Document:

Exhibit 10.3

 

2009 SECURITY AGREEMENT

 

This 2009
Security Agreement (this “Agreement”) is dated as of August 10, 2009, and  is made by and between Lime Energy Co., a
Delaware corporation (the “Debtor”), and Richard P. Kiphart (the “Secured
Party”).

 

Explanatory Statement

 

The Debtor
has agreed to grant to the Secured Party a security interest in the Debtor’s
assets to secure the payment and performance of the obligations in connection
with that certain 2009 Revolving Line of Credit Note made by the Debtor in
favor of the Secured Party (“2009 Note”) dated
as of the date hereof.

 

NOW,
THEREFORE, for good and valuable
consideration, including, without limitation, the covenants and conditions set
forth herein, the parties hereto agree as follows:

 

1.             Definitions.

 

(a)           As
used herein, the capitalized terms set forth in bold
below shall have the following meanings:

 

“Collateral” shall
mean all right, title and interest of the Debtor in and to (a) all
Accounts, (b) all Instruments, (c) all Inventory, (d) all
General Intangibles, (e) all Equipment, (f) any and all Proceeds, (g) all
contract rights, (h) all computer software, and (i) all right, title
and interest in and to any and all other assets and property of the Debtor to
secure the Obligations, but shall not include any Equipment or other Collateral
obtained or acquired or to be obtained or acquired by the Debtor on a lease
financing basis.

 

 

“Obligations” shall
mean any and all payment obligations of the Debtor under the 2009 Note, and
this Agreement.

 

“Permitted Liens” shall mean: (a) the liens and security interests of any Senior
Lender; (b) the liens and security interests of the Secured Party
hereunder; (c) liens for taxes, assessments, or similar charges either not
yet due or being contested in good faith; (d) liens of materialmen,
mechanics, warehousemen, or carriers, or other like liens arising in the
ordinary course of business and securing obligations which are not yet
delinquent; (e) purchase money liens or purchase money security interests
upon or in any property acquired or held by the Debtor in the ordinary course
of business to secure indebtedness outstanding on the date of this Agreement; (f) liens
and security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Secured Party in writing; and (g) those
liens and security interests which in the aggregate constitute an immaterial
and insignificant monetary amount with respect to the net value of the Debtor’s
assets.

 

“Senior Lender” shall
mean each of American Chartered Bank and any commercial lender which provides
financing to the Debtor.

 

“Senior Lien” shall
mean liens made in favor of the Senior Lender by the Debtor.

 

“UCC” shall
mean the Uniform Commercial Code as in effect in the State of Illinois from
time to time.

 

(b)           Incorporation
of UCC Terms.  Except as specifically defined in this
Agreement, all words, terms and/or phrases used in this Agreement shall be
defined by the applicable definition ascribed thereto in Article 9 of the
UCC, which definitions are incorporated herein by reference as if fully set
forth herein, including:  “Accounts,” “Documents,” “Equipment,” “General Intangibles,”
“Goods,” “Instruments,”
“Inventory” and “Proceeds.”
 If a term is defined in Article 9
of the UCC differently than in another Article of the UCC, the term shall
have the meaning ascribed to such term in Article 9.

 

 

2.             Grant
of Security Interest.  The Debtor hereby grants and conveys to the Secured
Party a continuing perfected security interest in and a lien upon all of the
Debtor’s right, title and interest in, to and under the Collateral, whether
presently existing or hereafter created or acquired, and all products and
proceeds for the foregoing to secure the payment and performance of the
Obligations.  Nothing in this Agreement
shall be deemed to constitute an assumption or acceptance by the Secured Party
of any of the obligations of the Debtor under any of the Collateral or any
contract or agreement for purchase, sale, lease or disposition of the
Collateral, and the Debtor hereby specifically confirms and acknowledges that
it shall remain liable for any obligations it may have under or in respect of
any of the Collateral and agree to indemnify the Secured Party and hold the Secured
Party harmless against any such liability or obligation.

