Document:

Unassociated Document

     

    
      	
              Principal
      Amount:  $__________

            	
              Issue
      Date:  March 1, 2010

            

    

     

    3% SECURED CONVERTIBLE
PROMISSORY NOTE

     

    FOR VALUE RECEIVED, ThermoEnergy
Corporation, a Delaware corporation (the “Borrower”), hereby promise to pay to
the order of _________________ (the “Holder”) on February 28, 2011 (the
“Maturity Date”) the sum of ________________ Dollars ($___________) (or such
lesser amount as may be advanced by the Holder to the Borrower as Draws or
Advances (as such terms are defined in the Bridge Loan Agreement hereinafter
described).

     

    Interest
on the outstanding principal balance shall accrue at the rate of three percent
(3.0%) per annum, and shall be due and payable on the Maturity
Date.  Interest shall be computed on the basis of a 365-day year,
using the number of days actually elapsed.

     

    This Note
is one of several substantially identical promissory notes in the initial
aggregate principal amount of $2,700,000 issued by the Borrower on or about the
date hereof pursuant to that certain Bridge Loan Agreement of even date herewith
by and among the Borrower, the Holder and certain other persons (the “Bridge
Loan Agreement”) (which promissory notes are referred to herein as the “Series
Notes”). So long as this Note is outstanding the Holder shall be entitled to the
benefit of, and subject to the provisions of, the Bridge Loan
Agreement.

     

    Pursuant
to the Bridge Loan Agreement, the Holder shall surrender this Note (or such
portion thereof as may be necessary to satisfy the Holder’s purchase
obligations) in payment of the purchase price for the securities to be purchased
by the Holder pursuant to the Securities Purchase Agreement dated as of November
19, 2009 by and among the Borrower, the Holder and the holders of the other
Series Notes (the “Series B Agreement”) at the Third Tranche Closing and/or the
Fourth Tranche Closing (as such terms are defined in the Series B
Agreement).

     

    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
outstanding principal amount of this Note, and any accrued and unpaid interest
thereon, into shares of the Common Stock, par value $0.001 per share, of the
Borrower (“Common Stock”) at a price of $0.24 per share.  If the
Holder desires to exercise its right of conversion, the Holder shall give the
Borrower a written notice, setting forth the amount of principal and interest
which the Holder desires to convert.  Should the Holder elect to
convert less than the entire amount of the principal balance and accrued and
unpaid interest under this Note, the amount being converted shall be credited
first against accrued and unpaid interest and the balance, if any, shall be
credited against principal.  Except to the extent that the entire
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.  Conversion of the principal and interest on this Note into
shares of Common Stock shall not relieve the Holder of his or its obligation to
purchase securities pursuant to the Series B Agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    The
Borrower and the holders of the Series Notes (including the Holder) have,
contemporaneously herewith, entered into a Security Agreement (the “Security
Agreement”) securing the obligations of the Borrower to the Holder and the other
holders of the Series Notes under such Series Notes, and so long as this Note is
outstanding the Holder shall be entitled to the benefit of, and subject to the
provisions of,  the Security Agreement.

     

    This Note
may not be prepaid, in whole or in part, without the prior written consent of
the Holder.  Partial prepayments, if any, shall be applied first to
accrued and unpaid interest, and the balance to principal.

     

    Subject
to the provisions of the Security Agreement, 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.

     

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

     

    (i)           The
Borrower’s failure to make any payment of principal or interest or any other
sums within fifteen (15) days of the date when due under this Note;
or

     

    (ii)           Any
representation or warranty or other statement made by the Borrower in the Bridge
Loan Agreement or the Security Agreement proves to have been false or misleading
in any material respect when made or furnished; or

     

    (iii)           Breach
of or failure in the due observance or performance in any material respect of
any covenant, condition or agreement on the part of the Borrower to be observed
or performed pursuant to this Note, the Bridge Loan Agreement or the Security
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

     

    (iv)           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

     

    (v)           If
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
ninety (90) consecutive days or an order for relief in connection therewith
shall be entered; or

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (vi)           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.

     

    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.

     

    No
failure or delay on the part of the Holder 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.

     

    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 Delaware, without regard to the
principles of conflicts of law thereof. Each party agrees that any action,
claim, suit, investigation or proceeding (including, without limitation, an
investigation or partial proceeding, such as a deposition), whether commenced or
threatened. (a “Proceeding”) concerning the interpretation, enforcement and of
the transactions contemplated by this Note or the Security Agreement shall be commenced exclusively in the state or
federal courts sitting in, or having jurisdiction over, Wilmington, Delaware
(the “Delaware Courts” ). Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the Delaware Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such Delaware 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 this Note or the
Security Agreement, then the prevailing party in such Proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such Proceeding.

