EMPLOYMENT AGREEMENT

EMPLOYMENT. Employer hereby employs Employee, and Employee hereby accepts employment with Employer, upon the terms and conditions set forth in this Agreement.

TERM OF EMPLOYMENT. The employment of Employee pursuant to the terms of this Agreement shall commence as of closing of the CASTion Corporation acquisition and shall continue for a period of three (3) years, unless sooner terminated pursuant to the provisions hereof; PROVIDED, HOWEVER, that this Agreement shall, unless earlier terminated, as of the fifteenth of each month of the term of this Agreement, be automatically extended for an additional month.

DUTIES.

BASIC DUTIES. Subject to the direction and control of the Chief Executive Officer and the Board of Directors of Employer, Employee shall serve as President and Chief Executive Officer of Employer’s subsidiary, CASTion Corporation (“CASTion”) and shall fulfill all duties and obligations of such office including but not limited to the following:

Assist the Board of Directors of CASTion in administering the corporate affairs,

Execute corporate policy,

Develop the business plan for CASTion,

Coordinate Marketing Activities,

Work with the CFO to set and monitor operating budgets, and

Coordinate technology development with CTO.

OTHER DUTIES OF EMPLOYEE. In addition to the foregoing, Employee shall perform such other or different duties related to those set forth in Paragraph 3.1 as may be assigned to him from time to time by Employer, PROVIDED, HOWEVER, that any such additional assignment shall be at a level of responsibility commensurate with that set forth in Paragraph 3.1 and PROVIDED, FURTHER, that Employee may serve, or continue to serve, on the boards of directors of and hold any other offices or positions in, companies or entities that in the judgment of Employer will not present any conflict of interest with Employer or any of its operations or adversely affect the performance of Employee’s duties pursuant to this Agreement.

TIME DEVOTED TO EMPLOYMENT. Employee shall devote his full time to the business of Employer during the term of this Agreement to fulfill his obligations hereunder.

PLACE OF PERFORMANCE OF DUTIES. The services of Employee shall be performed at Employer’s place of business, Worcester, MA, and at such other locations as shall be designated from time to time by Employer.

SERVICES AS OFFICER OR DIRECTOR. During the employment period, Employee shall, if elected or appointed, serve as a director of Employer and as an officer and/or director of all current and future subsidiaries or affiliates of Employer without any additional compensation for such services.

COMPENSATION AND METHOD OF PAYMENT.

TOTAL COMPENSATION. As compensation under this Agreement, Employer shall pay and Employee shall accept the following:

BASE COMPENSATION. For each year of this Agreement, measured from the effective date hereof, base compensation of $200,000.00 (Two Hundred Thousand United States Dollars), and further increased as may be approved from time to time by the Compensation Committee of the Employer. All such increases shall be effective as of the beginning of such calendar year in which the increase becomes effective pursuant to the terms hereof or as approved by the Employer, as the case may be. Such adjustments may be based on the performance of Employer, the value of Employee to Employer or any other factors considered relevant by Employer.

INCENTIVE COMPENSATION. For each year the Employer shall pay to Employee as incentive compensation (“Incentive Compensation”), in respect of each fiscal year or portion thereof included within the Employment Period, an amount (up to one hundred percent (100%) of his Base Compensation) determined in accordance with a formula to be established annually in good faith by the Compensation Committee of the Board of Directors of Employer thereof authorized to act on compensation matters and, in the case of each fiscal year commencing after December 31^st.

PERIODIC PERFORMANCE COMPENSATION. In addition to Incentive Compensation, special compensation can be determined periodically by the Compensation Committee to be paid for unusual activities such as, but not inclusive of the following: 1) complete merger or acquisition of a new business or technology, 2) execution of new contracts in excess of twenty percent (20%) of existing revenues of Employer, and 5) other unusual events that are determined to be significant by the Compensation Committee.

STOCK OPTIONS. Nonqualified options issued at the discretion of the Employer.

