Document:

exv10w3

 

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.

2

 

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

3

 

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 Company shall make any payments incurred under this
Section in immediately available funds upon demand.

          3.5 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.

          3.6 Adjustment Provisions. The Fixed Conversion Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section 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. 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

4

 

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 3.6, 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 3.6(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 3.6(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;

               (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 2.5).

5

 

          3.7 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.

          3.8 Mandatory Conversion. Notwithstanding anything herein to the contrary, subject to
the conversion limitations set forth in Section 3.2, if, after the date a registration statement
covering the resale of the Conversion Shares is declared effective, and so long as such
registration statement remains effective, (A) the average closing price for any eleven (11)
consecutive trading days (a “Conversion Period”) exceeds 115% of the then effective Fixed
Conversion Price, the Holder will, within eleven (11) trading days of any such Conversion Period,
convert all (or a portion thereof if such conversion would be in excess of the volume limitations
set forth in clause (iii) of the immediately succeeding sentence) of the then outstanding Principal
Amount of this Note plus all accrued, but unpaid interest related thereto. The Holder shall only
be required to effect such a conversion referred to in the immediately preceding sentence if each
of the following shall be true: (i) there is an effective registration statement pursuant to which
the Holder is permitted to utilize the prospectus thereunder to resell all of the Conversion Shares
issued to the Holder (or such Conversion Shares are eligible under Rule 144 of the Securities Act);
(ii) there is a sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all the Conversion Shares as are issuable to the Holder upon such
conversion of this Note pursuant to this Section 3.8 and (iii) the amount of this Note to be so
converted pursuant to this Section 3.8 (when combined with the amount of the secured convertible
term note issued by the Company to the Holder dated September 11, 2003 to be so converted pursuant
to Section 2.5 thereof and the amount of any other promissory note issued by the Borrower to the
Holder required to be similarly or manditorily converted) does not exceed twenty five percent
(25%) of the aggregate dollar trading volume of the Common Stock during the Conversion Period.
Notwithstanding anything to the contrary contained in this Section 3.8, the Holder shall not be
required to effect such a conversion referred to in this Section 3.8 more than one time in any
twenty-two (22) day trading period.

          3.9 Registration Rights. The Holder has been granted registration rights with respect
to the Conversion Shares as set forth in a Registration Rights Agreement.

6

 

ARTICLE IV

EVENTS OF DEFAULT AND DEFAULT RELATED PROVISIONS

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

          4.2 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.

          4.3 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 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 4.3.

ARTICLE V

MISCELLANEOUS

          5.1 Conversion Privileges. The conversion privileges set forth in Article III 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.

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

          5.3 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.

          5.4 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.

7

 

          5.5 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.

          5.6 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.

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

          5.8 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 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

8

 

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 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.

          5.9 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.

          5.10 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 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.

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

          5.12 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]

9

 

          IN WITNESS WHEREOF, the Company has caused this Secured Convertible Minimum Borrowing Note to
be signed in its name effective as of this 28th day of February, 2005.

	 	 	 	 	 
	 	ELECTRIC CITY CORP.

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

WITNESS:

/s/ Tammy Koeller

10

 

EXHIBIT A

NOTICE OF CONVERSION

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

Secured Convertible Minimum Borrowing Note)

          The undersigned hereby elects to convert $___of the principal and $___of the
interest due on the Secured Convertible Minimum Borrowing Note dated as of ___, 200___(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

	 	 
	

	 	

11exv10w4

 

Exhibit 10.4

GREAT LAKES CONTROLLED ENERGY CORPORATION

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:

	 	February 28, 2005

To Whom It May Concern:

          1. To secure the payment of all Obligations (as hereafter defined), Great Lakes Controlled
Energy Corporation, a Delaware corporation (the “Assignor”), 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 the Assignor, or in which the 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 Lockbox Deposit Accounts), ,
inventory, equipment, goods, documents, instruments (including, without limitation, promissory
notes), contract rights, general intangibles (including, without limitation, payment intangibles,
chattel paper, supporting obligations, investment property (including, without limitation, all
equity interests owned by the Assignor), letter-of-credit rights, trademarks, trademark
applications, tradestyles, patents, patent applications, copyrights and copyright applications in
which the 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 therefore. In the event the Assignor wishes to finance the
acquisition of any hereafter acquired equipment and have obtained a commitment from a financing
source to finance such equipment from an unrelated third party, Laurus agrees to 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
meaning provided such terms the Securities Purchase Agreement referred to below and the Security
Agreement referred to below , as applicable.