     

    
      
         

      

      
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    THE
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.  THIS WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR THE HOLDER TO ACCEPT THIS NOTE.

     

    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, by overnight courier service with evidence of delivery or
attempted delivery, or by facsimile, e-mail or other means of electronic
transmission (provided such transmission generates evidence of delivery), to the
Borrower or to the Holder at their respective principal places of
business.  Either party may, by like notice, change the address to
whom notice is to be given.

     

    This Note
may be amended or supplemented, or any provision hereof waived, only by the
written agreement of the Holder and the Borrower.

     

    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.

     

    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.

     

    IN WITNESS WHEREOF, the
Borrower has caused this Note to be executed and delivered by its duly
authorized President and Chief Executive Officer as of the date and year first
above written.

     

    
      
        	 	ThermoEnergy Corporation	 
	 	 	 	 
	
                 

              	
                By:
      

              	 	 
	 	 	Cary
      G. Bullock	 
	 	 	President
      and Chief Executive Officer	 
	 	 	 	 

      

       

      
        
           

        

        
          4Unassociated Document

     

    SECURITY
AGREEMENT

     

    THIS SECURITY AGREEMENT (this
“Agreement”) is dated as of March 1, 2010, and is entered into by and among
ThermoEnergy Corporation, a Delaware corporation having its principal place of
business in Little Rock, Arkansas (the “Borrower”) and the persons and entities
named on Schedule I hereto (collectively, the “Secured Parties”) and The Quercus
Trust, for itself and as the agent for and for the benefit of the other Secured
Parties (the “Agent”).  Capitalized terms not otherwise defined herein
are used as defined in the Delaware Uniform Commercial Code on the date of this
Agreement (the “UCC”).

    

    WHEREAS, the Borrower is, on or about
the date hereof, executing and delivering to the Secured Parties a series of 3%
Secured Convertible Promissory Notes of even date herewith in the initial
aggregate principal amount of $2,700,000 (the “Notes”); and

    

    WHEREAS, it is a condition precedent to
the Secured Parties’ making any advances to the Borrower under the Notes that
the Borrower execute and deliver to the Secured Parties a security agreement in
substantially the form hereof; and

    

    WHEREAS, the Borrower wishes to grant a
security interest in favor of the Secured Parties as herein
provided;

    

    NOW, THEREFORE, in consideration of the
promises contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

    

    SECTION
1.  Grant of
Security.  The Borrower hereby grants and otherwise pledges to
the Secured Parties a continuing security interest in all of the present and
future rights, title and interests of the Borrower in and to the following
property, and each item thereof, all whether now or hereafter existing, or owned
or acquired by the Borrower, or now or hereafter arising or due or to become
due, wherever such property may be located, together with all substitutions for,
replacements of, additions to, accessions to, and products, Proceeds and records
of any and all of the following (collectively, the “Collateral”):

     

    
      	
               
      

            	
              (i)

            	
              all
      Accounts;

            

    

    
      	
               
      

            	
              (ii)

            	
              all
      Inventory;

            

    

    
      	
               
      

            	
              (iii)

            	
              all
      Equipment;

            

    

    
      	
               
      

            	
              (iv)

            	
              all
      Fixtures;

            

    

    
      	
               
      

            	
              (v)

            	
              all
      Contracts;

            

    

    
      	
               
      

            	
              (vi)

            	
              all
      Chattel Papers;

            

    

    
      	
               
      

            	
              (vii)

            	
              all
      Documents;

            

    

    
      	
               
      

            	
              (viii)

            	
              all
      Instruments;

            

    

    
      	
               
      

            	
              (ix)

            	
              all
      Investment Property;

            

    

    
      	
               
      

            	
              (x)

            	
              all
      Deposit Accounts;

            

    

    
      	
               
      

            	
              (xi)

            	
              all
      General Intangibles;

            

    

    
      	
               
      

            	
              (xii)

            	
              all
      Supporting Obligations

            

    

    
      	
               
      

            	
              (xiii)

            	
              all
      Commercial Tort Claims;

            

    

    
      	
               
      

            	
              (xiv)

            	
              all
      Intellectual Property; and

            

