations promulgated under Code Section 162(m), or any
successor statute.

     

    2.10        “Director” means any
individual who is a member of the Board of Directors of the Company; provided,
however, that any Director who is employed by the Company shall be treated as an
Employee under the Plan.

     

    2.11        “Disability” shall mean a
condition whereby the Participant is unable to engage in any substantial gainful
activity by reason of any medically determinable physical impairment which can
be expected to result in death or which is or can be expected to last for a
continuous period of not less than twelve months, all as verified by a physician
acceptable to, or selected by, the Company.

     

    2.12        “Effective Date” shall have
the meaning ascribed to such term in Section 1.1 hereof.

     

    2.13        “Employee” means any employee
of the Company or its Subsidiaries.

     

    2.14        “Exchange Act” means the
Securities Exchange Act of 1934, as amended from time to time, or any successor
act thereto.

     

    2.15        “Fair Market Value” as of any
date and in respect of any Share means the then most recent closing price of a
Share reported by the exchange or other trading system on which Shares are
primarily traded or, if deemed appropriate by the Committee for any reason, the
fair market value of Shares shall be as determined by the Committee in such
other manner as it may deem appropriate.  In no event shall the fair
market value of any Share be less than its par value.

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    2.16        “Incentive Stock Option” or
“ISO” means an option to
purchase Shares granted under Article 6 hereof and that is designated as an
Incentive Stock Option and that is intended to meet the requirements
of Code Section 422.

     

    2.17        “Insider” shall mean an
individual who is, on the relevant date, an executive officer, director or
ten percent (10%) beneficial owner of any class of the Company’s equity
securities that is registered pursuant to Section 12 of the Exchange Act,
all as defined under Section 16 of the Exchange Act.

     

    2.18        “Key Employee” shall mean,
with respect to the Company, an individual as defined in Code Section 416(i)
(without regard to paragraph (5) thereof).

     

    2.19        “Non-Employee Director” shall
mean any member of the Board of who is neither (i) an employee of the Company
nor (ii) a member of the immediate family of an employee of the
Company.

     

    2.20        “Nonqualified Stock Option” or
“NQSO” means
an option to purchase Shares granted under Article 6 hereof that is
not intended to meet the requirements of Code Section 422, or that
otherwise does not meet such requirements.

     

    2.21        “Option” means an Incentive
Stock Option or a Nonqualified Stock Option.

     

    2.22        “Option Price” means the price
at which a Share may be purchased by a Participant pursuant to an
Option.

     

    2.23        “Participant” means an
Employee, Director or consultant  who has been selected to receive an
Award or who has an outstanding Award granted under the Plan.

     

    2.24        “Performance-Based Exception”
means the performance-based exception from the tax deductibility limitations of
Code Section 162(m).

     

    2.25        “Performance Share” means an
Award granted to a Participant, as described in Article 9
hereof.

     

    2.26        “Performance Unit” means an
Award granted to a Participant, as described in Article 9 hereof.

     

    2.27        “Period of Restriction” means
the period during which the transfer of Shares of Restricted Stock is limited in
some way (based on the passage of time, the achievement of performance goals, or
upon the occurrence of other events as determined by the Committee, at its
discretion), and the Shares are subject to a substantial risk of forfeiture,
pursuant to the Restricted Stock Award Agreement, as provided in Article 8
hereof.

     

    2.28        “Person” shall have the
meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and
used in Sections 13(d) and 14(d) thereof and the rules promulgated
thereunder, including a “group” as defined in Section 13(d) thereof and the
rules promulgated.

     

    2.29        “Restricted Stock” means an
Award granted to a Participant pursuant to Article 8 hereof.

     

    2.30        “Shares” means shares of the
Company’s common stock, par value $0.001 per share.

     

    2.31        “Stock Appreciation Right” or
“SAR” means an Award,
granted alone or in connection with a related Option, designated as an SAR,
pursuant to the terms of Article 7 hereof.

     

    2.32        “Subsidiary” means any
corporation, partnership, joint venture, or other entity in which the Company,
directly or indirectly, has a majority voting interest.   With
respect to Incentive Stock Options, “Subsidiary” means any entity, domestic or
foreign, whether or not such entity now exists or is hereafter organized or
acquired by the Company or by a Subsidiary that is a “subsidiary corporation”
within the meaning of Code Section 424(d) and the rules
thereunder.

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    2.33        “Ten Percent Shareholder”
means an employee who at the time an ISO is granted owns Shares possessing more
than ten percent of the total combined voting power of all classes of Shares of
the Company or any Subsidiary, within the meaning of Code Section
422.

    

    Article
3. Administration

    

    3.1          General. Subject to the terms
and conditions of the Plan, the Plan shall be administered by the
Committee.  The members of the Committee shall be appointed from time
to time by, and shall serve at the discretion of, the Board of
Directors.  The Committee shall have the authority to delegate
administrative duties to officers of the Company.  For purposes of
making Awards intended to qualify for the Performance Based Exception under Code
Section 162(m), to the extent required under such Code Section, the Committee
shall be comprised solely of two or more individuals who are “outside
directors”, as that term is defined in Code Section 162(m) and the regulations
thereunder.

     

    3.2          Authority of the Committee.
Except as limited by law or by the Certificate of Incorporation or Bylaws of the
Company, and subject to the provisions hereof, the Committee shall have full
power to select Employees, Directors and consultants who shall be offered the
opportunity to participate in the Plan; determine the sizes and types of Awards;
determine the terms and conditions of Awards in a manner consistent with the
Plan; construe and interpret the Plan and any agreement or instrument entered
into under the Plan; establish, amend, or waive rules and regulations for the
Plan’s administration; and amend the terms and conditions of any outstanding
Award as provided in the Plan.  Further, the Committee shall make all
other determinations that it deems necessary or advisable for the administration
of the Plan.  As permitted by law and the terms of the Plan, the
Committee may delegate its authority herein.  No member of the
Committee shall be liable for any action taken or decision made in good faith
relating to the Plan or any Award granted hereunder.

     

    3.3          Decisions
Binding.  All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Committee shall be final, conclusive, and binding on all
persons, including the Company, its stockholders, Directors, Employees,
Participants, and their estates and beneficiaries, unless changed by the
Board.

     

    Article
4. Shares Subject to the Plan and Maximum Awards

     

    4.1          Number of Shares Available for
Grants.  Subject to adjustment as provided in Section 4.2
hereof, the number of Shares hereby reserved for issuance to Participants under
the Plan shall be Twenty Million Shares (20,000,000).  Any Shares
covered by an Award (or portion of an Award) granted under the Plan which is
forfeited or canceled or expires shall be deemed not to have been delivered for
purposes of determining the maximum number of Shares available for delivery
under the Plan.  Shares may be authorized, unissued shares or Treasury
shares.  The Committee shall determine the appropriate methodology for
calculating the number of Shares issued pursuant to the Plan.

     

    The
following limitations shall apply to the grant of any Award to a Participant in
a fiscal year:

     

    
      	
               
      

            	
              (a)

            	
              Stock
      Options:  The maximum aggregate number of Shares that may
      be granted in the form of Stock Options pursuant to Awards granted in any
      one fiscal year to any one Participant shall not be
    limited.

            

    

     

    
      	
               
      

            	
              (b)

            	
              SARs:  The
      maximum aggregate number of Shares that may be granted in the form of
      Stock Appreciation Rights pursuant to Awards granted in any one fiscal
      year to any one Participant shall be
500,000.

            

    

     

    
      	
               
      

            	
              (c)

            	
              Restricted Stock: The
      maximum aggregate of Shares that may be granted with respect to Awards of
      Restricted Stock granted in any one fiscal year to any one Participant
      shall be 250,000.

