exh4-2_0908.htm


    Exhibit
4.2


    [LOGO]            


    ARISTEIA CAPITAL


    August
28, 2008

     

    


     

    Ms. Diana L. Kubik

    Chief
Financial Officer

    Evergreen
Energy Inc.

    1225
17th Street

    Suite
1300

    Denver,
CO 80206

    


    Re:
3(a)(9)
Exchange

     

     

    Dear Diana:

     

    This
letter agreement (this “Agreement”) confirms our agreement to exchange (the
“Exchange”) $18,750,000 in aggregate principal amount of the 8.00% CONVERTIBLE
SECURED NOTES DUE 2012 (the “Notes”), Cusip No.  30024BAA2,
of  Evergreen Energy Inc. (the “Company”), a Delaware corporation, for
an aggregate of 10,500,000 shares of the Company’s common stock, par value $.001
per share (the “Common Stock”), pursuant to Section 3(a)(9) of the Securities
Act of 1933, as amended (the “Act”), on terms specified below:

     

    Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 4 and 5
below, the Company agrees to issue to each fund listed in column (1) of Schedule I attached
hereto (each, a “Fund” and together, the “Funds”) on the Initial Closing Date
(as defined below) that number of shares of Common Stock as is set forth
opposite such Fund’s name in column (2) of Schedule I attached
hereto in exchange for that principal amount of the Notes as is set forth
opposite such Fund’s name in column (3) of Schedule I attached
hereto.

     

    Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 4 and 5
below, the Company agrees to issue to each Fund on the Additional Closing Date
(as defined below) that number of shares of Common Stock as is set forth
opposite such Fund’s name in column (4) of Schedule I attached
hereto in exchange for that principal amount of Notes as is set forth opposite
such Fund’s name in column (5) of Schedule I attached
hereto.

     

    The
date and time of the initial closing (the “Initial Closing Date”) shall be 10:30
a.m., New York City time, on August 29, 2008 after notification of satisfaction
(or waiver) of the conditions to the initial closing set forth in Sections 4 and
5 below (or such later date as is mutually agreed to by the Company and each
Fund). The date and time of the additional closing (the “Additional Closing
Date” and together with the Initial Closing

     


    
      
         


      

      
        1

        
          

        

      

      
         


      

    


    Date,
each a “Closing Date”) shall be 10:30 a.m., New York City time, on September 2, 2008 after notification of
satisfaction (or waiver) of the conditions to each closing set forth in Sections
4 and 5 below (or such other date as is mutually agreed to by the Company and
each Fund); provided, that if one or more Funds are prohibited from exchanging
its Notes for Common Stock because it would cause such Fund’s beneficial
ownership in the Common Stock to exceed the Maximum Percentage (as defined
below), such Fund may extend the Additional Closing Date by no more than three
(3) trading days and such Fund shall use it reasonable best efforts to take such
actions reasonably necessary to allow the exchange to occur on the Additional
Closing Date (as extended).  If, despite such Fund’s reasonable best
efforts, it is still unable to exchange the Notes for Common Stock without
breaching the Maximum Percentage, such Fund’s obligation to exchange Notes for
Common Stock will be reduced to the maximum amount permitted without breaching
the Maximum Percentage.

     

    Notwithstanding
the foregoing, no Fund shall have the right to exchange Notes for Common Stock
or any obligation to exchange Notes for Common Stock to the extent that after
giving effect to such exchange, such Fund (together with such Person’s
affiliates) would beneficially own in excess of 9.99% (the “Maximum Percentage”)
of the shares of Common Stock outstanding immediately after giving effect to
such exchange.  For purposes of this paragraph, beneficial ownership
shall be calculated in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”).  The Company hereby
represents and warrants that the number of outstanding shares of Common Stock,
prior to giving effect to the transactions contemplated here, is at least 84,651,000 and prior to the consummation
of the transactions contemplated hereby, the Company covenants and agrees that
it will promptly notify each Fund of any decrease in such number.  The
provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this paragraph to correct
this paragraph (or any portion hereof) which may be defective or inconsistent
with the intended beneficial ownership limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such
limitation.

