Document:

October 11, 2007 8K Exhibit 4.1

                                                                              Exhibit 4.1

EXCHANGE AND CONTRIBUTION AGREEMENT

by and among

LED HOLDINGS, LLC

AND

LIGHTING SCIENCE GROUP CORPORATION

 

Dated as of October 4, 2007

 

 

 

 

 

TABLE OF CONTENTS

Page

ARTICLE I DEFINITIONS*
ARTICLE II CONTRIBUTION of ASSETS; ASSUMPTION OF LIABILITIES; EXCHANGE
CONSIDERATION*

2.01Exchange and Contribution*

2.02Exchange Consideration*

2.03Tax Treatment*
ARTICLE III Closing*

3.01Time and Place*

3.02Deliveries by LED*

3.03Deliveries by LSG*
ARTICLE IV Representations and Warranties of LED*

4.01Organization; Qualification; Subsidiaries*

4.02Authority*

4.03No Violation*

4.04Consents*

4.05Title to Properties.*

4.06Litigation*

4.07Contracts*

4.08Compliance with Law; Permits*

4.09Environmental Matters*

4.10Employees; Labor Matters*

4.11Benefit Plans*

4.12Taxes*

4.13Intellectual Property*

4.14LED Financial Statements*

4.15Absence of Certain Changes or Events*

4.16Insurance*

4.17Affiliate Transactions*

4.18Brokers' Fees*

4.19Investment Intent*
ARTICLE V Representations and Warranties of LSG*

5.01Organization; Qualification; Subsidiaries*

5.02Authority*

5.03No Violation*

5.04Consents*

5.05Title to Properties.*

5.06Litigation*

5.07Contracts*

5.08Compliance with Law; Permits*

5.09Environmental Matters.*

5.10Employees; Labor Matters*

5.11Benefit Plans*

5.12Taxes*

5.13Intellectual Property*

5.14SEC Filings; LSG Financial Statements*

5.15Capitalization*

5.16Absence of Certain Changes or Events*

5.17Insurance*

5.18Affiliate Transactions*

5.19Brokers' Fees*

5.20Private Offering*

5.21Takeover Statutes*
ARTICLE VI POST-CLOSING Covenants*

6.01Public Announcements*

6.02Further Assurances*

6.03Expenses*

6.04Remittance of Accounts Receivable and Excluded
Assets*

6.05Certain Tax Matters.*

6.06Personnel and Employment.*

6.07Competitive Opportunities*

6.08LED KK Shares and Kabushiki LED Shares*

6.09Disney Contract*

6.10Common Stock Certificate*
ARTICLE VII NO SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS*

7.01No Survival of Representations, Warranties and
Covenants*
ARTICLE VIII Miscellaneous*

8.01Binding Effect; Assignment; No Third-Party Rights*

8.02Entire Agreement*

8.03Headings*

8.04Notices*

8.05Severability*

8.06Amendment; Waiver, etc.*

8.07Governing Law; Consent to Jurisdiction.*

8.08Waiver of Trial By Jury*

8.09Bulk Sales*

8.10Counterparts*

8.11Neutral Construction*

8.12Interpretation*

                                                 iii

EXCHANGE AND CONTRIBUTION AGREEMENT

EXCHANGE AND CONTRIBUTION AGREEMENT dated as of October 4, 2007 (this
"Agreement"), by and among LED HOLDINGS, LLC, a Delaware limited liability company
("LED"), and LIGHTING SCIENCE GROUP CORPORATION, a Delaware corporation
("LSG," and together with LED, the "Parties"). 

RECITALS

WHEREAS, LED operates a business that is engaged in designing and manufacturing custom LED lighting and
digital lighting controls for customers worldwide (the "Business"); and

WHEREAS, this Agreement contemplates a transaction pursuant to which (i) LED will contribute, transfer,
assign, convey and deliver to LSG the Acquired Assets (as defined below) in exchange for shares of LSG Series B Preferred Stock and
LSG Common Stock (each as defined below), and (ii) LSG will assume the Assumed Liabilities (as defined below), in each case on the
terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants, representations and warranties made herein,
the Parties agree as follows:

 ARTICLE I

DEFINITIONS

For purposes of this Agreement and any Schedule hereto, the following terms shall have the meanings ascribed
to them below:

"Accounts Receivable" means (i) all trade accounts receivable and other rights to payment
from customers of LED and the full benefit of all security for such accounts or rights to payment, (ii) all other accounts or notes
receivable of LED and the full benefit of all security for such accounts or notes and (iii) any claim, remedy or other right related to any of
the foregoing, in each case outstanding as of the Effective Time.

"Action" means any claim, charge, demand, action, suit, proceeding, arbitral action,
governmental inquiry, criminal prosecution or other investigation.

"Acquired Assets" means all right, title, and interest in and to all of the assets of LED, in
each case as they exist at the Effective Time, other than the Excluded Assets, but including all of LED's right, title and interest in, to and
under the following:

	all cash and cash equivalents (including marketable securities and short term investments);

	the LED KK Shares;

	the Kabushiki LED Shares;

	all Leases and the LED Leased Real Property;

	all Equipment;

	all Inventory;

	all Accounts Receivable;

	all Contracts and any and all rights thereunder;

	all Permits;

	all Records;

	all Intellectual Property owned, used or held for use by LED, and all rights to the corporate and tradenames
of the Business;

	all rights to causes of action, lawsuits, judgments, claims and demands of any nature whether choate or
inchoate, known or unknown, contingent or non-contingent, available to or being pursued by LED or the ownership, use, function or
value of any Acquired Asset, whether arising by way of counterclaim or otherwise;

	all prepaid expenses, credits deferred charges, advance payments, security deposits, postage deposits and
other prepaid items, and any and all rights relating thereto; and 

	all other assets and properties of LED that are used or useful in connection with the operation of the
Business, tangible and intangible, wherever located, including all goodwill, know-how and trade secrets related to the
Business.

Notwithstanding the foregoing, under no circumstances shall the Acquired Assets include any Excluded
Assets.

"Affiliate(s)" shall have the meaning ascribed to it in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.

"Affiliated Group" means any affiliated group within the meaning of Code Section 1504 (or
any similar group defined under a similar provision of state, local or foreign law).

"Agreement" shall have the meaning ascribed to it in the preamble hereto.

"Assumed Liabilities" means all liabilities and obligations of LED (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due),

                                                 2

including (a) all liabilities of LED for unpaid Taxes with respect to periods prior to the
Closing and the pre-Closing portion of any Straddle Period, (b) all liabilities of LED for transfer, sales, use, and other non-income Taxes
arising in connection with the consummation of the transactions contemplated hereby, (c) all liabilities of LED for the unpaid Taxes of
Persons other than LED (but including LED's liability for the unpaid Taxes of LED's Subsidiaries) under Treasury Reg.  1.1502-6 (or
any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise, (d) all liabilities and
obligations of LED under Contracts, including all LED Employee Plans, (e) all liabilities and obligations of LED under the Worker
Adjustment and Retraining Notification Act arising in connection with the transactions contemplated by this Agreement, (f) all liabilities
and obligations of LED arising under Environmental Laws, (g) all obligations of LED to indemnify any Person by reason of the fact that
such Person was a director, officer, employee, or agent of LED or was serving at the request of LED as a partner, trustee, director,
officer, employee, or agent of another entity (whether such indemnification is for judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise and whether such indemnification is pursuant to any statute, charter document,
bylaw, agreement, or otherwise), (h) all product liabilities and liability for any product warranties, and (i) all other liabilities and
obligations of LED set forth in the disclosure schedules attached hereto; provided, however, that the Assumed
Liabilities shall not include any liability or obligation of LED under this Agreement and any other agreement entered into in connection
with the transactions contemplated hereby.  

"Assumed Plans" shall have the meaning ascribed to it in Section 6.06(c).

"Bill of Sale" means the Bill of Sale, Assignment and
Assumption, dated as of the date hereof, between LED and LSG.

"Business" shall have the meaning ascribed to it in the recitals hereto.

"CERCLA" shall have the meaning ascribed to it in the definition of "Environmental
Laws" below.

"Closing" shall have the meaning ascribed to it in Section 3.01.

"Closing Date" shall have the meaning ascribed to it in Section 3.01.

"Code" means the Internal Revenue Code of 1986, as amended, and the rules
promulgated thereunder.

"Competitive Opportunity" shall have the meaning ascribed to it in Section 6.07.

"Continued Employees" shall have the meaning ascribed to it in Section 6.06(a).

"Contracts" means any written or oral contracts, agreements, leases, understandings,
arrangements, commitments, sales orders, product quotations and purchase orders, including all employee benefit plans (including related insurance contracts), and other

                                                 3

employee-related agreements, in each case as the same may exist as of the Effective Time.

"Effective Time" means 12:01 a.m. on the Closing Date.

"Employee" shall have the meaning ascribed to it in Section 6.06(a).

"Employment Agreements" means the employment agreements to be entered into between
LSG and each of Kevin Furry, Zach Gibler, Ken Honeycutt, Paul Kallmes, Ronald Lusk, Frederic Maxik, Govi Rao, and Chuck
Sommerville. 

"Encumbrance" means any mortgage, pledge, security interest, lien, reservation, exception,
encroachment, easement, right-of-way, covenant, restriction, lease or other similar title exception or encumbrance.

"Environmental Damages" means any demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, obligations, penalties, fines, costs and expenses (including reasonable fees and expenses of
counsel) arising out of or relating to:  (i) the condition of the LED Leased Real Property or LSG Leased Real Property, as applicable, to
the extent arising under Environmental Laws, including the presence of any Hazardous Substances thereon; (ii) the investigation,
removal, transportation and/or disposal of any Hazardous Substances from, on, to or about the LED Leased Real Property or LSG
Leased Real Property, as applicable; or (iii) a violation of any Environmental Laws or (iv) any remedial actions required under
Environmental Law by any Governmental Authority relating to the condition of any LED Leased Real Property or LSG Leased Real
Property, as applicable, including the investigation, removal, monitoring, transportation and/or disposal of any Hazardous Substances
from, on, at or about any LED Leased Real Property or LSG Leased Real Property, as applicable.

"Environmental Laws" mean any federal, state or local law, statute, ordinance, rule,
regulation or code, and any license, permit, authorization or court order, judgment, decree or injunction related to the use, storage,
recycling, treatment, generation, transportation, processing, handling, labeling, production, release, investigation, remediation or
disposal of pollutants or toxic or hazardous substances, or related to the protection of threatened or endangered species or
environmentally sensitive areas, including without limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"); the Hazardous Material Transportation Act, 49.
U.S.C. 1801, et seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901, et seq.; the
Clean Air Act, as amended, 42 U.S.C. Section 7401, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C.
Section 1251, et seq.; the Clean Air Act, 42 U.S.C. 2601, et seq.; the Toxic Substances Control Act, as amended, 125
U.S.C. Section 1251, et seq.; the Emergency Planning and Community Right to Know Act, 42 U.S.C. Section 11001, et
seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq.; and the Occupational Safety and Health Act, 29 U.S.C.
651, et seq. 

"Equipment" means all computers and other data processing hardware (including all
Software related thereto or used therewith), servers, network systems, telephone systems and

                                                 4

equipment, office furniture, office equipment, fixtures, and all other tangible personal property of similar nature, in each case owned or used by LED.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

"Exchange Consideration" shall have the meaning ascribed to it in Section 2.02.

"Excluded Assets" means only the following assets of LED, all of which shall be retained by
LED:

	the certificate of formation, limited liability company operating agreement and other governing
documents of LED, qualifications to conduct business as a foreign corporation, arrangements with registered agents relating to foreign
qualifications, taxpayer and other identification numbers, seals, bylaws, minute books and other documents relating to the organization,
maintenance, and existence of LED as a limited liability company; and

	all rights of LED under this Agreement and any other agreement entered into in connection with the
transactions contemplated hereby.

"Excluded Liabilities" means any and all liabilities of LED with respect to the Excluded
Assets.

"GAAP" means United States generally accepted accounting principles as in effect from
time to time, consistently applied.

"Governmental Authority" means any government, any governmental entity, department,
commission, board, agency or instrumentality, any regulatory authority and any court, tribunal or judicial body, in each case whether
federal, state, county, provincial, local or foreign.

"Hazardous Substances" shall mean any material, substance or waste presently listed,
defined, designated or classified as hazardous, toxic or radioactive, under any Environmental Laws, whether by type or by quantity, any
material regulated under Environmental Law because of its effect or potential effect on public health or the environment, and petroleum
or any derivative or by-product thereof.

"Indemnity Agreement" means the letter agreement regarding certain indemnities, dated
the date hereof, between LED and LSG.

"Intellectual Property" means all tangible and intangible intellectual property, including: (i)
discoveries and inventions, Patents, Patent applications (either filed or in preparation for filing) and statutory invention registrations
(including reissues, divisions, continuations, continuations in part, extensions and reexaminations thereof) and all rights therein

                                                 5

and all improvements thereto; (ii) Marks, slogans, logos, corporate names and other source identifiers (whether or not registered), including all
common law rights, and registrations and applications for registration thereof and all rights therein and all renewals of any of the
foregoing; (iii) copyrightable works, copyrights (whether or not registered) and copyright registrations and applications for registration
therefor, derivative work and all rights therein and all extensions and renewals of any of the foregoing; (iv) electronic addresses and
passwords, domain names and registrations and applications or reservations for registration thereof, and any similar rights and all
content embodied in all websites and web pages found at such uniform resource locators; (v) Software; (vi) confidential and proprietary
information, Trade Secrets, models, algorithms, processes, formulas, and techniques, research and development information, ideas,
technical data, designs, drawings and specifications; (vii) advertising and promotional materials; (viii) rights under all Contracts under
which intellectual property rights were granted to any Person by a third party, or to a third party by any Person; (ix) modifications or
improvements to any item described in the immediately preceding clauses (i) through (viii); (x) copies and tangible embodiments of any
item described in the immediately preceding clauses (i) through (ix); and (xi) other proprietary rights relating to any item described in the
immediately preceding clauses (i) through (x), including associated goodwill, remedies against past and future infringements thereof
and rights of protection of an interest therein under the laws of all jurisdictions.

"Inventory" means all raw materials, finished products and work-in-process of LED.

"IRS" shall mean the United States Internal Revenue Service.

"Kabushiki LED" shall mean Kabushiki Kaisha LED Systems, a Japanese corporation.

"Kabushiki LED Shares" shall mean 200 shares of common stock of Kabushiki LED,
representing 20% of all of the issued and outstanding capital stock of Kabushiki LED.

"Known to LED" or "to LED's Knowledge" or "Knowledge of
LED" means the actual knowledge of the officers and directors of LED.  

"Known to LSG" or "to LSG's Knowledge" or "Knowledge of
LSG" means the actual knowledge of the officers and directors of LSG. 

"Law" or "Laws" means any domestic or foreign laws, statutes,
ordinances, rules, regulations, codes, permitting requirements, executive orders, decrees, or judgments executed, issued, adopted,
promulgated or applied by any Governmental Authority.

"Leases" means all oral or written leases, subleases or other use and occupancy
agreements (and any amendment, renewal, supplement, modification or extension thereof or thereto) for real property, in each case
held in connection with the Business.

                                                 6

"LED" shall have the meaning ascribed to it in the preamble hereto.

"LED Business Insurance Policies" shall have the meaning ascribed to it in Section
4.16.

"LED Effects" means LED Effects, Inc., a Delaware corporation.

"LED Employee Plan" means each "employee benefit plan" (as such term is
defined in ERISA Section 3(3)), whether or not subject to ERISA, and each employment, consulting, independent contractor, bonus,
incentive, equity purchase, option or other equity-based, deferred compensation, loan, severance, termination, retention, change of
control, collective bargaining or other agreement with any works council or association, profit sharing, pension, retirement, 401(k),
multiemployer, vacation, medical or other welfare, disability, life, fringe benefit and any other employee or retiree benefit or
compensation plan, funding mechanism, agreement, program, policy or other arrangement, whether or not subject to ERISA or written
or unwritten or legally binding or not, and (i) that is maintained, sponsored or contributed to by LED or any LED ERISA Affiliate for the
benefit of any current or former employee, officer or independent contractor of LED, or the beneficiaries or dependents of any such
individual, or (ii) under which LED may have any material outstanding liability.

"LED ERISA Affiliate" means any trade or business, whether or not incorporated, that,
together with LED, is or would have been at any date of determination occurring within the preceding six years, treated as a single
employer within the meaning of Section 414 of the Code.

"LED Financial Statements" shall have the meaning ascribed to it in Section 4.14.

"LED Investments" shall have the meaning ascribed to it in Section 4.01(b).

"LED KK Shares" means 180 shares of common stock of LED KK, representing 90% of all
of the issued and outstanding capital stock of LED KK.

"LED KK" means LED Effects Japan KK, a Japanese corporation. 

"LED Leased Real Property" means all leasehold or subleasehold estates and other rights
to use or occupy any land, buildings, structures, improvements, fixtures, or other interest in real property held by LED and its
Subsidiaries.

"LED Material Adverse Effect" shall mean any effect, event, circumstance or change that,
individually or in the aggregate, results in a material adverse effect on the business, financial condition, assets, liabilities or results of
operations of LED and its Subsidiaries, taken as a whole; provided, however, that none of the following, or any effects, events,
circumstances or changes relating thereto or resulting therefrom, shall be deemed in themselves, either alone or in combination, to
constitute, and none of them shall be taken into account in determining whether there has been, or would reasonably be expected to
be, an LED Material Adverse Effect:  (i) general economic conditions (including conditions in the stock markets or other capital

                                                 7

markets) or developments or changes therein, (ii) conditions in the industry in which LED and its Subsidiaries operate or developments or
changes therein, (iii) the existence, announcement or performance of this Agreement or the transactions contemplated hereby,
including compliance by LED with its covenants and agreements contained in this Agreement, (iv) any change in applicable Law or
accounting regulation or principle effected after the date hereof, or (v) acts of God, national or international hostilities, war (whether or
not declared) or terrorism; except, in the cases of clauses (i), (ii), and (v) above, if such effect, event, circumstance or change
disproportionately impacts the business, financial condition, assets, liabilities or results of operations of LED and its Subsidiaries, taken
as a whole, relative to other participants in the industry in which LED and its Subsidiaries operate. 

"LED Material Contract" shall have the meaning ascribed to it in Section 4.07(a).

"LED Service Provider" shall have the meaning ascribed to it in Section 4.10(a).

"LSG" shall have the meaning ascribed to it in the preamble hereto.

"LSG Business Insurance Policies" shall have the meaning ascribed to it in Section
5.17.

"LSG Common Stock" shall mean shares of Common Stock, par value $.001 per share, of
LSG.

