exv10w1



 






Exhibit 10.1




ELECTRIC CITY CORP.




SECURITIES PURCHASE AGREEMENT




November 22, 2005





 









 








TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	1.	 	Agreement to Sell and Purchase	 	 	1	 
	2.	 	Fees and Warrant	 	 	1	 
	3.	 	Closing, Delivery and Payment	 	 	2	 
	 	 	3.1	 	Closing
	 	 	2	 
	 	 	3.2	 	Delivery
	 	 	2	 
	4.	 	Representations and Warranties of the Company	 	 	2	 
	 	 	4.1	 	Organization, Good Standing and Qualification
	 	 	2	 
	 	 	4.2	 	Subsidiaries
	 	 	3	 
	 	 	4.3	 	Capitalization; Voting Rights
	 	 	3	 
	 	 	4.4	 	Authorization; Binding Obligations
	 	 	4	 
	 	 	4.5	 	Liabilities
	 	 	4	 
	 	 	4.6	 	Agreements; Action
	 	 	4	 
	 	 	4.7	 	Obligations to Related Parties
	 	 	5	 
	 	 	4.8	 	Changes
	 	 	5	 
	 	 	4.9	 	Title to Properties and Assets; Liens, Etc.
	 	 	6	 
	 	 	4.10	 	Intellectual Property
	 	 	7	 
	 	 	4.11	 	Compliance with Other Instruments
	 	 	7	 
	 	 	4.12	 	Litigation
	 	 	7	 
	 	 	4.13	 	Tax Returns and Payments
	 	 	8	 
	 	 	4.14	 	Employees
	 	 	8	 
	 	 	4.15	 	Registration Rights and Voting Rights
	 	 	8	 
	 	 	4.16	 	Compliance with Laws; Permits
	 	 	9	 
	 	 	4.17	 	Environmental and Safety Laws
	 	 	9	 
	 	 	4.18	 	Valid Offering
	 	 	9	 
	 	 	4.19	 	Full Disclosure
	 	 	9	 
	 	 	4.20	 	Insurance
	 	 	10	 
	 	 	4.21	 	SEC Reports
	 	 	10	 
	 	 	4.22	 	Listing
	 	 	10	 
	 	 	4.23	 	No Integrated Offering
	 	 	10	 
	 	 	4.24	 	Stop Transfer
	 	 	10	 
	 	 	4.25	 	Dilution
	 	 	10	 






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	 	 	 	 	 	 	Page	 
	5.	 	Representations and Warranties of the Purchasers	 	 	11	 
	 	 	5.1	 	Requisite Power and Authority
	 	 	11	 
	 	 	5.2	 	Investment Representations
	 	 	11	 
	 	 	5.3	 	Purchaser Bears Economic Risk
	 	 	11	 
	 	 	5.4	 	Acquisition for Own Account
	 	 	11	 
	 	 	5.5	 	Purchaser Can Protect Its Interest
	 	 	12	 
	 	 	5.6	 	Accredited Investor
	 	 	12	 
	 	 	5.7	 	Legends
	 	 	12	 
	 	 	5.8	 	No Shorting
	 	 	12	 
	6.	 	Covenants of the Company	 	 	13	 
	 	 	6.1	 	Stop-Orders
	 	 	13	 
	 	 	6.2	 	Listing
	 	 	13	 
	 	 	6.3	 	Market Regulations
	 	 	13	 
	 	 	6.4	 	Reporting Requirements
	 	 	13	 
	 	 	6.5	 	Use of Funds
	 	 	14	 
	 	 	6.6	 	Access to Facilities
	 	 	14	 
	 	 	6.7	 	Taxes
	 	 	14	 
	 	 	6.8	 	Insurance
	 	 	14	 
	 	 	6.9	 	Intellectual Property
	 	 	14	 
	 	 	6.10	 	Properties
	 	 	14	 
	 	 	6.11	 	Confidentiality
	 	 	15	 
	 	 	6.12	 	Required Approvals
	 	 	15	 
	 	 	6.13	 	Reissuance of Securities.
	 	 	15	 
	 	 	6.14	 	Opinion
	 	 	15	 
	7.	 	Covenants of the Purchaser	 	 	15	 
	 	 	7.1	 	Confidentiality
	 	 	15	 
	 	 	7.2	 	Non-Public Information
	 	 	16	 
	8.	 	Covenants of the Company and Purchasers Regarding Indemnification	 	 	16	 
	 	 	8.1	 	Company Indemnification
	 	 	16	 
	 	 	8.2	 	Purchaser’s Indemnification
	 	 	16	 






