Exhibit
      4.1

     

    THIS
      NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
      NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
      SECURITIES LAWS. NEITHER THIS NOTE NOR SUCH SHARES OF COMMON STOCK MAY BE SOLD,
      OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
      REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND ANY APPLICABLE STATE
      SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUING
      CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.

    


    
      	
              Principal
                Amount $_________ 

            	
              Issue
                Date: _________, 2007

            


    

    


    CONVERTIBLE
      PROMISSORY NOTE DUE MAY 31, 2010


     

    FOR
      VALUE
      RECEIVED, ThermoEnergy Corporation, a Delaware corporation (the “Borrower”),
      hereby promise to pay to the order of ______________ (the “Holder”), the sum of
      ______________Dollars ($___________), on May 31, 2010 (the “Maturity Date”).


     

    This
      Note
      is one of a series of Notes issued to former stockholders of CASTion
      Corporation, a Massachusetts corporation (“CASTion”), pursuant to the terms of
      an Agreement for the Purchase and Sale of Securities dated as of July 2, 2007
      (the “Purchase Agreement”) among the Borrower, CASTion and certain former
      security holders of CASTion, pursuant to which CASTion became a majority-owned
      subsidiary of the Borrower, and is subject to the provisions of, and entitled
      to
      the benefits of, the Purchase Agreement. The Borrower’s obligations under this
      Note and the other Notes in such series are secured by the grant to the Holder
      and the holders of the other such Notes of a security interest in all of the
      issued and outstanding CASTion equity securities held by the Borrower, pursuant
      to a Stock Pledge Agreement among the Borrower, the Holder, the holders of
      the
      other Notes and Spencer Trask Specialty Group, LLC, as agent for the Holder
      and
      the holders of such other Notes (the “Pledge Agreement”) and the holder of this
      Note is entitled to the benefits of the Pledge Agreement.

     

    Interest
      on the outstanding principal balance shall be paid at the rate of six and
      one-half percent (6.5%) per annum. If any portion of this Note remains unpaid
      on
      November 30, 2008, then from and after December 1, 2008 interest on the
      outstanding principal balance shall be paid at the rate of ten percent (10%)
      per
      annum. Further, if within 30 days after a Financing Transaction (as such term
      is
      defined below), the Borrower has not applied at least 25% of the Excess Proceeds
      (as such term is defined below) to payment of accrued interest and principal
      on
      this Note and the other Notes issued in the series herewith, then from and
      after
      such thirtieth day and continuing until such time as at least 23.125% of the
      Excess Proceeds have been so applied, interest on the outstanding principal
      balance shall be paid at the rate of ten percent (10%) per annum. 

     

    UPON
      MATURITY OF THIS NOTE, WHETHER BY THE TERMS HEREOF OR UPON AN EVENT OF DEFAULT
      (AS DEFINED BELOW), INTEREST SHALL ACCRUE ON THE PRINCIPAL BALANCE AND OVERDUE
      INTEREST AT EIGHTEEN PERCENT (18%) PER ANNUM UNTIL SUCH PRINCIPAL AND OVERDUE
      INTEREST SHALL BE PAID IN FULL.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Interest
      on the outstanding principal balance of this Note shall be computed on the
      basis
      of a 360-day year, using the number of days actually elapsed. Interest shall
      be
      payable semi-annually on the last day of November and May of each year,
      commencing on November 30, 2007. Any scheduled interest payment may, at the
      election of the Borrower by written notice to the Holder (a “Deferral Notice”)
      no later than five business days after the date on which such interest payment
      was due, be deferred until the Maturity Date. The amount of any interest so
      deferred shall, effective as of the date on which such interest payment was
      originally due, be added to the principal amount of this Note such that interest
      shall accrue on such deferred interest from and after the date on which such
      interest was originally due. 

     

    The
      Holder shall have the right at any time and from time to time until the
      principal and interest on this Note shall have been paid in full, to convert
      the
      principal and any interest due under this Note into shares of the Borrower’s
      Common Stock, par value $0.001 per share (the “Common Stock”). If the Holder
      exercises his right of conversion, the Holder shall give the Borrower a Notice
      of Conversion in the form annexed to this Note, setting forth the amount of
      principal and interest which the Holder is converting into Common Stock (the
      “Conversion Amount”) at the Conversion Price in effect on the date of such
      notice. The date of such notice is referred to as the Conversion Date. Upon
      delivery to the Borrower of a completed Notice of Conversion, the Borrower
      shall
      deliver, within five (5) business days after the Conversion Date (such fifth
      day
      being the “Delivery Date”), irrevocable instructions to the transfer agent for
      the Common Stock to issue and delivery to the Holder a certificate for that
      number of shares of Common Stock into which the Conversion Amount is being
      converted. Except to the extent that the unpaid principal balance of this Note
      is being presented for conversion, the Holder shall not be required to present
      this Note in order to effect conversion, and the Holder shall maintain a ledger
      setting forth each conversion of principal and interest on this Note and such
      ledger shall, absent manifest error, be deemed to be binding and conclusive
      on
      the Borrower.

