Exhibit 10.6


 


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 STATES SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ELECTRIC CITY CORP. THAT SUCH REGISTRATION IS NOT REQUIRED.


 


FORM
OF SECURED CONVERTIBLE REVOLVING NOTE


 


FOR VALUE RECEIVED,
ELECTRIC CITY CORP. a Delaware corporation (the “Borrower”) 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, on
order, the sum of [up to TWO MILLION DOLLARS ($2,000,000)], of, if different,
the aggregate principal amount of all “Loans” (as such term is defined in the
Security Agreement referred to below), together with any accrued and unpaid
interest hereon, on September 11, 2005 (the “Maturity Date”).


 


Capitalized terms used
herein without definition shall have the meanings ascribed to such terms in the
Security Agreement between Borrower 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 Note:


 


ARTICLE I
INTEREST


 


1.1.          Interest
Rate and Payments.  Subject to
Sections 5.3 and 6.7 hereof, interest payable on this Note shall accrue at a
rate per annum equal to the “prime rate” published in The Wall Street
Journal from time to time, plus one and three quarters percent
(1.75%).  Interest shall be payable
monthly in arrears commencing on October 1, 2003 and on the first day
of each consecutive calendar month thereafter 
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 accordance with the terms of the Security Agreement.


 

















 


ARTICLE II
ADVANCES, BORROWER CONVERSION RIGHTS,
PAYMENTS UNDER NOTE


 


2.1.          Mechanics
of Advances.  All Loans evidenced by
this Note shall be made in accordance with the terms and provisions of the
Security Agreement.


 


2.2.          Borrower’s
Conversion Rights.  Subject to the
terms hereof, the Borrower shall have the sole option to determine whether to
satisfy payment of any payment of principal or interest when due either in cash
or in shares of Common Stock (as defined in the Security Agreement), or a
combination of both.  Each month by the
tenth (10th) day of such month, the Borrower shall deliver to the
Holder a written irrevocable notice in the form of Exhibit A attached hereto
electing to pay the amount specified therein payable on the first day of the
next month 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 (10th) day of the
month prior to the applicable payment date (the date by which such notice is
required to be given being hereinafter referred to as the “Notice Date”).  If, for any amount which is 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 amount due on such repayment date
shall be paid in cash.  If the Borrower
repays all or a portion of the amount due on any payment date in shares of
Common Stock, the number of such shares to be issued for such payment date shall
be the number determined by dividing (x) the amount to be paid in shares of
Common Stock, by (y) the Fixed Conversion Price.  For purposes hereof, the “Fixed
Conversion Price” means $2.12.


 


2.3.          No
Effective Registration. 
Notwithstanding anything to the contrary herein, the Borrower shall be
prohibited from exercising its right to repay any amount hereunder in shares of
Common Stock if at any time from the Notice Date for such payment through the
date upon which such payment is made by delivery of certificates for shares of
Common Stock 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.


 


2.4.          Common
Stock Payment Guidelines. 
Notwithstanding anything to the contrary herein, if the Borrower has
elected to make a payment hereunder in shares of Common Stock and the closing
price of the Common Stock as reported by Bloomberg, L.P. on the Principal
Market for any of the 11 trading days preceding the scheduled payment date was
less than 115% of the Fixed Conversion Price, then the Holder shall have the
option to refuse to accept any portion of such payment in shares of Common
Stock.


 


2.5.          Optional
Prepayments in Common Stock.  In the
event that the average closing price of the Common Stock on the Principal
Market is greater than 115% of the Fixed Conversion Price for a period of at
least five (5) consecutive trading days, 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


 


2

















 


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;


 


(i)            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 certificates evidencing 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 eleven (11) 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
115% of the Fixed Conversion Price during the eleven (11) 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 115% 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.


 


2.6.          Optional
Prepayment in Cash.  The Borrower
will have the option of prepaying this Note in full or in part at any time
without penalty or premium .


 


ARTICLE III

HOLDER’S CONVERSION RIGHTS


 


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
thereafter during an Event of Default (as defined in Article V), 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. The shares of Common Stock to be issued upon such conversion are herein
referred to as the “Conversion Shares.”


 


3.2.          Conversion
Limitation. 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 the number of shares of Common Stock
beneficially owned by such Holder or issuable upon exercise of warrants held by
such Holder and 4.99% of the outstanding shares


 


3

















 


of Common Stock of the Borrower. 
For the 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 Holder may void the Conversion Share limitation described in this
Section 3.2 upon 75 days prior notice to the Borrower or without any notice
requirement upon an Event of Default.


