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.
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.
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(d)
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Definitions. For purposes of this
Section 1.2, the following definitions shall apply:
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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.
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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.
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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.
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Project Debt — with respect to
a specific Project, that portion of the proceeds of this Note used
to fund such Project.
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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.
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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.
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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.
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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.
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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.
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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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