Exhibit 10.3
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 AND SUCH COMMON SHARES 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.
SECURED CONVERTIBLE
MINIMUM BORROWING NOTE
FOR
VALUE RECEIVED, ELECTRIC CITY CORP., a Delaware corporation (the
“ Company ”), promises to pay to LAURUS MASTER
FUND, LTD., c/o M&C Corporate Services Limited, P.O. Box 309
GT, Ugland House, South Church Street, George Town, Grand Cayman,
Cayman Islands, Fax: 345-949-8080 (the “ Holder
”) or its registered assigns or successors in interest, on
order, the sum of Two Million Dollars ($2,000,000), or, if
different, the aggregate principal amount of all Loans (as defined
in the Security Agreement referred to below), together with any
accrued and unpaid interest hereon, on September 1, 2006 (the
“ Maturity Date ”) if not sooner paid.
Capitalized
terms used herein without definition shall have the meanings
ascribed to such terms in the Security Agreement among the Company
and the Holder dated as of September 11, 2003 (as amended,
modified and supplemented from time to time, the “
Security Agreement ”).
The
following terms shall apply to this Minimum Borrowing Note (the
“ Note ”):
ARTICLE I
CONTRACT RATE
1.1
Contract Rate . Subject to Sections 4.2 and 5.10,
interest payable on the outstanding principal amount of this Note
(the “ Principal Amount ”) shall accrue at a
rate per annum equal to the “prime rate” published in
The Wall Street Journal from time to time (the “
Prime Rate ”), plus one and three quarters percent
(1.75%) (the “ Contract Rate ”). The Contract
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 the Prime Rate. Interest shall be
(i) calculated on the basis of a 360 day year, and
(ii) payable monthly, in arrears, commencing on March 1,
2005 and on the first business day of each consecutive calendar
month thereafter until the Maturity Date (and on the Maturity
Date), whether by acceleration or otherwise.
ARTICLE II
LOANS; PAYMENTS UNDER THIS NOTE
2.1
Loans . All Loans evidenced by this Note shall be made in
accordance with the terms and provisions of the Security
Agreement.
2.2
No Effective Registration . Notwithstanding anything to the
contrary herein, the Holder shall not be required to accept shares
of Common Stock as payment following a conversion by the Holder if
there fails to exist an effective current Registration Statement
(as defined in the Registration Rights Agreement) covering the
shares of Common Stock to be issued, or if an Event of Default
hereunder exists and is continuing, unless such requirement is
otherwise waived in writing by the Holder in whole or in part at
the Holder’s option.
2.3
Optional Redemption in Cash . The Company will have the
option of prepaying this Note prior to the Maturity Date (“
Optional Redemption ”) (i) by paying to the
Holder a sum of money equal to one hundred twenty five percent
(125%) of the principal amount of this Note together with accrued
but unpaid interest thereon and any and all other sums due, accrued
or payable to the Holder arising under this Note, the Security
Agreement, or any other Ancillary Agreement outstanding on the
Redemption Payment Date (as defined below) or (ii) in the
event that the February 2005 Overadvance Period (as defined in
that certain Amendment to the Security Agreement and the
Registration Rights Agreement, dated as of February ___, 2005, by
and between the Company and the Holder) has ended and the Company
is required to repay a portion of this Note so that the aggregate
outstanding Loans do not exceed the Formula Amount, by paying to
the Holder a sum of money equal to one hundred percent (100%) of
such amount required to be repaid; provided that the Company shall
only be permitted to make an optional redemption in cash pursuant
to this clause (ii) of this Section 2.3 if the average closing
price of the Common Stock for the five most recently ended trading
days is less than one hundred ten percent (110%) of the Fixed
Conversion Price (each of the amounts set forth in the preceding
clauses (i) and (ii) of this Section 2.3, a “
Redemption Amount ”). The Company shall deliver to the
Holder a written notice of redemption (the “ Notice of
Redemption ”) specifying the date for such Optional
Redemption (the “ Redemption Payment Date ”),
which date shall be seven (7) days after the date of the
Notice of Redemption (the “ Redemption Period
”). A Notice of Redemption shall not be effective with
respect to any portion of this Note for which the Holder has
previously delivered a Notice of Conversion (defined below)
pursuant to Section 3.1, or for conversions elected to be made
by the Holder pursuant to Section 3.1 during the Redemption
Period. The Redemption Amount shall be determined as if such
Holder’s conversion elections had been completed immediately
prior to the date of the Notice of Redemption. On the Redemption
Payment Date, the Redemption Amount (plus any additional interest
and fees accruing on the Notes during the Redemption Period) must
be irrevocably paid in full in immediately available funds to the
Holder. In the event the Company fails to pay the Redemption Amount
on the Redemption Payment Date, then such Redemption Notice shall
be null and void.