          2. The term “Obligations” as used herein shall mean and include all debts, liabilities and
obligations owing by the Assignor to Laurus arising under, out of, or in connection with: [(i) that
certain Securities Purchase Agreement dated as of September 11, 2003 by and between Electric City
Corp., a Delaware corporation (the “Company”) and Laurus (the “Securities Purchase Agreement”) and
(ii) the Related Agreements referred to in the Securities Purchase

 

 

Agreement, (iii) that certain
Security Agreement dated as of September 11, 2003 by and between the Company and Laurus (the
“Security Agreement”) and (iv) the Ancillary Agreements referred to in the Security Agreement (the
Securities Purchase Agreement and each Related Agreement, the Security Agreement and each Ancillary
Agreement, as each may be amended, modified, restated or supplemented from time to time, are
collectively referred to herein as the “Documents”), or 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, or any other indebtedness, obligations or liabilities
of the 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, 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 the Assignor under Title 11, United States
Code, including, without limitation, obligations or indebtedness of the Assignor for post-petition
interest, fees, costs and charges that would have accrued or been added to the Obligations but for
the commencement of such case.

          3. The Assignor hereby 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 organized under the laws of the State of Delaware,
and it will provide Laurus thirty (30) days’ prior written notice of any change in its
jurisdiction of organization;

               (b) its legal name, as set forth in its Certificate of Incorporation (or equivalent
organizational document) as amended through the date hereof, is Great Lakes Controlled
Energy Corporation and it will provide Laurus thirty (30) days’ prior written notice of any
change in its legal name;

               (c) its organizational identification number (if applicable) is 3241359, 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 the 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 the Collateral owned by it 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) purchase money indebtedness and
capital lease obligations indebtedness not in excess of $100,000 in the aggregate incurred
to acquire property used in Assignor’s business and not emcumbering any other asset of
Assignor;

2

 

               (f) it will at its own 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 business;

               (g) it will not without Laurus’ prior written consent, sell, exchange, lease or
otherwise dispose of the 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 $100,000 and only to the extent that:

                    (i) the proceeds of any such disposition are used to acquire replacement
Collateral which is subject to Laurus’ first priority perfected security interest or
are used to repay Obligations or to pay general corporate expenses; and

                    (ii) following the occurrence of an Event of Default which continues to exist
the proceeds of which are remitted to Laurus to be held as cash collateral for the
Obligations;

               (h) it will maintain insurance with respect to the Collateral of the type referred to
in Section 13(g) of the Security Agreement;

               (i) it will at all reasonable times allow Laurus or Laurus’ representatives free access
to and the right of inspection of the Collateral;

               (j) the 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 Security Agreement or in the prosecution or defense of any
action or proceeding either against the Assignor or Laurus concerning any matter growing out
of or in connection with this 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); and

               (k) The Assignor will (x) irrevocably direct all of its present and future Account
Debtors (as defined below) and other persons obligated to make payments constituting
Collateral to make such payments directly to the lockboxes maintained by the Assignor (the
“Lockboxes”) with American Chartered Bank or such other financial institution accepted by
Laurus in writing as may be selected by the Company (the “Lockbox Bank”) (each such
direction pursuant to this clause (x), a “Direction Notice”) and (y) provide Laurus with
copies of each Direction Notice. Upon receipt of such payments, the Lockbox Bank has agreed
to deposit the proceeds of such payments in that certain deposit account maintained at the
Lockbox Bank and evidenced by the account name of [___] and the account number of
[___], or such other deposit accepted by Laurus in writing (the “Lockbox Deposit
Account”). On or prior to the Closing Date,

3

 

the Company shall and shall cause the Lockbox
Bank to enter into all such documentation acceptable to Laurus pursuant to which, among
other things, the Lockbox Bank agrees to, following notification by Laurus (which
notification Laurus shall only give following the occurrence and during the continuance of
an Event of Default), comply only with the instructions or other directions of Laurus
concerning the Lockbox and the Lockbox Deposit Account. All of the Assignor’s invoices,
account statements and other written or oral communications directing, instructing,
demanding or requesting payment of any Account of the Assignor or any other amount
constituting Collateral shall conspicuously direct that all payments be made to the Lockbox
or such other address as Laurus may direct in writing. If, notwithstanding the instructions
to Account Debtors, the Assignor receives any payments, the Assignor shall immediately remit
such payments to the Lockbox Deposit Account in their original form with all necessary
endorsements. Until so remitted, the Assignor shall hold all such payments in trust for and
as the property of Laurus and shall not commingle such payments with any of its other funds
or property. For the purpose of this Security Agreement, (x) “Accounts” shall mean all
“accounts”, as such term is defined in the Uniform Commercial Code as in effect in the State
of New York on the date hereof, now owned or hereafter acquired by the Assignor and (y)
“Account Debtor” shall mean any person or entity who is or may be obligated with respect to,
or on account of, an Account.

