Exhibit 10.1

STOCK PURCHASE, EXCHANGE AND RECAPITALIZATION AGREEMENT

This STOCK PURCHASE, EXCHANGE AND RECAPITALIZATION AGREEMENT (this “Agreement”)
is made effective as of September 30, 2010, by and among Lighting Science Group
Corporation, a Delaware corporation (the “Company”), LSGC Holdings LLC, a
Delaware limited liability company (“Purchaser”), Pegasus Partners IV, L.P., a
Delaware limited partnership (“Pegasus”), and LED Holdings, LLC, a Delaware
limited liability company (“LED”, and together with Purchaser and Pegasus, the
“Investors”).

RECITALS

WHEREAS, the Company is in need of operating capital to continue its operations;
and

WHEREAS, as of the date hereof, the Company has outstanding: (i) 2,000,000
shares of Series B Preferred Stock, par value $0.001 per share (the “Series B
Preferred Stock”); (ii) 251,739 shares of Series C Preferred Stock, par value
$0.001 per share (the “Series C Preferred Stock”); (iii) 67,260,295 shares of
Series D Non-Convertible Preferred Stock, par value $0.001 per share (the
“Series D Preferred Stock”); (iv) 235,295 shares of Series E Non-Convertible
Preferred Stock, par value $0.001 per share (the “Series E Preferred Stock,” and
each with 50 Series E Warrants (as hereinafter defined), a “Series E Unit”);
(v) those certain warrants issued to the holders of Series C Preferred Stock on
December 31, 2008 and representing the right to purchase 3,782,056 shares of
Common Stock in the aggregate (the “Series C Warrants”); (vi) those certain
warrants issued pursuant to (a) the rights offering contemplated by that certain
registration statement on Form S-1 (Registration No. 333-162966) originally
filed by the Company with the Securities and Exchange Commission (the “SEC”) on
November 6, 2009, (b) the convertible note agreement, dated as of August 27,
2009, between the Company and Pegasus, (c) the convertible note agreement, dated
as of August 27, 2009, between the Company and Koninklijke Philips Electronics
N.V. and (d) the Amended and Restated Guaranty Extension Agreement, dated as of
March 15, 2010, and as amended on July 9, 2010, between the Company and Pegasus
(collectively with (a), (b) and (c), the “Series D Warrants”) and (vii) warrants
to purchase 11,764,750 shares of Common Stock (the “Series E Warrants”); and

WHEREAS, the Company believes the complexity of its capital structure is an
impediment to the appreciation of the value the Company’s common stock, par
value $0.001 per share (“Common Stock”), and that it is in the best interests of
the Company and its stockholders (other than the Investors) to simplify the
Company’s capital structure; and

WHEREAS, the Investors desire to provide capital for the Company’s continuing
operations and are willing to participate in the simplification of the Company’s
capital structure on the terms and conditions set forth herein; and

WHEREAS, the Company desires to issue and sell to Purchaser, and Purchaser
desires to purchase, an aggregate of 12,500,000 shares of Common Stock on the
terms and conditions set forth in this Agreement; and

WHEREAS, the Company and Pegasus, as the majority holder of the Series D
Preferred Stock and, together with LED, as the majority holder of the Common
Stock, desire to amend the Certificate of Designation concerning the Series D
Preferred Stock (as it exists on the date hereof, the “Current Series D
Certificate”) to provide that, among other things, the outstanding shares of
Series D Preferred Stock are automatically converted into Common Stock on the
terms set forth in the form of Certificate of Amendment to Amended and Restated
Certificate of Incorporation of the Company attached hereto as Exhibit A (the
“Preferred Stock Amendment”); and

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WHEREAS, upon the effectiveness of the Preferred Stock Amendment, the Company
desires to enable the holders of the Series D Warrants, including the Investors,
to obtain adjustments to the Exercise Price (as defined in the Series D
Warrants) of each Series D Warrant on the terms and conditions set forth in this
Agreement; and

WHEREAS, the parties hereto desire to enter into a series of transactions in
order to effect the simplification of the Company’s capital structure.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
intending to be legally bound, the parties hereto agree as follows:

AGREEMENT

ARTICLE I. RECAPITALIZATION

1.01 Recapitalization. Notwithstanding anything to the contrary contained
herein, the following transactions (collectively, the “Recapitalization”) shall
be deemed to have occurred in the following sequence:

