Document:

Exhibit
      4.1

    

    ThermoEnergy
      Corporation

    

    Securities
      Purchase Agreement

    

    This
      Securities Purchase Agreement (this“Agreement”)
      is
      dated as of March 21, 2007, by and between ThermoEnergy Corporation, an Arkansas
      corporation (the“Company”),
      and
      Martin A. Roenigk (the“Investor”).

    

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

    

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

    

    

    ARTICLE
      1

    

    Definitions

    

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

    

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

    

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

    

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

    

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

    

    “Closing”
      means
      each closing of the purchase and sale of a Convertible Note and a Warrant
      pursuant to Article 2.

    

    “Closing
      Date”
      means
      the Initial Closing Date and date on which each subsequent Closing occurs
      pursuant to Section 2.2 hereof.

    

    “Commission”
      means
      the Securities and Exchange Commission.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

    

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

    

    “Company
      Counsel”
      means
      Nixon Peabody, LLP.

    

    “Company
      Deliverables”
      has the
      meaning set forth in Section 2.2(a). 

    

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

    

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

    

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

    

    “Convertible
      Note”
      means
      the 5% Convertible Promissory Note in the form of Exhibit A,
      which
      is issuable to the Investor at the Closing.

    

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

    

    “Disclosure
      Materials”
      has the
      meaning set forth in Section 3.1(h). 

    

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

    

    “Effectiveness
      Date”
      has the
      meaning set forth in Section 4.1. 

    

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

    

    “ERISA”
means
      the Employee Retirement Income Security Act of 1974, as amended, and the rules
      and regulations promulgated thereunder.

     

    “ERISA
      Affiliate” means
      any
      trade or business, whether or not incorporated, that together with the Company
      would be deemed to be a single employer for purposes of Section 4001 of ERISA
      or
      Sections 414(b), (c), (m), (n) or (o) of the Internal Revenue Code of 1986,
      as
      amended.

     

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

    

    “Event”
      has the
      meaning set forth in Section 4.8. 

    

    “Event
      Date”
      has the
      meaning set forth in Section 4.8.

    

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

    

    “Exercise
      Price”
      has the
      meaning set forth in Section 4.8.

    

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    “Filing
      Date” has
      the
      meaning set forth in Section 4.1.

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    “Initial
      Closing Date”
      means
      the Business Day immediately following the date on which all of the conditions
      set forth in Sections 6.1 and 6.2 hereof are satisfied, or such other date
      as
      the parties may agree.

    

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

    

    “Investor
      Deliverables”
      has the
      meaning set forth in Section 2.2(b).

    

    “Legend
      Removal Date” has
      the
      meaning set forth in Section 5.1(a).

    

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

    

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

    

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

    

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

    

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

    

    “Outside
      Date”
      means
      March 31, 2007.

    

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

    

    “Prior
      Warrants”
has
      the
      meaning set forth in Section 3.1(g).

    

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    “Proceeding”
      means an
      action, claim, suit, investigation or proceeding (including, without limitation,
      an investigation or partial proceeding, such as a deposition), whether commenced
      or threatened.

    

    “Prospectus”
      has
      the
      meaning set forth in Section 4.3. 

    

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

    

    “Registrable
      Securities” means
      the
      Conversion Shares and the Warrant Shares; provided, however, that the Investor
      shall not be required to convert the Convertible Note or to exercise the Warrant
      in order to have the Conversion Shares issuable upon conversion of the
      Convertible Note or the Warrant Shares issuable upon exercise of the Warrant
      included in any Registration Statement.

    

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

    

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

    

    “Requested
      Information”
      has the
      meaning set forth in Section 4.4(a).

    

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

    

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

    

    “Securities”
      means
      the Convertible Note, the Warrant, the Conversion Shares and the Warrant
      Shares.

    

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

    

    “Series
      A Preferred Stock”
      means
      the shares of the preferred stock of the Company, par value $1.00 per share,
      that have been designated as “Series A Convertible Preferred
      Stock.”

    

    “Short
      Sales”
      include,
      without limitation, all “short sales” as defined in Rule 200 promulgated under
      Regulation SHO under the Exchange Act and all types of direct and indirect
      stock
      pledges, forward sale contracts, options, puts, calls, short sales, swaps and
      similar arrangements (including on a total return basis), and sales and other
      transactions through non-US broker dealers or foreign regulated
      brokers.

    

    “Subsidiary”
      means
      any “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X
      promulgated by the Commission under the Exchange Act.

    

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

    

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    “Trading
      Market”
      means
      whichever of the New York Stock Exchange, the American Stock Exchange, the
      Nasdaq National Market, or the Nasdaq Small Cap Market on which the Common
      Stock
      is listed or quoted for trading on the date in question.

    

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

    

    “Courts”
      means
      the state and federal courts sitting in the State of New York.

    

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

    

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

    

    

    ARTICLE
      2

    

    Purchase
      and Sale

    

    Section
      2.1. Issuance
      of Securities.
      Upon
      the
      terms and subject to the conditions set forth in this Agreement, and in
      accordance with applicable law, the Company agrees to sell to the Investor,
      and
      the Investor agrees to purchase from the Company, on the Initial Closing Date
      (i) a Convertible Note in the principal amount of $750,000 and (ii) a Warrant
      to
      purchase 750,000 shares of Common Stock. 

    

    Section
      2.2. Subsequent
      Closings.
      From
      time to time on or before March 21, 2008, at the written election of the
      Investor, the Company will sell to the Investor, and the Investor will (but
      only
      if the Investor so elects) purchase from the Company, one or more additional
      Convertible Notes in an aggregate principal amount not to exceed $750,000,
      upon
      the
      terms and subject to the conditions set forth in this Agreement. At each such
      subsequent Closing, the Company will issue to the Investor an additional Warrant
      (having the same exercise price and expiration date as the Warrant issued on
      the
      Initial Closing Date) to purchase that number of shares of Common Stock
      determined by dividing (i) the principal amount of the Convertible Note issued
      at such Closing by (ii) $1.00.

     

    Section
      2.3. Payment
      of Purchase Price.
      As
      consideration for the issuance of the Convertible Note and Warrant being
      purchased at each Closing, the
      Investor
      shall on the Closing Date pay to the Company, by a wire transfer or check,
      an
      amount equal to the principal amount of the Convertible Note being purchased
      on
      such Closing Date (the “Purchase
      Price”).

     

    Section
      2.4. Delivery
      of Securities.
      At each
      Closing, the Company shall
      cause the Convertible Note and Warrant being purchased at such Closing to be
      issued to the Investor upon payment of the Purchase Price.

