exv10w38



 











Exhibit 10.38




August 31, 2004



Mr. John Mitola

Electric City Corporation

1280 Landmeier Road

Elk Grove Village, Illinois 60007



Dear Mr. Mitola:



This letter will confirm our agreement (“Agreement”) that Delano Group Securities, LLC (“Advisor”)
is authorized to represent Electric City Corporation and its affiliates and related entities
(collectively, the “Company”) and to assist the Company as its financial advisor on the terms and
conditions set forth herein. This Agreement shall become effective upon the execution hereof by
both Advisor and the Company.





	1.  	Performance of Services. In its capacity as financial advisor, Advisor will assist
the Company by undertaking the following activities, to the extent that such activities are
required by the status of a project. The services being provided by Advisor hereunder are
being rendered solely to the Board of Directors of the Company (the “Board”). These services
are not being rendered by Advisor as an agent or as a fiduciary of the shareholders of the
Company, and Advisor shall not have any obligation or liability with respect to its services
hereunder to such shareholders or any other person, firm or corporation.






	 	A.  	Financial Advisory. Advisor shall make itself available to consult with the
Board and the officers, employees, representatives and agents of the Company at reasonable
times, concerning matters pertaining to investment banking, business and financial
operations, business and market development strategy, fiscal policy, and any other matter
of importance concerning the business of the Company. Advisor may, at the request of the
Company, assist in the preparation of written reports on financial, accounting or marketing
matters, review financial information, analyze markets and business opportunities, develop
short-term and long-term strategic business plans, and report to the Board on proposed
acquisition, merger and investment opportunities. Advisor may provide liaison services to
the Company with respect to the Company’s current or potential relationships with
unaffiliated third parties. The services set forth in this paragraph shall be referred to
herein in as “Financial Advisory Services”.
	 
	 	B.  	Merger and Acquisition. Advisor shall be engaged to advise the Company with
respect to mergers, acquisitions, sales and divestitures, including, without limitation,
identification of counterparties, assessment and identification of reverse merger
opportunities, approach and financial strategy, structure, evaluation, and assistance in
negotiation and execution (“M&A Services”). The obligations of Advisor to perform M&A
Services under this Agreement shall be limited to: (i) transactions that the Company
requests Advisor’s M&A Services, which request is accepted by Advisor; or (ii) transactions
that Advisor identifies and presents to the Company.
	 
	 	C.  	Capital Formation. Advisor shall, on a best efforts basis, raise equity or
debt capital for the Company in private placements or public offerings in such manner and
amounts as determined by the Board in its sole discretion from time to time (“Capital
Formation Services”). The obligations of Advisor to perform Capital Formation Services
under this Agreement shall be limited to private placements and public offerings of equity
or debt capital sourced by the Advisor that the Company and Advisor mutually agree are
financially viable based on the terms and conditions proposed by the Board (“Qualifying
Placement”).




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	   	The parties hereto acknowledge and agree that Advisor is not rendering legal advice or
performing accounting or auditing services as part of the services provided under this Agreement.
Advisor shall be free to provide services for other persons, which services shall not be deemed to
be in conflict with the services to be performed by Advisor under this Agreement.
	 
	2.  	Term. The term of this Agreement shall commence on the date of this Agreement and
continue through December 31, 2005 or for such longer period as mutually agreed to by the
parties in writing (the “Term”). However, either the Company or Advisor may terminate this
Agreement with 30 days’ prior written notice to the other party. Notwithstanding anything
contained herein to the contrary, the provisions of Section 3 (Compensation) and Section 6
(Indemnification) shall survive the termination and expiration of this Agreement.
	 
	3.  	Compensation. As compensation for the services rendered by Advisor under this
Agreement, the Company shall pay Advisor (or its designees) as follows. (Note: This agreement
and the warrants to be issued under this section are subject to approval of the Electric City
board of directors or an independent committee thereof):






	 	A.  	Financial Advisory Services. For the Financial Advisory Services rendered by
Advisor, the Company shall pay Advisor a one-time, non-refundable retainer fee of $10,000
payable upon execution of this Agreement, and shall issue Advisor 30,000 warrants to
purchase the Company’s common stock at 105% of the Average Closing Price (as defined
herein) as of the date this Agreement is executed. Such warrants shall have a term of five
years and contain cashless exercise provisions. Such warrants and the underlying common
stock shall have piggyback registration rights.
	 
