CONVERTIBLE PROMISSORY NOTE DUE MAY 31, 2010
Exhibit
4.1
THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. NEITHER THIS NOTE NOR SUCH SHARES OF COMMON STOCK MAY BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUING
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
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Issue
Date: _________, 2007
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CONVERTIBLE
PROMISSORY NOTE DUE MAY 31, 2010
FOR
VALUE
RECEIVED, ThermoEnergy Corporation, a Delaware corporation (the “Borrower”),
hereby promise to pay to the order of ______________ (the “Holder”), the sum of
______________Dollars ($___________), on May 31, 2010 (the “Maturity Date”).
This
Note
is one of a series of Notes issued to former stockholders of CASTion
Corporation, a Massachusetts corporation (“CASTion”), pursuant to the terms of
an Agreement for the Purchase and Sale of Securities dated as of July 2, 2007
(the “Purchase Agreement”) among the Borrower, CASTion and certain former
security holders of CASTion, pursuant to which CASTion became a majority-owned
subsidiary of the Borrower, and is subject to the provisions of, and entitled
to
the benefits of, the Purchase Agreement. The Borrower’s obligations under this
Note and the other Notes in such series are secured by the grant to the Holder
and the holders of the other such Notes of a security interest in all of the
issued and outstanding CASTion equity securities held by the Borrower, pursuant
to a Stock Pledge Agreement among the Borrower, the Holder, the holders of
the
other Notes and Xxxxxxx Xxxxx Specialty Group, LLC, as agent for the Holder
and
the holders of such other Notes (the “Pledge Agreement”) and the holder of this
Note is entitled to the benefits of the Pledge Agreement.
Interest
on the outstanding principal balance shall be paid at the rate of six and
one-half percent (6.5%) per annum. If any portion of this Note remains unpaid
on
November 30, 2008, then from and after December 1, 2008 interest on the
outstanding principal balance shall be paid at the rate of ten percent (10%)
per
annum. Further, if within 30 days after a Financing Transaction (as such term
is
defined below), the Borrower has not applied at least 25% of the Excess Proceeds
(as such term is defined below) to payment of accrued interest and principal
on
this Note and the other Notes issued in the series herewith, then from and
after
such thirtieth day and continuing until such time as at least 23.125% of the
Excess Proceeds have been so applied, interest on the outstanding principal
balance shall be paid at the rate of ten percent (10%) per annum.
UPON
MATURITY OF THIS NOTE, WHETHER BY THE TERMS HEREOF OR UPON AN EVENT OF DEFAULT
(AS DEFINED BELOW), INTEREST SHALL ACCRUE ON THE PRINCIPAL BALANCE AND OVERDUE
INTEREST AT EIGHTEEN PERCENT (18%) PER ANNUM UNTIL SUCH PRINCIPAL AND OVERDUE
INTEREST SHALL BE PAID IN FULL.
Interest
on the outstanding principal balance of this Note shall be computed on the
basis
of a 360-day year, using the number of days actually elapsed. Interest shall
be
payable semi-annually on the last day of November and May of each year,
commencing on November 30, 2007. Any scheduled interest payment may, at the
election of the Borrower by written notice to the Holder (a “Deferral Notice”)
no later than five business days after the date on which such interest payment
was due, be deferred until the Maturity Date. The amount of any interest so
deferred shall, effective as of the date on which such interest payment was
originally due, be added to the principal amount of this Note such that interest
shall accrue on such deferred interest from and after the date on which such
interest was originally due.
The
Holder shall have the right at any time and from time to time until the
principal and interest on this Note shall have been paid in full, to convert
the
principal and any interest due under this Note into shares of the Borrower’s
Common Stock, par value $0.001 per share (the “Common Stock”). If the Holder
exercises his right of conversion, the Holder shall give the Borrower a Notice
of Conversion in the form annexed to this Note, setting forth the amount of
principal and interest which the Holder is converting into Common Stock (the
“Conversion Amount”) at the Conversion Price in effect on the date of such
notice. The date of such notice is referred to as the Conversion Date. Upon
delivery to the Borrower of a completed Notice of Conversion, the Borrower
shall
deliver, within five (5) business days after the Conversion Date (such fifth
day
being the “Delivery Date”), irrevocable instructions to the transfer agent for
the Common Stock to issue and delivery to the Holder a certificate for that
number of shares of Common Stock into which the Conversion Amount is being
converted. Except to the extent that the unpaid principal balance of this Note
is being presented for conversion, the Holder shall not be required to present
this Note in order to effect conversion, and the Holder shall maintain a ledger
setting forth each conversion of principal and interest on this Note and such
ledger shall, absent manifest error, be deemed to be binding and conclusive
on
the Borrower.