     

    This
      Note
      may be prepaid in whole or in part at any time upon not fewer than fifteen
      (15)
      days’ prior written notice to the Holder (during which 15-day period the Holder
      may elect to convert any or all of the principal and any interest due under
      this
      Note into shares of Common Stock pursuant to the preceding paragraph), without
      premium or penalty. In the case of partial prepayments, all amounts shall first
      be applied toward accrued and unpaid interest and the balance, if any, shall
      be
      applied against principal.

     

    In
      the
      event the Borrower shall, at any time when this Note is outstanding, issue
      and
      sell shares of Common Stock or Convertible Securities (as such term is defined
      below) other than Exempted Securities (as such term is defied below) (a
“Financing Transaction”), then, no later than 30 days after the closing of the
      Financing Transaction in which the net proceeds to the Borrower, taken together
      with the net proceeds of all prior Financing Transactions, is greater than
      $3,000,000, the Borrower shall apply at least 23.125% of the amount by which
      the
      net proceeds to the Borrower in such Financing Transactions exceed $3,000,000
      (the “Excess Proceeds”) to payment of accrued interest and principal on this
      Note and the other Notes issued in the series herewith, pro rata in proportion
      to the then-outstanding principal amounts of such Notes. 

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    1.1. Conversion
      Price.
      The
      Conversion Price shall be $0.50 per share of Common Stock, subject to adjustment
      as set forth in Section 1.2 of this Note. The number of shares of Common Stock
      to be issued upon each conversion of this Note shall be determined by dividing
      the Conversion Amount by the Conversion Price in effect on the Conversion
      Date.

     

    1.2. Adjustment
      to the Conversion Price.
      The
      Conversion Price and number and kind of shares or other securities to be issued
      upon conversion shall be subject to adjustment from time to time upon the
      happening of certain events while this conversion right remains outstanding,
      as
      follows:

     

    1.2.1. Stock
      Dividends, Subdivisions and Combinations.
      If the
      Borrower shall at any time:

     

    (a) declare
      or pay to the holders of its Common Stock a dividend payable in, or other
      distribution of, shares of Common Stock or in securities convertible into shares
      of Common Stock (“Convertible Securities”); or

     

    (b) subdivide
      its outstanding shares of Common Stock into a larger number of shares of Common
      Stock; or

     

    (c) combine
      its outstanding shares of Common Stock into a smaller number of shares of Common
      Stock;

    


    then
      (i)
      the number of shares of Common Stock into which this Note is convertible
      immediately after the occurrence of any such event shall be adjusted to equal
      the number of shares of Common Stock which a record holder of the same number
      of
      shares of Common Stock into which this Note is convertible immediately prior
      to
      the occurrence of such event would own or be entitled to receive after the
      occurrence of such event, and (ii) the then-current Conversion Price shall
      be
      adjusted to equal (A) the then-current Conversion Price multiplied by the number
      of shares of Common Stock into which this Note is convertible immediately prior
      to the adjustment divided by (B) the number of shares into which this Note
      is
      convertible immediately after such adjustment.

     

    1.2.2. Certain
      Other Distributions.
      If at
      any time the Borrowers shall declare or pay to the holders of its Common Stock
      any dividend or other distribution of:

     

    (a) cash;

     

    (b) any
      evidences of its indebtedness, any shares of its stock or any other securities
      or property of any nature whatsoever (other than cash, Convertible Securities
      or
      additional shares of Common Stock); or

     

    (c) any
      warrants or other rights to subscribe for or purchase any evidences of its
      indebtedness, any shares of its stock or any other securities or property of
      any
      nature whatsoever (other than cash, Convertible Securities or additional shares
      of Common Stock); then,
      upon conversion of this Note, the Holder shall be entitled to receive such
      dividend or distribution as if the Holder had converted the Conversion Amount
      prior to the date of such dividend or distribution. A reclassification of the
      Common Stock (other than a change in par value, or from par value to no par
      value or from no par value to par value) into shares of Common Stock and shares
      of any other class of stock shall be deemed a distribution by the Company to
      the
      holders of its Common Stock of such shares of such other class of stock within
      the meaning of this Section 1.2.1 and, if the outstanding shares of Common
      Stock
      shall be changed into a larger or smaller number of shares of Common Stock
      as a
      part of such reclassification, such change shall be deemed a subdivision or
      combination, as the case may be, of the outstanding shares of Common Stock
      within the meaning of Section 1.2.1.

