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CONVERTIBLE TERM NOTE

Convertible Promissory Note

CONVERTIBLE TERM NOTE | Document Parties: LIME ENERGY CO. | LAURUS MASTER FUND, LTD |  ELECTRIC CITY CORP You are currently viewing:
This Convertible Promissory Note involves

LIME ENERGY CO. | LAURUS MASTER FUND, LTD | ELECTRIC CITY CORP

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Title: CONVERTIBLE TERM NOTE
Governing Law: New York     Date: 2/9/2006
Industry: Furniture and Fixtures     Sector: Consumer Cyclical

CONVERTIBLE TERM NOTE, Parties: lime energy co. , laurus master fund  ltd ,  electric city corp
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Exhibit 10.2

THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ELECTRIC CITY CORP. THAT SUCH REGISTRATION IS NOT REQUIRED.

CONVERTIBLE TERM NOTE

     FOR VALUE RECEIVED, ELECTRIC CITY CORP., a Delaware corporation (the “ Borrower ”), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the “ Holder ”) or its registered assigns or successors in interest, the sum of FIVE MILLION DOLLARS ($5,000,000), together with any accrued and unpaid interest hereon, on November 22, 2009 (the “Maturity Date” ) if not sooner paid.

     Capitalized terms used herein without definition shall have the meanings ascribed to such terms in that certain Securities Purchase Agreement dated as of the date hereof between the Borrower and the Holder (the “ Purchase Agreement ”).

The following terms shall apply to this Note:

ARTICLE I
INTEREST & AMORTIZATION

     1.1 Interest Rate and Payments . Subject to Sections 4.9 and 5.6 hereof, interest payable on this Note shall accrue at a rate per annum (the “Contract Rate” ) equal to the “prime rate” published in The Wall Street Journal from time to time, plus two percent (2.00%). Interest shall be payable monthly in arrears commencing on December 1, 2005 and on the first day of each consecutive calendar month thereafter (each, a “ Repayment Date ”), and on the Maturity Date,

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accelerated or otherwise. The prime rate shall be increased or decreased as the case may be for each increase or decrease in the prime rate in an amount equal to such increase or decrease in the prime rate; each change to be effective as of the day of the change in such rate. In no event shall the Contract Rate be less than six percent (6.75%). The Contract Rate shall be calculated on the last business day of each calendar month hereafter (other than for increases or decreases in the Prime Rate which shall be calculated and become effective in accordance with the terms of Section 1.1) until the Maturity Date (each a “ Determination Date ”) and shall be subject to adjustment as set forth herein. If (i) the Company shall have registered the shares of the Common Stock underlying the conversion of this Note and each Warrant on a registration statement declared effective by the Securities and Exchange Commission (the “ SEC ”), and (ii) the market price (the “ Market Price ”) of the Common Stock as reported by Bloomberg, L.P. on the Principal Market for the five (5) trading days immediately preceding a Determination Date exceeds the then applicable Fixed Conversion Price by at least twenty-five percent (25%), the Contract Rate for the succeeding calendar month shall automatically be reduced by 200 basis points (200 b.p.) (2%) for each incremental twenty-five percent (25%) increase in the Market Price of the Common Stock above the then applicable Fixed Conversion Price. Notwithstanding the foregoing (and anything to the contrary contained herein), in no event shall the Contract Rate at any time be less than zero percent (0%).

     1.2 Contingent Interest. Additional interest shall be payable quarterly hereunder on the last day of each April, July, October and January, as follows:

      (a) Performance Interest. So long as any portion of the Note remains outstanding the Company shall pay to the Holder an amount equal to the lesser (but not less than zero) of (i) two-thirds (2/3) of the Project Cash Flow generated by all Projects for the most recently ended calendar quarter, and (ii) the Target Return for such calendar quarter.

      (b) Bonus Interest. So long as any portion of the Note remains outstanding the Company shall pay to the Holder an amount equal to one-third (1/3) of Excess Cash Flow for such calendar quarter.