            

    

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (d)

            	
              Performance Shares/Performance
      Units Awards:  The maximum aggregate grant with respect
      to Awards of Performance Shares made in any one fiscal year to any one
      Participant shall be equal to the Fair Market Value of 250,000 Shares (measured
      on the date of grant); the maximum aggregate amount awarded with respect
      to Performance Units to any one Participant in any one fiscal year may not
      exceed $250,000.

            

    

     

    4.2          Adjustments in Authorized
Shares.  Upon a change in corporate capitalization, such as a
stock split, stock dividend or a corporate transaction, such as any merger,
consolidation, combination, exchange of shares or the like, separation,
including a spin-off, or other distribution of stock or property of the Company,
any reorganization (whether or not such reorganization comes within the
definition of such term in Code Section 368) or any partial or complete
liquidation of the Company, (i) the number and class of Shares reserved for
issuance to Participants under the Plan, (ii) the number and class of and/or
price of Shares subject to outstanding Awards granted under the Plan, and (iii)
the Award limits set forth in Section 4.1, shall be proportionately adjusted in
such manner as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement of
rights.

     

    4.3          Adjustment of Awards Upon the
Occurrence of Certain Unusual or Nonrecurring Events.  The
Committee may make adjustments in the terms and conditions of, and the criteria
included in, Awards in recognition of unusual or nonrecurring events (including,
without limitation, the events described in Section 4.2 hereof) affecting the
Company or the financial statements of the Company or of changes in applicable
laws, regulations, or accounting principles, whenever the Committee determines
that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan; provided that (i) no such adjustment shall be authorized if, and
to the extent that, such adjustment would result in an accounting charge for any
affected outstanding Awards in accordance with Financial Accounting Standard No.
123R (Accounting for Share Based Compensation) or (ii) unless the Committee
determines otherwise at the time such adjustment is considered, no such
adjustment shall be authorized to the extent inconsistent with the Plan’s or any
Award’s meeting the requirements of Section 162(m) of the Code, as from time to
time amended.

    

    Article
5. Eligibility and Participation

     

    5.1          Eligibility. Persons eligible
to participate in this Plan include all Employees, Directors and consultants of
the Company and its Subsidiaries.

     

    5.2          Actual Participation. Subject
to the provisions of the Plan, the Committee may, from time to time, select from
all eligible Employees, Directors and consultants, those to whom Awards shall be
granted and shall determine the nature and amount of each Award, provided that
Incentive Stock Options shall only be awarded to Employees of the Company or its
Subsidiaries.

     

    
      5.3         
Stock Options for
Non-Employee Directors 

    

     

    
      	
               
      

            	
              (a)

            	
              Subject
      to the provisions of Section 5.3(d), each person who, subsequent to the
      Effective Date, is for the first time elected or appointed to the Board
      and who qualifies, at such time, as a Non-Employee Director, shall
      automatically be granted a Nonqualified Stock Option to purchase 30,000
      Shares, effective as of the date of his or her election or appointment to
      the Board, on the terms and conditions set forth in the Plan, at an Option
      Price equal to the Fair Market Value of a Share on the date of grant or,
      if the date of the grant is not a business day on which the Fair Market
      Value can be determined, on the last business day preceding the date of
      grant on which the Fair Market Value can be determined.
  

            

    

     

    
      	
               
      

            	
              (b)

            	
              Subject
      to the provisions of Section 5.3(d), each Non-Employee Director who is
      re-elected as a director at an annual meeting of stockholders shall be
      granted an additional Nonqualified Stock Option to purchase 30,000
      Shares, on the terms and conditions set forth in the Plan, at an
      option price per share equal to the Fair Market Value of a Share on the
      date of such annual meeting.

            

    

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (c)

            	
              All
      Options granted to Non-Employee Directors pursuant to this Section 5.3
      shall vest and become fully exercisable on the date of the first annual
      meeting of stockholders occurring after the end of the fiscal year of the
      Company during which such Option was granted.  All Options
      granted to Non-Employee Directors pursuant to this Section 5.3 shall
      expire on the tenth (10th)
      anniversary of the date of grant, subject to earlier termination as
      provided in Article 12. 

            

    

     

    Article
6. Stock Options

     

    6.1          Grant of Options. Subject to
the terms and provisions of the Plan, Options may be granted to Participants in
such number, and upon such terms, and at any time and from time to time as
shall be determined by the Committee.

     

    6.2          Award Agreement. Each Option
grant shall be evidenced by an Award Agreement that shall specify the Option
Price, the duration of the Option, the number of Shares to which the Option
pertains, and such other provisions as the Committee shall determine which are
not inconsistent with the terms of the Plan.

     

    6.3          Option Price. The Option Price
for each grant of an Option under this Plan shall be as determined by the
Committee; provided, however, the per-share exercise price shall not be less
than the Fair Market Value of the Shares on the date of
grant.  

     

    The
Option Price for each Option shall equal the Fair Market Value of the Shares at
the time such option is granted.  If an ISO is granted to a Ten
Percent Shareholder the Option Price shall be at least 110 percent (110%) of the
Fair Market Value of the Shares subject to the ISO.

     

    6.4          Duration of Options. Except as
otherwise provided in this Plan, each Option granted to a Participant shall
expire at such time as the Committee shall determine at the time of grant,
provided that an ISO must expire no later than the tenth (10th)
anniversary of the date the ISO was granted.  However, in the case of
an ISO granted to a Ten Percent Shareholder, the ISO by its terms shall not be
exercisable after the expiration of five (5) years from the date such ISO is
granted.

     

    6.5          Exercise of
Options.  Options shall be exercisable at such times and be
subject to such restrictions and conditions as the Committee shall in each
instance approve, which need not be the same for each grant or for each
Participant.

     

    6.6          Payment. Options shall be
exercised by the delivery of a written, electronic or telephonic notice of
exercise to the Company or its designated agent, setting forth the number of
Shares with respect to which the Option is to be exercised, accompanied by full
payment of the Option Price for the Shares.

     

    Upon the
exercise of any Option, the Option Price for the Shares being purchased pursuant
to the Option shall be payable to the Company in full either: (a) in cash
or its equivalent; or (b) subject to the
Committee’s approval, by delivery of previously acquired Shares having an
aggregate Fair Market Value at the time of exercise equal to the total Option
Price (provided that the Shares that are delivered must have been held by the
Participant for at least six (6) months prior to their delivery to satisfy the
Option Price); or (c) by a combination of (a) and (b); or (d) by any
other method approved by the Committee in its sole discretion.  Unless
otherwise determined by the Committee, the delivery of previously acquired
Shares may be done through attestation.  No fractional shares may be
tendered or accepted in payment of the Option Price.

     

    Unless
otherwise determined by the Committee, cashless exercises are permitted pursuant
to Federal Reserve Board’s Regulation T, subject to applicable securities
law restrictions, or by any other means which the Committee determines to be
consistent with the Plan’s purpose and applicable law.

     

    Subject
to any governing rules or regulations, as soon as practicable after receipt of
notification of exercise and full payment, the Company shall deliver to the
Participant, in the Participant’s name, Share certificates in an appropriate
amount based upon the number of Shares purchased pursuant to the
Option(s).

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    Unless
otherwise determined by the Committee, all payments under all of the methods
indicated above shall be paid in United States dollars.

     

    6.7          Restrictions on Share
Transferability. The Committee may impose such restrictions on any Shares
acquired pursuant to the exercise of an Option granted under this Article 6 as
it may deem advisable, including, without limitation, restrictions under
applicable federal securities laws, under the requirements of any stock exchange
or market upon which such Shares are then listed and/or traded, or under
any blue sky or state securities laws applicable to such Shares.