     

    Section
      2.5. Additional
      Closing Deliveries.
      At
      each
      Closing, the Company shall deliver or cause to be delivered to the Investor
      the
      following (the“Company
      Deliverables”):

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    
 

    
      	 	
              (i)
                

            	
              The
                legal opinion of Company Counsel, in agreed form, addressed to the
                Investor; 

            

    

    

    
      	
            	(ii)	
              The
                Articles of Incorporation of the Company, together with all amendments
                thereto, certified by the Secretary of State of the State of Arkansas
                as
                of a date not more than five Business Days prior to the Closing Date;
                

            

    

    

    
      	
            	(iii)	
              Copies
                of each of the following documents, in each case certified by the
                Secretary of the Company to be in full force and effect on the Closing
                Date:

            

    

    

    	(A)  	
            resolutions
              of the board of directors of the Company approving the execution, delivery
              and performance of the Transaction Documents and the transactions
              contemplated thereby; 

          

    

    	(B)  	
            the
              By-laws of the Company; and

          

    

    	(C)  	
            irrevocable
              instructions to the Company’s transfer agent as to the reservation and
              issuance of the Conversion Shares and the Warrant Shares;
              and

          

    

    
      	 	
              (iv)

            	
              A
                good standing certificate of the Company issued by the Secretary
                of State
                of the State of Arkansas dated as of a date no earlier than five
                Business
                Days prior to the Closing Date;

            

    

    

    

    ARTICLE
      3

    

    Representations
      and Warranties

    

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

    

    
      	 	
              (a)

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

            

    

    

    
      	 	
              (b)

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

            

    

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    
      	 	
              (c)

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

            

    

    

    
      	 	
              (d)

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

            

    

    

    
      	 	
              (e)

            	
              Filings,
                Consents and Approvals.
                The Company is not required to obtain any consent, waiver, authorization
                or order of, give any notice to, or make any filing or registration
                with,
                any court or other federal, state, local or other governmental authority
                (a “Governmental
                Authority”)
                or other Person in connection with the execution, delivery and performance
                by the Company of the Transaction Documents and the consummation
                of the
                transactions contemplated thereby, other than (i) the filing with
                the
                Secretary of State of the State of Arkansas, on or prior to the Initial
                Closing Date, of the Certificate of Amendment, (ii) the filing with
                the
                Commission of one or more Registration Statements in accordance with
                the
                requirements of Article 4 of this
                Agreement, (iii) filings required by state securities laws, (iv)
                the
                filing of a Notice of Sale of Securities on Form D with the Commission
                under Regulation D of the Securities Act (v) any filings required
                in
                accordance with Section 4.3(d), and (vi) those that have been made
                or
                obtained prior to the date of this
                Agreement.

            

    

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

     

    
      	 	
              (f)

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

            

    

    

    
      	 	
              (g)

            	
              Capitalization.
                The authorized capital stock of the Company consists of 75,000,000
                shares
                of Common Stock and 10,000,000 shares of Series A Preferred Stock.
                As of
                the close of business on the Business Day immediately prior to the
                date
                hereof, (i) 5,956,671 shares of Series A Preferred Stock were issued
                and
                outstanding, all of which are validly issued, fully-paid and
                non-assessable, (ii) 24,701,874 shares of Common Stock were issued
                and
                outstanding, all of which are validly issued, fully-paid and
                non-assessable, (iii) 83,797 shares of Common Stock were held by
                the
                Company in Treasury, (iv) 5,755,600 shares of Common Stock were reserved
                for issuance upon exercise of outstanding options granted to employees,
                directors, and consultants of the Company (the “Company
                Stock Options”);
                (v) 8,219,189 shares of Common Stock were reserved for issuance upon
                exercise of outstanding warrants to purchase Common Stock (the
                “Prior
                Warrants”);
                (vi) 5,956,671 shares of Common Stock were reserved for issuance
                upon
                conversion of outstanding shares of Series A Preferred Stock, and
                (vii) no
                shares of Common Stock were reserved for issuance upon conversion
                of any
                other convertible notes, debentures or securities (“Convertible
                Securities”).
                No
                Person has any right of first refusal, preemptive right, right of
                participation, or any similar right to participate in the transactions
                contemplated by the Transaction Documents.  Except pursuant to (i)
                the outstanding shares of Series A Preferred Stock, (ii) the Company
                Stock
                Options or (iii) the Prior Warrants or as a result of the purchase
                and
                sale of the Securities as contemplated by this Agreement, there are
                no
                outstanding options, warrants, script rights to subscribe to, calls
                or
                commitments of any character whatsoever relating to, or securities,
                rights
                or obligations convertible into or exchangeable for, or giving any
                Person
                any right to subscribe for or acquire, any shares of Common Stock,
                or
                contracts, commitments, understandings or arrangements by which the
                Company or any Subsidiary is or may become bound to issue additional
                shares of Common Stock or Common Stock Equivalents.  The issue and
                sale of the Securities will not obligate the Company to issue shares
                of
                Common Stock or other securities to any Person (other than the Investor)
                and will not result in a right of any holder of Company securities
                to
                adjust the exercise, conversion, exchange or reset price under such
                securities. All of the outstanding shares of capital stock of the
                Company
                are validly issued, fully paid and nonassessable, have been issued
                in
                compliance with all federal and state securities laws, and none of
                such
                outstanding shares was issued in violation of any preemptive rights
                or
                similar rights to subscribe for or purchase securities.  No further
                approval or authorization of any stockholder, the Board of Directors
                of
                the Company or others is required for the issuance and sale of the
                Securities.  There are no stockholders agreements, voting agreements
                or other similar agreements with respect to the Company’s capital stock to
                which the Company is a party or, to the knowledge of the Company,
                between
                or among any of the Company’s
                stockholders.

            

    

     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

     

    
      	 	
              (h)

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

            

    

    

    
      	 	
              (i)

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

            

    

    

    
      	 	
              (j)

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

            

    

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

     

    
      	 	
              (k)

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

            

      	 	 	 

    

    
      	 	
              (l)

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

            

    

    

    
      	 	
              (m)

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

            

    

    

    
      	 	
              (n)

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

            

    

    

    
      	 	
              (o)

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

            

    

     

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

     

    
      	 	
              (p)

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

            

    

    

    
      	 	
              (q)

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

            

    

    

    
      	 	
              (r)

            	
              Sarbanes-Oxley;
                Internal Accounting Controls. 
                The Company is in material compliance with all provisions of the
                Sarbanes-Oxley Act of 2002 (including the rules and regulations of
                the
                Commission adopted thereunder) which are applicable to it as of the
                Closing Date.  The Company’s certifying officers have evaluated the
                effectiveness of the Company’s controls and procedures as of November 14,
                2006, the filing date of the most recently filed periodic report
                under the
                Exchange Act (such date, the “Evaluation
                Date”). 
                The Company presented in its most recently filed periodic report
                under the
                Exchange Act the conclusions of the certifying officers about the
                effectiveness of the disclosure controls and procedures based on
                their
                evaluations as of the Evaluation Date.  Since the Evaluation Date,
                there have been no significant changes in the Company’s internal controls
                (as such term is defined in Item 307(b) of Regulation S-K under the
                Exchange Act) or, to the Company’s knowledge, in other factors that could
                significantly affect the Company’s internal
                controls.

            

    

    

    
      	 	
              (s)

            	
              Solvency.
                Based on the financial condition of the Company as of the Closing
                Date
                (and assuming that the Closing shall have occurred), (i) the Company’s
                assets do not constitute unreasonably small capital to carry on its
                business for the current fiscal year as now conducted and as proposed
                to
                be conducted including its capital needs taking into account the
                particular capital requirements of the business conducted by the
                Company,
                and projected capital requirements and capital availability thereof;
                and
                (ii) the current cash flow of the Company, together with the proceeds
                the
                Company would receive, were it to liquidate all of its assets, after
                taking into account all anticipated uses of the cash, would be sufficient
                to pay all amounts on or in respect of its debt when such amounts
                are
                required to be paid. The Company does not intend to incur indebtedness
                beyond its ability to pay such debts as they mature (taking into
                account
                the timing and amounts of cash to be payable on or in respect of
                its
                debt).

