Exhibit 10.3
ELECTRIC CITY CORP. AND CERTAIN OF ITS SUBSIDIARIES
MASTER SECURITY AGREEMENT

     
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

Date: November 22, 2005
To Whom It May Concern:
     1.   To secure the payment of all Obligations (as hereafter defined),
ELECTRIC CITY CORP., a Delaware corporation (the “Company”), each of the other
undersigned parties (other than Laurus Master Fund, Ltd., (“Laurus”)) and each
other entity that is required to enter into this Master Security Agreement (each
an “Assignor” and, collectively, the “Assignors”) hereby assigns and grants to
Laurus a continuing security interest in all of the following property now owned
or at any time hereafter acquired by such Assignor, or in which such Assignor
now has or at any time in the future may acquire any right, title or interest
(the “Collateral”): all cash, cash equivalents, accounts, accounts receivable,
deposit accounts (including, without limitation, the Multi Party Blocked Account
Agreement (the “Blocked Account”) maintained at American Chartered Bank (Account
Name: ___, Account Number:___) referred to in the Multi Party Blocked Account
Agreement), inventory, equipment, goods, fixtures, documents, instruments
(including, without limitation, promissory notes), contract rights, commercial
tort claims set forth on Exhibit B to this Master Security Agreement, general
intangibles (including, without limitation, payment intangibles and an absolute
right to license on terms no less favorable than those current in effect among
such Assignor’s affiliates), chattel paper, supporting obligations, investment
property (including, without limitation, all partnership interests, limited
liability company membership interests and all other equity interests owned by
any Assignor), letter-of-credit rights, trademarks, trademark applications,
tradestyles, patents, patent applications, copyrights, copyright applications
and other intellectual property in which such Assignor now has or hereafter may
acquire any right, title or interest, all proceeds and products thereof
(including, without limitation, proceeds of insurance) and all additions,
accessions and substitutions thereto or therefor. In the event any Assignor
wishes to finance the acquisition in the ordinary course of business of any
hereafter acquired equipment and has obtained a written commitment from an
unrelated third party financing source to finance such equipment, Laurus shall
release its security interest on such hereafter acquired equipment so financed
by such third party financing source. Except as otherwise defined herein, all
capitalized terms used herein shall have the meanings provided such terms in the
Securities Purchase Agreement referred to

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below. All items of Collateral which are defined in the UCC shall have the
meanings set forth in the UCC. For purposes hereof, the term “UCC” means the
Uniform Commercial Code as the same may, from time to time, be in effect in the
State of New York; provided, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection or priority of, or
remedies with respect to, Laurus’ security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term “UCC” shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; provided further, that
to the extent that the UCC is used to define any term herein and such term is
defined differently in different Articles or Divisions of the UCC, the
definition of such term contained in Article or Division 9 shall govern.
     2.   The term “Obligations” as used herein shall mean and include all
debts, liabilities and obligations owing by each Assignor to Laurus arising
under, out of, or in connection with: (i) that certain Securities Purchase
Agreement dated as of the date hereof by and between the Company and Laurus (the
“Securities Purchase Agreement”) and (ii) the Related Agreements referred to in
the Securities Purchase Agreement (the Securities Purchase Agreement and each
Related Agreement, as each may be amended, modified, restated or supplemented
from time to time, collectively, the “Documents”), and in connection with any
documents, instruments or agreements relating to or executed in connection with
the Documents or any documents, instruments or agreements referred to therein or
otherwise, and in connection with any other indebtedness, obligations or
liabilities of each such Assignor to Laurus, whether now existing or hereafter
arising, direct or indirect, liquidated or unliquidated, absolute or contingent,
due or not due and whether under, pursuant to or evidenced by a note, agreement,
guaranty, instrument or otherwise, including, without limitation, obligations
and liabilities of each Assignor for post-petition interest, fees, costs and
charges that accrue after the commencement of any case by or against such
Assignor under any bankruptcy, insolvency, reorganization or like proceeding
(collectively, the “Debtor Relief Laws”) in each case, irrespective of the
genuineness, validity, regularity or enforceability of such Obligations, or of
any instrument evidencing any of the Obligations or of any collateral therefor
or of the existence or extent of such collateral, and irrespective of the
allowability, allowance or disallowance of any or all of the Obligations in any
case commenced by or against any Assignor under any Debtor Relief Law.
     3.   Each Assignor hereby jointly and severally represents, warrants and
covenants to Laurus that:
     (a)   it is a corporation, partnership or limited liability company, as the
case may be, validly existing, in good standing and formed under the respective
laws of its jurisdiction of formation set forth on Schedule A, and each Assignor
will provide Laurus thirty (30) days’ prior written notice of any change in any
of its respective jurisdiction of formation;
     (b)   its legal name is as set forth in its Certificate of Incorporation or
other organizational document (as applicable) as amended through the date hereof
and as set forth on Schedule A, and it will provide Laurus thirty (30) days’
prior written notice of any change in its legal name;