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    1.2.3  Reorganization,
      Reclassification, Merger, Consolidation or Disposition of Assets.
      In case
      the Borrower shall reorganize its capital, reclassify its capital stock,
      consolidate or merge with or into another Person (where the Borrower is not
      the
      survivor or where there is a change in or distribution with respect to the
      Common Stock), or sell, convey, transfer or otherwise dispose of all or
      substantially all its property, assets or business to another Person, or
      effectuate a transaction or series of related transactions in which more than
      50% of the voting power of the Borrower is disposed of (each, a “Fundamental
      Corporate Change”) and, pursuant to the terms of such Fundamental Corporate
      Change, shares of common stock of the successor or acquiring corporation, or
      any
      cash, shares of stock or other securities or property of any nature whatsoever
      (including warrants or other subscription or purchase rights) in addition to
      or
      in lieu of common stock of the successor or acquiring corporation (“Other
      Property”), are to be received by or distributed to the holders of Common Stock,
      then the Holder shall have the right thereafter to receive, upon conversion
      of
      this Note, such number of shares of common stock of the successor or acquiring
      corporation or of the Borrower, if it is the surviving corporation, and Other
      Property as is receivable upon or as a result of such
      Fundamental Corporate Change by a holder of the number of shares of Common
      Stock
      into which this Note is convertible immediately prior to such Fundamental
      Corporate Change. In case of any such Fundamental Corporate Change, the
      successor or acquiring corporation (if other than the Borrower) shall expressly
      assume the due and punctual observance and performance of each and every
      covenant and condition of this Note to be performed and observed by the Borrower
      and all the obligations and liabilities hereunder, subject to such modifications
      as may be deemed appropriate (as determined by resolution of the Board of
      Directors of the Borrower) in order to provide for adjustments of shares of
      Common Stock into which this Note is convertible which shall be as nearly
      equivalent as practicable to the adjustments provided for in this Section 1.2.
      For purposes of this Section 1.2.3, “common stock of the successor or acquiring
      corporation” shall include stock of such corporation of any class which is not
      preferred as to dividends or assets over any other class of stock of such
      corporation and which is not subject to redemption and shall also include any
      evidences of indebtedness, shares of stock or other securities which are
      convertible into or exchangeable for any such stock, either immediately or
      upon
      a specified date or upon the happening of a specified event, and any warrants
      or
      other rights to subscribe for or purchase any such stock. The foregoing
      provisions of this Section 1.2 shall similarly apply to any successive
      Fundamental Corporate Change of the successor corporation. 

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    1.2.4 Adjustments
      for Diluting Issues.
      

    


    (a)
      Special
      Definitions.
      For
      purposes of this Section 1.2.4, the following definitions shall
      apply:

    


    (i)
      “Option”
shall
      mean rights, options or warrants to subscribe for, purchase or otherwise acquire
      Common Stock or Convertible Securities.

    


    (ii)
      “Original
      Issue Date”
shall
      mean the date on which the first Note was issued.

    


    (iii)
      “Convertible
      Securities”
shall
      mean any evidences of indebtedness, shares or other securities directly or
      indirectly convertible into or exchangeable for Common Stock, but excluding
      Options.

    


    (iv)
      “Additional
      Shares of Common Stock”
shall
      mean all shares of Common Stock issued (or, pursuant to Subsection 1.2.4(c)
      below, deemed to be issued) by the Borrower after the Original Issue Date,
      other
      than the following (“Exempted Securities”):

    


    (A)
      shares of Common Stock issued upon conversion of a Note;

    


    (B) shares
      of
      Common Stock issued or issuable by reason of a dividend, stock split, split-up
      or other distribution on shares of Common Stock that is covered by Subsection
      1.2.1 or 1.2.2 above; or

    


    (C)
      shares of Common Stock issued or deemed issued to employees or directors of,
      or
      consultants to, the Borrower or any of its subsidiaries pursuant to a plan,
      agreement or arrangement approved by the stockholders of the
      Borrower.

    


    (b)
      No
      Adjustment of Conversion Price.
      No
      adjustment in the Conversion Price shall be made as the result of the issuance
      of Additional Shares of Common Stock if: (a) the consideration per share
      (determined pursuant to Subsection 1.2.4(e)) for such Additional Share of
      Common Stock issued or deemed to be issued by the Borrower is equal to or
      greater than the applicable Conversion Price in effect immediately prior to
      the
      issuance or deemed issuance of such Additional Shares of Common Stock, or
      (b) prior to such issuance or deemed issuance, the Borrower receives
      written notice from the holders of at least 75% in principal amount of the
      then
      outstanding Notes agreeing that no such adjustment shall be made as the result
      of the issuance or deemed issuance of such Additional Shares of Common
      Stock.

