Document:

exv10w1

Exhibit 10.1

ARADIGM CORPORATION

Employee Stock Purchase Plan

Adopted April 16, 1996

Approved by the Shareholders on June 5, 1996

Amended by the Board of Directors on April 7, 1998

Approved by the Shareholders on May 15, 1998

Amended by the Board of Directors on February 2, 1999

Approved by the Shareholders on May 21, 1999

Amended by the Board of Directors on April 3, 2000

Approved by the Shareholders on May 19, 2000

Amended by the Board of Directors on April 2, 2001

Approved by the Shareholders on May 18, 2001

Amended by the Board of Directors on December 17, 2001

Approved by the Shareholders on February 8, 2002

Amended by the Board of Directors on February 19, 2003

Approved by the Shareholders on May 15, 2003

Amended by the Board of Directors on March 21, 2005

Approved by the Shareholders on May 19, 2005

Amended by the Board of Directors on April 4, 2008

Approved by the Shareholders on May 15, 2008

Amended by the Board of Directors on February 25, 2009

Approved by the Shareholders on May 15, 2009

Purpose

     The purpose of the Employee Stock Purchase Plan (the “Plan”) is to provide a means by which
employees of Aradigm Corporation, a California corporation (the “Company”), and its Affiliates, as
defined in subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be given
an opportunity to purchase stock of the Company.

     The word “Affiliate” as used in the Plan means any parent corporation or subsidiary
corporation of the Company, as those terms are defined in Sections 424(e) and (f), respectively, of
the Internal Revenue Code of 1986, as amended (the “Code”).

     The Company, by means of the Plan, seeks to retain the services of its employees, to secure
and retain the services of new employees, and to provide incentives for such persons to exert
maximum efforts for the success of the Company.

     The Company intends that the rights to purchase stock of the Company granted under the Plan be
considered options issued under an “employee stock purchase plan” as that term is defined in
Section 423(b) of the Code.

Administration

     The Plan shall be administered by the Board of Directors (the “Board”) of the Company unless
and until the Board delegates administration to a Committee, as provided in subparagraph 2(c).
Whether or not the Board has delegated administration, the Board shall have the final power to
determine all questions of policy and expediency that may arise in the administration of the Plan.

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     The Board shall have the power, subject to, and within the limitations of, the express
provisions of the Plan:

	 	•	 	To determine when and how rights to purchase stock of the Company shall be
granted and the provisions of each offering of such rights (which need not be
identical).
	 
	 	•	 	To designate from time to time which Affiliates of the Company shall be eligible
to participate in the Plan.
	 
	 	•	 	To construe and interpret the Plan and rights granted under it, and to establish,
amend and revoke rules and regulations for its administration. The Board, in the
exercise of this power, may correct any defect, omission or inconsistency in the
Plan, in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
	 
	 	•	 	To amend the Plan as provided in paragraph 13.
	 
	 	•	 	Generally, to exercise such powers and to perform such acts as the Board deems
necessary or expedient to promote the best interests of the Company and its
Affiliates and to carry out the intent that the Plan be treated as an “employee
stock purchase plan” within the meaning of Section 423 of the Code.

     The Board may delegate administration of the Plan to a Committee composed of not fewer than
two (2) members of the Board (the “Committee”) constituted in accordance with the requirements of
Rule 16b-3 under the Exchange Act. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers theretofore possessed by
the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the Committee at any time
and revest in the Board the administration of the Plan.

Shares Subject to the Plan

     Subject to the provisions of paragraph 12 relating to adjustments upon changes in stock, the
stock that may be sold pursuant to rights granted under the Plan shall not exceed in the aggregate
four million five hundred fifty thousand (4,550,000) shares of the Company’s common stock (the
“Common Stock”). If any right granted under the Plan shall for any reason terminate without having
been exercised, the Common Stock not purchased under such right shall again become available for
the Plan.

     The stock subject to the Plan may be unissued shares or reacquired shares, bought on the
market or otherwise.

Grant of Rights; Offering

     The Board or the Committee may from time to time grant or provide for the grant of rights to
purchase Common Stock of the Company under the Plan to eligible employees (an “Offering”) on a date
or dates (the “Offering Date(s)”) selected by the Board or the Committee. Each Offering shall be in
such form and shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of the Code that all
employees granted rights to purchase stock under the Plan shall have the same rights and
privileges. The terms and conditions of an Offering shall be incorporated by reference into the
Plan and treated as part of the Plan. The provisions of separate Offerings need not be identical,
but each Offering shall include (through incorporation of the provisions of this Plan by reference
in the document comprising the Offering or otherwise) the period during which the Offering shall be
effective, which period shall not exceed twenty-seven (27) months beginning with the Offering Date,
and the substance of the provisions contained in paragraphs 5 through 8, inclusive.