    


    The
Exchange will be subject to the following terms and conditions:

     

    
      	
              (1)

            	
              The
      Funds will privately exchange the Notes for the Common Stock, subject to
      the following settlement payment and other
  terms:

            


    

     

    
      	
               
      

            	
              a.

            	
              Each
      Fund will receive unlegended Common Stock on each Closing Date that may be
      sold without restrictions into the public market, subject to the accuracy
      of such Fund’s representations in Section 3
  below.

            


    

     

    
      	
               
      

            	
              b.

            	
              The
      Common Stock issuable and deliverable upon the exchange of the Notes shall
      be transferred by Deposit / Withdrawal at Custodian (DWAC) to each Fund’s
      DTC participant account #0005 (Goldman Sachs & Co.).  Each of the Funds shall deliver the Notes being
      exchanged by them to the Company as promptly as practicable after the
      Exchange.

            


    

     

    
      	
               
      

            	
              c.

            	
              Each Fund that represents the principal amount of
      the Notes as is set forth opposite such Fund’s name in columns (3) and (5)
      of Schedule I attached hereto hereby agrees to consent to the amendments
      to the Indenture governing the Notes set forth in the Supplemental
      Indenture attached

            


    

     


    
      
         


      

      
        2

        
          

        

      

      
         


      

    


    
      	
                

            	
              hereto as Exhibit A (the “Supplemental
      Indenture”).  Notwithstanding the provisions of Section 8(c)
      hereto, such consent is subject to
      all provisions of this Agreement and all transactions contemplated hereby,
      not being invalid, in whole or in part, and Company’s compliance with all
      of its obligations under this Agreement and the terms and conditions of
      the indenture governing the Notes (as amended or modified, the
      “Indenture”).

            


    

     

    
      	
               
      

            	
              d.

            	
              Notwithstanding
      anything to the contrary contained in the Indenture or otherwise, with
      respect to any guarantees by any subsidiaries of the Company contained in
      the Indenture, the Company and each of the Funds hereby agrees that each
      such guarantee issued pursuant to the Indenture, prior to each exchange of
      Notes for Common Stock hereunder, shall be null and void with respect to
      such Notes being exchanged such that, at the time of each Exchange, such
      Notes being exchanged shall not be guaranteed securities and shall be
      solely securities of the Company.

            


    

     

    For the avoidance of doubt, the Exchange is not
conditioned on the approval of the requisite holders of Notes needed to approve
the Supplemental Indenture or the transactions contemplated thereby or the
effectiveness of such Supplemental Indenture.

     

    (2)        The
Company represents, warrants and agrees that:

     

    
      	
               
      

            	
              a.

            	
              The
      Company shall comply with all, and this transaction shall not contravene
      any, applicable securities laws and the rules and regulations promulgated
      thereunder, including Section 3(a)(9) of the
  Act.

            


    

     

    
      	
               
      

            	
              b.

            	
              The
      Company shall not negotiate or consummate any exchanges with any other
      holders of its securities under 3(a)(9) during the period beginning today
      and ending 10 trading days from the date
hereof.

            


    

     

    
      	
               
      

            	
              c.

            	
              The
      Company has a sufficient number of authorized and unissued shares of
      Common stock to consummate the
exchange.

            


    

     

    
      	
               
      

            	
              e.

            	
              To
      the knowledge of the Company, no Event of Default (as defined in the
      Notes) has occurred and is continuing as of the date
    hereof.

            


    

     

    
      	
               
      

            	
              f.

            	
              The
      Company is a corporation duly organized and validly existing in good
      standing under the laws of the State of Delaware, and has the requisite
      corporate power and authorization to own its properties and to carry on
      its business as now being
conducted.

            


    

     

    
      	
               
      

            	
              g.