	 	B.  	M&A Services. For any Transaction (as defined herein) that the Company
requests Advisor to perform M&A Services or that Advisor identifies and presents to the
Company (“Qualifying Transaction”), the Company shall pay Advisor a monthly retainer fee of
$7,500 during such period that the Company is actively pursuing such Qualifying Transaction
(“M&A Retainer Fees). First retainer to be paid at the end of September, 2004 for services
rendered in September. For any Qualifying Transaction, which is consummated (i) during the
Term hereof, or (ii) during the six-month period after termination or expiration of this
Agreement, the Company agrees to pay Advisor a
Success Fee (as defined herein) for each Qualifying Transaction. With respect to each
Qualifying Transaction, the “Success Fee” shall be equal to 5% of the first five million
dollars of Consideration (as defined herein), plus 2.50% of the next five million
dollars of Consideration, plus 1.5% of the Consideration in excess of ten million
dollars, but in no case will the Success Fee exceed $700,000, except in the event the
Company completes a Qualifying Transaction with            in which case the Success Fee
will not exceed $2 million. The Success Fee shall be due and payable at the closing of the
Qualifying Transaction. The Success Fee will be paid in cash or stock (not to exceed an
amount mutually agreed to by the Company and Advisor) with any non-cash portion of the
Success Fee being paid in the form of the Company’s common stock valued at 100% of the
Average Closing Price as of the closing of the Qualifying Transaction. The common stock to
be issued under this paragraph shall have piggyback registration rights. The Parties
recognize and acknowledge that Transactions structured with other Companies (Selling or
Buying Party) may involve such other company’s advisors and consultants or such other
company’s own perspective on Success Fee structures and therefore, the Selling Party or
other company may desire to reduce the Success Fee herein. Advisor agrees to use all
reasonable efforts to cooperate on any restructuring or reduction of the Success Fee in
order to not block or inhibit the ability of the Company to consummate such a Transaction.
	 
	 	C.  	Capital Formation Services. For the Capital Formation Services rendered by
Advisor, the Company shall pay Advisor a commission equal to 5% of the gross proceeds of
any Qualifying Placement (“Commission”). Any Commission payable under this paragraph
shall be paid at the closing of the Qualifying Placement out of escrow from the gross
proceeds of the Qualifying Placement and out of escrow from the gross proceeds resulting
from the exercise of any investment options upon exercise. In the event Company enters
into a separate equity or debt placement agreement with a third party that is identified
and presented by Advisor, the Company shall pay Advisor a commission equal to 1% of the
gross proceeds from such placement if such placement is completed during the term of this
Agreement or during the twelve-month period after termination or expiration of this
Agreement. Advisor acknowledges that the Company is currently working
with             to
raise capital and that the Advisor will not be entitled to a fee related to any capital
raised by             . In the event the Advisor and a third party are both entitled to a
fee for the same capital raising transaction, Advisor agrees to reduce its fee such that
the total combined fee of both parties does not exceed 6% of the gross proceeds from the
transaction.




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	 	D.  	Expense Reimbursement. The Company shall reimburse Advisor, on at least a
monthly basis, for all reasonable and documented out-of-pocket expenses incurred by Advisor
in connection with the services rendered under this Agreement. Any third party consulting
expenses shall be approved in advance.
	 
	 	E.  	Current Qualifying Transactions. As of the date of this Agreement, Company has
engaged Advisory to work on the following opportunities:
	 
	 	   	Advisor and Company will confirm all specific engagement activities in writing as a
modification to this section 3.E at all times.






	4.  	Definitions. For purposes of this Agreement:






	 	A.  	The term “Transaction” shall mean any transaction or series or combination of
transactions, whereby, directly or indirectly, control of an interest in a company or any
of its businesses or assets, other than in the ordinary course of business, is transferred
to or by the Company or its affiliates for Consideration (as defined herein), including,
without limitation, a sale or exchange of capital stock or assets, a merger or
consolidation, a share exchange, a tender or exchange offer, a reorganization, a leveraged
buyout, the formation of a joint venture, minority investment or partnership, or any
similar transaction.
	 