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	 	 	 	 	 	 	Page	 
	 	 	8.3	 	Procedures
	 	 	16	 
	9.	 	Conversion of Convertible Note	 	 	17	 
	 	 	9.1	 	Mechanics of Conversion
	 	 	17	 
	 	 	9.2	 	Maximum Conversion
	 	 	18	 
	10.	 	Registration Rights	 	 	18	 
	 	 	10.1	 	Registration Rights Granted
	 	 	18	 
	 	 	10.2	 	Indemnification
	 	 	18	 
	 	 	10.3	 	Offering Restrictions
	 	 	20	 
	11.	 	Miscellaneous	 	 	20	 
	 	 	11.1	 	Governing Law
	 	 	20	 
	 	 	11.2	 	Survival
	 	 	21	 
	 	 	11.3	 	Successors
	 	 	21	 
	 	 	11.4	 	Entire Agreement
	 	 	21	 
	 	 	11.5	 	Severability
	 	 	21	 
	 	 	11.6	 	Amendment and Waiver
	 	 	21	 
	 	 	11.7	 	Delays or Omissions
	 	 	22	 
	 	 	11.8	 	Notices
	 	 	22	 
	 	 	11.9	 	Attorneys’ Fees
	 	 	22	 
	 	 	11.10	 	Titles and Subtitles
	 	 	22	 
	 	 	11.11	 	Facsimile Signatures; Counterparts
	 	 	22	 
	 	 	11.12	 	Broker’s Fees
	 	 	22	 
	 	 	11.13	 	Construction
	 	 	22	 







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SECURITIES PURCHASE AGREEMENT




     This Securities Purchase Agreement (this “Agreement”) is made and entered into as of
November 22, 2005, 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 Five Million Dollars $5,000,000 (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 $1.16 per share of Common Stock (“Fixed Conversion Price”);



     Whereas, the Company has also authorized issuance of a warrant to the Purchaser to
purchase up to 2,000,000 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 the Note in the amount of
$5,000,000, convertible 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) forty eight 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:



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                (a) In connection with the Offering the Company will issue and deliver to the Purchaser a
Warrant to purchase 2,000,000 shares of Common Stock (the “Warrant”). The Warrant must be
delivered on the Closing Date. The form of 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 three and six tenths percent (3.60%) 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 expenses (including legal
fees and expenses) incurred in connection with the preparation and negotiation of this Agreement
and the Related Agreements (as hereinafter defined), and expenses incurred in connection with the
Purchaser’s due diligence review of the Company and its Subsidiaries (as defined in Section 4.2)
and all related matters. Amounts required to be paid under this Section 2(c) will be paid on the
Closing Date and shall be $45,000 for such expenses referred to in this Section 2(c). Additional
due diligence costs, if any, will be approved by the Company in advance




                (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 and 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, the Note in the form attached as Exhibit A representing the principal amount of $5,000,000
and the Warrant in the form attached as Exhibit B in the Purchaser’s name representing 2,000,000
Warrant Shares and the Purchaser will deliver to the Company, among other things, the amounts set
forth in the Disbursement Letter by 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



