Exhibit 10.30

 

PREFERRED SHARES EXCHANGE AGREEMENT

 

PREFERRED SHARES EXCHANGE AGREEMENT (this “Agreement”) dated as of the 26th day
of October, 2005 by and among STONEPATH GROUP, INC., a Delaware corporation
(“Group”), STONEPATH HOLDINGS (HONG KONG) LIMITED, a company incorporated under
the laws of Hong Kong (“Holdings”), HONG KONG LEAGUE CENTRAL CREDIT UNION, a
company incorporated under the laws of Hong Kong (“Lender”), and SBI ADVISORS,
LLC, a California limited liability company, in its capacity as agent for Lender
(“Agent”).

WITNESSETH:

 

WHEREAS, Stonepath Holdings (Hong Kong) Limited (“Holdings”), Group, Lender, and
Agent  are parties to an Exchange Agreement dated as of October 7, 2005 pursuant
to which, among other things, Holdings has issued Preferred Shares of Holdings
(the “Preferred Shares”) to Lender on the date hereof; and

 

WHEREAS, the parties hereto have entered into this Agreement to provide for the
terms upon which the Preferred Shares are exchangeable for shares of Common
Stock of Group.

 

NOW, THEREFORE, the parties, intending to be legally bound, agree as follows:

 

1.             Definitions. The following terms shall have the following
meanings when used in this Agreement:

 

“Closing Price” means the closing price of the Common Stock (or other securities
which are at the time issuable upon the exchange of a Preferred Share pursuant
to this Agreement) as reported by Bloomberg, L.P. on the Principal Market.

“Common Stock” means Common Stock, $0.001 par value, of Group.

 

“Exchange Notice” means a notice in the form of Exhibit A to this Agreement.

 

“Excluded Shares” means (i) shares of Common Stock issued or issuable pursuant
to this Agreement or Warrants issued to Lender, specifically including all
shares of Common Stock which may be issued upon exchange hereunder or exercise
thereof, (ii) shares of Common Stock issuable upon the exercise of any options
or warrants outstanding on the date of this Agreement, (iii) shares of Common
Stock issuable pursuant to or upon the conversion of any note, debenture, debt
instrument and all other written agreements to which Group is a party on the
date of this Agreement; (iv) shares of Common Stock (including grants, options
and warrants) issuable pursuant to or in accordance with any plan for the
benefit of employees, directors, officers, or consultants approved by Group’s
Board of Directors; and (v) shares of Common Stock issued or issuable in
connection with acquisitions made by Group or any of its directly or indirect
subsidiaries.

 

 

“Original Issue Price” means One Hundred Dollars ($100).

 

“Preferred Share” means a Preferred Share of Holdings.

 

“Principal Market” means the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market or SmallCap Market., the OTC Bulletin Board
or the Pink Sheets LLC.

“Securities Act” means the United States Securities Act of 1933, as amended and
the rules and regulations promulgated thereunder.

 

“Trading Day” means a day on which the Principal Market shall be open for
business.

 

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2.             Exchange

 

(A)           OPTIONAL EXCHANGE

(I)            SUBJECT TO AND UPON COMPLIANCE WITH THE PROVISIONS OF THIS
SECTION 2, EACH PREFERRED SHARE SHALL, AT THE OPTION OF THE HOLDER THEREOF, BE
EXCHANGEABLE AT ANY TIME FOR THAT NUMBER OF FULLY PAID AND NON-ASSESSABLE SHARES
OF COMMON STOCK (CALCULATED AS TO EACH CONVERSION TO THE NEAREST 1/100TH OF A
SHARE) AS IS DETERMINED BY DIVIDING THE ORIGINAL ISSUE PRICE BY THE EXCHANGE
PRICE (AS DEFINED IN 2(D)) IN EFFECT AT THE TIME OF CONVERSION).

