exv10w1






Exhibit 10.1




CONVERTIBLE NOTE




			
	$31,649,999.39	 	 
	New York, New York
	 	May 15, 2009






     FOR VALUE RECEIVED, the undersigned, LIGHTING SCIENCE GROUP CORPORATION, a Delaware
corporation (“Borrower”), promises to pay to the order of PEGASUS PARTNERS IV, L.P., a Delaware
limited partnership (“Lender”), the sum of THIRTY ONE MILLION SIX HUNDRED FORTY NINE THOUSAND NINE
HUNDRED NINETY NINE DOLLARS AND THIRTY NINE CENTS ($31,649,999.39) or so much thereof as may be
outstanding hereunder, together with interest.



          1. Interest Rate. Interest shall accrue on the unpaid principal balance of this Note
from the date hereof at 14% per annum.




          2. Default Rate. All past due principal of and accrued interest on this Note shall
bear interest from maturity (stated, by acceleration, or otherwise) until paid at the rate of 18%
per annum.




          3. Advances.





     (a) On the date hereof, Lender will loan Borrower $13,150,761.11 (the “First Term
Advance”).




     (b) On or before the tenth (10th) Business Day after the date hereof (such
date to be determined by Lender in its reasonable discretion), Lender will loan Borrower
$18,499,238.28 (the “Second Term Advance” and, together with the First Term Advance, the
“Term Advances”). The Term Advances may not be prepaid.



          4. Use of Proceeds.





     (a) The proceeds of the First Term Advance will be used to: (i) pay in full that
certain Promissory Note dated December 18, 2008, executed by Borrower and made payable to
the order of Lender in the original principal amount of $1,950,000.00, (ii) pay in full that
certain Promissory Note dated February 13, 2009, executed by Borrower and made payable to
the order of Lender in the original principal amount of $7,000,000.00, (iii) pay in full
that certain Promissory Note dated April 17, 2009, executed by Borrower and made payable to
the order of Lender in the original principal amount of $2,000,000.00, (iv) pay in full that
certain Promissory Note dated May 11, 2009, executed by Borrower and made payable to the
order of Lender in the original principal amount of $500,000.00, and (v) pay $1,500,000.00
of the principal amount outstanding under that certain Loan Authorization Agreement (the
“Revolver”), dated July 25, 2008, between Borrower and Bank of Montreal.




     (b) The proceeds of the Second Term Advance will be used to pay principal amounts
outstanding under the Revolver.



          5. Repayments. The principal and interest of this Note shall be due and payable on
the Maturity Date. As used herein, “Maturity Date” shall mean the earlier of (a) July 31, 2009 or
(b) the Closing Date (as hereinafter defined); provided, that if the registration statement for
the Offering (as hereinafter defined) of Borrower (the “Registration Statement”) is declared
effective by the Securities and Exchange Commission (the “SEC”) prior to July 31, 2009, the
Maturity Date shall be the Closing



 









 






Date (as hereinafter defined); provided further, that in no event shall the Maturity Date be
later than September 3, 2009.




          6. Events of Default and Remedies. The entire unpaid principal balance of and all
accrued interest on this Note shall immediately become due and payable, without notice or demand
which are hereby waived, upon the occurrence of any one or more of the following events of default
(individually or collectively, herein called a “Default”):





     (a) The failure or refusal of Borrower to pay all or any part of the principal of or
accrued interest on this Note as and when same becomes due and payable in accordance with
the terms hereof; or




     (b) Borrower shall: (i) become insolvent within the meaning of the Bankruptcy Code of
the United States, as amended, (ii) admit in writing its inability to pay or otherwise fail
to pay its or his or her debts generally as they become due, (iii) voluntarily seek consent
to, or acquiesce in the benefit or benefits of any Debtor Relief Law, or (iv) be made the
subject of any proceeding provided for by any Debtor Relief Law that could suspend or
otherwise affect any of the rights of the holder hereof. As used herein, “Debtor Relief
Laws” means the Bankruptcy Code of the United States, as amended and all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization or similar debtor relief laws from time to time in effect
affecting the rights of creditors generally; or




     (c) The nonpayment when due of any material indebtedness owed by Borrower, or the
occurrence of any event under any document or instrument evidencing, securing, or executed
in connection with any such indebtedness which could give the holder thereof the right to
declare such indebtedness or any part thereof due prior to its scheduled maturity; or




     (d) The discovery by the holder hereof that any statement, representation, or warranty
made by Borrower in any writing, document, or instrument ever delivered to the holder hereof
in connection herewith was at the time made false, misleading, or erroneous in any material
respect.



