exv10w2



 






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 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 REVOLVING 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), without duplication of any amounts owing by the Company to Holder under the Minimum
Borrowing Notes (as defined in the Security Agreement referred to below), 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 the date hereof (as
amended, modified and supplemented from time to time, the “Security Agreement”).



          The
following terms shall apply to this Secured Revolving Note (this “Note”):



ARTICLE I

CONTRACT RATE AND MINIMUM BORROWING NOTE




          1.1 Contract Rate. Subject to Sections 3.2 and 4.10, 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.



          1.2 Allocation of Principal to Minimum Borrowing Note. In the event that the amount
due and payable hereunder should equal or exceed $1,000,000, to the extent that the outstanding
balance on any Minimum Borrowing Note shall be less than or equal to $1,000,000



 









 





(the difference of
$2,000,000 less the actual balance of such Minimum Borrowing Note, the “Available Minimum
Borrowing”), such portion of the balance hereof as shall equal the Available Minimum Borrowing
shall be deemed to be simultaneously extinguished on this Note and transferred to, and evidenced
by, such Minimum Borrowing Note.



          1.3 Optional Prepayment in Cash. The Company shall have the option of
prepaying this Note in full or in part in cash at any time without premium or penalty.



ARTICLE II

CONVERSION RIGHTS AND FIXED CONVERSION PRICE




          2.1 Optional Conversion. Subject to the terms of this Article II, 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 III), and, subject to the limitations set forth in Section 2.2
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 restricted shares of the Common Stock at
the Fixed Conversion Price (defined below). For purposes hereof, subject to Section 2.6 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.”



          2.2 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 2.2 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 2.2 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



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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.



          2.3 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 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.



          2.4 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 II upon conversion of this Note, in the amount equal to $250 per
Business Day after the Delivery Date. The Company shall make any payments incurred under this
Section in immediately available funds upon demand.



          2.5 Conversion Mechanics. The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the principal and interest
and fees to be converted, if any, by the then applicable Fixed Conversion Price.



          2.6 Adjustment Provisions. The Fixed Conversion Price and number and kind of shares
or other securities to be issued upon conversion determined pursuant to Section 2.1 shall be
subject to adjustment from time to time upon the happening of certain events while this conversion
right remains outstanding, as follows:



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               (a) Reclassification. If the Company 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 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 (i) immediately prior to or (ii) immediately after, such reclassification or other
change at the sole election of the Holder.



               (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 or any preferred stock issued by the Company in shares of Common Stock
(other than a dividend paid in connection with the Series E Convertible Preferred Stock of the
Company issued prior to the date of this Note), 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 2.6, if the Company
shall at any time prior to the conversion or repayment in full of the Principal Amount issue any
shares of Common Stock or securities convertible into Common Stock to a Person other than the
Holder (except (i) pursuant to Sections 2.6(a) or (b) above; (ii) pursuant to options, warrants, or
other obligations to issue shares outstanding or proposed to be issued on the date hereof as
disclosed to the Holder in writing; (iii) pursuant to options that may be issued under any employee
incentive stock option and/or any qualified stock option plan adopted by the Company (including
without limitation, pursuant to the Company’s director stock option plan); or (iv) with respect to
warrants or options exercisable into up to 370,000 shares of Common Stock (as calculated on the
date hereof and appropriately adjusted for any subdivision, combination or similar event) issued to
consultants of the Company, so long as, in the case of this clause (iv), such warrants and options
are exercisable into the Common Stock at an exercise price no less than the greater of (x) $0.75
(as adjusted for any subdivision, combination or similar event with respect to the Common Stock)
and (y) the average closing price of the Common Stock for the immediately preceding five (5)
trading day period) 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 Company convertible into or exercisable or exchangeable for Common Stock shall result in an
adjustment to the Fixed Conversion Price upon the issuance of such securities.



               (d) Computation of Consideration. For purposes of any computation respecting
consideration received pursuant to Section 2.6(c) above, the following shall apply:




               (i) 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 Company for any underwriting of
the issue or otherwise in connection therewith;



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               (ii) 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 Company
(irrespective of the accounting treatment thereof); and




               (iii) upon any such exercise, the aggregate consideration received for such securities
shall be deemed to be the consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to be received by the Company
upon the conversion or exchange thereof (the consideration in each case to be determined in
the same manner as provided in subsections (i) and (ii) of this Section 2.6(d)).



          2.7 Reservation of Shares. During the period the conversion right exists, the Company
will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of Conversion Shares upon the full conversion of this Note. The Company
represents that upon issuance, the Conversion Shares will be duly and validly issued, fully paid
and non-assessable. The Company 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 the Conversion
Shares upon the conversion of this Note.



ARTICLE III

EVENTS OF DEFAULT AND DEFAULT RELATED PROVISIONS




          3.1 Events of Default. The occurrence of an Event of Default under the Security
Agreement shall constitute an event of default (“Event of
Default”) hereunder.