 


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 Borrower 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 appropriate reduction to the Principal Amount, accrued interest
and fees as entered in its records and shall provide written notice thereof to
the Borrower within two (2) business days after the Conversion Date.  Each date on which a Notice of Conversion is
delivered or telecopied to the Borrower in accordance with the provisions
hereof shall be deemed a Conversion Date (the “Conversion Date”).  A form of Notice of Conversion to be
employed by the Holder is annexed hereto as Exhibit A.  The Borrower will 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 Borrower 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 Borrower of the
Notice of Conversion.  The Holder shall
be treated for all purposes as the record holder of such Common Stock, unless
the Holder provides the Borrower written instructions to the contrary.


 


3.4.          Late
Payments. The Borrower understands that a delay in the delivery of the
shares of Common Stock 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 Borrower agrees to pay late payments to the Holder for late issuance of
such shares in the form required pursuant to this Article III upon conversion
of the Note, in the amount equal to the greater of (i) $250 per business day
after the Delivery Date and (ii) the Holder’s actual damages from such delayed
delivery.  The Borrower shall pay any
payments incurred under this Section in immediately available funds upon demand
and, in the case of actual damages, accompanied by reasonable documentation of
the amount of such damages.


 


3.5.          Adjustment
Provisions. The Fixed Conversion Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section
3.1 shall be subject to adjustment from time to time upon the happening of
certain events while this conversion right remains outstanding, as follows:


 


A.            Reclassification,
etc.  If the Borrower at any time
shall, by reclassification or otherwise, change the Common Stock into the same
or a different number of securities of any class or classes, this Note, as to
the unpaid Principal Amount and accrued


 


4

















 


interest thereon, shall thereafter be deemed to evidence the right to
purchase an adjusted number of such securities and kind of securities as would
have been issuable as the result of such change with respect to the Common
Stock immediately prior to such reclassification or other change.


 


B.            Stock
Splits, Combinations and Dividends. 
If the shares of Common Stock are subdivided or combined into a greater
or smaller number of shares of Common Stock, or if a dividend is paid on the
Common Stock in shares of Common Stock, the Fixed Conversion Price shall be
proportionately reduced in case of subdivision of shares or stock dividend or
proportionately increased in the case of combination of shares, in each such
case by the ratio which the total number of shares of Common Stock outstanding
immediately after such event bears to the total number of shares of Common
Stock outstanding immediately prior to such event.


 


C.            Share
Issuances.  Subject to the
provisions of this Section 3.6, if the Borrower shall at any time prior to the
conversion or repayment in full of the Principal Amount issue any shares of
Common Stock to a person other than the Holder (otherwise than (i) pursuant to
Subsections A or B above; (ii) pursuant to options, warrants, or other
obligations to issue shares outstanding on the date hereof as disclosed to
Holder in writing; or (iii) pursuant to options that may be issued under any
employee incentive stock option and/or any qualified stock option plan adopted
by the Borrower) for a consideration per share (the “Offer Price”) less than the Fixed Conversion Price in effect
at the time of such issuance, then the Fixed Conversion Price shall be
immediately reset to such lower Offer Price. For purposes hereof, the issuance
of any security of the Borrower convertible into or exercisable or exchangeable
for Common Stock shall result in an adjustment to the Fixed Conversion Price
only upon the conversion, exercise or exchange of such securities.


 


D.            Computation
of Consideration. For purposes of any computation respecting consideration
received pursuant to Subsection C above, the following shall apply:


 


(a)           in
the case of the issuance of shares of Common Stock for cash, the consideration
shall be the amount of such cash, provided that in no case shall any deduction
be made for any commissions, discounts or other expenses incurred by the
Borrower for any underwriting of the issue or otherwise in connection
therewith;


 


(b)           in
the case of the issuance of shares of Common Stock for a consideration in whole
or in part other than cash, the consideration other than cash shall be deemed
to be the fair market value thereof as determined in good faith by the Board of
Directors of the Borrower (irrespective of the accounting treatment thereof);
and


 


(c)           in
the case of the issuance of securities convertible into or exchangeable for
shares of Common Stock, no adjustment to the Offer Price shall be made until
actual exercise of any such rights of conversion or exchange.  Upon any such exercise, the aggregate
consideration received for such securities shall be deemed to be the
consideration received by the Borrower for the issuance of such securities plus
the additional minimum consideration, if any, to be received by the Borrower
upon the conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (a) and (b) of this
Subsection (D)).