RESTRICTED STOCK GRANTS. Restricted stock issued at the discretion of the Employer.

In addition, Employee shall be entitled to a car allowance of $750.00 per month.

LIFE INSURANCE. The Employer shall pay all premiums for one or more life insurance policies upon the life of the Employee in an aggregate face amount equal to two and one-half times (2&1/2) the Base Compensation of Employee. The death benefit or benefits shall be payable to such beneficiary or beneficiaries as Employee shall designate in writing to Employer. Employee shall aid Company in procuring such insurance, as well as in obtaining any other life, health, accident, disability, or other insurance which Employer should at any time apply for, it its own name ant its own expense, to ensure Employer’s obligations hereunder, by submitting to the usual and customary medical examinations and by completing, executing, and delivering such applications and other instruments in writing as may be reasonably required by any insurance company or companies.

OTHER BENEFITS. Employer shall pay or shall reimburse Employee for his reasonable expenses in connection with (i) obtaining from time-to-time of financial planning advice; (ii) preparation of personal Federal and State income tax returns; and (iii) cost of annual medical physical examinations. While employed, the Employer shall also pay the initiation fee and the annual and/or monthly dues and/or assessments for the Employee’s membership in social and/or business clubs, business organizations, and social and/or civic groups of Employee’s choosing. The employer will also provide parking for the Employee at the place of business at no cost to the Employee.

In the event of a Change of Control of Employer (as such term is defined in Section 4.3 hereof). Employee shall be entitled to receive the balance of the unpaid base compensation (“Unpaid Base Compensation”) which would otherwise be payable to Employee during the remainder of the term of this Agreement pursuant to Section 4.1(1) hereof within thirty (30) days of the date of such Change of Control and any and all stock options and/or restricted stock grants granted to Employee pursuant to Section 4.1(5) and 4.1(6) hereof and otherwise shall vest immediately upon the date of such Change of Control; PROVIDED, HOWEVER, in the event of such Change of Control of Employer, the term of this Agreement shall automatically be extended to a period of three (3) years from the date of such Change of Control of Employer for purposes of this Section 4.1(11).

MOVING EXPENSES. In the event that during the term of this agreement, Employee is transferred by Employer to a new principal place of work at least 100 miles further from his residence at the time of transfer (“current residence’) than his principal place of work at the time of the transfer, Employer shall reimburse Employee for all reasonable expenses incurred for:

The expenses of two round-trips, including meals and lodging, by Employee and Employee’s spouse, from the current residence to the general location of the new principal place of work for the principal purpose of searching for a new residence.

The expenses of a one-way trip, including meals and lodging, by Employee and Employee’s spouse, from the current residence to the new place of residence.

Moving the household goods and personal effects of Employee and Employee’s spouse from the current residence to the new place of residence.

Meals and lodging for Employee and Employee’s spouse for a period of consecutive days not in excess of 60 days while occupying temporary quarters in the general location of the new principal place of work.

“Qualified residence sale, purchase, or lease expenses” as defined in Internal Revenue Code, subject to any future amendments. Reasonable expenses incident to: the sale or exchange of Employee’s former residence (but not for work performed on it to assist in its sale); the purchase of a new residence, including the cost of a loan but not including any prepayment of interest; the settlement of an unexpired lease held by Employee on his former residence; and the acquisition of a lease on the new residence of Employee, but not including any prepayment of rent.

PAYMENT OF COMPENSATION. Employer shall pay the compensation provided for in Section 4.1 hereof as follows:

Employer shall pay the base compensation in cash in accordance with Employer’s payroll practices for all its employees, but in no event less frequently than monthly.

Incentive Compensation earned hereunder shall be determined by the Compensation Committee as soon as reasonably practicable after the end of each fiscal year of Employer and shall be paid promptly thereafter to the Employee.

Employer shall pay in cash the reimbursement of such discretionary expenses provided in Section 4.1(4), 4.1(8) and 4.1(10) hereof.