This
Note
may be prepaid in whole or in part at any time upon not fewer than fifteen
(15)
days’ prior written notice to the Holder (during which 15-day period the Holder
may elect to convert any or all of the principal and any interest due under
this
Note into shares of Common Stock pursuant to the preceding paragraph), without
premium or penalty. In the case of partial prepayments, all amounts shall first
be applied toward accrued and unpaid interest and the balance, if any, shall
be
applied against principal.
In
the
event the Borrower shall, at any time when this Note is outstanding, issue
and
sell shares of Common Stock or Convertible Securities (as such term is defined
below) other than Exempted Securities (as such term is defied below) (a
“Financing Transaction”), then, no later than 30 days after the closing of the
Financing Transaction in which the net proceeds to the Borrower, taken together
with the net proceeds of all prior Financing Transactions, is greater than
$3,000,000, the Borrower shall apply at least 23.125% of the amount by which
the
net proceeds to the Borrower in such Financing Transactions exceed $3,000,000
(the “Excess Proceeds”) to payment of accrued interest and principal on this
Note and the other Notes issued in the series herewith, pro rata in proportion
to the then-outstanding principal amounts of such Notes.
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1.1. Conversion
Price.
The
Conversion Price shall be $0.50 per share of Common Stock, subject to adjustment
as set forth in Section 1.2 of this Note. The number of shares of Common Stock
to be issued upon each conversion of this Note shall be determined by dividing
the Conversion Amount by the Conversion Price in effect on the Conversion
Date.
1.2. Adjustment
to the Conversion Price.
The
Conversion Price and number and kind of shares or other securities to be issued
upon conversion shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding,
as
follows:
1.2.1. Stock
Dividends, Subdivisions and Combinations.
If the
Borrower shall at any time:
(a) declare
or pay to the holders of its Common Stock a dividend payable in, or other
distribution of, shares of Common Stock or in securities convertible into shares
of Common Stock (“Convertible Securities”); or
(b) subdivide
its outstanding shares of Common Stock into a larger number of shares of Common
Stock; or
(c) combine
its outstanding shares of Common Stock into a smaller number of shares of Common
Stock;
then
(i)
the number of shares of Common Stock into which this Note is convertible
immediately after the occurrence of any such event shall be adjusted to equal
the number of shares of Common Stock which a record holder of the same number
of
shares of Common Stock into which this Note is convertible immediately prior
to
the occurrence of such event would own or be entitled to receive after the
occurrence of such event, and (ii) the then-current Conversion Price shall
be
adjusted to equal (A) the then-current Conversion Price multiplied by the number
of shares of Common Stock into which this Note is convertible immediately prior
to the adjustment divided by (B) the number of shares into which this Note
is
convertible immediately after such adjustment.
1.2.2. Certain
Other Distributions.
If at
any time the Borrowers shall declare or pay to the holders of its Common Stock
any dividend or other distribution of:
(a) cash;
(b) any
evidences of its indebtedness, any shares of its stock or any other securities
or property of any nature whatsoever (other than cash, Convertible Securities
or
additional shares of Common Stock); or
(c) any
warrants or other rights to subscribe for or purchase any evidences of its
indebtedness, any shares of its stock or any other securities or property of
any
nature whatsoever (other than cash, Convertible Securities or additional shares
of Common Stock); then,
upon conversion of this Note, the Holder shall be entitled to receive such
dividend or distribution as if the Holder had converted the Conversion Amount
prior to the date of such dividend or distribution. A reclassification of the
Common Stock (other than a change in par value, or from par value to no par
value or from no par value to par value) into shares of Common Stock and shares
of any other class of stock shall be deemed a distribution by the Company to
the
holders of its Common Stock of such shares of such other class of stock within
the meaning of this Section 1.2.1 and, if the outstanding shares of Common
Stock
shall be changed into a larger or smaller number of shares of Common Stock
as a
part of such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 1.2.1.