	 	B.  	The term “Average Closing Price” shall mean the average closing bid price of the
Company’s common stock for the five trading days immediately preceding the applicable
measurement date.
	 
	 	C.  	The term “Consideration” shall mean the value of all cash, securities and other
property paid by the Company or its affiliates to the selling party, or received by the
Company or its shareholders, in connection with a Transaction. The value of such
securities (whether debt or equity) or other property shall be determined as follows: (i)
the value of the Company’s securities that are freely tradable in an established public
market will be determined on the basis of 100% of the Average Closing Price as of the
closing of the Transaction; (ii) the value of securities (other than the Company’s) that
are freely tradable in an established public market will be determined by the last closing
bid price prior to the closing of the Transaction; and (iii) the value of securities that
are not freely tradable or have no established public market, or if the consideration
utilized consists of property other than securities, the value of such other property shall
be the value thereof as determined by the Transaction. Consideration shall also be deemed
to include any indebtedness for borrowed money, including shareholder notes and guaranties,
assumed by the acquiring entity or its affiliates in connection with the Transaction.
Consideration shall also include all amounts placed in escrow and future contingent
payments actually paid. Advisor’s fee to be paid tied to future Consideration will be
paid upon release of such Consideration.






	5.  	Company Information. The Company shall furnish Advisor with all reasonable
information and material requested or required by Advisor, including, without limitation,
information concerning historical and projected financial results and possible and known
litigation, environmental and other contingent liabilities of the Company. The Company also
agrees to make available to Advisor such representatives of the Company, including, among
others, directors, officers, employees, outside counsel and independent certified public
accountants, as Advisor may reasonably request. The Company will promptly advise Advisor of
any material changes in the Company’s business or finances. The Company represents and
warrants that all information provided or made available to Advisor by the Company, at all
times during the Term hereof, is and shall to its knowledge be complete and true in all
material respects and will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements thereof not misleading in
light of the circumstances under which such statements are made. The Company further
represents and warrants that any projections provided to Advisor will have been prepared in
good faith and will be based upon assumptions that, in light of the circumstances under which
they are made, are reasonable. The Company acknowledges and agrees that in rendering its
services hereunder Advisor will be using and relying on such information, without independent
investigation, appraisal or verification of such information, as well as publicly available
information, including, without limitation, any of the Company’s assets or those of any
potential acquisition target.




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	6.  	Indemnification. The Company agrees to indemnify and hold harmless Advisor, its
affiliates and their respective officers, directors, members, partners, employees, agents and
affiliates and control persons of any of the above (each an “Indemnified Person”) from and
against all claims, liabilities, losses or damages (or actions in respect thereof) or other
expenses that (a) are related to or arise out of (i) actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made) by the Company, or
(ii) actions taken or omitted to be taken by an Indemnified Person with the consent of or in
conformity with the actions or omissions of the Company; or (b) are otherwise related to arise
out of Advisor’s duly authorized activities on behalf of the Company. The Company shall not
be responsible, however, for any losses, claims, damages, liabilities or expenses pursuant to
the preceding sentence that are finally judicially determined to have resulted solely from
Advisor’s or such other Indemnified Person’s negligence, reckless or wrongful conduct. The
Company agrees to reimburse each Indemnified Person for all out-of-pocket expenses (including
fees and expenses of counsel for such Indemnified Person) of such Indemnified Person in
connection with investigating, preparing, conducting or defending any such action or claim,
whether or not in connection with litigation in which any Indemnified Person is a named party,
or in connection with enforcing the rights of an Indemnified Person under this Agreement. The
indemnity agreements under this Section shall survive the completion of services rendered for
Company by Advisor and the termination or expiration of this Agreement.
	 
