Exhibit 10.1

 

 

ELECTRIC CITY CORP.

 

SECURITIES PURCHASE AGREEMENT

 

 

September 11, 2003

 

 

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TABLE OF CONTENTS

 

1.

AGREEMENT TO SELL AND PURCHASE

 

2.

FEES AND WARRANT

 

3.

CLOSING, DELIVERY AND PAYMENT

 

3.1

Closing

 

3.2

Delivery

 

4.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

4.1

Organization, Good Standing and Qualification

 

4.2

Subsidiaries

 

4.3

Capitalization; Voting Rights

 

4.4

Authorization; Binding Obligations

 

4.5

Liabilities

 

4.6

Agreements; Action

 

4.7

Obligations to Related Parties

 

4.8

Changes

 

4.9

Title to Properties and Assets; Liens, Etc.

 

4.10

Intellectual Property

 

4.11

Compliance with Other Instruments

 

4.12

Litigation

 

4.13

Tax Returns and Payments

 

4.14

Employees

 

4.15

Registration Rights and Voting Rights

 

4.16

Compliance with Laws; Permits

 

4.17

Environmental and Safety Laws

 

4.18

Valid Offering

 

4.19

Full Disclosure

 

4.20

Insurance

 

4.21

SEC Reports

 

4.22

Listing

 

4.23

No Integrated Offering

 

4.24

Stop Transfer

 

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4.25

Dilution

 

5.

REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

 

5.1

Requisite Power and Authority

 

5.2

Investment Representations

 

5.3

Purchaser Bears Economic Risk

 

5.4

Acquisition for Own Account

 

5.5

Purchaser Can Protect Its Interest

 

5.6

Accredited Investor

 

5.7

Legends

 

5.8

No Shorting

 

6.

COVENANTS OF THE COMPANY

 

6.1

Stop-Orders

 

6.2

Listing

 

6.3

Market Regulations

 

6.4

Reporting Requirements

 

6.5

Use of Funds

 

6.6

Access to Facilities

 

6.7

Taxes

 

6.8

Insurance

 

6.9

Intellectual Property

 

6.10

Properties

 

6.11

Confidentiality

 

6.12

Required Approvals

 

6.13

Reissuance of Securities

 

6.14

Opinion

 

7.

COVENANTS OF THE PURCHASER

 

7.1

Confidentiality

 

7.2

Non-Public Information

 

8.

COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION

 

8.1

Company Indemnification

 

8.2

Purchaser’s Indemnification

 

8.3

Procedures

 

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9.

CONVERSION OF CONVERTIBLE NOTE

 

9.1

Mechanics of Conversion

 

9.2

Maximum Conversion

 

10.

REGISTRATION RIGHTS

 

10.1

Registration Rights Granted

 

10.2

Indemnification

 

10.3

Offering Restrictions

 

11.

MISCELLANEOUS

 

11.1

Governing Law

 

11.2

Survival

 

11.3

Successors and Assigns

 

11.4

Entire Agreement

 

11.5

Severability

 

11.6

Amendment and Waiver

 

11.7

Delays or Omissions

 

11.8

Notices

 

11.9

Attorneys’ Fees

 

11.10

Titles and Subtitles

 

11.11

Facsimile Signatures; Counterparts

 

11.12

Broker’s Fees

 

11.13

Construction

 

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SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into
as of September 11, 2003, by and between Electric City Corp., a Delaware
corporation (the “Company”), and Laurus Master Fund, Ltd., a Cayman Islands
company (the “Purchaser”).

 

RECITALS

 

WHEREAS, the Company has authorized the sale to the Purchaser of a Convertible
Term Note in the aggregate principal amount of $1,000,000 (the “Note”), which
Note is convertible into shares of the Company’s common stock, $0.0001 par value
per share (the “Common Stock”) at a fixed conversion price of $2.12 per share of
Common Stock  (“Fixed Conversion Price”);

 

WHEREAS, the Company wishes to issue a warrant to the Purchaser to purchase up
to 140,000 shares of the Company’s Common Stock in connection with Purchaser’s
purchase of the Note;

 

WHEREAS, Purchaser desires to purchase the Note and Warrant on the terms and
conditions set forth herein; and

 

WHEREAS, the Company desires to issue and sell the Note and Warrant to Purchaser
on the terms and conditions set forth herein.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

 

1.                                      AGREEMENT TO SELL AND PURCHASE. 
Pursuant to the terms and conditions set forth in this Agreement, on the Closing
Date (as defined in Section 3), the Company agrees to sell to the Purchaser, and
the Purchaser hereby agrees to purchase from the Company a Note in the amount of
$1,000,000 convertible in accordance with the terms thereof into shares of the
Company’s Common Stock in accordance with the terms of the Note and this
Agreement.  The Note purchased on the Closing Date shall be known as the
“Offering.”  A form of the Note is annexed hereto as Exhibit A.  The Note will
have a Maturity Date (as defined in the Note) twenty four (24) months from the
date of issuance.  Collectively, the Note and Warrant (as defined in Section 2)
and Common Stock issuable in payment of the Note, upon conversion of the Note
and upon exercise of the Warrant are referred to as the “Securities”.

 

2.                                      FEES AND WARRANT.   On the Closing Date:

 

(a)                                  The Company will issue and deliver to the
Purchaser a Warrant to purchase 140,000 shares of Common Stock in connection
with the Offering (the “Warrant”) pursuant to Section 1 hereof.  The Warrant
must be delivered on the Closing Date.  A form of

 

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Warrant is annexed hereto as Exhibit B.  All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made or granted
to or for the benefit of the Purchaser by the Company are hereby also made and
granted in respect of the Warrant and shares of the Company’s Common Stock
issuable upon exercise of the Warrant (the “Warrant Shares”).