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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. Each of the Company and each of its
Subsidiaries is a corporation, partnership or limited liability company, as the case may be, duly
organized, validly existing and in good standing under the laws of its jurisdiction of
organization. Each of the Company and each of its Subsidiaries has the corporate, limited
liability company or partnership, as the case may be, power and authority to own and operate its
properties and assets and, insofar as it is or shall be a party thereto, to (1) execute and deliver
(i) this Agreement, (ii) the Note and the Warrant to be issued in connection with this Agreement,
(iii) the Master Security Agreement dated as of the date hereof between the Company, certain
Subsidiaries of the Company and the Purchaser (as amended, modified and/or supplemented from time
to time, the “Master Security Agreement"), (iv) the Registration Rights Agreement relating to the
Securities dated as of the date hereof between the Company and the Purchaser (as amended, modified
and/or supplemented from time to time, the “Registration Rights Agreement"), (v) the Subsidiary
Guaranty dated as of the date hereof made by certain Subsidiaries of the Company (as amended,
modified and/or supplemented from time to time, the “Subsidiary Guaranty"), (vi) the Stock Pledge
Agreement dated as of the date hereof among the Company, certain Subsidiaries of the Company and
the Purchaser (as amended, modified and/or or supplemented from time to time, the “Stock Pledge
Agreement"), (vii) the Funds Escrow Agreement dated as of the date hereof among the Company, the
Purchaser and the escrow agent referred to therein, substantially in the form of Exhibit D hereto
(as amended, modified and/or supplemented from time to time, the “Escrow Agreement") and (viii) all
other documents, instruments and agreements entered into in connection with the transactions
contemplated hereby and thereby (the agreements referenced to in the preceding clauses (ii) through
(viii), collectively, the “Related Agreements"); (2) issue and sell the Note and the shares of
Common Stock issuable upon conversion of the Note (the “Note Shares"); (3) issue and sell the
Warrant and the Warrant Shares; and (4) carry out the provisions of this Agreement and the Related
Agreements and to carry on its business as presently conducted. Each of the Company and each of
its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a
foreign corporation, partnership or limited liability company, as the case may be, in all
jurisdictions in which the nature or location 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 has not, or could not reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Company and its Subsidiaries, taken individually and as
a whole (a “Material Adverse Effect").




               4.2      Subsidiaries. The Company owns all of the issued and outstanding capital stock of Great
Lakes Controlled Energy Corporation, a Delaware corporation, and of Maximum Performance Group,
Inc., 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.




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          4.3      Capitalization; Voting Rights.



                (a) The authorized capital stock of the Company, as of the date hereof consists of 205,000,000
shares, of which 53,306,732 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 232,763 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 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 in compliance with
the provisions of this Agreement, the Note, the Warrant 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, and may be subject to liens or encumbrances (if any)
created by the Purchasers.




          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.



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          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 September 30, 2005, 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 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 in the Company’s Exchange Act filings 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


5









 







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 September 30, 2005, 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;




                (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;




6









 








                (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.



          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


7









 







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 from entering into this Agreement or the Related
Agreements, or consummating 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 which has or could be
expected to have a Material Adverse Effect. There is 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, and 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



8









 







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 or
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 or 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.



          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



9









 







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.



          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-K for the
fiscal year ended December 31, 2004 and (ii) its Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 2005, June 30, 2005 and September 30, 2005, and the Form 8-K filings which
is has made during 2005 to date (collectively, the “SEC Reports"). 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.



10









 





          4.22      Listing. The Company’s Common Stock is listed for trading on a Principal Market and
satisfies all requirements for listing on a Principal Market. 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. The “Principal Market” for the Common Stock
shall include the American Stock Exchange, NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ
National Market System, or New York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock), or any securities exchange or other
securities market on which the Common Stock is then being listed or traded.



          4.23      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 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.



     5.      Representations and Warranties of the Purchaser.



The Purchaser hereby represents and warrants to the Company as follows:




          5.1      No Shorting. The Purchaser and 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, as long as the Note shall be outstanding.




          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,


11









 







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.




          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:




12









 









	 	 	“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 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 (AS APPLICABLE), 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.”