            	
              The
      Company is duly qualified as a foreign corporation to do business and is
      in good standing in every jurisdiction in which its ownership of property
      or the nature of the business conducted by it makes such qualification
      necessary, except to the extent that the failure to be so qualified or be
      in good standing would not reasonably be expected to have a Material
      Adverse Effect.  As used in this Agreement, "Material Adverse
      Effect" means any material adverse effect on the business, properties,
      assets, operations, results of operations, condition (financial or
      otherwise) or

            


    

     


    
      
         


      

      
        3

        
          

        

      

      
         


      

    


    
      	
                

            	
              prospects
      of the Company, taken as a whole, or on the transactions contemplated by
      this Agreement or by the agreements and instruments to be entered into in
      connection with this Agreement, or on the authority or ability of the
      Company to perform its obligations under this
  Agreement.

            


    

     

    
      	
               
      

            	
              h.

            	
              The
      Company has the requisite power and authority to enter into and perform
      its obligations under this Agreement and to issue the Common Stock as
      required by and in accordance with the terms hereof.  The
      execution and delivery of this Agreement by the Company and the
      consummation by the Company of the transactions contemplated hereby,
      including, without limitation, the exchange and issuance of the Common
      Stock for the Notes have been duly authorized by the Company’s Board of
      Directors and no further consent or authorization is required by the
      Company, its Board of Directors or its
  stockholders.

            


    

     

    
      	
               
      

            	
              i.

            	
              The
      Company has duly executed and delivered this Agreement and this Agreement
      constitutes the legal, valid and binding obligations of the Company,
      enforceable against the Company in accordance with their respective terms,
      except as such enforceability may be limited by general principles of
      equity or applicable bankruptcy, insolvency, reorganization, moratorium,
      liquidation or similar laws relating to, or affecting generally, the
      enforcement of applicable creditors’ rights and
  remedies.

            


    

     

    
      	
               
      

            	
              j.

            	
              The
      execution, delivery and performance of this Agreement by the Company and
      the consummation by the Company of the transactions contemplated hereby
      (including, without limitation, the exchange and issuance of the Common
      Stock will not (i) result in a violation of the Certificate of
      Incorporation of the Company, any capital stock of the Company or the
      Bylaws of the Company or (ii) conflict with, or constitute a default (or
      an event which 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 of, any agreement, indenture or instrument to
      which the Company is a party, or (iii) result in a violation of any law,
      rule, regulation, order, judgment or decree (including federal and state
      securities laws and regulations and the rules and regulations of The NYSE
      Arca Exchange (the “Principal Market”)) applicable to the Company or by
      which any property or asset of the Company is bound or
      affected.

            


    

     

    
      	
               
      

            	
              k.

            	
              The
      Company is not required to obtain any consent, authorization or order of,
      or make any filing or registration with, any court, governmental agency or
      any regulatory or self-regulatory agency or any other person in order for
      it to execute, deliver or perform any of its obligations under or
      contemplated by this Agreement, in each case in accordance with the terms
      hereof, other than obtaining other consents and execution of the
      Supplemental Indenture by the Trustee to effectuate the amendments to the
      Indenture.  All consents, authorizations, orders, filings and
      registrations which the Company is required to obtain pursuant to the
      preceding sentence have been obtained or effected on or prior to the
      applicable Closing Date (other than obtaining other consents
      and

            


    

     


    
      
         


      

      
        4

        
          

        

      

      
         


      

    


    
      	
                

            	
              execution
      of the Supplemental Indenture by the Trustee to effectuate the amendments
      to the Indenture), and the Company and is unaware of any facts or
      circumstances which might prevent the Company from obtaining or effecting
      any of the registration, application or filings pursuant to the preceding
      sentence.  The Company is not in violation of the listing
      requirements of the Principal Market and has no knowledge of any facts
      which would reasonably lead to delisting or suspension of the Common Stock
      in the foreseeable future.

            


    

     

    
      	
               
      

            	
              l.

            	
              There
      is no action, suit, proceeding, inquiry or investigation before or by
      either Principal Market, any court, public board, government agency,
      self-regulatory organization or body pending or, to the knowledge of the
      Company, threatened against or affecting the Company, the Common Stock or
      any of the Company’s officers or directors in their capacities as such,
      that is expected to have a Material Adverse
  Effect.

            


    

     

    
      	
               
      

            	
              m.