 

(b)                                 Upon execution and delivery of this
Agreement by the Company and Purchaser , the Company shall pay to Laurus Capital
Management, LLC, manager of  Purchaser (i) a closing payment in an amount equal
to five percent  (5%) of the aggregate principal amount of the Note. The
foregoing fee is referred to herein as the “Closing Payment”.

 

(c)                                  The Company shall reimburse the Purchaser
for its reasonable legal fees for services rendered to the Purchaser in
preparation of this Agreement and the Related Agreements (as hereinafter
defined), and expenses in connection with the Purchaser’s due diligence review
of the Company and relevant matters.  Amounts required to be paid hereunder will
be paid at the Closing and shall not exceed $22,000 for legal expenses and
$17,500 for performing due diligence inquiries on the Company.

 

(d)                                 The Closing Payment, legal fees and due
diligence fees (net of deposits previously paid by the Company shall be paid at
closing out of funds held pursuant to a Funds Escrow Agreement of even date
herewith among the company, Purchaser, and an Escrow Agent (the “Funds Escrow
Agreement”) and a disbursement letter (the “Disbursement Letter”).

 

3.                                      CLOSING, DELIVERY AND PAYMENT.

 

3.1                               Closing.  Subject to the terms and conditions
herein, the closing of the transactions contemplated hereby (the “Closing”),
shall take place on the date hereof, at such time or place as the Company and
Purchaser may mutually agree (such date is hereinafter referred to as the
“Closing Date”).

 

3.2                               Delivery.  Pursuant to the Funds Escrow
Agreement in the form attached hereto as Exhibit C, at the Closing on the
Closing Date, the Company will deliver to the Purchaser, among other things, a
Note in the form attached as Exhibit A representing the principal amount of
$1,000,000 and a Warrant in the form attached as Exhibit B in the Purchaser’s
name representing 140,000 Warrant Shares and the Purchaser will deliver to the
Company, among other things, the amounts set forth in the Disbursement Letter by
certified funds or wire transfer.

 

4.                                      REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.

 

The Company hereby represents and warrants to the Purchaser as of the date of
this Agreement as set forth below which disclosures are supplemented by, and
subject to the Company’s filings under the Securities Exchange Act of 1934
(collectively, the “Exchange Act Filings”), copies of which have been provided
to the Purchaser.

 

4.1                               Organization, Good Standing and
Qualification.  The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of

 

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Delaware.  The Company has the corporate power and authority to own and operate
its properties and assets, to execute and deliver this Agreement, and the Note
and the Warrant to be issued in connection with this Agreement, the Security
Agreement relating to the Note dated as of September 11, 2003 between the
Company and the Purchaser, the Registration Rights Agreement relating to the
Securities dated as of September 11, 2003 between the Company and the Purchaser
and all other agreements referred to herein (collectively, the “Related
Agreements”), to issue and sell the Note and the shares of Common Stock issuable
upon conversion of the Note (the “Note Shares”), to issue and sell the Warrant
and the Warrant Shares, and to carry out the provisions of this Agreement and
the Related Agreements and to carry on its business as presently conducted.  The
Company is duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in which the nature of
its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or its business.

 

4.2                               Subsidiaries.  The Company owns all of the
issued and outstanding capital stock of Great Lakes Controlled Energy Corp., a
Delaware corporation.  The Company does not own or control any equity security
or other interest of any other corporation, limited partnership or other
business entity.

 

4.3                               Capitalization; Voting Rights.

 

(a)                                  The authorized capital stock of the
Company, as of the date hereof consists of 125,000,000 shares, of which
120,000,000 are shares of Common Stock, par value $0.0001 per share, 34,152,021
shares of which are issued and outstanding, and 5,000,000 are shares of
preferred stock, par value $0.01 per share of which 2,653,631 shares are issued
outstanding.

 

(b)                                 Except as disclosed on Schedule 4.3, other
than (i) the shares reserved for issuance under the Company’s stock option
plans; and (ii) shares which may be granted pursuant to this Agreement and the
Related Agreements, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), proxy
or stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities.  Except as
disclosed on Schedule 4.3, neither the offer, issuance or sale of any of the
Note or Warrant, or the issuance of any of the Note Shares or Warrant Shares,
nor the consummation of any transaction contemplated hereby will result in a
change in the price or number of any securities of the Company outstanding,
under anti-dilution or other similar provisions contained in or affecting any
such securities.

 

(c)                                  All issued and outstanding shares of the
Company’s Common Stock (i) have been duly authorized and validly issued and are
fully paid and nonassessable and (ii) were issued in compliance with all
applicable state and federal laws concerning the issuance of securities.

 

(d)                                 The rights, preferences, privileges and
restrictions of the shares of the Common Stock are as stated in the Company’s
Certificate of Incorporation (the “Charter”).  The Note Shares and Warrant
Shares have been duly and validly reserved for issuance.  When issued

 

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in compliance with the provisions of this Agreement and the Company’s Charter,
the Securities will be validly issued, fully paid and nonassessable, and will be
free of any liens or encumbrances; provided, however, that the Securities may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein or as otherwise required by such laws at the time a transfer
is proposed.

 

4.4                               Authorization; Binding Obligations.  All
corporate action on the part of the Company, its officers and directors
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company hereunder at the Closing and,
the authorization, sale, issuance and delivery of the Note and Warrant has been
taken or will be taken prior to the Closing.  The Agreement and the Related
Agreements, when executed and delivered and to the extent it is a party thereto,
will be valid and binding obligations of the Company enforceable in accordance
with their terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors’ rights, and (b) general principles of equity that
restrict the availability of equitable or legal remedies.  The sale of the Note
and the subsequent conversion of the Note into Note Shares are not and will not
be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with. The issuance of the Warrant and the
subsequent exercise of the Warrant for Warrant Shares are not and will not be
subject to any preemptive rights or rights of first refusal that have not been
properly waived or complied with.