 


5

















 


3.6.          Reservation
of Shares. During the period the conversion right exists, the Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note.  The Borrower represents that
upon issuance, such shares will be duly and validly issued, fully paid and
non-assessable.  The Borrower agrees
that its issuance of this Note shall constitute full authority to its officers,
agents, and transfer agents who are charged with the duty of executing and
issuing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the conversion of this Note.


 


3.7.          Registration
Rights.  The Holder has been granted
registration rights with respect to the shares of Common Stock issuable upon
conversion of this Note as more fully set forth in a Registration Rights
Agreement dated the date hereof.


 


ARTICLE IV
EVENTS OF DEFAULT


 


The occurrence of any of
the following events is an Event of Default (“Event of Default”):


 


4.1.          Failure
to Pay Principal, Interest or other Fees. 
The Borrower fails to pay when due any installment of principal,
interest or other fees hereon or on any other promissory note issued pursuant
to the Security Agreement, when due in accordance with the terms of such note.


 


4.2.          Breach
of Covenant.  The Borrower breaches
any covenant or other term or condition of this Note in any material respect
and such breach, if subject to cure, continues for a period of thirty (30) days
after the occurrence thereof.


 


4.3.          Breach
of Representations and Warranties. 
Any material representation or warranty of the Borrower made herein, or
the Security Agreement, or in any Ancillary Agreement shall be materially false
or misleading.


 


4.4.          Stop
Trade.  An SEC stop trade order or
Principal Market trading suspension of the Common Stock shall be in effect for
5 consecutive days or 5 days during a period of 10 consecutive days, excluding
in all cases a suspension of all trading on a Principal Market, provided that
the Borrower shall not have been able to cure such trading suspension within 30
days of the notice thereof or list the Common Stock on another Principal Market
within 60 days of such notice.  The
“Principal Market” for the Common Stock shall include the NASD OTC Bulletin
Board, NASDAQ SmallCap Market, NASDAQ National Market System, American Stock
Exchange, or New York Stock Exchange (whichever of the foregoing is at the time
the principal trading exchange or market for the Common Stock), or any
securities exchange or other securities market on which the Common Stock is
then being listed or traded.


 


4.5.          Default
Under Related Agreement.  The
occurrence of an Event of Default under and as defined in the Security
Agreement.


 


4.6           Failure
to Deliver Common Stock or Replacement Note.  The Borrower’s failure to timely deliver Common Stock to the
Holder pursuant to and in the form required by


 


6

















 


this Note, and Section 9 of the Securities Purchase Agreement, or if
required, a replacement Note if such failure to timely deliver Common Stock
shall not be cured within two (2) days or such failure to deliver a replacement
Note is not cured within seven (7) Business Days.


 


4.7           Payment Grace Period.  The Borrower shall have a three (3) business
day grace period  to pay any monetary
amounts due under this Note or the Purchase Agreement or any Related Document,
after which grace period a default interest rate of five percent (5%) per annum
above the then applicable interest rate hereunder shall apply to the monetary
amounts due.


 


ARTICLE V
DEFAULT PAYMENTS


 


5.1.          Default
Payment.  If an Event of Default
occurs, the Holder, at its option, may elect, in addition to all rights and
remedies of Holder under the Security Agreement and all obligations of Borrower
under the Security Agreement, to require the Borrower to make a Default Payment
(“Default
Payment”).  The Default
Payment shall be the outstanding principal amount of the Note, plus accrued but
unpaid interest, all other fees then remaining unpaid, and all other amounts
payable hereunder.


 


5.2.          Default
Payment Date and Default Notice Period. 
The Default Payment shall be due and payable on the fifth business day
after the date written notice is sent from the Holder to the Borrower of an
Event of Default as defined in Article IV (“Default Payment Date”).  The period between the date of the written
notice from the Holder to the Borrower of an Event of Default and the Default
Payment Date shall be the “Default Notice Period.”  If during the Default Notice Period, the
Borrower cures the Event of Default, the Event of Default will no longer exist
and any rights the Holder had pertaining to the Event of Default will no longer
exist.  If the Event of Default is not
cured during the Default Notice Period, all amounts payable hereunder shall be
due and payable on the Default Payment Date, all without further demand,
presentment or notice, or grace period, all of which hereby are expressly
waived.