Eligibility

     Rights may be granted only to employees of the Company or, as the Board or the Committee may
designate as provided in subparagraph 2(b), to employees of any Affiliate of the Company. Except as
provided in subparagraph 5(b), an employee of the Company or any Affiliate shall not be eligible to
be granted rights under the Plan, unless, on the Offering Date, such employee has been in the
employ of the Company or any Affiliate for such continuous period preceding such grant as the Board
or the Committee may require, but in no event shall the required period of continuous employment be
equal to or greater than two (2) years. In addition, unless otherwise determined by the Board or
the Committee and set forth in the terms of the applicable Offering, no employee of the Company or
any

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Affiliate shall be eligible to be granted rights under the Plan, unless, on the Offering Date, such
employee’s customary employment with the Company or such Affiliate is for at least twenty (20)
hours per week and at least five (5) months per calendar year.

     The Board or the Committee may provide that, each person who, during the course of an
Offering, first becomes an eligible employee of the Company or designated Affiliate will, on a date
or dates specified in the Offering which coincides with the day on which such person becomes an
eligible employee or occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the same characteristics
as any rights originally granted under that Offering, as described herein, except that:

	 	•	 	the date on which such right is granted shall be the “Offering Date” of such
right for all purposes, including determination of the exercise price of such right;
	 
	 	•	 	the period of the Offering with respect to such right shall begin on its Offering
Date and end coincident with the end of such Offering; and
	 
	 	•	 	the Board or the Committee may provide that if such person first becomes an
eligible employee within a specified period of time before the end of the Offering,
he or she will not receive any right under that Offering.

     No employee shall be eligible for the grant of any rights under the Plan if, immediately after
any such rights are granted, such employee owns stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or of any Affiliate.
For purposes of this subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee may purchase under
all outstanding rights and options shall be treated as stock owned by such employee.

     An eligible employee may be granted rights under the Plan only if such rights, together with
any other rights granted under “employee stock purchase plans” of the Company and any Affiliates,
as specified by Section 423(b)(8) of the Code, do not permit such employee’s rights to purchase
stock of the Company or any Affiliate to accrue at a rate which exceeds twenty five thousand
dollars ($25,000) of fair market value of such stock (determined at the time such rights are
granted) for each calendar year in which such rights are outstanding at any time.

     Officers of the Company and any designated Affiliate shall be eligible to participate in
Offerings under the Plan, provided, however, that the Board may provide in an Offering that certain
employees who are highly compensated employees within the meaning of Section 423(b)(4)(D) of the
Code shall not be eligible to participate.

Rights; Purchase Price

     On each Offering Date, each eligible employee, pursuant to an Offering made under the Plan,
shall be granted the right to purchase up to the number of shares of Common Stock of the Company
purchasable with a percentage designated by the Board or the Committee not exceeding fifteen
percent (15%) of such employee’s Earnings (as defined by the Board or the Committee in each
Offering) during the period which begins on the Offering Date (or such later date as the Board or
the Committee determines for a particular Offering) and ends on the date stated in the Offering,
which date shall be no later than the end of the Offering. The Board or the Committee shall
establish one or more dates during an Offering (the “Purchase Date(s)”) on which rights granted
under the Plan shall be exercised and purchases of Common Stock carried out in accordance with such
Offering.

     In connection with each Offering made under the Plan, the Board or the Committee may specify a
maximum number of shares that may be purchased by any employee as well as a maximum aggregate
number of shares that may be purchased by all eligible employees pursuant to such Offering. In
addition, in connection with each Offering that contains more than one Purchase Date, the Board or
the Committee may specify a maximum aggregate number of shares which may be purchased by all
eligible employees on any given Purchase Date under the Offering. If the aggregate purchase of
shares upon exercise of rights granted under the Offering would exceed any such maximum

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aggregate number, the Board or the Committee shall make a pro rata allocation of the shares
available in as nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.

     The purchase price of stock acquired pursuant to rights granted under the Plan shall be not
less than the lesser of:

	 	•	 	an amount equal to eighty-five percent (85%) of the fair market value of the
stock on the Offering Date; or
	 
	 	•	 	an amount equal to eighty-five percent (85%) of the fair market value of the
stock on the Purchase Date.

Participation; Withdrawal; Termination

     An eligible employee may become a participant in the Plan pursuant to an Offering by
delivering a participation agreement to the Company within the time specified in the Offering, in
such form as the Company provides. Each such agreement shall authorize payroll deductions of up to
the maximum percentage specified by the Board or the Committee of such employee’s Earnings during
the Offering (as defined by the Board or Committee in each Offering). The payroll deductions made
for each participant shall be credited to an account for such participant under the Plan and shall
be deposited with the general funds of the Company. A participant may reduce (including to zero) or
increase such payroll deductions, and an eligible employee may begin such payroll deductions, after
the beginning of any Offering only as provided for in the Offering. A participant may make
additional payments into his or her account only if specifically provided for in the Offering and
only if the participant has not had the maximum amount withheld during the Offering.