(a) First, with respect to the capitalization, the Investors shall have waived
the Company’s compliance with: (A) Sections 7(f)(i) and 7(f)(ii) of the Series D
Warrants and the Series E Warrants and (B) Section 7(f) of the Series C Warrants
in accordance with Section 1.02(a)-(c) of this Agreement;

(b) Second, Pegasus and LED shall have executed and delivered the Stockholder
Consents in accordance with Section 1.03 of this Agreement;

(c) Third, LED shall have exchanged its shares of Series B Preferred Stock for
shares of Common Stock in accordance with Section 1.04(a) of this Agreement;

(d) Fourth, Pegasus shall have exchanged its shares of Series C Preferred Stock
for shares of Common Stock in accordance with Section 1.04(a) of this Agreement;

(e) Fifth, Pegasus shall have exercised its Series C Warrants on a cashless or
net exercise basis in accordance with Section 1.04(b) of this Agreement;

(f) Sixth, Pegasus shall have exchanged its Series E Units for shares of Common
Stock in accordance with Section 1.04(a) of this Agreement;

(g) Seventh, Purchaser shall have purchased the New Shares (as defined in
Section 1.05) in accordance with Section 1.05 of this Agreement;

(h) Eighth, the Company shall have filed the Information Statement relating to
the Preferred Stock Amendment in accordance with Section 1.06 of this Agreement;

(i) Ninth, the Company shall have caused the Preferred Stock Amendment to become
effective with the Secretary of State of the State of Delaware in accordance
with Section 1.07 of this Agreement;

 

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(j) Tenth, the Investors that then own any Series D Warrants shall permanently
waive the Company’s compliance with Sections 7(f)(i) and 7(f)(ii) of the Series
D Warrants in accordance with Section 1.02(d) of this Agreement; and

(k) Eleventh, the Company shall have taken all necessary actions to enable the
holders of Series D Warrants to obtain adjustments to the Exercise Price of each
Series D Warrant in accordance with Section 1.08 of this Agreement.

1.02 Waiver of Warrant Provisions.

(a) Effective as of the date hereof, Pegasus, in its capacity as the holder of
unexercised Series D Warrants representing the right to purchase a majority of
the shares of Common Stock underlying the Series D Warrants (as determined by
the Company) (the “Majority Holder”) and in accordance with Section 11 of the
Series D Warrants, hereby waives, on behalf of all holders of Series D Warrants,
the Company’s obligation to comply with Section 7(f)(i) and Section 7(f)(ii) of
the Series D Warrants as a result of the Recapitalization transactions.

(b) Effective as of the date hereof, as a result of the Recapitalization
transactions, Pegasus, in its capacity as the holder of all of the unexercised
Series E Warrants (as determined by the Company), hereby waives any obligation
that the Company may have with respect to: (i) Section 7(f)(i) and
Section 7(f)(ii) of the Series E Warrants.

(c) Effective as of the date hereof, as a result of the Recapitalization
transactions, Pegasus, in its capacity as a holder of unexercised Series C
Warrants, hereby waives any obligation that the Company may have with respect to
Section 7 of its Series C Warrants.

(d) Immediately following the effectiveness of the Preferred Stock Amendment,
the Investors, in their capacity as the Majority Holder(s), and in accordance
with Section 11 of the Series D Warrants, hereby agree to permanently waive, to
the extent the Investors hold unexercised Series D Warrants representing the
right to purchase a majority of the shares of Common Stock underlying the Series
D Warrants (as determined by the Company at such time) on behalf of all holders
of Series D Warrants, the Company’s obligation to comply with Section 7(f)(i)
and Section 7(f)(ii) of the Series D Warrants as a result of any transactions
occurring after the effective date of the Preferred Stock Amendment.

1.03 Stockholder Consents. Concurrently with the execution of this Agreement,
the Investors shall execute and deliver to the Company a stockholder consent (or
consents) in lieu of a special meeting of the stockholders of the Company (the
“Stockholder Consents”) to vote or cause to be voted all of the shares of Common
Stock, Series B Preferred Stock and Series C Preferred Stock held by the
Investors or their affiliates (in a vote of the Common Stock, Series B Preferred
Stock and Series C Preferred Stock voting together as a single class) and to
vote or cause to be voted all of the shares of the Series D Preferred Stock in a
class vote in favor of the approval of the Preferred Stock Amendment.