    

    
      	
               
      

            	
              (xv)

            	
              all
      other items of tangible and intangible personal property of any and every
      kind and description which are not otherwise described
    herein;

            

    

     

    excluding
only the shares of the capital stock of CASTion Corporation, a Massachusetts
corporation, owned beneficially or of record by the Borrower, which shares shall
not be deemed to be part of the Collateral.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    SECTION 2.  Security for
Obligations.  This Agreement secures, and the Collateral is
collateral security for the prompt payment or performance in full (including,
without limitation, amounts that would become due but for the filing of a
petition in bankruptcy) of, all amounts when due under the Notes, as well as the
Borrower’s performance and observance of all covenants contained herein and in
the Notes (the “Obligations”).

    

    SECTION 3.   Agent as Agent of
Investors.

    

    (a)           The
Agent shall serve and act as agent for all Secured Parties and shall take such
action on their behalf under the provisions of this Agreement and shall exercise
such powers and perform such duties as are expressly delegated to the Agent by
the terms of this Agreement, together with such powers as are reasonably
incidental thereto.  Notwithstanding any provision to the contrary
contained elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities except those expressly set forth herein.

    

    (b)           The
Secured Parties, the Agent and the Borrower acknowledge and agree that each Note
is secured by a security interest in the Collateral and that the priorities of
the security interests which secure each  Secured
Party’s  respective Note and its or his rights in and to the
Collateral which secures such Notes shall at all times be equal and that each
Secured Party shall share and be equal in priority and rights with the other
Secured Parties in proportion to the then outstanding principal amounts of, plus
the accrued but unpaid interest on, their respective Notes.

    

    (c)           In
the event that an Event of Default occurs, and a Secured Party gives the Agent
notice thereof, the Agent shall immediately thereafter (i) give written notice
of the Event of Default to all Secured Parties, and (ii) commence enforcement,
collection (including judicial or nonjudicial foreclosure) or similar proceeding
with respect to the Collateral; provided that
while the Agent may take immediate action in its discretion in order to attempt
to preserve the rights of the Secured Parties hereunder, the Agent (a) shall not
be required to take any action hereunder unless and until, if requested by the
Agent, the Agent receives direction from 662⁄3 in interest of the Secured Parties
(determined on the basis of the outstanding principal amounts of the Notes), and
(b) shall take such all such actions to enforce this Agreement and to
realize upon, collect and dispose of the Collateral or any portion thereof as
may be directed by 662⁄3 in interest of the Secured
Parties; provided that the Agent shall not be required to take any action
that is contrary to law or to the terms of this Agreement, or that would subject
it or any of its employees or agents to liability.

    

    (d)           The
Agent acknowledges and agrees that this Agreement and the terms and provisions
hereof are solely for the benefit of the Secured Parties and shall not benefit
in any way any other person or entity, including, without limitation, the
Borrower or any of its guarantors.  Nothing in this Agreement is
intended to affect, limit or in any way diminish the security interests which
the Secured Parties claim in the assets of the Borrower insofar as the rights of
the Borrowers and third parties are concerned.  The Agent, on behalf
of all Secured Parties, specifically reserves any and all of their respective
rights, security interests and rights to assert security interests against the
Borrowers and any third parties, including guarantors.

     

    
      
        
        

      

      
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    (e)           The
Borrower, the Secured Parties and the Agent acknowledge and agree that each
Secured Party’s respective rights and priorities with respect to the Collateral
shall exist and be enforceable against the Collateral only by the Agent on
behalf of all Secured Parties in accordance with the terms hereof, independent
of the time or order of attachment or perfection of such Secured Party’s
respective security interest, or the time or order of filing of financing
statements.  The subordinations, agreements and priorities set forth
in this Agreement shall remain in full force and effect regardless of whether
any Secured Party in the future seeks to rescind, amend, terminate or reform, by
liquidation or otherwise, its or his respective agreements with the
Borrower.

    

    (f)           The
Borrower, the Secured Parties and the Agent acknowledge and agree that the
indebtedness and payment obligations of the Borrower with respect to each Note
shall be of equal priority, no Note shall have a priority of payment over or be
subordinate to any other Note, and any and all property, Proceeds or other
payments received by the Agent in connection with its enforcement of the Secured
Parties’ security interests as contemplated herein shall be applied promptly by
the Agent to the payment to the Secured Parties pari passu of all outstanding
amounts owed under their respective Notes.