            	
              The
      Company is not, and has never been, an issuer identified in Rule 144(i)(1)
      of the Act.

            


    

     

    
      	
               
      

            	
              n.

            	
              Neither
      the Company nor any of its Subsidiaries has taken any steps to seek
      protection pursuant to any bankruptcy law nor does the Company have any
      knowledge or reason to believe that its creditors intend to initiate
      involuntary bankruptcy proceedings or any actual knowledge of any fact
      which would reasonably lead a creditor to do so.  The Company
      and its Subsidiaries, individually and on a consolidated basis, are not as
      of the date hereof, and after giving effect to the transactions
      contemplated hereby to occur at each of the Closings, will not be
      Insolvent (as defined below).  For purposes of this Section
      2(n), "Insolvent" means, with respect to any person, (i) the present fair
      saleable value of such person’s assets is less than the amount required to
      pay such person’s total indebtedness, (ii) such person is unable to pay
      its debts and liabilities, subordinated, contingent or otherwise, as such
      debts and liabilities become absolute and matured, (iii) such person
      intends to incur or believes that it will incur debts that would be beyond
      its ability to pay as such debts mature or (iv) such person has
      unreasonably small capital with which to conduct the business in which it
      is engaged as such business is now conducted and is proposed to be
      conducted.

            


    

     

    
      	
               
      

            	
              o.

            	
              To
      the Company’s knowledge, neither this Agreement nor any other written
      statements or certificates made or delivered in connection herewith, when
      taken as a whole, contains any untrue statement of a material fact or
      omits to state a material fact necessary to make the statements contained
      herein or therein not misleading in light of the circumstances under which
      they were made.

            


    

     

    
      	
               
      

            	
              p.

            	
              For
      the purposes of Rule 144 under the Act, the Company acknowledges that the
      holding period of the Common Stock issued hereunder may be tacked onto the
      holding period of the Notes, and the Company agrees not to take a position
      contrary to this Section.  All shares of Common Stock issued
      hereunder shall be issued without any restrictive
  legend.

            


    

     


    
      
         


      

      
        5

        
          

        

      

      
         


      

    


    
      	
              (3)

            	
              Each
      Fund, severally and not jointly, hereby represents and warrants
      that:

            


    

     

    
      	
               
      

            	
              a.

            	
              such
      Fund has the requisite power and authority to enter into this Agreement
      and to perform its obligations under and the transactions contemplated by
      this Agreement on behalf of the Funds, and the representations and
      warranties contained in (b) through (f) below are accurate with respect to
      such Fund;

            


    

     

    
      	
               
      

            	
              b.

            	
              such
      Fund has not acted on behalf of the Company and has received no commission
      or remuneration from the Company other than as contemplated in this
      Agreement;

            


    

     

    
      	
               
      

            	
              c.

            	
              such
      Fund was not solicited by anyone on behalf of the Company to enter into
      this transaction, and it has not solicited any other holder of the
      Company’s Notes to participate in this
  transaction;

            


    

     

    
      	
               
      

            	
              d.

            	
              such
      Fund has sufficient knowledge and experience in financial and business
      matters so as to be capable of bearing the economic risks of participation
      in this transaction, and it is capable of evaluating the merits and risks
      of participating in this transaction, including any risks associated with
      surrendering any rights related to the Notes in exchange for the rights
      and risks related to the Common Stock;
and

            


    

     

    
      	
               
      

            	
              e.

            	
              neither
      such Fund nor any of its affiliates is, and for three months immediately
      preceding the date hereof, has been an officer, director or “beneficial
      owner” (as defined for purposes of Rule 13d-3 of the Exchange Act) of 10%
      or more of the Company’s Common
Stock.

            


    

     

    
      	
              (4)

            	
              Conditions
      to the Company’s obligations hereunder on each of the applicable Closing
      Dates:

            


    

     

    The
obligations of the Company to each Fund hereunder are subject to the
satisfaction of each of the following conditions, provided that these conditions
are for the Company’s sole benefit and may be waived by the Company at any time
in its sole discretion by providing such Fund with prior written notice
thereof:

     

    
      	
               
      

            	
              a.