    


    
      	 	
              (c)

            	
              Deemed
                Issue of Additional Shares of Common Stock.
                

            


    

    


    (i) If
      the
      Borrower at any time or from time to time after the Original Issue Date shall
      issue any Options or Convertible Securities (excluding Options or Convertible
      Securities which, upon exercise, conversion or exchange thereof, would entitle
      the holder thereof to receive Exempted Securities) or shall fix a record date
      for the determination of holders of any class of securities entitled to receive
      any such Options or Convertible Securities, then the maximum number of shares
      of
      Common Stock (as set forth in the instrument relating thereto, assuming the
      satisfaction of any conditions to exercisability, convertibility or
      exchangeability but without regard to any provision contained therein for a
      subsequent adjustment of such number) issuable upon the exercise of such Options
      or, in the case of Convertible Securities and Options therefor, the conversion
      or exchange of such Convertible Securities, shall be deemed to be Additional
      Shares of Common Stock issued as of the time of such issue or, in case such
      a
      record date shall have been fixed, as of the close of business on such record
      date.

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    


    (ii)
      If
      the terms of any Option or Convertible Security, the issuance of which resulted
      in an adjustment to the Conversion Price pursuant to the terms of Subsection
      1.2.4(d) below, are revised (either automatically pursuant to the provisions
      contained therein or as a result of an amendment to such terms) to provide
      for
      either (1) any increase or decrease in the number of shares of Common Stock
      issuable upon the exercise, conversion or exchange of any such Option or
      Convertible Security or (2) any increase or decrease in the consideration
      payable to the Borrower upon such exercise, conversion or exchange, then,
      effective upon such increase or decrease becoming effective, the Conversion
      Price computed upon the original issue of such Option or Convertible Security
      (or upon the occurrence of a record date with respect thereto) shall be
      readjusted to such Conversion Price as would have obtained had such revised
      terms been in effect upon the original date of issuance of such Option or
      Convertible Security. Notwithstanding the foregoing, no adjustment pursuant
      to
      this clause (ii) shall have the effect of increasing the Conversion Price
      to an amount which exceeds the lower of (i) the Conversion Price on the
      original adjustment date, or (ii) the Conversion Price that would have
      resulted from any issuances of Additional Shares of Common Stock between the
      original adjustment date and such readjustment date.

    


    (iii)
      If
      the terms of any Option or Convertible Security (excluding Options or
      Convertible Securities which, upon exercise, conversion or exchange thereof,
      would entitle the holder thereof to receive Exempted Securities), the issuance
      of which did not result in an adjustment to the Conversion Price pursuant to
      the
      terms of Subsection 1.2.4(d) below (either because the consideration per share
      (determined pursuant to Subsection 1.2.4(e) hereof) of the Additional
      Shares of Common Stock subject thereto was equal to or greater than the
      Conversion Price then in effect, or because such Option or Convertible Security
      was issued before the Original Issue Date), are revised after the Original
      Issue
      Date (either automatically pursuant to the provisions contained therein or
      as a
      result of an amendment to such terms) to provide for either (1) any increase
      or
      decrease in the number of shares of Common Stock issuable upon the exercise,
      conversion or exchange of any such Option or Convertible Security or (2) any
      increase or decrease in the consideration payable to the Borrower upon such
      exercise, conversion or exchange, then such Option or Convertible Security,
      as
      so amended, and the Additional Shares of Common Stock subject thereto shall
      be
      deemed to have been issued effective upon such increase or decrease becoming
      effective.

    


    (iv)
      Upon
      the expiration or termination of any unexercised Option or unconverted or
      unexchanged Convertible Security which resulted (either upon its original
      issuance or upon a revision of its terms) in an adjustment to the Conversion
      Price pursuant to the terms of Subsection 1.2.4(d) below, the Conversion Price
      shall be readjusted to such Conversion Price as would have obtained had such
      Option or Convertible Security never been issued. 

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    


    (v)
      No
      adjustment in the Conversion Price shall be made upon the issue of shares of
      Common Stock or Convertible Securities upon the exercise of Options or the
      issue
      of shares of Common Stock upon the conversion or exchange of Convertible
      Securities.