 

3.             Continuing
Security Interest.  This Agreement creates a continuing perfected
security interest in and lien upon the Collateral and shall:  (a) remain in full force and effect until
all Obligations have been paid in full or otherwise discharged; (b) be
binding upon the Debtor and its successors, permitted transferees and permitted
assigns; and (c) inure, together with the rights and remedies of the Secured
Party hereunder, to the benefit of the Secured Party and his respective successors,
transferees and assigns.  Upon the
payment in full of all Obligations, the security interest and lien granted
hereunder shall terminate and all rights to the Collateral shall revert to the
Debtor.  Upon such termination, the Secured
Party will execute and deliver to the Debtor such documents as the Debtor shall
reasonably request to evidence such termination.

 

4.             Representations,
Warranties and Covenants.  The Debtor represents, warrants, covenants and
agrees as follows:

 

(a)           Debtor
is the sole legal and beneficial owner of each item of the Collateral, having
good and marketable title thereto, free and clear of any and all liens,
charges, encumbrances, taxes and assessments other than the Permitted Liens.

 

(b)           The
execution, delivery and performance of this Agreement and the endorsement and
delivery of the Collateral does not and will not contravene or violate any
provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect and applicable to the
Debtor, or result in a breach of or constitute a default (with or without the
giving of notice or the lapse of time, or both) under any indenture or any
other agreement to which the Debtor is a party, or by which the Debtor or any
of the Debtor’s property may be bound or affected.

 

(c)           Debtor
shall pay and perform all of the obligations secured by this Agreement
according to their terms.

 

(d)           Debtor
shall defend the title to the Collateral against all persons and against all
claims and demands whatsoever, which Collateral is free and clear of any and
all liens, security interests, claims, charges, encumbrances, taxes and
assessments, except for the Permitted Liens.

 

(e)           Debtor
shall do the following: (i) furnish any further assurances of title
reasonably requested by the Secured Party; (ii) execute any written
agreement or do any other acts reasonably necessary to effectuate the purposes
and provisions of the Agreement; (iii) execute any instrument or statement
required by law in order to perfect or continue the security interest of the Secured
Party in the Collateral; and (iv) pay all costs of filing in connection
therewith.

 

 

(f)            Debtor
shall keep the Collateral free and clear of all liens, charges, encumbrances,
taxes and assessments other than the Permitted Liens.

 

(g)           Debtor
shall pay, when due, all taxes, assessments and license fees relating to the
Collateral unless such taxes and/or assessments are being contested by Debtor
in good faith.

 

(h)           The
Debtor has the full corporate right and authority to enter into this Agreement
and to pledge the Collateral in accordance with the terms hereof.

 

(i)            Except
for the filing of financing statements with the Secretary of State for the State
of Delaware under the UCC, no authorization, approval or other action by, and
no notice to or filing with, any governmental or regulatory authority, agency
or office is required either (1) for the grant by the Debtor or the
effectiveness of the security interest and lien granted hereby or for the
execution, delivery and performance of this Agreement by the Debtor, or (2) for
the perfection of or the exercise by the Secured Party of any of their rights
and remedies hereunder.

 

5.             Waiver.
 Waiver of, or acquiescence in, any
default by the Debtor, or failure of the Secured Party to insist upon strict
performance by the Debtor of any warranties or agreements in this Agreement,
shall not constitute a waiver of any subsequent or other default or failure.

 

6.             Debtor
Remains Liable.  Anything herein to the contrary
notwithstanding (a) the Debtor shall remain liable under any agreements
which have been (in whole or in part) pledged or assigned herein to perform all
of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Secured Party of
any of the rights hereunder shall not release the Debtor from any of its
respective duties or obligations under any such agreements, and (c) Secured
Party shall have no obligation or liability under any such agreements by reason
of this Agreement, nor shall the Secured Party be obligated to perform any of
the obligations or duties of the Debtor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.

 

7.             Governing
Statute.  The UCC shall govern the rights, duties and
remedies of the parties and any provisions herein declared invalid under any
law shall not invalidate any other provision or this Agreement.

 

8.             Remedies
Upon Default.

 

(a)           Upon
any Event of Default (as defined in the 2009 Note), the Obligations secured by
this Agreement shall immediately become due and payable in full without notice
or demand and the Secured Party shall have all the rights, remedies and
privileges with respect to the retention and sale of the Collateral and disposition
of the proceeds thereof as are accorded by the applicable sections of the
Uniform Commercial Code respecting “Default.”