(II)           TO EXCHANGE PREFERRED SHARES, THE HOLDER SHALL SURRENDER THE
CERTIFICATE OR CERTIFICATES REPRESENTING SUCH SHARES AT ANY OF THE OFFICES OR
AGENCIES TO BE MAINTAINED FOR SUCH PURPOSE BY GROUP AND SHALL DELIVER AN
EXCHANGE NOTICE TO GROUP AT SUCH OFFICE OR AGENCY THAT THE HOLDER ELECTS TO
EXCHANGE THE PREFERRED SHARES SPECIFIED IN SAID NOTICE. SUCH NOTICE SHALL ALSO
STATE THE NAME OR NAMES, TOGETHER WITH ADDRESS OR ADDRESSES, IN WHICH THE
CERTIFICATE OR CERTIFICATES FOR SHARES OF COMMON STOCK, WHICH SHALL BE ISSUABLE
IN SUCH EXCHANGE, SHALL BE ISSUED. EACH CERTIFICATE REPRESENTING A PREFERRED
SHARE SURRENDERED FOR CONVERSION SHALL, UNLESS THE SHARES ISSUABLE ON EXCHANGE
ARE TO BE ISSUED IN THE SAME NAME AS THE NAME IN WHICH SUCH SHARE IS REGISTERED,
BE ACCOMPANIED BY (A) INSTRUMENTS OF TRANSFER, IN FORM SATISFACTORY TO GROUP,
DULY EXECUTED BY THE HOLDER OR HIS DULY AUTHORIZED ATTORNEY, (B) AN AMOUNT
SUFFICIENT TO PAY ANY TRANSFER OR SIMILAR TAX, AND (C) AN OPINION OF COUNSEL
SATISFACTORY TO GROUP THAT THE ISSUANCE OF THE SHARES ISSUABLE ON EXCHANGE IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. WITHIN THREE
(3) TRADING DAYS AFTER THE SURRENDER OF CERTIFICATES REPRESENTING SUCH PREFERRED
SHARES AND THE RECEIPT OF SUCH EXCHANGE NOTICE, INSTRUMENTS OF TRANSFER,
OPINION,  AND FUNDS, IF ANY, AS AFORESAID, GROUP SHALL ISSUE AND SHALL DELIVER
AT SUCH OFFICE OR AGENCY TO SUCH HOLDER, OR AS DESIGNATED IN SUCH HOLDER’S
WRITTEN INSTRUCTIONS, A CERTIFICATE OR CERTIFICATES FOR THE NUMBER OF FULL
SHARES OF COMMON STOCK ISSUABLE UPON THE EXCHANGE OF SUCH PREFERRED SHARES IN
ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 2 AND A CHECK OR CASH IN RESPECT
OF ANY FRACTIONAL INTEREST IN A SHARE OF COMMON STOCK ARISING UPON SUCH
CONVERSION, AS PROVIDED IN SECTION 2(C).

(iii)          Each exchange shall be deemed to have been effected immediately
prior to the close of business on the date on which certificates representing
such Preferred Shares shall have been surrendered and such Exchange Notice (and
any applicable instruments of transfer and any required taxes) received by Group
as aforesaid, and the person or persons in whose name or names any certificate
or certificates for shares of Common Stock shall be issuable upon such exchange
shall be deemed to have become the holder or holders of record of the shares
represented thereby at such time on such date, and such exchange shall be based
upon the Exchange Price in effect at such time on such date, unless the stock
transfer books of the Group shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or holders of
record at the close of business on the next succeeding day on which such stock
transfer books are open, but such exchange shall be based upon the Exchange
Price in effect on the date upon which certificates representing such Preferred
Shares shall have been surrendered and such Exchange Notice received by Group.

(iv)          Notwithstanding anything contained in this Section 2(a) to the
contrary, a holder of Preferred Shares shall not be entitled to exchange such
shares for a number of shares of Common Stock which would exceed the difference
between (i) 9.99% of the issued and outstanding shares of Common Stock and (ii)
the number of shares of Common Stock beneficially owned by such holder.  For the
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act, as amended, and
Regulation 13d-3 thereunder.  .

 

(b)           Mandatory Exchange

                (i)            Each Preferred Share outstanding on the Mandatory
Exchange Date (as defined herein) shall automatically and without any action on
the part of the holder thereof, be exchanged for that number of fully paid and
non-assessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) as is determined by dividing the Original Issue
Price by the Exchange Price (as defined in

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Section 2(d)) in effect at the time of conversion.  The term “Mandatory Exchange
Date” is the date, if any, as of  which all of the following has occured:

(A)          THE AVERAGE CLOSING PRICE FOR THE SHARES OF COMMON STOCK HAS BEEN
200% OR MORE THAN THE EXCHANGE PRICE FOR AT LEAST TWENTY (20) CONSECUTIVE
TRADING DAYS (THE “TRIGGERING PERIOD”);

(B)           THE AVERAGE DAILY TRADING VOLUME FOR ANY TWENTY (20) TRADING DAYS
DURING THE TRIGGERING PERIOD HAS BEEN 250,000 OR MORE SHARES;

(C)           THE COMMON STOCK IS LISTED ON THE AMERICAN STOCK EXCHANGE OR THE
NASDAQ NATIONAL MARKET SYSTEM OR SMALLCAP MARKET; AND

(D)          THE COMMON STOCK RECEIVABLE UPON SUCH MANDATORY EXCHANGE MAY, AT
THE TIME OF THE MANDATORY EXCHANGE, BE RESOLD EITHER (I) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH THE HOLDER OF
SUCH PREFERRED SHARE IS ENTITLED TO USE OR (III) UNDER RULE 144(K) UNDER THE
SECURITIES ACT.