"LSG Employee Plan" means each "employee benefit plan" (as such term is
defined in ERISA Section 3(3)), whether or not subject to ERISA, and each employment, consulting, independent contractor, bonus,
incentive, equity purchase, option or other equity-based, deferred compensation, loan, severance, termination, retention, change of
control, collective bargaining or other agreement with any works council or association, profit sharing, pension, retirement, 401(k),
multiemployer, vacation, medical or other welfare, disability, life, fringe benefit and any other employee or retiree benefit or
compensation plan, funding mechanism, agreement, program, policy or other arrangement, whether or not subject to ERISA or written
or unwritten or legally binding or not, and (i) that is maintained, sponsored or contributed to by LSG or any LSG ERISA Affiliate for the
benefit of any current or former employee, officer or independent contractor of LSG, or the beneficiaries or dependents of any such
individual, or (ii) under which LSG may have any material outstanding liability.

"LSG ERISA Affiliate" means any trade or business, whether or not incorporated, that,
together with LSG, is or would have been at any date of determination occurring within the preceding six years, treated as a single
employer within the meaning of Section 414 of the Code.

"LSG Existing Preferred Stock" shall mean shares of 6% Convertible Preferred Stock, par
value $.001 per share, of LSG.

"LSG Financial Statements" shall have the meaning ascribed to it in Section 5.14(b).

                                                 8

"LSG Leased Real Property" means all leasehold or subleasehold estates and other rights
to use or occupy any land, buildings, structures, improvements, fixtures, or other interest in real property held by LSG and its
Subsidiaries.

"LSG Material Adverse Effect" shall mean any effect, event, circumstance or change that,
individually or in the aggregate, results in a material adverse effect on the business, financial condition, assets, liabilities or results of
operations of LSG and its Subsidiaries, taken as a whole; provided, however, that none of the following, or any effects, events,
circumstances or changes relating thereto or resulting therefrom, shall be deemed in themselves, either alone or in combination, to
constitute, and none of them shall be taken into account in determining whether there has been, or would reasonably be expected to
be, an LSG Material Adverse Effect:  (i) general economic conditions (including conditions in the stock markets or other capital markets)
or developments or changes therein, (ii) conditions in the industry in which LSG and its Subsidiaries operate or developments or
changes therein, (iii) the existence, announcement or performance of this Agreement or the transactions contemplated hereby,
including compliance by LSG with its covenants and agreements contained in this Agreement, (iv) any change in applicable Law or
accounting regulation or principle effected after the date hereof, (v) acts of God, national or international hostilities, war (whether or not
declared) or terrorism, or (vi) any redemption or acceleration of rights of the holders of preferred stock of LSG outstanding on the date
hereof pursuant to any documentation relating to such preferred stock, complete and correct copies of which were made available to
LED on LSG's online data site established for the purposes of the transactions contemplated by this Agreement; except, in the cases of
clauses (i), (ii), and (v) above, if such effect, event, circumstance or change disproportionately impacts the business, financial condition,
assets, liabilities or results of operations of LSG and its Subsidiaries, taken as a whole, relative to other participants in the industry in
which LSG and its Subsidiaries operate. 

"LSG Material Contract" shall have the meaning ascribed to it in Section 5.07(a).

"LSG Preferred Stock" shall mean the LSG Existing Preferred Stock and the LSG Series B
Preferred Stock.

"LSG Series B Preferred Stock" shall mean shares of Series B Preferred Stock, par value
$.001 per share, of LSG.

"LSG Service Provider" shall have the meaning ascribed to it in Section 5.10(a).

"LSG Stock Plan" shall have the meaning ascribed to it in Section 5.15(a).

"Mark" shall have the meaning ascribed to it in Section 4.13(b).

"Most Recent LED Balance Sheet Date" shall have the meaning ascribed to it in Section
4.14.

"Most Recent LSG Balance Sheet" shall have the meaning ascribed to it in

                                                 9

Section 5.14(g).

"Open-Source" means Software which is licensed pursuant to license terms that (i) create,
or purport to create, obligations for the licensee with respect to the use of any software incorporating any portion of such software or (ii)
grant, or purport to grant, to any third party any rights or immunities under intellectual property or proprietary rights in such software;
and includes any Software that requires as a condition of use, modification and/or distribution of such Software that other Software
incorporated into, derived from or distributed with such software be (a) distributed in source code form; (b) be licensed for the purpose
of making derivative works therefrom; or (c) be redistributed at no charge. 

"Options" shall have the meaning ascribed to it in Section 5.15(a).

"Patents" shall have the meaning ascribed to it in Section 4.13(a).

"Permits" means the federal, state, local and other governmental and regulatory licenses,
permits, orders, approvals and authorizations that relate to or are necessary to conduct the business of LED or LSG, as applicable.

"Permitted Encumbrances" shall mean (i) Encumbrances securing current taxes,
assessments, fees or other governmental charges or levies not yet due and payable, or which are being contested in good faith, (ii)
inchoate mechanics and materialmen's Encumbrances for construction in progress, (iii) Encumbrances of warehousemen and carriers
arising in the ordinary course of business in respect of obligations not overdue, (iv) Encumbrances on leased personal property used or
useful in or with respect to the Business that do not impair the use of such personal property, and (v) Encumbrances solely securing
Assumed Liabilities.  

"Person" means any individual, partnership, firm, corporation, limited liability company,
association, trust, unincorporated organization, Governmental Authority or other entity.

"Preexisting Code" shall have the meaning ascribed to it in Section 4.13(d).

"Records" means originals or copies of all books, records, including property and
equipment records, production records, purchasing and sales records, personnel and payroll records, financial and accounting records,
magnetic copies of computer files and documentation, customer and vendor lists, price lists, correspondence, operating guides and
manuals, advertiser and vendor files, invoices, marketing and statistical information, and all other books, records and files used or
useful in or with respect to the Business; provided, however, that "Records" shall not include the
tax returns of LED and policies or contracts of insurance, but LSG shall be permitted to examine and make copies of such documents
upon its reasonable prior request.

"Registration Rights Agreement" means the Registration Rights Agreement, dated as of the
date hereof, between LED and LSG.

                                                 10

"Representatives" shall have the meaning ascribed to it in Section 6.07.

"Sarbanes-Oxley Act" shall have the meaning ascribed to it in Section 5.14(c).

"SEC" shall have the meaning ascribed to it in Section 5.14(a). 

"SEC Reports" shall have the meaning ascribed to it in Section 5.14(a).

"Securities Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.

"Software" means all computer software and Open-Source software, including source
code, object code, machine-readable code, HTML, program listings, comments, user interfaces, menus, buttons and icons, and all files,
data, manuals, design notes and other items and documentation related thereto or associated therewith.

"Straddle Period" means the taxable period beginning before
and ending after the Closing Date.

"Subsidiary" means, with respect to any Person, any corporation, limited liability company,
partnership, association, or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock
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 that Person or one or more of the other Subsidiaries of that Person or a combination
thereof or (ii) if a limited liability company, partnership, association, or other business entity (other than a corporation), a majority of
partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or
more Subsidiaries of that Person or a combination thereof and for this purpose, a Person or Persons owns a majority ownership interest
in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entity's
gains or losses or shall be or control any managing director or general partner of such business entity (other than a corporation).

"Tax" or "Taxes" means any federal, state, county, provincial, local or
foreign income, gross receipts, sales, use, ad valorem, employment, workers' compensation, severance, transfer, gains, profits,
excise, franchise, property, capital stock, premium, minimum and alternative minimum or other taxes, fees, levies, duties, assessments
or charges of any kind or nature whatsoever imposed by any Governmental Authority (whether payable directly or by withholding),
together with any interest, penalties (civil or criminal), additions to or additional amounts imposed by, any Governmental Authority with
respect thereto, and any expenses incurred in connection with the determination, settlement or litigation of any liability therefor.

                                                 11

"Tax Return" means a report, return or other information required to be supplied to a
Governmental Authority with respect to any Tax.

"Trade Secret" shall have the meaning ascribed to it in Section 4.13(e).

"Trademark Assignment" means the Trademark Assignment, dated as of the date hereof,
between LED and LSG.

"Transferred Contracts" shall have the meaning ascribed to it in Section 6.06(c).

"Warrants" shall have the meaning ascribed to it in Section 5.15(a).

 ARTICLE II

CONTRIBUTION OF ASSETS;

ASSUMPTION OF LIABILITIES; EXCHANGE CONSIDERATION 

2.01    Exchange and Contribution
.  Subject to the terms and conditions of this Agreement, at the Closing, LED shall convey, assign, transfer,
deliver and/or contribute to LSG, and LSG shall acquire from LED, all right, title and interest of LED in and to the Acquired Assets, free
and clear of all Encumbrances other than Permitted Encumbrances and LSG shall assume the Assumed Liabilities, all as of the
Effective Time.  If any of the Acquired Assets are not by their terms or by applicable Law assignable or transferable, LED shall use its
reasonable best efforts to obtain, or cause to be obtained, any approvals or consents necessary to convey to LSG the benefit thereof.
No such Acquired Asset shall be deemed to be transferred, assigned or conveyed unless and until any required consent or approval
has been obtained.  Anything herein to the contrary notwithstanding, LSG shall not acquire any interest in the Excluded Assets or
Excluded Liabilities.  

2.02    Exchange Consideration
.  As consideration for the contribution contemplated by Section 2.01, LSG agrees to issue and deliver to
LED at the Closing (i) 2,000,000 shares of LSG Series B Preferred Stock, and (ii) 318,574,665 shares of LSG Common Stock
(collectively, the "Exchange Consideration"), representing 70% of the capitalization of LSG assuming the exercise,
exchange or conversion in full of all rights, warrants, options and other securities exercisable or exchangeable for, or convertible into,
shares of capital stock of LSG (whether or not now exercisable, convertible or exchangeable), having 80% of the voting power of all
outstanding shares of capital stock of LSG, in each case as of the Closing.  

2.03    Tax Treatment
.  This Agreement contemplates a tax-free contribution of the Acquired Assets by LED to LSG in
reorganization pursuant to Code Section 351.  LED will receive voting preferred stock representing control (within the meaning of Code
Section 368(c)) of LSG immediately after the contribution.   

                                                 12

 ARTICLE III

CLOSING

3.01    Time and Place
.     The closing of the transactions contemplated by this Agreement (the "Closing") shall
take place at the offices of Morrison Cohen LLP, 909 Third Avenue, New York, NY 10022, effective as of 4:01 p.m., local time, on the
date hereof (the "Closing Date").

3.02    Deliveries by LED
.     At the Closing, LED shall deliver to LSG the following:

	the Bill of Sale, duly executed by LED;

	Employment Agreements duly executed by Kevin Furry, Zach Gibler, Paul Kallmes, Govi Rao, Chuck
Sommerville, Ken Honeycutt;

	the Trademark Assignment, duly executed by LED;

	the Registration Rights Agreement, duly executed by LED;

	wire transfer by LED to an account as directed by LSG of cash in an amount equal to $15,000,000
minus an amount equal to the aggregate available cash of LED KK, as indicated pursuant to evidence of such available cash satisfactory to LSG (it being agreed that
the amount of available cash of LED KK shall be calculated as of October 2, 2007 using an exchange rate of 115.26 yen to the
dollar);

	a copy of a certificate of the Secretary of State of Delaware, dated not more than seven (7) days prior to the
Closing Date, certifying that LED is duly organized and in good standing or presently subsisting under the Laws of the State of
Delaware; 

	copies of all resolutions of LED's Board of Managers authorizing the transactions contemplated hereby or
otherwise relating to this Agreement and the transactions contemplated hereby, certified by an executive officer of LED as being in full
force and effect on the Closing Date; 

	an affidavit, stating, under penalty of perjury, LED's United States taxpayer identification number and that
LED is not a foreign person, pursuant to section 1445(b)(2) of the Code; 

	a
legal opinion of Morrison Cohen LLP in form and substance satisfactory to LSG, addressed to LSG and dated as of the Closing Date;

	the Indemnity Agreement, duly executed by LED; and

                                                 13

	such other documents and instruments as LSG may reasonably request.

3.03    Deliveries by LSG
.     At the Closing, LSG shall deliver to LED the following:

	certificates representing the shares of LSG Series B Preferred Stock to be issued as Exchange
Consideration in accordance with Section 2.02;

	the Bill of Sale, duly executed by LSG;

	the Employment Agreements, duly executed by LSG;

	the Trademark Assignment, duly executed by LSG;

	the Registration Rights Agreement, duly executed by LSG;

	a payoff letter from the Bank of Texas, N.A., reflecting the repayment in full of all indebtedness owed by
LSG and its Subsidiaries to Bank of Texas, N.A., and the release and termination of all Encumbrances relating to such
indebtedness;

	a copy of a certificate of the Secretary of State of Delaware, dated not more than seven (7) days prior to the
Closing Date, certifying that LSG is duly organized and in good standing or presently subsisting under the Laws of Delaware; 

	copies of all resolutions of LSG's Board of Directors authorizing the transactions contemplated hereby or
otherwise relating to this Agreement and the transactions contemplated hereby, and including resolutions of LSG's Board of Directors
authorizing and submitting to stockholders of LSG for approval (i) a 1 for 20 reverse stock split and (ii) an amended and restated
certificate of incorporation of LSG, in each case certified by an executive officer of LSG as being in full force and effect on the Closing
Date;

	a legal opinion of Haynes and Boone, LLP in form and substance satisfactory to LED, addressed to LED
and dated as of the Closing Date;

	a copy of the fairness opinion delivered to LSG concerning the transactions contemplated by this
Agreement; 

	the Indemnity Agreement, duly executed by LSG; and

	such other documents and instruments as LED may reasonably request.

                                                 14

 ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF LED

LED hereby represents and warrants to LSG, as of the Closing Date, as follows: 

4.01    Organization;
Qualification; Subsidiaries
.     (a) LED and each of its Subsidiaries is duly organized, validly
existing and in good standing (with respect to jurisdictions that recognize the concept of good standing) under the Laws of the
jurisdiction of its organization and has all requisite company or similar power and authority to own, lease and operate its properties and
to carry on its business as it is now being conducted, except where any such failure to be so organized, existing or in good standing or
to have such power or authority would not, individually or in the aggregate, reasonably be expected to have an LED Material Adverse
Effect.  LED and each of its Subsidiaries is duly qualified or licensed to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing
necessary, except for any such failure to be so qualified or licensed or in good standing which would not, individually or in the
aggregate, reasonably be expected to have an LED Material Adverse Effect.  

(b)  Schedule 4.01(b) sets forth for each Subsidiary of LED (i) its name and jurisdiction of organization,
(ii) the number of shares of authorized capital stock of each class of its capital stock, (iii) the number of issued and outstanding shares
of each class of its capital stock, the names of the holders thereof, and the number of shares held by each such holder, and (iv) the
number of shares of its capital stock held in treasury. All of the issued and outstanding shares of capital stock of each Subsidiary of
LED have been duly authorized and are validly issued, fully paid, and nonassessable. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other Contracts or commitments that could require
any of LED and its Subsidiaries to sell, transfer, or otherwise dispose of any capital stock of any of its Subsidiaries or that could require
any Subsidiary of LED to issue, sell, or otherwise cause to become outstanding any of its own capital stock. There are no outstanding
stock appreciation, phantom stock, profit participation, or similar rights with respect to any Subsidiary of LED. There are no voting
trusts, proxies, or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary of LED.
Schedule 4.01(b) also sets forth all interests of LED and its Subsidiaries in Persons other than the Subsidiaries of LED (the
"LED Investments").  LED and its Subsidiaries, as applicable, have good and valid title, free and clear of all
Encumbrances, to the LED Investments.  Except as set forth in Schedule 4.01(b), none of LED and its Subsidiaries controls
directly or indirectly or has any direct or indirect equity participation in any corporation, partnership, trust, or other business association
which is not a Subsidiary of LED. Except for the Subsidiaries and other Persons set forth in Schedule 4.01(b), neither LED nor
any of its Subsidiaries owns or has any right to acquire, directly or indirectly, any outstanding capital stock of, or other equity interests
in, any Person.

                                                 15

4.02    Authority
.    LED has the full power and authority to execute and deliver this Agreement and perform its obligations
hereunder and under the other agreements and instruments to be executed and delivered by it in connection with the transactions
contemplated hereby and thereby.  LED has taken all necessary company action to authorize the execution and delivery of this
Agreement and such other agreements and instruments and the consummation of the transactions contemplated hereby and thereby.
This Agreement is, and the other agreements and instruments to be executed and delivered by LED in connection with the transactions
contemplated hereby will be, the legal, valid and binding obligations of LED, enforceable in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws
now or hereafter in effect affecting the enforcement of creditors' rights generally.

4.03    No Violation
.     Neither the execution and delivery of this Agreement or the other documents and instruments to be
executed and delivered pursuant hereto, nor the consummation of the transactions contemplated hereby or thereby (a) violates any
provision of the certificate of incorporation, certificate of formation,  operating agreement, by-laws or other constitutive documents of
LED or any of its Subsidiaries: (b) violates or is in conflict with any applicable Law: or (c) violates or conflicts with or constitutes a
default in any material respect (or an event that, with notice or lapse of time or both, would constitute a default in any material respect)
under or results in the termination of, or accelerates the performance required by, any term or provision of any Contract to which LED or
any of its Subsidiaries is a party or by which any Acquired Assets are bound, or results in the creation of an Encumbrance (other than
any Permitted Encumbrance) upon any of the Acquired Assets, excluding from the foregoing clauses (b) and (c) violations, conflicts,
defaults, terminations, accelerations and creations of Encumbrances that, individually or in the aggregate, would not reasonably be
expected to have an LED Material Adverse Effect and contracts listed on Schedule 4.04 that require an authorization, consent,
approval, or notice in connection with the execution and delivery of this Agreement or any other agreement or document to be delivered
by LED or the consummation by LED of the transactions contemplated hereby or thereby.

4.04    Consents
.     Except as set forth on Schedule 4.04, neither LED nor any of its Subsidiaries is required to give
or obtain any authorization, consent, approval, order or filing with or notice to any Governmental Authority or other Person in connection
with the execution and delivery of this Agreement or any other agreement or document to be delivered by LED or the consummation by
LED of the transactions contemplated hereby or thereby.    

4.05    Title to
Properties.

	Real Property.  Neither LED nor any of its Subsidiaries own any real property.  Set forth on
Schedule 4.05(a) is a complete list of all Leases held in connection with, necessary for or material to the Business, including
the date thereof and identity of the parties to such Leases, and all LED Leased Real Property (identified by street address) held by LED
or any of its Subsidiaries pursuant to such Leases.  LED has made available to LSG true, correct and complete copies of each such
Lease (including any amendments, addenda,

                                                 16

modifications, supplements or waivers thereto).  LED or one or more of its Subsidiaries
has a valid leasehold interest in each LED Leased Real Property and all such Leases are valid and binding leases, are in full force and
effect and enforceable in accordance with their respective terms and none of LED, any of it its Subsidiaries and, to the Knowledge of
LED, any other party thereto, is (or with notice or lapse of time or both would be) in violation or breach of, or in default under, the terms
of any such Lease.

