Exhibit 10.2
ThermoEnergy Corporation

Securities Purchase Agreement

This Securities Purchase Agreement (this “Agreement”) is dated as of April 27,
2009, by and between ThermoEnergy Corporation, a Delaware corporation (the
“Company”), and the persons and entities identified on Schedule I hereto (each
an “Investor” and, collectively, the “Investors”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act (as defined below) and Rule 506
promulgated thereunder, the Company desires to issue and sell to the Investors,
and the Investors desire to purchase from the Company certain securities of the
Company, as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investor agree as
follows:
 
ARTICLE 1

Definitions

Section 1.1.  Definitions.  In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:

“Action” means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or threatened in writing against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator, governmental
or administrative agency, regulatory authority (federal, state, county, local or
foreign), stock market, stock exchange or trading facility.

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144.

“Arkansas Courts” has the meaning set forth in Section 7.9.

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

“Business Day” means any day except Saturday, Sunday and any day which is a
federal legal holiday or a day on which banking institutions in the City of New
York are authorized or required by law or other governmental action to close.

“Claim” has the meaning set forth in Section 4.6(c).

“Closing” means the closing of the purchase and sale of Units pursuant to
Article 2.

“Closing Date” means the date on which the Closing occurs.

“Commission” means the Securities and Exchange Commission.

 
 

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“Common Stock” means the common stock of the Company, par value $0.001 per
share, and any securities into which such common stock may hereafter be
reclassified.

“Common Stock Equivalents” means any securities of the Company or any Subsidiary
which entitle the holder thereof to acquire Common Stock at any time, including
without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common
Stock.

“Company Stock Options” has the meaning set forth in Section 3.1(g).

“Contingent Obligations” has the meaning set forth in Section 3.1(r).

“Conversion Shares” means the shares of Common Stock issuable upon conversion of
the Notes.

“Convertible Securities” has the meaning set forth in Section 3.1(g).

“Cut Back Shares” has the meaning assigned thereto in Section 4.1(a).

“Effective Date” means the date that any Registration Statement filed pursuant
to Article 4 is first declared effective by the Commission.

“Effectiveness Period” has the meaning set forth in Section 4.1(b).

“Environmental Law” has the meaning set forth in Section 3.1(aa).
 
“Evaluation Period” has the meaning set forth in Section 3.1(r).

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exempt Issuance” means the issuance by the Company (a) to employees, officers,
directors of, and consultants to, the Company of shares of Common Stock or
options for the purchase of shares of Common Stock pursuant to stock option or
long-term incentive plans approved by the Board, (b) of shares of Common Stock
upon the exercise of Warrants issued hereunder, (c) of shares of Common Stock
upon conversion of shares of Series A Preferred Stock, (d) of shares of Common
Stock upon exercise of Prior Warrants or conversion of Prior Convertible
Securities, (e) of securities issued pursuant to acquisitions, licensing
agreements, or other strategic transactions, (f) of securities issued in
connection with equipment leases, real property leases, loans, credit lines,
guaranties or similar transactions approved by the Board, (g) of securities
issued in connection with join ventures or similar strategic relationships
approved by the Board, (h) of securities in a merger, or (i) of securities in a
public offering registered under the Securities Act; provided that in the case
of securities issued pursuant clauses (e),  (g) and (h), the purpose of such
issuance may not be primarily to obtain cash financing.
 
“Filing Date” means the date that is 120 days after the Closing Date.

“Financing Notice” has the meaning set forth in Section 5.5(b).

“GAAP” means generally accepted accounting principles as in effect from time to
time in the United States of America.

 
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“Governmental Authority” has the meaning set forth in Section 3.1(e).

“Hazardous Substance” has the meaning set forth in Section 3.1(aa).

“Indebtedness” has the meaning set forth in Section 3.1(r).

“Indemnified Party” has the meaning set forth in Section 4.6(c).

“Indemnified Person” has the meaning set forth in Section 4.6(a).

“Indemnifying Party” has the meaning set forth in Section 4.6(c).

“Intellectual Property Rights” has the meaning set forth in Section 3.1(o).

“Lien” means any lien, charge, encumbrance, security interest, right of first
refusal or other restrictions of any kind.

“Losses” has the meaning set forth in Section 5.7.

“Material Adverse Effect” means any of (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, prospects,
business or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material impairment of the Company’s
ability to perform on a timely basis its obligations under any Transaction
Document.

“NASD Rules” has the meaning set forth in Section 4.3(o).

“Notes” means the 10% Convertible Promissory Notes, in the form of Exhibit A,
which are issuable to the Investor at the Closing.

“OFAC” has the meaning set forth in Section 3.1(ee).

“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

“Plan of Distribution” has the meaning set forth in Section 4.2(o).

“Post-Effective Amendment” means a post-effective amendment to the Registration
Statement.
 
“Post-Effective Amendment Filing Deadline”  means the seventh Business Day after
the Registration Statement ceases to be effective pursuant to applicable
securities laws due to the passage of time or the occurrence of an event
requiring the Company to file a Post-Effective Amendment.
 
“Pre-Notice” has the meaning set forth in Section 5.5(b).
 
“Prior Warrants” has the meaning set forth in Section 3.1(g).

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
 
 
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“Prospectus” has the meaning set forth in Section 4.3.

“Proposed Financing” has the meaning set forth in Section 5.5(a).

“Proposed Financing Notice” has the meaning set forth in Section 5.5(b).

“Purchase Price” has the meaning set forth in Section 2.1.

“Registrable Securities” means the Conversion Shares and the Warrant Shares;
provided, however, that the Investors shall not be required to convert the Notes
in order to have the Conversion Shares included in any Registration Statement or
to exercise the Warrants in order to have the Warrant Shares included in any
Registration Statement; and provided, further, that Securities shall cease to be
Registrable Securities at such time as they may be resold to the public, free of
volume limitations, without registration under the Securities Act..

“Registration Period” means the period commencing on the date hereof and ending
on the date on which all of the Registrable Securities may be sold to the public
without registration under the Securities Act in reliance on Rule 144.

“Registration Statement” means a registration statement filed on the appropriate
Form with, and declared effective by, the Commission under the Securities Act
and covering the resale by the Investor of the Registrable Securities.

“Requested Information” has the meaning set forth in Section 4.3(a).

“Restriction Termination Date” has the meaning assigned thereto in Section
4.1(a).

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

“Rule 415 Response Effort” has the meaning assigned thereto in Section 4.1(a).

“SEC Objection” has the meaning assigned thereto in Section 4.1(a).

“SEC Restrictions” has the meaning assigned thereto in Section 4.1(a).

“SEC Reports” has the meaning set forth in Section 3.1(h).

“Securities” means the Notes, the Warrants, the Conversion Shares and the
Warrant Shares.

“Securities Act” means the Securities Act of 1933, as amended.

“Series A Preferred Stock” means the shares of the preferred stock of the
Company, par value $0.01 per share, that have been designated as “Series A
Convertible Preferred Stock.”

“Shares” means the shares of Common Stock issuable to the Investor at the
Closing.

“Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of
Regulation S-X promulgated by the Commission under the Exchange Act.
 
 
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“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market, or (ii) if the Common Stock is not listed on a Trading Market, a day on
which the Common Stock is traded in the over-the-counter market, as reported by
the OTC Bulletin Board, or (iii) if the Common Stock is not then listed or
quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.