1.04 Exchange and Exercise. Upon the terms and conditions set forth herein, in
accordance with Section 1.01:

(a)(i) the Investors shall exchange: (A) all shares of Series B Preferred Stock,
(B) all shares of Series C Preferred Stock and (C) all Series E Units held by
the Investors for 32,505,006 shares of Common Stock (the “Exchange Shares”), and
the Investors’ rights to receive any accrued or declared but unpaid dividends on
such shares of Series B Preferred Stock, Series C Preferred Stock and Series E
Preferred Stock shall be cancelled; (ii) the Investors shall deliver to the
Company certificates representing

 

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(A) 2,000,000 shares of Series B Preferred Stock, (B) 239,975 shares of Series C
Preferred Stock and (C) 235,295 Series E Units; and (iii) the Company shall
deliver to the Investors duly executed certificates representing the Exchange
Shares in the respective amounts and names of the Investors as specified on
Schedule 1.04 hereto; and

(b)(i) the Investors shall exercise that certain Series C Warrant No. 112
representing the right to purchase 3,599,618 shares of Common Stock (which has
since the date of issuance adjusted to the right to purchase 3,605,313 shares of
Common Stock) on a cashless or net exercise basis pursuant to its terms (for
purposes of such exercise, the “market price” of Common Stock shall be
calculated as its last quoted sales price on the OTC Bulletin Board on the
trading day immediately preceding the date hereof) for 1,846,882 shares of
Common Stock (the “Series C Warrant Shares”), and (ii) the Company shall deliver
to the Investors duly executed certificates representing the Series C Warrant
Shares in the respective amounts and names of the Investors as specified on
Schedule 1.04 hereto.

1.05 Purchase and Sale of New Shares. Upon the terms and subject to the
conditions set forth herein (a) the Company hereby agrees to issue and sell to
Purchaser, and Purchaser shall purchase from the Company, 12,500,000 shares (the
“New Shares”) of Common Stock and (b) Purchaser shall pay to the Company, by
wire transfer of immediately available funds to an account specified by the
Company in Schedule 1.05 hereto, the amount of $20,000,000.00 as payment of the
purchase price for the New Shares described above (the “Purchase Price”). Upon
receipt of the Purchase Price, the Company shall deliver to Purchaser a stock
certificate representing the New Shares to be issued and sold by the Company to
Purchaser.

1.06 Information Statement.

(a) As promptly as practicable after the date hereof, but in any event within
30 days after the date of this Agreement, the Company shall, at its sole
expense, prepare and file with the SEC, and the Investors shall reasonably
cooperate with the Company in such preparation and filing of, a preliminary
information statement on Schedule 14C relating to the Preferred Stock Amendment
and the transactions contemplated by this Agreement, and the Company shall, in
reasonable consultation with the Investors, use its commercially reasonable
efforts to furnish the information required to respond promptly to any comments
made by the SEC with respect to the preliminary information statement and
thereafter, within five days of receiving SEC clearance, to mail the information
statement to the Company’s stockholders. Such preliminary information statement
as filed with the SEC and the information statement subsequently mailed to the
stockholders of the Company (as amended and supplemented from time to time) is
herein referred to as the “Information Statement.”

(b) Each of the Investors hereby agrees to provide the Company with all
information concerning it which is required or reasonably appropriate to be
included in the Information Statement.

1.07 Preferred Stock Amendment. The Company shall, as soon as practicable
following the mailing of the Information Statement, but subject to applicable
laws, use its commercially reasonable efforts to cause the Preferred Stock
Amendment to become effective with the Secretary of State of the State of
Delaware and to effectuate the conversion of the outstanding shares of Series D
Preferred Stock into shares of Common Stock in accordance with the Preferred
Stock Amendment.

 

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1.08 Series D Warrant Adjustments. The Company shall take all necessary actions
to enable the holders of the Series D Warrants, including the Investors, to
obtain adjustments to each Series D Warrant, which adjustments shall be as
follows:

(a) Immediately upon the effectiveness of the Preferred Stock Amendment, the
Exercise Price per share of Common Stock shall be reduced by an amount equal to
the accrued but unpaid Exercise Price Accrual (as defined in the Current Series
D Certificate) per share of Series D Preferred Stock through the date of this
Agreement. The exercise price adjustment for each issue date of the Series D
Warrants is set forth in Schedule 1.08 hereto.

