Exhibit 10.24

 

THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS.  THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
STONEPATH GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

 

SECURED CONVERTIBLE MINIMUM BORROWING NOTE

 

FOR VALUE RECEIVED, each of STONEPATH GROUP, INC., a Delaware corporation (the
“Parent”), and the other companies listed on Exhibit A attached hereto (such
other companies together with the Parent, each a “Company” and collectively, the
“Companies”), jointly and severally, promises to pay to LAURUS MASTER FUND,
LTD., c/o M&C Corporate Services Limited, P.O. Box 309 GT, Ugland House, South
Church Street, George Town, Grand Cayman, Cayman Islands, Fax: 345-949-8080 (the
“Holder”) or its registered assigns or successors in interest, the sum of Ten
Million Dollars ($10,000,000), or, if different, the aggregate principal amount
of all Loans (as defined in the Security Agreement referred to below) allocated
hereto, together with any accrued and unpaid interest hereon, on August 30, 2008
(the “Maturity Date”) if not sooner paid.

 

This Secured Convertible Minimum Borrowing Note (this “Note”) is intended to be
a registered obligation within the meaning of Treasury Regulation
Section 1.871-14(c)(1)(i) and each Company (or its agent) shall register this
Note (and thereafter shall maintain such registration) as to both principal and
any stated interest.  Notwithstanding any document, instrument or agreement
relating to this Note to the contrary, transfer of this Note (or the right to
any payments of principal or stated interest thereunder) may only be effected by
(i) surrender of this Note and either the reissuance by the Company of this Note
to the new holder or the issuance by the Company of a new instrument to the new
holder, or (ii) transfer through a book entry system maintained by the Company
(or its agent), within the meaning of Treasury Regulation
Section 1.871-14(c)(1)(i)(B).

 

Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Security Agreement among the Companies and the
Holder dated as of the date hereof (as amended, modified and/or supplemented
from time to time, the “Security Agreement”).

 

The following terms shall apply to this Note:

 

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ARTICLE I
CONTRACT RATE

 

1.1                                 CONTRACT RATE.  SUBJECT TO SECTIONS 4.2 AND
5.10, INTEREST PAYABLE ON THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE (THE
“PRINCIPAL AMOUNT”) SHALL ACCRUE AT A RATE PER ANNUM EQUAL TO THE “PRIME RATE”
PUBLISHED IN THE WALL STREET JOURNAL FROM TIME TO TIME (THE “PRIME RATE”), PLUS
ONE PERCENT (1%) (THE “CONTRACT RATE”).  THE CONTRACT RATE SHALL BE INCREASED OR
DECREASED AS THE CASE MAY BE FOR EACH INCREASE OR DECREASE IN THE PRIME RATE IN
AN AMOUNT EQUAL TO SUCH INCREASE OR DECREASE IN THE PRIME RATE; EACH CHANGE TO
BE EFFECTIVE AS OF THE DAY OF THE CHANGE IN THE PRIME RATE.  SUBJECT TO
SECTION 1.2, THE CONTRACT RATE SHALL NOT AT ANY TIME BE LESS THAN AN ANNUAL RATE
OF FIVE AND ONE-HALF PERCENT (5.50%).  INTEREST SHALL BE (I) PAYABLE ON
SEPTEMBER 1, 2005 AND ON THE FIRST BUSINESS DAY OF EACH CONSECUTIVE CALENDAR
MONTH THEREAFTER THROUGH AND INCLUDING THE MATURITY DATE AND ON THE MATURITY
DATE, WHETHER BY ACCELERATION OR OTHERWISE.

 

1.2                                 CONTRACT RATE ADJUSTMENTS AND PAYMENTS.  THE
CONTRACT RATE SHALL BE CALCULATED ON THE LAST BUSINESS DAY OF EACH CALENDAR
MONTH HEREAFTER (OTHER THAN FOR INCREASES OR DECREASES IN THE PRIME RATE WHICH
SHALL BE CALCULATED AND BECOME EFFECTIVE IN ACCORDANCE WITH THE TERMS OF
SECTION 1.1) UNTIL THE MATURITY DATE (EACH A “DETERMINATION DATE”) AND SHALL BE
SUBJECT TO ADJUSTMENT AS SET FORTH HEREIN.  IF (I) THE PARENT SHALL HAVE
REGISTERED THE SHARES OF THE COMMON STOCK UNDERLYING THE CONVERSION OF THIS NOTE
AND EACH WARRANT ON A REGISTRATION STATEMENT DECLARED EFFECTIVE BY THE
SECURITIES AND EXCHANGE COMMISSION (THE “SEC”), AND (II) THE MARKET PRICE (THE
“MARKET PRICE”) OF THE COMMON STOCK AS REPORTED BY BLOOMBERG, L.P. ON THE
PRINCIPAL MARKET FOR THE FIVE (5) TRADING DAYS IMMEDIATELY PRECEDING A
DETERMINATION DATE EXCEEDS THE THEN APPLICABLE FIXED CONVERSION PRICE BY AT
LEAST TWENTY-FIVE PERCENT (25%), THE CONTRACT RATE FOR THE SUCCEEDING CALENDAR
MONTH SHALL AUTOMATICALLY BE REDUCED BY 200 BASIS POINTS (200 B.P.) (2%) FOR
EACH INCREMENTAL TWENTY-FIVE PERCENT (25%) INCREASE IN THE MARKET PRICE OF THE
COMMON STOCK ABOVE THE THEN APPLICABLE FIXED CONVERSION PRICE.  NOTWITHSTANDING
THE FOREGOING (AND ANYTHING TO THE CONTRARY CONTAINED HEREIN), IN NO EVENT SHALL
THE CONTRACT RATE AT ANY TIME BE LESS THAN ZERO PERCENT (0%).