“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the Nasdaq National Market, or the Nasdaq Over-the-Counter
Market on which the Common Stock is listed or traded on the date in question.

“Transfer Agent” has the meaning set forth in Section 5.1(c).

“Transaction Documents” means this Agreement, the Notes, the Warrants and any
other documents or agreements executed in connection with the transactions
contemplated hereunder.

“Unit” means a Unit consisting of a Note in the original principal amount of
$1.00 and a Warrant to purchase five shares of Common Stock, issued in
combination.

“Warrants” means the Common Stock Purchase Warrants, in the form of Exhibit B,
which are issuable to the Investor at the Closing.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.

ARTICLE 2

Purchase and Sale

Section 2.1.  Issuance of Securities at the Closing.  Upon the terms and subject
to the conditions set forth in this Agreement, and in accordance with applicable
law, the Company agrees to sell to each Investor, and each Investor agrees to
purchase from the Company, for the purchase price of $1.00 per Unit (the
“Purchase Price”), on the Closing Date, 100,000 Units, consisting of (i) a Note
in the original principal amount of $100,000 and (ii) a Warrant to purchase
500,000 shares of Common Stock.

Section 2.2.    Payment of Purchase Price.  As consideration for the issuance of
the Securities being purchased at each Closing, each Investor shall on the
Closing Date pay to the Company, by wire transfer or other form of immediately
available funds, an amount equal to applicable Purchase Price for the Securities
being purchased by such Investor at the Closing.
 
Section 2.3.  Delivery of Securities.  At the Closing, the Company shall,
against payment by each Investor of the applicable Purchase Price, issue to such
Investor the Note and Warrant included in the Units being purchased by it  at
the Closing.

 
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ARTICLE 3

Representations and Warranties

Section 3.1.  Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to the Investors:

 
(a)
Subsidiaries. The Company has no direct or indirect Subsidiaries other than as
specified in the SEC Reports. Except as disclosed in the SEC Reports, the
Company owns, directly or indirectly, all of the capital stock of each
Subsidiary free and clear of any and all Liens other than Liens disclosed in the
SEC Reports, and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.

 
(b)
Organization and Qualification. Each of the Company and each Subsidiary is duly
incorporated or otherwise organized and validly existing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and each Subsidiary is duly qualified to
conduct its respective business and is in good standing as a foreign corporation
or other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, and no proceedings have been instituted in
any such jurisdiction revoking, limiting or curtailing, or seeking to revoke,
such power and authority or qualification.

 
(c)
Authorization; Enforceability. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
thereunder. The execution and delivery of each of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated thereby
have been duly authorized by all necessary action on the part of the Company and
no further action is required by the Company in connection therewith. Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable principles of general
application.

 
(d)
No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated thereby do not and will not (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, or result in the imposition of any Lien upon any of
the material properties or assets of the Company or of any Subsidiary pursuant
to, any agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound or affected, or (iii) result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect.

 
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(e)
Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority (a “Governmental Authority”) or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents and the consummation of the transactions contemplated
thereby, other than (i) the filing of a Notice of Sale of Securities on Form D
with the Commission under Regulation D of the Securities Act (ii) the filing
with the Commission of a Current Report on Form 8-K, (iii) filings required
under applicable state securities laws, and (iv) the filing with the Commission
of one or more Registration Statements in accordance with the requirements of
Article 4 of this Agreement,.

 
(f)
Issuance of the Securities. The Securities have been duly authorized.  Each
Note, when issued and paid for in accordance with this Agreement, will be duly
and validly issued.  Each Warrant, when issued and paid for in accordance with
this Agreement, will be duly and validly issued. The Company has reserved and
set aside from its duly authorized capital stock a sufficient number of shares
of Common Stock to satisfy in full the Company’s obligations to issue the
Conversion Shares upon conversion of the Notes and the Warrant Shares upon
exercise of the Warrants.  The Conversion Shares and the Warrants Shares, when
issued and paid for upon conversion of the Notes or exercise of the Warrants in
accordance with their respective terms, will be duly and validly issued, fully
paid and nonassessable, free and clear of all Liens.

 
(g)
Capitalization. The authorized capital stock of the Company consists of
150,000,000 shares of Common Stock and 20,000,000 shares of Preferred Stock, par
value $0.01, of which 10,000,000 shares have been designed Series A Preferred
Stock and 10,000,000 shares are undesignated.  As of the close of business on
the Business Day immediately prior to the date hereof, (i) 208,334 shares of
Series A Preferred Stock were issued and outstanding, all of which are validly
issued, fully-paid and non-assessable, (ii) 50,280,437 shares of Common Stock
were issued and outstanding, all of which are validly issued, fully-paid and
non-assessable, (iii) 83,797 shares of Common Stock were held by the Company in
Treasury, (iv) 8,113,800 shares of Common Stock were reserved for issuance upon
exercise of outstanding options granted to employees, directors, and consultants
of the Company (the “Company Stock Options”); (v) 26,628,592 shares of Common
Stock were reserved for issuance upon exercise of outstanding warrants to
purchase Common Stock (the “Prior Warrants”); (vi) 208,334 shares of Common
Stock were reserved for issuance upon conversion of outstanding shares of Series
A Preferred Stock, and (vii) 13,329,398 shares of Common Stock were reserved for
issuance upon conversion of other convertible notes, debentures or securities
(“Prior Convertible Securities”).  Except pursuant to (i) the outstanding shares
of Series A Preferred Stock, (ii) the Company Stock Options, (iii) the Prior
Warrants or (iv) the Prior Convertible Securities, or as a result of the
purchase and sale of the Securities as contemplated by this Agreement, or as
otherwise disclosed by the Company to the Investors in writing, there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents.  The issue and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Investor) and will not result in a right of any holder of
Company securities to adjust the exercise or conversion price under such
securities. No further approval or authorization of any stockholder, the Board
of Directors of the Company or any other Person  is required for the issuance
and sale of the Securities.  There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company’s stockholders.

 
 
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(h)
SEC Reports; Financial Statements.  Except as disclosed by the Company to the
Investors in writing, the Company has filed all reports required to be filed by
it under the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the twelve months preceding the date hereof (the
foregoing materials, being collectively referred to herein as the “SEC
Reports”).  As of their respective dates, the SEC Reports filed by the Company
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.  The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing.  Such
financial statements have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved, except as may be otherwise
specified in such financial statements or the notes thereto, and fairly present
in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.

 
(i)
Financial Statements and Material Changes. Except as set forth in the SEC
Reports (including the financial statements included therein) or as otherwise
disclosed by the Company to the Investors in writing, (i) there has been no
event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities or obligations (contingent or otherwise) other than (A)
trade payables, accrued expenses and other liabilities incurred in the ordinary
course of business consistent with past practice and (B) liabilities incurred in
the ordinary course of business not required to be reflected in the Company’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its stockholders
or purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock, and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any
request for confidential treatment of information.