 

4.5                               Liabilities.  The Company, to the best of its
knowledge, has no material contingent liabilities, except current liabilities
incurred in the ordinary course of business and liabilities disclosed in any
Exchange Act Filings.

 

4.6                               Agreements; Action.  Except as set forth on
Schedule 4.6 or as disclosed in any Exchange Act Filings:

 

(a)                                  There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or to its knowledge by which it is bound
which may involve (i) obligations (contingent or otherwise) of, or payments to,
the Company in excess of $50,000 (other than obligations of, or payments to, the
Company arising from purchase or sale agreements entered into in the ordinary
course of business), or (ii) the transfer or license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of “off the shelf” or other standard
products), or (iii) provisions restricting the development, manufacture or
distribution of the Company’s products or services, or (iv) indemnification by
the Company with respect to infringements of proprietary rights.

 

(b)                                 Since December 31, 2002, the Company has not
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or any other liabilities (other than ordinary
course obligations) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person not in
excess, individually or in the aggregate, of $100,000, other than ordinary
advances for travel expenses, or (iv) sold, exchanged

 

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or otherwise disposed of any of its assets or rights, other than the sale of its
inventory in the ordinary course of business.

 

(c)                                  For the purposes of subsections (a) and (b)
above, all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.

 

4.7                               Obligations to Related Parties.  Except as set
forth on Schedule 4.7, there are no obligations of the Company to officers,
directors, stockholders or employees of the Company other than (a) for payment
of salary for services rendered and for bonus payments, (b) reimbursement for
reasonable expenses incurred on behalf of the Company, (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company) and (d) obligations listed in the Company’s
financial statements or disclosed in any of its Exchange Act Filings.  Except as
described above or set forth on Schedule 4.7, none of the officers, directors
or, to the best of the Company’s knowledge, key employees or stockholders of the
Company or any members of their immediate families, are indebted to the Company,
individually or in the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company, other than passive investments in
publicly traded companies (representing less than 1% of such company) which may
compete with the Company.  Except as described above, no officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company and no
agreements, understandings or proposed transactions are contemplated between the
Company and any such person.  Except as set forth on Schedule 4.7, the Company
is not a guarantor or indemnitor of any indebtedness of any other person, firm
or corporation.

 

4.8                               Changes.  Since December 31, 2002, except as
disclosed in any Exchange Act Filing or in any Schedule to this Agreement or to
any of the Related Agreements, there has not been:

 

(a)                                  Any change in the assets, liabilities,
financial condition, prospects or operations of the Company, other than changes
in the ordinary course of business, none of which individually or in the
aggregate has had or is reasonably expected to have a material adverse effect on
such assets, liabilities, financial condition, prospects or operations of the
Company;

 

(b)                                 Any resignation or termination of any
officer, key employee or group of employees of the Company;

 

(c)                                  Any material change, except in the ordinary
course of business, in the contingent obligations of the Company by way of
guaranty, endorsement, indemnity, warranty or otherwise;

 

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(d)                                 Any damage, destruction or loss, whether or
not covered by insurance, materially and adversely affecting the properties,
business or prospects or financial condition of the Company;

 

(e)                                  Any waiver by the Company of a valuable
right or of a material debt owed to it;

 

(f)                                    Any direct or indirect material loans
made by the Company to any stockholder, employee, officer or director of the
Company, other than advances made in the ordinary course of business;

 

(g)                                 Any material change in any compensation
arrangement or agreement with any employee, officer, director or stockholder;

 

(h)                                 Any declaration or payment of any dividend
or other distribution of the assets of the Company;

 

(i)                                     Any labor organization activity related
to the Company;

 

(j)                                     Any debt, obligation or liability
incurred, assumed or guaranteed by the Company, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of business;

 

(k)                                  Any sale, assignment or transfer of any
patents, trademarks, copyrights, trade secrets or other intangible assets;

 

(l)                                     Any change in any material agreement to
which the Company is a party or by which it is bound which may materially and
adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company;

 

(m)                               Any other event or condition of any character
that, either individually or cumulatively, has or may materially and adversely
affect the business, assets, liabilities, financial condition, prospects or
operations of the Company; or

 

(n)                                 Any arrangement or commitment by the Company
to do any of the acts described in subsection (a) through (m) above.

 

4.9                               Title to Properties and Assets; Liens, Etc.
Except as set forth on Schedule 4.9, the Company has good and marketable title
to its properties and assets, and good title to its leasehold estates, in each
case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other
than (a) those resulting from taxes which have not yet become delinquent,
(b) minor liens and encumbrances which do not materially detract from the value
of the property subject thereto or materially impair the operations of the
Company, and (c) those that have otherwise arisen in the ordinary course of
business.  All facilities, machinery, equipment, fixtures, vehicles and other
properties owned, leased or used by the Company are in good operating condition
and repair and are reasonably fit and usable for the purposes for which they are
being used.  Except as set forth on Schedule 4.9, the Company is in compliance
with all material terms of each lease to which it is a party or is otherwise
bound.

 

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4.10                        Intellectual Property.

 

(a)                                  The Company owns or possesses sufficient
legal rights to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes
necessary for its business as now conducted and to the Company’s knowledge as
presently proposed to be conducted (the “Intellectual Property”), without any
known infringement of the rights of others.  Except that the Company licenses
certain patent rights from Georgio Reverberi (the terms  of which have been
previously provided in their entirety to the Purchaser), there are no
outstanding options, licenses or agreements of any kind relating to the
foregoing proprietary rights, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from the purchase of “off
the shelf” or standard products.

 

(b)                                 The Company has not received any
communications alleging that the Company has violated any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity, nor is the Company aware of
any basis therefor.

 

(c)                                  The Company does not believe it is or will
be necessary to utilize any inventions, trade secrets or proprietary information
of any of its employees made prior to their employment by the Company, except
for inventions, trade secrets or proprietary information that have been
rightfully assigned to the Company.