            	
              Each
      Fund shall have executed this Agreement and delivered the same to the
      Company.

            


    

     

    
      	
               
      

            	
              b.

            	
              The
      representations and warranties of each Fund in Section 3 shall be true and
      correct in all material respects (except for those representations and
      warranties that are qualified by materiality or Material Adverse Effect,
      which shall be true and correct in all respects) as of the date when made
      and as of the applicable Closing Date as though made at that time (except
      for representations and warranties that speak as of a specific date, which
      shall be true and correct as of such specified date) and each Fund shall
      have performed, satisfied and complied in all material respects with the
      covenants, agreements and conditions required by this Agreement to be
      performed, satisfied or complied with by the Company at or prior to the
      applicable Closing Date.

            


    

     


    
      
         


      

      
        6

        
          

        

      

      
         


      

    


    
      	
              (5)

            	
              Conditions
      to each Fund’s obligations hereunder on each of the applicable Closing
      Dates:

            


    

     

    The
obligations of each Fund hereunder are subject to the satisfaction of each of
the following conditions, provided that these conditions are for each such
Fund’s sole benefit and may be waived by such Fund at any time in its sole
discretion by providing the Company with prior written notice
thereof:

     

    
      	
               
      

            	
              a.

            	
              The
      Company shall have duly executed and delivered to each Fund (i) this
      Agreement and (ii) the Common Stock being issued to such Fund at the
      applicable Closing pursuant to this
Agreement.

            


    

     

    
      	
               
      

            	
              b.

            	
              The
      representations and warranties of the Company in Section 2 shall be true
      and correct in all material respects (except for those representations and
      warranties that are qualified by materiality or Material Adverse Effect,
      which shall be true and correct in all respects) as of the date when made
      and as of the applicable Closing Date as though made at that time (except
      for representations and warranties that speak as of a specific date, which
      shall be true and correct as of such specified date) and the Company shall
      have performed, satisfied and complied in all material respects with the
      covenants, agreements and conditions required by this Agreement to be
      performed, satisfied or complied with by the Company at or prior to the
      applicable Closing Date.  Each Fund shall have received a
      certificate, executed by the Chief Executive Officer or Chief Financial
      Officer of the Company, dated as of the applicable Closing Date, to the
      foregoing effect in the form attached hereto as Exhibit
      B.

            


    

     

    
      	
               
      

            	
              c.

            	
              The
      Common Stock (A) shall be designated for quotation or listed on the
      Principal Market and (B) shall not have been suspended, as of the
      applicable Closing Date, by the SEC or the Principal Market from trading
      on the Principal Market nor shall suspension by the SEC or the Principal
      Market have been threatened, as of the applicable Closing Date, either (A)
      in writing by the SEC or the Principal Market or (B) by falling below the
      minimum listing maintenance requirements of the Principal
      Market.

            


    

     

    
      	
               
      

            	
              d.

            	
              The
      Company shall have obtained all governmental, regulatory or third party
      consents and approvals, if any, necessary for the issuance of the
      Securities, including, without limitation, any approvals or notifications
      required by the Principal Market.

            


    

     

    
      	
              (6)

            	
              Termination.

            


    

     

    In
the event that the Closings do not occur by the sixth (6th) trading date after
the date hereof, due to the Company’s or any Fund’s failure to satisfy the
conditions set forth in Sections 4 and 5 hereof (and the nonbreaching party’s
failure to waive such unsatisfied conditions(s)), the nonbreaching party shall
have the option to terminate their obligations to consummate the transactions
contemplated hereby at the close of business on such date without liability of
any party to any other party.

     

    
      	
              (7)

            	
              Additional
      Covenants.

            


    

     


    
      
         


      

      
        7

        
          

        

      

      
         


      

    


    
      	
               
      

            	
              a.

            	
              Each
      party shall use its best efforts timely to satisfy each of the covenants
      and the conditions to be satisfied by it as provided in Sections 4, 5 and
      7 of this Agreement.

            


    

     

    
      	
               
      

            	
              b.

