REDEMPTION AND EXCHANGE AGREEMENT



         This Redemption and Exchange Agreement (the "Agreement") is entered

into as of March 19, 2004, by and among Electric City Corp., a Delaware

corporation (the "Company"), and the undersigned holders of Preferred Stock of

the Company listed on the Schedule of Investors (the "Schedule of Investors")

attached hereto as Schedule A (each, a "Participating Investor", and

collectively, the "Participating Investors").



                                    RECITALS



         WHEREAS, the Participating Investors are holders of shares of the

Company's Series A Convertible Preferred Stock, Series C Convertible Preferred

Stock, and/or Series D Convertible Preferred Stock (collectively, the "Prior

Preferred Stock") and certain of the Participating Investors are also holders of

warrants to purchase shares of Series D Convertible Preferred Stock (the "Prior

Warrants"); and



         WHEREAS, the Company desires to redeem and/or exchange all of the

outstanding shares of Prior Preferred Stock and all the outstanding Prior

Warrants from the Participating Investors, and the Participating Investors

desire to have such shares and warrants redeemed and/or exchanged; and



         WHEREAS, the Company shall grant to all Participating Investors the

option to (i) have certain of their shares of Prior Preferred Stock redeemed and

all their remaining shares of Prior Preferred Stock exchanged for shares of the

Company's newly issued Series E Convertible Preferred Stock, par value $0.01 per

share (the "Series E Preferred Stock") all their Prior Warrants exchanged for

new warrants in substantially the form attached hereto as Exhibit A (the "Series

E Warrants") to purchase shares of Series E Preferred Stock (the "Series E

Warrant Shares"), or (ii) not have any of their shares of Prior Preferred Stock

redeemed and instead have all of their shares of Prior Preferred Stock exchanged

for shares of the Series E Preferred Stock and all of their Prior Warrants

exchanged for Series E Warrants; and



         WHEREAS, the Participating Investors desire to enter into this

Agreement to provide for the redemption and/or exchange of the Prior Preferred

Stock and Prior Warrants as described above;



         NOW THEREFORE, in consideration of the foregoing and of the mutual

promises and covenants contained herein, and subject to the terms and conditions

hereof, the parties hereby agree as follows:



         1.       Redemption of Prior Preferred Stock. Subject to the terms and

conditions of this Agreement, each Participating Investor (each, a "Redeeming

Investor" and collectively, the "Redeeming Investors") listed on Schedule B

attached hereto (the "Redemption Schedule"), agrees, severally and not jointly,

to sell, and the Company agrees to purchase from each Redeeming Investor, the

number and type of shares of Prior Preferred Stock (the "Redeemed



                                      -1-



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Shares") set forth opposite such Redeeming Investor's name on the Redemption

Schedule at the cash purchase price per share set forth opposite such Redeeming

Investor's name on the Redemption Schedule and at the aggregate purchase price

set forth opposite such Redeeming Investor's name on the Redemption Schedule

(the "Redemption Price"). The Company's agreement with each Redeeming Investor

is a separate agreement, and the purchase of the Redeemed Shares from each

Redeeming Investor is a separate purchase.



         2.       Series E Authorization. The Company has authorized (a) 300,000

shares of Series E Preferred Stock (the "Series E Shares"), having the rights,

privileges, preferences and restrictions set forth in the Certificate of

Designations, Preferences and Relative, Participating, Optional and Other

Special Rights of Preferred Stock and Qualifications, Limitations and

Restrictions Thereof of Series E Convertible Preferred Stock of the Company, in

the form attached hereto as Exhibit B (the "Series E Certificate of

Designations"), (b) the issuance of Series E Warrants for the purchase of Series

E Warrant Shares, and (c) the reservation of shares of the Company's Common

Stock for issuance upon conversion of the Series E Shares and Series E Warrant

Shares (the "Series E Conversion Shares").



         3.       Exchange of Prior Preferred Stock for Series E Preferred

Stock. Subject to the terms and conditions of this Agreement and immediately

after the consummation of the redemption in accordance with Section 1 and the

other provisions of this Agreement, each Participating Investor, severally and

not jointly, agrees to exchange, and the Company hereby agrees to issue Series E

Shares to each Participating Investor in exchange for, such Participating

Investor's remaining shares of Prior Preferred Stock held by such Redeeming

Investor, at a ratio of one (1) Series E Share for every ten (10) shares of

Prior Preferred Stock, in each case in the amount set forth on Schedule C

attached hereto (the "Series E Exchange Schedule"). The Series E Shares issued

pursuant to this Agreement shall have the rights, preferences, privileges and

restrictions as set forth in the Series E Certificate of Designations and shall

be subject to the terms set forth in the Amended and Restated Stockholders

Agreement (the "Stockholders Agreement") and the Amended and Restated Investor

Rights Agreement (the "Investor Rights Agreement"), each dated of even date

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