    


    (d)
      Adjustment
      of Conversion Price Upon Issuance of Additional Shares of Common
      Stock.
      In the
      event the Borrower shall at any time after the Original Issue Date issue
      Additional Shares of Common Stock (including Additional Shares of Common Stock
      deemed to be issued pursuant to Subsection 1.2.4(c)), without consideration
      or for a consideration per share less than the applicable Conversion Price
      in
      effect immediately prior to such issue, then the Conversion Price shall be
      reduced, concurrently with such issue, to a price (calculated to the nearest
      one-hundredth of a cent) determined in accordance with the following
      formula:


    


    (P1)*(Q1)
      + (P2)*(Q2)

    Q1
      +
      Q2

    


    For
      purposes of the foregoing formula, the following definitions shall apply:


     

    (i)
“P1”
      shall mean the Conversion Price in effect immediately prior to such issue of
      Additional Shares of Common Stock; 

    


    (ii)
“Q1”
      shall mean the number of shares of Common Stock outstanding immediately prior
      to
      such issue of Additional Shares of Common Stock (treating for this purpose
      as
      outstanding all shares of Common Stock issuable upon exercise of Options
      outstanding or reserved for issuance pursuant to stock plans for the benefit
      of
      employees or directors of, or consultants to, the Borrower immediately prior
      to
      such issue or upon conversion of Convertible Securities (including the Notes)
      outstanding immediately prior to such issue); 

    


    (iii)
      “P2” shall mean the price per share of Common Stock received by the Borrower
      with respect to the issue of such Additional Shares of Common Stock (determined
      by dividing the aggregate consideration received by the Borrower in respect
      of
      such issue by the aggregate number of Additional Shares of Common Stock issued);
      and

    


    (iv)
“Q2”
      shall mean the number of such Additional Shares of Common Stock issued in such
      transaction. 

    


    (e)
      Determination
      of Consideration.
      For
      purposes of this Section 1.2.4, the consideration received by the Borrower
      for the issue of any Additional Shares of Common Stock shall be computed as
      follows:

     

    (i)
      Cash
      and Property:
      Such
      consideration shall:

    


    (A)
      insofar as it consists of cash, be computed at the aggregate amount of cash
      received by the Borrower, excluding amounts paid or payable for accrued
      interest;

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    


    (B)
      insofar as it consists of property other than cash, be computed at the fair
      market value thereof at the time of such issue, as determined in good faith
      by
      the Board of Directors of the Borrower; and

    


    (C)
      in
      the event Additional Shares of Common Stock are issued together with other
      shares or securities or other assets of the Borrower for consideration which
      covers both, be the proportion of such consideration so received, computed
      as
      provided in clauses (A) and (B) above, as determined in good faith by the
      Board of Directors of the Borrower.

    


    (ii)
      Options
      and Convertible Securities.
      The
      consideration per share received by the Borrower for Additional Shares of Common
      Stock deemed to have been issued pursuant to Subsection 1.2.4(c) shall be
      determined by dividing (x) the total amount, if any, received or receivable
      by
      the Borrower as consideration for the issue of such Options or Convertible
      Securities, plus the minimum aggregate amount of additional consideration (as
      set forth in the instruments relating thereto, without regard to any provision
      contained therein for a subsequent adjustment of such consideration) payable
      to
      the Borrower upon the exercise of such Options or the conversion or exchange
      of
      such Convertible Securities, or in the case of Options for Convertible
      Securities, the exercise of such Options for Convertible Securities and the
      conversion or exchange of such Convertible Securities, by (y) the maximum number
      of shares of Common Stock (as set forth in the instruments relating thereto,
      without regard to any provision contained therein for a subsequent adjustment
      of
      such number) issuable upon the exercise of such Options or the conversion or
      exchange of such Convertible Securities.

    


    (f)
      Multiple
      Closing Dates.
      In the
      event the Borrower shall issue on more than one date Additional Shares of Common
      Stock that are a part of one transaction or a series of related transactions
      and
      that would result in an adjustment to the Conversion Price pursuant to the
      terms
      of subsection 1.2.4(d) above, then, upon the final such issuance, the Conversion
      Price shall be readjusted to give effect to all such issuances as if they
      occurred on the date of the first such issuance (and without additional giving
      effect to any adjustments as a result of such subsequent issuances within such
      period).

    


    (g)
      Challenge
      to Good Faith Determination.
      Whenever the Board of Directors of the Company shall be required to make a
      determination in good faith of the fair value of any item under this Section
      1.2, such determination may be challenged in good faith by the Holder, and
      any
      dispute shall be resolved by an investment banking firm of recognized national
      standing selected by the Company and acceptable to the Holder. The fees and
      expenses of such investment banking firm shall be paid by the
      Company.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    


    1.3. Notice
      of Adjustment.
      Whenever the Conversion Price is adjusted pursuant to Section 1.2 of this Note,
      the Borrower shall promptly mail to the Holder a notice setting forth the
      Conversion Price after such adjustment and setting forth a statement of the
      facts requiring such adjustment.