            

    

     

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

     

    
      	 	
              (t)

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

            

    

    

    
      	 	
              (u)

            	
              Certain
                Registration Matters.
                Assuming the accuracy of the Investor’s representations and warranties set
                forth in Section 3.2(b)-(e), no registration under the Securities
                Act is
                required for the offer and sale of the Securities by the Company
                to the
                Investor under the Transaction Documents.

            

    

    

    
      	 	
              (v)

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

            

    

    

    
      	 	
              (w)

            	
              Application
                of Anti-Takeover Protections.
                The Company has taken all necessary action, if any, in order to render
                inapplicable any control share acquisition, business combination,
                poison
                pill (including any distribution under a rights agreement) or other
                similar anti-takeover provision under the Company’s Articles of
                Incorporation or the laws of its state of incorporation that is or
                could
                become applicable to the Investors as a result of the Investors and
                the
                Company fulfilling their obligations or exercising their rights under
                the
                Transaction Documents, including without limitation the Company’s issuance
                of the Securities and the Investor’s ownership of the
                Securities.

            

    

    

    
      	 	
              (x)

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

            

    

    

    
      	 	
              (y)

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

            

    

    

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

            

    

     

     

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

    As
      used
      in this Agreement, the term “Environmental
      Law”
means
      any federal, state, local or foreign law, regulation, order, decree, permit,
      authorization, opinion, common law or agency requirement relating to: (A) the
      protection, investigation or restoration of the environment, health and safety,
      or natural resources; (B) the handling, use, presence, disposal, release or
      threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
      pollution, contamination or any injury or threat of injury to persons or
      property.

     

    As
      used
      in this Agreement, the term “Hazardous
      Substance”
means
      any substance that is: (i) listed, classified or regulated pursuant to any
      Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
      material, lead-containing paint or plumbing, polychlorinated biphenyls,
      radioactive materials or radon; or (iii) any other substance which is the
      subject of regulatory action by any Governmental Authority pursuant to any
      Environmental Law.

     

    (aa)Taxes.
      The
      Company and its Subsidiaries have filed all necessary federal, state and foreign
      income and franchise tax returns when due (or obtained appropriate extensions
      for filing) and have paid or accrued all taxes shown as due thereon, and the
      Company has no knowledge of a tax deficiency which has been or might be asserted
      or threatened against it or any Subsidiary which would have a Material Adverse
      Effect.

     

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

     

    (cc)ERISA.
      Neither
      the Company nor any ERISA Affiliate maintains, contributes to or has any
      liability or contingent liability with respect to any employee benefit plan
      subject to ERISA.

     

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

     

    (i)OFAC.
      Neither
      the issuance of the Convertible Note and Warrant to the Investor, nor the use
      of
      the respective proceeds thereof, shall cause the Investor to violate the U.S.
      Bank Secrecy Act, as amended, and any applicable regulations thereunder or
      any
      of the sanctions programs administered by the U.S. Department of the Treasury’s
      Office of Foreign Assets Control (“OFAC”)
      of the
      United States Department of Treasury, any regulations promulgated thereunder
      by
      OFAC or under any affiliated or successor governmental or quasi-governmental
      office, bureau or agency and any enabling legislation or executive order
      relating thereto. Without limiting the foregoing, neither the Company nor any
      Subsidiary (i) is a person whose property or interests in property are blocked
      or subject to blocking pursuant to Section 1 of Executive Order 13224 of
      September 23, 200l Blocking Property and Prohibiting Transactions With Persons
      Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079
      (2001)), (ii) engages in any dealings or transactions prohibited by
      Section 2 of such executive order, or is otherwise associated with any such
      person in any manner violative of Section 2, or (iii) is a person on the
      list of Specially Designated Nationals and Blocked Persons or subject to the
      limitations or prohibitions under any other OFAC regulation or executive
      order.

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

    (ii)Patriot
      Act.
      The
      Company and each of its Subsidiaries are in compliance, in all material
      respects, with the USA PATRIOT Act. No part of the proceeds of the sale of
      the
      Shares and the Warrants hereunder will be used, directly or indirectly, for
      any
      payments to any governmental official or employee, political party, official
      of
      a political party, candidate for political office, or anyone else acting in
      an
      official capacity, in order to obtain, retain or direct business or obtain
      any
      improper advantage, in violation of the United States Foreign Corrupt Practices
      Act of 1977, as amended.

    

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

    

    
      	 	
              (a)

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

            

    

    

    
      	 	
              (b)

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

            

    

    

    
      	 	
              (c)

            	
              Investor
                Status.
                The Investor is an “accredited investor” as defined in Rule 501(a) under
                the Securities Act. 

            

    

    

    
      	 	
              (d)

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

            

    

     

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

    ARTICLE
      4

    

    Registration
      Rights

    

    Section
      4.1. Piggy-Back
      Registration 

     

    (a)
      Piggy-Back
      Registration. If
      (but
      without any obligation to do so) the Company proposes, at any time during the
      Registration Period, to register (including for this purpose a registration
      effected by the Company for stockholders other than the Investor) any shares
      of
      Common Stock under the Securities Act in connection with the public offering
      of
      such securities solely for cash other than (a) a registration statement relating
      to (i) the sale of securities to employees of the Company pursuant to a stock
      option, stock purchase or similar plan or (ii) a SEC Rule 145 transaction or
      (b)
      a registration on any form which does not include substantially the same
      information as would be required to be included in a registration statement
      covering the sale of the Registrable Securities, the Company shall, at such
      time, promptly give the Investor written notice of such registration. Upon
      the
      written request of the Investor given within twenty (20) days after delivery
      of
      such notice, the Company shall, subject to the provisions of
      Section 4.1(b), cause to be registered under the Securities Act all of the
      Registrable Securities that the Investor has requested to be registered. The
      Company shall have the right to terminate or withdraw any registration initiated
      by it under this Section 4.1 prior to the effectiveness of such
      registration whether or not the Investor has elected to include Registrable
      Securities in such registration; provided, however, that if, after a
      Registration Statement covering Registrable Securities has become effective
      and
      so long as any registrable Securities covered thereby have not been sold, the
      Company will not withdraw such Registration Statement without giving the
      Investor notice of its intention to withdraw such Registration Statement at
      least ten Trading Days prior to the date of withdrawal. 

     

    (b)
      Priority
      In Incidental Registrations.
      If the
      managing underwriter of an underwritten offering contemplated by this Article
      4
      shall inform the Company and the Investor of its belief that the number of
      securities requested to be included in such registration exceeds the number
      which can be sold in such offering, then the Company will include in such
      registration, to the extent of the number which the Company is so advised can
      be
      sold in such offering, (i) first, securities proposed by the Company to be
      sold
      for its own account, and (ii) second, securities to be sold by holders of
      securities having demand registration rights and exercising such rights in
      connection with such registration statement (iii) third, Registrable Securities
      proposed to be sold by the Investor and (iv) fourth, securities to be sold
      by
      other selling security holders.