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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.
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1.2.4 Adjustments
for Diluting Issues.
(a)
Special
Definitions.
For
purposes of this Section 1.2.4, the following definitions shall
apply:
(i)
“Option”
shall
mean rights, options or warrants to subscribe for, purchase or otherwise acquire
Common Stock or Convertible Securities.
(ii)
“Original
Issue Date”
shall
mean the date on which the first Note was issued.
(iii)
“Convertible
Securities”
shall
mean any evidences of indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common Stock, but excluding
Options.
(iv)
“Additional
Shares of Common Stock”
shall
mean all shares of Common Stock issued (or, pursuant to Subsection 1.2.4(c)
below, deemed to be issued) by the Borrower after the Original Issue Date,
other
than the following (“Exempted Securities”):
(A)
shares of Common Stock issued upon conversion of a Note;
(B) shares
of
Common Stock issued or issuable by reason of a dividend, stock split, split-up
or other distribution on shares of Common Stock that is covered by Subsection
1.2.1 or 1.2.2 above; or
(C)
shares of Common Stock issued or deemed issued to employees or directors of,
or
consultants to, the Borrower or any of its subsidiaries pursuant to a plan,
agreement or arrangement approved by the stockholders of the
Borrower.
(b)
No
Adjustment of Conversion Price.
No
adjustment in the Conversion Price shall be made as the result of the issuance
of Additional Shares of Common Stock if: (a) the consideration per share
(determined pursuant to Subsection 1.2.4(e)) for such Additional Share of
Common Stock issued or deemed to be issued by the Borrower is equal to or
greater than the applicable Conversion Price in effect immediately prior to
the
issuance or deemed issuance of such Additional Shares of Common Stock, or
(b) prior to such issuance or deemed issuance, the Borrower receives
written notice from the holders of at least 75% in principal amount of the
then
outstanding Notes agreeing that no such adjustment shall be made as the result
of the issuance or deemed issuance of such Additional Shares of Common
Stock.
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(c)
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Deemed
Issue of Additional Shares of Common Stock.
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(i) If
the
Borrower at any time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities (excluding Options or Convertible
Securities which, upon exercise, conversion or exchange thereof, would entitle
the holder thereof to receive Exempted Securities) or shall fix a record date
for the determination of holders of any class of securities entitled to receive
any such Options or Convertible Securities, then the maximum number of shares
of
Common Stock (as set forth in the instrument relating thereto, assuming the
satisfaction of any conditions to exercisability, convertibility or
exchangeability but without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or, in case such
a
record date shall have been fixed, as of the close of business on such record
date.
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(ii)
If
the terms of any Option or Convertible Security, the issuance of which resulted
in an adjustment to the Conversion Price pursuant to the terms of Subsection
1.2.4(d) below, are revised (either automatically pursuant to the provisions
contained therein or as a result of an amendment to such terms) to provide
for
either (1) any increase or decrease in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange of any such Option or
Convertible Security or (2) any increase or decrease in the consideration
payable to the Borrower upon such exercise, conversion or exchange, then,
effective upon such increase or decrease becoming effective, the Conversion
Price computed upon the original issue of such Option or Convertible Security
(or upon the occurrence of a record date with respect thereto) shall be
readjusted to such Conversion Price as would have obtained had such revised
terms been in effect upon the original date of issuance of such Option or
Convertible Security. Notwithstanding the foregoing, no adjustment pursuant
to
this clause (ii) shall have the effect of increasing the Conversion Price
to an amount which exceeds the lower of (i) the Conversion Price on the
original adjustment date, or (ii) the Conversion Price that would have
resulted from any issuances of Additional Shares of Common Stock between the
original adjustment date and such readjustment date.