 

(II)           ON THE MANDATORY EXCHANGE DATE, ALL OUTSTANDING PREFERRED SHARES
SHALL BE DEEMED TO BE EXCHANGED AUTOMATICALLY WITHOUT ANY FURTHER ACTION BY THE
HOLDERS OF SUCH SHARES AND WHETHER OR NOT THE CERTIFICATES REPRESENTING SUCH
SHARES ARE SURRENDERED TO GROUP; PROVIDED, HOWEVER, THAT GROUP SHALL NOT BE
OBLIGATED TO ISSUE CERTIFICATES EVIDENCING THE SHARES OF COMMON STOCK ISSUABLE
UPON EXCHANGE OF ANY PREFERRED SHARES UNLESS CERTIFICATES EVIDENCING SUCH
PREFERRED SHARES ARE EITHER DELIVERED TO GROUP OR THE HOLDER NOTIFIES GROUP OR
HOLDINGS THAT SUCH CERTIFICATES HAVE BEEN LOST, STOLEN, OR DESTROYED, AND
EXECUTES AN AGREEMENT SATISFACTORY TO GROUP AND HOLDINGS TO INDEMNIFY THEM FROM
ANY LOSS INCURRED BY THEM IN CONNECTION THEREWITH. UPON THE OCCURRENCE OF THE
AUTOMATIC EXCHANGE OF THE PREFERRED SHARES PURSUANT TO THIS SECTION 2(B), THE
HOLDERS OF THE PREFERRED SHARES SHALL SURRENDER THE CERTIFICATES REPRESENTING
THE PREFERRED SHARES FOR WHICH THE MANDATORY EXCHANGE DATE HAS OCCURRED TO
GROUP, TOGETHER WITH STOCK POWERS SIGNED IN BLANK, AND GROUP SHALL DELIVER
CERTIFICATES FOR THE SHARES OF COMMON STOCK ISSUABLE UPON SUCH EXCHANGE AS SOON
AS PRACTICABLE FOLLOWING THE HOLDER’S DELIVERY OF THE APPLICABLE CERTIFICATES
FOR THE PREFERRED SHARES.

(C)           NO FRACTIONAL SHARES

NO FRACTIONAL SHARES OR SCRIP REPRESENTING FRACTIONS OF SHARES OF COMMON STOCK
SHALL BE ISSUED UPON EXCHANGE OF THE PREFERRED SHARES. IN LIEU OF ANY FRACTIONAL
INTEREST IN A SHARE OF COMMON STOCK WHICH WOULD OTHERWISE BE DELIVERABLE UPON
THE CONVERSION OF ANY PREFERRED SHARE, GROUP SHALL PAY TO THE HOLDER OF SUCH
SHARES AN AMOUNT IN CASH (COMPUTED TO THE NEAREST CENT) EQUAL TO THE CLOSING
PRICE ON THE TRADING DAY NEXT PRECEDING THE DAY OF EXCHANGE MULTIPLIED BY THE
FRACTIONAL INTEREST THAT OTHERWISE WOULD HAVE BEEN DELIVERABLE UPON EXCHANGE OF
SUCH SHARE.

(D)           EXCHANGE PRICE

THE “EXCHANGE PRICE” SHALL MEAN AND BE ONE DOLLAR AND EIGHT CENTS ($1.08),
SUBJECT TO ADJUSTMENT FROM TIME TO TIME BY GROUP AS FOLLOWS:

(I)            IN CASE GROUP SHALL (A) PAY A DIVIDEND OR MAKE A DISTRIBUTION ON
ITS COMMON STOCK, EACH IN SHARES OF COMMON STOCK, (B) SUBDIVIDE ITS OUTSTANDING
SHARES OF COMMON STOCK INTO A GREATER NUMBER OF SHARES, (C) COMBINE ITS
OUTSTANDING SHARES OF COMMON STOCK INTO A SMALLER NUMBER OF SHARES, OR (D) ISSUE
BY RECLASSIFICATION OF ITS COMMON STOCK ANY SHARES OF CAPITAL STOCK OF GROUP,
THEN IN EACH SUCH CASE THE EXCHANGE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH
ACTION SHALL BE ADJUSTED SO THAT THE HOLDER OF ANY PREFERRED SHARE THEREAFTER
SURRENDERED FOR CONVERSION SHALL BE ENTITLED TO RECEIVE THE NUMBER OF SHARES OF
COMMON STOCK OR OTHER CAPITAL STOCK OF GROUP WHICH SUCH HOLDER WOULD HAVE OWNED
OR BEEN ENTITLED TO RECEIVE IMMEDIATELY FOLLOWING SUCH ACTION HAD SUCH SHARE
BEEN EXCHANGED IMMEDIATELY PRIOR TO THE OCCURRENCE OF SUCH EVENT. AN ADJUSTMENT
MADE PURSUANT TO THIS SUBSECTION (I) SHALL BECOME EFFECTIVE IMMEDIATELY AFTER
THE RECORD DATE, IN THE CASE OF A DIVIDEND OR DISTRIBUTION, OR IMMEDIATELY AFTER
THE EFFECTIVE DATE, IN THE CASE OF A SUBDIVISION, COMBINATION OR
RECLASSIFICATION. IF, AS A RESULT

 

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OF AN ADJUSTMENT MADE PURSUANT TO THIS SUBSECTION (I), THE HOLDER OF ANY
PREFERRED SHARE SHALL BECOME ENTITLED TO RECEIVE SHARES OF TWO OR MORE CLASSES
OF CAPITAL STOCK OR SHARES OF COMMON STOCK AND OTHER CAPITAL STOCK OF GROUP, THE
BOARD OF DIRECTORS OF GROUP (WHOSE DETERMINATION SHALL BE CONCLUSIVE) SHALL
DETERMINE THE ALLOCATION OF THE ADJUSTED EXCHANGE PRICE BETWEEN OR AMONG SHARES
OF SUCH CLASSES OF CAPITAL STOCK OR SHARES OF COMMON STOCK AND OTHER CAPITAL
STOCK.

