THIS NOTE HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE LENDER THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT
TO RULE 144 UNDER SUCH ACT.
SECURED PROMISSORY
NOTE
FOR VALUE RECEIVED, La Jolla Cove Investors,
Inc., a California corporation (the “Company”), hereby
promises to pay CSMG Technologies, Inc. (the “Lender”),
the principal sum of One Million Three Hundred Seventy Five
Thousand Dollars ($1,375,000) (the “Principal Amount”),
plus interest calculated pursuant to Section 1 below. Unless
earlier cancelled or paid under the terms hereof, the principal and
accrued interest shall be due and payable by the Company on demand
by the Lender at any time after November 30, 2011 (the
“Maturity Date”).
This Secured Promissory Note (the
“Note”) is issued in connection with that certain
Securities Purchase Agreement between the parties hereto, dated as
of the date hereof (the “Purchase Agreement”), and
capitalized terms not defined herein shall have the meaning set
forth in the Purchase Agreement.
1.
Interest . The Company promises to pay interest to
Lender at the rate of Six and One-Quarter Percent (6 ¼ %) per
annum, simple interest (subject to adjustment as provided below)
(the “Interest Rate”), on the outstanding principal
amount of this Note, which interest shall be calculated from the
date of this Note, until the date on which all amounts due and
payable on this Note are paid in full or this Note is otherwise
cancelled, (the “Payoff Date”). Interest hereunder
shall be paid on a monthly basis, commencing on the 15
th day of the month following the month of issuance of
this Note. All accrued and unpaid interest shall be due and payable
on the Payoff Date. All computations of interest shall be made on
the basis of a year of 365 or 366 days, as the case may be, for the
actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is
payable. Nothing contained in this Note shall require the Company
at any time to pay interest at a rate exceeding the maximum rate
allowable under applicable law and any payments in excess of such
maximum shall be refunded to the Company or credited to reduce the
principal amount hereunder. Notwithstanding the foregoing, in the
event that the Lender’s Common Stock (the “Common
Stock”) shall trade on the Trading Market (as defined in the
Debenture) or the over the counter market via the “pink
sheets” at a price per share that is $0.245 per share or
lower at any time during the six month period commencing on the
date hereof and ending on the six month anniversary of the date
hereof (as adjusted for any stock splits, stock dividends,
combinations, subdivisions, recapitalizations or the like), then
the Interest Rate shall immediately be decreased to Four and
Three-Quarters Percent (4 ¾ %) and shall remain at such level
for the duration of this Note.
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2.
Payment . All payments shall be made in lawful
money of the United States of America at the principal office of
the Company, or at such other place as the holder hereof may from
time to time designate in writing to the Company. Payment shall be
credited first to Costs (as defined below), if any, then to accrued
interest due and payable and any remainder applied to principal.
Prepayment of principal, in part or in full, together with accrued
interest, may be made from time to time without penalty in the sole
discretion of the Company without the Lender’s
consent.
3.
Prepayment Obligation
. Notwithstanding the option
of the Company to prepay any portion of this Note, as set forth in
Section 2 hereof, the Company shall prepay commencing six months
after the date hereof, on a monthly basis, on any date(s) of such
month during which this Note remains outstanding (each date
referred to herein as the “Periodic Prepayment Date”),
an amount equal to not less than $250,000 (or such lesser amount
that equals the remaining outstanding principal and accrued and
unpaid interest under this Note), with the amount, if any, in
excess of such sum to be determined by and in the sole and absolute
discretion of the Company, until all principal and accrued and
unpaid interest under this Note has been paid, subject to the
satisfaction of each of the following conditions on each Periodic
Prepayment Date:
3.1 No Event of Default (as defined in the
Debenture) has occurred under the Debenture; and
3.2 The average Volume Weighted Average Price (as
defined in the Debenture) per share of the Lender’s Common
Stock for every period of ten consecutive Trading Days (as defined
in the Debenture) during the term of this Note shall not be less
than $0.25 per share (as adjusted for any stock splits, stock
dividends, combinations, subdivisions, recapitalizations or the
like).
The amount of any such prepayment made by the
Company under the terms of this Section 3 (each such prepayment
referred to herein as a “Periodic Prepayment”) shall be
credited first to Costs, if any, then to accrued interest due and
payable under this Note and the remainder applied to principal. Any
prepayment made by the Company under this Note in excess of any
otherwise required Periodic Prepayment may be applied to any future
required Periodic Prepayment at the option of the Company, subject
to the sole and absolute discretion of the Company. In the event
that the Company fails to deliver any Periodic Prepayment that is
otherwise required under the terms of this Section 3, the
Lender’s sole and exclusive remedy shall be limited to the
Interest Rate being increased by 0.25 percentage points per
Periodic Prepayment required under this Section 3 that is not paid
by the Company to the Lender, provided however, that in no event
shall the Interest Rate exceed an amount equal to twelve and
one-half percent (12.5%). In no event shall any failure by the
Company to pay any Periodic Prepayment required hereunder give any
right to the Lender to collect upon the Collateral or otherwise
collect any outstanding sums under this Note.
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4.
Recourse . Each party hereto accepts and agrees
that this Note is a full recourse promissory note and that subject
to the terms of this Note, Lender may exercise any and all remedies
available to it under law.
5.1 To secure the payment and performance of the
Company’s obligations under this Note, provided however that
any obligations of the Company to prepay any amounts under this
Note pursuant to Section 3 are not so secured, the Company hereby
grants to Lender a security interest in the Company’s entire
right, title, and interest in and to all of the following, wherever
located and whether now existing or owned or hereafter acquired or
arising (collectively, the “Collateral”):
(a) all accounts, accounts receivable, contract
rights, rights to payment, letters of credit, documents,
securiti