 

ARTICLE II
LOANS; PAYMENTS UNDER THIS NOTE

 

2.1                                 LOANS.  ALL LOANS EVIDENCED BY THIS NOTE
SHALL BE MADE IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF THE SECURITY
AGREEMENT.

 

2.2                                 NO EFFECTIVE REGISTRATION.  NOTWITHSTANDING
ANYTHING TO THE CONTRARY HEREIN, THE HOLDER SHALL NOT BE REQUIRED TO ACCEPT
SHARES OF COMMON STOCK AS PAYMENT FOLLOWING A CONVERSION BY THE HOLDER IF THERE
FAILS TO EXIST AN EFFECTIVE CURRENT REGISTRATION STATEMENT (AS DEFINED IN THE
REGISTRATION RIGHTS AGREEMENT) COVERING THE SHARES OF COMMON STOCK TO BE ISSUED,
OR IF AN EVENT OF DEFAULT HEREUNDER EXISTS AND IS CONTINUING, UNLESS SUCH
REQUIREMENT IS OTHERWISE WAIVED IN WRITING BY THE HOLDER IN WHOLE OR IN PART AT
THE HOLDER’S OPTION.

 

2.3                                 OPTIONAL REDEMPTION IN CASH.  THE COMPANIES
WILL HAVE THE OPTION OF PREPAYING THIS NOTE (“OPTIONAL REDEMPTION”) BY PAYING TO
THE HOLDER A SUM OF MONEY EQUAL TO ONE HUNDRED TWENTY PERCENT (120%) OF THE
PRINCIPAL AMOUNT OF THIS NOTE TOGETHER WITH ACCRUED

 

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but unpaid interest thereon and any and all other sums due, accrued or payable
to the Holder arising under this Note, the Security Agreement, or any other
Ancillary Agreement (the “Redemption Amount”) outstanding on the Redemption
Payment Date (as defined below).  The Company shall deliver to the Holder a
written notice of redemption (the “Notice of Redemption”) specifying the date
for such Optional Redemption (the “Redemption Payment Date”), which date shall
be seven (7) days after the date of the Notice of Redemption (the “Redemption
Period”).  A Notice of Redemption shall not be effective with respect to any
portion of this Note for which the Holder has previously delivered a Notice of
Conversion (defined below) pursuant to Section 3.1, or for conversions elected
to be made by the Holder pursuant to Section 3.1 during the Redemption Period. 
The Redemption Amount shall be determined as if such Holder’s conversion
elections had been completed immediately prior to the date of the Notice of
Redemption.  On the Redemption Payment Date, the Redemption Amount (plus any
additional interest and fees accruing on the Notes during the Redemption Period)
must be irrevocably paid in full in immediately available funds to the Holder. 
In the event the Companies fail to pay the Redemption Amount on the Redemption
Payment Date, then such Redemption Notice shall be null and void.

 

ARTICLE III
CONVERSION RIGHTS AND FIXED CONVERSION PRICE

 

3.1                                 OPTIONAL CONVERSION. SUBJECT TO THE TERMS OF
THIS ARTICLE III, THE HOLDER SHALL HAVE THE RIGHT, BUT NOT THE OBLIGATION, AT
ANY TIME UNTIL THE MATURITY DATE, OR DURING AN EVENT OF DEFAULT (AS DEFINED IN
ARTICLE IV), AND, SUBJECT TO THE LIMITATIONS SET FORTH IN SECTION 3.2 HEREOF, TO
CONVERT ALL OR ANY PORTION OF THE OUTSTANDING PRINCIPAL AMOUNT AND/OR ACCRUED
INTEREST AND FEES DUE AND PAYABLE INTO FULLY PAID AND NONASSESSABLE SHARES OF
THE COMMON STOCK AT THE FIXED CONVERSION PRICE.  FOR PURPOSES HEREOF, SUBJECT TO
SECTION 3.6 HEREOF, THE INITIAL “FIXED CONVERSION PRICE” MEANS $1.08, WHICH HAS
BEEN DETERMINED ON THE DATE OF THIS NOTE AS AN AMOUNT EQUAL TO 115% OF THE
AVERAGE CLOSING PRICE OF THE COMMON STOCK FOR THE TEN (10) TRADING DAYS
IMMEDIATELY PRIOR TO THE DATE OF THIS NOTE BUT IN NO EVENT GREATER THAN 120% OF
THE CLOSING PRICE ON THE CLOSING DATE.  THE SHARES OF COMMON STOCK TO BE ISSUED
UPON SUCH CONVERSION ARE HEREIN REFERRED TO AS THE “CONVERSION SHARES.”