(II)           IN CASE GROUP SHALL, BY DIVIDEND OR OTHERWISE, DISTRIBUTE TO ALL
HOLDERS OF ITS OUTSTANDING COMMON STOCK ANY CAPITAL STOCK (OTHER THAN COMMON
STOCK), CASH, EVIDENCES OF ITS INDEBTEDNESS OR ASSETS OR RIGHTS OR WARRANTS TO
SUBSCRIBE FOR OR PURCHASE SECURITIES OF GROUP (EXCLUDING THOSE REFERRED TO IN
SUBSECTION (III) OF THIS SECTION 2(D) AND EXCLUDING DIVIDENDS OR DISTRIBUTIONS
PAYABLE IN STOCK FOR WHICH ADJUSTMENT IS MADE PURSUANT TO SUBSECTION (I) OF THIS
SECTION 2(D)) THEN IN EACH SUCH CASE THE EXCHANGE PRICE SHALL BE ADJUSTED SO
THAT THE SAME SHALL EQUAL THE PRICE DETERMINED BY MULTIPLYING THE EXCHANGE PRICE
IN EFFECT IMMEDIATELY PRIOR TO THE RECORD DATE OF SUCH DISTRIBUTION BY A
FRACTION OF WHICH THE NUMERATOR SHALL BE THE AVERAGE CLOSING PRICE OF THE COMMON
STOCK FOR THE TWENTY (20) CONSECUTIVE TRADING DAYS PRECEDING THE RECORD DATE
LESS THE FAIR MARKET VALUE ON SUCH RECORD DATE (AS DETERMINED BY THE BOARD OF
DIRECTORS, WHOSE DETERMINATION SHALL BE CONCLUSIVE) OF THE PORTION OF THE
CAPITAL STOCK OR ASSETS OR THE EVIDENCES OF INDEBTEDNESS OR ASSETS SO
DISTRIBUTED TO THE HOLDER OF ONE SHARE OF COMMON STOCK OR OF SUCH SUBSCRIPTION
RIGHTS OR WARRANTS APPLICABLE TO ONE SHARE OF COMMON STOCK, AND OF WHICH THE
DENOMINATOR SHALL BE SUCH AVERAGE CLOSING PRICE OF THE COMMON STOCK FOR THE
TWENTY (20) CONSECUTIVE TRADING DAYS PRECEDING THE RECORD DATE. SUCH ADJUSTMENT
SHALL BECOME EFFECTIVE IMMEDIATELY AFTER THE RECORD DATE FOR THE DETERMINATION
OF STOCKHOLDERS ENTITLED TO RECEIVE SUCH DISTRIBUTION.

(III)          IF GROUP, AT ANY TIME AFTER THE DATE OF THIS AGREEMENT AND WHILE
ANY PREFERRED SHARE IS OUTSTANDING (OTHER THAN IN A TRANSACTION RESULTING IN AN
ADJUSTMENT PURSUANT TO SECTION 2(D)(I) OR 2(D)(II)):

(A)          ISSUES OR SELLS, OR IS DEEMED TO HAVE ISSUED OR SOLD, ANY COMMON
STOCK, OTHER THAN EXCLUDED SHARES;

(B)           IN ANY MANNER GRANTS, ISSUES OR SELLS ANY RIGHTS, OPTIONS,
WARRANTS, OPTIONS TO SUBSCRIBE FOR OR TO PURCHASE COMMON STOCK OR ANY STOCK OR
OTHER SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE FOR COMMON STOCK OTHER THAN
EXCLUDED SHARES (SUCH RIGHTS, OPTIONS OR WARRANTS BEING HEREIN CALLED “OPTIONS”
AND SUCH CONVERTIBLE OR EXCHANGEABLE STOCK OR SECURITIES BEING HEREIN CALLED
“CONVERTIBLE SECURITIES”); OR

(C)           IN ANY MANNER ISSUES OR SELLS ANY CONVERTIBLE SECURITIES OTHER
THAN EXCLUDED SHARES;