     

    Section
      4.2. Registration
      Process.
      In
      connection with the registration of the Registrable
      Securities pursuant to Section 4.1, the Company shall:

     

     

    (a)Prepare
      and file
      with the
      Commission the
      Registration Statement
      and such
      amendments (including post-effective amendments) to the Registration Statement
      and supplements to the prospectus included therein (a “Prospectus”)
      as the
      Company may deem necessary or appropriate and take all lawful action such that
      the Registration Statement and any amendment thereto does not, when it becomes
      effective, contain an untrue statement of a material fact or omit to state
      a
      material fact required to be stated therein or necessary to make the statements
      therein, not misleading and that the Prospectus forming part of the Registration
      Statement, and any amendment or supplement thereto, does not at any time during
      the Registration
      Period include an untrue statement of a material fact or omit to state a
      material fact required to be stated therein or necessary to make the statements
      therein, in light of the circumstances under which they were made, not
      misleading.;

     

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

    (b)Comply
      with the provisions of the Securities Act with respect to the Registrable
      Securities covered by the Registration Statement until the earlier of (i) such
      time as all of such Registrable Securities have been disposed of in accordance
      with the intended methods of disposition by the Investor as set forth in the
      Prospectus forming part of the Registration Statement or (ii) the date on which
      the Registration Statement is withdrawn;

     

    (c)Prior
      to
      the filing with the Commission of the
      Registration Statement (including any amendments thereto) and the distribution
      or delivery of any Prospectus (including any supplements thereto), provide
      draft
      copies thereof to the Investors and reflect in such documents all such comments
      as the Investor (and his counsel) reasonably may propose and furnish to the
      Investor and his legal counsel identified to the Company, (i) promptly
      after the same is prepared and publicly distributed, filed with the Commission,
      or received by the Company, one copy of the Registration Statement, each
      Prospectus, and each amendment or supplement thereto, and (ii) such number
      of copies of the Prospectus and all amendments and supplements thereto and
      such
      other documents, as the Investor may reasonably request in order to facilitate
      the disposition of the Registrable
      Securities owned by the Investor;

     

    (d)(i) register
      or qualify the Registrable Securities covered by the Registration Statement
      under such securities or “blue sky” laws of such jurisdictions as the Investors
reasonably
      request, (ii) prepare and file in such jurisdictions such amendments
      (including post-effective amendments) and supplements to such registrations
      and
      qualifications as may be necessary to maintain the effectiveness thereof at
      all
      times during the Registration Period, (iii) take all such other lawful
      actions as may be necessary to maintain such registrations and qualifications
      in
      effect at all times during the Registration Period, and (iv) take all such
      other lawful actions reasonably necessary or advisable to qualify the
      Registrable Securities for sale in such jurisdictions; provided,
      however,
      that the
      Company shall not be required in connection therewith or as a condition thereto
      to (A) qualify to do business in any jurisdiction where it would not
      otherwise be required to qualify, (B) subject itself to general taxation in
      any such jurisdiction or (C) file a general consent to service of process
      in any such jurisdiction;

     

    (e)As
      promptly as practicable after becoming aware of such event, notify the Investor
      of the occurrence of any event, as a result of which the Prospectus included
      in
      the Registration Statement, as then in effect, includes an untrue statement
      of a
      material fact or omits to state a material fact required to be stated therein
      or
      necessary to make the statements therein, in light of the circumstances under
      which they were made, not misleading, and promptly prepare an amendment to
      the
      Registration Statement and supplement to the Prospectus to correct such untrue
      statement or omission, and deliver a number of copies of such supplement and
      amendment to each Investor as such Investor may reasonably request;

     

    (f)As
      promptly as practicable after becoming aware of such event, notify the Investor
      (or, in the event of an underwritten offering, the managing underwriters) of
      the
      issuance by the Commission of any stop order or other suspension of the
      effectiveness of the Registration Statement and take all lawful action to effect
      the withdrawal, rescission
      or
      removal of such stop order or other suspension;

     

    (g)Take
      all
      such other lawful actions reasonably necessary to expedite and facilitate the
      disposition by the Investor of his Registrable Securities in accordance with
      the
      intended methods therefor provided in the Prospectus which are customary under
      the circumstances;

     

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

    (h)Make
      generally available to its security holders as soon as practicable, but in
      any
      event not later than eighteen
      (18)
      months
      after the Effective Date of the Registration Statement, an earnings
      statement of the Company and its subsidiaries complying with Section 11(a)
      of the Securities Act and the rules and regulations of the Commission
      thereunder;

     

    (i)In
      the
      event of an underwritten offering, promptly include or incorporate in a
      Prospectus supplement or post-effective amendment to the Registration Statement
      such information as the underwriters reasonably agree should be included therein
      and to which the Company does not reasonably object and make all required
      filings of such Prospectus supplement or post-effective amendment as soon as
      practicable after it is notified of the matters to be included or incorporated
      in such Prospectus supplement or post-effective amendment;

     

    (j)Make
      reasonably available for inspection by the Investor, any underwriter
      participating in any disposition pursuant to the Registration Statement, and
      any
      attorney, accountant or other agent retained by such Investors or any such
      underwriter all relevant financial and other records, pertinent corporate
      documents and properties of the Company and its subsidiaries, and cause the
      Company’s officers, directors and employees to supply all information reasonably
      requested by such Investors or any such underwriter, attorney, accountant or
      agent in connection with the Registration Statement, in each case, as is
      customary for similar due diligence examinations; provided,
      however,
      that all
      records, information and documents that are designated in writing by the
      Company, in good faith, as confidential, proprietary or containing any nonpublic
      information shall be kept confidential by such Investors and any such
      underwriter, attorney, accountant or agent (pursuant to an appropriate
      confidentiality agreement in the case of any such holder or agent), unless
      such
      disclosure is made pursuant to judicial process in a court proceeding (after
      first giving the Company an opportunity promptly to seek a protective order
      or
      otherwise limit the scope of the information sought to be disclosed) or is
      required by law, or such records, information or documents become available
      to
      the public generally or through a third party not in violation of an
      accompanying obligation of confidentiality; and provided,
      further,
      that, if
      the foregoing inspection and information gathering would otherwise disrupt
      the
      Company’s conduct of its business, such inspection and information gathering
      shall, to the maximum extent possible, be coordinated on behalf of the Investors
      and the other parties entitled thereto by one firm of counsel designated
      by and
      on behalf of the majority in interest of Investors and other
      parties;

     

    (k)In
      connection with any offering,
      make such representations and warranties to the Investor and to the underwriters
      if an underwritten offering,
      in
      form, substance and scope as are customarily made by a company to underwriters
      in secondary underwritten offerings;

     

    (l)In
      connection with any underwritten offering, deliver such documents and
      certificates as may be reasonably required by the underwriters; 

     

    (m)Cooperate
      with the Investor to facilitate the timely preparation and delivery of
      certificates representing Registrable
      Securities
      to be
      sold pursuant to the Registration Statement, which certificates shall, if
      required under the terms of this Agreement, be free of all restrictive legends,
      and to enable such Registrable
      Securities
      to be in
      such denominations and registered in such names as any Investor may request
      and
      maintain a transfer agent for the Common Stock; and

     

    (n)Use
      its
      commercially reasonable efforts to cause all Registrable
      Securities
      covered
      by the Registration Statement to be listed or qualified for trading on the
      principal Trading Market, if any, on which the Common Stock is traded or listed
      on the Effective Date of the Registration Statement.