	 Title to Acquired Assets.  LED has good and valid title to, or holds valid leasehold interests in, all
of the Acquired Assets, free and clear of all Encumbrances (except Permitted Encumbrances).  All of the Acquired Assets consisting of
tangible personal assets and properties have been maintained in accordance with normal industry practice and are in good repair and
operating condition, ordinary wear and tear (and matters for which LED is not responsible) excepted.  

4.06    Litigation
.     Except as set forth on Schedule 4.06, there are no Actions pending or, to LED's Knowledge,
threatened against or affecting LED or any of its Subsidiaries or any of their respective assets or properties (including the Acquired
Assets) nor, to LED's Knowledge, is there any basis for any such Action.  There is no judgment, decree, injunction or order binding
upon LED or any of its Subsidiaries that relates to any of the Acquired Assets or is applicable to the Business.  None of LED and its
Subsidiaries and none of their respective assets or properties (including the Acquired Assets) is or are subject to any order, writ,
judgment, injunction, decree or award.  

4.07    Contracts
.     (a)  As of the date hereof, except for this Agreement and Contracts listed on Schedule 4.07, none of
LED and its Subsidiaries is a party to or bound by any Contract: (i) containing covenants binding upon LED or any of its Subsidiaries
that materially restrict the ability of LED or any of its Subsidiaries (or which, following the consummation of the sale of the Acquired
Assets contemplated hereunder, could materially restrict the ability of LSG) to compete in any business or with any Person or in any
geographic area that is material to LED and its Subsidiaries, taken as a whole, as of the date hereof, except for any such Contract that
may be canceled without penalty by LED or any of its Subsidiaries upon notice of 90 days or less; (ii) with respect to a material joint
venture or material partnership agreement; (iii) that would prevent, materially delay or materially impede LED's ability to consummate
the transactions contemplated by this Agreement; or (iv) under which the consequences of a default or early termination would have an
LED Material Adverse Effect.  Each such Contract described in clauses (i) through (iv) and set forth on Schedule 4.07 is referred to
herein as an "LED Material Contract".  

	 Each of the LED Material Contracts is valid and binding on LED and each of
its Subsidiaries party thereto and, to the Knowledge of LED, each other party thereto and is in full force and effect.  There is no material
default under any LED Material Contract by LED or any of its Subsidiaries, and no event has occurred that with the lapse of time or the
giving of notice or both would constitute such a default thereunder by LED or any of its Subsidiaries.

                                                 17

4.08    Compliance with Law;
Permits

	Each of LED and its Subsidiaries and each of their respective predecessors has complied and is in
compliance with, in all material respects, all applicable Laws (including Environmental Laws), and no Action has been filed or
commenced or, to LED's Knowledge, threatened to be filed or commenced against any of them alleging any failure to so comply;
and

	LED and its Subsidiaries hold all Permits that are necessary or advisable for them to own their assets and
to operate their businesses as currently conducted, except where the failure to hold such Permits has not had, and would not
reasonably be expected to have, an LED Material Adverse Effect.  All such Permits are in full force and effect and, to LED's Knowledge,
no suspension or cancellation of any of them is being threatened.  

4.09    Environmental
Matters

	No facts, events or conditions exist on any LED Leased Real Property or any former owned or
operated sites and facilities of LED or any of its Subsidiaries or their respective businesses that (i) violate any Environmental Law in any
material respect, (ii) may give rise to any material investigatory, remedial or corrective obligations pursuant to Environmental Laws or
(iii) may result in any material costs or expenses for Environmental Damages (whether as a result of Actions by any Governmental
Authority or otherwise).

	Except as set forth on Schedule 4.09(b), neither LED nor any of its
Subsidiaries have received any notice, report or other information regarding any actual or alleged violation of any Environmental Law or
any Environmental Damages or potential Environmental Damages, including any investigatory, remedial or corrective obligations,
relating to the operation of the business of LED or any of its Subsidiaries or any condition on, under or about the LED Leased Property
or any former owned or operated sites and facilities of LED or any of its Subsidiaries or their respective businesses.  Neither LED nor
any of its Subsidiaries has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any
substance, including any Hazardous Substance, upon the LED Leased Real Property or former owned or operated sites in a manner
that has given or would give rise to material Environmental Damages.  There has been no release or threat of release (as the term
"release" is defined by CERCLA) of any Hazardous Substance on, to, from or about any property currently or formerly
owned or operated by LED or any of its Subsidiaries or from any operations of LED or any of its Subsidiaries.

	Except as set forth on Schedule 4.09(c), to the Knowledge of LED, none of the following exists at
any LED Leased Real Property:  (i) underground storage tanks, (ii) asbestos-containing material in any form or conditions, (iii) materials
or equipment containing polychlorinated biphenyls or (iv) landfills, surface impoundments or disposal areas.

	Except as set forth on Schedule 4.09(d), neither this Agreement nor the consummation of the
transactions contemplated hereby will result in any obligations for site investigation or cleanup, or notification to or consent of any Governmental Authority or other

                                                 18

Person, pursuant to any of the so-called "transaction-triggered" or "responsible
property transfer" Environmental Laws. 

	LED has provided or made available to LSG copies of all environmental reports in LED's possession or
control regarding the LED Leased Real Property or any former owned or operated sites and facilities of LED and each of its
Subsidiaries or their respective businesses.

4.10    Employees; Labor
Matters
.     (a)  Schedule 4.10(a) contains an accurate list of the names, titles, dates of hire or dates of
service, rates of compensation and remuneration of any kind, and any unused accrued vacation, in each case, as of the date of this
Agreement of all employees, officers, directors and independent contractors (other than professional service advisors) of, and
consultants to, LED or any of its Subsidiaries and/or their respective businesses (all such individuals, the "LED Service
Providers").  To LED's Knowledge, no executive, key employee, key independent contractor or significant group of
employees has any plans to terminate his or her employment or engagement with LED or any of its Subsidiaries as a
result of the transactions contemplated by this Agreement or otherwise.  Except as set forth on Schedule 4.10(a), the services
provided by the LED Service Providers are terminable at will by LED or its Subsidiaries at no cost or expense to LED or any of its
Subsidiaries, and neither LED nor its subsidiaries are party to an employment
contract with such LED Service Providers.  Since the Most Recent LED Balance Sheet Date, there has not been any increase
in compensation payable to or to become payable to any LED Service Provider, except regular increases granted in the ordinary course
of business. 

(b)  Neither LED nor any of its Subsidiaries is a party to or bound by any collective bargaining agreement or
similar agreement with any labor organization or employee association covering the terms and conditions of any employee or employee
group of LED or its Subsidiaries.  There has not been, nor is there pending or, to the Knowledge of LED, threatened any labor dispute
between LED or any of its Subsidiaries, on the one hand, and any labor organization, on the other hand, or any strike, slowdown,
jurisdictional dispute, work stoppage or other similar organized labor activity involving any employee of LED or any of its Subsidiaries or
affecting LED or any of its Subsidiaries.  There has not been, nor to the Knowledge of LED, is there threatened or pending, any labor
union organizational activity involving, any employee of LED or any of its Subsidiaries.  There exists no pending or, to the Knowledge of
LED, threatened, Action between LED or any of its Subsidiaries and any current or former director, officer or employee of LED or any of
its Subsidiaries, including any claim for discrimination, harassment, retaliation, wrongful employment or labor practices, breach of
express or implied contract of employment or for violation of equal employment opportunity or wage and hour Laws.  All former and
current employees of LED or any of its Subsidiaries have provided the necessary information and documentation from which to file
current, effective Employment Eligibility Verifications (INS Form I-9's) for each such employee and neither LED nor any of its
Subsidiaries has any information or other reason to believe that any of such supplied information or documentation is in any manner
false, fraudulent or in any other manner not genuine.  LED and its Subsidiaries have in all other respects complied with its obligations under the

                                                 19

Immigration Reform and Control Act of 1986, as amended, and with all other applicable Laws pertaining to the employment or
termination of employment of such employees, including all such Laws relating to labor relations, equal employment opportunity, fair
employment practices, wages and hours, occupational safety and other workplace regulations and activities.

4.11    Benefit Plans
.    

	Schedule 4.11 sets forth a true and complete list of each LED Employee Plan.

	Each LED Employee Plan has been established, operated and administered in all material respects in
accordance with its terms, and each such LED Employee Plan is in material compliance with all applicable Laws.  All contributions
(including all employer contributions and employee salary reduction contributions) and premiums required to have been paid by LED to
any LED Employee Plan under the terms of any such LED Employee Plan or its related trust, insurance contract or other funding
arrangement, or pursuant to any applicable law have been paid within the time prescribed by any such LED Employee Plan, trust,
contract or arrangement, or applicable Law.  All contributions and premiums for any period ending on or before the Closing Date that
are not yet due have been made to each such LED Employee Plan or its related trust, insurance contract or other funding
arrangement.

	No LED Employee Plan is (i) a "multiple employer plan" for purposes of Sections 4063 or 4064
of ERISA, (ii) subject to Section 412 of the Code or Section 302 or Title IV of ERISA, (iii) a
"multiemployer plan" (within the meaning of Section 4001(a)(3) of ERISA), (iv) intended to satisfy the requirements of
Section 403(a) of the Code, or (v) intended to be qualified under Section 401(a) of the Code.

	Neither LED nor any LED ERISA Affiliate has incurred any liability (including as a result of any
indemnification obligation) under Title I or Title IV of ERISA for which LED could be liable.  No event has occurred, no condition exists,
and there are no pending or, to the Knowledge of LED, threatened claims by or on behalf of any LED Employee Plan by any person
covered thereby (other than ordinary claims for benefits submitted by participants or beneficiaries) or any Governmental Authority that
would subject LED, either directly or by reason of affiliation with an LED ERISA Affiliate, to any material Tax, fine, Encumbrance, or
other liability imposed by ERISA, the Code or other applicable Law.  No asset of LED is subject to any Encumbrance under ERISA or
the Code.

	With respect to each LED Employee Plan, LED has provided or made available to LSG true and complete
copies of: (i) such LED Employee Plan, if written, or a description of such LED Employee Plan, if not written, and (ii) to the extent
applicable to such LED Employee Plan:  all trust agreements, insurance contracts or other funding arrangements; the three most recent
Forms 5500 required to have been filed with the IRS and all schedules thereto; all current summary plan descriptions, all material
communications received from or sent to the IRS or the Department of Labor (including a written description of any oral
communication); and all amendments and modifications to any such document.

                                                 20

	No LED Employee Plan exists that could result in the payment to any Continued Employee of
any money or other property (including any severance payments, bonus of other compensation) or in the acceleration of any other
rights or benefits to any Continued Employee as a result of the transactions contemplated herein. 

4.12    Taxes
.     

	All Tax Returns required to be filed by or with respect to LED and its Subsidiaries on or prior to the Closing
Date have been, in all material respects, properly prepared and timely filed (including all applicable extensions), and all such Tax
Returns (including information provided therewith or with respect thereto) are true, correct and complete.  

	LED and each of its Subsidiaries have fully and timely paid all Taxes owed by such companies (whether or
not shown on any Tax Return). 

	No audit or other proceeding by any Governmental Authority is pending, no Governmental Authority has
given notice of any intention to commence an audit or other proceeding, or assert any deficiency or claim for additional Taxes against
LED or any of its Subsidiaries, and no claim has been made by any Governmental Authority in a jurisdiction where LED or any of its
Subsidiaries does not file Tax Returns with respect to a particular Tax that it is or may be subject to taxation by that jurisdiction with
respect to such Tax, and all deficiencies for Taxes asserted or assessed against LED or any of its Subsidiaries have been fully and
timely paid, settled or properly reflected in the LED Financial Statements. The Sellers do not expect any Governmental Authority to
assess any additional Taxes for any period for which Tax Returns have been filed. 

	LED and each of its Subsidiaries have each withheld from their respective employees, independent
contractors, creditors, shareholders and third parties and timely paid to the appropriate Governmental Authority proper and accurate
amounts in all material respects for all periods ending on or before the Closing Date in compliance with all Tax withholding and remitting
provisions of applicable Laws and have each complied in all material respects with all Tax information reporting provisions of all
applicable Laws.

	No Subsidiary of LED has agreed, or is required, to include in income any adjustment under Section 481
(a) of the Code by reason of a voluntary change in accounting method initiated by LED or any of its Subsidiaries, and no Governmental
Authority has initiated or proposed any such adjustment or change in accounting method (including any method for determining
reserves for bad debts maintained by any Subsidiary of LED). No Subsidiary of LED will be required to include in post-Closing income
any amount resulting from a change in accounting method, closing agreement pursuant to Section 7121 of the Code, installment sale,
inter-company transaction or excess loss account or similar type of adjustment. 

	Neither LED nor any of its Subsidiaries has engaged in any reportable transaction described in Treasury
Regulation Section 1.6011-4. 

                                                 21

	LED and each of its Subsidiaries have collected all material sales, use and value added taxes required to
be collected, and have remitted, or will remit on a timely basis, such amounts to the appropriate Governmental Authority and has
furnished properly completed exemption certificates for all exempt transactions.

4.13    Intellectual Property
.  

	Schedule 4.13 contains a summary description of every U.S. or foreign patent, both utility and
design, along with pending applications ("Patents"), owned by LED or any of its Subsidiaries and the owner of each
such Patent. All such Patents which have been registered with the United States Patent and Trademark Office are currently in material
compliance with all formal legal requirements (including recordation of assignments) and are not subject to any maintenance fees or
Taxes or Actions falling due within 90 days after the Closing Date. To the Knowledge of LED, no facts or circumstances have occurred
which, individually or in the aggregate, would render any Patent invalid and/or unenforceable. No Patent required to be listed on
Schedule 4.13, has been or is now involved in any opposition, invalidation, or cancellation and, to LED's Knowledge, no such
Action is threatened with respect to any such Patent. All products and materials under such Patent bear the proper legal notice where
permitted by Law.

	Schedule 4.13 lists each trademark, service mark, trade dress, product configuration, trade name
("Mark") that is material to the business of LED or any of its Subsidiaries as currently conducted and used to
identify LED products by LED or any of its Subsidiaries in the United States or worldwide and the owner of each such Mark. All Marks
listed and which have been registered with the United States Patent and Trademark Office have been in continuous use since their
respective first uses, are currently in material compliance with all formal legal requirements (including, as applicable, the timely post-
registration filing of affidavits of use and incontestability and renewal applications), and are not subject to any maintenance fees or
Taxes falling due within 90 days after the Closing Date. To the Knowledge of LED, no facts or circumstances have occurred which,
individually or in the aggregate, would render any Mark required to be listed invalid and/or unenforceable. No Mark required to be listed
on Schedule 4.13 has been or is now involved in any opposition, invalidation, or cancellation and, to LED's Knowledge, no
such Action is threatened with respect to any such Mark. All products and materials containing such a Mark bear the proper legal notice
where permitted by Law.

	Schedule 4.13 lists each material copyright registration and each material unregistered copyright
owned by LED or any of its Subsidiaries and the owner of each such copyright. All copyrights required to be listed on Schedule
4.13 that have been registered are currently in material compliance with formal legal requirements and are not subject to any
maintenance fees or Taxes falling due within 90 days after the Closing Date. To the Knowledge of LED, no facts or circumstances have
occurred which, individually or in the aggregate, would render any material copyright registration or material unregistered copyright
required to be listed invalid and/or unenforceable. All works encompassed by such copyrights have been marked with

                                                 22

the proper copyright notices. After Closing, subject to existing Contracts, LSG will have the exclusive right to use all such copyrights and there are
no third-party rights to such copyrights that will materially interfere with LSG's ownership and exclusive use of such copyrights.

	Schedule 4.13 lists all Software used in connection with the operation of the business of each of
LED and its Subsidiaries as currently conducted and developed by LED or any of its Subsidiaries and the owner of such Software. After
Closing, LSG will have at least a non-exclusive right to use all such Software. Such Software may contain code that was not specifically
written or developed for use in such Software ("Preexisting Code"). To the Knowledge of LED, there are no third-party rights to
such Preexisting Code that will materially interfere with LSG's use of such Software.

	Schedule 4.13 lists each category of trade secret and know how ("Trade
Secret") created, produced, developed, and/or used by LED or any of its Subsidiaries and the owner of each such Trade
Secret. With respect to each such Trade Secret, the documentation relating to such Trade Secret is current and accurate in all material
respects. To LED's knowledge, its Trade Secrets are sufficiently secret to confer an actual or potential economic advantage upon one
who possesses the information. LED and its Subsidiaries have taken reasonable precautions to protect such Trade Secret's secrecy,
confidentiality, and value. To the Knowledge of LED, no such Trade Secret is part of the public knowledge or literature or has been
used, divulged or appropriated either for the benefit of any third person or to LED's and its Subsidiaries' detriment. No such Trade
Secret is subject to any adverse claim nor, to LED's Knowledge, has any adverse claim been threatened with respect to any such Trade
Secret and there is no basis therefor.

	LED and its Subsidiaries own all material LED Intellectual Property rights or, to the Knowledge of LED,
have the right to use pursuant to an enforceable Contract all material LED Intellectual Property rights. Except as set forth in
Schedule 4.13, each LED Intellectual Property right immediately prior to the Closing will be owned or available for use by LSG
on substantially identical terms and conditions immediately subsequent to the Closing. The parties to this Agreement acknowledge and
agree that the representations and warranties contained in this Section 4.13(f) shall not apply to infringement by LED of any third party's
Intellectual Property rights, or any liabilities or Actions relating to or alleging the same.

	LED and its Subsidiaries have delivered to LSG correct and complete copies of all material written
documentation evidencing ownership and prosecution (if applicable) of each LED Intellectual Property right required to be listed in
Schedules 4.13(a)-(d).  With respect to Intellectual Property owned by LED and its Subsidiaries, LED has disclosed to LSG all
information known to LED which is relevant to or could impact the protectability or enforceability of its Intellectual Property.  With
respect to each such LED Intellectual Property right: (i) except for grants of rights made to third parties in Contracts, LED and its
Subsidiaries possess all right, title, and interest in and to the item, free and clear of any Encumbrance; (ii) the item is not subject to any
outstanding order by a Governmental Authority; and (iii) no Action is

                                                 23

pending or, to the Knowledge of LED, threatened (and there is no
basis therefore) which challenges the enforceability, use, or ownership of the item.

	To LED'S Knowledge, LED and its Subsidiaries have not infringed upon or misappropriated any other
Person's Intellectual Property rights, and LED and its Subsidiaries, except as set forth in Schedule 4.13, and have never
received any notice alleging any such infringement or misappropriation of any other Person's Intellectual Property right (including any
claim that LED or any of its Subsidiaries must license or refrain from using any other Person's Intellectual Property rights).