 
 
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(j)
Litigation and Investigations. Except as disclosed by the Company to the
Investor in writing, there is no Action which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) except as specifically disclosed in the SEC
Reports, could, if there were an unfavorable decision, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer
thereof (in his capacity as such), is or has been the subject of any Action
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty, except as specifically disclosed in
the SEC Reports. There has not been, and to the knowledge of the Company, there
is not pending any investigation by the Commission involving the Company or any
current or former director or officer of the Company (in his or her capacity as
such). The Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.  There are no
outstanding comments by the Staff of the Commission on any filing by the Company
or any Subsidiary under the Exchange Act or the Securities Act.

 
(k)
Labor Relations. No material labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company.

 
(l)
Compliance. Except as disclosed in the SEC Reports or as otherwise disclosed by
the Company to the Investors in writing, neither the Company nor any Subsidiary
(i) is in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except
in each case as could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.

 
(m)
Regulatory Permits. The Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess such
permits could not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect, and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such permits.

 
 
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(n)
Title to Assets. The Company and the Subsidiaries have good and marketable title
in fee simple to all real property owned by them that is material to their
respective businesses and good and marketable title in all personal property
owned by them that is material to their respective businesses, in each case free
and clear of all Liens, except for Liens (i) that do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries or (ii)
have previously been disclosed to the Investor in writing. All real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in material compliance, except as could not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.

 
(o)
Patents and Trademarks. The Company and the Subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and other similar rights that
are necessary or material for use in connection with their respective businesses
as described in the SEC Reports and which the failure to so have could,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect (collectively, the “Intellectual Property Rights”). No
claims or Actions have been made or filed by any Person against the Company to
the effect that Intellectual Property Rights used by the Company or any
Subsidiary violate or infringe upon the rights of such claimant. To the
knowledge of the Company, after commercially reasonable investigation, all of
the Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.

 
(p)
Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged. The Company has no reason to believe that it will
not be able to renew its and the Subsidiaries’ existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business on terms consistent with
the market for the Company’s and such Subsidiaries’ respective lines of
business.

 
(q)
Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.

 
(r)
Sarbanes-Oxley; Internal Accounting Controls.  The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 (including the
rules and regulations of the Commission adopted thereunder) which are applicable
to it as of the Closing Date.  The Company’s certifying officers have evaluated
the effectiveness of the Company’s controls and procedures as of the filing date
of the most recently filed periodic report under the Exchange Act (such date,
the “Evaluation Date”).  The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date.  Since the Evaluation Date,
there have been no significant changes in the Company’s internal controls (as
such term is defined in Item 307(b) of Regulation S-K under the Exchange Act)
or, to the Company’s knowledge, in other factors that could significantly affect
the Company’s internal controls.  The Company maintains a standard system of
accounting established and administered in accordance with GAAP.

 
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(s)
Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect to the
transactions contemplated by this Agreement. The Investors shall have no
obligation with respect to any fees or with respect to any claims (other than
such fees or commissions owed by the Investors pursuant to written agreements
executed by the Investors which fees or commissions shall be the sole
responsibility of the Investors) made by or on behalf of any Persons for fees of
a type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.

 
(t)
Investment Company. The Company is not, and is not an Affiliate of, and
immediately following the Closing will not have become, an “investment company”
within the meaning of the Investment Company Act of 1940, as amended.

 
(u)
No Additional Agreements. The Company does not have any agreement or
understanding with the Investors with respect to the transactions contemplated
by the Transaction Documents other than as specified in the Transaction
Documents.

 
(v)
Full Disclosure.  All disclosures provided to the Investors regarding the
Company, its business and the transactions contemplated hereby, furnished by or
on behalf of the Company (including the Company’s representations and warranties
set forth in this Agreement) are true and correct in all material respects and
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.

 
(w)
Environmental Matters.  To the Company’s knowledge, after commercially
reasonable investigation: (i) the Company and its Subsidiaries have complied
with all applicable Environmental Laws; (ii) the properties currently owned or
operated by Company (including soils, groundwater, surface water, buildings or
other structures) are not contaminated with any Hazardous Substances; (iii) the
properties formerly owned or operated by Company or its Subsidiaries were not
contaminated with Hazardous Substances during the period of ownership or
operation by Company and its Subsidiaries; (iv) Company and its Subsidiaries are
not subject to liability for any Hazardous Substance disposal or contamination
on any third party property; (v) Company and its Subsidiaries have not been
associated with any release or threat of release of any Hazardous Substance;
(vi) Company and its Subsidiaries have not received any notice, demand, letter,
claim or request for information alleging that Company and its Subsidiaries may
be in violation of or liable under any Environmental Law; and (vii) Company and
its Subsidiaries are not subject to any orders, decrees, injunctions or other
arrangements with any Governmental Authority or subject to any indemnity or
other agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances.

 
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As used in this Agreement, the term “Environmental Law” means any federal,
state, local or foreign law, regulation, order, decree, permit, authorization,
opinion, common law or agency requirement relating to: (A) the protection,
investigation or restoration of the environment, health and safety, or natural
resources; (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (C) noise, odor, wetlands, pollution,
contamination or any injury or threat of injury to persons or property.
 
As used in this Agreement, the term “Hazardous Substance” means any substance
that is: (i) listed, classified or regulated pursuant to any Environmental Law;
(ii) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (iii) any other substance which is the subject of
regulatory action by any Governmental Authority pursuant to any Environmental
Law.
 
 
(x)
Taxes.  Except as disclosed by the Company to the Investors in writing, the
Company and its Subsidiaries have filed all necessary federal, state and foreign
income and franchise tax returns when due (or obtained appropriate extensions
for filing) and have paid or accrued all taxes shown as due thereon, and the
Company has no knowledge of a tax deficiency which has been or might be asserted
or threatened against it or any Subsidiary which would have a Material Adverse
Effect.

 
 
(y)
Private Offering.  Assuming the correctness of the representations and
warranties of the Investors set forth in this Agreement, the offer and sale of
the Notes and the Warrants hereunder are, and upon (i) exercise of the Warrants,
the issuance of the Warrant Shares and (ii) upon conversion of the Notes, the
issuance of the Conversion Shares will be, exempt from registration under the
Securities Act.  The Company has offered the Notes and the Warrants for sale
only to the Investors.

 
 
(z)
Foreign Assets Control Regulations and Anti-Money Laundering.

 
                 (i)OFAC.  Neither the issuance of the Convertible Note and
Warrant to the Investor, nor the use of the respective proceeds thereof, shall
cause the Investor to violate the U.S. Bank Secrecy Act, as amended, and any
applicable regulations thereunder or any of the sanctions programs administered
by the U.S. Department of the Treasury’s Office of Foreign Assets Control
(“OFAC”) of the United States Department of Treasury, any regulations
promulgated thereunder by OFAC or under any affiliated or successor governmental
or quasi-governmental office, bureau or agency and any enabling legislation or
executive order relating thereto.  Without limiting the foregoing, neither the
Company nor any Subsidiary (i) is a person whose property or interests in
property are blocked or subject to blocking pursuant to Section 1 of Executive
Order 13224 of September 23, 200l Blocking Property and Prohibiting Transactions
With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg.
49079 (2001)), (ii) engages in any dealings or transactions prohibited by
Section 2 of such executive order, or is otherwise associated with any such
person in any manner violative of Section 2, or (iii) is a person on the list of
Specially Designated Nationals and Blocked Persons or subject to the limitations
or prohibitions under any other OFAC regulation or executive order.
 