     

    6.8          Nontransferability of
Options.

     

    
      	
               
      

            	
              (a)

            	
              Incentive Stock
      Options.  No ISO granted under the Plan may be sold,
      transferred, pledged, assigned, encumbered or otherwise alienated or
      hypothecated, other than by will or by the laws of descent and
      distribution.  Further, all ISOs granted to a Participant under
      the Plan shall be exercisable during such Participant’s lifetime only by
      such Participant.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Nonqualified Stock
      Options.  Except as otherwise provided in the applicable
      Award Agreement, no NQSO may be sold, transferred, pledged, assigned,
      encumbered or otherwise alienated or hypothecated, other than by will or
      by the laws of descent and distribution.  Further, except as
      otherwise provided in the applicable Award Agreement, all NQSOs granted to
      a Participant shall be exercisable during such Participant’s lifetime only
      by such Participant.

            

    

     

    6.9           Special Limitation on Grants of
Incentive Stock Options.  No ISO shall be granted to an
Employee under the Plan or any other ISO plan of the Company or its Subsidiaries
to purchase Shares as to which the aggregate Fair Market Value (determined as of
the date of grant) of the Shares which first become exercisable by the Employee
in any calendar year exceeds $100,000.  To the extent an Option
initially designated as an ISO exceeds the value limit of this Section 6.9
or otherwise fails to satisfy the requirements applicable to ISOs, it shall be
deemed a NQSO and shall otherwise remain in full force and effect.

     

    Article
7. Stock Appreciation Rights

     

    7.1          Grant of SARs. Subject to the
terms and conditions of the Plan, SARs may be granted to Participants at any
time and from time to time as shall be determined by the Committee.

     

    Subject
to the terms and conditions of the Plan, the Committee shall have complete
discretion in determining the number of SARs granted to each Participant and,
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs.

     

    The grant
price of a SAR shall equal the Fair Market Value of a Share on the date of
grant.

     

    7.2          SAR Agreement. Each SAR grant
shall be evidenced by an Award Agreement that shall specify the grant price, the
term of the SAR, and such other provisions as the Committee shall
determine.

     

    7.3          Term of SARs. The term of an
SAR granted under the Plan shall be determined by the Committee, in its sole
discretion.

     

    7.4          Exercise of SARs. SARs may be
exercised upon whatever terms and conditions the Committee, in its sole
discretion, imposes upon them.

     

    7.6          Payment of SAR Amount. Upon
exercise of an SAR, a Participant shall be entitled to receive payment from the
Company in an amount determined by multiplying:

     

    
      	
               
      

            	
              (a)

            	
              The
      amount by which the Fair Market Value of a Share on the date of exercise
      exceeds the grant price of the SAR;
by

            

    

     

    
      	
               
      

            	
              (b)

            	
              The
      number of Shares with respect to which the SAR is
    exercised.

            

    

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    The
payment upon SAR exercise shall be in Shares.  Any Shares delivered in
payment shall be deemed to have a value equal to the Fair Market Value on the
date of exercise of the SAR.

     

    7.7          Nontransferability of SARs.
Except as otherwise provided in a Participant’s Award Agreement, no SAR granted
under the Plan may be sold, transferred, pledged, assigned, encumbered, or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution. Further, except as otherwise provided in a
Participant’s Award Agreement, all SARs granted to a Participant under the Plan
shall be exercisable during such Participant’s lifetime only by such
Participant.

     

    Article
8. Restricted Stock

     

    8.1          Grant of Restricted Stock.
Subject to the terms and provisions of the Plan, the Committee, at any time and
from time to time, may grant Shares of Restricted Stock to Participants in such
amounts as the Committee shall determine.

     

    8.2          Restricted Stock Agreement.
Each Restricted Stock grant shall be evidenced by a Restricted Stock Award
Agreement that shall specify the Period(s) of Restriction, the number of Shares
of Restricted Stock granted, and such other provisions as the Committee shall
determine which are not inconsistent with the terms of this Plan.

     

    8.3          Transferability. Except as
provided in the Award Agreement, the Shares of Restricted Stock granted herein
may not be sold, transferred, pledged, assigned, encumbered, or otherwise
alienated or hypothecated until the end of the applicable Period of Restriction
established by the Committee and specified in the Restricted Stock Award
Agreement, or upon earlier satisfaction of any other conditions, as specified by
the Committee in its sole discretion and set forth in the Restricted Stock Award
Agreement. All rights with respect to the Restricted Stock granted to a
Participant under the Plan shall be available during such Participant’s lifetime
and prior to the end of the Period of Restriction only to such
Participant.

     

    8.4          Other Restrictions. The
Committee may impose such other conditions and/or restrictions on any Shares of
Restricted Stock granted pursuant to the Plan as it may deem advisable
including, without limitation, a requirement that Participants pay a stipulated
purchase price for each Share of Restricted Stock, restrictions based upon the
achievement of specific performance goals, time-based restrictions on vesting
following the attainment of the performance goals, time-based restrictions,
and/or restrictions under applicable federal or state securities
laws.

     

    To the
extent deemed appropriate by the Committee, the Company may retain the
certificates representing Shares of Restricted Stock in the Company’s possession
until such time as all conditions and/or restrictions applicable to such Shares
have been satisfied.

     

    Except as
otherwise provided in the Award Agreement, Shares of Restricted Stock covered by
each Restricted Stock grant made under the Plan shall become freely transferable
by the Participant after the last day of the applicable Period of
Restriction.

     

    8.5          Voting Rights. Unless the
Committee determines otherwise at the time of grant, Participants holding Shares
of Restricted Stock granted hereunder shall have the right to exercise full
voting rights with respect to those Shares during the Period of
Restriction.

     

    8.6          Dividends and Other
Distributions. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder (whether or not the Company holds
the certificate(s) representing such Shares) shall, unless the Committee
determines otherwise at the time of grant, be credited with dividends paid with
respect to the underlying Shares while they are so held. The Committee may apply
any restrictions to the dividends that the Committee deems appropriate. Without
limiting the generality of the preceding sentence, if the grant or vesting of
Restricted Shares granted to a Covered Employee is designed to comply with
the requirements of the Performance-Based Exception, the Committee may apply any
restrictions it deems appropriate to the payment of dividends declared with
respect to such Restricted Shares, such that the dividends and/or the Restricted
Shares maintain eligibility for the Performance-Based
Exception.

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    Article
9.  Performance Units and Performance Shares

     

    9.1          Grant of Performance Units/Shares
Awards. Subject to the terms of the Plan, Performance Units and/or
Performance Shares Awards may be granted to Participants in such amounts and
upon such terms, and at any time and from time to time, as shall be determined
by the Committee.

     

    9.2          Award Agreement.  At
the Committee’s discretion, each grant of Performance Units/Shares Awards may be
evidenced by an Award Agreement that shall specify the initial value, the
duration of the Award, the performance measures, if any, applicable to the
Award, and such other provisions as the Committee shall determine which are not
inconsistent with the terms of the Plan.

     

    9.3          Value of Performance Units/Shares
Awards.  Each Performance Unit shall have an initial value
that is established by the Committee at the time of grant.  Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the date of grant.  The Committee shall set performance
goals in its discretion which, depending on the extent to which they are met,
will determine the number and/or value of Performance Units/Shares Awards that
will be paid out to the Participant.  For purposes of this Article 9,
the time period during which the performance goals must be met shall be called a
“Performance Period.”