     

    1.4. Mechanics
      of Conversion.

     

    1.4.1. Delivery
      of Certificate Upon Conversion.
      Except
      as otherwise set forth herein, not later than the Delivery Date, the Borrower
      shall deliver to the Holder (a) a certificate or certificates representing
      the
      number of shares of Common Stock being acquired upon the conversion of the
      Note
      (which certificate or certificates shall bear a legend indicating that such
      shares have been issued in reliance on an exemption from the registration
      requirements of the Securities Act of 1933 (the “Securities Act” and may not be
      sold, transferred or otherwise disposed of except pursuant to an effective
      registration statement under the Securities Act or in reliance on an exemption
      to the registration requirements of the Securities Act), and (b) a bank check
      in
      the amount of accrued and unpaid interest on the portion of the Note being
      converted unless the Holder converts such interest into Common Stock. If in
      the
      case of any Notice of Conversion such certificate or certificates are not
      delivered to or as directed by the applicable Holder by the Delivery Date,
      the
      Holder shall be entitled to elect by written notice to the Borrower at any
      time
      on or before its receipt of such certificate or certificates thereafter, to
      rescind such conversion, in which event the conversion shall be deemed void
      ab
      initio.

     

    1.4.2. Obligation
      Absolute.
      The
      Borrower’s obligations to issue and deliver the Common Stock upon conversion of
      this Note in accordance with the terms hereof are absolute and unconditional,
      irrespective of any action or inaction by the Holder to enforce the same, any
      waiver or consent with respect to any provision hereof, the recovery of any
      judgment against any Person or any action to enforce the same, or any setoff,
      counterclaim, recoupment, limitation or termination, or any breach or alleged
      breach by the Holder or any other Person of any obligation to the Borrower
      or
      any violation or alleged violation of law by the Holder or any other Person,
      and
      irrespective of any other circumstance which might otherwise limit such
      obligation of the Borrower to the Holder in connection with the issuance of
      such
      shares. In the event the Holder shall elect to convert any or all of this Note,
      The Borrower may not refuse conversion based on any claim that such Holder
      or
      any one associated or affiliated with the Holder of has been engaged in any
      violation of law, agreement or for any other reason unless an injunction from
      a
      court, on notice, restraining and or enjoining conversion of all or part of
      this
      Note shall have been sought and obtained. In the absence of an injunction
      precluding the same, the Borrower shall issue the Common Stock or, if
      applicable, cash, upon a properly noticed conversion.

     

    1.4.3. Fractional
      Shares.
      Upon a
      conversion hereunder, the Borrower shall not be required to issue stock
      certificates representing fractions of shares of the Common Stock. All
      fractional shares shall be carried forward and any fractional shares which
      remain after a Holder converts all of this Note shall be rounded up to the
      next
      whole number of shares.

     

    1.4.4. Transfer
      Taxes.
      The
      issuance of certificates for shares of the Common Stock on conversion of this
      Note shall be made without charge to the Holder thereof for any documentary
      stamp or similar taxes that may be payable in respect of the issue or delivery
      of such certificate, provided that the Borrower shall not be required to pay
      any
      tax that may be payable in respect of any transfer involved in the issuance
      and
      delivery of any such certificate upon conversion in a name other than that
      of
      the Holder of this Note and the Borrower shall not be required to issue or
      deliver such certificates unless or until the person or persons requesting
      the
      issuance thereof shall have paid to the Borrower the amount of such tax or
      shall
      have established to the satisfaction of the Borrower that such tax has been
      paid.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

    Section
      2. Events
      of Default.

     

    2.1. The
      entire unpaid principal amount of this Note, together with interest thereon
      shall, on written notice from the Holder, forthwith become and be due and
      payable if any one or more Events of Default shall have occurred (for any reason
      whatsoever and whether such happening shall be voluntary or involuntary or
      be
      affected or come about by operation of law pursuant to or in compliance with
      any
      judgment, decree or order of any court or any order, rule or regulation of
      any
      administrative or governmental body) and be continuing.