 

(b)           Upon
any Event of Default, the Debtor shall assemble all materials relevant to the
Collateral and make it available to the Secured Party at the place and at the
time designated in the demand.  The
proceeds of all sales and collections of the Collateral shall be applied as
follows:

 

(i)            to
the payment of costs and expenses of such sales and collections incurred by the
Secured Party;

 

(ii)           any
surplus then remaining to the payment of unpaid interest under the 2009 Note;

 

(iii)          any
surplus remaining to the payment of the unpaid principal of the 2009 Note;

 

 

(iv)          to
the payment of any other amounts required by applicable law, including without
limitation, the UCC; and

 

(v)           any
surplus then remaining shall be paid over (subject to the rights of third
parties) to the Debtor or for its account. 
The Debtor shall remain liable for any deficiency resulting from the
sale of the Collateral and shall pay any such deficiency forthwith on demand.

 

9.             Subordination.
 The security interest in the Collateral
described in Section 2 is hereby expressly subordinated to the any lien
now or hereafter granted to a Senior Lender by Debtor or by law, notwithstanding
the date, order or method of attachment or perfection of any such Senior Lien
or the provisions of any applicable law, provided that such subordination must
be on terms and conditions acceptable to Lender, in his reasonable discretion.

 

10.           Termination.
 This Agreement shall terminate upon
payment of all indebtedness and performance of all obligations under the 2009
Note, and the Secured Party shall execute and deliver to the Debtor a UCC-3
financing statement terminating the lien of the Secured Party on the
Collateral.

 

11.           Miscellaneous.

 

(a)           This
Agreement shall bind and inure to the benefit of the respective parties hereto,
and their legal representatives, successors and assigns.

 

(b)           This
Agreement may be modified or amended only by a writing signed by the Debtor and
the Secured Party.

 

(c)           All
notices, requests, demands, claims and other communications hereunder (“Notices”)
shall be in writing.  Any Notice
hereunder shall be deemed duly given (i) upon receipt if delivered in
person; (ii) upon the third business day after being sent if sent by
registered or certified mail, return receipt requested with postage thereon
prepaid; or (iii) on the next business day if sent by Federal Express or
similar overnight courier service; in each case addressed to the intended
recipient as set forth below (or to such other address as the intended receipt
may request by way of Notice delivered in accordance with this Section):

 

If to the Debtor, to:

 

Lime Energy Co.

1280 Landmeier Road

Elk Grove Village, Illinois 60007

Attention:
Chief Financial Officer

 

If to Kiphart:

 

Richard P.
Kiphart

c/o William
Blair & Co. LLC

222 West
Adams Street

Chicago,
Illinois 60606

 

 

(d)           This
Agreement shall be governed by, and interpreted and enforced in accordance
with, the laws of the State of Illinois, as applied to contracts made and to be
performed in that state, without regard to conflicts of law principles.

 

(e)           This
Agreement may be signed in one or more counterparts, each of which shall be
deemed an original but all of which together will constitute one and the same
agreement.

 

IN
WITNESS WHEREOF, the undersigned have executed
this 2009 Security Agreement effective as of the date first set forth above.

 

	
   

  	
  DEBTOR:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Lime
  Energy Co.,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  a Delaware
  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey
  Mistarz

  
	
   

  	
  Name:

  	
  Jeffrey R.
  Mistarz

  
	
   

  	
  Title:

  	
  Executive Vice
  President and

  
	
   

  	
   

  	
  Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  SECURED PARTY:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Richard P.
  Kiphart

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Richard P.
  KiphartExhibit 10.4

 

NEITHER
THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS.  SUCH
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
UNLESS (A) SUBSEQUENTLY REGISTERED PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR (B) THE HOLDER HEREOF SHALL HAVE DELIVERED TO THE COMPANY
A WRITTEN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY
ACCEPTABLE TO THE COMPANY, TO THE EFFECT THAT THE SHARES TO BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED ARE BEING OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION.

 

LIME ENERGY CO.