	Schedule 4.13 identifies each item of Intellectual Property, other than commercially available
Software, that any other Person owns and that LED or any of its Subsidiaries uses as a material portion of any product currently sold by
LED or any of its Subsidiaries.  Schedule 4.13 identifies each material Contract pursuant to which LED or any of its
Subsidiaries have granted to any Person rights under or with respect to any of their Intellectual Property (together with any exceptions)
that is now in effect. LED and its Subsidiaries have made available to LSG correct and complete copies of all such Contracts with
respect to such use, as amended through the date hereof. With respect to the Contracts related to each item of Intellectual Property
required to be identified in Schedule 4.13, the statements in clauses (i) - (vii) below are true and correct:

	except as otherwise indicated in Schedule 4.13, the Contract will not be terminated or
rendered amended or supplemented as a result of the consummation of the transactions contemplated by this Agreement;

	to the Knowledge of LED, no counter-party is in breach of such Contract, and no event has occurred
which with notice or lapse of time would constitute a breach thereunder;

	no party to the Contract has repudiated any provision thereof;

	with respect to each sublicense Contract, to the Knowledge of LED, the representations and
warranties set forth in Sections 4.13(i)(i) - 4.135(i)(iii) are true and correct with respect to the underlying license Contract;

	the underlying item of Intellectual Property is not subject to any outstanding order by a Governmental
Authority;

	no Action is pending or, to LED'S Knowledge, threatened (and there is no basis therefore) which
challenges the enforceability of the underlying item of Intellectual Property; and

                                                 24

	LED and its Subsidiaries have not granted any sublicense or similar Contract with respect to such
Contract.

	Except as set forth in Schedule 4.13, there are no Encumbrances  (other than Permitted
Encumbrances) outstanding on the LED Intellectual Property rights.

	Except as set forth in Schedule 4.13, all former and current employees of LED and its Subsidiaries
have executed written Contracts with LED and its Subsidiaries that assign to LED and its Subsidiaries all Intellectual Property created
by such employees relating to the business of LED and each of its Subsidiaries, including without limitation, all rights to any inventions,
improvements, discoveries, or information. No employee of LED or its Subsidiaries has entered into any Contract that restricts or limits
in any material way the scope or type of work in which such employee may be engaged or requires such employee to transfer, assign,
or disclose information concerning his or her work to any Person other than LED and its Subsidiaries, except as may be required by
Law.

4.14    LED Financial Statements
.     Set forth on Schedule 4.14 are the unaudited consolidated financial statements of LED Effects
and its Subsidiaries for the fiscal years ended December 31, 2006 and December 31, 2005 and the period beginning January 1, 2007
and ended June 13, 2007, and the unaudited consolidated financial statements of LED and its Subsidiaries for the period from June 14,
2007 through August 31, 2007 (collectively, the "LED Financial Statements").  The LED Financial Statements have
been prepared in accordance with GAAP, are complete and correct in all material respects and present fairly the financial position and
results of operation of the business of LED and its Subsidiaries as of the indicated dates and for the indicated periods.  Neither LED nor
any of its Subsidiaries have any material liabilities except for liabilities (i) set forth in the LED Financial Statements or which are not
required to be disclosed thereon under GAAP, (ii) which have arisen after August 31, 2007 (the "Most Recent LED Balance
Sheet Date") in the ordinary course of business (none of which result from, arise out of, relate to, are in the nature of, or were
caused by any breach of contract, breach of warranty, tort, infringement or violation of Law), (iii) incurred pursuant to the transactions
contemplated by this Agreement, and (iv) that have been discharged or paid in full prior to the date of this Agreement in the ordinary
course of business.  

4.15    Absence of Certain Changes or
Events
.     Except as set forth on Schedule 4.15, since the Most Recent LED Balance Sheet Date, there
has been no LED Material Adverse Effect and no event, change, condition or circumstance which, individually or in the aggregate,
could reasonably be expected to have an LED Material Adverse Effect.  Without limiting the generality of the foregoing, since that date,
except as expressly contemplated by this Agreement:

	Neither LED nor any of its Subsidiaries has made any cash distributions or capital expenditures, including
to any holder of its equity or for any such holder's direct or indirect benefit;

                                                 25

	Neither LED nor any of its Subsidiaries has sold, leased, transferred, or assigned any of its assets, tangible
or intangible, other than for a fair consideration in the ordinary course of business; 

	No Person (including LED or any of its Subsidiaries) has accelerated, terminated, modified, or cancelled
any Contract or license (or series of related Contracts and licenses) involving more than $10,000 to which LED or any of its
Subsidiaries is a party or is bound; 

	Neither LED nor any of its Subsidiaries has delayed or postponed the payment of accounts payable and
other liabilities outside the ordinary course of business; 

	Neither LED nor any of its Subsidiaries has cancelled, compromised, waived, or released any right or claim
(or series of related rights and claims) involving more than $10,000; 

	Neither LED nor any of its Subsidiaries has transferred, assigned, or granted any license or sublicense of
any rights under or with respect to any Intellectual Property; 

	Neither LED nor any of its Subsidiaries has experienced any material damage, destruction, or loss (whether
or not covered by insurance) to its property; 

	Neither LED nor any of its Subsidiaries has made any loans or advanced any money or other property, to
any employee, officer, independent contractor or other Person (except advances to employees in the ordinary course of business not in
excess of $5,000 in the aggregate); 

	Neither LED nor any of its Subsidiaries has established, entered into, adopted, amended, modified or
terminated any LED Employee Plan or other arrangement that would be an LED Employee Plan if it were in existence as of the date of
this Agreement;

	Neither LED nor any of its Subsidiaries has increased the compensation or fringe benefits of any present or
former employee or director (except for increases in salary or wage rates in the ordinary cause of business);

	Neither LED nor any of its Subsidiaries has granted any severance or termination pay to any present
employee or director;

	Neither LED nor any of its Subsidiaries has discharged a material liability or Encumbrance outside the
ordinary course of business; and

	Neither LED nor any of its Subsidiaries has committed to any of the foregoing.

                                                 26

4.16    Insurance
.     LED and its Subsidiaries maintain insurance in respect of the Acquired
Assets and their respective  businesses, covering such risks, in such amounts, with such terms and with such insurers as is reasonably
necessary to provide adequate insurance coverage for the Acquired Assets and their respective businesses (such insurance, the
"LED Business Insurance Policies").  Schedule 4.16 contains a true and complete list of all LED Business
Insurance Policies and all of the LED Business Insurance Policies are in full force and effect.  Neither LED nor any of its Subsidiaries is
in default in any material respect with respect to any provision contained in any such LED Business Insurance Policy held by or on
behalf of LED or any of its Subsidiaries.  Neither LED nor any of its Subsidiaries has received any notice of cancellation or non-renewal
of any such LED Business Insurance Policy.

4.17    Affiliate Transactions
.     Except that each of Zach Gibler, Paul Kallmes, and Govi Rao is an operating advisor of Pegasus Capital
Advisors and its Affiliates, and other than employment arrangements with LED, no executive officer or director of LED or any of its
Subsidiaries or any Person beneficially owning 5% or more of the outstanding equity interests of LED, or any immediate family member
or Affiliate of any of the foregoing Persons, is a party to any Contract with or binding upon LED or any of its Subsidiaries or any of their
respective properties or assets or has any interest in any material property owned by LED or any of its Subsidiaries or has engaged in
any material transaction with any of the foregoing since January 1, 2006.  

4.18    Brokers'
Fees
.     Neither LED nor any of its Subsidiaries has any liability or obligation to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by this Agreement.  

4.19    Investment
Intent
.     LED (i) understands that the Exchange Consideration to be issued hereunder has not been, and will not
be, registered under the Securities Act, or under any state securities Laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, and acknowledges that the Exchange Consideration to be issued
hereunder was not offered to LED by means of (1) any advertisement, article, notice or other communication published in any
newspaper, magazine or similar medium, or broadcast over television or radio, or (2) any other form of general solicitation or
advertising, (ii) is acquiring the Exchange Consideration to be issued hereunder solely for its own account for investment purposes, and
not with a view to the distribution thereof, (iii) is an experienced and sophisticated investor with knowledge and experience in business
and financial matters as are necessary to evaluate the merits and risks of an investment in the Exchange Consideration, (iv) has
received certain information concerning LSG and has had the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the shares that constitute Exchange Consideration, and has made the
determination to enter into this Agreement and the transactions contemplated hereby and to acquire the Exchange Consideration to be
issued hereunder based upon its own independent evaluation and assessment of its value, (v) is able to bear the economic risk and
lack of liquidity inherent in holding the Exchange Consideration, and (vi) is an "Accredited Investor" as defined in Rule 501
of Regulation D promulgated under the Securities Act.

                                                 27

 ARTICLE V

REPRESENTATIONS AND WARRANTIES OF LSG

LSG hereby represents and warrants to LED, as of the Closing Date, as follows: 

5.01    Organization; Qualification; Subsidiaries
.     (a) LSG and each of its Subsidiaries is duly organized, validly
existing and in good standing (with respect to jurisdictions that recognize the concept of good standing) under the Laws of the
jurisdiction of its organization and has all requisite corporate or similar power and authority to own, lease and operate its properties and
to carry on its business as it is now being conducted, except where any such failure to be so organized, existing or in good standing or
to have such power or authority would not, individually or in the aggregate, reasonably be expected to have an LSG Material Adverse
Effect.  LSG and each of its Subsidiaries is duly qualified or licensed to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing
necessary, except for any such failure to be so qualified or licensed or in good standing which would not, individually or in the
aggregate, reasonably be expected to have an LSG Material Adverse Effect.  

(b)  Schedule 5.01(b) sets forth for each Subsidiary of LSG (i) its name and jurisdiction of
incorporation, (ii) the number of shares of authorized capital stock of each class of its capital stock, (iii) the number of issued and
outstanding shares of each class of its capital stock, the names of the holders thereof, and the number of shares held by each such
holder, and (iv) the number of shares of its capital stock held in treasury. All of the issued and outstanding shares of capital stock of
each Subsidiary of LSG have been duly authorized and are validly issued, fully paid, and nonassessable. LSG or one or more of its
Subsidiaries holds of record and owns beneficially all of the outstanding shares of each Subsidiary of LSG, free and clear of any
Encumbrances.  There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other Contracts or commitments that could require any of LSG and its Subsidiaries to sell, transfer, or otherwise
dispose of any capital stock of any of its Subsidiaries or that could require any Subsidiary of LSG to issue, sell, or otherwise cause to
become outstanding any of its own capital stock. There are no outstanding stock appreciation, phantom stock, profit participation, or
similar rights with respect to any Subsidiary of LSG. There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of any capital stock of any Subsidiary of LSG. None of LSG and its Subsidiaries controls directly or indirectly or
has any direct or indirect equity participation in any corporation, partnership, trust, or other business association which is not a
Subsidiary of LSG. Except for the Subsidiaries set forth in Schedule 5.01(b), neither LSG nor any of its Subsidiaries owns or
has any right to acquire, directly or indirectly, any outstanding capital stock of, or other equity interests in, any Person.

5.02    Authority
.     LSG has the full power and authority to execute and deliver this Agreement and perform its obligations hereunder and under the other agreements and

                                                 28

instruments to be executed and delivered by it in connection with the transactions
contemplated hereby and thereby.  LSG has taken all necessary corporate action to authorize the execution and delivery of this
Agreement and such other agreements and instruments and the consummation of the transactions contemplated hereby and thereby.
This Agreement is, and the other agreements and instruments to be executed and delivered by LSG in connection with the transactions
contemplated hereby will be, the legal, valid and binding obligations of LSG, enforceable in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws
now or hereafter in effect affecting the enforcement of creditors' rights generally.

5.03    No Violation
.     Except as set forth on Schedule 5.03, neither the execution and delivery of this Agreement or
the other documents and instruments to be executed and delivered pursuant hereto, nor the consummation of the transactions
contemplated hereby or thereby (a) violates any provision of the certificate of incorporation, certificate of formation,  operating
agreement, by-laws or other constitutive documents of LSG or any of its Subsidiaries, (b) violates or is in conflict with any applicable
Law, or (c) violates or conflicts with or constitutes a default in any material respect (or an event that, with notice or lapse of time or both,
would constitute a default in any material respect) under or results in the termination of, or accelerates the performance required by,
any term or provision of any Contract to which LSG or any of its Subsidiaries is a party or by which any assets of LSG or any of its
Subsidiaries are bound, or results in the creation of an Encumbrance (other than any Permitted Encumbrance) upon any of the
properties or assets of LSG or any of its Subsidiaries, excluding from the foregoing clauses (b) and (c) violations, conflicts, defaults,
terminations, accelerations, and creations of Encumbrances that, individually or in the aggregate, would not reasonably be expected to
have an LSG Material Adverse Effect.

5.04    Consents
.     Neither LSG nor any of its Subsidiaries is required to give or obtain any authorization, consent, approval,
order or filing with or notice to any Governmental Authority or other Person in connection with the execution and delivery of this
Agreement or any other agreement or document to be delivered by LSG or the consummation by LSG of the transactions contemplated
hereby or thereby.    

5.05    Title to Properties.

	Real Property.  Neither LSG nor any of its Subsidiaries own any real property.  Set forth on
Schedule 5.05(a) is a complete list of all Leases held in connection with, necessary for or material to the business of LSG or
any of its Subsidiaries, including the date thereof and identity of the parties to such Leases, and all LSG Leased Real Property
(identified by street address) held by LSG or any of its Subsidiaries pursuant to such Leases.  LSG has made available to LED true,
correct and complete copies of each such Lease (including any amendments, addenda, modifications, supplements or waivers thereto).
LSG or one or more of its Subsidiaries has a valid leasehold interest in each LSG Leased Real Property and all such Leases are valid
and binding leases, are in full force and effect and enforceable in accordance with their respective terms and none of LSG, any of it its
Subsidiaries and, to the Knowledge of

                                                 29

LSG, any other party thereto, is (or with notice or lapse of time or both would be) in violation or
breach of, or in default under, the terms of any such Lease.

	 Title to Assets.  LSG and each of its Subsidiaries has good and valid title to, or holds valid
leasehold interests in, all of the material tangible personal assets and properties used or held for use by it in connection with the
conduct of its business, free and clear of all Encumbrances (except Permitted Encumbrances).  All of such tangible personal assets and
properties have been maintained in accordance with normal industry practice and are in good repair and operating condition, ordinary
wear and tear (and matters for which LSG is not responsible) excepted.

5.06    Litigation
.     Except as set forth on Schedule 5.06, there are no Actions pending or, to LSG's Knowledge,
threatened against or affecting LSG or any of its Subsidiaries or any of their respective assets or properties nor, to LSG's Knowledge, is
there any basis for any such Action.  There is no judgment, decree, injunction or order binding upon LSG or any of its Subsidiaries that
relates to any of its assets or properties or is applicable to its business.  None of LSG and its Subsidiaries and none of their respective
assets or properties is or are subject to any order, writ, judgment, injunction, decree or award.  There are no SEC inquiries or
investigations, other governmental inquiries or investigations or internal investigations pending or, to the Knowledge of LSG,
threatened, in each case regarding any accounting practices of LSG or any of its Subsidiaries or any malfeasance by any director or
executive officer of LSG or any of its Subsidiaries.

5.07    Contracts

	.  As of the date hereof, except for this Agreement and for Contracts filed as exhibits to, or
incorporated by reference in, LSG's Annual Report on Form 10-KSB for the period ended December 31, 2006 and LSG's Quarterly
Reports on Form 10-QSB filed between January 1, 2007 and the date hereof (the "LSG Material Contracts"), none
of LSG and its Subsidiaries is a party to or bound by any Contract: (i) of a type that would be required to be filed as a "material
contract" pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act; (ii) containing covenants binding upon LSG or
any of its Subsidiaries that materially restrict the ability of LSG or any of its Subsidiaries (or which, following the contribution of the
Acquired Assets contemplated hereunder, would materially restrict the ability of LSG) to compete in any business or with any Person or
in any geographic area that is material to LSG and its Subsidiaries, taken as a whole, as of the date hereof, except for any such
Contract that may be canceled without penalty by LSG or any of its Subsidiaries upon notice of 90 days or less; (iii) with respect to a
material joint venture or material partnership agreement; or (iv) that would prevent, materially delay or materially impede LSG's ability to
consummate the transactions contemplated by this Agreement.  

	Each of the LSG Material Contracts is valid and binding on LSG and each of its Subsidiaries
party thereto and, to the Knowledge of LSG, each other party thereto and is in full force and effect.  There is no material default under
any LSG Material Contract by LSG or any of its Subsidiaries and no event has occurred that with the lapse of time or the giving of
notice or both would constitute such a default thereunder by LSG or any of its Subsidiaries.

                                                 30

5.08    Compliance with Law; Permits
.     

	Each of LSG and its Subsidiaries and each of their respective predecessors has complied and is in
compliance with, in all material respects, all applicable Laws (including Environmental Laws), and no Action has been filed or
commenced or, to LSG's Knowledge, threatened to be filed or commenced against any of them alleging any failure to so comply;
and

	LSG and its Subsidiaries hold all Permits that are necessary or advisable for them to own their assets and
to operate their businesses as currently conducted, except where the failure to hold such Permits has not had, and would not
reasonably be expected to have, an LSG Material Adverse Effect.  All such Permits are in full force and effect and, to LSG's
Knowledge, no suspension or cancellation of any of them is being threatened.  

5.09    Environmental Matters.

  

	No facts, events or conditions exist on any LSG Leased Real Property or any former owned or operated
sites and facilities of LSG or any of its Subsidiaries or their respective businesses that (i) violate any Environmental Law in any material
respect, (ii) may give rise to any material investigatory, remedial or corrective obligations pursuant to Environmental Laws or (iii) may
result in either LED or LSG incurring any material costs or expenses for Environmental Damages (whether as a result of Actions by any
Governmental Authority or otherwise).

	Neither LSG nor any of its Subsidiaries have received any notice, report or other information regarding any
actual or alleged violation of any Environmental Law or any Environmental Damages or potential Environmental Damages, including
any investigatory, remedial or corrective obligations, relating to the operation of the business of LSG or any of its Subsidiaries or any
condition on, under or about the LSG Leased Property or any former owned or operated sites and facilities of LSG or any of its
Subsidiaries or their respective businesses.  Neither LSG nor any of its Subsidiaries has treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any substance, including any Hazardous Substance, upon the LSG Leased
Real Property in a manner that has given or would give rise to material Environmental Damages.  There has been no release or threat
of release (as the term "release" is defined by CERCLA) of any Hazardous Substance on, to, from or about any property
currently or formerly owned or operated by LSG or any of its Subsidiaries or from any operations of LSG or any of its
Subsidiaries.

	To the Knowledge of LSG, none of the following exists at any LSG Leased Real Property:  (i) underground
storage tanks, (ii) asbestos-containing material in any form or conditions, (iii) materials or equipment containing polychlorinated
biphenyls or (iv) landfills, surface impoundments or disposal areas.