            	
              On
      the first business day following the date of this Agreement, on or before 8:30 a.m., New York City time, the Company shall
      file a Current Report on Form 8-K
      describing the terms of the transactions contemplated by this Agreement in
      the form required by the Exchange Act (the “8-K Filing”).  As of the date and time of the filing of the 8-K Filing with
      the SEC, the Company hereby acknowledges and
      agrees that no Fund is in
      possession of any material, nonpublic information received from the
      Company, any of its subsidiaries or any of its respective officers,
      directors, employees or agents, that is not disclosed in the 8-K
      Filing.  Until the six month
      anniversary of the date hereof, the Company shall not, and shall
      cause each of its subsidiaries and its and each of their respective
      officers, directors, employees and agents, not to, provide any Fund with
      any material, nonpublic information regarding the Company or any of its
      subsidiaries from and after the filing of the 8-K Filing with the SEC
      without the express written consent of such Fund.  Subject to
      the foregoing, neither the Company, its subsidiaries nor any Fund shall
      issue any press releases or any other public statements with respect to
      the transactions contemplated hereby; provided, however, that the Company
      shall be entitled, without the prior approval of the Funds, to make any
      press release or other public disclosure with respect to such transactions
      (i) in substantial conformity with the 8-K Filing and contemporaneously
      therewith and (ii) as is required by applicable law and regulations
      (provided that in the case of clause (i) each Fund shall be consulted by
      the Company in connection with any such press release or other public
      disclosure prior to its release).  Without the prior written
      consent of each Fund, neither the Company nor any of its subsidiaries or
      affiliates shall disclose the name of any Fund in any filing,
      announcement, release or otherwise, unless such disclosure is required by
      law, regulation or the Principal
Market.

            


    

     

    
      	
               
      

            	
              c.

            	
              If
      the Company shall fail for any reason or for no reason to issue to any
      Fund the shares of Common Stock required to be issued hereunder by
      electronic delivery at the applicable balance account at DTC on any
      Closing Date, and if on or after such Closing Date any Fund (in an open
      market transaction or otherwise) purchases shares of Common Stock to
      deliver in satisfaction of a sale by such Fund of the shares for Common
      Stock that such Fund anticipated receiving without legend from the Company
      (a “Buy-In”), then the Company shall, within three (3) trading days after
      any Fund’s request and in such Fund’s discretion, either (i) pay cash to
      such Fund in an amount equal to such Fund’s total purchase price
      (including brokerage commissions, if any) for the shares of Common Stock
      so purchased (the “Buy-In Price”), at which point the Company’s obligation
      to deliver such shares of Common Stock shall terminate, or (ii) promptly
      honor its obligation to deliver to such Fund such unlegended shares of
      Common Stock as provided above and pay cash to the Fund
  in

            


    

     


    
      
         


      

      
        8

        
          

        

      

      
         


      

    


    
      	
                

            	
              an
      amount equal to the excess (if any) of the Buy-In Price over the product
      of (A) such number of shares of Common Stock, times (B) the closing sale
      price of the stock on the day prior to the applicable Closing
      Date.

            


    

     

    
      	
              (8)

            	
              Miscellaneous.

            


    

     

    
      	
               
      

            	
              a.

            	
              This
      Agreement may be executed in two or more identical counterparts, all of
      which 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; provided that a facsimile signature shall be
      considered due execution and shall be binding upon the signatory thereto
      with the same force and effect as if the signature were an original, not a
      facsimile signature.

            


    

     

    
      	
               
      

            	
              b.

            	
              The
      headings of this Agreement are for convenience of reference and shall not
      form part of, or affect the interpretation of, this
    Agreement.

            


    

     

    
      	
               
      

            	
              c.