 

WARRANT TO PURCHASE COMMON STOCK

 

	
  Warrant
  No.:

  	
  Number of Shares: 62,500

  

 

Original
Date of Issuance: August 10, 2009

 

LIME
ENERGY CO., a Delaware corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, RICHARD P. KIPHART, the
registered holder hereof or his permitted assigns registered on the books of
the Company (the “Holder”), is
entitled, subject to the terms and conditions set forth below including Section 2
hereof, to purchase from the Company upon surrender of this Warrant, at any
time or times on or after February 20, 2010 (the “Exercise
Eligibility Date”), but before February 20, 2014 (the “Expiration Date”), Sixty Two Thousand, Five Hundred (62,500)
fully paid and nonassessable shares (the “Warrant Shares”)
of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), at the exercise price per share equal to $6.40, subject to adjustment as hereinafter provided (the “Warrant Exercise Price”).

 

1.                                       Definitions.  In
addition to the capitalized terms defined elsewhere herein, the following terms
as used in this Warrant shall have the following meanings:

 

“Business Day” means any day other than Saturday, Sunday or
other day on which commercial banks in the City of Chicago are authorized or
required by law to remain closed.

 

“Fair Market Value” means, the fair market value of a share
of Common Stock as of a particular date (the “Determination
Date”) as follows:

 

(a)           If the Common Stock is traded on the
NASDAQ Capital Market (“NASDAQ”) or
another national exchange, then the closing sale price reported for the last
Business Day immediately preceding the Determination Date.

 

(b)           If the Common Stock is not traded on
NASDAQ or another national exchange but is traded on the OTC Bulletin Board,
then the mean of the average of the closing bid and asked prices reported for
the last Business Day immediately preceding the Determination Date.

 

 

(c)           Except as provided in clause (d) of
this definition below, if the Common Stock is not then publicly traded, then as
the Holder and the Company agree, or in the absence of agreement, as determined
by arbitration in accordance with Section 20 hereof.

 

(d)           If the Determination Date is the date of
a liquidation, dissolution or winding up, or any event deemed to be a
liquidation, dissolution or winding up pursuant to the Company’s charter, then
all amounts to be payable per share to holders of the Common Stock pursuant to
the charter in the event of such liquidation, dissolution or winding up, plus
all other amounts to be payable per share in respect of the Common Stock in
liquidation under the charter, assuming for the purposes of this clause (d) that
all of the shares of Common Stock then issuable upon exercise of this Warrant
are outstanding at the Determination Date.

 

“Note” means the 2009 Revolving Line of Credit Note issued by
the Company in favor of Richard P. Kiphart in the original principal
amount of $2 million.

 

“Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization or a government or any department or agency thereof.

 

“Securities Act” means the Securities Act of 1933, as
amended.

 

2.                                       Exercise of Warrant.

 

(a)                                  If and only if the outstanding principal balance
of the Note, together with accrued but unpaid interest thereon, shall not have
been paid in full by February 20, 2010, then subject to the terms and
conditions hereof, this Warrant may be exercised by the Holder, in whole or in
part, during normal business hours on any Business Day on or after the Exercise
Eligibility Date and prior to 5:00 p.m. Chicago Time on the Expiration
Date by:

 

(i)            delivery of a duly executed written
notice, in the form of the subscription notice attached as Exhibit A
hereto (the “Exercise Notice”), of such Holder’s
election to exercise this Warrant, which notice shall specify the number of
Warrant Shares to be purchased;

 

(ii)           payment to the Company of an amount equal
to the Warrant Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the “Aggregate
Exercise Price”), either in cash or by certified check or wire
transfer of immediately available funds; and

 

(iii)          delivery to the Company of this Warrant
(or an indemnity and evidence with respect to this Warrant in the case of its
loss, theft, mutilation or destruction as provided in Section 13).

 

In
the event of any exercise of the rights represented by this Warrant in
compliance with this Section 2(a), the Company shall, on or before the
tenth (10th) Business Day following the date of its receipt of the Exercise
Notice, the Aggregate Exercise Price and this Warrant (or an indemnity and
evidence with respect to this Warrant in the case of its loss, theft,
mutilation or destruction as provided in Section 13) (the “Exercise Delivery Documents”), deliver at the Company’s
expense to the Holder, a certificate or certificates for the Warrant Shares so
purchased, in such denominations as may be requested by Holder and registered
in the name of Holder.  Upon the Company’s
receipt of the Exercise Delivery Documents, the Holder shall be deemed for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date
of delivery of certificates evidencing such Warrant Shares.