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     (c)   its organizational identification number (if applicable) is as set
forth on Schedule A hereto, and it will provide Laurus thirty (30) days’ prior
written notice of any change in its organizational identification number;
     (d)   it is the lawful owner of its Collateral and it has the sole right to
grant a security interest therein and will defend the Collateral against all
claims and demands of all persons and entities;
     (e)   it will keep its Collateral free and clear of all attachments,
levies, taxes, liens, security interests and encumbrances of every kind and
nature (“Encumbrances”), except (i) Encumbrances securing the Obligations and
(ii) Encumbrances securing indebtedness of each such Assignor not to exceed
$50,000 in the aggregate for all such Assignors;
     (f)   it will, at its and the other Assignors’ joint and several cost and
expense keep the Collateral in good state of repair (ordinary wear and tear
excepted) and will not waste or destroy the same or any part thereof other than
ordinary course discarding of items no longer used or useful in its or such
other Assignors’ business;
     (g)   it will not, without Laurus’ prior written consent, sell, exchange,
lease or otherwise dispose of any Collateral, whether by sale, lease or
otherwise, except for the sale of inventory in the ordinary course of business
and for the disposition or transfer in the ordinary course of business during
any fiscal year of obsolete and worn-out equipment or equipment no longer
necessary for its ongoing needs, having an aggregate fair market value of not
more than $25,000 and only to the extent that:
     (i)   the proceeds of each such disposition are used to acquire replacement
Collateral which is subject to Laurus’ first priority perfected security
interest, or are used to repay the Obligations or to pay general corporate
expenses; or
     (ii)   following the occurrence of an Event of Default which continues to
exist the proceeds of which are remitted to Laurus to be applied to the
Obligations;
     (h)   it will insure or cause the Collateral to be insured in Laurus’ name
(as an additional insured and loss payee) against loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as Laurus shall
specify in amounts and under policies by insurers acceptable to Laurus and all
premiums thereon shall be paid by such Assignor and the policies delivered to
Laurus. If any such Assignor fails to do so, Laurus may procure such insurance
and the cost thereof shall be promptly reimbursed by the Assignors, jointly and
severally, and shall constitute Obligations;
     (i)   it will at all reasonable times allow Laurus or Laurus’
representatives free access to and the right of inspection of the Collateral;
and

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     (j)   such Assignor (jointly and severally with each other Assignor) hereby
indemnifies and saves Laurus harmless from all loss, costs, damage, liability
and/or expense, including reasonable attorneys’ fees, that Laurus may sustain or
incur to enforce payment, performance or fulfillment of any of the Obligations
and/or in the enforcement of this Master Security Agreement or in the
prosecution or defense of any action or proceeding either against Laurus or any
Assignor concerning any matter growing out of or in connection with this Master
Security Agreement, and/or any of the Obligations and/or any of the Collateral
except to the extent caused by Laurus’ own gross negligence or willful
misconduct (as determined by a court of competent jurisdiction in a final and
nonappealable decision);
     (k)   all commercial tort claims (as defined in the Uniform Commercial Code
as in effect in the State of New York) held by any Assignor are set forth on
Schedule B to this Master Security Agreement; each Assignor hereby agrees that
it shall promptly, and in any event within five (5) Business Days after the same
is acquired by it, notify Laurus of any commercial tort claim acquired by it and
unless otherwise consented to in writing by Laurus, it shall enter into a
supplement to this Master Security Agreement granting to Laurus a security
interest in such commercial tort claim, securing the Obligations.
     4.   The occurrence of any of the following events or conditions shall
constitute an “Event of Default” under this Master Security Agreement:
     (a)   any covenant or any other term or condition of this Master Security
Agreement is breached in any material respect and such breach, to the extent
subject to cure, shall continue without remedy for a period of fifteen (15) days
after the occurrence thereof;
     (b)   any representation or warranty, or statement made or furnished to
Laurus under this Master Security Agreement by any Assignor or on any Assignor’s
behalf should prove to any time be false or misleading in any material respect
on the date as of which made or deemed made;
     (c)   the loss, theft, substantial damage, destruction, sale or encumbrance
to or of any of the Collateral or the making of any levy, seizure or attachment
thereof or thereon except to the extent:
     (i)   such loss is covered by insurance proceeds which are used to replace
the item or repay Laurus; or
     (ii)   said levy, seizure or attachment does not secure indebtedness in
excess of $100,000 in the aggregate for all Assignors and such levy, seizure or
attachment has been removed or otherwise released within ten (10) days of the
creation or the assertion thereof;
     (d) an Event of Default shall have occurred under and as defined in any
Document.