                 (ii)Patriot Act.  The Company and each of its Subsidiaries are
in compliance, in all material respects, with the USA PATRIOT Act.  No part of
the proceeds of the sale of the Shares and the Warrants hereunder will be used,
directly or indirectly, for any payments to any governmental official or
employee, political party, official of a political party, candidate for
political office, or anyone else acting in an official capacity, in order to
obtain, retain or direct business or obtain any improper advantage, in violation
of the United States Foreign Corrupt Practices Act of 1977, as amended.

 
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Section 3.2.  Representations and Warranties of the Investors.  Each Investor
hereby represents and warrants to the Company as follows:

 
(a)
Authority. This Agreement has been duly executed by such Investor, and when
delivered by the Investor in accordance with terms hereof, will constitute the
valid and legally binding obligation of the Investor, enforceable against him or
it in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors’
rights and remedies or by other equitable principles of general application.

 
(b)
Investment Intent. Such Investor is acquiring the Securities as principal for
his or its own account for investment purposes only and not with a view to or
for distributing or reselling such Securities or any part thereof, without
prejudice, however, to the Investor’s right at all times to sell or otherwise
dispose of all or any part of such Securities in compliance with applicable
federal and state securities laws. Such Investor does not have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.

 
(c)
Investor Status. Such Investor is an “accredited investor” as defined in Rule
501(a) under the Securities Act.   Such Investor is not a registered
broker-dealer under Section 15 of the Exchange Act.

 
(d)
Access to Information. Such Investor acknowledges that he or it has reviewed the
SEC Reports and has been afforded (i) the opportunity to ask such questions as
he has deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the Securities
and the merits and risks of investing in the Securities; (ii) access to
information about the Company and the Subsidiaries and their respective
financial condition, results of operations, business, properties, management and
prospects sufficient to enable him to evaluate his investment; and (iii) the
opportunity to obtain such additional information that the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment.

 
(e)
General Solicitation.  Such Investor is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

 
 
(f)
Disclosure.  Such Investor acknowledges and agrees that the Company neither
makes nor has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 3.1.

 
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ARTICLE 4

Registration Rights

Section 4.1.               Shelf Registration.
 
(a)  On or prior to the Filing Date, the Company shall prepare and file with the
Commission a “shelf” Registration Statement covering the resale of all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415.  The Registration Statement shall be on a Form S-3; in the event
Form S-3 is not available for the registration of the resale of Registrable
Securities hereunder, the Company shall (i) register the resale of the
Registrable Securities on another appropriate form in accordance herewith and
(ii) attempt to register the Registrable Securities on Form S-3 as soon as such
form is available, provided that the Company shall maintain the effectiveness of
the Registration Statements then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the Commission. If at any time the staff of the Commission takes
the position that the offering of some or all of the Registrable Securities in a
Registration Statement is not eligible to be made on a delayed or continuous
basis under the provisions of Rule 415 under the Securities Act or requires any
Investor to be named as an “underwriter” (an “SEC Objection”), the Company shall
promptly notify the Investors of such SEC Objection and if the Investors shall
request, the Company shall use its commercially reasonable efforts to persuade
the staff of the Commission that the offering contemplated by the Registration
Statement is a valid secondary offering and not an offering “by or on behalf of
the issuer” as defined in Rule 415 and that none of the Investors is an
“underwriter” (a “Rule 415 Response Effort”).  The Investors shall have the
right to participate or have its counsel participate in any meetings or
discussions with the staff of the Commission regarding such position and to
comment or have its counsel comment on any written submission made to the staff
of the Commission with respect thereto, and to have such comments relayed to the
staff of the Commission with the consent of the Company, not to be unreasonably
withheld.  No such written submission shall be made to the staff of the
Commission to which the Investors’ counsel reasonably objects.  In the event
that, despite the Company’s commercially reasonable efforts and compliance with
the terms of this Section 4.1(a), the staff of the Commission refuses to alter
its position, the Company shall (i) remove from the Registration Statement such
portion of the Registrable Securities (the “Cut Back Shares”) and/or (ii) agree
to such restrictions and limitations on the registration and resale of the
Registrable Securities as the staff of the Commission may require to assure the
Company’s compliance with the requirements of Rule 415; provided, however, that
the Company shall not agree to name any Investor as an “underwriter” in such
Registration Statement without the prior written consent of the Investor
(collectively, the “SEC Restrictions”).  Notwithstanding any other provision of
this Agreement to the contrary, no liquidated damages shall accrue pursuant to
Section 4.1(d) (i) during the pendency of a Rule 415 Response Effort or (ii) on
or as to any Cut Back Shares until such time as the Company is able, using
commercially reasonable efforts, to effect the filing of an additional
Registration Statement with respect to the Cut Back Shares in accordance with
any SEC Restrictions (such date, the “Restriction Termination Date”).  From and
after the Restriction Termination Date, all of the provisions of this Article 4
(including the liquidated damages provisions) shall again be applicable to the
Cut Back Shares; provided, however, that for such purposes, references to the
Filing Date shall be deemed to be the date that is 30 days after the Restriction
Termination Date.
 
(b)  The Company shall use its best efforts to cause each Registration Statement
filed hereunder to be declared effective by the Commission as promptly as
possible after the filing thereof, but in any event prior to the Required
Effectiveness Date, and shall use its best efforts to keep the Registration
Statement continuously effective under the Securities Act until the earlier of
(i) the fifth anniversary of the Effective Date, (ii) the date when all
Registrable Securities covered by such Registration Statement have been sold
publicly, or (iii) the date on which the Registrable Securities are eligible for
sale without volume limitation pursuant to Rule 144 (the “Effectiveness
Period”). The Company shall notify the Investors in writing promptly (and in any
event within one Business Day) after receiving notification from the Commission
that the Registration Statement has been declared effective.

 
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(c) As promptly as possible, and in any event no later than the Post-Effective
Amendment Filing Deadline, the Company shall prepare and file with the
Commission a Post-Effective Amendment.  The Company shall use its best efforts
to cause the Post-Effective Amendment to be declared effective by the Commission
as promptly as possible after the filing thereof.  The Company shall notify the
Investors in writing promptly (and in any event within one Business Day) after
receiving notification from the Commission that the Post-Effective Amendment has
been declared effective.
 
(e)  Except as specifically authorized hereby or as the Investors may agree in
writing, the Company shall not, prior to the Effective Date of the Registration
Statement, prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities.  The Investors acknowledge that
the Company has obligations to register shares of Common Stock under the
Securities Act for sale by prior investors in the Company and that the Company
may be prohibited from filing a Registration Statement covering the Registrable
Securities until the Company’s registration obligations to such prior investors
have been satisfied.  Notwithstanding any other provision of this Agreement to
the contrary, no liquidated damages shall accrue pursuant to Section 4.1(d) so
long as the Company is prohibited from filing a Registration Statement covering
the Registrable Securities due to the Company’s registration obligations to
prior investors.
 
(f)  If the Company issues to the Investors any Common Stock pursuant to the
Transaction Documents that is not included in the initial Registration
Statement, then the Company shall file an additional Registration Statement
covering such number of shares of Common Stock on or prior to the Filing Date
and shall use it best efforts, but in no event later than the Required
Effectiveness Date, to cause such additional Registration Statement to be
declared effective by the Commission.
 