 

4.11                        Compliance with Other Instruments.  Except as set
forth on Schedule 4.11, the Company is not in violation or default of any term
of its Charter or Bylaws, or of any material provision of any mortgage,
indenture, contract, agreement, instrument or contract to which it is party or
by which it is bound or of any judgment, decree, order or writ.  The execution,
delivery and performance of and compliance with this Agreement and the Related
Agreements to which it is a party, and the issuance and sale of the Note by the
Company and the other Securities by the Company each pursuant hereto, will not,
with or without the passage of time or giving of notice, result in any such
material violation, or be in conflict with or constitute a default under any
such term or provision, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company or the
suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.

 

4.12                        Litigation.  Except as set forth on Schedule 4.12
hereto, there is no action, suit, proceeding or investigation pending or, to the
Company’s knowledge, currently threatened against the Company that prevents the
Company to enter into this Agreement or the Related Agreements, or to consummate
the transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for any of the foregoing. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.  There is

 

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no action, suit, proceeding or investigation by the Company currently pending or
which the Company intends to initiate.

 

4.13                        Tax Returns and Payments.  The Company has timely
filed all tax returns (federal, state and local) required to be filed by it. 
All taxes shown to be due and payable on such returns, any assessments imposed,
and to the Company’s knowledge all other taxes due and payable by the Company on
or before the Closing, have been paid or will be paid prior to the time they
become delinquent.  Except as set forth on Schedule 4.13, the Company has not
been advised (a) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof, or (b) of any deficiency in assessment
or proposed judgment to its federal, state or other taxes.  The Company has no
knowledge of any liability of any tax to be imposed upon its properties or
assets as of the date of this Agreement that is not adequately provided for.

 

4.14                        Employees.  Except as set forth on Schedule 4.14,
the Company has no collective bargaining agreements with any of its employees. 
There is no labor union organizing activity pending or, to the Company’s
knowledge, threatened with respect to the Company.  Except as disclosed in the
Exchange Act Filings or on Schedule 4.14, the Company is not a party to or bound
by any currently effective employment contract, deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan, retirement
agreement or other employee compensation plan or agreement.  To the Company’s
knowledge, no employee of the Company, nor any consultant with whom the Company
has contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the right
of any such individual to be employed by, or to contract with, the Company
because of the nature of the business to be conducted by the Company; and to the
Company’s knowledge the continued employment by the Company of its present
employees, and the performance of the Company’s contracts with its independent
contractors, will not result in any such violation.  The Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company.  The Company has not received any
notice alleging that any such violation has occurred.  Except for employees who
have a current effective employment agreement with the Company, no employee of
the Company has been granted the right to continued employment by the Company or
to any material compensation following termination of employment with the
Company.  Except as set forth on Schedule 4.14, the Company is not aware that
any officer, key employee or group of employees intends to terminate his, her or
their employment with the Company, nor does the Company have a present intention
to terminate the employment of any officer, key employee or group of employees.

 

4.15                        Registration Rights and Voting Rights.  Except as
set forth on Schedule 4.15 and except as disclosed in Exchange Act Filings, the
Company is presently not under any obligation, and has not granted any rights,
to register any of the Company’s presently outstanding securities or any of its
securities that may hereafter be issued.  Except as set forth on Schedule 4.15
and except as disclosed in Exchange Act Filings, to the Company’s knowledge, no
stockholder of the Company has entered into any agreement with respect to the
voting of equity securities of the Company.

 

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4.16                        Compliance with Laws; Permits.  Except as set forth
on Schedule 4.16, to its knowledge, the Company is not in violation in any
material respect of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which violation would materially and adversely affect the business,
assets, liabilities, financial condition, operations or prospects of the
Company.  No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or declarations
are required to be filed in connection with the execution and delivery of this
Agreement and the issuance of any of the Securities, except such as has been
duly and validly obtained or filed, or with respect to any filings that must be
made after the Closing, as will be filed in a timely manner.  The Company has
all material franchises, permits, licenses and any similar authority necessary
for the conduct of its business as now being conducted by it, the lack of which
would materially and adversely affect the business, properties, prospects or
financial condition of the Company.

 

4.17                        Environmental and Safety Laws.  The Company is not
in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.  Except as set forth on Schedule 4.17, no Hazardous
Materials (as defined below) are used or have been used, stored, or disposed of
by the Company or, to the Company’s knowledge, by any other person or entity on
any property owned, leased or used by the Company.  For the purposes of the
preceding sentence, “Hazardous Materials” shall mean (a) materials which are
listed or otherwise defined as “hazardous” or “toxic” under any applicable
local, state, federal and/or foreign laws and regulations that govern the
existence and/or remedy of contamination on property, the protection of the
environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials, or
(b) any petroleum products or nuclear materials.

 

4.18                        Valid Offering.  Assuming the accuracy of the
representations and warranties of the Purchaser contained in this Agreement, the
offer, sale and issuance of the Securities will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the “Securities Act”),
and will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws.

 

4.19                        Full Disclosure.  The Company has provided the
Purchaser with all information requested by the Purchaser in connection with its
decision to purchase the Note and Warrant, including all information the Company
believes is reasonably necessary to make such investment decision.  Neither this
Agreement, the exhibits and schedules hereto, the Related Agreements nor any
other document delivered by the Company to Purchaser or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated hereby
or thereby, contain any untrue statement of a material fact nor omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances in which they are made, not misleading. 
Any financial projections and other estimates provided to the Purchaser by the
Company were based on the Company’s experience in the industry and on
assumptions of fact and opinion as to future events which the Company, at the
date of the issuance of such projections or estimates, believed to be
reasonable.

 

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4.20                        Insurance.  The Company has general commercial,
product liability, fire and casualty insurance policies with coverages which the
Company believes are customary for companies similarly situated to the Company
in the same or similar business.