     

    2.2. The
      occurrence of any one or more of the following events or conditions shall
      constitute an “Event
      of Default”
under
      this Agreement:

     

    2.2.1. Borrower’s
      failure to make any payment of principal or interest or any other sums within
      five (5) days of the date when due on this Note, unless the Borrower timely
      gives a Deferral Notice and pays the required Deferral Fee with respect to
      such
      payment; or

     

    2.2.2. Any
      representation or warranty or other statement made or furnished to the Holder
      by
      or on behalf of the Borrower in the Purchase Agreement or in any document or
      instrument furnished in connection with the Purchase Agreement (including the
      Pledge Agreement) proves to have been false or misleading in any material
      respect when made or furnished; or

     

    2.2.3. Breach
      of
      or failure in the due observance or performance in any material respect of
      any
      covenant, condition or agreement on the part of the Borrower to be observed
      or
      performed pursuant to this Note or any other agreement between the Borrower
      and
      the Holder (including the Purchase Agreement and the Pledge Agreement) and
      the
      failure to cure (if curable) any such breach or failure within ten (10) days
      after receipt of written notice thereof from the Holder; or

     

    2.2.4. Merger
      of
      CASTion with or into any other entity (including without limitation the
      Borrower), or the Borrower’s failure to maintain the separate corporate
      existence of CASTion; or

     

    2.2.5. Any
      transfer, by operation of law or otherwise, of any equity interests of or in
      CASTion, or any issuance of any equity interests of or in CASTion, to any person
      or entity other than a wholly-owned subsidiary of the Borrower; or the sale
      or
      other transfer by CASTion of any substantial portion of its assets other than
      inventory sold in the ordinary course of business; or the granting by CASTion
      of
      any pledge of, security interest or mortgage on any of its assets other than
      a
      lien
      securing up to $2,000,000 of indebtedness owed by the Borrower to One Banc
&
Trust, N.A. (or with respect to any replacement debt facility of not more than
      $2,000,000);
      or

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     

    2.2.6. Borrower’s
      failure to make any payment of principal or interest or any other sums, when
      due, on or with respect to any other indebtedness of the Borrower, irrespective
      of whether such failure results in any acceleration of such indebtedness;
      or

     

    2.2.7. If
      the
      Borrower shall (a) apply for or consent to the appointment of a receiver,
      trustee or liquidator of all or a substantial part of any of its assets; (b)
      be
      unable, or admit in writing its inability, to pay its debts as they mature;
      (c)
      file or permit the filing of any petition, case arrangement, reorganization,
      or
      the like under any insolvency or bankruptcy law, or the adjudication of it
      as a
      bankrupt, or the making of an assignment for the benefit of creditors or the
      consenting to any form or arrangement for the satisfaction, settlement or delay
      of debt or the appointment of a receiver for all or any part of its properties;
      or (d) any action shall be taken by the Borrower for the purpose of effecting
      any of the foregoing; or

     

    2.2.8. An
      order,
      judgment or decree shall be entered, or a case shall be commenced, against
      the
      Borrower, without its application, approval or consent by any court of competent
      jurisdiction, approving a petition or permitting the commencement of a case
      seeking reorganization or liquidation of the Borrower or appointing a receiver,
      trustee or liquidator of the Borrower, or of all or a substantial part of the
      assets of the Borrower, and the Borrower, by any act, indicate its approval
      thereof, consent thereto, or acquiescence therein, or such order, judgment,
      decree or case shall continue unstayed and in effect for any period of 90
      consecutive days or an order for relief in connection therewith shall be
      entered; or

     

    2.2.9. If
      the
      Borrower shall dissolve or liquidate, or be dissolved or liquidated, or cease
      to
      legally exist, or merge or consolidate, or be merged or consolidated with or
      into any other corporation; or

     

    2.2.10. Violation
      of any agreement or contract between Borrower and Holder or other lenders of
      Borrower and such violation shall remain unremedied for fifteen (15) days after
      notice thereof shall have been given to the Borrower.

     

    Section
      3. Miscellaneous

     

    3.1. Usury
      Saving Provision.
      All
      payment obligations arising under this Note are subject to the express condition
      that at no time shall the Borrower be obligated or required to pay interest
      at a
      rate which could subject the Holder to either civil or criminal liability as
      a
      result of being in excess of the maximum rate which the Borrower is permitted
      by
      law to contract or agree to pay. If by the terms of this Note, the Borrower
      is
      at any time required or obligated to pay interest at a rate in excess of such
      maximum rate, the applicable rate of interest shall be deemed to be immediately
      reduced to such maximum rate, and interest thus payable shall be computed at
      such maximum rate, and the portion of all prior interest payments in excess
      of
      such maximum rate shall be applied and shall be deemed to have been payments
      in
      reduction of principal.