     

    9.4          Earning of Performance Units/Shares
Awards.  Subject to the terms of this Plan, after the
applicable Performance Period has ended, the holder of Performance Units/Shares
Awards shall be entitled to receive a payout based on the number and value of
Performance Units/Shares Awards earned by the Participant over the Performance
Period, to be determined as a function of the extent to which
the corresponding performance goals have been achieved.

     

    9.5          Form and Timing of Payment of
Performance Units/Shares Awards.  Payment of earned Performance
Units/Shares Awards shall be as determined by the Committee and, if applicable,
as evidenced in the related Award Agreement.  Subject
to the terms of the Plan, the Committee, in its sole discretion, may
pay earned Performance Units/Shares Awards in the form of cash or in Shares
(or in a combination thereof) that have an aggregate Fair Market Value equal to
the value of the earned Performance Units/Shares Awards at the close of the
applicable Performance Period.  Such Shares may be delivered subject
to any restrictions deemed appropriate by the Committee.  No
fractional shares will be issued.  The determination of the Committee
with respect to the form of payout of such Awards shall be set forth in the
Award Agreement pertaining to the grant of the Award or the resolutions
establishing the Award.

     

    Unless
otherwise provided by the Committee, Participants holding Performance
Units/Shares shall be entitled to receive dividend units with respect to
dividends declared with respect to the Shares represented by such Performance
Units/Shares.  Such dividends may be subject to the same accrual,
forfeiture, and payout restrictions as apply to dividends earned with respect to
Shares of Restricted Stock, as set forth in Section 8.6 hereof, as determined by
the Committee.

     

    9.6          Nontransferability. Except as
otherwise provided in a Participant’s Award Agreement, Performance Units/Shares
Awards may not be sold, transferred, pledged, assigned, encumbered, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and
distribution.

    

    Article
10. Performance Measures

    

    Unless
and until the Committee proposes for shareholder vote and the Company’s
shareholders approve a change in the general performance measures set forth in
this Article 10, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Covered Employees that are designed to
qualify for the Performance-Based Exception, the performance measure(s) to be
used for purposes of such grants shall be chosen from among:

     

    
      	
               
      

            	
              (a)

            	
              Earnings
      per share;

            

    

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (b)

            	
              Net
      income (before or after taxes);

            

    

     

    
      	
               
      

            	
              (c)

            	
              Cash
      flow (including, but not limited to, operating cash flow and free cash
      flow);

            

    

     

    
      	
               
      

            	
              (d)

            	
              Gross
      revenues;

            

    

     

    
      	
               
      

            	
              (e)

            	
              Gross
      margins;

            

    

     

    
      	
               
      

            	
              (f)

            	
              EBITDA;
      and

            

    

     

    
      	
               
      

            	
              (g)

            	
              Any
      of the above measures compared to peer or other
  companies.

            

    

     

    Performance
measures may be set either at the corporate level, subsidiary level, division
level, or business unit level.

     

    Awards
that are designed to qualify for the Performance-Based Exception, and that are
held by Covered Employees, may not be adjusted upward (the Committee shall
retain the discretion to adjust such Awards downward).

     

    If
applicable tax and/or securities laws change to permit Committee discretion to
alter the governing performance measures without obtaining shareholder approval
of such changes, the Committee shall have sole discretion to make such changes
without obtaining shareholder approval.

     

    Article
11. Rights of Participants

     

    11.1        Employment. Nothing in the
Plan shall confer upon any Participant any right to continue in the Company’s or
its Subsidiaries’ employ, or as a Director, or interfere with or limit in any
way the right of the Company or its Subsidiaries to terminate any Participant’s
employment or directorship at any time.

     

    11.2        Participation. No Employee,
Director or consultant shall have the right to be selected to receive an Award
under this Plan, or, having been so selected, to be selected to receive a future
Award.

     

    11.3        Rights as a Stockholder.
Except as provided in Sections 8.5, 8.6 and 9.5 or in applicable Award Agreement
consistent with such Sections, a Participant shall have none of the rights of a
shareholder with respect to shares of Common Stock covered by any Award until
the Participant becomes the record holder of such Shares, or the Period of
Restriction has expired, as applicable.

    

    Article
12. Termination of Employment/Directorship

    

    Upon
termination of the Participant's employment or directorship for any reason other
than Disability or death, an Award granted to the Participant may be exercised
by the Participant or permitted transferee at any time on or prior to the
earlier of the expiration date of the Award or the expiration of three (3)
months after the date of termination but only if, and to the extent that, the
Participant was entitled to exercise the Award at the date of
termination.  All Awards or any portion thereof not yet vested or
exercisable or whose Period of Restriction has not expired as of the date of
termination (other than a termination by reason of Disability or death) shall
terminate and be forfeited immediately on the date of termination.  If
the employment or directorship of a Participant terminates by reason of the
Participant's Disability or death, all Awards or any portion thereof not yet
vested or exercisable or whose Period of Restriction has not expired as of the
date of a Participant’s Disability or death shall become immediately vested
and/or exercisable on the date of termination due to Disability or
death.  If the employment or directorship of a Participant terminates
by reason of the Participant's Disability or death, the Participant (or, if
appropriate, the Participant's legal representative or permitted transferee) may
exercise such Participant’s rights under any outstanding Award at any time on or
prior to the earlier of the expiration date of the Award or the expiration of
six (6) months after the date of Disability or death.

     

    Unless
otherwise determined by the Committee, an authorized leave of absence pursuant
to a written agreement or other leave entitling an Employee to reemployment in a
comparable position by law or rule shall not constitute a termination of
employment for purposes of the Plan unless the Employee does not return at or
before the end of the authorized leave or within the period for which
re-employment is guaranteed by law or rule.  For purposes of this
Article, a “termination” includes an event which causes a Participant to lose
his eligibility to participate in the Plan (e.g., an individual is employed by a
company that ceases to be a Subsidiary).  In the case of a consultant,
the meaning of “termination” or “termination of employment” includes the date
that the individual ceases to provide services to the Company or its
Subsidiaries.  In the case of a nonemployee director, the meaning of
“termination” includes the date that the individual ceases to be a director of
the Company or its Subsidiaries.

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

    Notwithstanding
the foregoing, the Committee shall have the authority to prescribe different
rules that apply upon the termination of employment of a particular Participant,
which shall be memorialized in the Participant’s original or amended Award
Agreement or similar document.

     

    An Award
that remains unexercised after the latest date it could have been exercised
under any of the foregoing provisions or under the terms of the Award shall be
forfeited.

    

    Article
13. Change in Control

    

    In the
event of a Change in Control, unless otherwise specifically prohibited under
applicable laws, or by the rules and regulations of any governing governmental
agencies or national securities exchange or trading system, or unless the
Committee shall otherwise specify in the Award Agreement, the Board, in its sole
discretion, may:

     

    
      	
               
      

            	
              (a)

            	
              elect
      to terminate Options or SARs in exchange for a cash payment equal to the
      amount by which the Fair Market Value of the Shares subject to such Option
      or SAR to the extent the Option or SAR has vested exceeds the exercise
      price with respect to such Shares;

            

    

     

    
      	
               
      

            	
              (b)

            	
              elect
      to terminate Options or SARs provided that each Participant is first
      notified of and given the opportunity to exercise his or her vested
      Options or SARs for a specified period of time (of not less than 15 days)
      from the date of notification and before the Option or SAR is
      terminated;

            

    

     

    
      	
               
      

            	
              (c)

            	
              permit
      Awards to be assumed by a new parent corporation or a successor
      corporation (or its parent) and replaced with a comparable Award of the
      parent corporation or successor corporation (or its
    parent);

            

    

     

    
      	
               
      

            	
              (d)

            	
              amend
      an Award Agreement or take such other action with respect to an Award that
      it deems appropriate; or

            

    

     

    
      	
               
      

            	
              (e)

            	
              implement
      any combination of the foregoing.

