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                                                                   EXHIBIT 99.1


                            PROSPECT STREET VENTURES


                                                                  June 26, 2003


Mr. Dennis C. Cossey
Chief Executive Officer
ThermoEnergy Corporation
1300 Tower building
323 Center Street
Little Rock, Arkansas  72201


Dear Dennis:


     As we discussed, we are pleased to provide you with a proposed Engagement
Agreement (the "Agreement') between ThermoEnergy Corporation (the "Company")
and Prospect Street Ventures ("PSV").

     In consideration of the mutual promises set forth herein and for other
good and valuable consideration, the sufficiency of which is hereby
acknowledged by the parties, the parties hereto, intending to be legally bound
hereby, agree as follows:

1.       This Agreement confirms that the Company and its affiliates,
         successors and assigns has engaged PSV as the Company's financial
         advisor on an exclusive basis in connection with a possible
         Transaction (as hereinafter defined) involving the Company and one or
         more investors or partners. "Transaction" means (a) a financing is
         consummated and either equity or debt or a combination thereof are
         issued by the Company, (b) a merger, consolidation, sale or purchase
         of stock or assets, business combination or other transaction
         involving the Company is consummated, or (c) a corporate partnering,
         distribution, licensing or similar arrangement (a "Partnering
         Arrangement") is consummated in which equity contributions or other
         financial considerations are received by the Company, such as services
         or products, or deposits or contracts for future services or product
         shipments, excluding those projects designated as "pilot" or
         "demonstration" where 100% of all third party money is used
         exclusively for equipment and operations, and none of the
         participating parties, including the company, receive any
         compensation. PSV understands that the Company's immediate goal is to
         obtain at least $250,000 of financing as soon as practicable, and PSV
         agrees to use reasonable efforts to obtain such financing on terms
         acceptable to the Company or on any other terms.

2.       The Company agrees to make available to PSV copies of legal documents,
         reports, studies and information relating to the Company as may
         reasonably be required by PSV (the "Documents"). Except as permitted
         by the Company, PSV will keep the Documents confidential and will not
         use the Documents for any purpose other than fulfilling its
         obligations hereunder. PSV may provide prospective qualified investors
         ("Prospective Investors") with those Documents that PSV deems
         appropriate. In performing services

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             10 East 40th Street, 44th Floor, New York, NY 10016 -
         Tel. 212-448-0702 - Fax 212-448-9652 - www.prospectstreet.com


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         for the Company, PSV shall be relying upon the completeness of
         financial statements and other information furnished by the Company.
         PSV will rely solely upon such information supplied by the Company and
         its representatives without assuming any responsibility for
         independent investigation or verification thereof, or for any
         misstatements or omissions therein.

3.       PSV shall use reasonable efforts, acting as an advisor and consultant
         to the Company but not in the capacity of a broker or dealer in
         securities, to identify and introduce sources of capital to provide
         financing. The Company will refer all prospective investors, partners
         and inquiries related thereto to PSV. It is understood and agreed by
         PSV that the Company shall have the sole right to approve or reject
         the terms of a Transaction proposed by any investors or partners. The
         Company agrees to inform PSV in a timely manner of any other
         significant financial transactions that are being contemplated by the
         Company during the term of this Agreement.

4.       The Company agrees to pay PSV as compensation for its services and
         reimbursement for its expense the following:

         (a)      A consulting fee (the "Consulting Fee") payable as follows:

                  (i)      125,000 shares of ThermoEnergy common stock upon
                           execution of this Agreement; and

                  (ii)     37,500 shares of Thermo Energy common stock per
                           month beginning 60 days after execution hereof, and
                           remaining in effect for the term of this Agreement.

                  At the option of PSV, future fees for services rendered under
                  this Agreement may be paid in Company common stock at a
                  negotiated discount from the prior days' closing price as of
                  June 27, 2003 (the "Designated Price"), but under no
                  circumstances would the discounted price be more than 33-1/3%
                  of the Designated price; provided that the Company agrees, at
                  the option of the holder of such Company stock, to redeem
                  such stock for cash at the Designated Price as soon as the
                  Company has working capital exceeding $200,000 as defined by
                  GAAP. PSV shall have the option to receive all payments under
                  this agreement in Company common stock, Convertible Preferred
                  Stock or Convertible Debentures, as selected by PSV, at the
                  Designated Price (or convertible thereat) with the
                  aforementioned redemption option, all as described in this
                  paragraph.

         (b)      In addition, a fee equal to 10% of the Gross Proceeds of a
                  Transaction, including amounts raised from investors not
                  introduced by PSV (a "Transaction Fee"), will be due and
                  payable, by wire transfer in immediately available funds, at
                  each closing of any Transaction occurring during the term
                  hereof.