13









 











     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 Principal Market
upon which shares of Common Stock are listed (subject to official notice of issuance) and shall
maintain such listing on a Principal Market so long as any other shares of Common Stock shall be so
listed. The Company will maintain the listing of its Common Stock on a 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 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, so long as Purchaser is a holder of any of the
Securities, will refrain from terminating its status as 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 the development in northern Illinois, or such other location as shall be approved
by the board of directors of the Company, of large-scale, automatic power curtailment system
designed to curtail power at participating customer sites to be known as the “Virtual Negawatt
Power” system plan (the “VNPPTM”) for use by certain select customers of Commonwealth
Edison Company, an Illinois public utility company (“ComEd”), other applicable public utility
companies, or otherwise, as applicable (such projects, being collectively referred to herein as
(the “Financed Projects”) and 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


14









 







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 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 holder of the Note, shall not:




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




15









 








                (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 5.8 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.




     6.15      Debt Coverage Ratio. If, as of the last day of any fiscal quarter, commencing
with the fiscal quarter ending September 30, 2006, the Market Price (as defined in the Note) of the
Common Stock is less than 105% of the Fixed Conversion Price (as defined in the Note), then the
Company shall be required to have a ratio of EBITDA to Debt Expense of not less than 1.1 to 1.0 as
of the last day of such fiscal quarter. For purposes of this Section 6.15:



     "EBITDA” shall mean, as of any date for the 4 fiscal quarters then ended, the Company’s
consolidated net income (or loss) for such period, excluding, to the extent reflected in
determining such consolidated net income (or loss: (i) gains or losses from the sale, exchange,
transfer or other disposition of property or assets not in the ordinary course of business of the
Company and its subsidiaries, and related tax effects in accordance with generally accepted
accounting principles (“GAAP”), (ii) any other extraordinary or non-recurring gains or losses not
from continuing operations of the Company or its subsidiaries, and related tax effects in
accordance with GAAP, (iii) income taxes, (iv) interest income net of Interest Expense, and (v)
depreciation and amortization expense.



     "Debt Expense” shall mean for any period, determined for the Company and its subsidiaries on a
consolidated basis for such period, the aggregate of (i) all scheduled or required payments of
principal of indebtedness for such period, plus (ii) consolidated cash interest expense (including
all imputed interest on capital leases, net of interest income, for such period, but excluding
Performance Interest and Bonus Interest under the Note).



16









 





     6.16      Financed Projects. On a monthly basis, or more often if the Purchaser shall so
request, the Company shall transfer all installed equipment and other personal property which is
subject to a Finance Agreement (as defined below) to ELC VNPP SUB I, LLC, a Delaware limited
liability company and wholly owned subsidiary of the Company (“Sub 1”) or another similar
wholly-owned subsidiary of the Company (each, a “SPE”), by entering into a Bill of Sale and Debt
Guaranty Agreement with such SPE, substantially in the form set forth in that certain Bill of Sale
and Debt Guaranty Agreement dated as of the date hereof by and between the Company and Sub 1 (a
“Bill of Sale and Debt Guaranty Agreement”) pursuant to which the Company shall sell, transfer and
assign to such SPE all equipment and other personal property of the Company related to the Financed
Project (including but not limited to all of the Company’s right title and interest in and to
payments under all contracts, agreements, documents or instruments arising on connection with,
including the products and proceeds relating to each Financed Project). For the purposes hereof,
“Finance Agreement” means each agreement entered into by the Company in respect of any Financed
Project. All corporate and other action necessary and/or advisable to effect the sale, transfer
and assignment of the Finance Agreements contemplated by the Bill of Sale and Debt Guaranty
Agreement, (and any such similar subsequent agreement arising in connection with the subsequent
sale, transfer or assignment of any Finance Agreement required herein) shall have been taken or
made on or before the execution and delivery of the Bill of Sale and Debt Guaranty Agreement and
each such similar subsequent agreement.



           6.17      Landlord Waivers. Within forty five days (45) after completion of an
installation of equipment at a host site under the Finance Agreement, the Company shall use its
best efforts to obtain and deliver to Purchase a fully executed landlord waiver, substantially in
the form attached hereto as Exhibit D, relating to such equipment and host site.