 

3.2                                 CONVERSION LIMITATION.  NOTWITHSTANDING
ANYTHING CONTAINED HEREIN TO THE CONTRARY, THE HOLDER SHALL NOT BE ENTITLED TO
CONVERT PURSUANT TO THE TERMS OF THIS NOTE AN AMOUNT THAT WOULD BE CONVERTIBLE
INTO THAT NUMBER OF CONVERSION SHARES WHICH WOULD EXCEED THE DIFFERENCE BETWEEN
(I) 4.99% OF THE OUTSTANDING SHARES OF COMMON STOCK AND (II) THE NUMBER OF
SHARES OF COMMON STOCK BENEFICIALLY OWNED BY THE HOLDER.  FOR PURPOSES OF THE
IMMEDIATELY PRECEDING SENTENCE, BENEFICIAL OWNERSHIP SHALL BE DETERMINED IN
ACCORDANCE WITH SECTION 13(D) OF THE EXCHANGE ACT AND REGULATION 13D-3
THEREUNDER.  THE CONVERSION SHARES LIMITATION DESCRIBED IN THE FIRST SENTENCE OF
THIS SECTION 3.2 SHALL AUTOMATICALLY BECOME NULL AND VOID FOLLOWING NOTICE TO
ANY COMPANY UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF
DEFAULT, OR UPON 75 DAYS PRIOR NOTICE TO THE PARENT, EXCEPT THAT AT NO TIME
SHALL THE NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED BY THE HOLDER
EXCEED 19.99% OF THE OUTSTANDING SHARES OF COMMON STOCK.  NOTWITHSTANDING
ANYTHING CONTAINED HEREIN TO THE CONTRARY, THE NUMBER OF SHARES OF COMMON STOCK
ISSUABLE BY THE PARENT AND ACQUIRABLE BY THE HOLDER AT A PRICE BELOW $0.91 PER
SHARE PURSUANT TO THE TERMS OF THIS NOTE, THE SECURITY AGREEMENT OR ANY OTHER
ANCILLARY AGREEMENT, SHALL NOT EXCEED AN AGGREGATE OF 8,738,173 SHARES OF COMMON
STOCK

 

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(subject to appropriate adjustment for stock splits, stock dividends, or other
similar recapitalizations affecting the Common Stock) (the “Maximum Common Stock
Issuance”), unless the issuance of Common Stock hereunder in excess of the
Maximum Common Stock Issuance shall first be approved by the Parent’s
shareholders.  If at any point in time and from time to time the number of
shares of Common Stock issued pursuant to the terms of this Note, the Security
Agreement or any other Ancillary Agreement, together with the number of shares
of Common Stock that would then be issuable by the Parent to the Holder in the
event of a conversion or exercise pursuant to the terms of this Note, the
Security Agreement or any other Ancillary Agreement, would exceed the Maximum
Common Stock Issuance but for this Section 3.2, the Parent shall promptly call a
shareholders meeting to consider the shareholder approval.  The Holder shall not
be entitled to vote its shares for any proposal for the issuance of shares of
Common Stock in excess of the Maximum Common Stock Issuance.  Notwithstanding
anything contained herein to the contrary, the provisions of this Section 3.2
are irrevocable and may not be waived by the Holder or any Company.

 

3.3                                 MECHANICS OF HOLDER’S CONVERSION.  IN THE
EVENT THAT THE HOLDER ELECTS TO CONVERT THIS NOTE INTO COMMON STOCK, THE HOLDER
SHALL GIVE NOTICE OF SUCH ELECTION BY DELIVERING AN EXECUTED AND COMPLETED
NOTICE OF CONVERSION IN SUBSTANTIALLY THE FORM OF EXHIBIT B HERETO
(APPROPRIATELY COMPLETED) (“NOTICE OF CONVERSION”) TO THE PARENT AND SUCH NOTICE
OF CONVERSION SHALL PROVIDE A BREAKDOWN IN REASONABLE DETAIL OF THE PRINCIPAL
AMOUNT, ACCRUED INTEREST AND FEES THAT ARE BEING CONVERTED.  ON EACH CONVERSION
DATE (AS HEREINAFTER DEFINED) AND IN ACCORDANCE WITH ITS NOTICE OF CONVERSION,
THE HOLDER SHALL MAKE THE APPROPRIATE REDUCTION TO THE PRINCIPAL AMOUNT, ACCRUED
INTEREST AND FEES AS ENTERED IN ITS RECORDS AND SHALL PROVIDE WRITTEN NOTICE
THEREOF TO THE PARENT WITHIN TWO (2) BUSINESS DAYS AFTER THE CONVERSION DATE. 
EACH DATE ON WHICH A NOTICE OF CONVERSION IS DELIVERED OR TELECOPIED TO THE
PARENT IN ACCORDANCE WITH THE PROVISIONS HEREOF SHALL BE DEEMED A CONVERSION
DATE (THE “CONVERSION DATE”).  PURSUANT TO THE TERMS OF THE NOTICE OF
CONVERSION, THE PARENT WILL ISSUE INSTRUCTIONS TO THE TRANSFER AGENT ACCOMPANIED
BY AN OPINION OF COUNSEL WITHIN THREE (3) BUSINESS DAYS OF THE DATE OF THE
DELIVERY TO THE PARENT OF THE NOTICE OF CONVERSION AND SHALL CAUSE THE TRANSFER
AGENT TO TRANSMIT THE CERTIFICATES REPRESENTING THE CONVERSION SHARES TO THE
HOLDER BY (1) IN THE EVENT THE CONVERSION SHARES ARE NOT COVERED BY A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE BY THE SEC OR ARE NOT
OTHERWISE SUBJECT TO EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT,
DELIVERING SUCH ORIGINAL CERTIFICATES DIRECTLY TO THE HOLDER OR (2) IN THE EVENT
THE CONVERSION SHARES ARE COVERED BY A REGISTRATION STATEMENT THAT HAS BEEN
DECLARED EFFECTIVE BY THE SEC OR ARE OTHERWISE SUBJECT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT, CREDITING THE ACCOUNT OF THE HOLDER’S
DESIGNATED BROKER WITH THE DEPOSITORY TRUST CORPORATION (“DTC”) THROUGH ITS
DEPOSIT WITHDRAWAL AGENT COMMISSION (“DWAC”) SYSTEM, IN EACH CASE, WITHIN THREE
(3) BUSINESS DAYS AFTER RECEIPT BY THE PARENT OF THE NOTICE OF CONVERSION (THE
“DELIVERY DATE”).  IN THE CASE OF THE EXERCISE OF THE CONVERSION RIGHTS SET
FORTH HEREIN THE CONVERSION PRIVILEGE SHALL BE DEEMED TO HAVE BEEN EXERCISED AND
THE CONVERSION SHARES ISSUABLE UPON SUCH CONVERSION SHALL BE DEEMED TO HAVE BEEN
ISSUED UPON THE DATE OF RECEIPT BY THE PARENT OF THE NOTICE OF CONVERSION.  THE
HOLDER SHALL BE TREATED FOR ALL PURPOSES AS THE RECORD HOLDER OF THE CONVERSION
SHARES, UNLESS THE HOLDER PROVIDES THE PARENT WRITTEN INSTRUCTIONS TO THE
CONTRARY.