          Upon the occurrence of a Default, the holder of this Note may: (a) offset against this Note
any sum or sums owed by the holder hereof to Borrower and (b) proceed to protect and enforce its
rights either by suit in equity and/or by action at law, or by other appropriate proceedings,
whether for the specific performance of any covenant or agreement contained in this Note or any
document or instrument executed and delivered by Borrower in connection with this Note or in aid of
the exercise of any power or right granted by this Note or any document or instrument executed and
delivered by Borrower in connection with this Note or to enforce any other legal or equitable right
of the holder of this Note.




          7. Cumulative Rights. No delay on the part of the holder of this Note in the
exercise of any power or right under this Note, or under any document or instrument executed in
connection herewith, shall operate as a waiver thereof, nor shall a single or partial exercise of
any other power or right. Enforcement by the holder of this Note of any security for the payment
hereof shall not constitute an election by it of remedies so as to preclude the exercise of any
other remedy available to it.




          8. Waiver. Borrower, and each surety, endorser, guarantor, and other party ever
liable for the payment of any sum of money payable on this Note jointly and severally waive
demand, presentment, protest, notice of nonpayment, notice of intention to accelerate, notice of
acceleration, notice of protest, and any and all lack of diligence or delay in collection or the
filing of suit hereon which may occur, and agree that their liability on this Note shall not be
affected by any renewal or



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extension in the time of payment hereof, by any indulgences, or by any release or change in
any security for the payment of this Note, and hereby consent to any and all renewals, extensions,
indulgences, releases, or changes, regardless of the number of such renewals, extensions,
indulgences, releases, or changes.




          9. Attorneys’ Fees and Costs. In the event that a Default shall occur, and in the
event that thereafter this Note is placed in the hands of an attorney for collection, or in the
event this Note is collected in whole or in part through legal proceedings of any nature, then and
in any such case Borrower promises to pay all costs of collection, including, but not limited to,
reasonable attorneys’ fees incurred by the holder hereof on account of such collection, whether or
not suit is filed.




          10. Notices. Any notice or demand given hereunder by the holder shall be deemed to
have been given and received (a) when actually received by Borrower, if delivered in person or by
courier or messenger, or (b) two (2) Business Days (hereinafter defined) after a letter containing
such notice, certified or registered, with postage prepaid, addressed to Borrower, is deposited in
the United States Mail. The address of Borrower is 120 Hancock Lane, Westampton, New Jersey 08060
or such other address as Borrower shall advise the holder hereof by certified or registered
letter.




          11. Governing Law. The laws of New York shall govern the construction, validity,
enforcement and interpretation of this Note, except to the extent federal laws otherwise govern
the validity, construction, enforcement and interpretation hereof.




          12. Headings. The headings of the sections of this Note are inserted for convenience
only and shall not be deemed to constitute a part hereof.




          13. Successors and Assigns. All of the covenants, stipulations, promises and
agreements contained in this Note by or on behalf of Borrower shall bind its successors and
assigns, whether so expressed or not; provided, that Borrower may not, without the prior written
consent of the holder hereof, assign any rights, duties, or obligations under this Note.




          14. Maximum Interest Rate. Regardless of any provision contained herein, or in any
other document executed in connection herewith, the holder hereof shall never be entitled to
receive, collect or apply, as interest hereon, any amount in excess of the maximum rate of
interest permitted to be charged from time to time by applicable law, and in the event the holder
hereof ever receives, collects or applies, as interest, any such excess, such amount which would
be excessive interest shall be deemed a partial prepayment of the principal hereof and treated
hereunder as such; and, if the principal hereof is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid or payable, under
any specified contingency, exceeds the highest lawful rate, Borrower and the holder hereof shall,
to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as
an expense, fee, or premium rather than as interest, (b) exclude voluntary prepayments and the
effects thereof, and (c) spread the total amount of interest throughout the entire contemplated
term hereof; provided, that if the indebtedness evidenced hereby is paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the maximum lawful rate, the holder hereof shall refund
to Borrower the amount of such excess or credit the amount of such excess against the principal
hereof, and in such event, the holder hereof shall not be subject to any penalties provided by any
laws for contracting for, charging, or receiving interest in excess of the maximum lawful rate.