            	
              If
      any provision of this Agreement is prohibited by law or otherwise
      determined to be invalid or unenforceable by a court of competent
      jurisdiction, the provision that would otherwise be prohibited, invalid or
      unenforceable shall be deemed amended to apply to the broadest extent that
      it would be valid and enforceable, and the invalidity or unenforceability
      of such provision shall not affect the validity of the remaining
      provisions of this Agreement so long as this Agreement as so modified
      continues to express, without material change, the original intentions of
      the parties as to the subject matter hereof and the prohibited nature,
      invalidity or unenforceability of the provision(s) in question does not
      substantially impair the respective expectations or reciprocal obligations
      of the parties or the practical realization of the benefits that would
      otherwise be conferred upon the parties.  The parties will
      endeavor in good faith negotiations to replace the prohibited, invalid or
      unenforceable provision(s) with a valid provision(s), the effect of which
      comes as close as possible to that of the prohibited, invalid or
      unenforceable provision(s).

            


    

     

    
      	
               
      

            	
              d.

            	
              All
      questions concerning the construction, validity, enforcement and
      interpretation of this Agreement shall be governed by the internal laws of
      the State of Delaware, without giving effect to any choice of law or
      conflict of law provision or rule (whether of the State of Delaware or any
      other jurisdictions) that would cause the application of the laws of any
      jurisdictions other than the State of Delaware.  Each party
      hereby irrevocably submits to the exclusive jurisdiction of the state and
      federal courts sitting in Wilmington Delaware, for the adjudication of any
      dispute hereunder or in connection herewith or with any transaction
      contemplated hereby or discussed herein, and hereby irrevocably waives,
      and agrees not to assert in any suit, action or proceeding, any claim that
      it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or
      that the venue of such suit, action or proceeding is
      improper.  Each party hereby irrevocably waives personal service
      of process and consents to process

            


    

     


    
      
         


      

      
        9

        
          

        

      

      
         


      

    


    
      	
               

            	
              being
      served in any such suit, action or proceeding by mailing a copy thereof to
      such party at the address for such 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.  If any provision of this Agreement shall be
      invalid or unenforceable in any jurisdiction, such invalidity or
      unenforceability shall not affect the validity or enforceability of the
      remainder of this Agreement in that jurisdiction or the validity or
      enforceability of any provision of this Agreement in any other
      jurisdiction.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT
      MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
      ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
      AGREEMENT OR ANY TRANSACTION CONTEMPLATED
  HEREBY.

            


    

     

    
      	
               
      

            	
              e.

            	
              This
      Agreement is intended for the benefit of the parties hereto and their
      respective permitted successors and assigns, and is not for the benefit
      of, nor may any provision hereof be enforced by, any other
      Person.

            


    

     

    
      	
               
      

            	
              f.

            	
              Each
      party shall do and perform, or cause to be done and performed, all such
      further acts and things, and shall execute and deliver all such other
      agreements, certificates, instruments and documents, as the other party
      may reasonably request in order to carry out the intent and accomplish the
      purposes of this Agreement and the consummation of the transactions
      contemplated hereby.

            


    

     

    
      	
               
      

            	
              g.

            	
              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.

            


    

     

    
      	
               
      

            	
              h.

            	
              This
      Agreement supersedes all other prior oral or written agreements between
      the Funds, the Company, their affiliates and persons or entities
      (“Persons”) acting on their behalf with respect to the matters discussed
      herein, and this Agreement and the instruments referenced herein contain
      the entire understanding of the parties with respect to the matters
      covered herein and therein and, except as specifically set forth herein or
      therein, neither the Company nor any Fund makes any representation,
      warranty, covenant or undertaking with respect to such
      matters.  No provision of this Agreement may be amended other
      than by an instrument in writing signed by the Company and each
      Fund.  No provision hereof may be waived other than by an
      instrument in writing signed by the party against whom enforcement is
      sought.  The Company has not, directly or indirectly, made any
      agreements with any of the Funds relating to the terms or conditions of
      the transactions contemplated hereby except as set forth
      herein.

            


    

     

    
      	
               
      

            	
              i.