     (c)  Post Repayment and Conversion Performance Interest. For twenty (20) quarters immediately following irrevocable payment in full of the Note, including all accrued and unpaid interest and fees thereon (whether through scheduled amortization and/or conversion, or otherwise), the Company will pay the Holder as additional interest: (i) 50% of the Project Cash Flow generated by all Projects each quarter for four consecutive quarters commencing in the quarter immediately following retirement of the Note (the “First Post Retirement Period”); (ii) 40% of the Project Cash Flow generated by all Projects each quarter for four consecutive quarters commencing in the quarter immediately following the First Post Retirement Period (the “Second Post Retirement Period”); (iii)

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30% of the Project Cash Flow generated by all Projects each quarter for four consecutive quarters commencing in the quarter immediately following the Second Post Retirement Period (the “Third Post Retirement Period”); (iv) 20% of the Project Cash Flow generated by all Projects each quarter for four consecutive quarters commencing in the quarter immediately following the Third Post Retirement Period (the “Fourth Post Retirement Period”); (v)10% of the Project Cash Flow generated by all Projects each quarter for four consecutive quarters commencing in the quarter immediately following the Fourth Post Retirement Period. Notwithstanding any provision contained herein, in the Purchase Agreement or any Related Agreement to the contrary, (i) the Company’s obligations under this Section 1.2 shall (a) constitute separate independent obligations of the Company that shall survive until indefeasibly paid to the Holder in full notwithstanding the prior payment in full of the outstanding Principal Amount and interest thereon in accordance with the terms hereof and (b) at all times constitute Obligations under and as defined in the Master Security Agreement which shall be secured until indefeasibly paid in full by the Collateral (as defined in the Master Security Agreement), and (ii) neither this Note nor the Master Security Agreement shall be deemed satisfied or terminated, as applicable, unless and until all obligations of the Company to the Holder under this Section 1.2 shall have been indefeasibly paid in full. Upon the irrevocable payment in full of the Obligations (as defined in the Master Security Agreement), other than Obligations arising in connection with the payment of Post Retirement Performance and Bonus Interest, the Holder acknowledges that it may be desireable for the Holder to restructure its secured interests in the Collateral granted by Company to Holder under the Master Security Agreement. Should the Holder determine, in its sole discretion, that adequate provision for the payment of its Post Retirement Performance and Bonus Interest have been made, it will cooperate with the Company to make commercially reasonable provision to restructure its secured interests to allow the Company to acquire additional financing.

 

(d)

 

Definitions. For purposes of this Section 1.2, the following definitions shall apply:

 

 

 

 

 

 

 

Base Interest — determined for any calendar quarter for a Project, an amount equal to interest at the Contract Rate on the principal amount of Note proceeds which were used to finance such Project.

 

 

 

 

 

 

 

Excess Cash Flow — determined for any calendar quarter, the greater of (i) the Project Cash Flow for all Projects for such quarter less all Performance Interest for such quarter, and (ii) zero.

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Project — an individual ‘VNPP program (including the ComEd VNPP and PacifiCorp VNPP) or customer specific Shared Savings Arrangement financed in whole or in part with proceeds from this Note.

 

 

 

 

 

 

 

Project Cash Flow — the cash flow generated by a Project, which, for any calendar quarter, shall be equal to the total revenue of such Project for such quarter less the aggregate of the following for such Project for such quarter: (i) Project Operating Costs, (ii) Project Maintenance Costs and (iii) Project Debt Service Costs.

 

 

 

 

 

 

 

Project Debt — with respect to a specific Project, that portion of the proceeds of this Note used to fund such Project.

 

 

 

 

 

 

 

Project Debt Service Costs — for any calendar quarter with respect to a specific Project, the Base Interest expense for such quarter, scheduled principal payments for the related Project Debt for such quarter and all fees for the related Project Debt for such quarter.

 

 

 

 

 

 

 

Project Maintenance Costs — for any Project for any calendar quarter, the sum of all direct costs of maintaining such Project, including the cost of repairing, servicing and/or replacing Project equipment including the cost of preventative maintenance and the cost of removing equipment from a customer’s location if necessary.

 

 

 

 

 

 

 

Project Operating Costs — for any Project for any calendar quarter, the sum of all direct costs of operating such Project, including the costs of communications, customer billing and collections, computer networking support and other expenses directly attributable to the operation of such Project, excluding the Company’s cost of sales and marketing which includes the cost of enrolling customer hosts for such Project.

 

 

 

 

 

 

 

Shared Savings Arrangement — a written arrangement between the Company (or a subsidiary of the Company) and a third party under which the third party agrees to pay the Company (or such subsidiary) periodic payments at a rate determined based upon the savings on electric power costs experienced by such third party pursuant to the operation of equipment provided by the Company or such subsidiary.

 

 

 

 

 

 

 

Target Return — determined for the most recent calendar quarter ended as of any date of determination, an amount equal to [$5,000,000] [average daily outstanding total Project Debt during such quarter] multiplied by 0.05, less (ii) Base Interest and fees for all Projects for such quarter.

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VNPP — a ‘virtual negawatt power project’ established by the Company pursuant to a written agreement with a public utility under which the utility agrees to pay the Company periodic payments at a rate determined based upon the demand capability reduction which the Company has installed in the utility’s service area and dedicated to providing such demand reduction capability to the utility.