FOR (1) WITH RESPECT TO PARAGRAPH (A) ABOVE, A PRICE PER SHARE, OR (2) WITH
RESPECT TO PARAGRAPHS (B) OR (C) ABOVE, A PRICE PER SHARE (INCLUDING THE
CONSIDERATION PER SHARE PAID ON ISSUANCE OF THE OPTION OR CONVERTIBLE
SECURITIES) FOR WHICH COMMON STOCK ISSUABLE UPON THE EXERCISE OF SUCH OPTIONS OR
UPON CONVERSION OR EXCHANGE OF SUCH CONVERTIBLE SECURITIES IS LESS THAN THE
EXCHANGE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH ISSUANCE, SALE OR GRANT,
THEN, IMMEDIATELY AFTER SUCH ISSUANCE, SALE OR GRANT, THE EXCHANGE PRICE SHALL
BE REDUCED TO THE AMOUNT DETERMINED BY DIVIDING (1) THE SUM OF (X) THE PRODUCT
DERIVED BY MULTIPLYING THE EXCHANGE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH
ISSUE OR SALE BY THE NUMBER OF SHARES OF COMMON STOCK DEEMED OUTSTANDING
IMMEDIATELY PRIOR TO SUCH ISSUE OR SALE, PLUS (Y) THE CONSIDERATION, IF ANY,
RECEIVED OR DEEMED TO HAVE BEEN RECEIVED BY THE COMPANY UPON SUCH ISSUE OR SALE,
BY (2) THE NUMBER OF SHARES OF COMMON STOCK DEEMED OUTSTANDING IMMEDIATELY AFTER
SUCH ISSUE OR SALE. NO MODIFICATION OF THE ISSUANCE TERMS SHALL BE MADE UPON THE
ACTUAL ISSUANCE OF SUCH COMMON STOCK UPON EXERCISE, CONVERSION OR EXCHANGE OF
SUCH OPTIONS OR CONVERTIBLE SECURITIES. IF THERE IS A CHANGE AT ANY TIME IN (I)
THE EXERCISE PRICE PROVIDED FOR IN ANY OPTIONS, (II) THE ADDITIONAL
CONSIDERATION, IF ANY, PAYABLE UPON THE ISSUANCE, CONVERSION OR EXCHANGE OF ANY
CONVERTIBLE SECURITIES OR (III) THE RATE AT WHICH ANY CONVERTIBLE SECURITIES ARE
CONVERTIBLE INTO OR EXCHANGEABLE FOR COMMON STOCK, THEN IMMEDIATELY AFTER SUCH
CHANGE THE EXCHANGE PRICE SHALL BE ADJUSTED TO THE EXCHANGE PRICE WHICH WOULD
HAVE BEEN IN EFFECT AT SUCH TIME HAD SUCH OPTIONS OR CONVERTIBLE SECURITIES
STILL

 

4

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OUTSTANDING PROVIDED FOR SUCH CHANGED EXERCISE PRICE, ADDITIONAL CONSIDERATION
OR CHANGED CONVERSION RATE, AS THE CASE MAY BE, AT THE TIME INITIALLY GRANTED,
ISSUED OR SOLD; PROVIDED THAT NO ADJUSTMENT SHALL BE MADE IF SUCH ADJUSTMENT
WOULD RESULT IN AN INCREASE OF THE EXCHANGE PRICE THEN IN EFFECT. HOWEVER, UPON
THE EXPIRATION OF ANY SUCH OPTIONS OR CONVERTIBLE SECURITIES, THE ISSUANCE OF
WHICH RESULTED IN AN ADJUSTMENT IN THE EXCHANGE PRICE PURSUANT TO THIS SECTION
2(D)(III), IF ALL OR ANY PORTION OF ANY SUCH OPTIONS OR CONVERTIBLE SECURITIES
SHALL NOT HAVE BEEN EXERCISED, THE EXCHANGE PRICE SHALL IMMEDIATELY UPON SUCH
EXPIRATION BE INCREASED TO THE PRICE WHICH IT WOULD HAVE BEEN AFTER THE ISSUANCE
OF SUCH OPTIONS OR CONVERTIBLE SECURITIES ON THE BASIS OF GROUP OFFERING FOR
SUBSCRIPTION, PURCHASE, CONVERSION, EXCHANGE OR ACQUISITION ONLY THAT NUMBER OF
SHARES OF COMMON STOCK (IF ANY) ACTUALLY PURCHASED UPON THE EXERCISE OF SUCH
OPTIONS OR CONVERTIBLE SECURITIES ACTUALLY EXERCISED. FOR THE PURPOSES OF THIS
SECTION 2(D)(III), THE TERM “COMMON STOCK DEEMED OUTSTANDING” MEANS, AT ANY
GIVEN TIME, THE SUM OF THE NUMBER OF SHARES OF COMMON STOCK ACTUALLY OUTSTANDING
AT SUCH TIME PLUS THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF ALL OPTIONS, RIGHTS AND WARRANTS AND THE CONVERSION OR EXCHANGE OF
CONVERTIBLE OR EXCHANGEABLE SECURITIES OUTSTANDING AT SUCH TIME, WHETHER OR NOT
SUCH OPTIONS, RIGHTS, OR WARRANTS, OR CONVERTIBLE OR EXCHANGEABLE SECURITIES ARE
ACTUALLY EXERCISABLE, CONVERTIBLE OR EXCHANGEABLE AT SUCH TIME. FOR THE PURPOSES
OF THIS SECTION 2(D)(III), THE CONSIDERATION FOR THE ISSUE OR SALE OF ANY
SECURITIES OF GROUP SHALL, IRRESPECTIVE OF THE ACCOUNTING TREATMENT OF SUCH
CONSIDERATION, (X) INSOFAR AS IT CONSISTS OF CASH, BE COMPUTED AT THE NET AMOUNT
OF CASH RECEIVED BY GROUP, WITHOUT DEDUCTING ANY EXPENSES PAID OR INCURRED BY
GROUP OR ANY COMMISSIONS OR COMPENSATIONS PAID OR CONCESSIONS OR DISCOUNTS
ALLOWED TO UNDERWRITERS, DEALERS OR OTHERS PERFORMING SIMILAR SERVICES IN
CONNECTION WITH SUCH ISSUE OR SALE, AND (Y) INSOFAR AS IT CONSISTS OF PROPERTY
(INCLUDING SECURITIES) OTHER THAN CASH, BE COMPUTED AT THE FAIR VALUE THEREOF AT
THE TIME OF SUCH ISSUE OR SALE, AS DETERMINED IN GOOD FAITH BY THE BOARD OF
DIRECTORS OF GROUP.