 

 

(b)           Unless the rights represented by this
Warrant shall have expired or shall have been fully exercised, the Company
shall, as soon as practicable and in no event later than ten (10) Business
Days after any exercise and at its own expense, issue a new Warrant identical
in all respects to this Warrant exercised, except it shall represent rights to
purchase the number of Warrant Shares purchasable immediately prior to such
exercise under this Warrant exercised, less the number of Warrant Shares with
respect to which this Warrant is exercised.

 

(c)           No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but rather the number of shares
of Common Stock issued upon exercise of this Warrant shall be rounded up to the
nearest whole number.

 

(d)           If this Warrant shall have been exercised
in part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased Warrant Shares
called for by this Warrant, which new Warrant shall in all other respects be
identical with this Warrant.

 

3.                                       Covenants.  The
Company hereby represents, covenants and agrees as follows:

 

(a)           This Warrant is, and any Warrants issued
in substitution for or replacement of this Warrant will upon issuance be, duly
authorized and validly issued.

 

(b)           All Warrant Shares which may be issued
upon the exercise of the rights represented by this Warrant will, upon
issuance, be validly issued, fully paid and nonassessable.

 

(c)           The Company has full power and authority
to enter into this Warrant, and to issue and deliver this Warrant and the
Warrant Shares, and to incur and perform fully the obligations provided herein,
all of which have been duly authorized by all necessary corporate action.

 

(d)           This Warrant has been duly executed and
delivered and is the valid and binding obligation of the Company enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium and other similar laws affecting creditors’
rights generally and by general principles of equity.

 

(e)           Unless required by law, the Company will
not close its stockholder books or records in any manner which prevents the
timely exercise of this Warrant.

 

(f)            The Company agrees to maintain, at its
aforesaid office, books for the registration and the registration of transfer
of the Warrants.

 

4.                                       Taxes.  The
Company shall pay any and all taxes, except income taxes, which may be payable
with respect to the issuance and delivery of Warrant Shares upon exercise of
this Warrant.

 

5.                                       Holder Not Deemed a Stockholder. 
Except as otherwise specifically provided herein, this Warrant shall not
entitle Holder to vote or receive dividends or any other rights of a
stockholder of the Company, including, without limitation, any right to vote,
give or withhold consent to any corporate action (whether a reorganization,
issue of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings or receive subscription rights.

 

6.                                       Representations of Holder. 
The Holder, by the acceptance hereof, represents and warrants that it:

 

 

(a)           is
acquiring this Warrant and the Warrant Shares solely for its own account, for
investment and not with a view towards the distribution or resale thereof in
violation of the Securities Act or any applicable state securities laws;

 

(b)           has
received such documents, materials and information as the Holder deems
necessary or appropriate for evaluation of the acquisition of this Warrant and
the right to acquire Warrant Shares hereunder;

 

(c)           is
an “accredited investor” as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act and has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment in this Warrant and the
Warrant Shares;

 

(d)           understands
that no U.S. federal, state or regulatory agency has recommended, approved or
endorsed, or passed upon the fairness or suitability of, an investment in this
Warrant or the Warrant Shares or passed up on the accuracy or adequacy of the
information provided to the Holder; and

 

(e)           recognizes
that an investment in the Warrant Shares involves a high degree of financial
risk, and that it can bear the economic risk of losing its entire investment in
the Warrant Shares and has sought, or will seek, such accounting, legal and tax
advice as it has considered, or will consider, necessary to make an informed
investment decision with respect to its acquisition of this Warrant and of any
Warrant Shares.

 

If
the Holder cannot make any of the foregoing representations at the time of any
exercise of this Warrant because it would be factually incorrect at that time,
the Holder shall so notify the Company, and it shall be a condition to the
Holder’s exercise of this Warrant at that time that the Company receive such
other assurances as the Company then considers reasonably necessary to assure
the Company that the issuance of the Warrant Shares upon such exercise of this
Warrant at such time shall not violate the Securities Act or any state
securities laws.