     

    
      
         

      

      
        -17-

        
          

        

      

      
         

      

    

    Section
      4.3.Obligations
      and Acknowledgements of the Investor.
      In
      connection with the registration of the Registrable
      Securities, the Investor shall have the following obligations and hereby make
      the following acknowledgements:

     

    (a)It
      shall
      be a condition precedent to the obligations of the Company to include
      the
      Registrable Securities in
      the
      Registration Statement
      that the
      Investor (i) shall furnish to the Company such information regarding
      itself, the Registrable Securities held by him and the intended method of
      disposition of the Registrable Securities held by him as shall be reasonably
      required to effect the registration of such Registrable Securities and
      (ii) shall execute such documents in connection with such registration as
      the Company may reasonably request. At least five (5) Business Days prior to
      the
      first anticipated filing date of a Registration Statement, the Company shall
      notify the Investor of the information the Company requires from the Investor
      (the “Requested
      Information”)
      if the
      Investor elects to have any of his Registrable Securities included in the
      Registration Statement. If at least two Business Days prior to the anticipated
      filing date the Company has not received the Requested Information from the
      Investor, then the Company may file the Registration Statement without including
      any Registrable Securities of the Investor and the Company shall have no further
      obligations under this Article 4 to the Investor
      after
      such Registration Statement has been declared effective. If the Investor
      notifies the Company and provides the Company the information required hereby
      prior to the time the Registration Statement is declared effective, the Company
      will file an amendment to the Registration Statement that includes the
      Registrable Securities of the Investor;
      provided,
      however,
      that the
      Company shall not be required to file such amendment to the Registration
      Statement at any time less than five (5) Business Days prior to the
      Effectiveness Date.

     

    (b)The
      Investor agrees to cooperate with the Company in connection with the preparation
      and filing of a Registration Statement hereunder, unless the Investor has
      notified the Company in writing of his election to exclude all of his
      Registrable Securities from such Registration Statement;

     

    (c)The
      Investor agrees that, upon receipt of any notice from the Company of the
      occurrence of any event of the kind described in Section 4.2(e) or 4.2(f),
      he shall immediately discontinue its disposition of Registrable Securities
      pursuant to the Registration Statement covering such Registrable Securities
      until the Investor’s receipt of the copies of the supplemented or amended
      Prospectus contemplated by Section 4.2(e) and, if so directed by the
      Company, the Investor shall deliver to the Company (at the expense of the
      Company) or destroy (and deliver to the Company a certificate of destruction)
      all copies in the Investor’s possession, of the Prospectus covering such
      Registrable Securities current at the time of receipt of such notice;
      and

     

    (d)The
      Investor acknowledges that he may be deemed to be a statutory underwriter within
      the meaning of the Securities Act with respect to the Registrable Securities
      being registered for resale by him, and if the Investor includes Registrable
      Securities for offer and sale within a Registration Statement he hereby consents
      to the inclusion in such Registration Statement of a disclosure to such
      effect.

     

    Section
      4.4.Expenses
      of Registration.
      All
      expenses (other than underwriting discounts and commissions and the fees an
      expenses of the Investor’s counsel) incurred in connection with registrations,
      filings or qualifications pursuant to this Article 4, including, without
      limitation, all registration, listing, and qualifications fees, printing and
      engraving fees, accounting fees, and the fees and disbursements of counsel
      for
      the Company, shall be borne by the Company.

     

    
      
         

      

      
        -18-

        
          

        

      

      
         

      

    

    Section
      4.6.Indemnification
      and Contribution

     

    (a)Indemnification
      by the Company.
      The
      Company shall indemnify and hold harmless the Investor and each underwriter,
      if
      any, which facilitates the disposition of Registrable Securities, and each
      of
      their respective officers and directors and each Person who controls such
      underwriter within the meaning of Section 15 of the Securities Act or
      Section 20 of the Exchange Act (each such Person being sometimes
      hereinafter referred to as an“Indemnified
      Person”)
      from
      and against any losses, claims, damages or liabilities, joint or several, to
      which such Indemnified Person may become subject under the Securities Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon an untrue statement or alleged
      untrue statement of a material fact contained in any Registration Statement
      or
      an omission or alleged omission to state therein a material fact required to
      be
      stated therein or necessary to make the statements therein, not misleading,
      or
      arise out of or are based upon an untrue statement or alleged untrue statement
      of a material fact contained in any Prospectus or an omission or alleged
      omission to state therein a material fact required to be stated therein or
      necessary to make the statements therein, in the light of the circumstances
      under which they were made, not misleading; and the Company hereby agrees to
      reimburse such Indemnified Person for all reasonable legal and other expenses
      incurred by them in connection with investigating or defending any such action
      or claim as and when such expenses are incurred; provided,
      however, that
      the
      Company shall not be liable to any such Indemnified Person in any such case
      to
      the extent that any such loss, claim, damage or liability arises out of or
      is
      based upon (i) an untrue statement or alleged untrue statement made in, or
      an omission or alleged omission from, such Registration Statement or Prospectus
      in reliance upon and in conformity with written information furnished to the
      Company by such Indemnified Person expressly for use therein or (ii) in the
      case of the occurrence of an event of the type specified in Section 4.3(e),
      the use by the Indemnified Person of an outdated or defective Prospectus after
      the Company has provided to such Indemnified Person an updated Prospectus
      correcting the untrue statement or alleged untrue statement or omission or
      alleged omission giving rise to such loss, claim, damage or
      liability.

     

    (b)Indemnification
      by the Investors and Underwriters.
      The
      Investor agrees, as
      a
      consequence of the inclusion of any of his Registrable Securities in a
      Registration Statement, and each underwriter, if any, which facilitates the
      disposition of Registrable Securities shall agree, severally
      and not jointly, as
      a
      consequence of facilitating such disposition of Registrable Securities to
      (i) indemnify and hold harmless the Company, its directors (including any
      person who, with his or her consent, is named in the Registration Statement
      as a
      director nominee of the Company), its officers who sign any Registration
      Statement and each Person, if any, who controls the Company within the meaning
      of either Section 15 of the Securities Act or Section 20 of the
      Exchange Act, against any losses, claims, damages or liabilities to which the
      Company or such other persons may become subject, under the Securities Act
      or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon an untrue statement or alleged
      untrue statement of a material fact contained in such Registration Statement
      or
      Prospectus or arise out of or are based upon the omission or alleged omission
      to
      state therein a material fact required to be stated therein or necessary to
      make
      the statements therein (in light of the circumstances under which they were
      made, in the case of the Prospectus), not misleading, in each case to the
      extent, but only to the extent, that such untrue statement or alleged untrue
      statement or omission or alleged omission was made in reliance upon and in
      conformity with written information furnished to the Company by the Investor
      or
      underwriter expressly for use therein,
      and
      (ii) reimburse the Company for any legal or other expenses incurred by the
      Company in connection with investigating or defending any such action or claim
      as such expenses are incurred;
      provided,
      however,
      that the
      Investor shall not be liable under this Section 4.5(b) for any amount in
      excess of the net proceeds paid to the Investor in respect of Registrable
      Securities sold by him.