            

    

     

    Article
14. Amendment, Modification, and Termination

     

    14.1        Amendment, Modification, and
Termination. Subject to the terms of the Plan, the Board may at
any time and from time to time, alter, amend, suspend, or terminate the
Plan in whole or in part.

     

    14.2        Awards Previously Granted.
Notwithstanding any other provision of the Plan to the contrary, no termination,
amendment, or modification of the Plan shall adversely affect in any
material way any Award previously granted under the Plan, without the written
consent of the Participant holding such Award.

     

    14.3        Shareholder Approval Required for
Certain Amendments. Shareholder approval
will be required for any amendment of this Plan that does any of the following:
(a) increases the maximum number of Shares subject to this Plan; (b) changes the
designation of the class of persons eligible to receive ISOs under this Plan; or
(c) modifies this Plan in a manner that requires shareholder approval under
applicable law or the rules of a stock exchange or trading system on which
Shares are traded.

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

     

    Article
15. Withholding

     

    The
Company shall have the power and the right to deduct or withhold, or require a
Participant to remit to the Company, an amount sufficient to satisfy any
applicable taxes (including social security or social charges), domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of this Plan. The Participant may
satisfy, totally or in part, such Participant’s obligations pursuant to this
Section 15 by electing to have Shares withheld, to redeliver Shares acquired
under an Award, or to deliver previously owned Shares that have been held for at
least six (6) months, provided that the election is made in writing on or prior
to (i) the date of exercise, in the case of Options and SARs, (ii) the date of
payment, in the case of Performance Units/Shares, and (iii) the expiration of
the Period of Restriction in the case of Restricted Stock.  Any
election made under this Section 15 may be disapproved by the Committee at any
time in its sole discretion.  If an election is disapproved by the
Committee, the Participant must satisfy his obligations pursuant to this
paragraph in cash.

    

    Article
16. Successors

    

    All
obligations of the Company under the Plan with respect to Awards granted
hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
through merger, consolidation, or otherwise, of all or substantially all of the
business, stock and/or assets of the Company.

     

    Article
17. General Provisions

     

    17.1        Gender and Number. Except
where otherwise indicated by the context, any masculine term used herein also
shall include the feminine; the plural shall include the singular and the
singular shall include the plural.

     

    17.2        Severability. If any provision
of the Plan shall be held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining parts of the Plan, and the Plan shall
be construed and enforced as if the illegal or invalid provision had not been
included.

     

    17.3        Requirements of Law. The
granting of Awards and the issuance of Shares under the Plan shall be subject to
all applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be
required.

     

    17.4        Securities Law Compliance.
With respect to Insiders, transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act, unless determined otherwise by the Board. To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Board.

     

    17.5        Listing. The Company may use
reasonable endeavors to register Shares issued pursuant to Awards with the
United States Securities and Exchange Commission or to effect compliance with
the registration, qualification, and listing requirements of any state or
foreign securities laws, stock exchange, or trading system.

     

    17.6        Inability to Obtain Authority.
The inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect of the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained.

     

    17.7        No Additional Rights. Neither
the Award nor any benefits arising under this Plan shall constitute part of an
employment contract between the Participant and the Company or any Subsidiary,
and accordingly, subject to Section 14.2, this Plan and the benefits
hereunder may be terminated at any time in the sole and exclusive discretion of
the Committee without giving rise to liability on the part of the Company for
severance payments.

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

    17.8        Noncertificated Shares. To the
extent that the Plan provides for issuance of certificates to reflect the
transfer of Shares, the transfer of such Shares may be effected on a
noncertificated basis, to the extent not prohibited by applicable law or the
rules of any stock exchange or trading system.

     

    17.9        Governing Law. The Plan and
each Award Agreement shall be governed by the laws of Delaware, excluding any
conflicts or choice of law rule or principle that might otherwise refer
construction or interpretation of the Plan to the substantive law of another
jurisdiction.  Unless otherwise provided in the Award Agreement,
recipients of an Award under the Plan are deemed to submit to the exclusive
jurisdiction and venue of the federal or state courts whose jurisdiction covers
Little Rock, Arkansas, to resolve any and all issues that may arise out of or
relate to the Plan or any related Award Agreement.

     

    17.10    
Compliance with Code Section
409A.  No Award that
is subject to Section 409A of the Code shall provide for deferral of
compensation that does not comply with Section 409A of the Code, unless the
Board, at the time of grant, specifically provides that the Award is not
intended to comply with Section 409A of the Code.  Notwithstanding any
provision in the Plan to the contrary, with respect to any Award subject to
Section 409A, distributions on account of a separation from service may not be
made to Key Employees before the date which is six (6) months after the date of
separation from service (or, if earlier, the date of death of the
employee).

     

    Adopted:  May
7, 2008

    Date of
Shareholder Approval:  June 26, 2008

    

    Amended:  January
27, 2010

    Date of
Shareholder Approval: November 18, 2010

    

    
      
        	 
      	
                ThermoEnergy
      Corporation

              
	 
      	 
      	 
      
	 
      	
                By:

              	
                //s/ Teodor Klowan, Jr.

              
	 
      	 
      	
                Teodor
      Klowan, Jr.

              
	 
      	 
      	
                Secretary

              

      

    

     

    
      
         

      

      
        -13-Unassociated Document

    
      Exhibit
10.1

       

    

    EMPLOYMENT
AGREEMENT

    

    THIS EMPLOYMENT AGREEMENT
dated as of November 22, 2010 (the “Effective Date”), by and between AmTrust
Financial Services, Inc., 59 Maiden Lane, 6th Floor,
New York, New York, a Delaware corporation (the “Company”) and Max G. Caviet, an
individual residing at Ashford House, 56 Tilt Road, Cobham Surrey KT11 3HQ,
United Kingdom (“Executive”).

    

    WITNESSETH

    

    WHEREAS, The Company and
Executive desire to enter into this Employment Agreement (the “Agreement”) in
order to set forth the terms and conditions of Executive’s employment, intending
to supersede any prior employment agreement, written or oral, whether with the
Company or other affiliates.

    

    NOW, THEREFORE, in
consideration of the mutual covenants and promises contained herein and other
good and valuable consideration, receipt of which is acknowledged, the parties
hereto agree as follows:

    

    1.           Duties and
Responsibilities.  The duties and responsibilities of Executive
shall be those of a senior executive of the Company as the same shall be
assigned to him from time to time by the Board of Directors of the Company,
including, but not limited to, management of Company’s special risk business
worldwide.  Executive’s principal place of work will be in London,
England, but he shall be required to travel as reasonably necessary to carry out
his duties.  Executive recognizes that, during the period of his
employment hereunder, he owes an undivided duty of loyalty to the Company and
agrees to devote all of his business time and attention to the performance of
his duties and responsibilities and to use his best efforts to promote and
develop the business of the Company.  Subject to the approval of the
Board of Directors, which shall not be unreasonably withheld, Executive shall be
entitled to serve on corporate, civic, and/or charitable boards or committees
and to otherwise reasonably participate as a member in community, civic, or
similar organizations and the pursuit of personal investments which do not
present any material conflicts of interest with the Company.