    

    (g)           Subject
to the shared priority and respective rights of the Secured Parties set forth in
this Agreement, the Agent, on behalf of the Secured Parties, shall be entitled
to obtain loss payee endorsements and additional insured status with respect to
any and all policies of insurance now or hereafter obtained by
the  Borrower insuring against casualty or other loss to any property
of the Borrower in which any Secured Party may have a security interest, and, in
connection therewith, may file claims, settle disputes, make adjustments and
take any and all other action otherwise then permitted to each Secured Party
with regard thereto, which it may deem advisable with respect to any assets of
the Borrower.

    

    (h)           Neither
the Agent  nor any officer or agent thereof shall be liable to the
Borrower or the Secured Parties for monetary damages for any action taken or
omitted to be taken by the Agent except for liability (i) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law or (ii) for any transaction from which the Agent or such officer or agent
thereof derived an improper personal benefit.

    

    (i)           The
Borrower shall indemnify and hold harmless the Agent for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (including reasonable attorneys’ fees) of any
kind whatsoever which may be imposed on, incurred by or asserted against the
Agent in connection with or in any way arising out of this Agreement; provided,
however, that the Borrower shall not be liable to the Agent for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Agent’s gross
negligence or willful misconduct as determined by a final judgment of a court of
competent jurisdiction.   The Borrower shall upon demand pay to
the Agent the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, that
the Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the sale of, collection
from or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Agent or the Secured Parties hereunder,
or (iv) the failure by the Borrower to perform or observe any of the provisions
hereof.   In the event the Borrower fails to comply with its
obligations under this Section 3(i), after commercially practicable efforts by
the Agent to obtain such compliance, each of the Secured Parties agrees to
contribute and pay to the Agent its or his pro rata share of all such
obligations.

     

    
      
        
        

      

      
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    SECTION
4.  Representations, Warranties
and Covenants. The Borrower represents, warrants and covenants as
follows:

     

    (a)           The
Borrower is a corporation existing and in good standing under the laws of the
State of Delaware.

     

    (b)           The
Borrower is duly empowered and authorized to enter into and perform its
obligations under this Agreement and all other instruments and transactions
contemplated hereby or relating hereto.  The Borrower is duly
empowered and authorized to own and to grant security interests in the
Collateral.  The execution, delivery and performance by the Borrower
of this Agreement, of the Notes and of all other instruments contemplated hereby
do not and will not violate any law or any provision of, nor be grounds for
acceleration under, any agreement, indenture, note or instrument which is
binding upon the Borrower, including without limitation, the Borrower’s
Certificate of Incorporation, By-Laws and any other loan or security agreements
to which the Borrower is a party or by which the Borrower or its property is
bound.

     

    (c)           Assuming
the due filing of a financing statement in proper form with the Secretary of
State of the State of Delaware, the security interest granted to the Secured
Parties pursuant to this Agreement is a valid, perfected security interest in
the that portion of the Collateral in which a security interest may be perfected
under the UCC.

     

    (d)           The
Borrower shall not hereafter transfer, assign or otherwise dispose of the
Collateral, except in the ordinary course of business, without the Agent’s prior
written consent.  The Borrower shall not create, permit or suffer to
exist, and shall take such other action as is necessary to remove, any claim to
or interest in the Collateral, and shall defend the right, title and interest of
the Secured Parties in and to the Collateral against all claims and demands of
all persons and entities at any time claiming the same or any interest
therein.

     

    SECTION
5.  Agent’s
Appointment as Attorney-in-Fact.  The Borrower hereby
irrevocably constitutes and appoints, from and after the occurrence of a default
by the Borrower in the Obligations, the Agent and any officer or agent thereof,
with full power of substitution, as the Borrower’s true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Borrower and in the name of the Borrower or in the Agent’s own name
as agent hereunder for the Secured Parties, from time to time in the Agent’s
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments that may be necessary or desirable to accomplish the purposes of
this agreement and, without limiting the generality of the foregoing, hereby
grant to the Agent the power and right, on behalf of the Borrower, without
notice to or assent by the Borrower to execute, file and record all such
financing statements, certificates of title and other certificates of
registration and operation and similar documents and instruments as the Agent
may deem necessary or desirable to protect, perfect and validate the Secured
Parties’ security interest.