If the Employer in its judgment determines that payment in full of compensation due Employee currently would imperil the Employer’s ability to remain a going concern, it may give a written notice (a “Deferral Notice”) to Employee to the effect that all or a designated percentage of his compensation for such fiscal year in excess of the then-applicable minimum wage shall be deferred until the first to occur of (i) a Change of Control or (ii) the first anniversary of the date of the Deferral Notice; provided, however, that if on the first anniversary of the date of the Deferral Notice, the Employer determines that payment of the deferred compensation would imperil the Employer’s ability to remain a going concern, then payment of the deferred compensation shall be further deferred until such time as the Employer determines that such payment would not imperil the Employer’s ability to remain a going concern. Deferred Base Compensation and deferred Incentive Compensation shall bear interest on the unpaid balance thereof from the last day of the fiscal year in respect of which it was earned at the Prime Rate as published in The Wall Street Journal on the date of the deferral. Such interest shall be computed annually in arrears, and shall be added as of the last day of each fiscal year of Employer.

A CHANGE OF CONTROL OF EMPLOYER. For all purposes of this Agreement, a “Change of Control” shall mean: (i) the acquisition by any person, entity or groups of persons, within the meaning of Section 13(d) or 14(d), or any comparable successor provisions of the Securities Exchange Act of 1934 (the “Act”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of at least twenty-five percent (25%) of either the outstanding shares of common stock or the combined voting power of Employer’s then outstanding voting securities entitled to vote generally, or (ii) the approval by stockholders of Employer of a reorganization, merger or consolidation, in which persons who were stockholders of Employer immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own or control more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the surviving corporation of such reorganization merger or consolidation, or a liquidation or dissolution of Employer or of the sale of all or substantially all of Employer’s assets, or (iii) in the event Employer terminates Employee pursuant to this Agreement for any reason other than the occurrence of any of the events set forth in Sections 5.2(2), (3), (4), (6), (7) or (9) hereof, or (iv) in the event any person shall be elected by the stockholders of Employer to the Board of Directors of Employer who shall not have been nominated for election by a majority of the Board of Directors of Employer or any duly appointed committee thereof.

TERMINATION OF AGREEMENT.

BY NOTICE. This agreement, and the employment of Employee hereunder, may be terminated by Employee or Employer upon ninety (90) days written notice of termination; PROVIDED, HOWEVER, in the event Employer terminates this Agreement for any reason other than the occurrence of any of the events set forth in Sections 5.2(2), (3), (4), (6), (7) or (9), and subject to Section 4.1(11) hereof, Employee shall be entitled to receive the balance of the unpaid base salary which would otherwise be payable to Employee during the remainder of the term of this Agreement pursuant to Sections 4.1(1), 4.1(8) and 4.1(10) hereof within thirty (30) days after such ninety (90) day notice period.

OTHER TERMINATION. This Agreement and the employment of Employee hereunder, shall terminate immediately upon the occurrence of any one of the following events:

The death or mental or physical incapacity of Employee.

The loss by Employee of legal capacity (other than as described in Section 5.2(1) hereof).

The failure by Employee to devote substantially all of his available professional time to the business of Employer or the willful and habitual neglect of duties.

The willful engaging by Employee in an act of dishonesty constituting a felony under the laws of the state in which Employer’s principal place of business is located, resulting or intending to result in gain or personal enrichment at the expense of Employer or to the detriment of Employer’s business and to which Employee is not legally entitled.

The continued incapacity in excess of one hundred eighty (180) days on the part of Employee to perform his duties, unless waived by Employer.

The mutual written agreement of Employee and Employer.

The expiration of the term of this Agreement.

The involuntary termination of Employee as a director of Employer.

Employee’s breach of this Agreement.