    

    Executive
shall be appointed President of Company’s wholly-owned subsidiary, AmTrust
International Insurance, Ltd. and as an officer of such other affiliates,
including AmTrust International Underwriters Limited, AmTrust Management
Services Limited, IGI Group and AmTrust Nordic AG, as, in the discretion of
Company, is appropriate and necessary to carry out his duties and
responsibilities, reporting on a day-to-day basis directly to the president and
CEO of the Company.  If elected or appointed, Executive shall serve on
the Boards of Directors of the Company or its affiliates without additional
compensation.

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    2.           Employment
Period.  For a period commencing on the Effective Date hereof
and ending on December 31, 2013 (the “Employment Period”), subject always to
Clauses 7(a) and and 7(b), the Company hereby employs Executive in the
capacities herein set forth.  Executive agrees, pursuant to the terms
hereof, to serve in such capacities for the Employment Period.  This
Agreement shall renew for successive three year periods unless one of the
parties provides written notice of not less than one hundred eighty days prior
to the end of the Employment Period or any successive Employment Period that the
party will not renew the Agreement.

    

    3.           Compensation and
Benefits.

    

    (a)      
   Salary.  The Company shall pay or cause an affiliate
to pay Executive a salary at the rate of Three Hundred Fifty Thousand Pound
Sterling (£350,000) per annum through 31 December 2010 and, effective 1 January
2011, at the rate of Four Hundred Fifty Thousand Pound Sterling (£450,000) per
annum (“Salary”), payable in accordance with the Company’s normal payroll
process.  Executive acknowledges and agrees that Salary is inclusive
of any amount payable by Company for any pension plan for the benefit of
Executive.  Executive shall be entitled to a salary review annually as
of each January 1st during
the Employment Period. Such salary review shall be based entirely on merit and
any salary adjustments shall be determined by the Board of Directors of the
Company solely in its discretion.

    

    (b)         Profit
Bonus.  (i)  Executive shall receive an annual bonus equal
to ten percent (10%) of the Subject Profits, as defined herein, for each
calendar year during the Employment Period or any successive Employment Period;
provided that the Subject Profits are no less than seventy-five (75%) of the
Profit Target.  Effective as of the calendar year ending December 31,
2010, the Profit Bonus shall not exceed the Profit Bonus cap, which shall be the
amount equal to (x) three times Executive’s then current Salary if the Subject
Profits are more than 110% of the Profit Target; (y) two times Executive’s then
current Salary if the Subject Profits are 110% or less, but greater than 100% of
the Profit Target; and (z) Executive’s then current Salary if the Subject
Profits are 100% or less, but equal to or greater than 75% of the Profit Target.
For purposes of computing the Profit Bonus, “Subject Profits” shall mean
Company’s pre-tax net operating income exclusive of extraordinary items and
investment income or loss, arising from special risk and extended warranty
business written by Company and its affiliates under the direct or indirect
supervision of Executive (“Subject Business”), as determined by Company’s
independent public accountants whose determination thereof shall be final,
binding and conclusive.  “Profit Target” means, for each calendar year
in the Employment Period, the greater of the Subject Profits for the preceding
calendar year and the Base Line Profit.  “Base Line Profit” means the
Subject Profits for calendar year 2008.

    

    (ii)         The
Profit Bonus payable pursuant to this Section 3(b) shall be paid in cash or
stock options, restricted stock, restricted stock units or other form of equity
(collectively, “Equity”) as determined by the Board of Directors, in its sole
discretion, provided, however, that no less than one third of the Profit Bonus
shall be payable in Equity.

    

    (iii)        The
Profit Bonus for each year shall be paid by March 31 of the calendar year
following the calendar year for which such Profit Bonus was earned, but no later
than the date bonuses are generally paid to other senior executives of the
Company.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

    

    (iv)      
  The Profit Bonus to which Executive may be entitled under this
Section 3(b) shall be made and subject to the terms of the AmTrust Financial
Services, Inc. 2007 Executive Performance Plan.

    

    (c)       
  Executive may also receive other bonus payments determined at the
sole discretion of the Board of Directors (“Discretionary Bonus”).

    

    (d)      
   Executive shall also be entitled to the following
benefits:

    

    
      	
               
      

            	
              (i)

            	
              five
      (5) weeks of paid vacation for each twelve (12) months of the Employment,
      or such greater period as may be approved from time to time by Board of
      Directors to be taken at times mutually convenient to the executive and
      the Company.  Unused vacation time shall not be carried over to
      any subsequent calendar year;

            

    

    

    
      	
               
      

            	
              (ii)

            	
              paid
      holidays and any and all other work-related leave (whether sick leave or
      otherwise) as provided to the Company’ other executive
      employees.  Notwithstanding the foregoing, in the event of a
      serious illness or incapacity, Executive shall be entitled to receive
      salary and benefits for six calendar months in any twelve month period;
      and

            

    

    

    
      	
               
      

            	
              (iii)

            	
              Executive
      will participate in such benefit schemes to which executive employees of
      the United Kingdon affiliates of Company, their dependents and
      beneficiaries generally are entitled during the Employment Period and,
      including, without limitation, private medical insurance, permanent health
      insurance, life assurance, retirement plans and other present or successor
      plans and practices of Company for which executive employees, their
      dependents and beneficiaries are
eligible.

            

    

    

    4.           Reimbursement of
Expenses.  The Company recognizes that Executive, in performing
Executive’s functions, duties and responsibilities under this Agreement, may be
required to spend sums of money in connection with those functions, duties and
responsibilities for the benefit of the Company and, accordingly, shall
reimburse Executive for travel and other out-of-pocket expenses reasonably and
necessarily incurred in the performance of his functions, duties and
responsibilities hereunder upon submission of written statements and/or bills in
accordance with the regular procedures of the Company in effect from time to
time.

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    5.          Disability.  In
the event that Executive shall be unable to perform because of illness or
incapacity, physical or mental, all the functions, duties and responsibilities
to be performed by him hereunder for a total period of six (6) months during any
consecutive twelve (12) month period, the Company may terminate his employment
and this Agreement effective on or after the expiration of such period (the
“Disability Period”) upon five (5) business days’ written notice to Executive
specifying the termination date (the “Disability Termination
Date”).  The Company shall pay to Executive an amount equal to his
Salary, at the rate in effect immediately before such termination, for the
remainder of the Employment Period or one year, whichever is greater, in
accordance with the Company’s general payroll practices and commencing with the
first payroll coincident with or next following the Disability Termination Date,
Profit Bonus earned to the Disability Termination Date, but not yet paid to him,
and any reimbursement of expenses due him through the date of termination,
except that Salary shall be offset by the amount any insurance afforded to
Executive by the Company which provides benefits to Executive in the event of
termination for disability.  Executive and Company acknowledge and
agree that Company, in accordance with Clause 3(e)(iii), shall afford Executive
permanent health insurance, which is intended to provide benefits to Executive
in the event of termination for disability pursuant to this Clause 5 or
otherwise.

    

    6.          Death.  In
the event of the death of Executive during the Employment Period, this Agreement
and the employment of Executive hereunder shall terminate on the date of death
of Executive.  The Company shall pay the Executive’s heirs or legal
representatives his Salary, at the rate in effect immediately before such
termination, for the remainder of the Employment Period or one year, whichever
is greater, in accordance with the Company’s general payroll practices and
commencing with the first payroll date coincident with or next following the
Executive’s death, Profit Bonus earned to the date of his death, but not yet
paid to him, and any unreimbursed expenses due him through the date of
termination.