Section 4.2.        Registration Process.  In connection with the registration
of the Registrable Securities pursuant to Section 4.1, the Company shall:
 
                 (a)Prepare and file with the Commission the Registration
Statement and such amendments (including post-effective amendments) to the
Registration Statement and supplements to the prospectus included therein (a
“Prospectus”) as the Company may deem necessary or appropriate and take all
lawful action such that the Registration Statement and any amendment thereto
does not, when it becomes effective, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, not misleading and that the Prospectus forming
part of the Registration Statement, and any amendment or supplement thereto,
does not at any time during the Registration Period include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.;
 
                 (b)Comply with the provisions of the Securities Act with
respect to the Registrable Securities covered by the Registration Statement
until the earlier of (i) such time as all of such Registrable Securities have
been disposed of in accordance with the intended methods of disposition by the
Investors as set forth in the Prospectus forming part of the Registration
Statement or (ii) the date on which the Registration Statement is withdrawn;

 
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                 (c)Prior to the filing with the Commission of the Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide draft copies thereof
to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and furnish to the
Investors and their legal counsel identified to the Company (i) promptly after
the same is prepared and publicly distributed, filed with the Commission, or
received by the Company, one copy of the Registration Statement, each
Prospectus, and each amendment or supplement thereto, and (ii) such number of
copies of the Prospectus and all amendments and supplements thereto and such
other documents, as the Investors may reasonably request in order to facilitate
the disposition of the Registrable Securities;
 
                 (d)(i) register or qualify the Registrable Securities covered
by the Registration Statement under such securities or “blue sky” laws of such
jurisdictions as the Investors reasonably request, (ii) prepare and file in such
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify, (B) subject
itself to general taxation in any such jurisdiction or (C) file a general
consent to service of process in any such jurisdiction;
 
                 (e)As promptly as practicable after becoming aware of such
event, notify the Investors of the occurrence of any event, as a result of which
the Prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
 
                 (f)As promptly as practicable after becoming aware of such
event, notify the Investors (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the Commission of any stop order or
other suspension of the effectiveness of the Registration Statement and take all
lawful action to effect the withdrawal, rescission or removal of such stop order
or other suspension;
 
                 (g)Take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
Prospectus which are customary under the circumstances;
 
                 (h)Make generally available to its security holders as soon as
practicable, but in any event not later than 18 months after the Effective Date
of the Registration Statement, an earnings statement of the Company and its
subsidiaries complying with Section 11(a) of the Securities Act and the rules
and regulations of the Commission thereunder;

 
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                 (i)In the event of an underwritten offering, promptly include
or incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the underwriters reasonably agree
should be included therein and to which the Company does not reasonably object
and make all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after it is notified of the matters to be
included or incorporated in such Prospectus supplement or post-effective
amendment;
 
                 (j)Make reasonably available for inspection by the Investors,
any underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the Company’s officers, directors and employees to
supply all information reasonably requested by the Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any nonpublic information shall be kept confidential
by such Investors and any such underwriter, attorney, accountant or agent
(pursuant to an appropriate confidentiality agreement in the case of any such
holder or agent), unless such disclosure is made pursuant to judicial process in
a court proceeding (after first giving the Company an opportunity promptly to
seek a protective order or otherwise limit the scope of the information sought
to be disclosed) or is required by law, or such records, information or
documents become available to the public generally or through a third party not
in violation of an accompanying obligation of confidentiality; and provided,
further, that, if the foregoing inspection and information gathering would
otherwise disrupt the Company’s conduct of its business, such inspection and
information gathering shall, to the maximum extent possible, be coordinated on
behalf of the Investors and the other parties entitled thereto by one firm of
counsel designated by and on behalf of the majority in interest of Investors and
other parties;
 
                 (k)In connection with any offering, make such representations
and warranties to the Investors and to the underwriters if an underwritten
offering, in form, substance and scope as are customarily made by a company to
underwriters in secondary underwritten offerings;
 
                 (l)In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the underwriters;
 
                 (m)Cooperate with the Investors to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to the Registration Statement, which certificates shall, if
required under the terms of this Agreement, be free of all restrictive legends,
and to enable such Registrable Securities to be in such denominations and
registered in such names as any Investor may request and maintain a transfer
agent for the Common Stock;
 
                 (n)Use its commercially reasonable efforts to cause all
Registrable Securities covered by the Registration Statement to be listed or
qualified for trading on the principal Trading Market, if any, on which the
Common Stock is traded or listed on the Effective Date of the Registration
Statement; and
 
                 (o)Include in each Prospectus and Registration the Plan of
Distribution attached hereto as Exhibit C (the “Plan of Distribution”), unless
and to the extent that such Plan of Distribution requires modification due to
inaccuracy or due to a change in the Commission’s rules and regulations under
the Securities Act.

 
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Section 4.3.       Obligations and Acknowledgements of the Investors.  In
connection with the registration of the Registrable Securities, the Investors
shall have the following obligations and hereby make the following
acknowledgements:
 
                 (a)It shall be a condition precedent to the obligations of the
Company to include the Registrable Securities in the Registration Statement that
the Investors (i) shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and
(ii) shall execute such documents in connection with such registration as the
Company may reasonably request.  At least five Business Days prior to the first
anticipated filing date of a Registration Statement, the Company shall notify
the Investors of the information the Company requires from the Investors (the
“Requested Information”) if the Investors elect to have any of their Registrable
Securities included in the Registration Statement.  If at least two Business
Days prior to the anticipated filing date the Company has not received the
Requested Information from the Investors, then the Company may file the
Registration Statement without including any Registrable Securities of the
Investors and the Company shall have no further obligations under this Article 4
to the Investors after such Registration Statement has been declared
effective.  If the Investors notify the Company and provide the Company the
information required hereby prior to the time the Registration Statement is
declared effective, the Company will file an amendment to the Registration
Statement that includes the Registrable Securities of the Investors; provided,
however, that the Company shall not be required to file such amendment to the
Registration Statement at any time less than 5 Business Days prior to the
Effectiveness Date.
 
                 (b)The Investors agree to cooperate with the Company in
connection with the preparation and filing of a Registration Statement
hereunder, unless the Investors have notified the Company in writing of their
election to exclude all of their Registrable Securities from such Registration
Statement;
 
                 (c)The Investors agree that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in
Section 4.2(e) or 4.2(f), the Investors shall immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until the Investors’ receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 4.2(e) and, if
so directed by the Company, the Investors shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in the Investors’ possession, of the Prospectus covering
such Registrable Securities current at the time of receipt of such notice; and
 
                 (d)The Investors acknowledge that they may be deemed to be a
statutory underwriter within the meaning of the Securities Act with respect to
the Registrable Securities being registered for resale by them, and if any
Investor includes Registrable Securities for offer and sale within a
Registration Statement, such Investor hereby consents to the inclusion in such
Registration Statement of a disclosure to such effect.
 
Section 4.4.Expenses of Registration.  All expenses (other than underwriting
discounts and commissions and the fees an expenses of the Investors’ counsel)
incurred in connection with registrations, filings or qualifications pursuant to
this Article 4, including, without limitation, all registration, listing, and
qualifications fees, printing and engraving fees, accounting fees, and the fees
and disbursements of counsel for the Company, shall be borne by the Company.