(b) Immediately upon the effectiveness of the Preferred Stock Amendment, each
holder of Series D Warrants shall be credited an amount per Warrant Share (as
defined in the Series D Warrants) equal to all Exercise Price Accrual and LV
Accrual (as defined in the Current Series D Certificate) not otherwise
distributed to such holders in the form of Common Stock upon the effectiveness
of the Preferred Stock Amendment or pursuant to the exercise price adjustment
set forth in clause (a), above (the “Accrual Credit”). The cumulative amount of
the Accrual Credit for each Warrant Share shall remain credited to the account
of such holder until used to fund the payment of the exercise price of all or a
portion of such holder’s Series D Warrant(s) or until the date that such
holder’s Series D Warrants are no longer exercisable in accordance with the
terms of the Series D Warrants; provided, that such Accrual Credit may not be
used for such purpose until the earlier of (i) the passage of eight years from
the date of issuance of each Series D Warrant or (ii) a Liquidation Event of the
Company (as defined in the Current Series D Certificate). Each holder of Series
D Warrants shall be entitled to apply the Accrual Credit toward the exercise of
the Series D Warrants as if it were the Exercise Price Accrual, in accordance
with Section 2(a)(ii)(4) and 2(e) of the Series D Warrant. For the avoidance of
doubt, the Accrual Credit credited to the account of each holder of the Series D
Warrants may be aggregated for the purchase of the underlying Warrant Shares
(such that no cash will be required to acquire some portion of such Warrant
Shares solely with Accrual Credit). The Accrual Credit for each issue date of
the Series D Warrants is set forth in Schedule 1.08 hereto.

(c) Immediately upon the effectiveness of the Preferred Stock Amendment, the
Investors and the Company shall execute all papers, agreements, instruments,
certificates and documents necessary to effect the changes to the Series D
Warrants addressed in this Section 1.08, and otherwise reasonably satisfactory
to the Investors and the Company.

ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as otherwise specified below, the Company represents and warrants to the
Investors as of the date hereof as follows:

2.01 Organization and Qualification. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the requisite corporate power to own its properties and
carry on its business as presently conducted.

2.02 Authorization. The issuance, sale and delivery of the New Shares, the
Exchange Shares and the Series C Warrant Shares in accordance with this
Agreement and the Series C Warrants have been duly authorized by all necessary
corporate action on the part of the Company.

2.03 Validity. This Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by the Company does not
and will not conflict with, violate or cause a breach of any agreement, contract
or instrument to which the Company is a party or any judgment, order or decree
to which the Company is subject.

 

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2.04 Capitalization.

(a) Schedule 2.04(a) attached hereto sets forth a true, complete and correct
listing, as of the date hereof (and following the execution of the transactions
contemplated by this Agreement that are required to take place as of the date
hereof), of all of the Company’s outstanding: (i) shares of Common Stock;
(ii) shares of preferred stock, par value $0.001 per share (“Preferred Stock”),
and (iii) securities convertible into or exchangeable for shares of Common Stock
(the “Derivative Securities”), including the applicable exercise price of such
Derivative Securities, other than any Derivative Securities issued pursuant to
the Company’s Amended and Restated Equity-Based Compensation Plan (the
“Management Equity”).

(b) Schedule 2.04(b) attached hereto sets forth a true, complete and correct
listing, after giving effect to all of the transactions contemplated by this
Agreement (including the conversion of the outstanding shares of Series D
Preferred Stock into shares of Common Stock in accordance with the Preferred
Stock Amendment), of all of the Company’s outstanding: (i) shares of Common
Stock; (ii) shares of Preferred Stock, and (iii) Derivative Securities,
including the applicable exercise price of such Derivative Securities, other
than any Management Equity.

(c) Except for the Derivative Securities, any Management Equity, the New Shares,
the Exchange Shares, the Series C Warrant Shares, the Option Shares (as defined
in Section 5.01) to be issued or issuable pursuant to this Agreement and any
shares of Common Stock to be issued upon conversion of the outstanding shares of
Series D Preferred Stock pursuant to the conversion provisions of the Preferred
Stock Amendment (the “Conversion Shares”), no subscription, warrant, option,
convertible security, stock appreciation or other right (contingent or other) to
purchase or acquire any shares of any class of capital stock of the Company or
any of its Subsidiaries (as hereinafter defined) is authorized or outstanding,
and except for the Derivative Securities, the Management Equity, the New Shares,
the Exchange Shares, the Series C Warrant Shares, the Option Shares and the
Conversion Shares, there is not any commitment of the Company or any of its
Subsidiaries to issue any shares, warrants, options or other such rights or to
distribute to holders of any class of its capital stock, any evidences of
indebtedness or assets. As used in this Agreement, “Subsidiary” means, with
respect to the Company, any corporation, association or other business entity of
which more than 50% of the total voting power of shares of capital stock or
other ownership interest entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by the Company or
one or more of the other Subsidiaries of the Company or a combination thereof.