    

    
      7.          Termination and
Non-Renewal.

    

    

    (a)         Non-Renewal
or Summary Termination By Company.  In the event that the Company (i)
in accordance with Clause 2, does not renew this Agreement upon the expiration
of the initial Employment Period or any successive Employment Period, or (ii)
terminates this Agreement for any reason (including pursuant to clause 5 above)
other than for Gross Misconduct, as defined below, during any Employment Period,
Executive, as the case may be, upon non-renewal or as an alternative to notice
of non-renewal provided in Clause 2, shall be entitled to:

    

    
      	
               
      

            	
              (1)

            	
              Within
      seven days of the effective date of termination or non renewal, Salary for
      a period of one year from the original expiration date of the subject
      Employment Period, or one year from the effective date of termination or
      non-renewal, whichever is greater.

            

    

    

    
      	
               
      

            	
              (2)

            	
              Profit
      Bonus on all Subject Business written through the date of termination,
      through the expiration of such Subject Business, for a maximum period of
      five years from the date of termination.  For the avoidance of
      doubt, Subject Business written through the date of termination shall
      include only policies or contracts which are in effect as of the date of
      termination.

            

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    (b)         Summary
Termination by Company.  The Company may discharge Executive for Gross
Misconduct at any time.  Gross Misconduct shall include (i) a material
and serious breach of this Agreement by Executive, but only if such material and
serious breach is not cured within thirty (30) days following written notice by
the Company to Executive of such breach, assuming such breach may be cured; (ii)
Executive is convicted of any act or course of conduct involving moral
turpitude; or (iii) Executive engages in any willful act or willful course of
conduct constituting an abuse of office or authority which significantly
adversely affects the business or reputation of the Company or
Executive.  Any written notice by the Company to Executive pursuant to
this Clause 7 shall set forth, in reasonable detail, the facts and circumstances
claimed to constitute the Gross Misconduct.  If Executive is
discharged for Gross Misconduct, the Company, without any limitations on any
remedies it may have at law or equity, shall have no liability for salary or any
other compensation and benefits to Executive after the date of such
discharge.

    

    (c)          In
the event that Executive, in accordance with Clause 2, does not renew this
Agreement for a successive Employment Period solely for the purposes of
Retirement, which means that Executive has reached retirement age as defined
under the laws of the United Kingdom, and has ceased working on a substantially
full-time basis, Executive shall be entitled to Profit Bonus on all Subject
Business written through the end of the Employment Period through expiration of
the Subject Business for a maximum period of five years from the end of the
Employment Period.

    

    8.           Non-Disclosure of
Confidential Information.  “Confidential Information” means all
information known by Executive about the Company’ business plans, present or
prospective customers, vendors, products, processes, services or activities,
including the costing and pricing of such services or activities, employees,
agents and representatives.  Confidential Information does not include
information generally known, other than through breach of a confidentiality
agreement with any of the Company’, in the industry in which the Company engages
or may engage.  Executive will not, while this Agreement is in effect
or after its termination, directly or indirectly, use or disclose any
Confidential Information, except in the performance of Executive’s duties for
the Company, or to other persons as directed by the Board of
Directors.  Executive will use reasonable efforts to prevent
unauthorized use or disclosure of Confidential Information.  Upon
termination of employment with the Company, Executive will deliver to the
Company all writings relating to or containing Confidential Information,
including, without limitation, notes, memoranda, letters, drawings, diagrams,
and printouts, including any tapes, discs or other forms of recorded
information.  If Executive violates any provision of this Clause while
this Agreement is in effect or after termination, the Company specifically
reserve the right, in appropriate circumstances, to seek full indemnification
from Executive should the Company suffer any monetary damages or incur any legal
liability to any person as a result of the disclosure or use of Confidential
Information by Executive in violation of this Clause.

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    9.           Return of Corporate
Property.  Executive acknowledges and agrees that all notes,
records, reports, sketches, plans, unpublished memoranda or other documents,
whether in paper, electronic or other form (and all copies thereof), held by
Executive concerning any information relating to the business of the Company,
whether confidential or not, are the property of the
Company.  Executive will deliver to the Company at the termination or
expiration of the Employment Period, and at any other time the Company may
request, all equipment, files, property, memoranda, notes, plans, records,
reports, computer tapes, printouts and software and other documents and data
(and all electronic, paper or other copies thereof) belonging to the Company
which includes, but is not limited to, any materials that contain, embody or
relate to Confidential Information, Work Product (as defined in Section 10
below) or the business of the Company, which he may then possess or have under
his control.

    

    10.         Intellectual Property
Rights.  Executive acknowledges and agrees that all inventions,
technology, processes, innovations, ideas, improvements, developments, methods,
designs, analyses, trademarks, service marks, and other indicia of origin,
writings, audiovisual works, concepts, drawings, reports and all similar,
related, or derivative information or works (whether or not patentable or
subject to copyright), including but not limited to all patents, copyrights,
copyright registrations, trademarks, and trademark registrations in and to any
of the foregoing, along with the right to practice, employ, exploit, use,
develop, reproduce, copy, distribute copies, publish, license, or create works
derivative of any of the foregoing, and the right to choose not to do or permit
any of the aforementioned actions, which relate to the Company’s actual or
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Executive prior to or
while employed by the Company (collectively, the “Work Product”) belong to the
Company.  All Work Product created by Executive while employed by the
Company will be considered “work made for hire,” and as such, the Company is the
sole owner of all rights, title, and interests therein.   All
other rights to any new Work Product and all rights to any existing Work
Product, including but not limited to all of Executive’s rights to any
copyrights or copyright registrations related thereto, are conveyed, assigned
and transferred to the Company pursuant to this Agreement.  Executive
will promptly disclose and deliver such Work Product to the Company and, at the
Company’s expense, perform all actions reasonably requested by the Company
(whether during or after the Employment Period) to establish, confirm and
protect such ownership (including, without limitation, the execution of
assignments, copyright registrations, consents, licenses, powers of attorney and
other instruments).

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    11.         Restrictive
Covenant.

    

    (a)         Prohibited
Activities.  Subject always to the Company honouring the
payment provided for under clause 7(a), Executive agrees that he shall not
(unless he has received the prior written consent of the Company), during the
period beginning on the date of termination of employment and during the term of
this Agreement and ending two (2) years thereafter (the “Restriction Period”),
directly or indirectly, for any reason, for his own account or on behalf of or
together with any other person or firm:

    

    
      	
               
      

            	
              (i)

            	
              hire
      or solicit for employment or call, directly or indirectly, through any
      person or firm, on any person who is at that time (or at any time during
      the one year prior thereto) employed by or representing the Company or its
      affiliates with the purpose or intent of attracting that person from the
      employ or representation of the Company or its
  affiliates;

            

    

    

    
      	
               
      

            	
              (ii)

            	
              call
      on, solicit or perform services for, directly or indirectly through any
      person or firm, any person or firm that at that time is, or at any time
      within the one year prior to that time was, a customer of the Company or
      its affiliates or any prospective customer that had or, to the knowledge
      of Executive, was about to receive a business proposal from the Company or
      its affiliates, for the purpose of soliciting or selling any product or
      service in competition with the Company or its affiliates;
    or

            

    

    

    
      	
               
      

            	
              (iii)

            	
              call,
      directly or indirectly through any person or firm, on any entity which has
      been called on by the Company or an affiliate in connection with a
      possible acquisition by the Company or an affiliate with the knowledge of
      that entity’s status as such an acquisition candidate, for the purpose of
      acquiring that entity or arranging the acquisition of that entity by any
      person or firm other than the Company or the
  affiliate.

            

    

    

    (b)         Damages.  Because
of (i) the difficulty of measuring economic losses to the Company as a result of
any breach by Executive of the covenants in Clauses 11(a), and (ii) the
immediate and irreparable damage which could be caused to the Company for which
they would have no other adequate remedy, Executive agrees that the Company may
enforce the provisions of Clause 11(a) by injunction and restraining order
against Executive if he breaches any of said provisions, without necessity of
providing a bond or other security.