 
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Section 4.5  Accountant’s Letter. If the Investors propose to engage in an
underwritten offering of any Registrable Shares, the Company shall deliver to
the Investors, at the Company’s expense, a letter dated as of the effective date
of each Registration Statement or Post-Effective Amendment thereto, from the
independent public accountants retained by the Company, addressed to the
underwriters and to the Investor, in form and substance as is customarily given
in an underwritten public offering, provided that the Investor has made such
representations and furnished such undertakings as the independent public
accountants may reasonably require;
 
Section 4.6.  Indemnification and Contribution
 
              (a)Indemnification by the Company.  The Company shall indemnify
and hold harmless the Investors and each underwriter, if any, which facilitates
the disposition of Registrable Securities, and each of their respective officers
and directors and each Person who controls such underwriter within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act (each such
Person being sometimes hereinafter referred to as an “Indemnified Person”) from
and against any losses, claims, damages or liabilities, joint or several, to
which such Indemnified Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
an omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 4.3(e), the use
by the Indemnified Person of an outdated or defective Prospectus after the
Company has provided to such Indemnified Person an updated Prospectus correcting
the untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
 
              (b)Indemnification by the Investors and Underwriters.  Each
Investor agrees, as a consequence of the inclusion of any of his or its
Registrable Securities in a Registration Statement, and each underwriter, if
any, which facilitates the disposition of Registrable Securities shall agree,
severally and not jointly, as a consequence of facilitating such disposition of
Registrable Securities to (i) indemnify and hold harmless the Company, its
directors (including any person who, with his or her consent, is named in the
Registration Statement as a director nominee of the Company), its officers who
sign any Registration Statement and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, against any losses, claims, damages or
liabilities to which the Company or such other persons may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
such Registration Statement or Prospectus or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in light of the
circumstances under which they were made, in the case of the Prospectus), not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by the Investor or underwriter expressly for use therein, and
(ii) reimburse the Company for any legal or other expenses incurred by the
Company in connection with investigating or defending any such action or claim
as such expenses are incurred; provided, however, that the Investors shall not
be liable under this Section 4.5(b) for any amount in excess of the net proceeds
paid to the Investors in respect of Registrable Securities sold by them.

 
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              (c)Notice of Claims, etc.  Promptly after receipt by a Person
seeking indemnification pursuant to this Section 4.5 (an “Indemnified Party”) of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a “Claim”), the
Indemnified Party promptly shall notify the Person against whom indemnification
pursuant to this Section 4.5 is being sought (the “Indemnifying Party”) of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure.  In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof.  Notwithstanding the assumption of the defense of
any Claim by the Indemnifying Party, the Indemnified Party shall have the right
to employ separate legal counsel and to participate in the defense of such
Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket
costs and expenses of such separate legal counsel to the Indemnified Party if
(and only if): (i) the Indemnifying Party shall have agreed to pay such fees,
costs and expenses, (ii) the Indemnified Party shall reasonably have concluded
that representation of the Indemnified Party by the Indemnifying Party by the
same legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, potentially differing
interests between such parties in the conduct of the defense of such Claim, or
if there may be legal defenses available to the Indemnified Party that are in
addition to or disparate from those available to the Indemnifying Party, or
(iii) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim.  If the Indemnified Party
employs separate legal counsel in circumstances other than as described in the
preceding sentence, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party.  Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of
counsel for the Indemnified Party (together with appropriate local
counsel).  The Indemnified Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment or contain any admission of
wrongdoing.
 
              (d)Contribution.  If the indemnification provided for in this
Section 4.5 is unavailable to or insufficient to hold harmless an Indemnified
Party in respect of any losses, claims, damages or liabilities (or actions in
respect thereof) referred to therein, then each Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party in connection with the statements
or omissions or alleged statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations.  The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such Indemnifying Party or by such Indemnified Party,
and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.  The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this Section 4.5(d) were determined by pro rata allocation (even if the
Investors or any underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the equitable
considerations referred to in this Section 4.5(d).  The amount paid or payable
by an Indemnified Party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim.  No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.

 
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              (e)Limitation on Investors’ and Underwriters’
Obligations.  Notwithstanding any other provision of this Section 4.5, in no
event shall (i) the Investor have any liability under this Section 4.5 for any
amounts in excess of the dollar amount of the proceeds actually received by the
Investors from the sale of Registrable Securities (after deducting any fees,
discounts and commissions applicable thereto) pursuant to any Registration
Statement under which such Registrable Securities are registered under the
Securities Act and (ii) any underwriter be required to undertake liability to
any Person hereunder for any amounts in excess of the aggregate discount,
commission or other compensation payable to such underwriter with respect to the
Registrable Securities underwritten by it and distributed pursuant to the
Registration Statement.
 
              (f)Other Liabilities.  The obligations of the Company under this
Section 4.5 shall be in addition to any liability which the Company may
otherwise have to any Indemnified Person and the obligations of any Indemnified
Person under this Section 4.5 shall be in addition to any liability which such
Indemnified Person may otherwise have to the Company.  The remedies provided in
this Section 4.5 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to an indemnified party at law or in equity.
 
Section 4.6.                 Rule 144.  With a view to making available to the
Investors the benefits of Rule 144, the Company agrees to use its best efforts
to file with the Commission in a timely manner all reports and other documents
required to be filed by the Company pursuant to Section 13 or 15(d) under the
Exchange Act; and, if at any time it is not required to file such reports but in
the past had been required to or did file such reports, it will, upon the
request of any Investor, make available other information as required by, and so
long as necessary to permit sales of, its Registrable Securities pursuant to
Rule 144.
 
Section 4.7.Common Stock Issued Upon Stock Split, etc.  The provisions of this
Article 4 shall apply to any shares of Common Stock or any other securities
issued as a dividend or distribution in respect of the Conversion Shares or the
Warrant Shares.

ARTICLE 5
 
Other Agreements of the Parties

Section 5.1.  Certificates; Legends.

(a)           The Securities may only be transferred in compliance with state
and federal securities laws. In connection with any transfer of the Securities
other than (i) pursuant to an effective registration statement, (ii) to the
Company, or (iii) to an Affiliate of the Investor, the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act.  In the event of a private transfer of the Securities,
the transferee shall be required to execute a counterpart to this Agreement,
agreeing to be bound by (and shall have the benefits of) the terms hereof other
than those set forth in Article 2 hereof, and such transferee shall be deemed to
be an “Investor” for purposes of this Agreement.

 
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(b)           The Notes and the Warrants to be delivered at the Closing and the
certificates evidencing the Conversion Shares and the Warrant Shares to be
delivered upon conversion of the Notes or exercise of the Warrants will contain
appropriate legends referring to restrictions on transfer relating to the
registration requirements of the Securities Act and applicable state securities
laws.