          15. Business Day; Payments. As used herein, (a) “Business Day” means any day other
than Saturday, Sunday or other day on which the Federal Reserve Bank of New York is closed and (b)
“Nonbusiness Day” means every day that is not a Business Day. The principal of, or accrued



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interest
on, this Note shall be due and payable in lawful money of the United States of America, in
New York, New York at the office of Lender, 505 Park Avenue, 21st Floor, New York, New
York 10022, in funds which are or will be available for immediate use by Lender at such office at
or before 12:00 p.m., Eastern time (daylight or standard, as applicable) on the day payment hereof
is due. In any case where a payment of principal or interest hereon is due on a Nonbusiness Day,
Borrower shall be entitled to delay such payment until the next succeeding Business Day, but
interest shall continue to accrue until the payment is, in fact, made.




          16. Offering. Borrower will use its best efforts to conduct a rights offering (the
“Offering”) during the second fiscal quarter of 2009, which shall consist of the offering of at
least 38,916,295 Units (as hereinafter defined and including the number of Units that may be
acquired pursuant to this Note) at a price of $1.006 per Unit. As used herein “Unit” means,
collectively: (i) 1.006 shares of Borrower’s newly designated Series D Non-Convertible Preferred
Stock, which shall have the designations, powers, preferences and rights set forth in the form of
Certificate of Designation attached hereto as Exhibit A (the “Series D Preferred Shares”), and
(ii) a Warrant to purchase one share of Borrower’s common stock for $6.00, which Warrant shall be
substantially in the form of Exhibit B attached hereto (the “Warrant”). Borrower will use its
reasonable best efforts to cause the Registration Statement for the Offering to be declared
effective by the SEC as soon as reasonably possible, but in no event later than July 31, 2009.




          17. Automatic Conversion; Purchase Option.





     (a) If the Registration Statement for the Offering is declared effective by the SEC
prior to July 31, 2009, then Lender shall be deemed to have converted all of the then
outstanding principal balance and accrued and unpaid interest of this Note (the “Convertible
Debt”), into a number of Units equal to one Unit for each $1.006 of Convertible Debt (the
“Automatic Conversion”).




     (b) The Automatic Conversion shall occur on the date the Offering is consummated (the
“Closing Date”) and shall constitute a binding agreement between Lender and Borrower, in
which Lender shall be deemed, without further action on its part, to subscribe for the
number of Units it is entitled to receive upon such conversion (which number of Units shall
be reduced by the number of Units, if any, Lender receives in accordance with paragraph 18
hereof), and in payment and satisfaction of such subscription, to release Borrower from all
liability hereon in respect of the repayment of principal and/or accrued and unpaid interest
hereof being converted. If Lender’s acquisition of Units pursuant to this Note would result
in Lender receiving more than its pro rata allocation of Units (such allocation to be
determined in conjunction with the Offering), then Borrower hereby agrees to increase the
size of the Offering to accommodate such additional Units if necessary such that other
securityholders participating in the Offering are able to purchase their allocation of
Units.




     (c) Borrower and Lender hereby agree that Lender will have the right to acquire any
Units not otherwise subscribed for pursuant to the terms of the Offering (the “Purchase
Option”). In addition, Borrower understands and agrees that Lender shall cause LED
Holdings, LLC to distribute its rights pursuant to the Offering to its members, including
Lender.




     (d) Borrower shall not be required to issue fractions of Units upon conversion of this
Note (or portion thereof) or acquisitions of any additional Units by Lender pursuant to the
Purchase Option. If any fractional interest in a Unit would be delivered upon the
conversion of this Note and acquisition of additional Units by Lender pursuant to the
Purchase Option,



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Borrower shall purchase such fractional interest for an amount in cash equal to $1.006
multiplied by the amount of such fractional interest.




     (e) As soon as practicable after the Closing Date, and in any event, within five (5)
Business Days thereafter, Borrower shall issue and deliver to the Lender: (i) a certificate
or certificates for the number of Series D Preferred Shares and Warrants issuable upon the
conversion of this Note in accordance with the provisions hereof, and (ii) a check or cash
in respect of any fraction of a Unit.