 

4.21                        SEC Reports.  Except as set forth on Schedule 4.21,
the Company has filed all proxy statements, reports and other documents required
to be filed by it under the Exchange Act.  The Company has furnished the
Purchaser with copies of (i) its Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2002 and (ii) its Quarterly Reports on Form 10-QSB for
the fiscal quarters ended March 31, 2003 and June 30, 2003, and the Form 8-K
filings which is has made during 2003 to day(collectively, the “SEC Reports”). 
Except as set forth on Schedule 4.21, each SEC Report was, at the time of its
filing, in substantial compliance with the requirements of its respective form
and none of the SEC Reports, nor the financial statements (and the notes
thereto) included in the SEC Reports, as of their respective filing dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.

 

4.22                        Listing.  The Company’s Common Stock is listed for
trading on the American Stock Exchange  and satisfies all requirements for the
continuation of such listing.  The Company has not received any notice that its
Common Stock will be delisted from the American Stock  Exchange or that its
Common Stock does not meet all requirements for listing.

 

4.23                        No Integrated Offering.  Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers (other than a concurrent offering to the
Purchaser under a Security Agreement between the Company and the Purchaser dated
as of September     , 2003) or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other offerings
(other than such concurrent offering to the Purchaser).

 

4.24                        Stop Transfer.  The Securities are restricted
securities as of the date of this Agreement.  The Company will not issue any
stop transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or an
exemption from registration is available, except as required by state and
federal securities laws.

 

4.25                        Dilution.  The Company specifically acknowledges
that its obligation to issue the shares of Common Stock upon conversion of the
Note and exercise of the Warrant is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company.

 

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5.                                      REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER.

 

The Purchaser hereby represents and warrants to the Company as follows (such
representations and warranties do not lessen or obviate the representations and
warranties of the Company set forth in this Agreement):

 

5.1                               No Shorting.  The Purchaser or any of its
affiliates and investment partners will not and will not cause any person or
entity, directly or indirectly, to engage in “short sales” of the Company’s
Common Stock or any other hedging strategies.

 

5.2                               Requisite Power and Authority.  Purchaser has
all necessary power and authority under all applicable provisions of law to
execute and deliver this Agreement and the Related Agreements and to carry out
their provisions.  All corporate action on Purchaser’s part required for the
lawful execution and delivery of this Agreement and the Related Agreements have
been or will be effectively taken prior to the Closing.  Upon their execution
and delivery, this Agreement and the Related Agreements will be valid and
binding obligations of Purchaser, enforceable in accordance with their terms,
except (a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors’ rights, and (b) as limited by general principles of equity that
restrict the availability of equitable and legal remedies.

 

5.3                               Investment Representations. Purchaser
understands that the Securities are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in part upon
Purchaser’s representations contained in the Agreement, including, without
limitation, that the Purchaser is an “accredited investor” within the meaning of
Regulation D under the Securities Act of 1933, as amended (the “Securities
Act”).  The Purchaser confirms that it has received or has had full access to
all the information it considers necessary or appropriate to make an informed
investment decision with respect to the Note and the Warrant to be purchased by
it under this Agreement and the Note Shares and the Warrant Shares acquired by
it upon the conversion of the Note and the exercise of the Warrant,
respectively. The Purchaser further confirms that it has had an opportunity to
ask questions and receive answers from the Company regarding the Company’s
business, management and financial affairs and the terms and conditions of the
Offering, the Note, the Warrant and the Securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.

 

5.4                               Purchaser Bears Economic Risk.   Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests.  Purchaser must bear the economic
risk of this investment until the Securities are sold pursuant to (i) an
effective registration statement under the Securities Act, or (ii) an exemption
from registration is available with respect to such sale.

 

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5.5                               Acquisition for Own Account.  Purchaser is
acquiring the Note and Warrant and the Note Shares and the Warrant Shares for
Purchaser’s own account for investment only, and not as a nominee or agent and
not with a view towards or for resale in connection with their distribution.

 

5.6                               Purchaser Can Protect Its Interest.  
Purchaser represents that by reason of its, or of its management’s, business and
financial experience, Purchaser has the capacity to evaluate the merits and
risks of its investment in the Note, the Warrant and the Securities and to
protect its own interests in connection with the transactions contemplated in
this Agreement, and the Related Agreements.  Further, Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.

 

5.7                               Accredited Investor.   Purchaser represents
that it is an accredited investor within the meaning of Regulation D under the
Securities Act.

 

5.8                               Legends.

 

(a)                                  The Note shall bear substantially the
following legend:

 

“THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE,
STATE SECURITIES LAWS.  THIS NOTE AND THE COMMON STOCK 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 OR SUCH SHARES
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ELECTRIC CITY CORP. THAT SUCH REGISTRATION IS NOT
REQUIRED.”

 

(b)                                 The Note Shares and the Warrant Shares, if
not issued by DWAC system (as hereinafter defined), shall bear a legend which
shall be in substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
ELECTRIC

 

12

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 CITY CORP. THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

(c)                                  The Warrant shall bear substantially the
following legend:

 

“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
ELECTRIC CITY CORP. THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

6.                                      COVENANTS OF THE COMPANY.   The Company
covenants and agrees with the Purchaser as follows:

 

6.1                               Stop-Orders. The Company will advise the
Purchaser, promptly after it receives notice of issuance by the Securities and
Exchange Commission (the “SEC”), any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
any offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.

 

6.2                               Listing.   The Company shall promptly secure
the listing of the shares of Common Stock issuable upon conversion of the Note
and upon the exercise of the Warrant on the American Stock Exchange (the
“Principal Market”) upon which shares of Common Stock are listed (subject to
official notice of issuance) and shall maintain such listing so long as any
other shares of Common Stock shall be so listed.  The Company will maintain the
listing of its Common Stock on the Principal Market, and will comply in all
material respects with the Company’s reporting, filing and other obligations
under the bylaws or rules of the National Association of Securities Dealers
(“NASD”) and such exchanges, as applicable.