          4. The occurrence of any of the following events or conditions shall constitute an “Event of
Default” under this Security Agreement:

               (a) any covenant, warranty, representation or statement made or furnished to Laurus by
the Assignor or on the Assignor’s behalf was breached in any material respect or false in
any material respect when made or furnished, as the case may be, and, in the case of a
covenant, if subject to cure, shall not be cured for a period of fifteen (15) days;

               (b) the loss, theft, substantial damage, destruction, sale or encumbrance to or of any
material amount 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 and such levy, seizure or attachment has been removed or otherwise released
within ten (10) days of the creation or the assertion thereof;

               (c) the Assignor shall become insolvent, cease operations, dissolve, terminate business
existence, make an assignment for the benefit of creditors, or suffer the appointment of a
receiver, trustee, liquidator or custodian of all or any part of the Assignor’s property;

               (d) any proceedings under any bankruptcy or insolvency law shall be commenced by or
against the Assignor; or

4

 

               (e) an Event of Default (or similar term) shall have occurred under and as defined in
the Securities Purchase Agreement, the Security Agreement or any other Document.

          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 Uniform Commercial Code as in effect in the State of New York, this Master Security
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 the Assignor’s premises or to remove the Collateral or any part thereof to such other
premises as Laurus may desire. Upon Laurus’ request, the Assignor shall assemble the Collateral
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 Assignor either at the Assignor’s address shown herein or at any address
appearing on Laurus’ records for the 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 expense 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 the 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 the 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 the Assignor defaults in the performance or fulfillment of any of the terms, conditions,
promises, covenants, provisions or warranties on the Assignor’s part to be performed or fulfilled
under or pursuant to this Security Agreement, Laurus may, at its option without waiving its right
to enforce this Security Agreement according to its terms, immediately or at any time thereafter
and without notice to the Assignor, perform or fulfill the same or cause the performance or
fulfillment of the same for the Assignor’s account and at the Assignor’s 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 deposit account in the name of any Assignor and
controlled by Laurus.

          7. The Assignor hereby appoints Laurus, any of Laurus’ officers, employees or any other person
or entity whom Laurus may designate as our attorney, with power to execute such documents in our
behalf and to supply any omitted information and correct patent errors in any documents executed by
the Assignor or on our behalf; to file financing statements against the 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 the Assignor’s name on public records;
and to do all other things Laurus deems necessary to carry out this Security Agreement. The
Assignor hereby ratifies and approve all acts of the attorney and

5

 

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 their gross 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 the 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. The Assignor agrees to join with
Laurus in executing financing statements or other instruments to the extent required by the Uniform
Commercial Code 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 Security Agreement shall be governed by and construed in accordance with the laws of
the State of New York and cannot be terminated orally. 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 Security Agreement shall inure to the benefit of each of the foregoing, and
shall bind the representatives, successors and assigns of the Assignor. Each of Laurus and the
Assignor hereby (a) waives any and all right to trial by jury in litigation relating to this
Security Agreement and the transactions contemplated hereby and the Assignor hereby agrees not to
assert any non-mandatory counterclaim in such litigation, (b) submit to the nonexclusive
jurisdiction of any New York State court sitting in the borough of Manhattan, the City of New York
and (c) waive any objection the Assignor or Laurus may have as to the bringing or maintaining of
such action with any such court.

          10. All notices from Laurus to the Assignor shall be sufficiently given if mailed or delivered
to the Assignor at its address set forth below.

	 	 	 	 	 
	 	Very truly yours,

GREAT LAKES CONTROLLED ENERGY CORPORATION

 	 
	 	By:  	/s/ Jeffrey Mistarz
 	 
	 	 	Name:  	Jeffrey Mistarz 	 
	 	 	Title:  	Treasurer 	 

6

 

	 	 	 	 	 

	 	 	 	 	 
	 	Address for Notices:

1280 Landmeier Road

Elk Grove Village, IL 60007

Attention: Chief Financial Officer

 	 
	 	 	 
	 	 	 
	 	 	 
	 

ACKNOWLEDGED:

Laurus Master Fund, Ltd.

	 	 	 
	By:

	 	/s/ David
Grin     
	

	 	
	Name:

	 	David
Grin           
	

	 
	Title:

	 	Partner                 
	 

7

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00079-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00079-of-00352.parquet"}]]