 

3.4                                 LATE PAYMENTS.  EACH COMPANY UNDERSTANDS
THAT A DELAY IN THE DELIVERY OF THE CONVERSION SHARES IN THE FORM REQUIRED
PURSUANT TO THIS ARTICLE BEYOND THE DELIVERY DATE COULD RESULT IN ECONOMIC LOSS
TO THE HOLDER.  AS COMPENSATION TO THE HOLDER FOR SUCH LOSS, IN

 

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ADDITION TO ALL OTHER RIGHTS AND REMEDIES WHICH THE HOLDER MAY HAVE UNDER THIS
NOTE, APPLICABLE LAW OR OTHERWISE, THE COMPANIES SHALL, JOINTLY AND SEVERALLY,
PAY LATE PAYMENTS TO THE HOLDER FOR ANY LATE ISSUANCE OF CONVERSION SHARES IN
THE FORM REQUIRED PURSUANT TO THIS ARTICLE III UPON CONVERSION OF THIS NOTE, IN
THE AMOUNT EQUAL TO $150 PER BUSINESS DAY AFTER THE DELIVERY DATE.  THE
COMPANIES SHALL, JOINTLY AND SEVERALLY, MAKE ANY PAYMENTS INCURRED UNDER THIS
SECTION IN IMMEDIATELY AVAILABLE FUNDS UPON DEMAND.

 

3.5                                 CONVERSION MECHANICS.  THE NUMBER OF SHARES
OF COMMON STOCK TO BE ISSUED UPON EACH CONVERSION OF THIS NOTE SHALL BE
DETERMINED BY DIVIDING THAT PORTION OF THE PRINCIPAL AND INTEREST AND FEES TO BE
CONVERTED, IF ANY, BY THE THEN APPLICABLE FIXED CONVERSION PRICE.

 

3.6                                 ADJUSTMENT PROVISIONS. THE FIXED CONVERSION
PRICE AND NUMBER AND KIND OF SHARES OR OTHER SECURITIES TO BE ISSUED UPON
CONVERSION DETERMINED PURSUANT TO SECTION 3.1 SHALL BE SUBJECT TO ADJUSTMENT
FROM TIME TO TIME UPON THE OCCURRENCE OF CERTAIN EVENTS DURING THE PERIOD THAT
THIS CONVERSION RIGHT REMAINS OUTSTANDING, AS FOLLOWS:

 

(A)                                  RECLASSIFICATION.  IF THE PARENT AT ANY
TIME SHALL, BY RECLASSIFICATION OR OTHERWISE, CHANGE THE COMMON STOCK INTO THE
SAME OR A DIFFERENT NUMBER OF SECURITIES OF ANY CLASS OR CLASSES, THIS NOTE, AS
TO THE UNPAID PRINCIPAL AMOUNT AND ACCRUED INTEREST THEREON, SHALL THEREAFTER BE
DEEMED TO EVIDENCE THE RIGHT TO PURCHASE AN ADJUSTED NUMBER OF SUCH SECURITIES
AND KIND OF SECURITIES AS WOULD HAVE BEEN ISSUABLE AS THE RESULT OF SUCH CHANGE
WITH RESPECT TO THE COMMON STOCK (I) IMMEDIATELY PRIOR TO OR (II) IMMEDIATELY
AFTER SUCH RECLASSIFICATION OR OTHER CHANGE AT THE SOLE ELECTION OF THE HOLDER.