          3.2 Default Interest. Following the occurrence and during the continuance of an Event
of Default, the Contract Rate 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 at such additional interest rate from the date of such Event of Default until the date
such Event of Default is cured or waived. Furthermore, in addition to the foregoing contained in
this Section 4.2, a default interest rate of five percent (5%) per annum above the then applicable
interest rate hereunder shall apply to any monetary amounts that are due and remain unpaid in
accordance with the terms of this Note, the Security Agreement or any Ancillary Agreement, in each
case, following a three (3) business day grace period.



          3.3 Default Payment. Following the occurrence and during the continuance of an Event
of Default, the Holder, at its option, may elect, in addition to all rights and remedies of the
Holder under the Security Agreement and the Ancillary Agreements and all obligations of the Company
under the Security Agreement and the Ancillary Agreements, to require the Company to make a Default
Payment (“Default Payment”). The Default Payment shall be one hundred percent (100%) of the
outstanding principal amount of the Note, plus accrued but unpaid interest, all other fees then
remaining unpaid, and all other amounts payable hereunder. The Default Payment shall be applied
first to any fees due and payable to the Holder pursuant to the Notes and/or the Ancillary
Agreements, then to accrued and unpaid interest due on the Notes and then



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to the outstanding
principal balance of the Notes. The Default Payment shall be due and payable immediately on the
date that the Holder has exercised its rights pursuant to this Section 3.3.



ARTICLE IV

MISCELLANEOUS




          4.1 Conversion Privileges. The conversion privileges set forth in Article II shall
remain in full force and effect immediately from the date hereof until the date this Note is
indefeasibly paid in full and irrevocably terminated.



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



          4.3 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
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.



          4.4 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.



          4.5 Amendment Provision. The term “Note” and all references 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 such successor
instrument may be amended or supplemented.



          4.6 Assignability. This Note shall be binding upon the Company 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. The Company
may not assign any of its obligations under this Note without the prior written consent of the
Holder, any such purported assignment without such consent being null and void.



          4.7 Cost of Collection. In case of any Event of Default under this Note, the Company
shall pay the Holder the Holder’s reasonable costs of collection, including reasonable attorneys’
fees.



          4.8 Governing Law, Jurisdiction and Waiver of Jury Trial.



               (a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.



               (b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR 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 THE COMPANY, ON THE ONE



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HAND, AND THE HOLDER, ON THE OTHER HAND,
PERTAINING TO THIS NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER ANCILLARY AGREEMENTS OR TO ANY
MATTER ARISING OUT OF OR RELATED TO THIS NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER ANCILLARY
AGREEMENTS; PROVIDED, THAT THE COMPANY 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 NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE
THE HOLDER 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 THE HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS
IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE OR FORUM NON CONVENIENS. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED 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 THE
COMPANY AT THE ADDRESS SET FORTH IN THE SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF THE COMPANY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT
IN THE U.S. MAILS, PROPER POSTAGE PREPAID.



               (c) THE COMPANY HEREBY DESIRES THAT ITS 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 COMPANY HEREBY WAIVES 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
THE HOLDER, AND/OR THE COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, THE SECURITY AGREEMENT, ANY
OTHER ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.



          4.9 Severability. 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 enforceability of any other provision of this Note.



          4.10 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



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charges
hereunder exceed the maximum rate permitted by such law, any payments in excess of such maximum
rate shall be credited against amounts owed by the Company to the Holder and thus refunded to the
Company.



          4.11 Security Interest. The Holder has been granted a security interest in certain
assets of the Company as more fully described in the Security Agreement



          4.12 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]




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     IN
WITNESS WHEREOF, the Company has caused this Secured Revolving Note to be signed in its
name effective as of this ___day of February, 2005,


	 	 	 	 	 
	 	ELECTRIC CITY CORP.

 	 
	 	By:  	/s/ Jeffrey Mistarz
 	 
	 	 	Name:  	Jeffrey Mistarz 	 
	 	 	Title:  	Chief Financial Officer & Treasurer 	 
	 




WITNESS:



/s/ Tammy Koeller





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EXHIBIT A




NOTICE OF CONVERSION




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





     The undersigned hereby elects to convert $___of the principal and $___of the
interest due on the Secured Revolving Note dated as of February ___, 2005 (the “Note”) issued by
Electric City Corp. (the “Company”) into shares of Common Stock of the Company in accordance with
the terms and conditions set forth in the Note, as of the date written below.






	 	 	 
	Date of Conversion:

	 	
	

	 	

	 
	Conversion Price:

	 	 
	

	 	

	 
	Shares To Be Delivered:

	 	 
	

	 	

	 
	Signature:

	 	 
	

	 	

	 
	Print Name:

	 	
	

	 	

	 
	Address:

	 	
	

	 	

	 
	Holder DWAC instructions