	7.  	Disclosure. Any financial or other advice, descriptive memoranda or other
documentation rendered by Advisor pursuant to this Agreement may not be disclosed publicly or
to any third party without the prior written approval of Advisor, except as required by law.
All non-public information provided by the Company to Advisor will be considered confidential
information and shall be maintained as such by Advisor, except as required by law or as
required to enable Advisor to perform its services pursuant to this Agreement, until the same
becomes known to third parties or the public without release thereof by Advisor.
	 
	8.  	Miscellaneous.






	 	A.  	Before the Company releases any information referring to Advisor’s role as the
Company’s financial advisor under this Agreement or uses Advisor’s name in a manner which
may result in public dissemination thereof, the Company shall furnish drafts of all
documents or prepared oral statements to Advisor for comments, and shall not release any
information relating thereto without the prior written consent of Advisor. Nothing herein
shall prevent the Company from releasing any information to the extent that such release is
required by law. Advisor acknowledges that the Company will have to disclose the existence
of this agreement as a related transaction in its public filings with the Security and
Exchange Commission.
	 
	 	B.  	The Company agrees that, following the consummation of any Qualifying Placement or
Qualifying Transaction, Advisor shall have the right to place advertisements in financial
and other newspapers and journals at its own expense, describing its services to the
Company hereunder, provided that Advisor will submit a copy of any such advertisements to
the Company for its prior approval, which approval shall not be unreasonably withheld.
	 
	 	C.  	The Company represents and warrants that this Agreement has been duly authorized and
represents the legal, valid, binding and enforceable obligation of the Company and that
neither this Agreement nor the consummation of any transactions contemplated hereby
requires the approval or consent of any governmental or regulatory agency or violates or
conflicts with any law, regulation, contract or order binding the Company.
	 
	 	D.  	The terms, provision and conditions of this Agreement are solely for the benefit of the
Company and Advisor and the other Indemnified Persons and their respective heirs,
successors and permitted assigns and no other person or entity shall acquire or have a
right by virtue of this Agreement. This Agreement may not be assigned by the Company
without prior written consent of Advisor.
	 
	 	E.  	This Agreement (including all exhibits and any addenda or schedules attached hereto)
contains the entire understanding and agreement between the parties hereto with respect to
Advisor’s engagement hereunder, and all prior discussions are hereby merged into this
Agreement.
	 
	 	F.  	This Agreement shall be governed by and constructed under the laws of the State of
Illinois without regard to such state’s conflicts of law principles, and may be amended,
modified or supplemented only by written instrument executed by parties hereto. The
parties hereto each hereby submits to the jurisdiction and venue of




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	 	   	the federal courts
located in the County of Cook, sitting in Chicago, Illinois, in connection with any dispute
related to this Agreement or any placement, transaction or other matter contemplated
hereby.
	 
	 	G.  	In the event either party commences litigation against the other to enforce their
rights under the terms and conditions of this Agreement, the prevailing party in such
litigation shall be entitled to recover from the other their reasonable costs and
attorneys’ fees incident to such litigation.
	 
	 	H.  	The Company acknowledges that David R. Asplund, who controls Delano Group Securities,
LLC, serves on the board of directors of the Company. The Company hereby waives any and
all claims of conflicts of interest against Delano Group Securities, LLC arising from or
with respect to the transactions contemplated hereby.





If the forgoing correctly sets forth the entire understanding and agreement between the Company and
Advisor, please so indicate by executing this Agreement as indicated below and returning an
executed copy to Advisor whereupon this Agreement shall constitute a binding agreement as of the
date first above written. A telecopy of the signed original of this Agreement shall be sufficient
to bind the parties whose signatures appear hereon.




     Very truly yours,


	 	 	 	 	 
	 	DELANO GROUP SECURITIES, LLC.

 	 
	 	By:  	/s/ David R. Asplund



	 
	 	 	David R. Asplund, President 	 
	 	 	 	 
	 




ACKNOWLEDGED AND AGREED THIS THE 31st DAY OF August, 2004.










	 	 	 	 
	By: Electric City Corporation
	 
	 	 
	Name:

	 	/s/ John Mitola



	

	 	 
	

	 	John Mitola
	 
	 	 
	Title: Chief Executive Officer







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