(iii)
If
the terms of any Option or Convertible Security (excluding Options or
Convertible Securities which, upon exercise, conversion or exchange thereof,
would entitle the holder thereof to receive Exempted Securities), the issuance
of which did not result in an adjustment to the Conversion Price pursuant to
the
terms of Subsection 1.2.4(d) below (either because the consideration per share
(determined pursuant to Subsection 1.2.4(e) hereof) of the Additional
Shares of Common Stock subject thereto was equal to or greater than the
Conversion Price then in effect, or because such Option or Convertible Security
was issued before the Original Issue Date), are revised after the Original
Issue
Date (either automatically pursuant to the provisions contained therein or
as a
result of an amendment to such terms) to provide for either (1) any increase
or
decrease in the number of shares of Common Stock issuable upon the exercise,
conversion or exchange of any such Option or Convertible Security or (2) any
increase or decrease in the consideration payable to the Borrower upon such
exercise, conversion or exchange, then such Option or Convertible Security,
as
so amended, and the Additional Shares of Common Stock subject thereto shall
be
deemed to have been issued effective upon such increase or decrease becoming
effective.
(iv)
Upon
the expiration or termination of any unexercised Option or unconverted or
unexchanged Convertible Security which resulted (either upon its original
issuance or upon a revision of its terms) in an adjustment to the Conversion
Price pursuant to the terms of Subsection 1.2.4(d) below, the Conversion Price
shall be readjusted to such Conversion Price as would have obtained had such
Option or Convertible Security never been issued.
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(v)
No
adjustment in the Conversion Price shall be made upon the issue of shares of
Common Stock or Convertible Securities upon the exercise of Options or the
issue
of shares of Common Stock upon the conversion or exchange of Convertible
Securities.
(d)
Adjustment
of Conversion Price Upon Issuance of Additional Shares of Common
Stock.
In the
event the Borrower shall at any time after the Original Issue Date issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Subsection 1.2.4(c)), without consideration
or for a consideration per share less than the applicable Conversion Price
in
effect immediately prior to such issue, then the Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
one-hundredth of a cent) determined in accordance with the following
formula:
(P1)*(Q1)
+ (P2)*(Q2)
Q1
+
Q2
For
purposes of the foregoing formula, the following definitions shall apply:
(i)
“P1”
shall mean the Conversion Price in effect immediately prior to such issue of
Additional Shares of Common Stock;
(ii)
“Q1”
shall mean the number of shares of Common Stock outstanding immediately prior
to
such issue of Additional Shares of Common Stock (treating for this purpose
as
outstanding all shares of Common Stock issuable upon exercise of Options
outstanding or reserved for issuance pursuant to stock plans for the benefit
of
employees or directors of, or consultants to, the Borrower immediately prior
to
such issue or upon conversion of Convertible Securities (including the Notes)
outstanding immediately prior to such issue);
(iii)
“P2” shall mean the price per share of Common Stock received by the Borrower
with respect to the issue of such Additional Shares of Common Stock (determined
by dividing the aggregate consideration received by the Borrower in respect
of
such issue by the aggregate number of Additional Shares of Common Stock issued);
and
(iv)
“Q2”
shall mean the number of such Additional Shares of Common Stock issued in such
transaction.
(e)
Determination
of Consideration.
For
purposes of this Section 1.2.4, the consideration received by the Borrower
for the issue of any Additional Shares of Common Stock shall be computed as
follows:
(i)
Cash
and Property:
Such
consideration shall:
(A)
insofar as it consists of cash, be computed at the aggregate amount of cash
received by the Borrower, excluding amounts paid or payable for accrued
interest;
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(B)
insofar as it consists of property other than cash, be computed at the fair
market value thereof at the time of such issue, as determined in good faith
by
the Board of Directors of the Borrower; and
(C)
in
the event Additional Shares of Common Stock are issued together with other
shares or securities or other assets of the Borrower for consideration which
covers both, be the proportion of such consideration so received, computed
as
provided in clauses (A) and (B) above, as determined in good faith by the
Board of Directors of the Borrower.
(ii)
Options
and Convertible Securities.
The
consideration per share received by the Borrower for Additional Shares of Common
Stock deemed to have been issued pursuant to Subsection 1.2.4(c) shall be
determined by dividing (x) the total amount, if any, received or receivable
by
the Borrower as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable
to
the Borrower upon the exercise of such Options or the conversion or exchange
of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by (y) the maximum number
of shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment
of
such number) issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(f)
Multiple
Closing Dates.
In the
event the Borrower shall issue on more than one date Additional Shares of Common
Stock that are a part of one transaction or a series of related transactions
and
that would result in an adjustment to the Conversion Price pursuant to the
terms
of subsection 1.2.4(d) above, then, upon the final such issuance, the Conversion
Price shall be readjusted to give effect to all such issuances as if they
occurred on the date of the first such issuance (and without additional giving
effect to any adjustments as a result of such subsequent issuances within such
period).