 

7.                                       Restriction  on  Transfer.

 

(a)           This Warrant and the rights granted to
Holder are transferable, in whole or in part, upon surrender of this Warrant,
together with a properly executed transfer endorsement in the form of Exhibit B
attached hereto; provided, however, that any transfer or assignment shall be
subject to the approval of the Company, such approval not to be unreasonably
withheld, and the conditions set forth in Section 7(b) below.

 

(b)           Holder represents and warrants that he
understands that the Company is under no obligation to register this Warrant or
any of the Warrant Shares, under the Securities Act and that this Warrant and
Warrant Shares will be characterized as “restricted securities” under the Securities
Act because they are being acquired from the Company in a transaction not
involving a public offering.  The Holder
also represents and warrants that he understands that neither the Warrant nor
the Warrant Shares may be offered for sale, sold, assigned or transferred
unless (i) at that time they have been registered pursuant to an effective
registration statement under the Securities Act and applicable state securities
laws, or (ii) the Holder shall have delivered to the Company a written
opinion of counsel, in form, substance and scope reasonably acceptable to the
Company, to the effect that the securities to be offered for sale, sold,
assigned or transferred are being offered for sale, sold, assigned or
transferred pursuant to an exemption from such registration.

 

 

(c)           Unless upon their issuance such Warrant
Shares are then registered under the Securities Act pursuant to an effective
registration statement, any certificates representing Warrant Shares issued in
accordance with this Warrant shall bear a legend substantially in the following
form:

 

THE
SHARES OF COMMON STOCK OF LIME ENERGY CO. (THE “COMPANY”) REPRESENTED BY THIS
CERTIFICATE (THE “SHARES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED UNLESS (A) SUBSEQUENTLY REGISTERED PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR (B) THE HOLDER HEREOF SHALL HAVE DELIVERED TO THE
COMPANY A WRITTEN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY
ACCEPTABLE TO THE COMPANY, TO THE EFFECT THAT THE SHARES TO BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED ARE BEING OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION.

 

(d)           If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken
or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.

 

8.                                       Adjustment of Warrant Exercise Price and
Number of Warrant Shares upon Subdivision or Combination of Common Stock.

 

(a)           If the Company at any time after the date
of issuance of this Warrant subdivides (by any stock split or stock dividend of
its Common Stock) its outstanding shares of Common Stock into a greater number
of shares of Common Stock, the Warrant Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced and the number of
Warrant Shares obtainable upon exercise of this Warrant will be proportionately
increased.  If the Company at any time
after the date of issuance of this Warrant combines (by reverse stock split or
otherwise) its outstanding shares of Common Stock into a smaller number of
shares of Common Stock, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of Warrant
Shares obtainable upon exercise of this Warrant will be proportionately
decreased.  Any adjustment under this Section 8(a) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

 

(b)           Upon any adjustment of the Warrant
Exercise Price or number of issuable Warrant Shares pursuant to this Section 8,
the Company will give written notice thereof to the Holder, setting forth in
reasonable detail the calculation of such adjustment.

 

9.                                       Reorganization, Reclassification.  Consolidation, Merger or Sale.

 

If
at any time, as a result of:

 

(a)           a capital reorganization or
reclassification (other than a subdivision or combination provided for in Section 8(a)),
or

 

(b)           a merger or consolidation of the Company
with another corporation (whether or not the Company is the surviving
corporation) or sale of substantially all of the Company’s stock, the Common
Stock issuable upon exercise of this Warrant shall be changed into or exchanged
for the same or

 

 

a different number of shares of any class
or classes of capital stock of the Company or any other Person, or other
securities convertible into such shares, then, as a part of such
reorganization, reclassification, merger, consolidation or sale, appropriate
adjustments shall be made in the terms of this Warrant (or of any securities
into which this Warrant is exercised or for which this Warrant is exchanged),
so that Holder shall thereafter be entitled to receive, upon exercise of this
Warrant or of such substitute securities, the kind and amount of shares of
stock, other securities, money and property which Holder would have received at
the time of such capital reorganization, reclassification, merger,
consolidation or sale, if Holder had exercised this Warrant immediately prior
to such capital reorganization, reclassification, merger, consolidation or
sale.  This Warrant, including, without
limitation, the provisions of this Section 9 will be binding upon any
entity succeeding to the Company by merger, consolidation or acquisition of all
or substantially all of the Company’s assets. 
The provisions of this Section 9 shall similarly apply to (x) successive
capital reorganizations, reclassifications, mergers, consolidations and sale
and (y) the securities of any other Person that are at the time receivable
upon the exercise of this Warrant.