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     5.   Upon the occurrence of any Event of Default and at any time
thereafter, Laurus may declare all Obligations immediately due and payable and
Laurus shall have the remedies of a secured party provided in the UCC as in
effect in the State of New York, this Agreement and other applicable law. Upon
the occurrence of any Event of Default and at any time thereafter, Laurus will
have the right to take possession of the Collateral and to maintain such
possession on any Assignor’s premises or to remove the Collateral or any part
thereof to such other premises as Laurus may desire. Upon Laurus’ request, each
Assignor shall assemble or cause the Collateral to be assembled and make it
available to Laurus at a place designated by Laurus. If any notification of
intended disposition of any Collateral is required by law, such notification, if
mailed, shall be deemed properly and reasonably given if mailed at least ten
(10) days before such disposition, postage prepaid, addressed to the applicable
Assignor either at such Assignor’s address shown herein or at any address
appearing on Laurus’ records for such Assignor. Any proceeds of any disposition
of any of the Collateral shall be applied by Laurus to the payment of all
expenses in connection with the sale of the Collateral, including reasonable
attorneys’ fees and other legal expenses and disbursements and the reasonable
expenses of retaking, holding, preparing for sale, selling, and the like, and
any balance of such proceeds may be applied by Laurus toward the payment of the
Obligations in such order of application as Laurus may elect, and each Assignor
shall be liable for any deficiency. For the avoidance of doubt, following the
occurrence and during the continuance of an Event of Default, Laurus shall have
the immediate right to withdraw any and all monies contained in any deposit
account in the name of any Assignor and controlled by Laurus and apply same to
the repayment of the Obligations (in such order of application as Laurus may
elect).
     6.   If any Assignor defaults in the performance or fulfillment of any of
the terms, conditions, promises, covenants, provisions or warranties on such
Assignor’s part to be performed or fulfilled under or pursuant to this Master
Security Agreement, Laurus may, at its option without waiving its right to
enforce this Master Security Agreement according to its terms, immediately or at
any time thereafter and without notice to any Assignor, perform or fulfill the
same or cause the performance or fulfillment of the same for each Assignor’s
joint and several account and at each Assignor’s joint and several cost and
expense, and the cost and expense thereof (including reasonable attorneys’ fees)
shall be added to the Obligations and shall be payable on demand with interest
thereon at the highest rate permitted by law, or, at Laurus’ option, debited by
Laurus from any other deposit accounts in the name of any Assignor and
controlled by Laurus.
     7.   Each Assignor appoints Laurus, any of Laurus’ officers, employees or
any other person or entity whom Laurus may designate as such Assignor’s
attorney, with power to execute such documents in each such Assignor’s behalf
and to supply any omitted information and correct patent errors in any documents
executed by any Assignor or on any Assignor’s behalf; to file financing
statements against such Assignor covering the Collateral (and, in connection
with the filing of any such financing statements, describe the Collateral as
“all assets and all personal property, whether now owned and/or hereafter
acquired” (or any substantially similar variation thereof)); to sign such
Assignor’s name on public records; and to do all other things Laurus deem
necessary to carry out this Master Security Agreement. Each Assignor hereby
ratifies and approves all acts of the attorney and neither Laurus nor the
attorney will be liable for any acts of commission or omission, nor for any
error of judgment or mistake of fact or law other than gross