     

    3.2. Failure
      or Indulgence Not Waiver.
      No
      failure or delay on the part of the Holder hereof in the exercise of any power,
      right or privilege hereunder shall operate as a waiver thereof, nor shall any
      single or partial exercise of any such power, right or privilege preclude other
      or further exercise thereof or of any other right, power or privilege. All
      rights and remedies existing hereunder are cumulative to, and not exclusive
      of,
      any rights or remedies otherwise available.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    3.3. Governing
      Law.
      This
      Agreement and the rights of the parties shall be construed and enforced in
      accordance with the laws of the
      State
      of Delaware applicable to agreements executed and to be performed wholly within
      such state and without regard to
      principles of conflicts of law. In
      any
      action that may be brought pursuant to this Agreement to the extent permitted
      by
      applicable law, each party waives personal service of any summons, complaint
      or
      other process, and agrees that the service thereof may be made either (i) in
      the
      manner for giving of notices provided in Section 3.5 of this Note (other than
      by
      telecopier) or (ii) in any other manner permitted by law. 

     

    3.4. Waiver
      of Right to Trial by Jury.
      BORROWER
      HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL
      BY
      JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN
      CONNECTION WITH THIS NOTE AND WAIVE ANY RIGHT TO BRING A COUNTERCLAIM AGAINST
      THE HOLDER IN ANY ACTION TO ENFORCE THIS NOTE. THIS WAIVER CONSTITUTES A
      MATERIAL INDUCEMENT FOR HOLDER TO ACCEPT THIS NOTE.

     

    3.5. Notice.
      All
      notices, requests or other communications required or permitted to be given
      under this Agreement to any party shall be in writing and shall be deemed to
      have been sufficiently given when delivered by personal service or sent by
      registered mail, overnight
      courier services with provided evidence of delivery or attempted
      delivery,
      or
      facsimile, to the Borrower at 124 West Capitol Avenue, Suite 880, Little Rock,
      Arkansas 72201 (fax: 501-375-5249) or to the Holder at the address of the Holder
      as shown on the records of the Borrower.
      Either
      party may, by like notice, change the address or telecopy number or the person
      to whom notice is to be given.
      Notice
      shall be deemed given when received or when attempted delivery is made (based
      on
      evidence of attempted delivery by the United States Postal Service or an
      overnight courier or a messenger service), provided that notice by telecopier
      shall be deemed given when receipt is acknowledged by the
      recipient.

     

    3.6. Amendment.
      This
      Note may be amended, and enforcement of any provision of this Note may be waived
      or delayed by the written agreement of the Borrower and of the holders of at
      least 75% in principal amount of the then outstanding Notes, so long as all
      of
      the then-outstanding Notes are simultaneously amended (or the enforcement of
      rights thereunder waived or delayed) in an identical fashion; provided, however,
      that the principal amount of this Note may not be reduced, except by payment
      or
      conversion, without the express written consent of the Holder. The term “Note”
and all reference thereto, as used throughout this instrument, shall mean this
      instrument as originally executed, or if later amended or supplemented, then
      as
      so amended or supplemented..

     

    3.7. Assignability.
      This
      Note shall be binding upon the Borrower and its successors and assigns, and
      shall inure to the benefit of the Holder and its successors and assigns. The
      Borrower may not assign any of its obligations under this Note without the
      consent of the Holder.

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

    3.8. Cost
      of Collection.
      If
      default is made in the payment of this Note, the Borrower shall pay the Holder
      hereof reasonable costs of collection, including reasonable attorneys’ fees,
      regardless of whether the Holder commenced litigation in order to enforce its
      rights under this Note.

     

    3.9. Stockholder
      Status.
      The
      Holder shall not have rights as a stockholder of the Borrower with respect
      to
      unconverted portions of this Note. However, from and after the Conversion Date,
      the Holder will have all the rights of a shareholder of the Borrower with
      respect to the shares of Common Stock to be received by Holder after delivery
      by
      the Holder of a Conversion Notice to the Borrower regardless of whether physical
      certificates shall have been delivered.

     

    IN
      WITNESS WHEREOF, the
      parties have caused this Agreement to be duly executed and delivered by the
      proper and duly authorized officers as of the date and year first above
      written.

    
      	 	 	 
	 	
              THERMOENERGY
                CORPORATION

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              

              Andrew
                T. Melton

              Executive
                Vice President and CFO 

            


    

    


    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

    NOTICE
      OF CONVERSION

    


    (To
      be
      executed by the Holder in order to convert the Note)


    


    The
      undersigned hereby elects to convert $_________ of the principal and $_________
      of the interest due on the Note issued by ThermoEnergy Corporation on June
      ___,
      2007 into shares of Common Stock of ThermoEnergy Corporation according to the
      conditions set forth in such Note, as of the date written below.

    


    Date
      of
      Conversion:__________________________________

    


    Conversion
      Price:____________________________________

    


    Number
      of
      Shares To Be Delivered:_______________________________


    


    Signature:________________________________________

    


    Print
      Name and
      Title:____________________________________________________________

    


    Address:_____________________________________________________________________

    


    ____________________________________________________________________________