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Principal
Amount: $600,000.00
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Issue Date: July 31,
2009
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8% SECURED CONVERTIBLE
PROMISSORY NOTE
FOR VALUE
RECEIVED, ThermoEnergy Corporation, a Delaware corporation (the
“Borrower”), hereby promise to pay to the order of
Focus Fund L.P. (the “Holder”), the sum of up to Six
Hundred Thousand Dollars ($600,000.00) on the earlier to occur of
(i) the closing of an equity or convertible debt investment (a
“Financing”) in the Borrower yielding gross proceeds to
the Borrower of not less than Two Million Dollars ($2,000,000.00)
or (ii) December 31, 2011 (in either case, the “Maturity
Date”). Unless the Holder is participating as an
investor in the Financing, the Borrower shall, at least ten (10)
days prior to the initial closing of the Financing, give the Holder
written notice setting forth the details of the Financing
(including, without limitation, the terms of the securities to be
issued in the Financing (the “Financing Securities”),
the price per share at which such Financing Securities will be
issued (the “Financing Price”) and the expected gross
proceeds to the Borrower)(the “Financing
Notice”). Upon the initial closing of the
Financing, the entire outstanding principal amount of this Note,
plus any accrued and unpaid interest thereon, shall convert
automatically in Financing Securities at the Financing
Price.
An initial advance (an “Advance”) in
the amount of $300,000 has been made on or before the date
hereof. Additional Advances (up to the total amount
hereof) shall be made promptly upon the request of the Borrower,
provided that the Holder shall not be obligated to, but may in the
Holder’s sole discretion, make any Additional Advances unless
the Borrower’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2008 and the Borrower’s Quarterly Report
on Form 10-Q for the period ended March 31, 2009 shall have been
filed with the Securities and Exchange
Commission. Interest on the outstanding principal
balance shall accrue at the rate of eight percent (8.0%) per annum,
and shall be due and payable on the Maturity
Date. Interest shall be computed on the basis of a
365-day year, using the number of days actually elapsed.
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 outstanding principal
amount of this Note, and any accrued and unpaid interest thereon,
into shares of the Common Stock, par value $0.001 per share, of the
Borrower at a price of $0.30 per share. If the Holder
desires to exercise its right of conversion, the Holder shall give
the Borrower a written notice, setting forth the amount of
principal and interest which the Holder desires to
convert. Should the Holder elect to convert less than
the entire amount of the principal balance and accrued and unpaid
interest under this Note, the amount being converted shall be
credited first against accrued and unpaid interest and the balance,
if any, shall be credited against principal. 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.
The Borrower and Holder have, contemporaneously
herewith, entered into a Security Agreement (the “Security
Agreement”) securing the obligations of the Borrower to the
Holder under this Note, and so long as this Note is outstanding the
Holder shall be entitled to the benefit of the Security
Agreement.
This Note may not be prepaid, in whole or in
part, without the prior written consent of the
Holder. Partial prepayments, if any, shall be applied
first to accrued and unpaid interest, and the balance to
principal.
The entire unpaid principal amount of this Note,
together with interest thereon shall, on written notice from the
Holder, forthwith become and be due and payable if any one or more
Events of Default shall have occurred (for any reason whatsoever
and whether such happening shall be voluntary or involuntary or be
affected or come about by operation of law pursuant to or in
compliance with any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental
body) and be continuing.
The occurrence of any one or more of the
following events or conditions shall constitute an “Event of
Default” under this Agreement:
(i) The
Borrower’s failure to make any payment of principal or
interest or any other sums within fifteen (15) days of the date
when due under this Note; or
(ii) Any
representation or warranty or other statement made by the Borrower
in the Security Agreement proves to have been false or misleading
in any material respect when made or furnished; or
(iii) Breach of or
failure in the due observance or performance in any material
respect of any covenant, condition or agreement on the part of the
Borrower to be observed or performed pursuant to this Note and the
failure to cure (if curable) an