	Neither this Agreement nor the consummation of the transactions contemplated hereby will result in any
obligations for site investigation or cleanup, or

                                                 31

notification to or consent of any Governmental Authority or other Person, pursuant to any
of the so-called "transaction-triggered" or "responsible property transfer" Environmental Laws. 

	LSG has provided or made available to LED copies of all environmental reports in LSG's possession or
control regarding the LSG Leased Real Property or any former sites and facilities of LSG and each of its Subsidiaries or their respective
businesses.

5.10    Employees; Labor Matters
.     (a)  Schedule 5.10 contains an accurate list of the names, titles, dates of hire or dates of
service, rates of compensation and remuneration of any kind, in each case, as of the date of this Agreement of all employees, officers,
directors and independent contractors (other than professional service advisors) of, and consultants to, LSG or any of its Subsidiaries
and/or the their respective businesses (all such individuals, the "LSG Service Providers").  Each independent
contractor or consultant of LSG or any of its Subsidiaries is and has been properly characterized as an independent contractor or
consultant based on the applicable standards under applicable Law.  To LSG's Knowledge, no executive, key employee, key
independent contractor or significant group of employees has any plans to terminate his or her employment or
engagement with LSG or any of its Subsidiaries as a result of the transactions contemplated by this Agreement or otherwise.  Except as
set forth on Schedule 5.10, the services provided by the LSG Service Providers are terminable at will by LSG or its
Subsidiaries at no cost or expense to LSG or any of its Subsidiaries, and neither LSG nor its subsidiaries are party to an employment
contract with such LSG Service Providers.  Since December 31, 2006, there has not been any increase in compensation payable to or
to become payable to any LSG Service Provider, except regular increases granted in the ordinary course of business. 

(b)  Except as set forth on Schedule 5.10, Neither LSG nor any of its Subsidiaries is a party to or
bound by any collective bargaining agreement or similar agreement with any labor organization or employee association covering the
terms and conditions of any employee or employee group of LED or its Subsidiaries.  There has not been, nor is there pending or, to
the Knowledge of LSG, threatened any labor dispute between LSG or any of its Subsidiaries, on the one hand, and any labor
organization, on the other hand, or any strike, slowdown, jurisdictional dispute, work stoppage or other similar organized labor activity
involving any employee of LSG or any of its Subsidiaries or affecting LSG or any of its Subsidiaries.  There has not been, nor to the
Knowledge of LSG, is there threatened or pending, any labor union organizational activity involving, any employee of LSG or any of its
Subsidiaries.  There exists no pending or, to the Knowledge of LSG, threatened, Action between LSG or any of its Subsidiaries and any
current or former director, officer or employee of LSG or any of its Subsidiaries, including any claim for discrimination, harassment,
retaliation, wrongful employment or labor practices, breach of express or implied contract of employment or for violation of equal
employment opportunity or wage and hour Laws.  All former and current employees of LSG or any of its Subsidiaries have provided the
necessary information and documentation from which to file current, effective Employment Eligibility Verifications (INS Form I-9's) for
each such employee and neither LSG nor any of its Subsidiaries has any information or other reason to believe that any of such
supplied information or documentation is in any manner false, fraudulent or in any other manner not genuine.  LSG and its Subsidiaries

                                                 32

have in all other respects complied with its obligations under the Immigration Reform and Control Act of 1986, as amended, and with all
other applicable Laws pertaining to the employment or termination of employment of such employees, including all such Laws relating
to labor relations, equal employment opportunity, fair employment practices, wage and hour, occupational safety and other workplace
regulations and activities.

5.11    Benefit Plans
.     

	Schedule 5.11(a) sets forth a true and complete list of each LSG Employee Plan.

	Each LSG Employee Plan has been established, operated and administered in all material respects in
accordance with its terms, and each such LSG Employee Plan is in material compliance with all applicable Laws.  All contributions
(including all employer contributions and employee salary reduction contributions) and premiums required to have been paid by LSG to
any LSG Employee Plan under the terms of any such LSG Employee Plan or its related trust, insurance contract or other funding
arrangement, or pursuant to any applicable law have been paid within the time prescribed by any such LSG Employee Plan, trust,
contract or arrangement, or applicable Law.  All contributions and premiums for any period ending on or before the Closing Date that
are not yet due have been made to each such LSG Employee Plan or its related trust, insurance contract or other funding
arrangement.

	All amendments and actions required to bring each LSG Employee Plan into conformity with applicable
provisions of ERISA, the Code and other applicable law have been made or taken, except to the extent that such amendments or
actions are not required by law to be made or taken until after the Closing Date.

	No LSG Employee Plan is (a) a "multiple employer plan" for purposes of Sections 4063 or 4064
of ERISA or (b) subject to Section 412 of the Code or Section 302 or Title IV of ERISA, or (c) intended to be qualified under
Section 401(a) of the Code.  Neither LSG nor, to the Knowledge of LSG, any LSG ERISA Affiliate has incurred any liability (including as
a result of any indemnification obligation) under Title I or Title IV of ERISA for which LSG could be liable.  No event has occurred, no
condition exists, and there are no pending or, to the Knowledge of LSG, threatened claims by or on behalf of any LSG Employee Plan
by any person covered thereby (other than ordinary claims for benefits submitted by participants or beneficiaries) or any Governmental
Authority that would subject LSG, either directly or by reason of affiliation with an LSG ERISA Affiliate, to any material Tax, fine,
Encumbrance, or other liability imposed by ERISA, the Code or other applicable Law.  No asset of LSG is subject to any Encumbrance
under ERISA or the Code.  None of LSG, its Affiliates, and/or any LSG ERISA Affiliate has any liability or contributes (or has at any time
contributed or had an obligation to contribute) to any "multiemployer plan" (within the meaning of Section 4001(a)(3)
of ERISA).

	With respect to each LSG Employee Plan, LSG has provided or made available to LED true and complete
copies of: (i) such LSG Employee Plan, if written, or a

                                                 33

description of such LSG Employee Plan, if not written, and (ii) to the extent
applicable to such LSG Employee Plan: all trust agreements, insurance contracts or other funding arrangements; the three most recent
Forms 5500 required to have been filed with the IRS and all schedules thereto; the most recent IRS determination letter, all current
summary plan descriptions, all material communications received from or sent to the IRS or the Department of Labor (including a
written description of any oral communication); and all amendments and modifications to any such document.

	Except as set forth in Schedule 5.11(f), No LSG Employee Plan exists that could result in the
payment to any LSG employee of any money or other property (including any severance payments, bonus of other compensation) or in
the acceleration of any other rights or benefits to any LSG employee as a result of the transactions contemplated herein.

5.12    Taxes
.     

	All Tax Returns required to be filed by or with respect to LSG and its Subsidiaries on or prior to the Closing
Date have been, in all material respects, properly prepared and timely filed (including all applicable extensions), and all such Tax
Returns (including information provided therewith or with respect thereto) are true, correct and complete.  

	LSG and each of its Subsidiaries have fully and timely paid all Taxes owed by such companies (whether or
not shown on any Tax Return). 

	No audit or other proceeding by any Governmental Authority is pending, no Governmental Authority has
given notice of any intention to commence an audit or other proceeding, or assert any deficiency or claim for additional Taxes against
LSG or any of its Subsidiaries, and no claim has been made by any Governmental Authority in a jurisdiction where LSG or any of its
Subsidiaries does not file Tax Returns with respect to a particular Tax that it is or may be subject to taxation by that jurisdiction with
respect to such Tax, and all deficiencies for Taxes asserted or assessed against LSG or any of its Subsidiaries have been fully and
timely paid, settled or properly reflected in the LSG Financial Statements. The Sellers do not expect any Governmental Authority to
assess any additional Taxes for any period for which Tax Returns have been filed. 

	LSG and each of its Subsidiaries have each withheld from their respective employees, independent
contractors, creditors, shareholders and third parties and timely paid to the appropriate Governmental Authority proper and accurate
amounts in all material respects for all periods ending on or before the Closing Date in compliance with all Tax withholding and remitting
provisions of applicable Laws and have each complied in all material respects with all Tax information reporting provisions of all
applicable Laws.

	No Subsidiary of LSG has agreed, or is required, to include in income any adjustment under Section 481(a)
of the Code by reason of a voluntary change in accounting method initiated by LSG or any of its Subsidiaries, and no Governmental
Authority has initiated or proposed any such adjustment or change in accounting method (including any

                                                 34

method for determining
reserves for bad debts maintained by any Subsidiary of LSG). No Subsidiary of LSG will be required to include in post-Closing income
any amount resulting from a change in accounting method, closing agreement pursuant to Section 7121 of the Code, installment sale,
inter-company transaction or excess loss account or similar type of adjustment. 

	Neither LSG nor any of its Subsidiaries has engaged in any reportable transaction described in Treasury
Regulation Section 1.6011-4.

	LSG and each of its Subsidiaries have collected all material sales, use and value added taxes required to
be collected, and have remitted, or will remit on a timely basis, such amounts to the appropriate Governmental Authority and has
furnished properly completed exemption certificates for all exempt transactions.

	No power of attorney currently in force has been granted by LSG or any of its Subsidiaries with respect to
any tax matter.  Neither LSG nor any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.

	Neither LSG nor any of its Subsidiaries has filed consent under Code Section 341(f) concerning
collapsible corporations.  Neither LSG nor any of its Subsidiaries has been a United States real property holding corporation within the
meaning of Code Sec. 897(c)(2) during the applicable period specified in Code Sec. 897(c)(1)(A)(ii).  Neither LSG nor any of its
Subsidiaries is subject to any accumulated earnings tax or personal holding Companies tax.  Neither LSG nor any of its Subsidiaries is
currently a party to any Tax allocation or Tax sharing agreement or has an obligation to make a payment under such an agreement.
Neither LSG nor any of its Subsidiaries (i) has been a member of an Affiliated Group filing a consolidated federal income Tax Return
(other than an Affiliated Group the common parent of which was LSG) or (ii) has any liability for the Taxes of any person (other than
LSG and any of its Subsidiaries) under Treas. Reg.   1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.

	Neither LSG nor any of its Subsidiaries (i) has been the distributing corporation with respect to a
transaction described in Code Section 355 within the three-year period ending on the date of this Agreement; (ii) has a permanent
establishment or office or fixed place of business outside the United States; (iii) has a material item of income or gain reported for
financial accounting purposes in a pre-closing period or otherwise attributable to pre closing period which is required to be included in
taxable income for a post-closing period or (iv) has an overall foreign loss described in Code Section 904(f).

	Neither LSG nor any of its Subsidiaries owns shares of any controlled foreign corporations as described in
Code Section 957 or passive foreign investment companies as described in Code Section 1297.

5.13    Intellectual Property
.     

                                                 35

	Schedule 5.13 contains a summary description of every Patent owned by LSG or any of its
Subsidiaries and the owner of each such Patent. All such Patents are currently in material compliance with all formal legal requirements
(including recordation of assignments) and are not subject to any maintenance fees or Taxes or Actions falling due within 90 days after
the Closing Date. To the Knowledge of LSG, no facts or circumstances have occurred which, individually or in the aggregate, would
render any Patent invalid and/or unenforceable. No Patent required to be listed on Schedule 5.13, has been or is now involved
in any opposition, invalidation, or cancellation and, to LSG's Knowledge, no such Action is threatened with respect to any such Patent.
All products and materials under such Patent bear the proper legal notice where permitted by Law.

	Schedule 5.13 lists each Mark that is material to the business of LSG or any of its Subsidiaries as
currently conducted and used to identify LSG products or services by LSG or any of its Subsidiaries in the United States or worldwide
and the owner of each such Mark. All Marks listed and which have been registered with the United States Patent and Trademark Office
have been in continuous use since their respective first uses, are currently in material compliance with all formal legal requirements
(including, as applicable, the timely post-registration filing of affidavits of use and incontestability and renewal applications), and are not
subject to any maintenance fees or Taxes falling due within 90 days after the Closing Date. To the Knowledge of LSG, no facts or
circumstances have occurred which, individually or in the aggregate, would render any Mark invalid and/or unenforceable. No Mark
required to be listed on Schedule 5.13 has been or is now involved in any opposition, invalidation, or cancellation and, to
LSG's Knowledge, no such Action is threatened with respect to any such Mark. All products and materials containing such a Mark bear
the proper legal notice where permitted by Law.

	Schedule 5.13 lists each material copyright registration and each material unregistered copyright
owned by LSG or any of its Subsidiaries and the owner of each such copyright. All copyrights required to be listed on Schedule
5.13 that have been registered are currently in material compliance with formal legal requirements and are not subject to any
maintenance fees or Taxes falling due within 90 days after the Closing Date. To the Knowledge of LSG, no facts or circumstances have
occurred which, individually or in the aggregate, would render any material copyright registration or material unregistered copyright
required to be listed invalid and/or unenforceable. All works encompassed by such copyrights have been marked with the proper
copyright notices. 

	Schedule 5.13 lists all Software used in connection with the operation of the business of each of
LSG and its Subsidiaries as currently conducted and developed by LSG or any of its Subsidiaries and the owner of such Software.
Such Software may contain Preexisting Code.

	 Schedule 5.13 lists each category of Trade Secret created, produced, developed, and/or used by
LSG or any of its Subsidiaries and the owner of each such Trade Secret. With respect to each such Trade Secret, the documentation relating to such Trade

                                                 36

Secret is current and accurate in all material respects. To LSG's knowledge, its Trade Secrets are sufficiently
secret to confer an actual or potential economic advantage upon one who possesses the information. LSG and its Subsidiaries have
taken reasonable precautions to protect such Trade Secret's secrecy, confidentiality, and value. To the Knowledge of LSG, no such
Trade Secret is part of the public knowledge or literature or has been used, divulged or appropriated either for the benefit of any third
person or to LSG's and its Subsidiaries' detriment. No such Trade Secret is subject to any adverse claim nor, to LSG's Knowledge, has
any adverse claim been threatened with respect to any such Trade Secret and there is no basis therefor.

	LSG and its Subsidiaries own all material LSG Intellectual Property rights or, to the Knowledge of LSG,
have the right to use pursuant to an enforceable Contract all material LSG Intellectual Property rights. Except as set forth in
Schedule 5.13, each LSG Intellectual Property right immediately prior to the Closing will be owned by LSG on substantially
identical terms and conditions immediately subsequent to the Closing. The parties to this Agreement acknowledge and agree that the
representations and warranties contained in this Section 5.13(f) shall not apply to infringement by LSG of any third party's
Intellectual Property rights, or any liabilities or Actions relating to or alleging the same.

	 LSG and its Subsidiaries have delivered to LED correct and complete copies of all material written
documentation evidencing ownership and prosecution (if applicable) of each LSG Intellectual Property right required to be listed in
Schedules 5.13(a)-(d).   With respect to Intellectual Property owned by LSG and its Subsidiaries, LSG has disclosed to LED all
information known to LSG which is relevant to or could impact the protectability or enforceability of its Intellectual Property.  With
respect to each such LSG Intellectual Property right: (i) except for grants of rights made to third parties in Contracts, LSG and its
Subsidiaries possess all right, title, and interest in and to the item, free and clear of any Encumbrance; (ii) the item is not subject to any
outstanding order by a Governmental Authority; and (iii) no Action is pending or, to the Knowledge of LSG, threatened (and there is no
basis therefore) which challenges the enforceability, use, or ownership of the item.

	To LSG'S Knowledge, LSG and its Subsidiaries have not infringed upon or misappropriated any other
Person's Intellectual Property rights, and LSG and its Subsidiaries, except as set forth in Schedule 5.13, and have never
received any notice alleging any such infringement or misappropriation of any other Person's Intellectual Property right (including any
claim that LSG or any of its Subsidiaries must license or refrain from using any other Person's Intellectual Property rights).

	Schedule 5.13 identifies each item of Intellectual Property, other than commercially available
Software, that any other Person owns and that LSG or any of its Subsidiaries uses as a material portion of any product currently sold by
LSG or any of its Subsidiaries.  Schedule 5.13 identifies each material Contract pursuant to which LSG or any of its
Subsidiaries have granted to any Person rights under or with respect to any of their Intellectual Property (together with any exceptions)
that is now in effect. LSG and its Subsidiaries have made available to LED correct and complete copies of all such Contracts with

                                                 37

respect to such use, as amended through the date hereof. With respect to the Contracts related to each item of Intellectual Property
required to be identified in Schedule 5.13, the statements in clauses (i) - (vii) below are true and correct:

	except as otherwise indicated in Schedule 5.13, the Contract will not be terminated or
rendered amended or supplemented as a result of the consummation of the transactions contemplated by this Agreement;

	to the Knowledge of LSG, no counter-party is in breach of such Contract, and no event has occurred
which with notice or lapse of time would constitute a breach thereunder;

	no party to the Contract has repudiated any provision thereof;

	with respect to each sublicense Contract, to the Knowledge of LSG, the representations and
warranties set forth in Sections 5.13(i)(i) - 5.13(i)(iii) are true and correct with respect to the underlying license Contract;

	the underlying item of Intellectual Property is not subject to any outstanding order by a Governmental
Authority;

	no Action is pending or, to LSG'S Knowledge, threatened (and there is no basis therefore) which
challenges the enforceability of the underlying item of Intellectual Property; and

	LSG and its Subsidiaries have not granted any sublicense or similar Contract with respect to such
Contract.

	Except as set forth in Schedule 5.13, there are no Encumbrances (other than Permitted
Encumbrances) outstanding on LSG Intellectual Property rights.

	Except as set forth in Schedule 5.13, all former and current employees of LSG and its
Subsidiaries have executed written Contracts with LSG and its Subsidiaries that assign to LSG and its Subsidiaries all rights to any
inventions, improvements, discoveries, or information relating to the business of LSG and each of its Subsidiaries. No employee of LSG
or its Subsidiaries has entered into any Contract that restricts or limits in any material way the scope or type of work in which such
employee may be engaged or requires such employee to transfer, assign, or disclose information concerning his or her work to any
Person other than LSG and its Subsidiaries, except as may be required by Law. 

5.14    SEC Filings; LSG Financial Statements
..  

                                                 38

	LSG has filed or otherwise transmitted all material forms, reports, statements, certifications and other
documents (including all exhibits, amendments and supplements thereto) required to be filed by it with the Securities and Exchange
Commission (the "SEC") since January 1, 2004 (all forms, reports, statements, certifications and other documents
(including all exhibits, amendments and supplements thereto filed by LSG since such date, collectively, the "SEC
Reports").  Each of the SEC Reports, as amended, complied, and LSG's periodic SEC Reports filed after the date hereof and
during LSG's current fiscal year will comply, as to form in all material respects with the applicable requirements of the Securities Act
and the Securities Exchange Act, each as in effect on the date so filed.  None of the SEC Reports contained, when filed as finally
amended, any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference
therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not
misleading.