(IV)          NO ADJUSTMENT IN THE EXCHANGE PRICE SHALL BE REQUIRED TO BE MADE
UNLESS SUCH ADJUSTMENT WOULD REQUIRE AN INCREASE OR DECREASE OF AT LEAST ONE
PERCENT OF SUCH PRICE; PROVIDED, HOWEVER, THAT ANY ADJUSTMENT WHICH BY REASON OF
THIS SUBSECTION (IV) IS NOT REQUIRED TO BE MADE SHALL BE CARRIED FORWARD AND
TAKEN INTO ACCOUNT IN ANY SUBSEQUENT ADJUSTMENT. ALL CALCULATIONS UNDER THIS
SECTION 2(D) SHALL BE MADE TO THE NEAREST CENT OR TO THE NEAREST 1/100TH OF A
SHARE, AS THE CASE MAY BE.  ANYTHING IN THIS SECTION 2(D) TO THE CONTRARY
NOTWITHSTANDING, GROUP SHALL BE ENTITLED TO MAKE SUCH REDUCTION IN THE EXCHANGE
PRICE, IN ADDITION TO THOSE REQUIRED BY THIS SECTION 2(D), AS IT IN ITS
DISCRETION SHALL DETERMINE TO BE ADVISABLE IN ORDER THAT ANY STOCK DIVIDEND,
SUBDIVISION OF SHARES, DISTRIBUTION OF RIGHTS TO PURCHASE STOCK OR SECURITIES,
OR DISTRIBUTION OF SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE FOR STOCK
HEREAFTER MADE BY GROUP TO ITS STOCKHOLDERS SHALL NOT BE TAXABLE TO THE
RECIPIENTS.

(V)           WHENEVER THE EXCHANGE PRICE IS ADJUSTED AS HEREIN PROVIDED, GROUP
SHALL MAIL OR CAUSE TO BE MAILED BY FIRST CLASS MAIL, POSTAGE PREPAID, AS SOON
AS PRACTICABLE TO EACH HOLDER OF RECORD OF PREFERRED SHARES A NOTICE STATING
THAT THE EXCHANGE PRICE HAS BEEN ADJUSTED AND SETTING FORTH THE ADJUSTED
EXCHANGE PRICE.

(VI)          IN THE EVENT THAT AT ANY TIME, AS A RESULT OF AN ADJUSTMENT MADE
PURSUANT TO SUBSECTION (I) OF THIS SECTION 2(D), THE HOLDER OF ANY PREFERRED
SHARE THEREAFTER SURRENDERED FOR CONVERSION SHALL BECOME ENTITLED TO RECEIVE ANY
SHARES OF GROUP OTHER THAN SHARES OF COMMON STOCK, THEREAFTER THE EXCHANGE PRICE
OF SUCH OTHER SHARES SO RECEIVABLE UPON CONVERSION OF ANY PREFERRED SHARE SHALL
BE SUBJECT TO ADJUSTMENT FROM TIME TO TIME IN A MANNER AND ON TERMS AS NEARLY
EQUIVALENT AS PRACTICABLE TO THE PROVISIONS WITH RESPECT TO COMMON STOCK
CONTAINED IN THIS SECTION.

