EXHIBIT 10.3

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

$900,000

   

Date of Issuance

 

 

   

June____, 2008

 

FOR VALUE RECEIVED, Golden Gate Investors, Inc., a California corporation (the”
Company”), hereby promises to pay Last Mile Logistics Group, Inc. (the
“Lender”), the principal sum of Nine Hundred Fifty Thousand Dollars ($900,000)
(the “Principal Amount”), plus interest calculated pursuant to Section 1 below.
Unless earlier 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 August 1, 2012 (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 Eight
Percent (8.0%) 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 15th 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 California 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 $9.049 per share or lower at any time during the six month anniversary of the
date hereof (as adjusted for any stock splits, stock dividends, combinations
subdivisions, recapitalizations or the

/s/ BPF

 

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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.

2.

Payment. All payments shall be made in lawful money of the United States of
America at the principal office of the Company, or as 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 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, 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 $200,000 ( 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

The Company may immediately sell all of the Common Stock Issued at Conversion
(as defined in the Debenture) pursuant to Rule 144 promulgated by the SEC (as
defined in the Debenture) pursuant to the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC having substantially the same effect as such Rule;

3.2

No Event of Default (as defined in the Debenture) has occurred under the
Debenture;

3.3

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 $0.049 per share (as adjusted for any stock splits, stock dividends,
combinations, subdivisions, recapitalizations or the like); and

3.4

The Lender shall have honored all Conversion Notices (as defined in the
Debenture) submitted by the Holder (as defined in the Debenture) within the
applicable time period set forth in the Debenture.

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

/s/ BPF

 

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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 and Periodic Prepayment
required hereunder give any right to the Lender to collect upon the Collateral
or otherwise collect any outstanding sums under this note.

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.

Security Interest

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, securities, promissory notes, debentures, money, and
investment property, whether held directly or through a securities intermediary,
and other obligations of any kind owed to the Company, however evidenced;

(b)

all inventory, including, without limitation, all materials, components, work in
progress, finished goods, merchandise, and all other goods which are held for
sale, lease or other disposition or furnished under contracts of service or
consumed in the Company’s business;

(c)

all equipment, including, without limitation, all machinery, furniture,
furnishings, fixtures, tools, parts, automobiles, trucks, and other vehicles,
appliances, computer and other electronic data processing equipment and other
office equipment, computer programs and related data processing software, and
all additions, substitutions, replacements, parts, accessories, and accessions
to and for the foregoing;

(d)

all books, records and other written electronic or other documentation in
whatever form maintained by or for the Company in connection with ownership of
its assets or the conduct of its business; and

(e)

all products and proceeds, including insurance proceeds, of any and all of the
foregoing.

Notwithstanding the foregoing, no security interest is granted in any contract
rights if such grant causes a default enforceable under applicable law or if a
third party has the right enforceable under applicable law to terminate the
Company’s rights under or with respect to any such contract and such third party
has exercised such right of termination.

/s/ BPF

 

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5.2

The security interest on the Collateral granted by this Note shall continue and
remain in effect until terminated pursuant to subsection 5.4 below.

5.3

The Company shall execute any further documents reasonably requested by Lender,
which are necessary or appropriate to perfect Lender’s security interest in the
Collateral.

5.4

Upon the Payoff Date, the security interest granted pursuant to this Section 5
shall terminate, and Lender shall promptly execute and deliver to the Company
such documents and instruments reasonable requested by the Company as shall be
necessary to evidence termination of all security interests given by the Company
to Lender hereunder.

5.5

So long as an Event of Default does not exist, the Company shall have the right
to possess the Collateral, manage its property and sell its inventory in the
ordinary course of business.

6.

Event of Default. An “Event of Default” shall exist under this Note upon the
happening of a failure of the Company to pay the Outstanding Principal Amount
and all other outstanding sums under this Note, including accrued and unpaid
interest thereon, on the Maturity Date, provided that such sums have not
previously been paid, at the Company’s sole option, prior to the Maturity Date,
which failure is not cured within 30 days after the Company’s receipt of written
notice thereof sent by Lender to the Company.  Any failure by the Company to pay
any Periodic Prepayment that may otherwise be due under this Note shall not be
an Event of Default under this Note.  Upon the occurrence of an Event of
Default, Lender shall have all of the rights and remedies afforded by the
Uniform Commercial Code as from time to time in effect in the State of
California or afforded by other applicable law.

7.

Subordination. The indebtedness evidenced by this Note shall be subordinated to
any Senior Indebtedness of the Company.  For the purposes of this Note, “Senior
Indebtedness” shall mean the principal of (and premium, if any) and unpaid
interest on, indebtedness of the Company, or with respect to which the Company
is a guarantor, to banks, insurance companies, lease financing institutions or
other lending or financial institutions regularly engaged in the business of
lending money, which is for money borrowed (or purchase or lease of equipment in
the case of lease financing) by the Company, and which is approved by the Board
of Directors of the Company, whether or not secured, and whether or not
previously incurred or incurred in the future. Senior Indebtedness shall include
all obligations of the Company pursuant to any modifications, renewals and
extensions of such Senior Indebtedness.  Lender acknowledges that the Company
may incur additional Senior Indebtedness and that such Senior Indebtedness shall
be senior in repayment preference to the Note.  Upon written request of the
Company, Lender agrees to execute a subordination agreement from any lender of
Senior Indebtedness in order to give effect to this Section 7.