 


5.3.          
Default Interest Rate.  Following
the occurrence and during the continuance of an Event of Default, interest on
this Note shall automatically be increased to one and one half percent (1.5%)
per month, and all outstanding Obligations, including unpaid interest, shall
continue to accrue interest from the date of such Event of Default at such
interest rate applicable to such Obligations until such Event of Default is
cured or waived.


 


5.4.          Cumulative
Remedies.  The remedies under this
Note shall be cumulative.


 


ARTICLE VI
MISCELLANEOUS


 


6.1.          Failure
or Indulgence Not Waiver.  No
failure or delay on the part of the Holder hereof in the exercise of any power,
right or privilege hereunder shall operate as a waiver


 


7

















 


thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.  All rights
and remedies existing hereunder are cumulative to, and not exclusive of, any
rights or remedies otherwise available.


 


6.2.          Notices.  Any notice herein required or permitted to
be given shall be in writing and provided in accordance with the terms of the
Security Agreement.


 


6.3.          
Amendment Provision.  The term
“Note” and all reference thereto, as used throughout this instrument, shall
mean this instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented, and any successor instrument
as it may be amended or supplemented.


 


6.4.          Assignability.  This Note shall be binding upon the Borrower
and its successors and assigns, and shall inure to the benefit of the Holder
and its successors and assigns, and may be assigned by the Holder in accordance
with the requirements of the Security Agreement.


 


6.5.          Cost
of Collection.  If default is made
in the payment of this Note, the Borrower shall pay the Holder hereof
reasonable costs of collection, including reasonable attorneys’ fees.


 


6.6.          Governing
Law.  This Note shall be governed by
and construed in accordance with the laws of the State of New York, without
regard to principles of conflicts of laws. 
Any action brought by either party against the other concerning the
transactions contemplated by this Agreement shall be brought only in the state
courts of New York or in the federal courts located in the state of New
York.  Both parties and the individual
signing this Note on behalf of the Borrower agree to submit to the jurisdiction
of such courts.  The prevailing party
shall be entitled to recover from the other party its reasonable attorney’s
fees and costs.  In the event that any
provision of this Note is invalid or unenforceable under any applicable statute
or rule of law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to conform with
such statute or rule of law.  Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or unenforceability of any other provision of this
Note.  Nothing contained herein shall be
deemed or operate to preclude the Holder from bringing suit or taking other
legal action against the Borrower in any other jurisdiction to collect on the
Borrower’s obligations to Holder, to realize on any collateral or any other
security for such obligations, or to enforce a judgment or other court order in
favor of Holder.


 


6.7.          Maximum
Payments.  Nothing contained herein
shall be deemed to establish or require the payment of a rate of interest or
other charges in excess of the maximum permitted by applicable law.  In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Borrower to the Holder and thus refunded to the Borrower.


 


8

















 


6.8.          Security
Interest.  The Holder of this Note
has been granted a security interest in certain assets of the Borrower more
fully described in a Security Agreement dated as of September 11, 2003.


 


6.9.          Construction.  Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that
the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Note to favor
any party against the other.


 


[Balance of page
intentionally left blank; signature page follows.]


 


9

















 


IN WITNESS WHEREOF,
the Borrower has caused this Secured Convertible Revolving Note to be signed in
its name effective as of this 11th day of September, 2003.


 


	
   

  	
  ELECTRIC CITY CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  John Mitola

  
	
   

  	
  Name:

  	
  John
  Mitola

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
  WITNESS:

  	
   

  
	
   

  	
   

  
	
  /s/
  Jeffrey Mistarz

  	
   

  	
   

  
				



 


10

















 


NOTICE
OF CONVERSION


 


(To be executed by the
Holder in order to convert the Note)


 


The undersigned hereby
elects to convert
$                   
of the principal and
$                  
of the interest due on the Secured Convertible Revolving Note issued by
Electric City Corp. on September 11, 2003 into Shares of Common Stock of
Electric City Corp. (the “Borrower”) according to the conditions set forth in
such Note, as of the date written below.


 


	
  Date of Conversion:

  	
   

  
	
   

  	
   

  
	
  Conversion Price:

  	
   

  
	
   

  	
   

  
	
  Shares To Be Delivered:

  	
   

  
	
   

  	
   

  
	
  Signature:

  	
   

  
	
   

  	
   

  
	
  Print Name:

  	
   

  
	
   

  	
   

  
	
  Address:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Holder  DWAC

  instructions

  	
   

  



 


11