ThermoEnergy amends convertible promissory notes due Feb. 28, 2011

Deal extends maturity by one year, provides for automatic conversion

By Devika Patel

Knoxville, Tenn., March 3 - ThermoEnergy Corp. amended the terms of its secured convertible promissory notes due Feb. 28, 2011 on Feb. 25, according to an 8-K filed Thursday with the Securities and Exchange Commission.

Under the agreement with investors, the notes' due date has been extended to Feb. 29, 2012. Investors also agreed to terms for the automatic conversion of the debt to equity if the daily average trading volume of its stock exceeds 30,000 shares for 20 consecutive trading days or if the company repays some promissory notes that were issued to a different group of investors.

The notes have a 10% coupon and are convertible into series B convertible preferred shares at $2.40 per preferred.

When notes are converted, the converting holder will receive a five-year warrant for a number of shares of common stock equal to 200% of the amount of principal and interest converted divided by $0.30. The exercise price is $0.30 per share.

The noteholders include Quercus Trust, Robert S. Trump, Focus Fund LP, Empire Capital Partners, LP, Empire Capital Partners, Ltd. and Empire Capital Partners Enhanced Master Fund, Ltd.

"We are pleased to have reached another major milestone in improving our balance sheet," chief executive officer Cary Bullock said in a press release. "This debt restructuring, coupled with our debt restructuring completed in January, moves us a big step closer to resolving our capital structure issues and makes the company more attractive for the future acquisition of capital. Both restructurings include provisions for automatic conversion of the debt to equity."

The January restructuring related to the company's convertible promissory notes due May 31, 2010. Under that agreement:

• The company paid $1.14 million against the outstanding balance of the old notes;

• The noteholders converted $902,709.60 of principal and interest into shares of the company's series B convertible preferreds;

• ThermoEnergy issued to the noteholders five-year warrants for the purchase of 17,585,127 shares of common stock at an exercise price of $0.40 per share and for 6,018,065 shares at an exercise price of $0.30 per share;

• The notes were restated to extend the maturity date to Feb. 29, 2012;

• The company made $37,913.81 of additional cash payments to the noteholders; and

• The noteholders agreed, subject to some conditions, to forbear until Feb. 29, 2012 from exercising their rights and remedies under the restated notes.

Based in Little Rock, Ark., ThermoEnergy designs renewable energy and power-generation facilities using technologies that convert municipal and industrial wastewater into biofuel.

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