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ARTICLE III
CONVERSION RIGHTS AND FIXED CONVERSION PRICE
3.1
Optional Conversion . Subject to the terms of this
Article III, the Holder shall have the right, but not the
obligation, at any time until the Maturity Date, or during an Event
of Default (as defined in Article IV), and, subject to the
limitations set forth in Section 3.2 hereof, to convert all or
any portion of the outstanding Principal Amount and/or accrued
interest and fees due and payable into fully paid and nonassessable
shares of the Common Stock at the Fixed Conversion Price. For
purposes hereof, subject to Section 3.6 hereof, the initial
“ Fixed Conversion Price ” means $1.05. The
shares of Common Stock to be issued upon such conversion are herein
referred to as the “ Conversion Shares. ”
3.2
Conversion Limitations . (i) Notwithstanding anything
contained herein to the contrary, the Holder shall not be entitled
to convert pursuant to the terms of this Note an amount that would
be convertible into that number of Conversion Shares which would
exceed the difference between (i) 4.99% of the outstanding
shares of Common Stock and (ii) the number of shares of Common
Stock beneficially owned by the Holder. For purposes of the
immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and
Regulation 13d-3 thereunder. The Conversion Shares limitation
described in this Section 3.2 shall automatically become null
and void without any notice to the Company upon the occurrence and
during the continuance of an Event of Default, or upon 75 days
prior notice to the Company. Notwithstanding anything contained
herein to the contrary, the provisions of this Section 3.2 are
irrevocable and may not be waived by the Holder or the Company.
(ii) Notwithstanding anything to
the contrary contained herein, in the Security Agreement, any
Ancillary Agreement or any document, instrument or agreement
entered into in connection with any other transactions between the
Holder and the Company, the Holder may not acquire stock in the
Company (including, without limitation, pursuant to a contract to
purchase, by exercising an option or warrant, by converting any
other security or instrument, by acquiring or exercising any other
right to acquire shares of stock or other security convertible into
shares of stock in the Company, or otherwise, and such contracts,
options, warrants, conversion or other rights shall not be
enforceable or exercisable) to the extent such stock acquisition
would cause any interest (including any original issue discount)
payable by the Company to the Holder not to qualify as
“portfolio interest” within the meaning of
Section 881(c)(2) of the Code, by reason of Section 881(c)(3)
of the Code, taking into account the constructive ownership rules
under Section 871(h)(3)(C) of the Code (the “ Stock
Acquisition Limitation ”). The Stock Acquisition
Limitation shall automatically become null and void without any
notice to the Company upon the earlier to occur of either
(a) the Company’s delivery to the Holder of a Notice of
Redemption or (b) the existence of an Event of Default at a
time when the average closing price of the Company’s common
stock as reported by Bloomberg, L.P. on the Principal Market for
the immediately preceding five trading days is greater than or
equal to 150% of the Fixed Conversion Price.
3.3
Mechanics of Holder’s Conversion . In the event that
the Holder elects to convert this Note into Common Stock, the
Holder shall give notice of such election by delivering an executed
and completed notice of conversion (“ Notice of
Conversion ”) to the Company and such Notice of
Conversion shall provide a breakdown in reasonable detail of the
Principal Amount, accrued interest and fees that are being
converted. On each Conversion Date (as hereinafter defined) and in
accordance with its Notice of Conversion, the Holder shall make
the
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appropriate reduction to
the Principal Amount, accrued interest and fees as entered in its
records and shall provide written notice thereof to the Company
within two (2) Business Days after the Conversion Date. Each
date on which a Notice of Conversion is delivered or telecopied to
the Company in accordance with the provisions hereof shall be
deemed a Conversion Date (the “ Conversion Date
”). A form of Notice of Conversion is annexed hereto as
Exhibit A . Pursuant to the terms of the Notice of
Conversion, the Company will issue instructions to the transfer
agent accompanied by an opinion of counsel within one
(1) Business Day of the date of the delivery to the Company of
the Notice of Conversion and shall cause the transfer agent to
transmit the certificates representing the Conversion Shares to the
Holder by crediting the account of the Holder’s designated
broker with the Depository Trust Corporation (“ DTC
”) through its Deposit Withdrawal Agent Commission (“
DWAC ”) system within three (3) Business Days
after receipt by the Company of the Notice of Conversion (the
“ Delivery Date ”). In the case of the exercise
of the conversion rights set forth herein the conversion privilege
shall be deemed to have been exercised and the Conversion Shares
issuable upon such conversion shall be deemed to have been issued
upon the date of receipt by the Company of the Notice of
Conversion. The Holder shall be treated for all purposes as the
record holder of the Conversion Shares, unless the Holder provides
the Company written instructions to the contrary.
3.4
Late Payments . The Company understands that a delay in the
delivery of the Conversion Shares in the form required pursuant to
this Article beyond the Delivery Date could result in economic loss
to the Holder. As compensation to the Holder for such loss, the
Company shall pay late payments to the Holder for any late issuance
of Conversion Shares in the form required pursuant to this
Article III upon conversion of this Note, in the amount equal
to $250 per Business Day after the Delivery Date. The
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