THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE
NOR SUCH SHARES OF COMMON STOCK MAY BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE ISSUING CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
|
Principal Amount:
$500,000.00
|
Issue Date: August 12,
2008
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7.5% CONVERTIBLE
PROMISSORY NOTE DUE DECEMBER 31, 2008
FOR VALUE
RECEIVED, ThermoEnergy Corporation, a Delaware corporation (the
“Borrower”), hereby promise to pay to the order of
Robert S. Trump (the “Holder”), the sum of Five Hundred
Thousand Dollars ($500,000.00) on December 31, 2008 (the
“Maturity Date”).
Interest on the outstanding principal balance
shall be paid at the rate of seven and one-half percent (7.5%) per
annum, payable on the Maturity Date. Interest shall be computed on
the basis of a 365-day year, using the number of days actually
elapsed.
At the election of the Borrower by written
notice to the Holder (a “Deferral Notice”) and payment
to the Holder of a deferral fee in an amount equal to ten percent
(10%) of the principal amount then outstanding (the “Deferral
Fee”) no later than five business days after the Maturity
Date, the Maturity Date may be extended to March 31, 2009. At the
election of the Borrower, the Deferral Fee may be paid by adding
such amount of to the principal amount of this Note.
The Holder shall have the right at any time and
from time to time until the principal and interest on this Note
shall have been paid in full, to convert the principal and any
interest and Deferral Fee due under this Note into shares of the
Borrower’s Common Stock, par value $0.001 per share (the
“Common Stock”). If the Holder exercises his right of
conversion, the Holder shall give the Borrower a Notice of
Conversion in the form annexed to this Note, setting forth the
amount of principal, interest and Deferral Fee which the Holder is
converting into Common Stock (the “Conversion Amount”)
at the Conversion Price in effect on the date of such notice. The
date of such notice is referred to as the “Conversion
Date.” Upon delivery to the Borrower of a completed Notice of
Conversion, the Borrower shall deliver, within five (5) business
days after the Conversion Date (such fifth day being the
“Delivery Date”), irrevocable instructions to the
transfer agent for the Common Stock to issue and deliver to the
Holder a certificate for that number of shares of Common Stock into
which the Conversion Amount is being converted. Except to the
extent that the entire unpaid principal balance of this Note is
being presented for conversion, the Holder shall not be required to
present this Note in order to effect conversion, and the Holder
shall maintain a ledger setting forth each conversion of principal
and interest on this Note and such ledger shall, absent manifest
error, be deemed to be binding and conclusive on the
Borrower.
This Note may be prepaid, in whole or in part,
at any time without premium or penalty upon ten (10) days’
prior written notice to the Holder. Partial prepayments shall be
applied (i) first to any unpaid Deferral Fee, (ii) then to accrued
and unpaid interest, and (iii) the balance to principal.
If the Maturity Date of this Note is extended to
March 31, 2009 as provided above and if this Note is not repaid in
full on such Maturity Date, then the entire principal amount of
this Note, together with all interest accrued hereon and the
Deferral Fee, shall automatically and without any action on the
part of the Borrower or the Holder convert into shares of Common
Stock at the Conversion Price in effect on the Maturity Date. On
the Maturity Date, the Holder shall surrender this Note for
cancellation and, against such surrender, the Borrower shall
deliver irrevocable instructions to the transfer agent for the
Common Stock to issue and deliver to the Holder a certificate for
that number of shares of Common Stock into which this Note has been
automatically converted.
1.1.
Conversion
Price . The
Conversion Price shall be $0.75 per share of Common Stock;
provided, however, that the Conversion Price is subject to
adjustment as set forth in Section 1.2 of this Note. The number of
shares of Common Stock to be issued upon each conversion of this
Note shall be determined by dividing the Conversion Amount by the
Conversion Price in effect on the Conversion Date.
1.2.
Adjustment to the
Conversion Price . The Conversion Price and number and kind of
shares or other securities to be issued upon conversion shall be
subject to adjustment from time to time upon the happening of
certain events while this conversion right remains outstanding, as
follows:
1.2.1. Stock Dividends, Subdivisions and
Combinations . If the
Borrower shall at any time:
(a) declare or pay to the holders of its Common
Stock a dividend payable in, or other distribution of, shares of
Common Stock or in securities convertible into shares of Common
Stock (“Convertible Securities”); or
(b) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock; or
(c) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock;
then (i) the
number of shares of Common Stock into which this Note is
convertible immediately after the occurrence of any such event
shall be adjusted to equal the number of shares of Common Stock
which a record holder of the same number of shares of Common Stock
into which this Note is convertible immediately prior to the
occurrence of such event would own or be entitled to receive after
the occurrence of such event, and (ii) the then-current Conversion
Price shall be adjusted to equal (A) the then-current Conversion
Price multiplied by the number of shares of Common Stock into which
this Note is convertible immediately prior to the adjustment
divided by (B) the number of shares into which this Note is
convertible immediately after such adjustment.
1.2.2. Certain Other Distributions
. If at any time the Borrowers shall
declare or pay to the holders of its Common Stock any dividend or
other distribution of:
(b) any evidences of its indebtedness, any shares
of its stock or any other securities or property of any nature
whatsoever (other than cash, Convertible Securities or additional
shares of Common Stock); or
(c) any warrants or other rights to subscribe for
or purchase any evidences of its indebtedness, any shares of its
stock or any other securities or property of any nature whatsoever
(other than cash, Convertible Securities or additional shares of
Common Stock);
then, upon
conversion of this Note, the Holder shall be entitled to receive
such dividend or distribution as if the Holder had converted the
Conversion Amount prior to the date of such dividend or
distribution. A reclassification of the Common Stock (other than a
change in par value, or from par value to no par value or from no
par value to par value) into shares of Common Stock and shares of
any other class of stock shall be deemed a distribution by the
Company to the holders of its Common Stock of such shares of such
other class of stock within the meaning of this Section 1.2.1 and,
if the outstanding shares of Common Stock shall be changed into a
larger or smaller number of shares of Common Stock as a part of
such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of
Common Stock within the meaning of Section 1.2.1.
1.2.3 Reorganization, Reclassification,
Merger, Consolidation or Disposition of Assets . In case the
Borrower shall reorganize its capital, reclassify its capital
stock, consolidate or merge with or into another Person (where the
Borrower is not the survivor or where there is a change in or
distribution with respect to the Common Stock), or sell, convey,
transfer or otherwise dispose of all or substantially all its
property, assets or business to another Person, or effectuate a
transaction or series of related transactions in which more than
50% of the voting power of the Borrower is disposed of (each, a
“Fundamental Corporate Change”) and, pursuant to the
terms of such Fundamental Corporate Change, shares of common stock
of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or
acquiring corporation (“Other Property”), are to be
received by or distributed to the holders of Common Stock, then the
Holder shall have the right thereafter to receive, upon conversion
of this Note, such number of shares of common stock of the
successor or acquiring corporation or of the Borrower, if it is the
surviving corporation, and Other Property as is receivable upon or
as a result of such Fundamental Corporate Change by
a holder of the number of shares of Common Stock into which this
Note is convertible immediately prior to such Fundamental Corporate
Change. In case of any such Fundamental Corporate Change, the
successor or acquiring corporation (if other than the Borrower)
shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Note
to be performed and observed by the Borrower and all the
obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by
resolution of the Board of Directors of the Borrower) in order to
provide for adjustments of shares of Common Stock into which this
Note is convertible which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 1.2.
For purposes of this Section 1.2.3, “common stock