     At any time during an Offering, a participant may terminate his or her payroll deductions
under the Plan and withdraw from the Offering by delivering to the Company a notice of withdrawal
in such form as the Company provides. Such withdrawal may be elected at any time prior to the end
of the Offering except as provided by the Board or the Committee in the Offering. Upon such
withdrawal from the Offering by a participant, the Company shall distribute to such participant all
of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have
been used to acquire stock for the participant) under the Offering, without interest, and such
participant’s interest in that Offering shall be automatically terminated. A participant’s
withdrawal from an Offering will have no effect upon such participant’s eligibility to participate
in any other Offerings under the Plan but such participant will be required to deliver a new
participation agreement in order to participate in subsequent Offerings under the Plan.

     Rights granted pursuant to any Offering under the Plan shall terminate immediately upon
cessation of any participating employee’s employment with the Company and any designated Affiliate,
for any reason, and the Company shall distribute to such terminated employee all of his or her
accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee) under the Offering, without interest.

     Rights granted under the Plan shall not be transferable by a participant otherwise than by
will or the laws of descent and distribution, or by a beneficiary designation as provided in
paragraph 14 and, otherwise during his or her lifetime, shall be exercisable only by the person to
whom such rights are granted.

Exercise

     On each Purchase Date specified therefor in the relevant Offering, each participant’s
accumulated payroll deductions and other additional payments specifically provided for in the
Offering (without any increase for interest) will be applied to the purchase of whole shares of
stock of the Company, up to the maximum number of shares permitted pursuant to the terms of the
Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional
shares shall be issued upon the exercise of rights granted under the Plan. The amount, if any, of
accumulated payroll deductions remaining in each participant’s account after the purchase of shares
which is less than the amount required to purchase one share of stock on the final Purchase Date of
an Offering shall be held in each such participant’s account for the purchase of shares under the
next Offering under the Plan, unless such participant withdraws from such next Offering, as
provided in subparagraph 7(b), or is no longer eligible to be granted rights under the Plan, as
provided in paragraph 5, in which case such amount shall be distributed to the participant after
such final Purchase Date, without interest. The amount, if any, of accumulated payroll deductions

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remaining in any participant’s account after the purchase of shares which is equal to the amount
required to purchase whole shares of stock on the final Purchase Date of an Offering shall be
distributed in full to the participant after such Purchase Date, without interest.

     No rights granted under the Plan may be exercised to any extent unless the shares to be issued
upon such exercise under the Plan (including rights granted thereunder) are covered by an effective
registration statement pursuant to the Securities Act of 1933, as amended (the “Securities Act”)
and the Plan is in material compliance with all applicable state, foreign and other securities and
other laws applicable to the Plan. If on a Purchase Date in any Offering hereunder the Plan is not
so registered or in such compliance, no rights granted under the Plan or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be delayed until the Plan is subject
to such an effective registration statement and such compliance, except that the Purchase Date
shall not be delayed more than twelve (12) months and the Purchase Date shall in no event be more
than twenty-seven (27) months from the Offering Date. If on the Purchase Date of any Offering
hereunder, as delayed to the maximum extent permissible, the Plan is not registered and in such
compliance, no rights granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such deductions have
been used to acquire stock) shall be distributed to the participants, without interest.

Covenants of the Company

     During the terms of the rights granted under the Plan, the Company shall keep available at all
times the number of shares of stock required to satisfy such rights.

     The Company shall seek to obtain from each federal, state, foreign or other regulatory
commission or agency having jurisdiction over the Plan such authority as may be required to issue
and sell shares of stock upon exercise of the rights granted under the Plan. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance and sale of stock
under the Plan, the Company shall be relieved from any liability for failure to issue and sell
stock upon exercise of such rights unless and until such authority is obtained.

Use of Proceeds from Stock

     Proceeds from the sale of stock pursuant to rights granted under the Plan shall constitute
general funds of the Company.

Rights as a Shareholder

     A participant shall not be deemed to be the holder of, or to have any of the rights of a
holder with respect to, any shares subject to rights granted under the Plan unless and until the
participant’s shareholdings acquired upon exercise of rights under the Plan are recorded in the
books of the Company.

Adjustments upon Changes in Stock

     If any change is made in the stock subject to the Plan, or subject to any rights granted under
the Plan (through merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will be appropriately
adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and
number of shares and price per share of stock subject to outstanding rights. Such adjustments shall
be made by the Board or the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall not be treated as a
“transaction not involving the receipt of consideration by the Company.”)