(E)           NOTICE

IN CASE:

(I)            GROUP SHALL TAKE ANY ACTION WHICH WOULD REQUIRE AN ADJUSTMENT IN
THE EXCHANGE PRICE PURSUANT TO SECTION 2(D); OR

 

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(II)           GROUP SHALL AUTHORIZE THE GRANTING TO THE HOLDERS OF ITS COMMON
STOCK GENERALLY OF RIGHTS OR WARRANTS TO SUBSCRIBE FOR OR PURCHASE ANY SHARES OF
STOCK OF ANY CLASS OR OF ANY OTHER RIGHTS; OR

(III)          THERE SHALL BE ANY REORGANIZATION OR RECLASSIFICATION OF THE
COMMON STOCK OR ANY MERGER OR CONSOLIDATION TO WHICH GROUP IS A PARTY OR ANY
SALE OR TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE PROPERTY AND ASSETS OF
GROUP; OR

(IV)          THERE SHALL BE A VOLUNTARY OR INVOLUNTARY DISSOLUTION, LIQUIDATION
OR WINDING-UP OF GROUP;

THEN IN EACH SUCH CASE GROUP SHALL CAUSE TO BE GIVEN TO THE HOLDERS OF PREFERRED
SHARES AS PROMPTLY AS POSSIBLE, BUT IN ANY EVENT AT LEAST FIFTEEN (15) DAYS
PRIOR TO THE APPLICABLE DATE HEREINAFTER SPECIFIED, A NOTICE STATING (I) THE
DATE ON WHICH A RECORD IS TO BE TAKEN FOR THE PURPOSE OF SUCH ACTION OR GRANTING
OF RIGHTS OR WARRANTS, OR, IF A RECORD IS NOT TO BE TAKEN, THE DATE AS OF WHICH
THE HOLDERS OF COMMON STOCK OF RECORD TO BE ENTITLED TO SUCH DISTRIBUTION,
RIGHTS OR WARRANTS ARE TO BE DETERMINED, OR (II) THE DATE ON WHICH SUCH
REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION, SALE, TRANSFER,
DISSOLUTION, LIQUIDATION OR WINDING-UP IS EXPECTED TO BECOME EFFECTIVE OR OCCUR,
AND THE DATE AS OF WHICH IT IS EXPECTED THAT HOLDERS OF COMMON STOCK OF RECORD
SHALL BE ENTITLED TO EXCHANGE THEIR SHARES OF COMMON STOCK FOR SECURITIES, CASH
OR OTHER PROPERTY DELIVERABLE UPON SUCH REORGANIZATION, RECLASSIFICATION,
MERGER, CONSOLIDATION, SALE, TRANSFER, DISSOLUTION, LIQUIDATION OR WINDING-UP.

(F)            RESERVATION OF SHARES

GROUP COVENANTS THAT IT WILL AT ALL TIMES RESERVE AND KEEP AVAILABLE, FREE FROM
PREEMPTIVE RIGHTS, OUT OF THE AGGREGATE OF ITS AUTHORIZED BUT UNISSUED SHARES OF
COMMON STOCK OR ITS ISSUED SHARES OF COMMON STOCK HELD IN ITS TREASURY, OR BOTH,
FOR THE PURPOSE OF EFFECTING EXCHANGES OF PREFERRED SHARES, THE FULL NUMBER OF
SHARES OF COMMON STOCK DELIVERABLE UPON THE EXCHANGE OF ALL OUTSTANDING
PREFERRED SHARES NOT THERETOFORE CONVERTED AND ON OR BEFORE (AND AS A CONDITION
OF) TAKING ANY ACTION THAT WOULD CAUSE AN ADJUSTMENT OF THE EXCHANGE PRICE
RESULTING IN AN INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK DELIVERABLE
UPON EXCHANGE ABOVE THE NUMBER THEREOF PREVIOUSLY RESERVED AND AVAILABLE
THEREFOR, GROUP SHALL TAKE ALL SUCH ACTION SO REQUIRED. FOR PURPOSES OF THIS
SECTION 2(F), THE NUMBER OF SHARES OF COMMON STOCK WHICH SHALL BE DELIVERABLE
UPON THE EXCHANGE OF ALL OUTSTANDING PREFERRED SHARES SHALL BE COMPUTED AS IF AT
THE TIME OF COMPUTATION ALL OUTSTANDING PREFERRED SHARES WERE HELD BY A SINGLE
HOLDER.

                (g)           Adjustment Below Par Value

Before taking any action which would cause an adjustment reducing the Exchange
Price below the then par value (if any) of the shares of Common Stock
deliverable upon conversion of the Preferred Shares, Group shall take such
corporate action which may, in the opinion of its counsel, be necessary in order
that Group may validly and legally issue fully paid and non-assessable shares of
Common Stock at such adjusted Exchange Price.

(H)           STATUS OF COMMON STOCK

GROUP COVENANTS THAT ALL SHARES OF COMMON STOCK WHICH MAY BE DELIVERED UPON
EXCHANGE OF PREFERRED SHARES WILL UPON DELIVERY BE DULY AND VALIDLY ISSUED AND
FULLY PAID AND NON-ASSESSABLE.

(i)            Cooperation by Holdings

 

Holdings agrees to take all such action as may be reasonably requested by the
other parties to this Agreement to complete the transactions contemplated
hereby.

 

 

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                3.             Miscellaneous.