(g)
Challenge
to Good Faith Determination.
Whenever the Board of Directors of the Company shall be required to make a
determination in good faith of the fair value of any item under this Section
1.2, such determination may be challenged in good faith by the Holder, and
any
dispute shall be resolved by an investment banking firm of recognized national
standing selected by the Company and acceptable to the Holder. The fees and
expenses of such investment banking firm shall be paid by the
Company.
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1.3. Notice
of Adjustment.
Whenever the Conversion Price is adjusted pursuant to Section 1.2 of this Note,
the Borrower shall promptly mail to the Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a statement of the
facts requiring such adjustment.
1.4. Mechanics
of Conversion.
1.4.1. Delivery
of Certificate Upon Conversion.
Except
as otherwise set forth herein, not later than the Delivery Date, the Borrower
shall deliver to the Holder (a) a certificate or certificates representing
the
number of shares of Common Stock being acquired upon the conversion of the
Note
(which certificate or certificates shall bear a legend indicating that such
shares have been issued in reliance on an exemption from the registration
requirements of the Securities Act of 1933 (the “Securities Act” and may not be
sold, transferred or otherwise disposed of except pursuant to an effective
registration statement under the Securities Act or in reliance on an exemption
to the registration requirements of the Securities Act), and (b) a bank check
in
the amount of accrued and unpaid interest on the portion of the Note being
converted unless the Holder converts such interest into Common Stock. If in
the
case of any Notice of Conversion such certificate or certificates are not
delivered to or as directed by the applicable Holder by the Delivery Date,
the
Holder shall be entitled to elect by written notice to the Borrower at any
time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the conversion shall be deemed void
ab
initio.
1.4.2. Obligation
Absolute.
The
Borrower’s obligations to issue and deliver the Common Stock upon conversion of
this Note in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Borrower
or
any violation or alleged violation of law by the Holder or any other Person,
and
irrespective of any other circumstance which might otherwise limit such
obligation of the Borrower to the Holder in connection with the issuance of
such
shares. In the event the Holder shall elect to convert any or all of this Note,
The Borrower may not refuse conversion based on any claim that such Holder
or
any one associated or affiliated with the Holder of has been engaged in any
violation of law, agreement or for any other reason unless an injunction from
a
court, on notice, restraining and or enjoining conversion of all or part of
this
Note shall have been sought and obtained. In the absence of an injunction
precluding the same, the Borrower shall issue the Common Stock or, if
applicable, cash, upon a properly noticed conversion.
1.4.3. Fractional
Shares.
Upon a
conversion hereunder, the Borrower shall not be required to issue stock
certificates representing fractions of shares of the Common Stock. All
fractional shares shall be carried forward and any fractional shares which
remain after a Holder converts all of this Note shall be rounded up to the
next
whole number of shares.
1.4.4. Transfer
Taxes.
The
issuance of certificates for shares of the Common Stock on conversion of this
Note shall be made without charge to the Holder thereof for any documentary
stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificate, provided that the Borrower shall not be required to pay
any
tax that may be payable in respect of any transfer involved in the issuance
and
delivery of any such certificate upon conversion in a name other than that
of
the Holder of this Note and the Borrower shall not be required to issue or
deliver such certificates unless or until the person or persons requesting
the
issuance thereof shall have paid to the Borrower the amount of such tax or
shall
have established to the satisfaction of the Borrower that such tax has been
paid.
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Section
2. Events
of Default.
2.1. The
entire unpaid principal amount of this Note, together with interest thereon
shall, on written notice from the Holder, forthwith become and be due and
payable if any one or more Events of Default shall have occurred (for any reason
whatsoever and whether such happening shall be voluntary or involuntary or
be
affected or come about by operation of law pursuant to or in compliance with
any
judgment, decree or order of any court or any order, rule or regulation of
any
administrative or governmental body) and be continuing.