     1.3 Monthly Principal Payments . Although Borrower shall make payments of accrued and unpaid interest under this Note beginning on December 1, 2005 , amortization of the aggregate principal amount outstanding under this Note (the “ Principal Amount ”) shall begin on June 1, 2006 (the “ Amortization Date ”). Subject to Section 2.1 below with respect to cash payments made on any Repayment Date, beginning on the Amortization Date, the Borrower shall make monthly payments to the Holder on each Repayment Date, each in the amount of $43,759.64, together with any accrued and unpaid interest to date on such portion of the Principal Amount plus any and all other amounts which are then owing under this Note but have not been paid (collectively, the “ Monthly Amount ”).

ARTICLE II
BORROWER PAYMENT OPTIONS

     2.1 Forced Conversions (a) Subject to the terms hereof, the Borrower shall have the sole option to determine whether to satisfy payment of the Monthly Amount on each Repayment Date either in cash or in shares of Common Stock (as defined in the Purchase Agreement), or a combination of both. Each month by the tenth (10 th ) day of such month, the Borrower shall deliver to the Holder a written irrevocable notice in the form of Exhibit B attached hereto electing to pay the Monthly Amount payable on the next Repayment Date in either cash or Common Stock, or a combination of both (each, a “ Repayment Election Notice ”). Each Repayment Election Notice shall be delivered to the Holder not later than the tenth (10 th ) day of the month prior to the applicable Repayment Date (the date by which such notice is required to be given being hereinafter referred to as the “ Notice Date ”). If, for the Monthly Amount due on any Repayment Date, a Repayment Election Notice is not delivered to the Holder by the applicable Notice Date for such Repayment Date, then the Monthly Amount due on such Repayment Date shall be paid in cash. If the Borrower elects or is required to repay all or a portion of the Principal Amount in cash on a Repayment Date, then on such Repayment Date the Borrower shall pay to the Holder an amount equal to 102% of the Principal Amount then due in satisfaction of such obligation. If the Borrower pays all or a portion of the Monthly Amount in shares of Common Stock, the number of such shares to be issued for such Repayment Date shall be the number determined by dividing (x) the portion of the Monthly Amount to be paid in shares of Common Stock, by (y) the Fixed Conversion Price. For purposes hereof, the “ Fixed Conversion Price ” means $1.16.

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     In the event that the average closing price of the Common Stock on the Principal Market is greater than 200% of the Fixed Conversion Price for a period of at least ten (10) consecutive trading days following payment in full of any then due and payable Monthly Amount, then the Borrower may, at its sole option, provide the Holder written notice (a “ Call Notice ”) requiring the conversion at the Fixed Conversion Price of all or a portion of the outstanding principal of this Note (subject to compliance with Section 3.2 if payment is less than all of the principal and interest then due), together with accrued interest on the amount being prepaid, as of the date set forth in such Call Notice (the “ Call Date ”). The Call Date shall be at least eleven (11) trading days following the date of the Call Notice. Provided that on the Call Date there has been filed with the Securities and Exchange Commission and declared effective a current registration statement covering the shares of Common Stock which are to be issued pursuant to the Call Notice, then on the Call Date the Borrower shall deliver to the Holder the shares of Common Stock issued in satisfaction of the principal and interest being retired. Notwithstanding the foregoing, the Borrower’s right to issue shares of Common Stock in payment of obligations under this Note shall be subject to the limitation that the number of shares of Common Stock issued in connection with any Call Notice shall not exceed 25% of the aggregate dollar trading volume of the Common Stock for the twenty two (22) trading days immediately preceding the Call Date (as such volume is reported by Bloomberg L.P.). If the price of the Common Stock falls below 200% of the Fixed Conversion Price during the twenty two (22) trading day period immediately preceding the Call Date, then the Holder will then be required to convert only such amount of the Note as shall equal twenty five percent (25%) of the aggregate dollar trading volume (as such volume is reported by Bloomberg L.P.) for each day that the Common Stock has exceeded 200% of the then applicable Fixed Conversion Price.

     The Borrower shall not be permitted to give the Holder more than one Call Notice under this Note during any 22-day period.

     Any principal amount of this Note which is prepaid pursuant to this Section 2.4 shall be deemed to constitute payments of outstanding principal applying to Monthly Amounts for the remaining Repayment Dates in chronological order.

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     2.2 No Effective Registration . Notwithstanding anything to the contrary herein, the Borrower shall be prohibited from exercising its right to repay any part of any Monthly Amount in shares of Common Stock (and must deliver cash in respect thereof) on any applicable Repayment Date if at any time from the Noti


 
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