 

(a)           Notices.  Except as otherwise expressly provided herein, any
notice herein required or permitted to be given shall be in writing and shall be
deemed effective when personally delivered, mailed, telecopied (with a
confirming copy sent by mail) or delivered by telex to the appropriate party at
the address set forth below (or at such other address as may be designated by
either party in a written notice sent in accordance with this Section):

 

If to Group:

 

Stonepath Group, Inc.

World Trade Center

2200 Alaskan Way, Suite 200

Seattle, Washington 98134

Attention: Mr. Robert Arovas, President

Telecopier No. (206) 356-5401

 

With a copy to:

 

Brian S. North, Esquire

Buchanan Ingersoll PC

1835 Market Street, 14th Floor

Philadelphia, PA 19103

Telecopier No. (215) 665-8760

 

If to Holdings:

 

Stonepath Holdings (Hong Kong) Limited

Unit 2602, 26th Floor, Miramar Tower

132 Nathan Road

Tsimshatsui, Kowloon

Hong Kong

Telecopier No. (852) - 2377 0909.

 

With a copy to:

 

Brian S. North, Esquire

Buchanan Ingersoll PC

1835 Market Street, 14th Floor

Philadelphia, PA 19103

Telecopier No. (215) 665-8760

 

If to Lender:

 

Hong Kong League Central Credit Union

Party Room 1-2, G/F Kam Wah House

Choi Hung Estate

Kowloon, Hong Kong

Telecopier No: 852 3101 0332

 

With copies to:

 

David L. Ficksman, Esquire

Troy & Gould

1801 Century Park East, 16th Floor

Los Angeles, California 90067

Telecopier No. (310) 201-4746

 

 

and

 

SBI Advisors, LLC

2361 Campus Drive, Suite 210

Irvine, CA 92612

Telecopier No.: 949-679-7280

 

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(b)           Severability.  In case any provision in this Agreement shall be
invalid, illegal or unenforceable, such provision shall be severable from the
remainder of such contract and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

 

                (c)           Applicable Law.  This Agreement shall be governed
by the laws of Delaware, exclusive of its conflicts of laws and choice of laws
rules that would or may cause the application of the laws of any jurisdiction
other than Delaware.

 

                (d)           Counterparts; Facsimile Signatures.  This
Agreement 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 signatures to this Agreement shall be deemed to be
original signatures.

 

                                (e)           Section Headings.  The various
headings used in this Agreement are inserted for convenience only and shall not
affect the meaning or interpretations of this Agreement or any provision hereof.

 

                                (f)            Attorneys’ Fees.  In the event
any party institutes any action or proceeding to enforce the terms and
conditions of this Agreement, the prevailing party shall be entitled to
reasonable attorneys’ fees and costs.

 

                                (g)           WAIVER OF TRIAL BY JURY.  EACH OF
THE PARTIES HERETO IRREVOCABLY WAIVES AND COVENANTS THAT IT WILL NOT ASSERT
(WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN
ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE NOTES, OR THE SECURITY
AGREEMENT, THE SUBJECT MATTER HEREOF AND THEREOF OR ANY DOCUMENT RELATING HERETO
OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN
CONTRACT, TORT OR OTHERWISE.

 

                (h)           Further Assurances. From time to time on and after
the date of this Agreement, each party hereto will promptly execute and deliver
all such further instruments and assurances, and will promptly take all such
further actions, as the other party may reasonably request in order more
effectively to effect or confirm the transactions contemplated by this Agreement
and/or any of the Ancillary Agreements (as defined in the Exchange Agreement)
and to carry out the purposes hereof and thereof.

IN WITNESS WHEREOF, the parties hereto do execute this Agreement as of the date
first above written.

 

 

STONEPATH HOLDINGS

 

(HONG KONG) LIMITED

 

 

 

 

By:

Robert Arovas

 

Name:

Robert Arovas

 

Its:

 Director

 

 

 

 

STONEPATH GROUP, INC.

 

 

 

 

By:

Robert Arovas

 

Name:

Robert Arovas

 

Its:

President

 

8

 

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SBI ADVISORS, LLC

 

 

 

 

By:

Shelly Singhal

 

Name:

Shelly Singhal

 

Its:

Manager

 

 

 

 

HONG KONG LEAGUE CENTRAL CREDIT UNION

 

 

 

 

By:

Shelly Singhal

 

Name:

Shelly Singhal

 

Its:

Agent

9

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EXHIBIT A

EXCHANGE NOTICE

(To be executed by a holder of Preferred Shares in order to exchange them for
Common Stock)

The undersigned hereby elects to exchange _________ of the Preferred Shares of
Stonepath Holdings (Hong Kong) Limited represented by the certificate
accompanying this Exchange Notice for shares of Common Stock of Stonepath Group
Inc.

 

Date of Exchange:

 

 

 

Exchange Price:

 

 

 

Shares of Common

 

Stock to be Delivered:

 

 

 

Signature:

 

 

 

Print Name:

 

 

 

Address:

 

The undersigned represents and warrants that all offers and sales by the
undersigned of the Common Stock issuable upon exchange of the attached Preferred
Shares 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.

 

10

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