     In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or
consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which
the Company is the surviving corporation but the shares of the Company’s Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into other property, whether
in the form of securities, cash or otherwise; or (4) the acquisition by

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any person, entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act or any
comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored
or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the combined voting power
entitled to vote in the election of directors, then, as determined by the Board in its sole
discretion (i) any surviving or acquiring corporation may assume outstanding rights or substitute
similar rights for those under the Plan, (ii) such rights may continue in full force and effect, or
(iii) participants’ accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants’ rights under the ongoing Offering
terminated.

Amendment of the Plan

     The Board at any time, and from time to time, may amend the Plan. However, except as provided
in paragraph 12 relating to adjustments upon changes in stock, no amendment shall be effective
unless approved by the shareholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:

	 	•	 	Increase the number of shares reserved for rights under the Plan;
	 
	 	•	 	Modify the provisions as to eligibility for participation in the Plan (to the
extent such modification requires shareholder approval in order for the Plan to
obtain employee stock purchase plan treatment under Section 423 of the Code or to
comply with the requirements of Rule 16b-3 promulgated under the Exchange Act as
amended (“Rule 16b-3”)); or employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3 promulgated under the
Exchange Act as amended (“Rule 16b-3”)); or
	 
	 	•	 	Modify the Plan in any other way if such modification requires shareholder
approval in order for the Plan to obtain employee stock purchase plan treatment
under Section 423 of the Code or to comply with the requirements of Rule 16b-3.

     It is expressly contemplated that the Board may amend the Plan in any respect the Board deems
necessary or advisable to provide eligible employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated thereunder relating to
employee stock purchase plans and/or to bring the Plan and/or rights granted under it into
compliance therewith.

     Rights and obligations under any rights granted before amendment of the Plan shall not be
impaired by any amendment of the Plan, except with the consent of the person to whom such rights
were granted, or except as necessary to comply with any laws or governmental regulations, or except
as necessary to ensure that the Plan and/or rights granted under the Plan comply with the
requirements of Section 423 of the Code.

Designation of Beneficiary

     A participant may file a written designation of a beneficiary who is to receive any shares and
cash, if any, from the participant’s account under the Plan in the event of such participant’s
death subsequent to the end of an Offering but prior to delivery to the participant of such shares
and cash. In addition, a participant may file a written designation of a beneficiary who is to
receive any cash from the participant’s account under the Plan in the event of such participant’s
death during an Offering.

     Such designation of beneficiary may be changed by the participant at any time by written
notice. In the event of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant’s death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of the Company), the
Company, in its sole discretion, may deliver such shares and/or cash to the spouse or to any one or

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more dependents or relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.

Termination or Suspension of the Plan

     The Board in its discretion, may suspend or terminate the Plan at any time. No rights may be
granted under the Plan while the Plan is suspended or after it is terminated.

     Rights and obligations under any rights granted while the Plan is in effect shall not be
impaired by suspension or termination of the Plan, except as expressly provided in the Plan or with
the consent of the person to whom such rights were granted, or except as necessary to comply with
any laws or governmental regulation, or except as necessary to ensure that the Plan and/or rights
granted under the Plan comply with the requirements of Section 423 of the Code.

Effective Date of Plan

     The Plan shall become effective on the same day that the Company’s initial public offering of
shares of common stock becomes effective (the “Effective Date”), but no rights granted under the
Plan shall be exercised unless and until the Plan has been approved by the shareholders of the
Company within twelve (12) months before or after the date the Plan is adopted by the Board or the
Committee, which date may be prior to the Effective Date.

7exv10w1

Exhibit 10.1

CONVERTIBLE NOTE

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

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

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

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

          3. Advances.

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

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

          4. Use of Proceeds.

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

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

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

 

 

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

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

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

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

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

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

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

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

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

2

 

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

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

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

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

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

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

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

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

3

 

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

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

          17. Automatic Conversion; Purchase Option.

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

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

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

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

4

 

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

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

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

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

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

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

5

 

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

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

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

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

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

6

 

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

	 	 	 	 	 
	 	LIGHTING SCIENCE GROUP CORPORATION

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

	 	 	 	 	 
	ACCEPTED AND AGREED THIS 15th DAY OF MAY, 2009

PEGASUS PARTNERS IV, L.P.

 	 	 
	By:  	PEGASUS INVESTORS IV, LP,
 	 	 
	 	its general partner 	 	 
	 	 	 	 
	 	 	 
	By:  	                   PEGASUS INVESTORS IV GP, L.L.C.,
 	 	 
	 	its general partner 	 	 
	 	 	 	 
	 	 	 
	By:  	/s/
Richard Weinberg 	 	 
	 	Name:  	Richard Weinberg 	 	 
	 	Title:  	Vice President 	 	 
	 

Signature Page to Lighting Science Group Convertible Note

 

 

EXHIBIT A

SERIES D NON-CONVERTIBLE PREFERRED STOCK

(see attached)

Exhibit A

 

 

EXHIBIT B

WARRANT

(see attached)

Exhibit B

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