            	
              Any
      notices, consents, waivers or other communications required or permitted
      to be given under the terms of this Agreement must be in writing and will
      be deemed to have been delivered:  (i) upon receipt, when
      delivered personally; (ii) upon receipt, when sent by facsimile (provided
      confirmation of transmission is mechanically or electronically
      generated

            


    

     


    
      
         


      

      
        10

        
          

        

      

      
         


      

    


    
      	
                

            	
              and
      kept on file by the sending party); or (iii) one Business Day after
      deposit with an overnight courier service, in each case properly addressed
      to the party to receive the same.  The addresses and facsimile
      numbers for such communications shall
be:

            


    

     

    If
to the Company:

    


    Evergreen
Energy Inc.

    1225
17th Street, Suite 1300

    Denver,
CO 80206

    Telephone:  (303)293-2992

    Facsimile:   (303)293-8430

    Attention:  Ms.
Diana L. Kubik

                     Chief
Financial Officer

    


    If
to any Fund:

    c/o
Aristeia Capital, L.L.C.

    136
Madison Ave, 3rd Floor

    New
York, NY 10016

    Telephone:  (212)842-8900

    Facsimile:   (212)842-8901

    Attention:  William
R. Techar

                     Member
of the Manager

    


    or
to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such
change.  Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

    


    
      	
               
      

            	
              j.

            	
              The
      representations and warranties of the Company and the Funds contained
      herein and the agreements and covenants set forth herein shall survive the
      Closings.

            


    

     

    
      	
               
      

            	
              k.

            	
              Any
      Person having any rights under any provision of this Agreement shall be
      entitled to enforce such rights specifically (without posting a bond or
      other security), to recover damages by reason of any breach of any
      provision of this Agreement and to exercise all other rights granted by
      law.  Furthermore, the Company recognizes that in the event that
      it fails to perform, observe, or discharge any or all of its obligations
      under this Agreement, any remedy at law may prove to be inadequate relief
      to the 

            


    

     


    
      
         


      

      
        11

        
          

        

      

      
         


      

    


    
      	
               

            	
              Funds.  The
      Company therefore agrees that each Fund shall be entitled to seek
      temporary and permanent injunctive relief in any such case without the
      necessity of proving actual damages and without posting a bond or other
      security.

            


    

     

    


     

     

     


    
      
         


      

      
        12

        
          

        

      

      
         


      

    


    Please
sign to acknowledge agreement with the above terms and return by fax to the
undersigned.

     

    


     

                                Aristeia
International Limited

    


                                By: /s/William R
Techar

                                Name:  William
R. Techar

                                Title:  Member
of the Manager

    


    


                                Aristeia Special
Investments Master, L.P.

    


                                By: /s/William R
Techar

                                Name:  William
R. Techar

                                Title:  Member
of the Manager

    


    


                                Aristeia Partners,
L.P.

    


                                By: /s/William R
Techar

                                Name:  William
R. Techar

                                Title:  Member
of the Manager

    


     

    


     

    Acknowledged
and agreed to:

     

    Evergreen
Energy Inc.

    


     

    By: /s/ Diana L
Kubik

    Name:  Diana
L. Kubik

    Title:  Vice-President and Chief Financial
Officer

     


    
      
         


      

      
        13

        
          

        

      

      
         


      

    


     

    SCHEDULE
I

     

    


    
      	
              (1)

            	
              (2)

            	
              (3)

            	
              (4)

            	
              (5)

            
	
              
                Fund

              

            	
              
                 

                Initial
      Closing

                Number
      of Shares of

                Common
      Stock

              

            	
              
                Initial
      Closing

                Principal
      Amount of Notes

              

            	
              
                 

                Additional
      Closing

                Number
      of Shares of

                Common
      Stock

              

            	
              
                Additional
      Closing

                Principal
      Amount of

                Notes

              

            
	 
      	 
      	 
      	 
      	 
      
	
              Aristeia
      International Limited

            	
              5,880,000

            	
              $10,500,000

            	
              1,655,360

            	
              $2,956,000

            
	
              Aristeia
      Special Investments Master, L.P.

            	
              1,680,000

            	
              $3,000,000

            	
              454,160

            	
              $811,000

            
	
              Aristeia
      Partners, L.P.

            	
              672,000

            	
              $1,200,000

            	
              158,480

            	
              $283,000

            


    

    


    


     

    
14