 

(B)                                 STOCK SPLITS, COMBINATIONS AND DIVIDENDS. 
IF THE SHARES OF COMMON STOCK ARE SUBDIVIDED OR COMBINED INTO A GREATER OR
SMALLER NUMBER OF SHARES OF COMMON STOCK, OR IF A DIVIDEND IS PAID ON THE COMMON
STOCK OR ANY PREFERRED STOCK ISSUED BY THE PARENT IN SHARES OF COMMON STOCK, THE
FIXED CONVERSION PRICE SHALL BE PROPORTIONATELY REDUCED IN CASE OF SUBDIVISION
OF SHARES OR STOCK DIVIDEND OR PROPORTIONATELY INCREASED IN THE CASE OF
COMBINATION OF SHARES, IN EACH SUCH CASE BY THE RATIO WHICH THE TOTAL NUMBER OF
SHARES OF COMMON STOCK OUTSTANDING IMMEDIATELY AFTER SUCH EVENT BEARS TO THE
TOTAL NUMBER OF SHARES OF COMMON STOCK OUTSTANDING IMMEDIATELY PRIOR TO SUCH
EVENT.

 

(C)                                  SHARE ISSUANCES.  SUBJECT TO THE PROVISIONS
OF THIS SECTION 3.6, IF THE PARENT SHALL AT ANY TIME PRIOR TO THE CONVERSION OR
REPAYMENT IN FULL OF THE PRINCIPAL AMOUNT ISSUE ANY SHARES OF COMMON STOCK OR
SECURITIES CONVERTIBLE INTO COMMON STOCK TO A PERSON OTHER THAN THE HOLDER
(EXCEPT (I) PURSUANT TO SECTIONS 3.6(A) OR (B) ABOVE; (II) PURSUANT TO OPTIONS,
WARRANTS, OR OTHER OBLIGATIONS TO ISSUE SHARES OUTSTANDING ON THE DATE HEREOF AS
DISCLOSED TO THE HOLDER IN WRITING; (III) PURSUANT TO OPTIONS AND AWARDS THAT
MAY BE ISSUED UNDER ANY EMPLOYEE INCENTIVE STOCK OPTION AND/OR ANY QUALIFIED
STOCK OPTION PLAN ADOPTED BY THE PARENT, OR (IV) PURSUANT TO ANY ACQUISITION
WITH THE PRIOR WRITTEN CONSENT OF THE HOLDER (THE ISSUANCES SET FORTH IN THE
FOREGOING CLAUSES “(I)” THROUGH “(IV)” SHALL HEREAFTER BE REFERRED TO AS
“EXCLUDED ISSUANCES”)) FOR A CONSIDERATION PER SHARE (THE “OFFER PRICE”) LESS
THAN THE FIXED CONVERSION PRICE IN EFFECT AT THE TIME OF SUCH ISSUANCE, THEN THE
FIXED CONVERSION PRICE SHALL BE IMMEDIATELY RESET PURSUANT TO THE FORMULA BELOW.
FOR PURPOSES HEREOF, THE ISSUANCE OF ANY SECURITY OF THE PARENT CONVERTIBLE INTO
OR EXERCISABLE OR EXCHANGEABLE FOR COMMON STOCK (OTHER THAN FOR EXCLUDED
ISSUANCES) SHALL

 

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result in an adjustment to the Fixed Conversion Price upon the issuance of such
securities pursuant to the formula below.

 

If the Parent issues any additional shares of Common Stock (other than for
Excluded Issuances) for a consideration per share less than the then-applicable
Fixed Conversion Price pursuant to this Section 3.6 then, and thereafter
successively upon each such issue, the Fixed Conversion Price shall be adjusted
by multiplying the then applicable Fixed Conversion Price by the following
fraction:

 

 

 

A + B

 

 

 

 

(A + B) + [((C — D) x B) / C]

 

 

 

A =  Total amount of shares convertible pursuant to the Notes

 

B =  Actual shares sold in the offering

 

C =  Fixed Conversion Price

 

D =  Offer Price

 

For purposes hereof, the issuance of any security of the Parent convertible into
or exercisable or exchangeable for Common Stock (other than for Excluded
Issuances) shall result in an adjustment to the Fixed Conversion Price upon the
issuance of such securities.

 

(D)                                 COMPUTATION OF CONSIDERATION.  FOR PURPOSES
OF ANY COMPUTATION RESPECTING CONSIDERATION RECEIVED PURSUANT TO
SECTION 3.6(C) ABOVE, THE FOLLOWING SHALL APPLY:

 

(I)                                     IN THE CASE OF THE ISSUANCE OF SHARES OF
COMMON STOCK FOR CASH, THE CONSIDERATION SHALL BE THE AMOUNT OF SUCH CASH,
PROVIDED THAT IN NO CASE SHALL ANY DEDUCTION BE MADE FOR ANY COMMISSIONS,
DISCOUNTS OR OTHER EXPENSES INCURRED BY THE PARENT FOR ANY UNDERWRITING OF THE
ISSUE OR OTHERWISE IN CONNECTION THEREWITH;

 

(II)                                  IN THE CASE OF THE ISSUANCE OF SHARES OF
COMMON STOCK FOR A CONSIDERATION IN WHOLE OR IN PART OTHER THAN CASH, THE
CONSIDERATION OTHER THAN CASH SHALL BE DEEMED TO BE THE FAIR MARKET VALUE
THEREOF AS DETERMINED IN GOOD FAITH BY THE BOARD OF DIRECTORS OF THE PARENT
(IRRESPECTIVE OF THE ACCOUNTING TREATMENT THEREOF); AND

 