     

    
      
         

      

      
        -19-

        
          

        

      

      
         

      

    

    (c)Notice
      of Claims, etc. 
      Promptly
      after receipt by a Person seeking indemnification pursuant to this
      Section 4.5 (an “Indemnified
      Party”)
      of
      written notice of any investigation, claim, proceeding or other action in
      respect of which indemnification is being sought (each, a “Claim”),
      the
      Indemnified Party promptly shall notify the Person against whom indemnification
      pursuant to this Section 4.5 is being sought (the“Indemnifying
      Party”)
      of the
      commencement thereof; but the omission to so notify the Indemnifying Party
      shall
      not relieve it from any liability that it otherwise may have to the Indemnified
      Party, except to the extent that the Indemnifying Party is materially prejudiced
      and forfeits substantive rights and defenses by reason of such failure. In
      connection with any Claim as to which both the Indemnifying Party and the
      Indemnified Party are parties, the Indemnifying Party shall be entitled to
      assume the defense thereof. Notwithstanding the assumption of the defense of
      any
      Claim by the Indemnifying Party, the Indemnified Party shall have the right
      to
      employ separate legal counsel and to participate in the defense of such Claim,
      and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
      and expenses of such separate legal counsel to the Indemnified Party if (and
      only if): (i) the Indemnifying Party shall have agreed to pay such fees,
      costs and expenses, (ii) the Indemnified Party shall
      reasonably have concluded that representation of the Indemnified Party by the
      Indemnifying Party by the same legal counsel would not be appropriate due to
      actual or, as reasonably determined by legal counsel to the Indemnified Party,
      potentially differing interests between such parties in the conduct of the
      defense of such Claim, or if there may be legal defenses available to the
      Indemnified Party that are in addition to or disparate from those available
      to
      the Indemnifying Party, or (iii) the Indemnifying Party shall have failed
      to employ legal counsel reasonably satisfactory to the Indemnified Party within
      a reasonable period of time after notice of the commencement of such Claim.
      If
      the Indemnified Party employs separate legal counsel in circumstances other
      than
      as described in the preceding sentence, the fees, costs and expenses of such
      legal counsel shall be borne exclusively by the Indemnified Party. Except as
      provided above, the Indemnifying Party shall not, in connection with any Claim
      in the same jurisdiction, be liable for the fees and expenses of more than
      one
      firm of counsel for the Indemnified Party (together with appropriate local
      counsel). The Indemnified Party shall not, without the prior written consent
      of
      the Indemnifying Party (which consent shall not unreasonably be withheld),
      settle or compromise any Claim or consent to the entry of any judgment that
      does
      not include an unconditional release of the Indemnifying Party from all
      liabilities with respect to such Claim or judgment
      or
      contain any admission of wrongdoing.

     

    (d)Contribution.
      If the
      indemnification provided for in this Section 4.5 is unavailable to or
      insufficient to hold harmless an Indemnified Party in respect of any losses,
      claims, damages or liabilities (or actions in respect thereof) referred to
      therein, then each Indemnifying Party shall contribute to the amount paid or
      payable by such Indemnified Party as a result of such losses, claims, damages
      or
      liabilities (or actions in respect thereof) in such proportion as is appropriate
      to reflect the relative fault of the Indemnifying Party and the Indemnified
      Party in connection with the statements or omissions or
      alleged statements or omissions which
      resulted in such losses, claims, damages or liabilities (or actions in respect
      thereof), as well as any other relevant equitable considerations. The relative
      fault of such Indemnifying Party and Indemnified Party shall be determined
      by
      reference to, among other things, whether the untrue or alleged untrue statement
      of a material fact or omission or alleged omission to state a material fact
      relates to information supplied by such Indemnifying Party or by such
      Indemnified Party, and the parties’ relative intent, knowledge, access to
      information and opportunity to correct or prevent such statement or omission.
      The parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section 4.5(d) were determined by pro rata allocation
      (even if the Investors or any underwriters were treated as one entity for such
      purpose) or by any other method of allocation which does not take account of
      the
      equitable considerations referred to in this Section 4.5(d). The amount
      paid or payable by an Indemnified Party as a result of the losses, claims,
      damages or liabilities (or actions in respect thereof) referred to above shall
      be deemed to include any legal or other fees or expenses reasonably incurred
      by
      such Indemnified Party in connection with investigating or defending any such
      action or claim. No person guilty of fraudulent misrepresentation (within the
      meaning of Section 11(f) of the Securities Act) shall be entitled to
      contribution from any person who was not guilty of such fraudulent
      misrepresentation. 

     

    
      
         

      

      
        -20-

        
          

        

      

      
         

      

    

    (e)Limitation
      on Investor’s and Underwriters’ Obligations.
      Notwithstanding any other provision of this Section 4.5, in no event shall
      (i) the Investor have
      any
      liability under
      this Section 4.5 for any amounts in excess of the dollar amount of the
      proceeds actually
      received
      by the Investor from the sale of Registrable Securities (after deducting any
      fees, discounts and commissions applicable thereto) pursuant to any Registration
      Statement under which such Registrable Securities are
      registered under the Securities Act and (ii) any underwriter be required to
      undertake liability to any Person hereunder for any amounts in excess of the
      aggregate discount, commission or other compensation payable to such underwriter
      with respect to the Registrable Securities underwritten by it and distributed
      pursuant to the Registration Statement.

     

    (f)Other
      Liabilities.
      The
      obligations of the Company under this Section 4.5 shall be in addition to
      any liability which the Company may otherwise have to any Indemnified Person
      and
      the obligations of any Indemnified Person under this Section 4.5 shall be
      in addition to any liability which such Indemnified Person may otherwise have
      to
      the Company. The remedies provided in this Section 4.5 are not exclusive and
      shall not limit any rights or remedies which may otherwise be available to
      an
      indemnified party at law or in equity.

     

    Section
      4.6.Rule
      144.
      With a
      view to making available to the Investors the benefits of Rule 144, the
      Company agrees to use its best efforts to:

     

    (i)comply
      with the provisions of paragraph (c)(1) of Rule 144; and

     

    (ii)file
      with
      the Commission in a timely manner all reports and other documents required
      to be
      filed by the Company pursuant to Section 13 or 15(d) under the Exchange
      Act; and, if at any time it is not required to file such reports but in the
      past
      had been required to or did file such reports, it will, upon the request of
      any
      Investor, make available other information as required by, and so long as
      necessary to permit sales of, its Registrable Securities pursuant to
      Rule 144.

     

    Section 4.7.Common
      Stock Issued Upon Stock Split, etc.
      The
      provisions of this Article 4 shall apply to any shares of Common Stock or
      any other securities issued as a dividend or distribution in respect of the
      Conversion Shares or the Warrant Shares.

    

    

    ARTICLE
      5

    

    Other
      Agreements of the Parties

    

    Section
      5.1. Certificates;
      Legends.

    

    (a)
       The
      Securities may only be transferred if in compliance with state and federal
      securities laws. In connection with any transfer of the Securities other than
      pursuant to an effective registration statement, to the Company, to an Affiliate
      of the Investor or in connection with a pledge as contemplated in Section
      5.1(b), the Company may require the transferor thereof
      to
      provide to the Company an opinion of counsel selected by the transferor (which
      may be such transferor’s in-house counsel), the form and substance of which
      opinion shall be reasonably satisfactory to the Company, to the effect that
      such
      transfer does not require registration of such transferred Securities under
      the
      Securities Act.