8.

Amendments and Waivers; Cure Period. This Note may not be amended without the
prior written consent of each of the Company and the Lender.  Any waiver by the
Company or the Lender of a breach of any provision of this Note shall not
operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Note.  The failure of the
Company or the Lender to insist upon strict adherence

/s/ BPF

 

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to any term of this Note on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Note.  Any waiver by the
Company or the Lender must be in writing.  Any amendment or waiver effected in
accordance with this Section 8 shall be binding upon Lender and Lender’s
successors and assigns.  Any party to this Note shall have a cure period of not
less than thirty (30) days after receipt of written notice of any alleged breach
or default under the terms of this Note to cure such alleged breach or default.

9.

Transmittal of Notices. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same.  The addresses and facsimile numbers for such communications
shall be:

(1)

If to the Lender, to:

Last Mile Logistics Group, Inc.

6675 Anberton Drive

Elkridge, MD 21075

Telephone:

301-931-1771

Facsimile:

301-937-6810

(2)

If to the Company, to:

Golden Gate Investors, Inc.

1150 Silverado Street, Suite 220

La Jolla, California 92037

Telephone:

858-551-8789

Facsimile:

858-551-8779

Each of the Lender or the Company may change the foregoing address by notice
given pursuant to this Section 9.

10.

Successors and Assigns. This Note applies to, inures to the benefit of, and
binds the successors and assigns of the parties hereto.  Neither the Lender nor
the Company may assign its rights under this Note without the written consent of
the other party to this note, provided, however, that the Company may assign its
obligations under this Note to any Affiliate of the Company in the sole and
absolute discretion of the Company, without any prior consent by the Lender,
provided that such transferee or assignee agrees in writing to be bound by and
subject to the terms and conditions of this Note.  Upon any such transfer of the
Note by the Company or the Lender, the Lender shall, upon notice, surrender this
Note to the Company for reissuance of a new note to the transferee.  The Lender
and any subsequent holder of this Note receives this Note

/s/ BPF

 

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subject to the foregoing terms and conditions, and agrees to comply with the
foregoing terms and conditions for the benefit of the Company and any other
Lenders.

11.

Officers and Directors Not Liable. In no event shall any officer or director of
the Company be liable for any amounts due and payable pursuant to this Note.

12.

Expenses.  Should any party hereto employ an attorney for the purpose of
enforcing or construing this Note, or any judgment based on this Note, in any
legal proceeding whatsoever, including insolvency, bankruptcy, arbitration,
declaratory relief or other litigation, the prevailing party shall be entitled
to receive from the other party or parties thereto reimbursement for all
reasonable attorneys; fees and all reasonable costs, including but not limited
to service of process, filing fees, court and court reporter costs,
investigative costs, expert witness fees, and the cost of any bonds, whether
taxable or not (collectively, “Costs”), and that such reimbursement shall be
included in any judgment or final order issued in that proceeding.  The
“prevailing party” means the party determined by the court to most nearly
prevail and not necessarily the one in whose favor a judgment is rendered.

13.

Remedies Not Waived. No course of dealing between the parties hereto or any
delay in exercising any rights hereunder shall operate as a waiver by such
party.

14.

Governing Law.  This Note shall be governed by and construed under the laws of
the State of California as applied to other instruments made by California
residents to be performed entirely within the State of California. With respect
to any suit, action or proceedings relating to this Note, each of the Lender and
the Company irrevocably submits to the exclusive jurisdiction of the courts of
the State of California sitting in San Diego and the United States District
Court located in the City of San Diego and hereby waives, to the fullest extent
permitted by applicable law, any claim that any such suite action or proceeding
has been brought in an inconvenient forum.  Subject to applicable law, each of
the Company and the Lender agrees that final judgment against it in any legal
action or proceeding arising out of or relating to this Note shall be conclusive
and may be enforced in any other jurisdiction within or outside the United
States by suit on the judgment, a certified copy of which judgment shall be
conclusive evidence thereof and the amount of the indebtedness, or by such other
means provided by law.

/s/ BPF

 

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15.

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

IN WITNESS WHEREOF, the parties hereto have duly caused this Note to be executed
and delivered on the date first above written.

         

GOLDEN GATE INVESTORS, INC.

 

 

  

 

 

 

 

By:  

 

 

 

Name:

 

 

Its:

 

 

 

         

LAST MILE LOGISTICS GROUP, INC.

 

 

  

 

 

 

 

By:  

/s/ Brian P. Flood

 

 

Name: Brian P. Flood

 

 

Its: President

/s/ BPF

 

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