 

10.                                 Voluntary Adjustment by the Company. 
The Company may at any time during the term of this Warrant reduce the
then current Exercise Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the company.

 

11.                                 Notice of Adjustment. 
Whenever the number of Warrant Shares or number or kind of securities or
other property purchasable upon the exercise of this Warrant or the Exercise
Price is adjusted, as herein provided, the Company shall promptly notify the
Holder, in accordance with Section 15 below, of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares (and other securities or property) after such
adjustment, seeing forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.

 

12.                                 Notice of Corporate Action. 
If at any time:

 

(a)           the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or

 

(b)           there shall be any capital reorganization
of the Company, any reclassification or recapitalization of the capital stock
of the Company or any consolidation or merger of the Company with, or any sale,
transfer or other disposition of all or substantially all the property, assets
or business of the Company to, another corporation, or

 

(c)           there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;

 

then,
in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days’ prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in
the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least
20 days’ prior written notice of the date when the same shall take place.  Such notice in accordance with the foregoing
clause also shall specify (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or right, the date on
which the holders of Common

 

 

Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up.

 

13.                                 Lost, Stolen, Mutilated or Destroyed Warrant. 
If this Warrant is lost, stolen, mutilated or destroyed, the Company
shall promptly, on receipt of evidence reasonably satisfactory to the Company
of the ownership of, and the loss, theft, mutilation or destruction of, this
Warrant, and an indemnity reasonably satisfactory to the Company (or in the
case of a mutilated Warrant, the Warrant), issue in lieu thereof a new Warrant
of like denomination and tenor as this Warrant so lost, stolen, mutilated or
destroyed.

 

14.                                 Authorized Shares.

 

(a)           The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any purchase rights under this
Warrant.  The Company further covenants
that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant.  The Company will take all such reasonable
action as may be necessary to assure that such Warrant Shares may be issued as
provided herein without violation of any applicable law or regulation, or of
any requirements of the market upon which the Common Stock may be listed.

 

(b)           The Company shall not by any action,
including, without limitation, amending its certificate of incorporation or
though any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder against impairment.  Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior
to such increase in par value, (b) take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares upon the exercise of this
Warrant, and (c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.

 

(c)           Before taking any action which would
result in an adjustment in the number of Warrant Shares for which this Warrant
is exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.

 

15.                                 Notice.  Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Warrant must be in writing and will be deemed to
have been made upon receipt when delivered personally, via pre-paid overnight
courier or by certified mail, postage pre-paid, return receipt requested.  The addresses for such communications shall
be:

 

 

	
  If to the Company:

  
	
   

  
	
  Lime Energy Co.

  
	
  1280 Landmeier Road

  
	
  Elk Grove Village,
  Illinois 60007

  
	
  Attention:

  	
  Jeffrey R. Mistarz

  
	
   

  	
  Executive Vice President and

  
	
   

  	
  Chief Financial Officer

  
	
   

  
	
  If to the Holder:

  
	
   

  
	
  Richard P. Kiphart

  
	
  c/o William
  Blair & Co. LLC

  
	
  222 West Adams Street

  
	
  Chicago, Illinois 60606

  

 

or
such other address as the Company or Holder, as applicable, may specify in
written notice given to the other party in accordance with this Section 15.

 

16.           Amendments.  This
Warrant and any term hereof may be changed, waived, discharged, or terminated
only by an instrument in writing signed by the party hereto against which
enforcement of such change, waiver, discharge or termination is sought.

 

17.           Expiration.  This
Warrant, in all events, shall be wholly void and of no effect after 5:00 p.m.
Chicago Time on the Expiration Date.

 

18.           Successors and Assigns. 
The terms and provisions of this Warrant shall inure to the benefit of,
and be binding upon, the Company and the Holder and their respective successors
and permitted assigns.

 

19.           Descriptive Headings; Governing Law. 
The descriptive headings of the several sections and paragraphs of this
Warrant are inserted for convenience only and do not constitute a part of this
Warrant.  All questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of Illinois, without giving effect
to any choice of law or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Illinois.