    

    
      
         

      

      
        -21-

        
          

        

      

      
         

      

    

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

    

    (c)  
      Certificates evidencing the Registrable Securities shall not contain any legend
      (including the legend referred to in Section 5.1(b)), (i) while a Registration
      Statement covering the resale of such Security is effective under the Securities
      Act, or (ii) following any sale of such Registrable Securities pursuant to
      Rule
      144, or (iii) if such Registrable Securities are eligible for sale under Rule
      144(k), or (iv) if such legend is not required under applicable requirements
      of
      the Securities Act (including judicial interpretations and pronouncements issued
      by the Staff of the Commission) and such lack of requirement is confirmed by
      a
      legal opinion satisfactory to the Company.  If all or any portion of a
      Warrant is exercised at a time when there is an effective Registration Statement
      to cover the resale of the Warrant Shares, or if such Warrant Shares may be
      sold
      under paragraph (k) of Rule 144 or if such legend is not otherwise required
      under applicable requirements of the Securities Act (including judicial
      interpretations thereof) then such Warrant Shares shall be issued free of all
      legends.  The Company agrees that following the Effective Date or at such
      time as such legend is no longer required under this Section 5.1(c), it will,
      no
      later than five (5) Trading Days following the delivery by the Investor to
      the
      Company or the Company’s transfer agent of a certificate representing
      Registrable Securities, as the case may be, issued with a restrictive legend
      (such date, the “Legend
      Removal Date”),
      deliver or cause to be delivered to such Investor a certificate representing
      such Securities that is free from all restrictive and other legends.  The
      Company may not make any notation on its records or give instructions to any
      transfer agent of the Company that enlarge the restrictions on transfer set
      forth in this Section.

    

    (d) The
      Investor agrees that the removal of the restrictive legend from certificates
      representing Securities as set forth in this Section 5.1 is predicated upon
      the
      Company’s reliance that the Investor will sell any Securities pursuant to either
      the registration requirements of the Securities Act, including any applicable
      prospectus delivery requirements, or an exemption therefrom.

    

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

    

    Section
      5.3. Securities
      Laws Disclosure; Publicity.
      By 9:00
      a.m. (New York time) on the Trading Day following the execution of this
      Agreement, and by 5:00 p.m. (New York time) on the Initial Closing Date, the
      Company shall issue press releases disclosing the transactions contemplated
      hereby and the Closing. On the Trading Day following the execution of this
      Agreement the Company will file a Current Report on Form 8-K disclosing the
      material terms of the Transaction Documents (and attach as exhibits thereto
      the
      Transaction Documents), and on the Initial Closing Date the Company will file
      an
      additional Current Report on Form 8-K to disclose the Initial Closing. In
      addition, the Company will make such other filings and notices in the manner
      and
      time required by the Commission and the Trading Market on which the Common
      Stock
      is listed. 

    

    
      
         

      

      
        -22-

        
          

        

      

      
         

      

    

     

    Section
      5.4. Independent
      Board.
      Not
      later than the first to occur of the Company’s next meeting of stockholders or
      September 30, 2007, the Company’s board of directors shall consist of a majority
      of independent
      directors. The independence of the directors shall be determined by the rules
      of
      the Nasdaq Stock Exchange unless the Common Stock is listed on the New York
      or
      American Stock Exchange, in which event independence shall be determined by
      the
      rules of such exchange. 

     

    Section
      5.5. Advisory
      Director; Election to Board.
      No
      later
      than the date of the first meeting of the Company’s Board of Directors following
      the Initial Closing date, the Investor shall be designated as an “Advisory
      Director” of the Company and the Investor shall continue to be an Advisory
      Director so long as he holds any of the Securities. In his capacity as an
      Advisory Director, the Investor shall be entitled to receive notice of, and
      to
      attend, every meeting of the Company’s Board of Directors, to receive copies of
      all materials distributed to the members of the Board of Directors, and to
      participate fully (without the right to vote) in all discussions and
      deliberations of the Board of Directors, except when the Board of Directors
      is
      discussing the Company’s relationship with or obligations to the Investor or
      when the Company’s legal counsel advises that the Investor’s participation would
      result in the Company’s forfeiture of the attorney-client privilege or would
      otherwise be inappropriate. As soon as the number of authorized members of
      the
      Company’s Board of Directors is increased beyond seven (7), the Company shall
      nominate the Investor for election to the Company’s Board of
      Directors.

    

    Section
      5.6. Use
      of Proceeds.
      Except
      as otherwise disclosed in the Disclosure Materials, the
      Company
      shall use the net proceeds from the sale of the Securities hereunder (i) for
      working capital purposes, (ii) to purchase fixed assets used in the development
      or production of the Company’s products or (iii) for investment in new
      technologies related to the Company’s business (including without limitation
      through the acquisition of other companies). 

    

    ARTICLE
      6

    

    Conditions
      Precedent to Closing

    

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

    

    
      	 	
              (a)

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

            

    

    

    
      	 	
              (b)

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

            

    

    

    
      	 	
              (c)

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

            

    

     

    
      
         

      

      
        -23-

        
          

        

      

      
         

      

    

     

    
      	 	
              (d)

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

            

    

    

    
      	 	
              (e)

            	
              No
                Suspensions of Trading in Common Stock. From
                the date hereof to the Closing Date, trading in the Common Stock
                shall not
                have been suspended by the Commission (except for any suspension
                of
                trading of limited duration agreed to by the Company, which suspension
                shall be terminated prior to the Closing), and, at any time prior
                to the
                Closing Date, trading in securities generally as reported by Bloomberg
                Financial Markets shall not have been suspended or limited, or minimum
                prices shall not have been established on securities whose trades
                are
                reported by such service, or on any Trading Market, nor shall a banking
                moratorium have been declared either by the United States or New
                York
                State authorities nor shall there have occurred any material outbreak
                or
                escalation of hostilities or other national or international calamity
                of
                such magnitude in its effect on, or any material adverse change in,
                any
                financial market which, in each case, in the reasonable judgment
                of each
                Investor, makes it impracticable or inadvisable to purchase the Shares
                and
                the Warrants at the Closing;
                and

            

    

    

    
      	
            	(f)	
              Company
                Deliverables.
                The Company shall have delivered the Company Deliverables in accordance
                with Section 2.2(a).

            

    

    

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

    

    
      	 	
              (a)

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

            

    

    

    
      	 	
              (b)

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

            

    

    

    
      	 	
              (c)

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

            

    

    

    
      	 	
              (d)

            	
              Investors
                Deliverables.
                The Investor shall have delivered the Purchase Price in accordance
                with
                Section 2.2(b).