 

6.3                               Market Regulations.   The Company shall notify
the SEC, NASD and applicable state authorities, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities to Purchaser and promptly provide copies thereof to Purchaser.

 

6.4                               Reporting Requirements.   The Company will
timely file with the SEC all reports required to be filed pursuant to the
Exchange Act and refrain from terminating its status as

 

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an issuer required by the Exchange Act to file reports thereunder even if the
Exchange Act or the rules or regulations thereunder would permit such
termination.

 

6.5                               Use of Funds.   The Company agrees that it
will use the proceeds of the sale of the Note and Warrant for general corporate
purposes only.

 

6.6                               Access to Facilities.   The Company will
permit any representatives designated by the Purchaser (or any successor of the
Purchaser), upon reasonable notice and during normal business hours, at such
person’s expense and accompanied by a representative of the Company, to (a)
visit and inspect any of the properties of the Company, (b) examine the
corporate and financial records of the Company (unless such examination is not
permitted by federal, state or local law or by contract) and make copies thereof
or extracts therefrom and (c) discuss the affairs, finances and accounts of the
Company with the directors, officers and independent accountants of the
Company.  Notwithstanding the foregoing, the Company will not provide any
material, non-public information to the Purchaser unless the Purchaser signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.

 

6.7                               Taxes.    The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.

 

6.8                               Insurance.   The Company will keep its assets
which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in similar business similarly situated as the
Company; and the Company will maintain, with financially sound and reputable
insurers, insurance against other hazards and risks and liability to persons and
property to the extent and in the manner which the Company reasonably believes
is customary for companies in similar business similarly situated as the Company
and to the extent available on commercially reasonable terms.

 

6.9                               Intellectual Property.   The Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use Intellectual Property owned or
possessed by it and reasonably deemed to be necessary to the conduct of its
business.

 

6.10                        Properties.   The Company will keep its properties
in good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under

 

14

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which it occupies property if the breach of such provision could reasonably be
expected to have a material adverse effect.

 

6.11                        Confidentiality.  The Company agrees that it will
not disclose, and will not include in any public announcement, the name of the
Purchaser, unless expressly agreed to by the Purchaser or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.

 

6.12                        Required Approvals.  For so long as 25% of the
principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not:

 

(a)                                  directly or indirectly declare or pay any
dividends, other than dividends with respect to its preferred stock;

 

(b)                                 liquidate, dissolve or effect a material
reorganization;

 

(c)                                  become subject to (including, without
limitation, by way of amendment to or modification of) any agreement or
instrument which by its terms would (under any circumstances) restrict the
Company’s right to perform the provisions of this Agreement or any of the
agreements contemplated thereby; or

 

(d)                                 materially alter or change the scope of the
business of the Company.

 

6.13                        Reissuance of Securities.  The Company agrees to
reissue certificates representing the Securities without the legends set forth
in Section 5.7 above at such time as (a) the holder thereof is permitted to
dispose of such Securities pursuant to Rule 144(k) under the Securities Act, or
(b) upon resale subject to an effective registration statement after such
Securities are registered under the Securities Act.  The Company agrees to
cooperate with the Purchaser in connection with all resales pursuant to Rule
144(d) and Rule 144(k) and provide legal opinions necessary to allow such
resales provided the Company and its counsel receive reasonably requested
representations from the selling Purchaser and broker, if any.

 

6.14                        Opinion. On the Closing Date, the Company will
deliver to the Purchaser an opinion acceptable to the Purchaser from the
Company’s legal counsel.  The Company will provide, at the Company’s expense,
such other legal opinions in the future as are reasonably necessary for the
conversion of the Note and exercise of the Warrant.

 

7.                                      COVENANTS OF THE PURCHASER.   The
Purchaser covenants and agrees with the Company as follows:

 

7.1                               Confidentiality.  The Purchaser agrees that it
will not disclose, and will not include in any public announcement, the name of
the Company, unless expressly agreed to by the Company or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.

 

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7.2                               Non-Public Information.  The Purchaser agrees
not to effect any sales in the shares of the Company’s Common Stock while in
possession of material, non-public information regarding the Company if such
sales would violate applicable securities law.

 

8.                                      COVENANTS OF THE COMPANY AND PURCHASER
REGARDING

INDEMNIFICATION.

 

8.1                               Company Indemnification.   The Company agrees
to indemnify, hold harmless, reimburse and defend Purchaser, each of Purchaser’s
officers, directors, agents, affiliates, control persons, and principal
shareholders, against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement, or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.

 

8.2                               Purchaser’s Indemnification.  Purchaser agrees
to indemnify, hold harmless, reimburse and defend the Company and each of the
Company’s officers, directors, agents, affiliates, control persons and principal
shareholders, at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is based
upon (i) any misrepresentation by Purchaser or breach of any warranty by
Purchaser in this Agreement or in any exhibits or schedules attached hereto or
any Related Agreement; or (ii) any breach or default in performance by Purchaser
of any covenant or undertaking to be performed by Purchaser hereunder, or any
other agreement entered into by the Company and Purchaser relating hereto.

 

8.3                               Procedures.  The procedures and limitations
set forth in Section 10.2(c) and (d) shall apply to the indemnifications set
forth in Sections 8.1 and 8.2 above.

 

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9.                                      CONVERSION OF CONVERTIBLE NOTE.