(III)                               IN THE CASE OF THE ISSUANCE OF SECURITIES OF
THE PARENT CONVERTIBLE UNTO OR EXERCISABLE OR EXCHANGEABLE FOR COMMON STOCK
(OTHER THAN FOR EXCLUDED ISSUANCES) UPON ANY SUCH EXERCISE, THE AGGREGATE
CONSIDERATION RECEIVED FOR SUCH SECURITIES SHALL BE DEEMED TO BE THE
CONSIDERATION RECEIVED BY THE PARENT FOR THE ISSUANCE OF SUCH SECURITIES PLUS
THE ADDITIONAL MINIMUM CONSIDERATION, IF ANY, TO BE RECEIVED BY THE PARENT UPON
THE CONVERSION OR EXCHANGE THEREOF (THE CONSIDERATION IN EACH CASE TO BE
DETERMINED IN THE SAME MANNER AS PROVIDED IN SUBSECTIONS (I) AND (II) OF THIS
SECTION 3.6(D)).

 

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3.7                                 RESERVATION OF SHARES.  DURING THE PERIOD
THE CONVERSION RIGHT EXISTS, THE PARENT WILL RESERVE FROM ITS AUTHORIZED AND
UNISSUED COMMON STOCK A SUFFICIENT NUMBER OF SHARES TO PROVIDE FOR THE ISSUANCE
OF CONVERSION SHARES UPON THE FULL CONVERSION OF THIS NOTE AND THE WARRANTS. 
THE PARENT REPRESENTS THAT UPON ISSUANCE, THE CONVERSION SHARES WILL BE DULY AND
VALIDLY ISSUED, FULLY PAID AND NON-ASSESSABLE.  THE PARENT AGREES THAT ITS
ISSUANCE OF THIS NOTE SHALL CONSTITUTE FULL AUTHORITY TO ITS OFFICERS, AGENTS,
AND TRANSFER AGENTS WHO ARE CHARGED WITH THE DUTY OF EXECUTING AND ISSUING STOCK
CERTIFICATES TO EXECUTE AND ISSUE THE NECESSARY CERTIFICATES FOR THE CONVERSION
SHARES UPON THE CONVERSION OF THIS NOTE.

 

3.8                                 REGISTRATION RIGHTS.  THE HOLDER HAS BEEN
GRANTED REGISTRATION RIGHTS WITH RESPECT TO THE CONVERSION SHARES AS SET FORTH
IN A REGISTRATION RIGHTS AGREEMENT.

 

3.9                                 ISSUANCE OF NEW NOTE.  UPON ANY PARTIAL
CONVERSION OF THIS NOTE, A NEW NOTE CONTAINING THE SAME DATE AND PROVISIONS OF
THIS NOTE SHALL, AT THE REQUEST OF THE HOLDER, BE ISSUED BY THE PARENT TO THE
HOLDER FOR THE PRINCIPAL BALANCE OF THIS NOTE AND INTEREST WHICH SHALL NOT HAVE
BEEN CONVERTED OR PAID.  SUBJECT TO THE PROVISIONS OF ARTICLE IV OF THIS NOTE,
THE PARENT SHALL NOT PAY ANY COSTS, FEES OR ANY OTHER CONSIDERATION TO THE
HOLDER FOR THE PRODUCTION AND ISSUANCE OF A NEW NOTE.

 

ARTICLE IV
EVENTS OF DEFAULT AND DEFAULT RELATED PROVISIONS

 

4.1                                 EVENTS OF DEFAULT.  THE OCCURRENCE OF AN
EVENT OF DEFAULT UNDER THE SECURITY AGREEMENT SHALL CONSTITUTE AN EVENT OF
DEFAULT (“EVENT OF DEFAULT”) HEREUNDER.

 

4.2                                 DEFAULT INTEREST.  FOLLOWING THE OCCURRENCE
AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, THE COMPANIES SHALL, JOINTLY
AND SEVERALLY, PAY ADDITIONAL INTEREST ON THE OUTSTANDING PRINCIPAL BALANCE OF
THIS NOTE IN AN AMOUNT EQUAL TO ONE AND ONE-HALF PERCENT (1.5%) PER MONTH, AND
ALL OUTSTANDING OBLIGATIONS, INCLUDING UNPAID INTEREST, SHALL, TO THE EXTENT
PERMITTED BY LAW, CONTINUE TO ACCRUE INTEREST AT SUCH ADDITIONAL INTEREST RATE
FROM THE DATE OF SUCH EVENT OF DEFAULT UNTIL THE DATE SUCH EVENT OF DEFAULT IS
CURED OR WAIVED.

 

4.3                                 DEFAULT PAYMENT.  FOLLOWING THE OCCURRENCE
AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, THE HOLDER, AT ITS OPTION,
MAY ELECT, IN ADDITION TO ALL RIGHTS AND REMEDIES OF THE HOLDER UNDER THE
SECURITY AGREEMENT AND THE ANCILLARY AGREEMENTS AND ALL OBLIGATIONS OF EACH
COMPANY UNDER THE SECURITY AGREEMENT AND THE ANCILLARY AGREEMENTS, TO REQUIRE
THE COMPANIES, JOINTLY AND SEVERALLY, TO MAKE A DEFAULT PAYMENT (“DEFAULT
PAYMENT”).  THE DEFAULT PAYMENT SHALL BE 120% OF THE OUTSTANDING PRINCIPAL
AMOUNT OF THE NOTE, PLUS ACCRUED BUT UNPAID INTEREST, ALL OTHER FEES THEN
REMAINING UNPAID, AND ALL OTHER AMOUNTS PAYABLE HEREUNDER.  THE DEFAULT PAYMENT
SHALL BE APPLIED FIRST TO ANY FEES DUE AND PAYABLE TO THE HOLDER PURSUANT TO THE
NOTES AND/OR THE ANCILLARY AGREEMENTS, THEN TO ACCRUED AND UNPAID INTEREST DUE
ON THE NOTES, THE SECURITY AGREEMENT AND THEN TO THE OUTSTANDING PRINCIPAL
BALANCE OF THE NOTES.  THE DEFAULT PAYMENT SHALL BE DUE AND PAYABLE IMMEDIATELY
ON THE DATE THAT THE HOLDER HAS EXERCISED ITS RIGHTS PURSUANT TO THIS
SECTION 4.3.