     6.18      Expenses. Within 30 days of the end of each fiscal quarter the Company shall remit to the
Purchaser financial statements for each of the Financed Projects detailing the revenue and expenses
of each such Financed Project (individually, a “Quarterly Expense Report, and collectively, the
“Quarterly Expense Reports”), along with the Company’s calculation of the Performance and Bonus (as
defined in the Note) interest for the applicable quarter. Within 10 business days of receipt of
such Quarterly Expense Reports, the Purchaser will remit to the Company the amounts collected but
not previously distributed to the Company in the Blocked Account less (i) any due and unpaid
interest, principal and fees on the Note and (ii) the Performance and Bonus Interest then due and
payable.



     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


17









 







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.




          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.




18









 





     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


19









 







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 other than as set forth in the Note which
would be a violation of Section 3.2 of the Note.




     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 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


20









 







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 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.




21









 








                (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 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


22









 







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.




          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


23









 







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., 825 Third Avenue 14th
floor New York , New York 10022 , 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 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.




24









 





     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:
	 	David Grin
	 

	 	 
	 	 	 	 
	Title:

	 	Chief Executive Officer
	 	Title:
	 	Director
	 

	 	 
	 	 	 	 
	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







25









 








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







 









 








EXHIBIT A




FORM OF CONVERTIBLE NOTE




A-1









 








EXHIBIT B




FORM OF WARRANT





 









 






EXHIBIT C




FORM OF OPINION




     1.   The Company is a corporation validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted.



     2.   The Company has the requisite corporate power and authority to execute, deliver and perform
its obligations under the Agreement and Related Agreements. All corporate action on the part of
the Company and its officers, directors and stockholders necessary has been taken for (i) the
authorization of the Agreement and Related Agreements and the performance of all obligations of the
Company thereunder at the Closing, and (ii) the authorization, sale, issuance and delivery of the
Securities pursuant to the Agreement and the Related Agreements. The Note Shares and the Warrant
Shares, when issued pursuant to and in accordance with the terms of the Agreement and the Related
Documents and upon delivery shall be validly issued and outstanding, fully paid and non assessable.



     3.   The execution, delivery and performance of the Agreement, the Note or the Related
Agreements by the Company and the consummation of the transactions on its part contemplated by any
thereof, will not, with or without the giving of notice or the passage of time or both:




     (a)   Violate the provisions of the Charter or bylaws of the company; or




     (b)   To the best of such counsel’s knowledge, violate any judgment, decree,
order or award of any court binding upon the Company.



     4.   The Agreement and Related Agreements will constitute, valid and legally binding obligations
of the Company, and are enforceable against the Company in accordance with their respective 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.



     5.   To such counsel’s knowledge, the sale of the Note and the subsequent conversion of the Note
into Note Shares are not subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with. To such counsel’s knowledge, the sale of the Warrant and
the subsequent exercise of the Warrant for Warrant Shares are not subject to any preemptive rights
or, to such counsel’s knowledge, rights of first refusal that have not been properly waived or
complied with.



     6.   Assuming the accuracy of the representations and warranties of the Purchaser contained in
the Agreement, the offer, sale and issuance of the Note and the Warrant on the Closing Date will be
exempt from the registration requirements of the Securities Act. To



 









 







such counsel’s knowledge, neither the Company, nor any of its affiliates, nor any person acting on
its or their behalf, has directly or indirectly made any offers or sales of any security or
solicited any offers to buy and security under circumstances that would cause the offering of the
Note and the Warrant 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 Note
and the Warrant pursuant to Rule 506 under the Securities Act, or any applicable exchange-related
stockholder approval provisions.



     7.   There is no action, suit, proceeding or investigation pending or, to such counsel’s
knowledge, currently threatened against the Company that prevents the right of the Company to enter
into the Agreement or any of the Related Agreements, or to consummate the transactions contemplated
thereby. To such counsel’s knowledge, except as discussed in the Agreement, 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; nor is there any action, suit, proceeding or investigation
by the Company currently pending or which the Company intends to initiate.