            

    

    

    

    ARTICLE
      7

    

    Miscellaneous

    

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

    

    
      
         

      

      
        -24-

        
          

        

      

      
         

      

    

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

    

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

    

    
      	If
              to the Company:	
              ThermoEnergy
                Corporation

            

    

    Attn.:
      Andrew T. Melton

    124
      West
      Capitol Avenue, Suite 880

    Little
      Rock, AR 72201

    

    Telephone:
      (501) 376-6477

    Facsimile:
      (501) 376-5249

    

    
      	With
              a copy to:	
              Nixon
                Peabody, LLP

            

    

    Attn.:
      William E. Kelly

    100
      Summer Street

    Boston,
      MA 02110-2131

    

    Telephone:
      (617) 345-1195

    Facsimile:
      (866) 743-4899

    

    
      	If
              to the Investor:	
              Mr.
                Martin A. Roenigk

            

    

    75
      Prospect Avenue

    Eureka
      Springs, Arkansas 72632 

    

    Telephone:
      (479) 253-0405

    Facsimile:
      (479) 253-0406; 

    

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

    

    Section
      7.4. Amendments;
      Waivers; No Additional Consideration.
      No
      provision of this Agreement may be waived or amended except in a written
      instrument signed by the Company and by Investors holding at least sixty-six
      and
      two-thirds percent (66-2/3%)
      of the
      then outstanding Shares. No waiver of any default with respect to any provision,
      condition or requirement of this Agreement shall be deemed to be a continuing
      waiver in the future or a waiver of any subsequent default or a waiver of any
      other provision, condition or requirement hereof, nor shall any delay or
      omission of either party to exercise any right hereunder in any manner impair
      the exercise of any such right. No consideration shall be offered or paid to
      any
      Investor to amend or consent to a waiver or modification of any provision of
      any
      Transaction Document unless the same consideration is also offered to all
      Investors who then hold Shares.

    

    
      
         

      

      
        -25-

        
          

        

      

      
         

      

    

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

    

    
      	 	
              (a)
                

            	
              by
                written agreement of the Investor and the
                Company;

            

    

    

    
      	 	
              (b)
                

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

            

    

    

    
      	 	
              (c)
                

            	
              by
                the Investor if he concludes in good faith that any of the conditions
                precedent contained in Section 7.1 shall have been breached or shall
                not
                be capable of being satisfied by the Outside Date despite the assumed
                best
                efforts of the Company.

            

    

    

    In
      the
      event of a termination pursuant to this Section, the Company shall promptly
      notify all non-terminating Investors. Upon a termination in accordance with
      this
      Section 7.5, the Company and the Investor shall have no further obligation
      or
      liability (including as arising from such termination) to the
      other.

    

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

    

    Section
      7.7. Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. The Company may not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of the Investor. The Investor may assign any or all of his rights under
      this Agreement to any Person to whom the Investor assigns or transfers any
      Securities, provided such transferee agrees in writing to be bound, with respect
      to the transferred Securities, by the provisions hereof that apply to the
“Investor.”

    

    Section
      7.8. No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except as otherwise set
      forth
      in Article 4. or Section 5.7 (with respect to rights to indemnification and
      contribution).

    

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

     

    
      
         

      

      
        -26-

        
          

        

      

      
         

      

    

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

    

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

    

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

    

    Section
      7.13. Rescission
      and Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) the Transaction Documents, whenever they Investor
      exercises a right, election, demand or option under a Transaction Document
      and
      the Company does not timely perform its related obligations within the periods
      therein provided, then the Investor may rescind or withdraw, in its sole
      discretion from time to time upon written notice to the Company, any relevant
      notice, demand or election in whole or in part without prejudice to its future
      actions and rights.

    

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

    

    
      
         

      

      
        -27-

        
          

        

      

      
         

      

    

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

    

    Section
      7.16. Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to the Investor pursuant
      to
      any Transaction Document or the Investor enforces or exercises its rights
      thereunder, and such payment or payments or the proceeds of such enforcement
      or
      exercise or any part thereof are subsequently invalidated, declared to be
      fraudulent or preferential, set aside, recovered from, disgorged by or are
      required to be refunded, repaid or otherwise restored to the Company, a trustee,
      receiver or any other person under any law (including, without limitation,
      any
      bankruptcy law, state or federal law, common law or equitable cause of action),
      then to the extent of any such restoration the obligation or part thereof
      originally intended to be satisfied shall be revived and continued in full
      force
      and effect as if such payment had not been made or such enforcement or setoff
      had not occurred.

    

     

     

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

     

    

    
      	
               

               

               

               

               

                 /s/
                Martin A.
                Roenigk            
                

              Martin
                A. Roenigk

            	
               

              ThermoEnergy
                Corporation

               

               

               

              By:     /s/
                Dennis C.
                Cossey                    
                  

              Dennis
                C. Cossey

              Chairman
                and CEO

            

    

     

    
      
         

      

      
        -28-Exhibit
      4.2

     

     

    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 $750,000.00	
              Issue
                Date: March 21,
                2007

            

    

          

     

    5%
      CONVERTIBLE PROMISSORY NOTE DUE MARCH 21, 2013

     

    FOR
      VALUE
      RECEIVED, ThermoEnergy Corporation, an Arkansas corporation (the “Borrower”),
      hereby promise to pay to the order of Martin A. Roenigk (the “Holder”), the sum
      of Seven Hundred Fifty Thousand Dollars ($750,000.00), on March 21, 2013 (the
      “Maturity Date”). 

     

    This
      Note
      is one of a series of Notes issued pursuant to the terms of a Securities
      Purchase Agreement between the Borrower and the Holder, dated the date of this
      Note (the “Purchase Agreement”) and is subject to the provisions of, and
      entitled to the benefits of, the Purchase Agreement.

     

    Interest
      on the outstanding principal balance shall be paid at the rate of five percent
      (5%) per annum, payable semi-annually on the last day of September and March
      of
      each year. Interest shall be computed on the basis of a 360-day year, using
      the
      number of days actually elapsed. Any scheduled interest payment may, at the
      election of the Borrower by written notice to the Holder (a “Deferral Notice”)
      and payment to the Holder of a deferral fee in the amount of $2,500.00 (the
      “Deferral Fee”) 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.
      

     

    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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    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

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    (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.

     

    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.

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    1.2.4 Other
      Action Affecting Common Stock.
      In case at any time or from time to time the Borrower shall take any action
      in
      respect of the Common Stock, other than any action described in this Section
      1.2, which would have a materially adverse effect upon the rights of the Holder,
      the number of shares of Common Stock into which this Note is convertible and/or
      the Conversion Price shall be adjusted in such manner as may be equitable in
      the
      circumstances, as determined in good faith by the Board of Directors of the
      Borrower.

     

    1.2.5
      Certain
      Limitations.
      Notwithstanding anything herein to the contrary, the Borrower agrees not to
      enter into any transaction which, by reason of any adjustment hereunder, would
      cause the Conversion Price to be less than the par value per share of Common
      Stock.

     

    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.

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    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.

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    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
      fifteen (15) 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 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 the Purchase Agreement and the failure to cure (if
      curable) any such breach or failure within fifteen (15) days after receipt
      of
      written notice thereof from the Holder; or

     

    2.2.4.  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

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    2.2.5.  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

     

    2.2.6.  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.

     

    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.

     

    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 Arkansas
      applicable to agreements executed and to be performed wholly within such state
      and without regard to
      principles of conflicts of law.
      Each
      party irrevocably (a) consents to the jurisdiction of the federal and state
      courts situated
      in
      Pulaski County, Arkansas in
      any
      action that may be brought pursuant to this Agreement, and (b)
      submits to and accepts, with respect to its properties and assets, generally
      and
      unconditionally, the in personam jurisdiction of the aforesaid courts, waiving
      any defense that such court is not a convenient forum. In any such litigation
      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. 

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    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 75 Prospect Avenue,
      Eureka Springs, Arkansas 72632 (fax: 479-253-0406).
      Either
      party may, be 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.
      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.

     

    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.

     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    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 

            

    

     

    

 

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    

    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 March
      ___,
      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:_____________________________________________________________________

    

    ____________________________________________________________________________

    

    

    
      
         

      

      
        -10-

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