 

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ARTICLE V
MISCELLANEOUS

 

5.1                                 CONVERSION PRIVILEGES.  THE CONVERSION
PRIVILEGES SET FORTH IN ARTICLE III SHALL REMAIN IN FULL FORCE AND EFFECT
IMMEDIATELY FROM THE DATE HEREOF UNTIL THE DATE THIS NOTE IS INDEFEASIBLY PAID
IN FULL AND IRREVOCABLY TERMINATED.

 

5.2                                 CUMULATIVE REMEDIES.  THE REMEDIES UNDER
THIS NOTE SHALL BE CUMULATIVE.

 

5.3                                 FAILURE OR INDULGENCE NOT WAIVER.  NO
FAILURE OR DELAY ON THE PART OF THE HOLDER HEREOF IN THE EXERCISE OF ANY POWER,
RIGHT OR PRIVILEGE HEREUNDER SHALL OPERATE AS A WAIVER THEREOF, NOR SHALL ANY
SINGLE OR PARTIAL EXERCISE OF ANY SUCH POWER, RIGHT OR PRIVILEGE PRECLUDE OTHER
OR FURTHER EXERCISE THEREOF OR OF ANY OTHER RIGHT, POWER OR PRIVILEGE.  ALL
RIGHTS AND REMEDIES EXISTING HEREUNDER ARE CUMULATIVE TO, AND NOT EXCLUSIVE OF,
ANY RIGHTS OR REMEDIES OTHERWISE AVAILABLE.

 

5.4                                 NOTICES.  ANY NOTICE HEREIN REQUIRED OR
PERMITTED TO BE GIVEN SHALL BE IN WRITING AND SHALL BE PROVIDED IN ACCORDANCE
WITH THE TERMS OF THE SECURITY AGREEMENT.

 

5.5                                 AMENDMENT PROVISION.  THE TERM “NOTE” AND
ALL REFERENCES THERETO, AS USED THROUGHOUT THIS INSTRUMENT, SHALL MEAN THIS
INSTRUMENT AS ORIGINALLY EXECUTED, OR IF LATER AMENDED OR SUPPLEMENTED, THEN AS
SO AMENDED OR SUPPLEMENTED, AND ANY SUCCESSOR INSTRUMENT AS SUCH SUCCESSOR
INSTRUMENT MAY BE AMENDED OR SUPPLEMENTED.

 

5.6                                 ASSIGNABILITY.  THIS NOTE SHALL BE BINDING
UPON EACH COMPANY AND ITS SUCCESSORS AND ASSIGNS, AND SHALL INURE TO THE BENEFIT
OF THE HOLDER AND ITS SUCCESSORS AND ASSIGNS, AND MAY BE ASSIGNED BY THE HOLDER
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITY AGREEMENT.  NO COMPANY MAY
ASSIGN ANY OF ITS OBLIGATIONS UNDER THIS NOTE WITHOUT THE PRIOR WRITTEN CONSENT
OF THE HOLDER, ANY SUCH PURPORTED ASSIGNMENT WITHOUT SUCH CONSENT BEING NULL AND
VOID.

 

5.7                                 COST OF COLLECTION.  IN CASE OF ANY EVENT OF
DEFAULT UNDER THIS NOTE, THE COMPANIES SHALL, JOINTLY AND SEVERALLY, PAY THE
HOLDER’S REASONABLE COSTS OF COLLECTION, INCLUDING REASONABLE ATTORNEYS’ FEES.

 

5.8                                 GOVERNING LAW, JURISDICTION AND WAIVER OF
JURY TRIAL.

 

(A)                                  THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

 

(B)                                 EACH COMPANY HEREBY CONSENTS AND AGREES THAT
THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN ANY COMPANY, ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND,
PERTAINING TO THIS NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER ANCILLARY
AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE, THE SECURITY

 

8

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AGREEMENT OR ANY OF THE OTHER ANCILLARY AGREEMENTS; PROVIDED, THAT EACH COMPANY
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER
PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE THE
HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION
TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY
FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
THE HOLDER.  EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH COMPANY
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.  EACH COMPANY HEREBY
WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN
ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE
COMPANY AT THE ADDRESS SET FORTH IN THE SECURITY AGREEMENT AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY’S ACTUAL RECEIPT
THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.

 

(C)                                  EACH COMPANY DESIRES THAT ITS DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.  THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH
COMPANY HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR
OTHERWISE BETWEEN THE HOLDER, AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH,
RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION
WITH THIS NOTE, THE SECURITY AGREEMENT, ANY OTHER ANCILLARY AGREEMENT OR THE
TRANSACTIONS RELATED HERETO OR THERETO.