          18. Optional Conversion. Paragraph 17 notwithstanding, at any time after the
expiration of the notice period prescribed by SEC Rule 14c-2, Lender may, at its option, convert
all or a portion of the Convertible Debt into a number of Units equal to one Unit for each $1.006
of Convertible Debt (with such conversion first being applied to the portion of Convertible Debt
consisting of accrued interest and then being applied to the portion of Convertible Debt
consisting of principal) (the “Optional Conversion”). Borrower shall not be required to issue
fractions of Units pursuant to the Optional Conversion. If any fractional interest in a Unit
would be delivered pursuant to the Optional Conversion, Borrower shall purchase such fractional
interest for an amount in cash equal to $1.006 multiplied by the amount of such fractional
interest. In the event that Lender exercises its option pursuant to the Optional Conversion prior
to the record date of the Offering, Lender shall not receive any rights in the Offering with
respect to the securities of Borrower underlying the Units issued to Lender pursuant to such
conversion. Conversion pursuant to this paragraph 18 shall release Borrower from all liability in
respect of the repayment of principal and/or accrued and unpaid interest being converted upon
payment in satisfaction of the subscription for the number of Units Lender is entitled to receive
pursuant to such conversion.




          19. Borrowings from Bank of Montreal. After the date hereof and so long as any
amount remains outstanding under this Note, Borrower shall obtain the prior written consent of
Lender (which consent may be withheld in Lender’s sole discretion for any reason or no reason)
prior to borrowing more than $5,000,000 in the aggregate pursuant to the Revolver. By way of
example only, if Borrower has previously borrowed $4,500,000 pursuant to the Revolver, and seeks
to borrow another $600,000, Borrower will need the prior written consent of Lender because it will
be seeking to borrow an aggregate amount that is greater than $5,000,000.




          20. Legends. Each Series D Preferred Share issuable upon conversion of this Note
shall bear the legend set forth below:





THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS UNLESS SOLD
PURSUANT TO RULE 144 UNDER THE SECURITIES ACT. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF, AND MAY ONLY BE TRANSFERRED
IN ACCORDANCE WITH, A CONVERTIBLE NOTE BETWEEN THE RECORD HOLDER OF THIS CERTIFICATE
AND THE COMPANY. COPIES OF SUCH



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CONVERTIBLE NOTE MAY BE OBTAINED UPON WRITTEN REQUEST TO THE COMPANY.



          21. Consent to Jurisdiction. BORROWER IRREVOCABLY AGREES THAT, SUBJECT TO LENDER’S
SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF, FROM OR RELATED
TO THIS NOTE WILL BE LITIGATED IN COURTS HAVING SITUS WITHIN NEW YORK, NEW YORK. BORROWER HEREBY
CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY COURT LOCATED WITHIN NEW YORK, NEW YORK, WAIVES
PERSONAL SERVICE OF PROCESS UPON BORROWER AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE
BY CERTIFIED MAIL DIRECTED TO BORROWER AT THE ADDRESS STATED IN PARAGRAPH 10 HEREOF AND SERVICE SO
MADE WILL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT.




          22. Waiver of Jury Trial. BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION WITH THIS NOTE, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING WILL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY. BORROWER AGREES THAT IT WILL NOT ASSERT ANY CLAIM AGAINST LENDER ON
ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES.




          23. ENTIRETIES. THIS NOTE, TOGETHER WITH THE OTHER DOCUMENTS AND INSTRUMENTS
EXECUTED AND DELIVERED IN CONNECTION HEREWITH, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.




[Remainder of page intentionally left blank. Signature page to follow]





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     IN WITNESS WHEREOF, the undersigned has executed this Note as of the day and year first above
written.



	 	 	 	 	 
	 	LIGHTING SCIENCE GROUP CORPORATION

 	 
	 	By:  	/s/ Stephen Hamilton	 
	 	 	Name:  	Stephen Hamilton 	 
	 	 	Title:  	Vice President — Finance 	 
	 



	 	 	 	 	 
	ACCEPTED AND AGREED THIS 15th DAY OF MAY, 2009





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/
Richard Weinberg 	 	 
	 	Name:  	Richard Weinberg 	 	 
	 	Title:  	Vice President 	 	 
	 



Signature Page to Lighting Science Group Convertible Note




 









 








EXHIBIT A




SERIES D NON-CONVERTIBLE PREFERRED STOCK





(see attached)




Exhibit A




 









 








EXHIBIT B




WARRANT




(see attached)




Exhibit B