	The audited consolidated financial statements of LSG (including any related notes thereto) included in
LSG's Annual Report on Form 10-KSB for the fiscal years ended December 31, 2006, 2005, and 2004 filed with the
SEC have been prepared in accordance with GAAP and fairly present in all material respects the consolidated financial position of LSG
and its Subsidiaries at the respective dates thereof and the consolidated statements of operations, cash flows and changes in
stockholders' equity for the periods indicated.  The unaudited consolidated financial statements of LSG (including any related notes
thereto) for all interim periods included in LSG's Quarterly Reports on Form 10-QSB filed with the SEC since January 1, 2006 (together
with the audited financial statements referenced in the immediately preceding sentence, the "LSG Financial
Statements") have been prepared in accordance with GAAP and fairly present in all material respects the
consolidated financial position of LSG and its Subsidiaries at the respective dates thereof and the consolidated statements of
operations and cash flows for the periods indicated (subject to normal period-end adjustments, none of which would, individually or in
the aggregate, reasonably be expected to have an LSG Material Adverse Effect).

	Since the enactment of the Sarbanes-Oxley Act of 2002, as amended (the "Sarbanes-Oxley
Act"), LSG has been and is in compliance in all material respects with the provisions of the Sarbanes-Oxley Act applicable to
LSG. 

	LSG has designed such disclosure controls and procedures to ensure that material information relating to
LSG, including its Subsidiaries, is made known to the Chief Executive Officer and the Chief Financial Officer of LSG by others within
those entities.

	LSG has disclosed, based on its most recent evaluation prior to the date hereof, to LSG's auditors and the
audit committee of the Board of Directors (i) any significant deficiencies and material weaknesses in the design or operation of internal
controls over financial reporting which are reasonably likely to adversely affect in any material respect LSG's ability to record, process,
summarize and report financial information and (ii) any fraud,

                                                 39

whether or not material, that involves management or other employees
who have a significant role in LSG's internal controls over financial reporting.

	As of the date hereof, LSG has no Knowledge of any material weaknesses in the design or operation of
internal controls over financial reporting.  There is no reason to believe that LSG's auditors and its Chief Executive Officer and Chief
Financial Officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted
pursuant to Section 404 of the Sarbanes-Oxley Act, when first due.

	Neither LSG nor any of its Subsidiaries has or is subject to any liabilities of any nature that would be
required by GAAP to be reflected on an audited consolidated balance sheet (or in the notes thereto) of LSG and its Subsidiaries
prepared to meet the requirements for inclusion in an Annual Report on Form 10-KSB, except liabilities that (i) are accrued or reserved
against in the balance sheet included in the Quarterly Report on Form 10-QSB most recently filed by LSG prior to the date hereof (the
"Most Recent LSG Balance Sheet"), (ii) were incurred in the ordinary course of business since the date of the Most
Recent LSG Balance Sheet (none of which result from, arise out of, relate to, are in the nature of, or were caused by any breach of
contract, breach of warranty, tort, infringement or violation of Law), (iii) are incurred pursuant to the transactions contemplated by this
Agreement, or (iv) have been discharged or paid in full prior to the date of this Agreement in the ordinary course of business.

	LSG and its Subsidiaries have no continuing or existing liabilities or claims arising from or relating to the
operations or the businesses of, or the bankruptcy cases or proceedings involving, The Phoenix Group Corporation, Americare
Management, Inc., Lifeline Home Health Services, Inc., or Lifeline Managed Home Care, Inc.

	Each Option (A) was granted in compliance with all applicable Laws and all of the terms and conditions of
the LSG Stock Plan pursuant to which it was issued, (B) has an exercise price per share of LSG Common Stock equal to or greater
than the fair market value of a share of LSG Common Stock at the close of business on the date of such grant, (C) has a grant date
identical to the date on which the LSG's Board of Directors or compensation committee actually awarded such Option, and (D) qualifies
for the tax and accounting treatment afforded to such Option in LSG's tax returns and financial statements, respectively.

5.15    Capitalization.

	As of the date hereof, the authorized capital stock of LSG consists of (i) 495,000,000 shares
of LSG Common Stock, (ii) 2,656,250 shares of LSG Existing Preferred Stock, and (iii) 2,000,000 shares of LSG Series B Preferred
Stock.  LSG has no shares of capital stock held in treasury. As of the Closing Date, after giving effect to the transactions contemplated
hereby but prior to the reverse stock split anticipated to be approved by stockholders of LSG as soon as practicable following the
Closing, there shall have been no change to the authorized capital stock of LSG described above, and (i) 439,141,583 shares of LSG
Common Stock shall have been issued and be outstanding (which assumes the issuance of 5,000,000 shares of restricted stock
granted to Ken Honeycutt), all of which shall  have been

                                                 40

validly issued, fully paid and nonassessable and issued free of preemptive
rights, (ii) 515,653 shares of LSG Existing Preferred Stock shall have been issued and be outstanding, all of which shall have been
validly issued, fully paid and nonassessable and issued free of preemptive rights, (iii) 2,000,000 shares of LSG Series B Preferred
Stock shall have been issued and be outstanding, all of which shall have been validly issued, fully paid and nonassessable and issued
free of preemptive rights, (iv) an aggregate of 22,638,634 shares of LSG Common Stock shall have been reserved for issuance upon
conversion of the LSG Preferred Stock, (v) an aggregate of 27,866,450 shares of LSG Common Stock shall have been reserved for
issuance upon the exercise of outstanding warrants ("Warrants"), and (vi) an aggregate of 5,353,333 shares of
LSG Common Stock shall have been reserved for issuance upon or otherwise deliverable in connection with the exercise of
outstanding options ("Options") issued pursuant to the Lighting Science Group Corporation 2005 Equity Based
Incentive Compensation Plan (the "LSG Stock Plan").  Schedule 5.15 sets forth a true, correct and
complete list, pro forma for the transactions contemplated by this Agreement, of each holder of  LSG Preferred Stock, Warrants and
Options and the number of shares of LSG Common Stock into which such LSG Preferred Stock, Warrants and Options are convertible
into or exercisable for, as the case may be.  All Exchange Consideration to be issued to LED pursuant to this Agreement shall be
delivered by LSG to LED free and clear of any Encumbrances.

	Except as set forth in paragraph (a) above or as listed on Schedule 5.15(b): (i) there are no
outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other Contracts
or commitments that could require LSG to issue, sell, or otherwise cause to become outstanding any of its capital stock; (ii) there are no
outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to LSG, and (iii) there are
no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of LSG.

5.16    Absence of Certain Changes or Events
.     Except as set forth on Schedule 5.16, since the date of the Most Recent LSG Balance
Sheet, there has been no LSG Material Adverse Effect and no event, change, condition or circumstance which, individually or in the
aggregate, could reasonably be expected to have an LSG Material Adverse Effect.  Without limiting the generality of the foregoing,
since that date, except as expressly contemplated by this Agreement:

	Neither LSG nor any of its Subsidiaries has made any cash distributions or capital expenditures, including
to any holder of its equity or for any such holder's direct or indirect benefit;

	Neither LSG nor any of its Subsidiaries has sold, leased, transferred, or assigned any of its assets, tangible
or intangible, other than for a fair consideration in the ordinary course of business; 

	No Person (including LSG or any of its Subsidiaries) has accelerated, terminated, modified, or cancelled
any Contract or license (or series of related

                                                 41

Contracts and licenses) involving more than $10,000 to which LSG or any of its Subsidiaries is a party or is bound; 

	Neither LSG nor any of its Subsidiaries has delayed or postponed the payment of accounts payable and
other liabilities outside the ordinary course of business; 

	Neither LSG nor any of its Subsidiaries has cancelled, compromised, waived, or released any right or claim
(or series of related rights and claims) involving more than $10,000; 

	Neither LSG nor any of its Subsidiaries has transferred, assigned, or granted any license or sublicense of
any rights under or with respect to any Intellectual Property; 

	Neither LSG nor any of its Subsidiaries has experienced any material damage, destruction, or loss
(whether or not covered by insurance) to its property; 

	Neither LSG nor any of its Subsidiaries has made any loans or advanced any money or other property, to
any employee, officer, independent contractor or other Person (except advances to employees in the ordinary course of business not in
excess of $5,000 in the aggregate); 

	Neither LSG nor any of its Subsidiaries has established, entered into, adopted, amended, modified or
terminated any LSG Employee Plan or other arrangement that would be an LSG Employee Plan if it were in existence as of the date of
this Agreement;

	Neither LSG nor any of its Subsidiaries has increased the compensation or fringe benefits of any present or
former employee or director (except for increases in salary or wage rates in the ordinary cause of business);

	Neither LSG nor any of its Subsidiaries has granted any severance or termination pay to any present
employee or director;

	Neither LSG nor any of its Subsidiaries has discharged a material liability or Encumbrance outside the
ordinary course of business; and

	Neither LSG nor any of its Subsidiaries has committed to any of the foregoing.

5.17    Insurance
.     LSG and its Subsidiaries maintain insurance in respect of the their properties and assets and their
respective  businesses, covering such risks, in such amounts, with such terms and with such insurers as is reasonably necessary to
provide adequate insurance coverage for their respective properties, assets and businesses (such insurance, the "LSG
Business Insurance Policies").  Schedule 5.17 contains a true and complete list of all LSG Business Insurance
Policies and all of the LSG Business Insurance Policies are in full force and

                                                 42

effect.  Neither LSG nor any of its Subsidiaries is in default
in any material respect with respect to any provision contained in any such LSG Business Insurance Policy held by or on behalf of LSG
or any of its Subsidiaries.  Neither LSG nor any of its Subsidiaries has received any notice of cancellation or non-renewal of any such
LSG Business Insurance Policy.

5.18    Affiliate Transactions
.     Except as set forth on Schedule 5.18,  no executive officer or director of LSG or any of its
Subsidiaries or any Person beneficially owning 5% or more of the outstanding LSG Common Stock (including for this purpose shares of
LSG Common Stock issuable upon conversion of any outstanding shares of LSG Existing Preferred Stock), or any immediate family
member or Affiliate of any of the foregoing Persons, is a party to any Contract with or binding upon LSG or any of its Subsidiaries or any
of their respective properties or assets or has any interest in any material property owned by LSG or any of its Subsidiaries or has
engaged in any material transaction with any of the foregoing since January 1, 2006.

5.19    Brokers' Fees
.     Neither LSG nor any of its Subsidiaries has any liability or obligation to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by this Agreement. 

5.20    Private Offering
.     No form of general solicitation or general advertising was used by LSG or any of its Subsidiaries or their
respective representatives in connection with the offer or sale of the Exchange Consideration to be issued hereunder.  No registration
of the Exchange Consideration to be issued hereunder or the LSG Common Stock issuable upon the conversion of the LSG Series B
Preferred Stock to be issued hereunder pursuant to the provisions of the Securities Act or state securities or "blue sky" laws
will be required for the offer, sale or issuance of the Exchange Consideration to be issued pursuant to this Agreement or of the LSG
Common Stock issuable upon conversion of the LSG Series B Preferred Stock to be issued hereunder.  LSG agrees that neither it, nor
anyone acting on its behalf, will offer or sell shares of LSG Series B Preferred Stock, LSG Common Stock, or any other security so as
to require the registration of the Exchange Consideration or the LSG Common Stock issuable upon conversion of the LSG Series B
Preferred Stock issued hereunder pursuant to the provisions of the Securities Act or any state securities or "blue sky" laws,
unless the Exchange Consideration or the LSG Common Stock issuable upon the conversion of the LSG Series B Preferred Stock
issued hereunder are so registered

5.21    Takeover Statutes
.     No "fair price", "moratorium", "control share acquisition" or other similar
antitakeover statute or regulation enacted under state or federal Laws in the United States applicable to LSG is applicable to the
transactions contemplated hereby. 

 ARTICLE VI

POST-CLOSING COVENANTS

                                                 43

6.01    Public Announcements
.     The Parties shall jointly agree on any announcement or correspondence with or to the public or
customers, suppliers or employees of the Parties about the terms and conditions of this Agreement or the transactions contemplated
hereby, unless such announcement is required by Law, and in such case the announcing or corresponding Party will notify the other
Party and provide it in advance with a copy of the public disclosure and a reasonable opportunity to comment on such proposed
disclosure.

6.02    Further Assurances
.     Each Party shall at the request of any other Party do and perform or cause to be done and performed all
such further acts and furnish, execute and deliver such other documents, instruments, certificates, notices or other further assurances
as the requesting party may reasonably request, from time to time, to consummate the transactions contemplated by this Agreement,
including any of the foregoing necessary to adjust the Exchange Consideration if at any time within the ninety (90) day period
immediately following the Closing Date it is determined that the number of shares of LSG Series B Preferred Stock and/or LSG
Common Stock issued and delivered to LED under Section 2.02 hereof was not in fact equal to 70% of the fully-diluted capitalization of
LSG, having 80% of the outstanding voting power, in each case as of the Closing, as contemplated by Section 2.02.

6.03    Expenses
.     LSG will bear all costs and expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.

6.04    Remittance of Accounts Receivable and Excluded Assets
.     If, after the Effective Time, LED receives payment of (i) any Accounts Receivable or (ii) other accounts
receivable or other receivables generated by LSG from the operation of the Business after the Effective Time, then LED shall
immediately remit such collections, or cause such collections to be immediately remitted, to LSG.  LSG shall promptly remit to LED, if
and when received, any amounts or other items that shall be received by LSG after the Effective Time which are Excluded Assets.

6.05    Certain Tax Matters.  

	LSG shall prepare and timely file all returns with respect to Taxes relating to the Acquired Assets for the
Straddle Period.  LSG shall pay and discharge all Taxes shown to be due on such Tax Returns.  

	LED shall not file an amended Tax Return or make an election with respect to periods or portions thereof
ending on or before the Closing Date without the written consent of LSG if the amendment or election adversely affects LSG, the
Business or the Acquired Assets.

	LED shall turn over to LSG all originals and copies of all Tax Returns, schedules, work papers, records and
other documents relating to Tax matters with respect to the Business and the Acquired Assets and LSG shall retain such documents
that relate to any pre-Closing Tax period until 60 days after the expiration of the applicable statute of limitations with respect to such
Tax matters.

                                                 44

	LSG shall be responsible for the preparation of Tax Returns (including any documentation) with respect to
all transfer, documentation, sales, use, stamp, registration, and similar Taxes incurred in connection with this Agreement or any
transaction contemplated thereby and shall be responsible for the payment of such Taxes.  LSG shall also file all necessary
documentation and Tax Returns with respect to such Taxes.

	Each Party shall provide each other Party with such assistance as may reasonably be requested by any of
them in connection with the preparation of any filings with any taxing authorities (federal, state, local or otherwise) and with any Action
relating to liability for Taxes, in either case in connection with the operation of the Business or the Acquired Assets.  Such assistance
shall include making employees available on a mutually convenient basis to provide information and explanation of any material
provided hereunder, and shall include providing copies of any relevant information, data, reports, tax returns and supporting work
schedules, to the extent such is available.  LSG, on the one hand, and LED, on the other hand, each agree to reimburse the other for its
reasonable out-of-pocket expenses, such as travel costs, incurred by it, him or her, as the case may be, in connection with performing
obligations under this Section 6.07(e), provided, however, that such reimbursable expenses shall not include any per diem or other
expenses in the nature of salary replacement or overhead absorption measures.  

6.06    Personnel and Employment.  

	Employment Offers.  LSG shall, effective immediately following the Closing Date and contingent
on the Closing, offer employment to all employees involved in the operation of the Business (the "Employees").
Those Employees who receive and accept LSG's offer of employment are referred to herein as "Continued
Employees."  Nothing contained in this Agreement is intended to confer upon any Continued Employee any right to
continued employment after the Closing Date, and such Continued Employees shall be at-will employees who are terminable in the
discretion of LSG.

	Liability for Certain Benefits.  LSG shall be responsible for all salaries, wages and benefits of each
Continued Employee arising after the Closing Date, and LED shall have no liability for salaries, wages or benefits of Continued
Employees or other employees of LSG relating to periods after the Closing Date.  

	Benefits.  Contingent upon and effective as of the Closing Date, to the extent applicable: (i) LSG
shall be substituted for LED as the plan sponsor and named fiduciary of each of the LED Employee Plans identified on Schedule
6.06(c) (the "Assumed Plans"); (ii) LED shall assign, and LSG shall assume, plan sponsorship (as that term is
defined in Section 3(16)(B) of ERISA) of the Assumed Plans, including all the powers, rights, obligations and responsibilities of a plan
sponsor; (iii) LED shall assign, and LSG shall assume, liability for all (A) assets and (B) liabilities under the Assumed Plans arising with
respect to operations of the Assumed Plans after the Closing Date provided that LSG shall be responsible for processing all benefit
payment obligations with respect to the Assumed Plans regardless of when such benefit

                                                 45

payment obligation arose, and all rights,
obligations, and responsibilities of LED under any and all trust agreements, plan administrative agreements, and insurance contracts
(the "Transferred Contracts"); and (iv) LSG shall replace LED wherever LED is identified as plan sponsor or
contract holder or otherwise, as applicable, under the respective Transferred Contracts.  Contingent upon and effective as of the
Closing Date, LSG shall take such action as may be required to amend the Assumed Plans to change (x) all references to the
sponsoring employer to LSG and (y) all references in the Assumed Plans to a committee or board of LED to the comparable applicable
committee or Board of Directors of LSG.  All powers of administration, amendment, termination, distribution or otherwise attributable to
LED, a LED committee or a LED board are hereby assumed by LSG, the comparable committee of LSG or Board of Directors of
LSG.

	Employee Records.  To the extent permitted by applicable Law and contract, LED shall provide
LSG with information, as reasonably requested by LSG, with respect to the Continued Employees to assist in effecting their
employment by LSG following the Closing Date in an orderly fashion.  In addition, to the extent permitted by applicable Law and
contract, LED shall deliver to LSG on or within thirty (30) days after the Closing Date all personnel and medical records or copies
thereof that are reasonably required by LSG for proper employee administration and shall transfer all files or copies thereof then
relating to the Continued Employees (including benefit information and personnel files).

	No Third Party Beneficiaries.  Nothing in this Agreement, express or implied, is intended to or shall
confer upon or be construed to confer upon any Person, including any employee (including any Continued Employee or any beneficiary
or dependent thereof) of LSG or LED or legal representative thereof, any rights or remedies (including any right to employment for any
specified period or rights to any specific benefits or compensation) of any nature or kind whatsoever under or by reason of this
Agreement.  