     

    The
Borrower hereby ratifies all that such attorneys shall lawfully do or cause to
be done by virtue hereof.  This power of attorney is a power coupled
with an interest and shall be irrevocable so long as any amount of principal or
accrued interest under the Notes remains unpaid.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    The
powers conferred upon the Agent hereunder are solely to protect the interests of
the Secured Parties in the Collateral and shall not impose any duty upon the
Agent to exercise any such powers.  The Agent shall be accountable
only for amounts that the Agent actually receives as a result of the exercise of
such powers and neither the Agent nor any of its partners, officers, directors,
employees or agents shall be responsible to the Borrowers or the other Secured
Parties for any act or failure to act, except for the Agent’s own gross
negligence or willful misconduct.

     

    SECTION 6.  Remedies.  If
a default by the Borrower in the Obligations shall have occurred and be
continuing (an “Event of Default”), the Agent shall have all of the rights and
remedies which secured parties may have under the UCC or other applicable law or
at equity, and may do, at its option, one or more of the following, with or
without further notice to the Borrower:

    

    (i)           Accelerate
and declare all or any part of the Obligations to be immediately due, payable
and performable;

    

    (ii)           Appropriate,
set off and apply to any or all of the Obligations, any or all Collateral in
such manner as the Agent may determine; and/or

    

    (iii)           Foreclose
the security interest created under this Agreement or under any other agreement
relating to the Collateral by any procedure permitted under the UCC, with or
without judicial process.

    

    SECTION  7.  Termination of Security
Interest.  The Secured Parties’ security interest in the
Collateral shall be extinguished when  the Borrower completes
performance of all Obligations.

    

    SECTION  8.  Governing
Law.  This Agreement and the rights of the parties shall be
construed and enforced in accordance with the laws of the State of Delaware
applicable to agreements executed and to be performed wholly within such state
and without regard to principles of conflicts of law.  Each party
irrevocably (a) consents to the jurisdiction of the federal and state courts
situated in or having jurisdiction over Wilmington, Delaware in any action that
may be brought for the enforcement of 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
the Notes or (ii) in any other manner permitted by law.

    

    SECTION  9.  Severability.  In
case any provision in or obligation under this Agreement shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation and in any other jurisdiction, shall not in any way be affected or
impaired thereby.

    

    SECTION  10.  General.  No
Secured Party shall be deemed to have waived any of its respective rights
hereunder or under any other agreement, instrument or paper signed by the
Borrower unless such waiver be in writing and signed by the Agent (with respect
to the Secured Parties’ rights and interest under the Notes or under this
Agreement) or by such Secured Party (with respect to any other
rights).  No delay or omission on the part of the Agent in exercising
any right shall operate as a waiver of such right or any other
right.  All of the Secured Parties’ rights and remedies, whether
evidenced hereby or by any other agreement, instrument or paper, shall be
cumulative and may be exercised singularly or concurrently.  The
provisions hereof shall, as the case may require, bind or inure to the benefit
of, the respective heirs, successors, legal representatives and assigns of the
Borrower, the Agent and the Secured Parties.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    SECTION 11.  Amendments.  This
Agreement may be amended or modified only by a written instrument executed by
each party hereto.

    

    SECTION 12.  Counterparts.  This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original and together shall constitute one and the same
instrument.

    

    IN
WITNESS WHEREOF, the Borrower, the Agent and the other Secured Parties have
caused this Agreement to be duly executed as of the date first above
written.

     

    
      
        
          	ThermoEnergy
      Corporation	 	The
      Quercus Trust
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/
      Cary G. Bullock      	 	By:   	/s/
      David Gelbaum     
	 	 	 	 	 

        

      

       

      
        
          
            	
                    Empire
      Capital Partners, ltd

                    By:
      Empire
      Capital Management, llc,

                    its
      Investment Manager

                  	 	
                    Empire
      Capital Partners, lp

                    By:
      Empire
      gp, llc, its General Partner

                  
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/
      Peter Richards       	 	By:   	/s/
      Peter
    Richards         
	 	 	 	 	 
	 	 	 	 	 

          

        

        
          	
                  Empire
      Capital Partners Enhanced Master Fund, ltd

                  By:
      Empire
      Capital Management, llc,

                  its
      Investment Manager

                	 	
                   

                
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/
      Peter Richards       	 	 	/s/
      Robert S. Trump    
	 	 	 	 	Robert
      S. Trump

        

      

       

      
        
          	Focus Fund, l.p.	 	 
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/
      J. Winder Hughes
      III         	 	 	
                
	 	 	 	 	 

        

      

    

     

    
      
        
        

      

      
        6

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