2.05 Exchange of Series C Preferred Stock and Exercise of Series C Warrants not
Held by Investors. In conjunction with the transactions contemplated by this
Agreement, the Company has separately entered into an agreement with the holder
of all of the outstanding shares of Series C Preferred Stock and Series C
Warrants that are not held by the Investors and such agreement will effectuate:
(i) the exchange of all such shares of Series C Preferred Stock for shares of
Common Stock on substantially similar terms to those set forth in
Section 1.04(a) of this Agreement, and (ii) following such exchange, the
exercise of all such Series C Warrants on substantially similar terms to those
set forth in Section 1.04(b) of this Agreement. Following the closing of the
transactions contemplated by such agreement and this Agreement, no Series C
Preferred Stock or Series C Warrants will remain outstanding.

2.06 SEC Reports; Financial Statements.

(a) As of their respective filing dates, the most recent Form 10-K and Form 10-Q
filed by the Company with the SEC (such filings, the “Company SEC Documents”)
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended (the “1933 Act”), the Securities Exchange Act
of 1934, as amended, and the Sarbanes-Oxley Act of 2002, as the case may be,
including, in each case, the rules and regulations promulgated thereunder.

 

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(b) Except to the extent that information contained in any Company SEC Document
has been revised or superseded by a document the Company subsequently filed with
the SEC, none of the Company SEC Documents contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.

(c) The financial statements (including the related notes thereto) included (or
incorporated by reference) in the Company SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (“GAAP”) (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
financial position of the Company and its subsidiaries as of the dates thereof
and their respective consolidated results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal and
recurring year-end audit adjustments that were not, or are not expected to be,
material in amount), all in accordance with GAAP and the applicable rules and
regulations promulgated by the SEC. The amount of outstanding Management Equity
set forth in the Company’s most recent Form 10-K was accurate as of the date set
forth therein. Since August 13, 2010, the Company has not made any change in the
accounting practices or policies applied in the preparation of its financial
statements, except as required by GAAP, the rules of the SEC, policy or
applicable law.

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

The Investors represent and warrant to the Company as of the date hereof as
follows:

3.01 Organization. Each of the Investors is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization and has all
requisite limited partnership or limited liability company, as appropriate,
power and authority to own or lease and operate its properties and assets and to
carry on its business as it is now being conducted.

3.02 Authorization. Each of the Investors has the limited partnership or limited
liability company, as appropriate, power and authority to execute, deliver and
perform its obligations under this Agreement. The execution, delivery and
performance by the Investors of this Agreement and the Stockholder Consents, the
purchase of the New Shares and the exchange of the Series B Preferred Stock, the
Series C Preferred Stock, and the Series E Units by the Investors, and the
cancellation of the Investors’ right to receive any accrued or declared but
unpaid dividends on the Series B Preferred Stock, the Series C Preferred Stock
and the Series E Preferred Stock have been duly authorized by all requisite
action on the part of the Investors.

3.03 Validity. This Agreement constitutes the legal, valid and binding
obligation of each of the Investors, enforceable in accordance with its terms,
and the execution, delivery and performance of this Agreement by the Investors
does not and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which the Investors are a party or any judgment, order
or decree to which the Investors are subject.

 

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3.04 Investment Representations.

(a) The Investors are acquiring the New Shares and Exchange Shares for the
Investors’ own accounts and not with a view to, or intention of, distribution
thereof in violation of the 1933 Act or any applicable state securities laws.

(b) The Investors are sophisticated in financial matters and are able to
evaluate the risks and benefits of an investment in the New Shares and the
Exchange Shares. Investors understand and acknowledge that such investments are
a speculative venture, involve a high degree of risk and are subject to complete
risk of loss.

(c) The Investors are able to bear the economic risk of their investment in the
New Shares, the Exchange Shares and the Series C Warrant Shares for an
indefinite period of time. The Investors: (i) understand and acknowledge that
the New Shares, the Exchange Shares and the Series C Warrant Shares being issued
to the Investors have not been registered under the 1933 Act, nor under the
securities laws of any state, nor under the laws of any other country and
(ii) recognize that no public agency has passed upon the accuracy or adequacy of
any information provided to the Investors or the fairness of the terms of their
investment in the New Shares, the Exchange Shares and the Series C Warrant
Shares.