(c)           In connection with any sale or disposition of the Securities by
the Investor pursuant to Rule 144 or pursuant to any other exemption under the
Securities Act such that the purchaser acquires freely tradable shares and upon
compliance by the Investor with the requirements of this Agreement, the Company
shall, or, in the case of Common Stock, shall cause the transfer agent for the
Common Stock (the “Transfer Agent”) to, issue replacement certificates
representing the Securities sold or disposed of without restrictive
legends.  Upon the earlier of (i) registration of any Securities for resale
pursuant Article 4 or (ii) Rule 144(k) becoming available with respect to any
Securities, the Company shall (A) deliver to the Transfer Agent irrevocable
instructions that the Transfer Agent shall reissue a certificate representing
such Securities without legends upon receipt by such Transfer Agent of the
legended certificates, together with either (1) a customary representation by
the Investor that Rule 144(k) applies to the shares of Common Stock represented
thereby or (2) a statement by the Investor that the Investor has sold the shares
of Common Stock represented thereby in accordance with the Plan of Distribution
contained in the Registration Statement, and (B) cause its counsel to deliver to
the Transfer Agent one or more blanket opinions to the effect that the removal
of such legends in such circumstances may be effected under the Securities
Act.  From and after the earlier of such dates, upon the Investor’s written
request, the Company shall promptly cause certificates evidencing the Investor’s
Securities to be replaced with certificates which do not bear such restrictive
legends, and Warrant Shares subsequently issued upon due exercise of the
Warrants shall not bear such restrictive legends provided the provisions of
either clause (i) or clause (ii) above, as applicable, are satisfied with
respect to such Warrant Shares.  When the Company is required to cause an
unlegended certificate to replace a previously issued legended certificate, if:
(1) the unlegended certificate is not delivered to an Investor within five
Business Days after submission by the Investor of a legended certificate and
supporting documentation to the Transfer Agent as provided above and (2) prior
to the time such unlegended certificate is received by the Investor, the
Investor, or any third party on behalf of such Investor or for the Investor’s
account, purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Investor of shares represented
by such certificate (a “Buy-In”), then the Company shall pay in cash to the
Investor (for costs incurred either directly by such Purchaser or on behalf of a
third party) the amount by which the total purchase price paid for Common Stock
as a result of the Buy-In (including brokerage commissions, if any) exceeds the
proceeds received by such Investor as a result of the sale to which such Buy-In
relates.  The Investor shall provide the Company written notice indicating the
amounts payable to the Investor in respect of the Buy-In.

Section 5.2.  Integration.  The Company has not and shall not, and shall use its
best efforts to ensure that no Affiliate of the Company shall, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in Section 2 of the Securities Act) that would be integrated with
the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Investor, or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market in a manner that
would require stockholder approval of the sale of the securities to the
Investor.

 
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Section 5.3.  Securities Laws Disclosure; Publicity.  No later than the fourth
business day following the execution of this Agreement, the Company will file a
Current Report on Form 8-K disclosing the material terms of the Transaction
Documents (and attach the Transaction Documents as exhibits thereto). In
addition, the Company will make such other filings and notices in the manner and
time required by the Commission and the Trading Market on which the Common Stock
is listed.

Section 5.4.  Use of Proceeds.  The Company shall use the net proceeds from the
sale of the Securities hereunder (i) for working capital purposes (including the
repayment of debt), (ii) to purchase fixed assets used in the development or
production of the Company’s products or (iii) for investment in new technologies
related to the Company’s business.

Section 5.5.  Right of First Refusal
 
(a)  Proposed Financings.  In the event that, during the period commencing on
the Closing Date and continuing to the second anniversary of the Closing Date,
the Company seeks to raise additional funds through a private placement of its
securities (a “Proposed Financing”), other than Exempt Issuances, each Investor
shall have the right to participate in the Proposed Financing on a pro rata
basis, based on the percentage that (a) the number of shares of Common Stock
then held by such Investor plus the number of shares of Common Stock issuable
upon conversion of Notes or exercise of Warrants then held by such Investor
bears to (b) the total number of shares of Common Stock outstanding plus the
number of shares of Common Stock issuable upon conversion of the Notes, the
Series A Preferred Stock and the Prior Convertible Securities and exercise of
the Company Stock Options, the Warrants and the Prior Warrants.
 
(b)  Investment Terms.  The terms on which the Investor shall purchase
securities pursuant to the Proposed Financing shall be the same as such
securities are purchased by other investors in such Proposed Financing.  The
Company shall give the Investor written notice, no later than the date of the
initial closing of the Proposed Financing, setting forth the terms of the
Proposed Financing (the “Financing Notice”).  In the event that the terms of the
Proposed Financing are changed, the Borrower shall provide the Investor with the
same notice of the revised terms that are provided to the other investors in
such Proposed Financing.
 
(c)  Financings.  In the event that the Investor does not exercise, within ten
Business Days after receipt of the Financing Notice, its right to participate in
the Proposed Financing, the Company may sell the securities in the Proposed
Financing at a price and on terms which are no more favorable to the investors
in such Proposed Financing than the terms offered to the Investor.  If the
Company subsequently changes the price or terms so that the terms are at a price
or more favorable to the investors in the Proposed Financing, the Company shall
re-offer the securities to the Investor as provided in this Section 5.5.

Section 5.6.  No Disclosure of Material Non-Public Information. The Company will
not disclose to any Investor any material non-public information concerning the
Company except (a) with the consent of such Investor and (b) if such consent is
given, pursuant to a non-disclosure agreement which provides, among other
things, that such Investor will not disclose the material non-public information
to any person and the Investor or the Agent will not engage in any transactions
involving the Company’s securities while in possession of material non-public
information.

 
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ARTICLE 6

Conditions Precedent to Closing

Section 6.1.  Conditions Precedent to the Obligations of the Investor to
Purchase Securities.  The obligation of the Investor to acquire Securities at
any Closing is subject to the satisfaction or waiver by the Investor, at or
before the Closing, of each of the following conditions:

 
(a)
Representations and Warranties. The Company shall have delivered a certificate
of the Company’s Chief Executive Officer certifying that the representations and
warranties of the Company contained herein are true and correct in all material
respects as of the date when made and as of the Closing Date as though made on
and as of such Closing Date;

 
(b)
Performance. The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by it at or
prior to the Closing;

 
(c)
No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents;

 
(d)
No Adverse Changes. Since the date of execution of this Agreement, no event or
series of events shall have occurred that reasonably could have or result in a
Material Adverse Effect;

 
(e)
Company Deliverables. The Company shall have delivered the Notes and the
Warrants.

Section 6.2.  Conditions Precedent to the Obligations of the Company to Sell
Securities.  The obligation of the Company to sell Securities at any Closing is
subject to the satisfaction or waiver by the Company, at or before the Closing,
of each of the following conditions:

 
(a)
Representations and Warranties. The representations and warranties of the
Investor contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though made on and as of
such date;

 
(b)
Performance. The Investor shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by such
Investor at or prior to the Closing;

 
(c)
No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents; and

 
(d)
Purchase Price. The Investor shall have paid the Purchase Price payable at such
Closing in accordance with Section 2.3.

 
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ARTICLE 7

Miscellaneous

Section 7.1.  Fees and Expenses.  Each party shall pay the fees and expenses of
its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of the Transaction Documents. The Company
shall pay all stamp and other taxes and duties levied in connection with the
sale of the Shares.

Section 7.2.  Entire Agreement.  The Transaction Documents, together with the
Exhibits thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements, understandings,
discussions and representations, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents and exhibits.