2.2. The
occurrence of any one or more of the following events or conditions shall
constitute an “Event
of Default”
under
this Agreement:
2.2.1. Borrower’s
failure to make any payment of principal or interest or any other sums within
five (5) days of the date when due on this Note, unless the Borrower timely
gives a Deferral Notice and pays the required Deferral Fee with respect to
such
payment; or
2.2.2. Any
representation or warranty or other statement made or furnished to the Holder
by
or on behalf of the Borrower in the Purchase Agreement or in any document or
instrument furnished in connection with the Purchase Agreement (including the
Pledge Agreement) proves to have been false or misleading in any material
respect when made or furnished; or
2.2.3. Breach
of
or failure in the due observance or performance in any material respect of
any
covenant, condition or agreement on the part of the Borrower to be observed
or
performed pursuant to this Note or any other agreement between the Borrower
and
the Holder (including the Purchase Agreement and the Pledge Agreement) and
the
failure to cure (if curable) any such breach or failure within ten (10) days
after receipt of written notice thereof from the Holder; or
2.2.4. Merger
of
CASTion with or into any other entity (including without limitation the
Borrower), or the Borrower’s failure to maintain the separate corporate
existence of CASTion; or
2.2.5. Any
transfer, by operation of law or otherwise, of any equity interests of or in
CASTion, or any issuance of any equity interests of or in CASTion, to any person
or entity other than a wholly-owned subsidiary of the Borrower; or the sale
or
other transfer by CASTion of any substantial portion of its assets other than
inventory sold in the ordinary course of business; or the granting by CASTion
of
any pledge of, security interest or mortgage on any of its assets other than
a
lien
securing up to $2,000,000 of indebtedness owed by the Borrower to One Banc
&
Trust, N.A. (or with respect to any replacement debt facility of not more than
$2,000,000);
or
-10-
2.2.6. Borrower’s
failure to make any payment of principal or interest or any other sums, when
due, on or with respect to any other indebtedness of the Borrower, irrespective
of whether such failure results in any acceleration of such indebtedness;
or
2.2.7. If
the
Borrower shall (a) apply for or consent to the appointment of a receiver,
trustee or liquidator of all or a substantial part of any of its assets; (b)
be
unable, or admit in writing its inability, to pay its debts as they mature;
(c)
file or permit the filing of any petition, case arrangement, reorganization,
or
the like under any insolvency or bankruptcy law, or the adjudication of it
as a
bankrupt, or the making of an assignment for the benefit of creditors or the
consenting to any form or arrangement for the satisfaction, settlement or delay
of debt or the appointment of a receiver for all or any part of its properties;
or (d) any action shall be taken by the Borrower for the purpose of effecting
any of the foregoing; or
2.2.8. An
order,
judgment or decree shall be entered, or a case shall be commenced, against
the
Borrower, without its application, approval or consent by any court of competent
jurisdiction, approving a petition or permitting the commencement of a case
seeking reorganization or liquidation of the Borrower or appointing a receiver,
trustee or liquidator of the Borrower, or of all or a substantial part of the
assets of the Borrower, and the Borrower, by any act, indicate its approval
thereof, consent thereto, or acquiescence therein, or such order, judgment,
decree or case shall continue unstayed and in effect for any period of 90
consecutive days or an order for relief in connection therewith shall be
entered; or
2.2.9. If
the
Borrower shall dissolve or liquidate, or be dissolved or liquidated, or cease
to
legally exist, or merge or consolidate, or be merged or consolidated with or
into any other corporation; or
2.2.10. Violation
of any agreement or contract between Borrower and Holder or other lenders of
Borrower and such violation shall remain unremedied for fifteen (15) days after
notice thereof shall have been given to the Borrower.
Section
3. Miscellaneous
3.1. Usury
Saving Provision.
All
payment obligations arising under this Note are subject to the express condition
that at no time shall the Borrower be obligated or required to pay interest
at a
rate which could subject the Holder to either civil or criminal liability as
a
result of being in excess of the maximum rate which the Borrower is permitted
by
law to contract or agree to pay. If by the terms of this Note, the Borrower
is
at any time required or obligated to pay interest at a rate in excess of such
maximum rate, the applicable rate of interest shall be deemed to be immediately
reduced to such maximum rate, and interest thus payable shall be computed at
such maximum rate, and the portion of all prior interest payments in excess
of
such maximum rate shall be applied and shall be deemed to have been payments
in
reduction of principal.
3.2. Failure
or Indulgence Not Waiver.