EFFECT OF TERMINATION BY REASON OF DEATH OR INCAPACITY. In the event of the termination of Employee’s employment pursuant to Sections 5.2(1) or (5) of this Agreement prior to the completion of the term of employment specified herein, and subject to Section 4.1 (11) hereof, Employee shall be entitled to receive the balance of the unpaid compensation (including any Incentive Compensation pursuant to Section 4.1(2) hereof) which is not covered by disability or other insurance and which would otherwise be payable to Employee during the term of this Agreement pursuant to Section 4.1(1) hereof within 60 days after such termination.

REMEDIES. No termination of the employment of Employee pursuant to the terms of this Agreement shall prejudice any other remedy to which any party to this Agreement may be entitled either at law, in equity, or under this Agreement.

PROPERTY RIGHTS AND OBLIGATIONS OF EMPLOYEE.

TRADE SECRETS. For purposes of this Agreement, “trade secrets” shall include without limitation any and all financial, cost and pricing information and any and all information contained in any drawing, designs, plan, proposals, customer lists, records of any kind, data, formulas, specifications, concepts or ideas, where such information is reasonably related to the business of Employer and has not previously been publicly released by duly authorized representatives of Employer or Parent or otherwise lawfully entered the public domain.

PRESERVATION OF TRADE SECRETS. Employee will preserve as confidential all trade secrets pertaining to Employer’s business that have been or may be obtained or learned by him by reason of his employment or otherwise. Employee will not, without the written consent of Employer, either use for his own benefit or purposes or disclose or permit disclosure to any third parties, either during the term of his employment hereunder or thereafter (except as required in fulfilling the duties of his employment), any trade secret connected with the business of Employer.

TRADE SECRETS OF OTHERS. Employee agrees that he will not disclose to Employer or induce Employer to use any trade secret belonging to any third party.

PROPERTY OF EMPLOYER. Employee agrees that all documents, reports ` files, analyses, drawings, designs tools, equipment, plans (including, without limitation, marketing and sales plans), proposals, customer lists, computer software or hardware, patents, license agreements, and similar materials that are made by him or come into his possession by reason of his employment with Employer are the property of Employer and shall not be used by him in any way adverse to Employer’s interests. Employee will not allow any such documents or things, or any copies, reproductions or summaries thereof to by delivered to or used by any third party without the specific consent of Employer. Employee agrees to deliver to the Board of Directors of Employer or its designee, upon demand, and in any event upon the termination of Employee’s employment, all of such documents and things which are in Employee’s possession or under his control.

NONCOMPETITION BY EMPLOYEE. During the term of Employee’s employment under this Agreement, and for a period of one (1) year following the termination of such employment for any reason, Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, principal stockholder, corporate officer, director, or in any other individual or representative capacity: (i) engage or participate in any business that is in competition in any manner with the business of Employer; (ii) divert, take away or attempt to divert or take away (and during the one year period, call on or solicit) any of Employer’s clients within the United States. For purposes of this Agreement, the term “Employer’s clients” shall mean clients who had a business relationship with Employer prior to Employee’s employment with Employer and those who develop a business relationship with Employer, during Employee’s employment with Employer; (iii) undertake planning for or organization of any business within the United States or in any other country in which Employer is engaged in business activity competitive with Employer’s business within the United States or in any other country in which Employer is engaged in business or combined or conspire with employees or other representative of Employer’s business within the United States or in any other country in which Employer is engaged in business for the purpose of organizing any such competitive activity within the United States or in any other country in which Employer is engaged in business; or (iv) induce or influence (or seek to induce or influence) any person who is engaged, as an employee, agent, independent contractor or otherwise by Employer within the United States or in any other country in which Employer is engaged in business to terminate his or her employment or engagement. Employee acknowledges that the Employer’s business is broad in geographic scope and agrees that, in light thereof, the geographic scope of the restrictions set forth in this Section 6.5 is reasonable. Employee also acknowledges that, as an executive officer of CASTion and of the Employer, he will be directly involved in the development and implementation of the Employer’s business strategy and agrees that, in light thereof, the duration and subject matter scope of the restrictions set forth in this Section 6.5 are reasonable.