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negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final and non-appealable decision). This power being coupled
with an interest, is irrevocable so long as any Obligations remains unpaid.
     8.   No delay or failure on Laurus’ part in exercising any right, privilege
or option hereunder shall operate as a waiver of such or of any other right,
privilege, remedy or option, and no waiver whatever shall be valid unless in
writing, signed by Laurus and then only to the extent therein set forth, and no
waiver by Laurus of any default shall operate as a waiver of any other default
or of the same default on a future occasion. Laurus’ books and records
containing entries with respect to the Obligations shall be admissible in
evidence in any action or proceeding, shall be binding upon each Assignor for
the purpose of establishing the items therein set forth and shall constitute
prima facie proof thereof. Laurus shall have the right to enforce any one or
more of the remedies available to Laurus, successively, alternately or
concurrently. Each Assignor agrees to join with Laurus in executing such
documents or other instruments to the extent required by the UCC in form
satisfactory to Laurus and in executing such other documents or instruments as
may be required or deemed necessary by Laurus for purposes of affecting or
continuing Laurus’ security interest in the Collateral.
     9.   THIS MASTER SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS. All of the rights, remedies, options, privileges and
elections given to Laurus hereunder shall inure to the benefit of Laurus’
successors and assigns. The term “Laurus” as herein used shall include Laurus,
any parent of Laurus’, any of Laurus’ subsidiaries and any co-subsidiaries of
Laurus’ parent, whether now existing or hereafter created or acquired, and all
of the terms, conditions, promises, covenants, provisions and warranties of this
Agreement shall inure to the benefit of each of the foregoing, and shall bind
the representatives, successors and assigns of each Assignor.
     10.   Each Assignor hereby consents and agrees that the state of federal
courts located in the County of New York, State of New York shall have exclusive
jurisdiction to hear and determine any claims or disputes between Assignor, on
the one hand, and Laurus, on the other hand, pertaining to this Master Security
Agreement or to any matter arising out of or related to this Master Security
Agreement, provided, that Laurus and each Assignor acknowledges that any appeals
from those courts may have to be heard by a court located outside of the County
of New York, State of New York, and further provided, that nothing in this
Master Security Agreement shall be deemed or operate to preclude Laurus from
bringing suit or taking other legal action in any other jurisdiction to collect,
the Obligations, to realize on the Collateral or any other security for the
Obligations, or to enforce a judgment or other court order in favor of Laurus.
Each Assignor expressly submits and consents in advance to such jurisdiction in
any action or suit commenced in any such court, and each Assignor hereby waives
any objection which it may have based upon lack of personal jurisdiction,
improper venue or forum non conveniens. Each Assignor hereby waives personal
service of the summons, complaint and other process issues in any such action or
suit and agrees that service of such summons, complaint and other process may be
made by registered or certified mail addressed to such assignor at the address
set forth on

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the signature lines hereto and that service so made shall be deemed completed
upon the earlier of such Assignor’s actual receipt thereof or three (3) days
after deposit in the U.S. mails, proper postage prepaid.
     The parties desire that their disputes be resolved by a judge applying such
applicable laws. Therefore, to achieve the best combination of the benefits of
the judicial system and of arbitration, the parties hereto waive all rights to
trial by jury in any action, suit, or proceeding brought to resolve any dispute,
whether arising in contract, tort, or otherwise between Laurus, and/or any
Assignor arising out of, connected with, related or incidental to the
relationship established between them in connection with this Master Security
Agreement or the transactions related hereto.
     11.   It is understood and agreed that any person or entity that desires to
become an Assignor hereunder, or is required to execute a counterpart of this
Master Security Agreement after the date hereof pursuant to the requirements of
any Document, shall become an Assignor hereunder by (x) executing a Joinder
Agreement in form and substance satisfactory to Laurus, (y) delivering
supplements to such exhibits and annexes to such Documents as Laurus shall
reasonably request and (z) taking all actions as specified in this Master
Security Agreement as would have been taken by such Assignor had it been an
original party to this Master Security Agreement, in each case with all
documents required above to be delivered to Laurus and with all documents and
actions required above to be taken to the reasonable satisfaction of Laurus.
     12.   All notices from Laurus to any Assignor shall be sufficiently given
if mailed or delivered to such Assignor’s address set forth below.

            Very truly yours,

ELECTRIC CITY CORP.
      By:   /s/ Jeffrey Mistarz         Name:   Jeffrey Mistarz        Title:  
Chief Financial Officer     

            GREAT LAKES CONTROLLED ENERGY CORPORATION.
      By:   /s/ Jeffrey Mistarz         Name:   Jeffrey Mistarz        Title:  
Treasurer   

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            MAXIMUM PERFORMANCE GROUP, INC.
      By:   /s/ Jeffrey Mistarz         Name:   Jeffrey Mistarz        Title:  
Treasurer     

            ELC VNPP SUB I, LLC
      By:   /s/ Jeffrey Mistarz         Name:   Jeffrey Mistarz        Title:  
Chief Financial Officer     

            ELC VNPP SUB II, LLC
      By:   /s/ Jeffrey Mistarz         Name:   Jeffrey Mistarz        Title:  
Chief Financial Officer     

            ACKNOWLEDGED:

LAURUS MASTER FUND, LTD.
      By:   /s/ David Grin         Name:   David Grin        Title:   Director 
   

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SCHEDULE A

                            Jurisdiction of     Organization     Entity    
Formation     Identification Number    
Electric City Corp.
    Delaware          
Great Lakes Controlled Energy Corp.
    Delaware          
Maximum Performance Group, Inc.
    Delaware          
ELC VNPP SUB I, LLC
    Delaware          
ELC VNPP SUB II, LLC
    Delaware          
 
               
 
               

 

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SCHEDULE B
COMMERCIAL TORT CLAIMS