No
failure or delay on the part of the Holder hereof in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing hereunder are cumulative to, and not exclusive
of,
any rights or remedies otherwise available.
-11-
3.3. Governing
Law.
This
Agreement and the rights of the parties shall be construed and enforced in
accordance with the laws of the
State
of Delaware applicable to agreements executed and to be performed wholly within
such state and without regard to
principles of conflicts of law. In
any
action that may be brought pursuant to this Agreement to the extent permitted
by
applicable law, each party waives personal service of any summons, complaint
or
other process, and agrees that the service thereof may be made either (i) in
the
manner for giving of notices provided in Section 3.5 of this Note (other than
by
telecopier) or (ii) in any other manner permitted by law.
3.4. Waiver
of Right to Trial by Jury.
BORROWER
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL
BY
JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS NOTE AND WAIVE ANY RIGHT TO BRING A COUNTERCLAIM AGAINST
THE HOLDER IN ANY ACTION TO ENFORCE THIS NOTE. THIS WAIVER CONSTITUTES A
MATERIAL INDUCEMENT FOR HOLDER TO ACCEPT THIS NOTE.
3.5. Notice.
All
notices, requests or other communications required or permitted to be given
under this Agreement to any party shall be in writing and shall be deemed to
have been sufficiently given when delivered by personal service or sent by
registered mail, overnight
courier services with provided evidence of delivery or attempted
delivery,
or
facsimile, to the Borrower at 000 Xxxx Xxxxxxx Xxxxxx, Xxxxx 000, Xxxxxx Xxxx,
Xxxxxxxx 00000 (fax: 000-000-0000) or to the Holder at the address of the Holder
as shown on the records of the Borrower.
Either
party may, by like notice, change the address or telecopy number or the person
to whom notice is to be given.
Notice
shall be deemed given when received or when attempted delivery is made (based
on
evidence of attempted delivery by the United States Postal Service or an
overnight courier or a messenger service), provided that notice by telecopier
shall be deemed given when receipt is acknowledged by the
recipient.
3.6. Amendment.
This
Note may be amended, and enforcement of any provision of this Note may be waived
or delayed by the written agreement of the Borrower and of the holders of at
least 75% in principal amount of the then outstanding Notes, so long as all
of
the then-outstanding Notes are simultaneously amended (or the enforcement of
rights thereunder waived or delayed) in an identical fashion; provided, however,
that the principal amount of this Note may not be reduced, except by payment
or
conversion, without the express written consent of the Holder. The term “Note”
and all reference thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then
as
so amended or supplemented..
3.7. Assignability.
This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of the Holder and its successors and assigns. The
Borrower may not assign any of its obligations under this Note without the
consent of the Holder.
-12-
3.8. Cost
of Collection.
If
default is made in the payment of this Note, the Borrower shall pay the Holder
hereof reasonable costs of collection, including reasonable attorneys’ fees,
regardless of whether the Holder commenced litigation in order to enforce its
rights under this Note.
3.9. Stockholder
Status.
The
Holder shall not have rights as a stockholder of the Borrower with respect
to
unconverted portions of this Note. However, from and after the Conversion Date,
the Holder will have all the rights of a shareholder of the Borrower with
respect to the shares of Common Stock to be received by Holder after delivery
by
the Holder of a Conversion Notice to the Borrower regardless of whether physical
certificates shall have been delivered.
IN
WITNESS WHEREOF, the
parties have caused this Agreement to be duly executed and delivered by the
proper and duly authorized officers as of the date and year first above
written.
|
THERMOENERGY
CORPORATION
|
||
| |
|
|
| By: | ||
|
Xxxxxx
X. Xxxxxx
Executive
Vice President and CFO
|
||
-13-
NOTICE
OF CONVERSION
(To
be
executed by the Holder in order to convert the Note)
The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by ThermoEnergy Corporation on June
___,
2007 into shares of Common Stock of ThermoEnergy Corporation according to the
conditions set forth in such Note, as of the date written below.
Date
of
Conversion:__________________________________
Conversion
Price:____________________________________
Number
of
Shares To Be Delivered:_______________________________
Signature:________________________________________
Print
Name and
Title:____________________________________________________________
Address:_____________________________________________________________________
____________________________________________________________________________
