Exhibit 10.1
SECURITY AGREEMENT
THIS SECURITY
AGREEMENT (this “Agreement”) is dated as of September
28, 2009, and is entered into by and among ThermoEnergy
Corporation, a Delaware corporation having its principal place of
business in Little Rock, Arkansas (the “Debtor”), and
Empire Capital Partners, LP, Empire Capital Partners,
Ltd, Empire Capital Partners Enhanced Master Fund, Ltd, Scott A.
Fine, Peter J. Richards, Focus Fund, L.P., Robert S. Trump
(collectively, with The Quercus Trust, the “Secured
Parties”) and The Quercus Trust, for itself and as the agent
for and for the benefit of the Secured Parties (the
“Agent”). Capitalized terms not otherwise
defined herein are used as defined in the Delaware Uniform
Commercial Code on the date of this Agreement (the
“UCC”).
WHEREAS, the
Debtor is, on or about the date hereof, borrowing an aggregate of
One Million, Six Hundred Eighty Thousand Dollars
($1,680,000) from the Secured Parties pursuant to a series of 8%
Secured Convertible Promissory Notes of even date herewith in favor
of the Secured Parties as further identified on Schedule
I hereto (the “New Notes”); and
WHEREAS, the
Secured Parties have agreed to surrender for cancellation
outstanding promissory notes of the Debtor in an aggregate
principal amount of Four Million Dollars ($4,000,000) as further
identified on Schedule I hereto, in exchange for 8% Secured
Convertible Promissory Notes in form substantially identical to the
New Notes (the “Exchange Notes” and, together with the
New Notes, the “Notes”); and
WHEREAS, it is
a condition precedent to the Secured Parties’ making any
advances to the Debtor under the New Notes and to the Secured
Parties’ surrender of the Exchange Notes that the Debtor
execute and deliver to the Secured Parties a security agreement in
substantially the form hereof; and
WHEREAS, the
Debtor wishes to grant a security interest in favor of the Secured
Parties as herein provided.
NOW, THEREFORE,
in consideration of the promises contained herein and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows:
SECTION
1. Grant of Security . As
consideration for the Secured Parties’ loan to
the Debtor pursuant to the Notes, the Debtor hereby
grants to the Secured Parties a security interest in the entirety
of the Debtor’s Membership Interest (representing an 85%
beneficial ownership) in ThermoEnergy Power Systems, LLC, a
Delaware limited liability Debtor (“TEPS”) and any and
all proceeds from the transfer, assignment or other permitted
disposition thereof (the “Collateral”).
SECTION
2. Security for Obligations . This
Agreement secures and the Collateral is collateral security for the
prompt payment or performance in full (including, without
limitation, amounts that would become due but for the filing of a
petition in bankruptcy), of all amounts when due under the Notes,
as well as the Debtor’s performance and observance of all
covenants contained herein and in the Notes (the
“Obligations”).
SECTION
3. Agent as Agent of Investors
.
(a) The
Agent shall serve and act as agent for all Secured Parties and
shall take such action on their behalf under the provisions of this
Agreement and shall exercise such powers and perform such duties as
are expressly delegated to the Agent by the terms of this
Agreement, together with such powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement, the Agent shall not have any
duties or responsibilities except those expressly set forth
herein.
(b) The
Agent and the Debtor acknowledge and agree that each Note is
secured by a security interest in the Collateral and that the
priorities of the security interests which secure
each Secured Party’s respective Note or
Notes and its or his rights in and to the Collateral which secures
such Notes shall at all times be equal and that each shall share
and be equal in priority and rights with the other Secured
Parties.
(c) In
the event that an Event of Default occurs, and a Secured Party
gives the Agent notice thereof, the Agent shall immediately
thereafter (i) give written notice of the Event of Default to all
Secured Parties, and (ii) commence enforcement, collection
(including judicial or nonjudicial foreclosure) or similar
proceeding with respect to the Collateral; provided that while the
Agent may take immediate action in its discretion in order to
attempt to preserve the rights of the Secured Parties hereunder,
the Agent (a) shall not be required to take any action hereunder
unless and until, if requested by the Agent, the Agent receives
direction from a Majority in Interest of the Secured Parties
(determined on the basis of the principal amounts of the Notes),
and (b) shall take such all such actions to enforce this Agreement
and to realize upon, collect and dispose of the Collateral or any
portion thereof as may be directed by a Majority-in-Interest of the
Secured Parties; provided that the Agent shall not be required to
take any action that is contrary to law or to the terms of this
Agreement, or that would subject it or any of its employees or
agents to liability.
(d) The
Agent acknowledges and agrees that this Agreement and the terms and
provisions hereof are solely for the benefit of the Secured Parties
and shall not benefit in any way any other person or entity,
including, without limitation, the Debtor or any of its
guarantors. Nothing in this Agreement is intended to
affect, limit or in any way diminish the security interests which
the Secured Parties claim in the assets of the Debtor insofar as
the rights of the Debtor and third parties are
concerned. The Agent, on behalf of all Secured Parties,
specifically reserves any and all of their respective rights,
security interests and rights to assert security interests against
the Debtor and any third parties, including guarantors.
(e) The
Debtor, the Secured Parties and the Agent acknowledge and agree
that each Secured Party’s respective rights and priorities
with respect to the Collateral shall exist and be enforceable
against the Collateral only by the Agent on behalf of all Secured
Parties in accordance with the terms hereof, independent of the
time or order of attachment or perfection of such Secured
Party’s respective security interest, or the time or order of
filing of financing statements. The subordinations,
agreements and priorities set forth in this Agreement shall remain
in full force and effect regardless of whether any Secured Party in
the future seeks to rescind, amend, terminate or reform, by
liquidation or otherwise, its or his respective agreements with the
Debtor.
(f) The
Debtor, the Secured Parties and the Agent acknowledge and agree
that the indebtedness and payment obligations of the Debtor with
respect to each Note shall be of equal priority, no Note shall have
a priority of payment over or be subordinate to any other Note, and
any and all property, Proceeds or other payments received by the
Agent in connection with its enforcement of the Secured
Parties’ security interests as contemplated herein shall be
applied promptly by the Agent to the payment to the Secured Parties
pari passu of all outstanding amounts owed under their
respective Notes.
(g) Subject
to the shared priority and respective rights of the Secured Parties
set forth in this Agreement, the Agent, on behalf of the Secured
Parties, shall be entitled to obtain loss payee endorsements and
additional insured status with respect to any and all policies of
insurance now or hereafter obtained by the Debtor
insuring against casualty or other loss to any property of the
Debtor in