 

9.1                               Mechanics of Conversion.

 

(a)                                  Provided the Purchaser has notified the
Company of the Purchaser’s intention to sell the Note Shares and the Note Shares
are included in an effective registration statement or are otherwise exempt from
registration when sold:  (i) Upon the conversion of the Note or part thereof,
the Company shall, at its own cost and expense, take all necessary action
(including the issuance of an opinion of counsel) to assure that the Company’s
transfer agent shall issue shares of the Company’s Common Stock in the name of
the Purchaser (or its nominee) or such other persons as designated by the
Purchaser in accordance with Section 9.1(b) hereof and in such denominations to
be specified representing the number of Note Shares issuable upon such
conversion; and (ii)  The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the Company’s
Common Stock and that after the Effective Date (as hereinafter defined) the Note
Shares issued will be freely transferable subject to the prospectus delivery
requirements of the Securities Act and the provisions of this Agreement, and
will not contain a legend restricting the resale or transferability of the Note
Shares.

 

(b)                                 Purchaser will give notice of its decision
to exercise its right to convert the Note or part thereof by telecopying or
otherwise delivering an executed and completed notice of the number of shares to
be converted to the Company (the “Notice of Conversion”). The Purchaser will not
be required to surrender the Note until the Purchaser receives a credit to the
account of the Purchaser’s prime broker through the DWAC system (as defined
below), representing the Note Shares or until the Note has been fully
satisfied.  Each date on which a Notice of Conversion is telecopied or delivered
to the Company in accordance with the provisions hereof shall be deemed a
“Conversion Date.”  The Company will cause the transfer agent to transmit the
shares of the Company’s Common Stock issuable upon conversion of the Note (and a
certificate representing the balance of the Note not so converted, if requested
by Purchaser) to the Purchaser by crediting the account of the Purchaser’s prime
broker with the Depository Trust Company (“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”).

 

(c)                                  The Company understands that a delay in the
delivery of the Note Shares in the form required pursuant to Section 9 hereof
beyond the Delivery Date could result in economic loss to the Purchaser.  In the
event that the Company fails to direct its transfer agent to deliver the Note
Shares to the Purchaser via the DWAC system within the time frame set forth in
Section 9.1(b) above and the Note Shares are not delivered to the Purchaser by
the Delivery Date, as compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late issuance of the Note
Shares in the form required pursuant to Section 9 hereof upon conversion of the
Note in the amount equal to the greater of (i) $500 per business day after the
Delivery Date or (ii) the Purchaser’s actual damages from such delayed delivery.
Notwithstanding the foregoing, the Company will not owe the Purchaser any late
payments if the delay in the delivery of the Note Shares beyond the Delivery
Date is solely out of the control of the Company and the Company is actively
trying to cure the cause of the delay.  The Company shall pay any payments
incurred under this Section in immediately available funds upon demand

 

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and, in the case of actual damages, accompanied by reasonable documentation of
the amount of such damages.  Such documentation shall show the number of shares
of Common Stock the Purchaser is forced to purchase (in an open market
transaction) which the Purchaser anticipated receiving upon such conversion, and
shall be calculated as the amount by which (A) the Purchaser’s total purchase
price (including customary brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate principal and/or interest
amount of the Note, for which such Conversion Notice was not timely honored.

 

Nothing contained herein or in any document referred to herein or delivered in
connection herewith 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 or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.

 

9.2                               Maximum Conversion.  The Purchaser shall not
be entitled to convert on a Conversion Date, nor shall the Company be permitted
to require the Purchaser to accept, that amount of a Note in connection with
that number of shares of Common Stock which would be in excess of the sum of (i)
the number of shares of Common Stock beneficially owned by the Purchaser on a
Conversion Date, and (ii) the number of shares of Common Stock issuable upon the
conversion of the Note with respect to which the determination of this proviso
is being made on a Conversion Date, which would result in beneficial ownership
by the Purchaser of more than 4.99% of the outstanding shares of Common Stock of
the Company on such Conversion Date.  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.  Upon an
Event of Default under the Note, the conversion limitation in this Section 9.2
shall become null and void.

 

10.                               REGISTRATION RIGHTS.

 

10.1                        Registration Rights Granted.  The Company hereby
grants registration rights to the Purchaser pursuant to a Registration Rights
Agreement dated as of even date herewith between the Company and the Purchaser.

 

10.2                        Indemnification.

 

(a)                                  In the event of a registration of any
Registrable Securities under the Securities Act pursuant to the Registration
Rights Agreement, the Company will indemnify and hold harmless the Purchaser,
and its officers, directors and each other person, if any, who controls the
Purchaser within the meaning of the Securities Act, against any losses, claims,
damages or liabilities, joint or several, to which the Purchaser, or such
persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
Registrable Securities were registered under the Securities Act pursuant to the
Registration Rights Agreement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged

 

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omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Purchaser, and each such person for any reasonable legal or other expenses
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by or on behalf of the Purchaser or any such person
in writing specifically for use in any such document.

 

(b)                                 In the event of a registration of the
Registrable Securities under the Securities Act pursuant to the Registration
Rights Agreement, the Purchaser will indemnify and hold harmless the Company,
and its officers, directors and each other person, if any, who controls the
Company within the meaning of the Securities Act, against all losses, claims,
damages or liabilities, joint or several, to which the Company or such persons
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which such
Registrable Securities were registered under the Securities Act pursuant to the
Registration Rights Agreement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such person for any
reasonable legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the Purchaser will be liable in any such case if and
only to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished in writing to
the Company by or on behalf of the Purchaser specifically for use in any such
document.

 

(c)                                  Promptly after receipt by an indemnified
party hereunder of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing thereof,
but the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to such indemnified party other than under this
Section 10.2(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 10.2(c) if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 10.2(c) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof; if the indemnified party retains its own counsel, then the
indemnified party shall pay all fees, costs and expenses of such counsel,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different

 

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from or additional to those available to the indemnifying party or if the
interests of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified party shall have the right
to select one separate counsel and to assume such legal defenses and otherwise
to participate in the defense of such action, with the reasonable expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.