SURVIVAL PROVISIONS AND CERTAIN REMEDIES. Unless otherwise agreed to in writing between the parties hereto, the provisions of this Section 6 shall survive the termination of this Agreement. The covenants in this Section 6 shall be construed as separate covenants and to the extent any covenant shall be judicially unenforceable, it shall not affect the enforcement of any other covenant. In the event Employee breaches any of the provisions of this Section 6, Employee agrees that Employer may be entitled to injunctive relief in addition to any other remedy to which Employer may be entitled.

GENERAL PROVISIONS:

NOTICES. Any notices or other communications required or permitted to be given hereunder shall be given sufficiently only if in writing and served personally or sent by certified mail, postage prepaid and return receipt requested, addressed as follows:

CHOICE OF LAW AND FORUM. Except as expressly provided otherwise in this Agreement, this Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. The parties agree that any dispute arising under this Agreement, whether during the term of this Agreement or at any subsequent time, shall be resolved exclusively in the courts of the State of Arkansas and the parties hereby submit to the jurisdiction of such courts for all purposes provided herein.

ENTIRE AGREEMENT; MODIFICATION AND WAIVER. This Agreement supersedes any and all other agreements, whether oral or in writing, between the parties hereto with respect to the employment of Employee by Employer and contains all covenants and agreements between the parties relating to such employment in any manner whatsoever. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or written, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. Any modification of this Agreement shall be effective only if it is in writing signed by the party to be charged. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver.

ASSIGNMENT. Because of the personal nature of the services to be rendered hereunder, this Agreement may not be assigned in whole or in part by Employee without the prior written consent of Employer. However, subject to the foregoing limitation, this Agreement shall be binding on, and shall inure to the benefit of, the parties hereto and their respective heirs, legatees, executors, administrators, legal representative, successors and assigns.

SEVERABILITY. If for any reason whatsoever, any one or more of the provisions of this Agreement shall be held or deemed to be inoperative, unenforceable, or invalid as applied to any particular case or in all cases, such circumstances shall not have the effect of rendering any such provision inoperative, unenforceable, or invalid in any other case or of rendering any of the other provisions of this Agreement inoperative, unenforceable or invalid.

CORPORATE AUTHORITY. Employer represents and warrants as of the date hereof that Employer’s execution and delivery of this Agreement to Employee and the carrying out of the provisions hereof have been duly authorized by Employer’s Board of Directors and authorized by Employer’s shareholders and further represents and warrants that neither the execution and delivery of this Agreement, nor the compliance with the terms and provisions thereof by Employer will result in the breach of any state regulation, administrative or court order, nor will such compliance conflict with, or result in the breach of, any of the terms or conditions of Employer’s Articles of Incorporation or Bylaws, as amended, or any agreement or other instrument to which Employer is a party, or by which Employer is or may be bound, or constitute an event of default thereunder, or with the lapse of time or the giving of notice or both constitute an event of default thereunder.

ATTORNEY’S FEES. In any action at law or in equity to enforce or construe any provisions or rights under this Agreement, the unsuccessful party or parties to such litigation, as determined by the courts pursuant to a final judgment or decree, shall pay the successful party or parties all costs, expenses, and reasonable attorneys’ fees incurred by such successful party or parties (including, without limitation, such costs, expenses, and fees on any appeals), and if such successful party or parties shall recover judgment in any such action or proceedings, such costs, expenses, and attorneys’ fees shall be included as part of such judgment.

COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

HEADING AND CAPTIONS. Heading and captions are included for purposes of convenience only and are not a part hereof.

CONSULTATION WITH COUNSEL. Employee acknowledges that he has had the opportunity to consult with counsel independent of Employer or Employer’s counsel, regarding the entering into of this Agreement and has done so to the extent he sees fit.

“Employer”

ThermoEnergy Corporation

---

Andrew T. Melton, Chief Financial Officer

Date

“Employee”

---

Jeffrey L. Powell

 Date