 

20.           Arbitration. 
In the event of any and all disagreements and controversies arising from
this Warrant, such disagreements and controversies shall be subject to binding
arbitration as arbitrated in accordance with the then current Commercial
Arbitration Rules of the American Arbitration Association in Chicago,
Illinois before one neutral arbitrator. 
Either party may apply to the arbitrator seeking injunctive relief until
the arbitration award is rendered or the controversy is otherwise
resolved.  Without waiving any remedy
under this Warrant, either party may also seek from any court having
jurisdiction any interim or provisional relief that is necessary to protect the
rights or property of that party, pending the establishment of the arbitral
tribunal (or pending the arbitral tribunal’s determination of the merits of the
controversy).  In the event of any such
disagreement or controversy, neither party shall directly or indirectly reveal,
report, publish or disclose any information relating to such disagreement or
controversy to any person, firm or corporation not expressly authorized by the
other party to receive such information or use such information or assist any
other person in doing so, except to comply with actual legal obligations of
such party, or unless such disclosure is directly related to an arbitration
proceeding as provided herein, including, but not limited to, the prosecution
or defense of any claim in such arbitration. 

 

 

The costs and expenses of the arbitration
(excluding attorneys’ fees) shall be paid by the non-prevailing party or as
determined by the arbitrator.

 

21.           Nonwaiver and Expenses. 
No course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder’s rights, powers or remedies, notwithstanding all
rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails
to comply with any provision of this Warrant, which results in any material damages
to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys’ fees, including those of appellate proceedings, incurred
by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.

 

22.           Limitation of Liability. 
No provision hereof, in the absence of affirmative action by Holder to
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of Holder, shall give rise to any liability of Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.

 

23.           Remedies.  Holder,
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Warrant.  The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Warrant and hereby agrees
to waive the defense in any action for specific performance that a remedy at
law would be adequate.

 

IN WITNESS WHEREOF, the Company
has caused this Warrant to be signed by a duly authorized officer, as of the
10th day of August, 2009.

 

 

	
   

  	
  LIME
  ENERGY CO.,

  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jeffrey R. Mistarz

  
	
   

  	
  Name:

  	
  Jeffrey
  R. Mistarz

  
	
   

  	
  Title:

  	
  Executive
  Vice President and

  
	
   

  	
   

  	
  Chief
  Financial Officer

  

 

 

EXHIBIT A TO WARRANT

 

SUBSCRIPTION FORM

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

 

The
undersigned, pursuant to the provisions set forth in the attached Warrant (No.         ),
hereby irrevocably elects to purchase                     
shares of the Common Stock covered by such Warrant.

 

The
undersigned herewith makes payment of the Aggregate Exercise Price for such
shares at the price per share provided for in such Warrant.  Such payment takes the form of
$                    
in lawful money of the United States.

 

The
undersigned requests that the certificates for such shares be issued in the
name of, and delivered to                                                                                                              ,
whose address is
                                                                                                                            .

 

The
undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant
shall be made pursuant to registration of the Common Stock under the Securities
Act of 1933, as amended (the “Securities Act”) or pursuant to an exemption from
registration under the Securities Act.

 

 

	
  Date:                                      ,
  20       

  	
   

  
	
   

  	
  Richard P.
  Kiphart

  

 

 

EXHIBIT B TO WARRANT

 

FORM OF TRANSFEROR ENDORSEMENT

 

(To be signed only on transfer of Warrant)

 

For
value received, the undersigned hereby sells, assigns, and transfers unto the
person(s) named below under the heading “Transferees” the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Lime Energy Co. into which the within Warrant relates
specified under the headings “Percentage Transferred” and “Number Transferred,”
respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of Lime
Energy Co. with full power of substitution in the premises.

 

	
  Transferees

  	
   

  	
  Address

  	
   

  	
  Percentage Transferred

  	
   

  	
  Number Transferred

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature must conform
  to name of holder as specified n the face of the Warrant)

  
	
   

  	
   

  	
   

  
	
  Signed in the presence
  of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Name)

  	
   

  	
  (Address)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ACCEPTED AND AGREED:

  [TRANSFEREE]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Name)

  	
   

  	
  (Address)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Address)

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