 

(d)                                 In order to provide for just and equitable
contribution in the event of joint liability under the Securities Act in any
case in which either (i) the Purchaser, or any controlling person of the
Purchaser, makes a claim for indemnification pursuant to this Section 10.2 but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 10.2 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of the Purchaser or controlling person of the
Purchaser in circumstances for which indemnification is provided under this
Section 10.2; then, and in each such case, the Company and the Purchaser will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion so that the
Purchaser is responsible only for the portion represented by the percentage that
the public offering price of its securities offered by the registration
statement bears to the public offering price of all securities offered by such
registration statement, provided, however, that, in any such case, (A) the
Purchaser will not be required to contribute any amount in excess of the public
offering price of all such securities offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10 of the Act) will be entitled
to contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.

 

10.3                        OFFERING RESTRICTIONS.  Except as previously
disclosed in the SEC Reports or in the Exchange Act Filings, or stock or stock
options granted to employees or directors of the Company; or shares of preferred
stock issued to pay dividends in respect of the Company’s preferred stock; or
equity or debt issued in connection with an acquisition of a business or assets
by the Company; or the issuance by the Company of stock in connection with the
establishment of a joint venture partnership or licensing arrangement (these
exceptions hereinafter referred to as the “Excepted Issuances”), the Company
will not issue any securities with a continuously variable/floating conversion
feature which are or could be (by conversion or registration) free-trading
securities (i.e. common stock subject to a registration statement) prior to the
full repayment or conversion of the Note (the “Exclusion Period”).

 

11.                               MISCELLANEOUS.

 

11.1                        Governing Law. THIS AGREEMENT 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 INDIVIDUALS

 

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EXECUTING THIS AGREEMENT AND OTHER AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO
SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY.  IN THE EVENT
THAT ANY PROVISION OF THIS AGREEMENT OR ANY OTHER AGREEMENT DELIVERED IN
CONNECTION HEREWITH 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 ANY AGREEMENT.

 

11.2                        Survival.  The representations, warranties,
covenants and agreements made herein shall survive any investigation made by the
Purchaser and the closing of the transactions contemplated hereby to the extent
provided therein. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by the Company hereunder solely as
of the date of such certificate or instrument.

 

11.3                        Successors.  Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, heirs, executors and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of the Securities from time to time, other than the holders of Common
Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. Purchaser may not assign its rights hereunder to a
competitor of the Company.

 

11.4                        Entire Agreement.  This Agreement, the exhibits and
schedules hereto, the Related Agreements and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.

 

11.5                        Severability.  In case any provision of the
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

 

11.6                        Amendment and Waiver.

 

(a)                                  This Agreement may be amended or modified
only upon the written consent of the Company and the Purchaser.

 

(b)                                 The obligations of the Company and the
rights of the Purchaser under this Agreement may be waived only with the written
consent of the Purchaser.

 

(c)                                  The obligations of the Purchaser and the
rights of the Company under this Agreement may be waived only with the written
consent of the Company.

 

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11.7                        Delays or Omissions.  It is agreed that no delay or
omission to exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance  by another party under this Agreement or the
Related Agreements, shall impair any such right, power or remedy, nor shall it
be construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring.  All remedies, either under this Agreement, the Note or
the Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.

 

11.8                        Notices.  All notices required or permitted
hereunder shall be in writing and shall be deemed effectively given: (a) upon
personal delivery to the party to be notified, (b) when sent by confirmed
facsimile if sent during normal business hours of the recipient, if not, then on
the next business day, (c) three (3) business days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or
(d) one day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.  All
communications shall be sent to the Company at the address as set forth on the
signature page hereof, to the Purchaser at the address set forth on the
signature page hereto for such Purchaser, with a copy in the case of the
Purchaser to John E. Tucker, Esq., 152 West 57th Street, 4th Floor, New York, NY
10019, facsimile number (212) 541-4434, or at such other address as the Company
or the Purchaser may designate by written notice to the other parties hereto
given in accordance herewith.

 

11.9                        Attorneys’ Fees.  In the event that any suit or
action is instituted to enforce any provision in this Agreement, the prevailing
party in such dispute shall be entitled to recover from the losing party all
fees, costs and expenses of enforcing any right of such prevailing party under
or with respect to this Agreement, including, without limitation, such
reasonable fees and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.

 

11.10                 Titles and Subtitles.  The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.

 

11.11                 Facsimile Signatures; Counterparts.  This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.

 

11.12                 Broker’s Fees.  Except as set forth on Schedule 11.12
hereof, Each party hereto represents and warrants that no agent, broker,
investment banker, person or firm acting on behalf of or under the authority of
such party hereto is or will be entitled to any broker’s or finder’s fee or any
other commission directly or indirectly in connection with the transactions
contemplated herein.  Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 11.12 being untrue.

 

11.13                 Construction.  Each party acknowledges that its legal
counsel participated in the preparation of this Agreement and the Related
Agreements and, therefore, stipulates that

 

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the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Agreement to
favor any party against the other.

 

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IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.

 

 

COMPANY:

PURCHASER:

 

 

ELECTRIC CITY CORP.

LAURUS MASTER FUND, LTD.

 

 

 

 

By:

  /s/ John Mitola

 

By:

  /s/ David Grin

 

Name:

  John Mitola

 

Name:

  /s/ David Grin

 

Title:

  Chief Executive Officer

 

Title:

  Partner

 

Address:

  1280 Landmeier Road

Address:

  c/o Ironshore Corporate Services Ltd.

 

  Elk Grove Village, Illinois  60007

 

  P.O. Box 1234 G.T., Queensgate House,

 

 

  South Church Street

 

 

  Grand Cayman, Cayman Islands

 

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LIST OF EXHIBITS

 

 

Form of Convertible Term Note

 

Exhibit A

 

 

 

Form of Warrant

 

Exhibit B

 

 

 

Form of Opinion

 

Exhibit C

 

 

 

Form of Escrow Agreement

 

Exhibit D

 

 

 

 

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