         (c)      In addition, reimbursement for all expenses (other than
                  travel, meals and entertainment), including copying,
                  telephone, fax and word processing charges incurred on the
                  Company's behalf at the flat rate of $200 per month, payable
                  within 30 days of receipt of invoice (whether or not a
                  Transaction occurs). Preapproved legal, accounting,
                  consulting, travel, meals, accommodations, and entertainment,
                  if any, will be separately invoiced.


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         (d)      In addition, the Company will cause to be issued to PSV, at
                  no cost to PSV, at the first closing of the initial
                  Transaction, Company convertible debentures in the Company's
                  standard form convertible in to a minimum of 10% of the fully
                  diluted equity of the Company, immediately after such closing
                  (increasing to 25% if PSV arranges a Transaction that values
                  the Company (value determined by price per shares x fully
                  diluted shares) at $40 million or more, increasing pro rata
                  from 10% to 25% for valuations between $20 million and $40
                  million).

         (e)      In addition, in the event of a Transaction involving a
                  Partnering Arrangement (excluding Partnering Arrangements
                  notified in writing by the Company to PSV at or prior to
                  execution hereof where PSV has not facilitated or assisted
                  same) either at the time of closing of a Transaction or over
                  a period of time, compensation equal to (i) 10% of the stock
                  of any joint venture or partnership and (ii) 10% of any lump
                  sum or advance payment and 10% of payments received or the
                  value of services or products provided (a "Partnering Fee").
                  PSV shall receive Company convertible debentures in the form
                  and amount described in Paragraph 4(d) above if PSV
                  introduces or assists in aggregate Partnering Arrangement
                  value equal to or exceeding $10 million (but the aggregate
                  amount of Company convertible debentures received pursuant to
                  this sentence and paragraph 4(d) above cannot exceed the
                  maximum set forth in Paragraph 4(d)).

         (f)      In addition, PSV shall receive a sales commission of 10% of
                  the gross sales of any direct or indirect sales of Company
                  products or services introduced, facilitated or assisted by
                  PSV (a "Sales Fee"). Changes in the commission rate can be
                  effected with the agreement of the Company and PSV. PSV shall
                  receive Company convertible debentures in the form and amount
                  described in Paragraph 4(d) above if PSV introduces or
                  assists in cumulative sales equal to or exceeding $10 million
                  (but the aggregate amount of Company convertible debentures
                  received pursuant to this sentence and paragraph 4(d) above
                  cannot exceed the maximum set forth in Paragraph 4(d).)

         (g)      "Gross Proceeds" means, without duplication, the value of
                  cash and securities and any other forms of payment or
                  consideration received directly or indirectly, by the
                  Company, its affiliates or shareholders pursuant to a
                  Transaction, including without limitation the assumption of
                  debt and other obligations. Ross Proceeds expressly include
                  (i) the value of all options or warrants purchased or assumed
                  in connection with a Transaction, (ii) in the event of a
                  change of control, the total enterprise value of the Company,
                  including the face amount of Company debt and other
                  obligations, and (iii) all consideration received by
                  officers, directors, interest holders, employees and
                  affiliates in connection with a Transaction.

         (h)      PSV shall have the right, anytime during the two year period
                  following each Transaction, on behalf of PSV or any PSV fund,
                  to invest up to $2 million on the same terms as the investors
                  in such Transaction.

         (i)      The Company will provide PSV an annual certificate confirming
                  compliance with this Agreement.


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5.       In the event that the fees and reimbursements set forth in Paragraph 4
         are not paid within 30 days of the date due, the Company shall pay, in
         addition to such amounts, interest at the rate of 1.5% per month (or
         such lesser maximum amount then permitted by law) and the costs and
         disbursements of any action taken to collect such amounts, including
         reasonable attorneys' fees.

6.       This Agreement shall constitute an exclusive contract between the
         Company and PSV for a period ending one year after the date hereof,
         after which the Agreement may be terminated by either PSV or the
         Company upon ten (10) days' prior written notice (the "Termination
         Date"), provided that the provisions of paragraphs 4 through 15 shall
         survive any such termination.

7.       If the Company (or any direct or indirect subsidiary of the Company)
         enters into an agreement with any investor or partner introduced or
         assisted by PSV, directly or indirectly, or any other party introduced
         or assisted by such investor or partner, within a period of two (2)
         years from the Termination Date of this Agreement, then the Company
         shall pay to PSV the compensation set forth in Paragraph 4.