6.07    Competitive Opportunities
.     LSG hereby acknowledges that certain members of LED are involved in the business of making
investments, and if any such member, or any officer, director, partner, employee, agent, operating advisor or Affiliate thereof
(collectively, "Representatives") acquires knowledge of a potential transaction or matter which may be an
investment or business opportunity or prospective economic or competitive advantage in which the Company could have an interest or
expectancy (a "Competitive Opportunity") or otherwise is then exploiting any Competitive Opportunity, LSG will
have no interest in, or expectation that, such Competitive Opportunity be offered to it.  Any such interest or expectation is hereby
renounced so that such member of LED and its Representatives shall (i) have no duty to communicate or present such Competitive
Opportunity to LSG, and (ii) have the right to either hold any such Competitive Opportunity for its (and its Representatives') own
account and benefit or to recommend, assign or otherwise transfer such Competitive Opportunity to Persons other than LSG or any
Affiliate of LSG.

6.08    LED KK Shares and Kabushiki LED Shares
.     LED shall, as soon as practicable after the Closing Date at the sole cost and expense of LSG, (i) cause LED KK to

                                                 46

issue certificates representing the LED KK Shares to LED and (ii) obtain approvals from LED KK and
Kabushiki LED, respectively, to the extent required under the Companies Act of Japan and the articles of incorporation of LED KK and
Kabushiki LED, for the transfer of the LED KK Shares and the Kabushiki LED Shares to LSG.  Upon obtaining such certificates and
approvals from LED KK and Kabushiki LED, LED shall deliver the certificates together with a copy of documents evidencing the
approvals to LSG.

6.09    Disney Contract

.  LED shall use its commercially reasonable efforts to cause the rights and obligations of LED
Effects under the Material Procurement Contract, dated August 28, 2007, by and between Walt Disney Imagineering, a division of Walt
Disney World Co., a Florida corporation, and LED Effects to be assigned to LSG promptly following the Closing.

6.10    Common Stock Certificate
.     LSG shall use its reasonable best efforts to deliver to LED a certificate representing the 318,574,665
shares of LSG Common Stock constituting a portion of the Exchange Consideration as soon as practicable following the
Closing.

 ARTICLE VII

NO SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS

7.01    No Survival of Representations, Warranties and
Covenants
.     The representations, warranties and covenants of LED and LSG contained in this Agreement, or in any
certificate delivered in connection with this Agreement (other than the covenants contained in Article II, Article VI and Article VIII of this
Agreement) shall not survive the Closing, and any and all breaches of such representations, warranties and covenants shall be deemed
waived as of the Closing.  Neither Party shall be deemed to have made to the other Party any representation or warranty other than as
expressly made in Article IV and Article V hereof.

 ARTICLE VIII

MISCELLANEOUS

8.01    Binding Effect; Assignment; No Third-Party Rights
.     This Agreement shall be binding upon and shall inure to the benefit of, and be enforceable by, the Parties
and their permitted successors and assigns.  This Agreement may not be assigned by any Party without the prior written consent of the
other Parties.  Nothing herein is intended to, nor shall it, create any rights in any Person other than the Parties and their respective
successors and assigns.

8.02    Entire Agreement
.     This Agreement (including the Schedules hereto), together with the documents incorporated by reference and the agreements to be executed in

                                                 47

connection herewith, sets forth the entire agreement and understanding of the parties and their
respective Affiliates in respect of the transactions contemplated hereby and supersedes all prior agreements, arrangements and
understandings relating to the subject matter hereof and thereof, including (i) the Confidentiality Agreement, dated as of April 12, 2007,
between Pegasus Partners IV, L.P. and LSG, (ii) the Confidentiality Agreement, dated as of July 25, 2007, between LED and LSG, and
(iii) the letter agreement and term sheet, dated August 21, 2007, between LED and LSG.

8.03    Headings
.     The section and other headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.

8.04    Notices
.     All notices, requests, demands, claims and other communications that are required or may be given
pursuant to this Agreement must be in writing and delivered personally against written receipt, by facsimile or by reputable domestic or
international overnight courier to the parties at the following addresses (or to the attention of such other Person or at such other
address as any party may provide to the other party by notice in accordance with this Section 8.04):

If to LED:LED Holdings, LLC

   11390 Sunrise Gold Circle #800

   Rancho Cordova, CA  95742

   Attention:Chief Executive Officer

   Telephone:(610) 745-9590

   Facsimile:(908) 281-6033

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

Pegasus Capital Advisors, L.P.

   505 Park Avenue, 22nd Floor

New York, NY 10022

Attention:Richard Weinberg; Steven Wacaster

Telephone:(212) 710-2500

Facsimile: (212) 355-2303

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

Morrison Cohen LLP

   909 Third Avenue

   New York, NY  10022

   Attention:  David A. Scherl, Esq.

   Telephone:(212) 735-8600

   Facsimile:(212) 735-8708

                                                 48

If to LSG:Lighting Science Group Corporation

   2100 McKinney Avenue

   Dallas, TX  75201

   Attention:Chief Executive Officer

   Telephone:(214) 382-3630

   Facsimile:(214) 722-1391

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

   Haynes and Boone LLP

   901 Main Street

   Suite 3100

   Dallas, TX  75202

   Attention:Gregory Samuel, Esq.

   Telephone:(214) 651-5645

   Facsimile:(214) 200-0577

Any such notice, request, demand, claim or other communication will be deemed to have been given (a) if
personally delivered, when so delivered, (b) if sent by facsimile, upon transmission with electronic confirmation thereof or (c) if sent by
reputable domestic or international overnight courier, when received.

8.05    Severability
.     If any provision of this Agreement, including any phrase, sentence, clause, section or subsection is
inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering the provision in question
inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatsoever.

8.06    Amendment; Waiver, etc.
.     No amendment, modification or discharge of this Agreement, and no waiver hereunder, shall be valid or
binding unless set forth in writing and duly executed by the Party against whom enforcement of the amendment, modification, discharge
or waiver is sought.  Any such waiver shall constitute a waiver only with respect to the specific matter described in such writing and
shall in no way impair the rights of the Party granting such waiver in any other respect or at any other time.  Neither the waiver by any of
the Parties of a breach of or a default under any of the provisions of this Agreement, nor the failure by any of the Parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder, shall be construed as
a waiver of any other breach or default of a similar nature, or as a waiver of any of such provisions, rights or privileges hereunder.  The
rights and remedies of any Party based upon, arising out of or otherwise in respect of any inaccuracy or breach of any representation,
warranty, covenant or agreement or failure to fulfill any condition shall in no way be limited by the fact that the act, omission, occurrence
or other state of facts upon which any claim of any such inaccuracy or

                                                 49

breach is based may also be the subject matter of any other
representation, warranty, covenant or agreements to which there is no inaccuracy or breach.

8.07    Governing Law; Consent to Jurisdiction.  

	This Agreement will be governed by and construed and interpreted in accordance with the substantive
Laws of the State of New York, without giving effect to any choice of Law or conflicts of Law provision or rule that would cause the
application of the Laws of a jurisdiction other than New York.

	All judicial proceedings brought against any party hereto arising out of or relating to this Agreement, or any
obligations hereunder, shall be brought in any state court of competent jurisdiction in the State of New York, County of New York, or
any federal court of competent jurisdiction in the Southern District of New York.  By executing and delivering this Agreement, each
party, for itself and in connection with its properties, irrevocably (i) accepts generally and unconditionally the exclusive jurisdiction and
venue of such courts, (ii) waives any defense of forum non coveniens, (iii) agrees that service of all process in any such
proceeding in any such court may be made by registered or certified mail, return receipt requested, to such party at its address
provided in accordance with Section 8.04 hereof, (iv) agrees that service as provided in clause (iii) above is sufficient to confer personal
jurisdiction over such party in any such proceeding in any such court, and otherwise constitutes effective and binding service in every
respect and (v) agrees that the rights to serve process and bring proceedings provided above shall be in addition to any other rights to
serve process in any other manner permitted by Law and to bring proceedings in the courts of any other jurisdiction. 

8.08    Waiver of Trial By Jury
.     EACH PARTY HERETO WAIVES THE RIGHT TO TRIAL BY JURY AND REPRESENTS TO THE
OTHER THAT IT HAS REVIEWED THE FOREGOING WAIVER WITH ITS COUNSEL AND THAT IT HAS KNOWINGLY AND
VOLUNTARILY WAIVED ITS RIGHT TO TRIAL BY JURY AFTER CONSULTATION WITH SUCH COUNSEL.

8.09    Bulk Sales
.     LSG hereby waives compliance by LED with the provisions of the bulk sales Laws applicable to the
transfers described in this Agreement.  

8.10    Counterparts
.     This Agreement may be executed by facsimile or other electronically-scanned signature pages and in
one or more counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same
instrument.

8.11    Neutral Construction
.     The parties hereto have participated jointly in the negotiation and drafting of this Agreement.  In the event
an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this
Agreement. 

                                                 50

8.12    Interpretation
.     For purposes of this Agreement, except as otherwise expressly provided herein or unless the context
otherwise requires:  (a) words using the singular or plural number also include the plural or singular number, respectively, and the
use of any gender herein shall be deemed to it include the other genders; (b) references herein to "Articles,"
"Sections," "subsections" and other subdivisions without reference to a document are to the specified Articles,
Sections, subsections and other subdivisions of this Agreement; (c) a reference to a subsection without further reference to
a Section is a reference to such subsection as contained in the same Section in which the reference appears, and this rule shall
also apply to other subdivisions within a Section or subsection; (d) the words "herein," "hereof,"
"hereunder," "hereby" and other words of similar import refer to this Agreement as a whole and not to any
particular provision; (e) any reference to any federal, state, local, or foreign statute or Law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise, (f) the words "include,"
"includes" and "including" are deemed to be followed by the phrase "without limitation" and (g) the
words "ordinary course of business" and "ordinary course of the Business" are deemed to be followed by the
phrase "consistent with past practices."  All accounting terms used herein and not expressly defined herein shall have the
meanings given to them under GAAP.

[Signature Page Follows]

                                                 51

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its duly
authorized representative as of the day and year first above written.
LED HOLDINGS, LLC

 

By: __________________________

Name:

Title:

 

 

LIGHTING SCIENCE GROUP CORPORATION

 

By: __________________________

Name:

Title:

 

 

[Signature Page to Exchange and Contribution Agreement]October 11, 2007 8K Exhibit 4.2

                                                                              Exhibit 4.2

CERTIFICATE OF DESIGNATION

                  OF

                  PREFERRED STOCK

                  OF

                  LIGHTING SCIENCE GROUP CORPORATION

 

To Be Designated

                  Series B Preferred Stock

                
            

 

Pursuant to Section 151(g) of the

                  General Corporation Law of the State of Delaware

                
            

The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of
Directors (the "Board of Directors") of Lighting Science Group Corporation, a Delaware corporation (the
"Corporation"), at a meeting duly convened and held, at which a quorum was present and acting throughout:

RESOLVED, that pursuant to the authority conferred on the Board of Directors by the Corporation's Certificate
of Incorporation, the issuance of a series of preferred stock, par value $0.001 per share, of the Corporation which shall consist of
2,000,000 shares of convertible preferred stock be, and the same hereby is, authorized; and the Chairman and Chief Executive Officer
of the Corporation be, and he hereby is, authorized and directed to execute and file with the Secretary of State of the State of Delaware
a Certificate of Designation of Preferred Stock of the Corporation fixing the designations, powers, preferences and rights of the shares
of such series, and the qualifications, limitations or restrictions thereof (in addition to the designations, powers, preferences and rights,
and the qualifications, limitations or restrictions thereof, set forth in the Certificate of Incorporation which may be applicable to the
Corporation's preferred stock), as follows:

1. Number of Shares; Designation. A total of 2,000,000 shares of preferred stock, par
value $0.001 per share, of the Corporation are hereby designated as Series B Preferred Stock (the "Series").
Shares of the Series ("Preferred Shares") will be issued pursuant to the terms of an Exchange and Contribution
Agreement, dated as of October 4, 2007 by and among the Corporation and LED Holdings, LLC (the "Exchange and
Contribution Agreement"), a copy of which will be provided to any stockholder of the Corporation upon request therefor.
Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Exchange and Contribution
Agreement.

2. Rank. The Series shall, with respect to rights (including to redemption payments) upon
liquidation, dissolution or winding-up of the affairs of the Corporation, rank:

	
 
	
(i)
	
Senior and prior to the Common Stock, par value $0.001 per
share, of the Corporation (the "Common Stock"), and any additional series of preferred stock which may in the
future be issued by the Corporation and are designated in the amendment to the Certificate of Incorporation or the certificate of
designation establishing such additional preferred stock as ranking junior to the Preferred Shares. Any shares of the Corporation's
Capital Stock which are junior to the Preferred Shares with respect to rights (including to redemption payments) upon liquidation,
dissolution or winding-up of the affairs of the Corporation are hereinafter referred to as "Junior Liquidation Shares."

                                                 1

	
 
	
(ii)
	
Pari passu with the 6% Convertible Preferred Stock of the Corporation (the
"6% Preferred") and any additional series of preferred stock which may in the future be issued by the Corporation
and are designated in the amendment to the Certificate of Incorporation or the certificate of designation establishing such additional
preferred stock as ranking equal to the Preferred Shares or which do not state they are Junior Liquidation Shares or Senior Liquidation
Shares (as defined below). Any shares of the Corporation's Capital Stock which are equal to the Preferred Shares with respect rights
(including to redemption payments) upon liquidation, dissolution or winding-up of the affairs of the Corporation are hereinafter referred
to as "Parity Liquidation Shares." 

	
 
	
(iii)
	 	
Junior to any additional series of preferred stock which may in the future be issued by the
Corporation and are designated in the amendment to the Certificate of Incorporation or the certificate of designation establishing such
additional preferred stock as ranking senior to the Preferred Shares. Any shares of the Corporation's Capital Stock which are senior to
the Preferred Shares with respect to rights (including to redemption payments) upon liquidation, dissolution or winding-up of the affairs
of the Corporation are hereinafter referred to as "Senior Liquidation Shares." 

3.Dividends.  Dividends may be declared and paid on the Preferred Shares from funds
legally available therefor as and when determined by the Board of Directors.  The Series shall, with respect to the payment of
dividends, rank pari passu with the Common Stock; provided, however, that for the avoidance of doubt the 6%
accrual on the Preferred Shares payable upon a Liquidation Event shall nonetheless have the priority set forth in paragraph 4
below.

4. Liquidation. 

(a) The liquidation value per Preferred Share, in case of the voluntary or involuntary liquidation, dissolution
or winding-up of the affairs of the Corporation, shall be an amount equal to (i) $7.50 per share (the "Purchase
Price"), subject to adjustment in the event of a stock split, stock dividend or similar event applicable to the Series, plus (ii) an
amount accruing at the rate of 6% per annum on the Purchase Price, from the date of original issuance and compounding annually (the
sum of the foregoing clauses (i) and (ii) being hereinafter referred to as the "Liquidation Value").

(b) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation (a
"Liquidation Event"), the Holders (i) shall not be entitled to receive the Liquidation Value of the shares held by them
until the liquidation value of all Senior Liquidation Shares shall have been paid in full, and (ii) shall be entitled to receive the Liquidation
Value of such shares held by them in preference to and in priority over any distributions upon the Junior Liquidation Shares. Upon
payment in full of the Liquidation Value to which the Holders are entitled, the Holders will not be entitled to any further participation in
any distribution of assets by the Corporation. If the assets of the Corporation are not sufficient to pay in full the Liquidation Value
payable to the Holders and the liquidation value payable to the holders of any Parity Liquidation Shares, the holders of all such shares
shall share ratably in such distribution of assets in accordance with the amounts that would be payable on the distribution if the
amounts to which the Holders and the holders of Parity Liquidation Shares are entitled were paid in full.

                                                 2

(c) For purposes of this paragraph 4, a Change of Control shall be treated as a Liquidation Event and
shall entitle each Holder to receive, upon the consummation of such Change of Control, and at such Holder's option, cash in an amount
equal to the Liquidation Value of such Holder's Preferred Shares. 

(d) The Corporation shall, no later than the date on which a Liquidation Event occurs, deliver in
accordance with the notice provisions of the Exchange and Contribution Agreement written notice of any Liquidation Event, stating the
payment date or dates when and the place or places where the amounts distributable in such circumstances shall be payable, not less
than 30 days prior to any payment date stated therein, to each Holder.

5. Conversion.

(a) Right to Convert. Each Holder shall have the right to convert, at any time and from time to
time, all or any part of the Preferred Shares held by such Holder into such number of fully paid and non-assessable shares of Common
Stock (the "Conversion Shares") as is determined in accordance with the terms hereof (a
"Conversion"). 

(b) Conversion Notice. In order to convert Preferred Shares, a Holder shall send to the
Corporation by facsimile transmission, at any time prior to 3:00 p.m., central time, on the Business Day (as used herein, the term
"Business Day" shall mean any day except a Saturday, Sunday or day on which the Federal Reserve Bank of
Dallas, Texas is closed in the ordinary course of business) on which such Holder wishes to effect such Conversion (the
"Conversion Date"), a notice of conversion in substantially the form attached as Annex I hereto (a
"Conversion Notice"), stating the number of Preferred Shares to be converted, and a calculation of the number of
shares of Common Stock issuable upon such Conversion in accordance with the formula set forth in paragraph 5(c) below setting forth
the basis for each component thereof, including the details relating to any adjustments made to the Conversion Price. The Holder shall
promptly thereafter send the Conversion Notice and the certificate or certificates being converted to the Corporation. The Corporation
shall issue a new certificate for Preferred Shares to the Holder in the event that less than all of the Preferred Shares represented by a
certificate are converted; provided, however, that the failure of the Corporation to deliver such new certificate shall not
affect the right of the Holder to submit a further Conversion Notice with respect to such Preferred Shares and, in any such case, the
Holder shall be deemed to have submitted the original of such new certificate at the time that it submits such further Conversion Notice.
Except as otherwise provided herein, upon delivery of a Conversion Notice by a Holder in accordance with the terms hereof, such
Holder shall, as of the applicable Conversion Date, be deemed for all purposes to be the record owner of the Common Stock to which
such Conversion Notice relates. In the case of a dispute between the Corporation and a Holder as to the calculation of the Conversion
Price or the number of Conversion Shares issuable upon a Conversion (including, without limitation, the calculation of any adjustment
to the Conversion Price following any adjustment thereof), the Corporation shall issue to such Holder the number of Conversion Shares
that are not disputed within the time periods specified in paragraph 5(d) below and shall submit the disputed calculations to a certified
public accounting firm of national reputation (other than the Corporation's regularly retained accountants) within two (2) Business Days
following the Corporation's receipt of such Holder's Conversion Notice. The Corporation shall cause such accountant to calculate the
Conversion Price as provided herein and to notify the Corporation and such Holder of the results in writing no later than three (3)
Business Days following the day on which such accountant received the disputed calculations (the "Dispute
Procedure"). Such accountant's calculation shall be deemed conclusive absent manifest error. The fees of any such
accountant shall be borne by the party whose calculations were most at variance with those of such accountant.