Section 7.3.  Notices.  Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile
(provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number specified in this Section prior to 6:30
p.m. (Little Rock time) on a Business Day, (b) the next Business Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number specified in this Section on a day that is not a
Business Day or later than 6:30 p.m. (Little Rock time) on any Business Day, (c)
the Business Day following the date of transmission, if sent by a nationally
recognized overnight courier service, or (d) upon actual receipt by the party to
whom such notice is required to be given. The address for such notices and
communications shall be as follows:

If to the Company:             ThermoEnergy Corporation
Attn.:  Andrew T. Melton
124 West Capitol Avenue, Suite 880
Little Rock, AR  72201
Facsimile:  (501) 376-5249

With a copy to:                   Nixon Peabody, LLP
Attn.:  William E. Kelly, Esq.
100 Summer Street
Boston, MA  02110
Facsimile:  (866) 743-4899

If to an Investor:                 To such Investor at:
One Gorham Island, Suite 201
Westport, CT 06880
Facsimile:  (203) 454-1539

or, in either case, such other address as may be designated in writing
hereafter, in the same manner, by the addressee.

Section 7.4.  Amendments; Waivers; No Additional Consideration.  No provision of
this Agreement may be waived or amended except in a written instrument signed by
the Company and the Investors.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

 
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Section 7.5          Termination.  This Agreement may be terminated prior to
Closing:

 
(a)
by written agreement of the Investors and the Company; or

 
(b)
by the Company or the Investor, upon written notice to the other, if the Closing
shall not have taken place by 6:30 p.m., Little Rock time, on April 30, 2009;
provided, that the right to terminate this Agreement under this Section 7.5(b)
shall not be available to any Person whose failure to comply with its
obligations under this Agreement has been the cause of or resulted in the
failure of the Closing to occur on or before such time, to the extent such delay
is caused by such Person.

Upon a termination in accordance with this Section 7.5, the Company and the
Investor shall have no further obligation or liability (including as arising
from such termination) to the other, provided that any liabilities arising prior
to such termination shall not be affected by the termination.

Section 7.6.  Construction.  The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party. This
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement or any of the
Transaction Documents.

Section 7.7.  Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
Neither party may assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other party.

Section 7.8.  No Third-Party Beneficiaries.  This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.6 (with respect
to rights to indemnification and contribution).

Section 7.9.  Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all Proceedings concerning the interpretations, enforcement
and of the transactions contemplated by this Agreement and any other Transaction
Documents (whether brought against a party hereto or its respective Affiliates,
employees or agents) shall be commenced exclusively in the state or federal
courts sitting in, or having jurisdiction over, Pulaski County in the State of
Arkansas (the “Arkansas Courts”). Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the Arkansas Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of the any
of the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such Arkansas Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document, then
the prevailing party in such Proceeding shall be reimbursed by the other party
for its reasonable attorneys’ fees and other costs and expenses incurred with
the investigation, preparation and prosecution of such Proceeding.

 
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Section 7.10.  Survival.  The representations, warranties, agreements and
covenants contained herein shall survive the Closings and the delivery of the
Securities.

Section 7.11.  Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof, notwithstanding any subsequent failure or refusal of
the signatory to deliver an original executed in ink.

Section 7.12.  Severability.  If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

Section 7.13.  Replacement of Securities.  If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities. If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.

Section 7.14.  Remedies.  In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Investors and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that, except as expressly set forth
herein with respect to liquidated damages, monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.

Section 7.15   Attorney’s Fees.  If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Transaction Documents, the prevailing party shall be entitled to reasonable
attorney’s fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.

[Signature Page Follows]

 
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

ThermoEnergy Corporation
       
Empire Capital Partners, lp
   
By: Empire gp, llc, its General Partner
     
By:
/s/  Andrew T. Melton
     
Andrew T. Melton
 
By:
/s/  Peter J. Richards
 
Senior Vice President and CFO
   
Peter J. Richards
     
Managing Member
         
Empire Capital Partners, ltd
   
By: Empire Capital Management, llc,
   
its Investment Manager
     
/s/  Scott A. Fine
   
Scott A. Fine
 
By:
/s/  Peter J. Richards
     
Peter J. Richards
     
Managing Member
         
Empire Capital Partners Enhanced Master
Fund, ltd
   
By: Empire Capital Management, llc,
   
its Investment Manager
     
/s/  Peter J. Richards
   
Peter J. Richards
 
By:
/s/  Peter J. Richards
     
Peter J. Richards
     
Managing Member

 
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Schedule I

Investor
 
Purchase Price
 
Empire Capital Partners, LP
  $ 100,000  
One Gorham Island, Suite 201
       
Westport, CT 06880
       
Facsimile:  (203) 454-1539
                 
Empire Capital Partners, Ltd
  $ 100,000  
One Gorham Island, Suite 201
       
Westport, CT 06880
       
Facsimile:  (203) 454-1539
                 
Empire Capital Partners Enhanced Master Fund, Ltd
  $ 100,000  
One Gorham Island, Suite 201
       
Westport, CT 06880
       
Facsimile:  (203) 454-1539
                 
Scott A. Fine
  $ 100,000  
One Gorham Island, Suite 201
       
Westport, CT 06880
       
Facsimile:  (203) 454-1539
                 
Peter J. Richards
  $ 100,000  
One Gorham Island, Suite 201
       
Westport, CT 06880
       
Facsimile:  (203) 454-1539
       

 
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Exhibit C

Plan of Distribution

The selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock or
interests in shares of common stock received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any or
all of their shares of common stock or interests in shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or
in private transactions.  These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale, or at
negotiated prices.

The selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:

- ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

- block trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;

- purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

- an exchange distribution in accordance with the rules of the applicable
exchange;

- privately negotiated transactions;

- short sales effected after the date the registration statement of which this
Prospectus is a part is declared effective by the SEC;

- through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;

- broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share; and

- a combination of any such methods of sale.

The selling stockholders may, from time to time, pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock, from time to time, under
this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.  The selling stockholders also
may transfer the shares of common stock in other circumstances, in which case
the transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.

In connection with the sale of our common stock or interests therein, the
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume.  The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities.  The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

 
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The aggregate proceeds to the selling stockholders from the sale of the common
stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any.  Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents.  We will not receive any of the proceeds from this offering.
Upon any exercise of the warrants by payment of cash, however, we will receive
the exercise price of the warrants.

The selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.

The selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act.  Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities
Act.  Selling stockholders who are "underwriters" within the meaning of Section
2(11) of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act.

To the extent required, the shares of our common stock to be sold, the names of
the selling stockholders, the respective purchase prices and public offering
prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.

In order to comply with the securities laws of some states, if applicable, the
common stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers.  In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.

We have advised the selling stockholders that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of shares in the market
and to the activities of the selling stockholders and their affiliates.  In
addition, to the extent applicable we will make copies of this prospectus (as it
may be supplemented or amended from time to time) available to the selling
stockholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act.  The selling stockholders may indemnify any broker-dealer
that participates in transactions involving the sale of the shares against
certain liabilities, including liabilities arising under the Securities Act.

We have agreed to indemnify the selling stockholders against liabilities,
including liabilities under the Securities Act and state securities laws,
relating to the registration of the shares offered by this prospectus.

We have agreed with the selling stockholders to keep the registration statement
of which this prospectus constitutes a part effective until the earlier of (1)
such time as all of the shares covered by this prospectus have been disposed of
pursuant to and in accordance with the registration statement or (2) the date on
which the shares may be sold without restriction pursuant to Rule 144 of the
Securities Act.

 
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