(d) The Investors have had an opportunity to ask questions and receive answers
concerning the terms and conditions of the Recapitalization and have had full
access to such other information concerning the Company as they have requested.

(e) The Investors have such knowledge and experience in financial and business
matters that the Investors are capable of evaluating the merits and risks of
their investment in the New Shares, the Exchange Shares and the Series C Warrant
Shares.

(f) Purchaser became aware of the offering of the New Shares other than by means
of general advertising or general solicitation.

3.05 Ownership of Shares. At least one of the Investors is the record and
beneficial owner of 2,000,000 shares of Series B Preferred Stock, 239,975 shares
of Series C Preferred Stock and 235,295 Series E Units, together with the right
to receive any accrued but unpaid dividends thereon.

3.06 Antitrust. Pegasus holds more than 50% of both the rights to profits, and
rights to assets upon dissolution, of each of LED and the Purchaser. Therefore,
Pegasus is the “ultimate parent entity” (as defined in the rules promulgated
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended) of each of LED and Purchaser.

ARTICLE IV. INDEMNIFICATION

4.01 Indemnification Provisions for the Investors’ Benefit. The Company will
indemnify and hold the Investors and their affiliates, and their respective
officers, directors, managers, employees, agents, representatives, controlling
persons, stockholders and similarly situated persons (collectively,
“Representatives”), harmless from and pay any and all Damages (as defined below)
directly or indirectly resulting from, relating to, arising out of or
attributable to any of the following: (i) any violation or breach of any
representation, warranty, covenant or agreement the Company has made in this
Agreement; and (ii) any and all Damages directly or indirectly relating to or in
connection with any of the transactions contemplated hereby.

 

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As used herein, the term “Damages” means all losses (including diminution in
value), damages and other costs and expenses of any kind or nature whatsoever,
whether known or unknown, contingent or vested, matured or unmatured, and
whether or not resulting from third-party claims, including costs (including
reasonable fees and expenses of attorneys, other professional advisors and
expert witnesses and the allocable portion of the relevant person’s internal
costs) of investigation, preparation and litigation in connection with any
action, suit, arbitration, mediation, investigation or similar proceeding (an
“Action”) or threatened Action.

4.02 Indemnification Claim Procedures.

(a) In order for any of the Investors or their affiliates or their respective
Representatives (each, an “Indemnified Party”) to be entitled to any
indemnification provided for under this Agreement in respect of, arising out of
or involving any Damages or any claims or demands made by any person against
such Indemnified Party (a “Third Party Claim”), such Indemnified Party shall
deliver notice thereof to the Company (the “Indemnifying Party”) with reasonable
promptness after receipt by such Indemnified Party of notice of the Third Party
Claim and shall provide the Indemnifying party with such information with
respect thereto as the Indemnifying Party may reasonably request. The failure to
provide such notice, however, shall not release the Indemnifying Party from any
of its obligations under this Article IV except to the extent that the
Indemnifying Party is materially prejudiced by such failure.

(b) If the Indemnifying Party acknowledges in writing its obligation to
indemnify the Indemnified Party against any and all Damages that may result from
a Third Party Claim pursuant to the terms of this Agreement, the Indemnifying
Party shall have the right, upon written notice to the Indemnified Party within
15 days of receipt of notice from the Indemnified Party of the commencement of
such Third Party Claim, to assume the defense thereof at the expense of the
Indemnifying Party, with counsel selected by the Indemnifying Party and
satisfactory to the Indemnified Party. The Indemnifying Party shall be liable
for the fees and expenses of counsel employed by the Indemnified Party for any
period during which the Indemnifying Party has failed to assume the defense
thereof. If the Indemnifying Party does not expressly elect to assume the
defense of such Third Party Claim within the time period and otherwise in
accordance with the first sentence of this Section 4.02(b), the Indemnified
Party shall have the sole right to assume the defense of and to settle such
Third Party Claim. If the Indemnifying Party assumes the defense of such Third
Party Claim, the Indemnified Party shall have the right to employ separate
counsel and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the Indemnified Party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the Indemnifying Party or (ii) the named parties to the Third Party Claim
(including any impleaded parties) include both the Indemnified Party and the
Indemnifying Party, and the Indemnified Party reasonably determines that
representation by counsel to the Indemnifying Party of both the Indemnifying
Party and such Indemnified Party may present such counsel with a conflict of
interest. If the Indemnifying Party assumes the defense of any Third Party
Claim, the Indemnified Party shall, at the Indemnifying Party’s expense,
cooperate with the Indemnifying Party in such defense and make available to the
Indemnifying Party all witnesses, pertinent records, materials and information
in the Indemnified Party’s possession or under the Indemnified Party’s control
relating thereto as is reasonably required by the Indemnifying Party. If the
Indemnifying Party assumes the defense of any Third Party Claim, the
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party, enter into any settlement or compromise or consent to the
entry of any judgment with respect to such Third Party Claim if such settlement,
compromise or judgment (i) involves a finding or admission of wrongdoing,
(ii) does not include an unconditional written release by the claimant or
plaintiff of the Indemnified Party from all liability in respect of such Third
Party Claim or (iii) imposes equitable remedies or any obligation on the
Indemnified Party other than solely the payment of money damages for which the
Indemnified Party will be indemnified hereunder.