                                                 3

(c) Number of Conversion Shares. The number of Conversion Shares to be delivered by the
Corporation to a Holder for each Preferred Share pursuant to a Conversion shall be determined by dividing (i) the Purchase Price (for
the avoidance of doubt, not including the 6% accrual on the Preferred Shares payable upon a Liquidation Event) by (ii) the Conversion
Price in effect on the applicable Conversion Date; provided, however, that the number of Conversion Shares issued
shall never, when combined with all other then outstanding shares of Common Stock and shares of Common Stock which have been
subscribed for or otherwise committed to be issued, exceed the number of shares of Common Stock then authorized to be issued by
the Corporation, and in the event that there are insufficient shares of Common Stock authorized to permit the full Conversion
contemplated by any Conversion Notice, the Corporation will promptly take all such actions necessary so as to permit the full
Conversion contemplated by such Conversion Notice as soon as practicable after receipt by the Corporation of such Conversion
Notice.

(d) Delivery of Conversion Shares. The Corporation shall, no later than the close of business on
the third (3rd) Business Day following the later of the date on which the Corporation receives a Conversion Notice from a
Holder by facsimile transmission pursuant to paragraph 5(b), above, and the date on which the Corporation receives the related
Preferred Shares certificate (such third Business Day, the "Delivery Date"), issue and deliver or cause to be
delivered to such Holder the number of Conversion Shares determined pursuant to paragraph 5(c) above; provided,
however, that any Conversion Shares that are the subject of a Dispute Procedure shall be delivered no later than the close of
business on the third (3rd) Business Day following the determination made pursuant thereto. 

(e) Adjustments. The Conversion Price shall be subject to adjustment from time to time as
follows: 

	
 
	
(i)
	
In the event that the Corporation shall (A) pay a dividend or make a distribution, in shares of
Common Stock, on any class of Capital Stock of the Corporation or any subsidiary which is not directly or indirectly wholly owned by the
Corporation, (B) split or subdivide its outstanding Common Stock into a greater number of shares, or (C) combine its outstanding
Common Stock into a smaller number of shares, then in each such case the Conversion Price in effect immediately prior thereto shall
be adjusted so that the holder of each share of the Series thereafter surrendered for conversion shall be entitled to receive the number
of shares of Common Stock that such holder would have owned or have been entitled to receive after the occurrence of any of the
events described above had such share of the Series been converted immediately prior to the occurrence of such event. An adjustment
made pursuant to this paragraph 5(e)(i) shall become effective immediately after the close of business on the record date in the case of
a dividend or distribution and shall become effective immediately after the close of business on the effective date in the case of such
subdivision, split or combination, as the case may be. Any shares of Common Stock issuable in payment of a dividend shall be deemed
to have been issued immediately prior to the close of business on the record date for such dividend for purposes of calculating the
number of outstanding shares of Common Stock under clauses (ii) and (iii) below. 

                                                 4

	
 
	
(ii)
	
In the event that the Corporation shall issue or distribute New Securities pursuant to an
issuance or distribution approved by a majority of the directors nominated by stockholders other than the Holders, in any such case at a
price per share less than the Current Market Price or that would entitle the holders of the New Securities to subscribe for or purchase
shares of Common Stock at less than Current Market Price per share (provided that the issuance of Common Stock upon the exercise
of New Securities that are rights, warrants, options or convertible or exchangeable securities ("New Derivative
Securities") will not cause an adjustment in the Conversion Price if no such adjustment would have been required at the time
such New Derivative Security was issued), then the Conversion Price in effect immediately prior thereto shall be adjusted so that the
Conversion Price shall equal the price at which the Corporation issues or distributes such New Securities (or the price at which the
holders of the New Securities are entitled to subscribe for or purchase shares of Common Stock). Each such adjustment shall be made
successively whenever any such New Securities are issued. In determining whether any New Derivative Securities entitle the holders to
subscribe for or purchase shares of Common Stock at less than the Current Market Price per share, there shall be taken into account
any consideration received by the Corporation for such New Derivative Securities, the value of such consideration, if other than cash, to
be determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a certificate filed with
the records of corporate proceedings of the Corporation. Notwithstanding the foregoing, in no event shall an adjustment be made under
this clause (ii) if such adjustment would result in raising the then-effective Conversion Price.

	
 
	
(iii)
	
No adjustment in the Conversion Price shall be required unless the adjustment would require
an increase or decrease of at least 1% in the Conversion Price then in effect; provided, however, that any adjustments that
by reason of this paragraph 5(e)(iii) are not required to be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this paragraph 5(e) shall be made to the nearest cent or nearest 1/100th of a share. 

	
(iv)  
	
In the event that, at any time as a result of an adjustment made pursuant to paragraph 5(e)(i)
through 5(e)(iii) above, the holder of any share of the Series thereafter surrendered for conversion shall become entitled to receive any
shares of Capital Stock of the Corporation other than shares of the Common Stock, thereafter the number of such other shares so
receivable upon conversion of any share of the Series shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common Stock contained in paragraphs 5(e)(i) through 5(e)(iii)
above, and the other provisions of this paragraph 5(e) with respect to the Common Stock shall apply on like terms to any such other
shares.

(f) In case of any reclassification of the Common Stock (other than in a transaction to which paragraph
5(e)(i) applies), any consolidation of the Corporation with, or merger of the Corporation into, any other entity, any merger of another
entity into the Corporation (other than a merger that does not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Corporation), any sale or transfer of all or substantially all of the assets of the Corporation
or any compulsory share exchange, pursuant to which share exchange the Common Stock is converted into other securities, cash or
other property, then lawful provision shall be made as part of the terms of such transaction whereby the holder of each share of the
Series then outstanding shall have the right thereafter, during the period such share shall be convertible, to convert such share only into
the kind and amount of securities, cash and other property receivable upon the reclassification, consolidation, merger, sale, transfer or
share exchange by a holder of the number of shares of Common Stock of the Corporation into which a share of the Series might have
been converted immediately prior to the reclassification,

                                                 5

consolidation, merger, sale, transfer or share exchange assuming that such
holder of Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash or other property
receivable upon consummation of such transaction, subject to adjustment as provided in paragraph 5(e) above following the date of
consummation of such transaction. As a condition to any such transaction, the Corporation or the person formed by the consolidation or
resulting from the merger or which acquires such assets or which acquires the Corporation's shares, as the case may be, shall make
provisions in its certificate or articles of incorporation or other constituent document to (i) establish such right and (ii) ensure that any
such transaction does not, in and of itself, effect the holders' rights to the Liquidation Value. The certificate or articles of incorporation or
other constituent document shall provide for adjustments which, for events subsequent to the effective date of the certificate or articles
of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in
this paragraph 5. The provisions of this paragraph 5(f) shall similarly apply to successive reclassifications, consolidations, mergers,
sales, transfers or share exchanges.

(g) If:

	
 
	
(i) 
	
the Corporation shall take any action which would require an adjustment in the Conversion
Price pursuant to paragraph 5(e); or 

	
 
	
(ii)
	
the Corporation shall authorize the granting to the holders of its Common Stock generally of
rights, warrants or options to subscribe for or purchase any shares of any class or any other rights, warrants or options; or

	
 
	
(iii)
	
there shall be any reclassification or change of the Common Stock (other than a subdivision or
combination of its outstanding Common Stock or a change in par value) or any consolidation, merger or statutory share exchange to
which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or the sale or transfer of all
or substantially all of the assets of the Corporation; or 

	
 
	
(iv)
	
there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the
Corporation; 

then, the Corporation shall cause to be delivered to each Holder in accordance with the notice provisions of the
Exchange and Contribution Agreement, as promptly as possible, but at least 20 days prior to the applicable date hereinafter specified, a
notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights, warrants
or options or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend,
distribution or rights, warrants or options are to be determined, or (B) the date on which such reclassification, change, consolidation,
merger, statutory share exchange, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the
date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification, change, consolidation, merger, statutory share exchange, sale,
transfer, dissolution, liquidation or winding-up. Failure to give such notice or any defect therein shall not affect the legality or validity of
the proceedings described in this paragraph 5(g). 

(h) The Corporation shall promptly cause a notice of the adjusted Conversion Price to be delivered to
each Holder.

                                                 6

(i) In any case in which paragraph 5(e) provides that an adjustment shall become effective immediately
after a record date for an event and the date fixed for such adjustment pursuant to paragraph 5(e) occurs after such record date but
before the occurrence of such event, the Corporation may defer until the actual occurrence of such event issuing to the holder of any
Preferred Shares converted after such record date and before the occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment. 

(j)Subject to the proviso set forth in paragraph 5(c) hereof, the Corporation shall at all times reserve and
keep available for issuance upon the conversion of the shares of the Series the maximum number of each of its authorized but
unissued shares of Common Stock as is reasonably anticipated to be sufficient to permit the conversion of all outstanding shares of the
Series, and shall take all action required to increase the authorized number of shares of Common Stock, or any other actions necessary
or desirable, if at any time there shall be insufficient authorized but unissued shares of Common Stock to permit such reservation or to
permit the conversion of all outstanding shares of the Series.

6. Status of Shares. All Preferred Shares that are at any time converted pursuant to
paragraph 5 above, and all Preferred Shares that are otherwise reacquired by the Corporation and subsequently canceled by the Board
of Directors, shall be retired and shall not be subject to reissuance.

7. Voting Rights. Each share of the Series shall entitle the holder thereof to 3.5
votes for each Conversion Share into which such share of the Series is then Convertible, which on the initial date of issuance of the
Preferred Shares shall equal, when combined with the shares of Common Stock held by the initial Holder on the initial date of issuance
of the Preferred Shares, in the aggregate not less than 80% of the total votes of all outstanding shares of capital stock of the
Corporation, and shall otherwise have voting rights and powers equal to the voting rights and powers of the Common Stock (except as
otherwise expressly provided herein or as required by law), voting together with the Common Stock as a single class and shall be
entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes shall not, however, be
permitted, and any fractional voting rights (after aggregating all shares into which shares of the Series held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being rounded upward).

8. Restrictions and Limitations. 

So long as any Preferred Shares remain outstanding, the Corporation shall not, without the vote or written
consent by the holders of at least a majority of the outstanding Preferred Shares, voting together as a single class:

	
 
	
(i)
	
Redeem, purchase or otherwise acquire for value (or pay into or set aside for a sinking or other
analogous fund for such purpose) any share or shares of its Capital Stock, except for (a) a transaction in which all outstanding shares
of Preferred Stock are concurrently redeemed, purchased or otherwise acquired, (b) conversion into or exchange for shares of Capital
Stock of the Corporation that are both (x) Junior Liquidation Shares, and (y) no greater than pari passu with the Preferred
Shares with respect to the payment of dividends, or (c) the redemption of the 6% Preferred when due pursuant to the terms of this
Restated Certificate of Incorporation; provided, however, that this restriction shall not apply to the repurchase of shares of
Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any
subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at cost or at cost plus
interest at a rate not to exceed nine percent (9%) per annum, or, if lower than cost, at fair market value, upon the occurrence of certain
events, such as the termination of employment; and provided further, that the total amount applied to the repurchase of
shares of Common Stock shall not exceed $100,000 during any twelve month period; 

                                                 7

	
 
	
(ii)
	
alter, modify or amend (whether by merger or otherwise) the terms of the Series in any way;

	
 
	
(iii)
	
create (whether by merger or otherwise) any new series or class of Capital Stock ranking
pari passu with or having a preference over the Series as to redemption or distribution of assets upon a Liquidation
Event;

	
 
	
(iv)
	
increase (whether by merger or otherwise) the authorized number of shares of the Series;

	
 
	
(v)
	
re-issue (whether by merger or otherwise) any Preferred Shares which have been converted in
accordance with the terms hereof; 

	
 
	
(vi)
	
issue (whether by merger or otherwise) any securities of the Corporation ranking pari
passu with or senior to Preferred Shares as to rights upon a Liquidation Event; 

	
 
	
(vii)
	
issue (whether by merger or otherwise) any shares of the Series except pursuant to the terms
of the Exchange and Contribution Agreement;

	
 
	
(viii)
	
enter into any definitive agreement or commitment with respect to any of the foregoing;
or

	
 
	
(ix)
	
cause or permit any Subsidiary to engage in or enter into any definitive agreement or
commitment with respect to any of the foregoing.

In the event that the Holders of at least a majority of the outstanding Preferred Shares agree to allow the
Corporation to alter or change the rights, preferences or privileges of the Series pursuant to applicable law, no such change shall be
effective to the extent that, by its terms, such change applies to less than all of the Preferred Shares then outstanding.

9.Follow-on Investment.  Until October 4, 2009, the Holders of at least a majority of the Series outstanding
from time to time shall have the right to cause the Corporation to sell for cash to the Holders on a pro rata basis up to an aggregate of
$10,000,000 of Common Stock in one or more transactions at a 15% discount to the average closing price of the Common Stock (as
reported for consolidated transactions with respect to securities listed on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities
exchange, then in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System or such other system then in use or, if the Common Stock is not quoted by any such organization, then as furnished
by a New York Stock Exchange member firm selected by the Corporation) for the thirty (30) consecutive trading days immediately prior
to (but not including) the date of such purchase or purchases.  The Holders

                                                 8

may exercise such right by delivering in accordance with
the notice provisions of the Exchange and Contribution Agreement a written notice thereof to the Corporation specifying the amount of
Common Stock which the Holders intend to purchase.  The Corporation and the Holders shall cooperate to close such sale as soon as
reasonably practical after receipt by the Corporation of such notice.  Such sale shall be on terms and conditions customary for
transactions of this type.

10.Certain Definitions. As used in this Certificate, the following terms shall have the
following respective meanings:

"Affiliate" of any specified person means any other person directly or indirectly controlling
or controlled by or under common control with such specified person. For purposes of this definition, "control" when
used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether
through the ownership of voting securities or otherwise; and the term "controlling" and
"controlled" having meanings correlative to the foregoing.

"Capital Stock" of any person or entity means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests in the common stock or preferred stock of such person or
entity, including, without limitation, partnership and membership interests.

"Change of Control" means the existence or occurrence of any of the following: (a) the
sale, conveyance or disposition of all or substantially all of the assets of the Corporation; (b) the effectuation of a transaction or series of
related transactions in which more than fifty percent (50%) of the voting power of the Corporation is disposed of (other than as a direct
result of normal, uncoordinated trading activities in the Common Stock generally); (c) the consolidation, merger or other business
combination of the Corporation with or into any other entity, immediately following which the prior stockholders of the Corporation fail to
own, directly or indirectly, at least fifty percent (50%) of the voting equity of the surviving entity; (d) a transaction or series of
transactions in which any Person or "group" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
acquires more than fifty percent (50%) of the voting equity of the Corporation; (e) the replacement of a majority of the Board of Directors
with individuals who were not nominated or elected by at least a majority of the directors at the time of such replacement; or (f) a
transaction or series of transactions that constitutes or results in a "going private transaction" (as defined in Section 13(e) of
the Exchange Act and the regulations of the Commission issued thereunder).

"Conversion Price" means $0. 282508340410028, as adjusted from time to time pursuant
to the terms of paragraph 5.

"Current Market Price" means, when used with respect to any security as of any date, the
volume weighted average price of such security on the ten (10) consecutive trading days immediately preceding (but not including)
such date as reported for consolidated transactions with respect to securities listed on the principal national securities exchange on
which such security is listed or admitted to trading or, if such security is not listed or admitted to trading on any national securities
exchange, the volume weighted average price of such security on the ten (10) consecutive trading days immediately preceding (but not
including) such date in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System or such other system then in use or, if such security is not quoted by any such organization, the volume weighted
average price of such security as of the ten (10) consecutive trading days immediately preceding (but not including) such date furnished
by a New York Stock Exchange member firm selected by the Corporation, or if such security is not quoted by any such

                                                 9

organization and no such New York Stock Exchange member firm is able to provide such prices, such price as is determined by the Board of
Directors in good faith. 

"Holder" means any holder of Preferred Shares, all of such holders being the
"Holders."

"New Securities" means any Common Stock or preferred stock, whether or not
authorized on the date hereof, and rights, options or warrants to purchase Common Stock or preferred stock and securities of any type
whatsoever that are, or may become, convertible into Common Stock or preferred stock; provided, however, that "New
Securities" does not include the following:

(i) shares of Capital Stock of the Corporation issued or issuable upon conversion or exercise of any currently
outstanding securities;

(ii) shares or options or warrants for Common Stock granted to officers, directors and employees of, and
consultants to, the Corporation pursuant to stock option or purchase plans or other compensatory agreements approved by the Board
of Directors;

(iii) shares of Common Stock or preferred stock issued in connection with any pro rata stock split, stock dividend
or recapitalization by the Corporation;

(iv) shares of Capital Stock issued to a strategic investor in connection with a strategic commercial agreement
as determined by the Board of Directors;

(v) shares of Capital Stock issued to an investor in connection with a joint venture arrangement where the
Corporation is a participant;

(vi) shares of Capital Stock issued pursuant to the acquisition of another corporation or entity by the Corporation
by consolidation, merger, purchase of all or substantially all of the assets, or other reorganization in which the Corporation acquires, in
a single transaction or series of related transactions, all or substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity or fifty percent (50%) or more of the equity ownership of
such other corporation or entity;

(vii) shares of Capital Stock issued in an underwritten public securities offering pursuant to a registration
statement filed under the Securities Act of 1933, as amended;

(viii) shares of Capital Stock issued to current or prospective customers or suppliers of the Corporation
approved by the Board of Directors as compensation or accommodation in lieu of other payment, compensation or accommodation to
such customer or supplier;

(ix) shares of Capital Stock issued to any person that provides services to the Corporation as compensation
therefor pursuant to an agreement approved by the Board of Directors; 

(x) shares of Common Stock issued pursuant to paragraph 9; and

(xi) securities issuable upon conversion or exercise of the securities set forth in paragraphs (i) - (x) above.

[signature page follows]

                                                 10

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed on its behalf by its undersigned
Chairman and Chief Executive Officer as of October 4, 2007.

By:/s/ Ronald E. Lusk

 Name:Ronald E. Lusk

           Title:Chairman, Chief Executive Officer

                                                 11

ANNEX I

CONVERSION NOTICE

The undersigned hereby elects to convert shares of Series B Preferred Stock (the "Preferred
Stock"), represented by stock certificate No(s). ________ , into shares of common stock ("Common
Stock") of Lighting Science Group Corporation (the "Corporation") according to the
terms and conditions of the Certificate of Designation relating to the Preferred Stock (the "Certificate of
Designation"), as of the date written below. Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Certificate of Designation.

Conversion Date:

Number of Shares of Preferred Stock to be Converted:

Applicable Conversion Price:

Number of Shares of Common Stock to be Issued:

Name of Holder:

Address: 

Signature:______________________

                   Name:

                   Title:

Holder Requests Delivery to be made: (check one)

	 	
[  ]  By Delivery of Physical Certificates to the Above Address: __

	 	
[  ] Through Depository Trust Corporation: __ (Account No:
________________)

                                                 12

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