 

5.9                                 SEVERABILITY.  IN THE EVENT THAT ANY
PROVISION OF THIS NOTE IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE
OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT
THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH
STATUTE OR RULE OF LAW.  ANY SUCH PROVISION WHICH MAY PROVE INVALID OR
UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF
ANY OTHER PROVISION OF THIS NOTE.

 

5.10                           MAXIMUM PAYMENTS.  NOTHING CONTAINED HEREIN SHALL
BE DEEMED TO ESTABLISH OR REQUIRE THE PAYMENT OF A RATE OF INTEREST OR OTHER
CHARGES IN EXCESS OF THE MAXIMUM PERMITTED BY APPLICABLE LAW.  IN THE EVENT THAT
THE RATE OF INTEREST REQUIRED TO BE PAID OR OTHER CHARGES HEREUNDER EXCEED THE
MAXIMUM RATE PERMITTED BY SUCH LAW, ANY PAYMENTS IN EXCESS OF SUCH MAXIMUM RATE
SHALL BE CREDITED AGAINST AMOUNTS OWED BY THE COMPANIES TO THE HOLDER AND THUS
REFUNDED TO THE COMPANIES.

 

9

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5.11                           SECURITY INTEREST AND GUARANTY.  THE HOLDER HAS
BEEN GRANTED A SECURITY INTEREST (I) IN CERTAIN ASSETS OF THE COMPANIES AS MORE
FULLY DESCRIBED IN THE SECURITY AGREEMENT AND (II) PURSUANT TO THE STOCK PLEDGE
AGREEMENT DATED AS OF THE DATE HEREOF.  THE OBLIGATIONS OF THE COMPANIES UNDER
THIS NOTE ARE GUARANTEED BY CERTAIN SUBSIDIARIES OF THE COMPANIES PURSUANT TO
THE GUARANTY.

 

5.12                           CONSTRUCTION.  EACH PARTY ACKNOWLEDGES THAT ITS
LEGAL COUNSEL PARTICIPATED IN THE PREPARATION OF THIS NOTE AND, THEREFORE,
STIPULATES THAT THE RULE OF CONSTRUCTION THAT AMBIGUITIES ARE TO BE RESOLVED
AGAINST THE DRAFTING PARTY SHALL NOT BE APPLIED IN THE INTERPRETATION OF THIS
NOTE TO FAVOR ANY PARTY AGAINST THE OTHER.

 

[Balance of page intentionally left blank; signature page follows]

 

10

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IN WITNESS WHEREOF, each Company has caused this Secured Convertible Minimum
Borrowing Note to be signed in its name effective as of this 31st day of August,
2005.

 

 

STONEPATH GROUP, INC.

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

WITNESS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STONEPATH LOGISTICS DOMESTIC SERVICES, INC.

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

WITNESS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STONEPATH LOGISTICS INTERNATIONAL SERVICES, INC., a Delaware corporation

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

WITNESS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Additional Signature Pages to Follow]

 

11

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STONEPATH OFFSHORE HOLDINGS, INC.

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

WITNESS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M.G.R. INC.

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

WITNESS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISTRIBUTION SERVICES, INC.

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

WITNESS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Signature Page to Secured Convertible Minimum Borrowing Note;

Additional Signature Page to Follow]

 

12

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STONEPATH LOGISTICS GOVERNMENT
SERVICES, INC.

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

WITNESS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNITED AMERICAN ACQUISITIONS AND MANAGEMENT, INC.

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

WITNESS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STONEPATH LOGISTICS INTERNATIONAL SERVICES, INC., a Washington corporation

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

WITNESS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLOBAL CONTAINER LINE, INC.

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

WITNESS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Signature Page to Secured Convertible Minimum Borrowing Note]

 

13

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EXHIBIT A

OTHER COMPANIES

 

Stonepath Logistics Domestic Services, Inc., a Delaware corporation

 

Stonepath Logistics International Services, Inc., a Delaware corporation

 

Stonepath Offshore Holdings, Inc., a Delaware corporation

 

M.G.R., Inc., a Minnesota corporation

 

Distribution Services, Inc., a Minnesota corporation

 

Stonepath Logistics Government Services, Inc., a Virginia corporation

 

United American Acquisitions and Management, Inc., a Michigan corporation

 

Stonepath Logistics International Services, Inc., a Washington corporation

 

Global Container Line, Inc., a Washington corporation

 

14

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EXHIBIT B

 

NOTICE OF CONVERSION

 

(To be executed by the Holder in order to convert the
Secured Convertible Minimum Borrowing Note)

 

The undersigned hereby elects to convert $                   of the principal
and $                   of the interest due on the Secured Convertible Minimum
Borrowing Note dated as of August     , 2005 (the “Note”) issued by Stonepath
Group, Inc. (the “Parent”) and the other Companies named and as defined therein
into shares of Common Stock of the Parent in accordance with the terms and
conditions set forth in the Note, as of the date written below.

 

Date of Conversion:

 

Conversion Price:

 

Shares To Be Delivered:

 

Signature:

 

Print Name:

 

Address:

 

Holder DWAC instructions

 

The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon conversion of the within Note shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the “Securities Act”) or pursuant to an exemption from
registration under the Securities Act.

 

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