 

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(c) The indemnification required hereunder in respect of a Third Party Claim
shall be made by prompt payment by the Indemnifying Party of the amount of
actual Damages in connection therewith, as and when bills are received by the
Indemnifying Party or Damages incurred have been notified to the Indemnifying
Party, together with interest on any amount not repaid as necessary to the
Indemnified Party by the Indemnifying Party within five business days after
receipt of notice of such Losses, from the date such Damages have been notified
to the Indemnifying Party.

(d) The Indemnifying Party shall not be entitled to require that any action be
made or brought against any other person before action is brought or claim is
made against it hereunder by the Indemnified Party.

(e) In the event any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim being
asserted against or sought to be collected from such Indemnified Party, the
Indemnified Party shall deliver notice of such claim with reasonable promptness
to the Indemnifying Party. The failure to provide such notice, however, shall
not release the Indemnifying Party from any of its obligations under this
Article IV except to the extent that the Indemnifying Party is materially
prejudiced by such failure and shall not relieve the Indemnifying Party from any
other obligation or liability that it may have to the Indemnified Party or
otherwise than pursuant to this Article IV.

4.03 Remedies Not Affected by Investigation, Disclosure or Knowledge. If the
transactions contemplated by this Agreement are consummated, the Investors
expressly reserve the right to seek indemnity or other remedy for any Damages,
notwithstanding any investigation by, disclosure to or knowledge of such party
in respect of any fact or circumstances that reveals the occurrence of any such
breach, whether before or after the execution and delivery hereof.

ARTICLE V. MISCELLANEOUS

5.01 Follow-on Investment. Until the earlier of: (a) closing of a revolving
credit facility that would provide the Company with at least $15,000,000 of
total borrowing capacity or (b) December 31, 2010, the Investors (collectively)
shall have the right and option to purchase up to an additional 3,125,000 shares
of Common Stock (the “Option Shares”) at a price per share of $1.60, for an
aggregate purchase price of $5,000,000.

5.02 Termination of Guaranty. After the date hereof, the Company shall:

(a) obtain the prior consent of Pegasus (which consent may be withheld in
Pegasus’ sole discretion for any reason or no reason) prior to borrowing any
amounts pursuant to that certain Loan Authorization Agreement, dated as of
July 25, 2008, as amended (the “Loan Agreement”), with the Bank of Montreal
(“BMO”) and that certain Replacement Note (the “Note”) issued to BMO and dated
July 9, 2010;

(b) apply the necessary portion of the Purchase Price to repay all amounts due
under the Loan Agreement and the Note, if any; and

(c) use commercially reasonable efforts to permanently terminate, as soon as
reasonably practical: (i) the Loan Agreement; (ii) the Note; (iii) that certain
Guaranty Agreement dated as of July 25, 2008, as amended, between Pegasus and
BMO; and (iv) that certain Amended and Restated Guaranty Extension Agreement,
dated as of March 15, 2010, as amended, between the Company and Pegasus.

 

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5.03 Registration Rights. To the extent that any of the Investors or their
affiliates own Company securities (or in the case of derivative securities, the
Common Stock underlying such derivative securities) that are not subject to a
registration rights agreement or otherwise entitled to registration rights, the
Company shall enter into an agreement with such Investor or affiliate,
reasonably satisfactory to all parties thereto, granting registration rights
with respect to such securities on terms no less favorable than those afforded
Pegasus pursuant to the Amended and Restated Registration Rights Agreement,
dated as of January 23, 2009, by and between the Company and Pegasus.