8.       If the Company (or its assets) is merged or sold during the term
         hereof, or the Company purchases stock or assets, PSV shall advise the
         Company in connection therewith and the compensation set forth in
         Paragraph 4 shall apply to the Gross Proceeds of the sale price or
         merger consideration, including the amount of any obligations assumed.
         IF the Company shall renegotiate or restructure its obligations, PSV
         shall advise in connection therewith and the compensation set forth in
         Paragraph 4 shall apply to the face amount of the obligations
         renegotiated or restructured (except that PSV agrees to advise in the
         restructuring of currently outstanding Company debentures not to
         exceed $7 million for a flat fee of 125,000 shares of ThermoEnergy
         common stock, payable at execution hereof.

9.       The Company agrees that PSV has the right at its own expense to
         purchase advertisements describing its services to the Company
         hereunder.

10.      The Company expressly acknowledges that all opinions and advice
         (written or oral) given by PSV to the Company in connection with PSV's
         engagement are intended solely for the benefit and use of the Company
         in considering the Transaction to which they relate and the Company
         agrees that no such opinion or advise shall be used for any other
         purpose or reproduced, disseminated, quoted or referred to at any
         time, in any manner or for any purpose, nor shall any public
         references to PSV be made by the Company (or such persons), without
         the prior written consent of PSV, which consent shall not be
         unreasonably withhold, excluding disclosure requirements under the
         1934 Securities Act, as amended, and/or by SEC disclosure regulations.
         The Company and PSV agree to keep the terms of this Agreement
         confidential. The Company expressly acknowledges that PSV has been
         retained solely as an advisor to the Company, and not as an advisor to
         or agent of any other person, and that the Company's engagement of PSV
         is not intended to confer rights or obligations upon any persons not a
         party hereto (including shareholders, employees, officers or creditors
         of the Company or PSV) as against PSV, PSV's affiliates or their
         respective directors, officers, agents and employees). The Company is
         a sophisticated business enterprise that has retained PSV for the
         limited purposes set forth in this Agreement, and the parties
         acknowledge and agree that their respective rights and obligations are


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         contractual in nature. Each party disclaims in intention to impose
         fiduciary obligations on the other by virtue of the engagement
         contemplated by this Agreement.

11.      This Agreement does not constitute an express or implied commitment or
         undertaking on the part of PSV to provide financing and does not
         ensure the successful arrangement or completion of any Transaction or
         any portion thereof. This Agreement does not create, and shall not be
         construed as creating rights or obligations enforceable by or against
         any person or entity not a party hereto. The Company acknowledges and
         agrees that PSV: (a) is being retained to assist the Company in its
         efforts to consummate a Transaction; (b) is not being retained to
         advise the Company as to the underlying business decision to effect a
         Transaction; and (c) is acting as an independent contractor and is not
         and shall not be construed as a fiduciary of the Company.

13.      The Company shall indemnify and hold harmless PSV, and each of its
         officers, directors, agents, independent contractors, employees and
         affiliates from and against any and all liabilities, losses, claims
         and demands, including legal fees incurred in connection with
         defending, investigating or appearing as a witness (in addition to
         witness fees at PSV's standard rate), arising from or relating to this
         engagement or any Transaction, except to the extent any such
         liability, loss, claim or demand was caused by the bad faith and
         willful misconduct of PSV. The company also agrees that PSV shall not
         have any liability(including without limitation, liability for any
         losses, claims, damages, obligations, penalties, judgments, awards,
         liabilities, costs, expenses or disbursements) in contract, tort or
         otherwise to the Company, or to any person claiming through the
         Company, in connection with the engagement of PSV pursuant to this
         Agreement and the matters contemplated hereby, except to the extent
         any such liability is found in a final judgment by a court of
         competent jurisdiction (not subject to further appeal) to have
         resulted primarily and directly from the bad faith and willful
         misconduct of PSV.

14.      This Agreement shall be governed and construed in accordance with the
         laws of the State of New York, without regard to the conflict of laws
         principles thereof. The parties hereto consent to the jurisdiction of
         the courts of the State of New York with regard to any dispute arising
         from this Agreement. This Agreement may be executed in two or more
         counterparts, each of which shall be deemed an original, and all of
         which, together, shall constitute one and the same original
         instrument. Facsimile execution and delivery of this Agreement is
         legal, valid and binding for all purposes.

15.      In the event that any part of this Agreement shall be determined to be
         void or unenforceable, the remaining parts shall continue to be
         construed separately and apart from such void or unenforceable parts.

16.      This Agreement constitutes the entire agreement between the parties
         with respect to the subject matter hereof, and supersedes all prior
         agreements and understandings. This Agreement may only be modified and
         amended in writing, signed on behalf of each party.


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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.


PROSPECT STREET VENTURES                THERMOENERGY CORPORATION


By: \s\ John Barry                      By: \s\ Dennis C. Cossey
   -------------------------------         ------------------------------------
   John Barry, Managing Partner            Dennis C. Cossey, CEO