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    (c)         Reasonable
Restraint.  The parties hereto agree that Clauses 11(a) and
11(b) impose a reasonable restraint on Executive in light of the activities and
business of the Company on the date hereof and the current business plans of the
Company.

    

    
      12.       
 Section
409A.

    

     

    (a)         Notwithstanding
anything to the contrary in this Agreement, (1) if at the time of Executive’s
termination of employment with the Company, Executive is a “specified employee”
as 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 Executive) until the date that is six
months following Executive’s termination of employment with the Company (or the
earliest date as is permitted under Section 409A of the Code) and (2) if any
other payments of money or other benefits due to 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 deferred if deferral will make
such payment or other benefits compliant under Section 409A of the Code, or
otherwise such payment or other benefits shall be restructured, to the extent
possible, in a manner, determined by the Board of Directors, that does not cause
such an accelerated or additional tax.  The Company shall consult with
Executive in good faith regarding the implementation of the provisions of this
Section 12.

     

    (b)         The
intent of the parties is that payment and benefits under this Agreement comply
with Section 409A of the Code and, accordingly, to the maximum extent permitted,
this Agreement shall be interpreted to be in compliance therewith.  In
no event whatsoever shall the Company be liable for any additional tax, interest
or penalty that may be imposed on Executive by Section 409A of the
Code.

     

    

    13.         Construction.  If
the provisions of Clause 11 should be deemed unenforceable, invalid, or
overbroad in whole or in part for any reason, then any court of competent
jurisdiction designated in accordance with Clause 15 is hereby authorized,
requested, and instructed to reform such Clause to provide for the maximum
competitive restraint upon Executive’s activities (in time, product, geographic
area and customer or employee solicitation) which shall then be legal and
valid.

    

    14.         Injunctive Relief;
Damages.  Executive agrees that violation of or threatened
violation of any of Clauses 8, 9, 10 or 11 would cause irreparable injury to the
Company for which any remedy at law would be inadequate, and the Company shall
be entitled in any court of law or equity of competent jurisdiction to
preliminary, permanent and other injunctive relief against any breach or
threatened breach of the provisions contained in any of said Clauses 8, 9, 10 or
11 hereof, without providing bond or other security, and such compensatory
damages as shall be awarded.  Further, in the event of a violation of
the provisions of Clause 9, the Restriction Period referred to therein shall be
extended for a period of time equal to the period that any violation
occurred.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    15.         Jurisdiction and
Venue.  This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.  The Company and
Executive hereby each consents to the exclusive jurisdiction of the Supreme
Court of the State of New York or the United States District Court for the
Southern District of New York with respect to any dispute arising under the
terms of this Agreement and further consents that any process or notice of
motion therewith may be served by certified or registered mail or personal
service, within or without the State of New York, provided a reasonable time for
appearance is allowed.  Each party acknowledges and agrees that any
controversy which may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore each party hereby irrevocably
and unconditionally waives any right such party may have to a trial by jury in
respect or any litigation directly or indirectly arising out of or relating to
this agreement, or the breach, termination or validity of this Agreement, or the
transactions contemplated by this Agreement.  The parties further
agree that any judgment, order or injunction granted by any court within the
State of New York shall be enforceable in any jurisdiction in which the Company
or its affiliates do business.

    

    16.         Indemnification.  To
the fullest extent permitted by, and subject to, the Company’ Certificates of
Incorporation and By-laws, the Company shall indemnify and hold harmless
Executive against any losses, damages or expenses (including reasonable
attorney’s fees) incurred by him or on his behalf in connection with any
threatened or pending action, suit or proceeding in which he is or becomes a
party by virtue of his employment by the Company or any affiliates or by reason
of his having served as an officer or director of the Company or any other
corporation at the express request of the Company, or by reason of any action
alleged to have been taken or omitted in such capacity.

    

    17.         Severability.  If
any provision of this Agreement is held to be invalid, illegal, or
unenforceable, that determination will not affect the enforceability of any
other provision of this Agreement, and the remaining provisions of this
Agreement will be valid and enforceable according to their terms.

    

    18.         Successors to
Company.  Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of Executive and the Company and
any successor or assign of the Company, including, without limitation, any
corporation acquiring, directly or indirectly, all or substantially all of the
assets of the Company, whether by merger, consolidation, sale or otherwise (and
such successor shall thereafter be deemed embraced within the term “Company” for
the purposes of this Agreement), but shall not otherwise be assignable by the
Company.  The services to be provided by Executive hereunder may not
be delegated nor may Executive assign any of his rights hereunder.

    

    19.         No
Restrictions.  Executive represents and warrants that as of the
date of this Agreement Executive is not subject to any contractual obligations
or other restrictions, including, but not limited to, any covenant not to
compete, that could interfere in any way with his employment
hereunder.

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    20.         Personal
Data.  Executive
acknowledges and agrees that Company shall process certain personal data
regarding him outside of the European Economic Area in connection
with personnel administration and Company management.

     

    21.         Collective
Agreements.  There are
no collective agreements that directly affect the terms and conditions of
Executive’s employment.

     

    22.         Miscellaneous.

    

    (a)         This
Agreement constitutes the entire understanding of the parties with respect to
the subject hereof, may be modified only in writing, is governed by laws of New
York, without giving effect to the principles of conflict of laws thereof, and
will be binding and inure to the benefit of Executive and Executive’s personal
representatives, and the Company, their successors and assigns.

    

    (b)         If
Executive should die while any amount would still be payable to him under this
Agreement if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Executive’s estate or legal representative.

    

    (c)         The
failure of any of the parties hereto to enforce any provision hereof on any
occasion shall not be deemed to be a waiver of any provision or succeeding
breach of such provision or any other provision.

    

    (d)         All
notices under this Agreement shall be given by registered or certified mail,
return receipt requested, directed to parties at the following addresses or to
such other addresses as the parties may designate in writing:

    

    If to the Company:

    

    AmTrust Financial Services,
Inc.

    59 Maiden Lane, 6th
Floor

    New York, New York 10038

    Attention: Barry D.
Zyskind

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    If to Executive:

    
 

    Max G.
Caviet

    Ashford
House 56 Tilt Road

    Cobham
Surrey KT11 3HQ

    

    (e)         In
furtherance and not in limitation of the foregoing, this Agreement supersedes
any employment agreement between the Company and Executive, written or oral, and
any such agreement hereby is terminated and is no longer binding on either
party.

    

    23.         Key Man Insurance
Authorization.  At any time during the term of this Agreement,
the Company will have the right (but not the obligation) to insure the life of
Executive for the sole benefit of the Company and to determine the amount of
insurance and type of policy.  The Company will be required to pay all
premiums due on such policies.  Executive will cooperate with the
Company in taking out the insurance by submitting to physical examination, by
supplying all information required by the insurance company, and by executing
all necessary documents.  Executive, however, will incur no financial
obligation by executing any required document, and will have no interest in any
such policy.

    

    24.         Counterparts.  This
Agreement may be executed in one or more counterparts, all of which shall be
deemed to be duplicate originals.

    

    AMTRUST
FINANCIAL SERVICES, INC.

    

    
      
        
          	
                  By:

                	
                  /s/ Barry D. Zyskind

                	 
      	
                  /s/ Max G. Caviet

                	 
	 
      	
                  Barry
      D. Zyskind

                	 
      	
                  Max
      G. Caviet

                	 

        

      

    

     

    
      
         

      

      
        11

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