5.04 Restrictive Legends. Each certificate representing New Shares, Exchange
Shares, Conversion Shares, Series C Warrant Shares and any shares of capital
stock received in respect thereof, whether by reason of a stock split, reverse
stock split or share reclassification thereof, a stock dividend thereon or
otherwise, and each certificate for any such securities issued to subsequent
transferees of any such certificate shall be stamped or otherwise imprinted with
the following legend:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAW, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.

5.05 Notices. Any notice or other communication required or permitted hereunder
shall be deemed to be sufficient if contained in a written instrument delivered
in person or duly sent by first class certified mail, postage prepaid, by
nationally recognized overnight courier, or by facsimile addressed to such party
at the address or facsimile number set forth below or such other address or
facsimile number as may hereafter be designated in writing by the addressee to
the addressor listing all parties:

if to the Company, to:

Lighting Science Group Corporation

Building 2A, 1227 South Patrick Drive

Satellite Beach, FL 32937

Fax: (321) 779-5521

Attn: General Counsel

with a copy (which shall not constitute notice) to:

Greg R. Samuel

Haynes and Boone, LLP

2323 Victory Avenue, Suite 700

Dallas, TX 75219

Fax: (214) 200-0577

if to the Investors to:

Pegasus Partners IV, L.P.

99 River Road

Cos Cob, CT 06807

Fax: (212) 710-2500

Attention: Steven Wacaster

 

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with a copy (which shall not constitute notice) to:

Jeffrey L. Kochian

Akin Gump Strauss Hauer & Feld LLP

One Bryant Park

New York, NY 10036

Fax: (212) 872-1002

or, in any case, at such other address or addresses as shall have been furnished
in writing by such party to the other parties hereto. All such notices,
requests, consents and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery,
(b) in the case of mailing, on the fifth business day following the date of such
mailing, (c) in the case of delivery by overnight courier, on the business day
following the date of delivery to such courier, and (d) in the case of
facsimile, when received.

5.06 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to conflict
of laws principles.

5.07 Entire Agreement. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and may not be amended or
modified nor any provisions waived except as set forth in Section 5.09.

5.08 Assignment; No Third Party Beneficiaries. This Agreement and the rights,
duties and obligations hereunder may not be assigned or delegated by any party
hereto. This Agreement is not intended to confer any rights or benefits on any
persons other than the parties hereto.

5.09 Amendments and Waivers.

(a) Any provision of this Agreement may be amended or waived if, but only if,
such amendment or waiver is in writing and is signed by the Company and the
Investors.

(b) No failure or delay by any party in exercising any right, power or privilege
hereunder will operate as a waiver thereof, nor will any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege, nor will any waiving of any right power
or privilege operate to waive any other subsequent right, power or privilege.
The rights and remedies herein provided will be cumulative and not exclusive of
any rights or remedies provided by law.

5.10 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

5.11 Expenses. The Company agrees to pay up to $50,000 for the legal fees and
expenses of the Investors (the “Investor Legal Fee Allowance”). Except with
respect to the Investor Legal Fee Allowance, each of the parties hereto shall
bear its own expenses (including fees and expenses of legal counsel, financial
advisors and other representatives and consultants) in connection with the
negotiation, documentation and consummation of the transaction contemplated
hereunder.

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IN WITNESS WHEREOF, the Company and the Investors have executed this Agreement
as of the day and year first above written.

 

COMPANY LIGHTING SCIENCE GROUP CORPORATION By:  

/s/ Zachary S. Gibler

  Name:   Zachary S. Gibler   Title:   Chief Executive Officer

Signature Page to Stock Purchase, Exchange and Recapitalization Agreement

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INVESTORS PEGASUS PARTNERS IV, L.P. By:   PEGASUS INVESTORS IV, LP,   its
general partner By:   PEGASUS INVESTORS IV GP, L.L.C.,   its general partner By:
 

/s/ Steven Wacaster

  Name: Steven Wacaster   Title: Vice President LED HOLDINGS, LLC By:  

/s/ Steven Wacaster

  Name: Steven Wacaster   Title: Vice President LSCG HOLDINGS LLC By:   PEGASUS
PARTNERS IV, L.P.   its managing member By:   PEGASUS INVESTORS IV, LP,   its
general partner By:   PEGASUS INVESTORS IV GP, L.L.C.,   its general partner By:
 

/s/ Steven Wacaster

  Name: Steven Wacaster   Title: Vice President

Signature Page to Stock Purchase, Exchange and Recapitalization Agreement