exv10w2



 





EXHIBIT 10.2




Dated                    , 2006




STONEPATH HOLDINGS (HONG KONG) LIMITED




 






INSTRUMENT




constituting the




11% SECURED NOTES




of




STONEPATH HOLDINGS (HONG KONG) LIMITED




in




an aggregate principal amount of up to US$7,200,000




 






 









 





Table of Contents




	 	 	 	 	 
	CONDITION	 	PAGE
	1.      INTERPRETATION
	 	 	1	 
	 
	 	 	 	 
	2.      AMOUNT AND ISSUE OF THE NOTES
	 	 	4	 
	 
	 	 	 	 
	3.      STATUS, FORM, DENOMINATION AND TITLE OF THE NOTES
	 	 	4	 
	 
	 	 	 	 
	4.      INTEREST
	 	 	5	 
	 
	 	 	 	 
	5.      REDEMPTION
	 	 	6	 
	 
	 	 	 	 
	6.      EXPENSES
	 	 	6	 
	 
	 	 	 	 
	7.      INDEMNITY
	 	 	6	 
	 
	 	 	 	 
	8.      REPLACEMENT OF CERTIFICATES
	 	 	6	 
	 
	 	 	 	 
	9.      RIGHTS OF THE NOTEHOLDER(S)
	 	 	7	 
	 
	 	 	 	 
	10.     RESERVED MATTERS
	 	 	7	 
	 
	 	 	 	 
	11.     UNDERTAKINGS AND COVENANTS
	 	 	7	 
	 
	 	 	 	 
	12.     EVENTS OF DEFAULT
	 	 	9	 
	 
	 	 	 	 
	13.     PAYMENTS
	 	 	12	 
	 
	 	 	 	 
	14.     TRANSFER, TRANSMISSION AND REGISTER
	 	 	12	 
	 
	 	 	 	 
	15.     VARIATIONS TO THE CONDITIONS
	 	 	13	 
	 
	 	 	 	 
	16.     NOTICES
	 	 	13	 
	 
	 	 	 	 
	17.     GOVERNING LAW
	 	 	13	 
	 
	 	 	 	 
	18.     PROCESS AGENT
	 	 	13	 
	 
	 	 	 	 
	SCHEDULE A FORM OF CERTIFICATE
	 	 	15	 
	 
	 	 	 	 
	SCHEDULE B RESERVED MATTERS
	 	 	16	 
	 
	 	 	 	 
	SCHEDULE C FORM OF INSTRUMENT OF TRANSFER
	 	 	17	 






 









 






THIS INSTRUMENT is made on                    , 2006




BY



STONEPATH HOLDINGS (HONG KONG) LIMITED, a company incorporated in Hong Kong and having its
registered office at Unit 2602, 26/F, Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong
Kong (the “Company”).




WHEREAS:-



Pursuant to the Agreement, the Company has agreed to issue the Notes on the terms hereof.





	1.	 	INTERPRETATION
	 
	(A)	 	In this Instrument, unless the context otherwise requires, the following expressions shall
have the following meanings:-





	 	 	 	 	 
	Expression 	 	Meaning
	“Affiliates”	 	in relation to a person (or group of persons), any
other person which directly or indirectly controls,
is controlled by, or is under common control with
such person (or group of persons);
	 	 	 	 	 
	“Agreement”	 	the debt restructuring agreement made between the
Company, SBI Brightline, LLC and Hong Kong League
Central Credit Union of even date relating to the
conversion of certain indebtedness into the Notes,
as the same may be amended, modified or
supplemented from time to time;
	 	 	 	 	 
	“Annual Balance Sheet
Date”	 	in relation to the Company, 30 November or such
other date each year as at which the annual audited
financial statements of the Company are prepared;
	 	 	 	 	 
	“Business”	 	logistics services and related businesses;
	 	 	 	 	 
	“Business Day”	 	any day (other than a Saturday or Sunday or a day
on which a tropical cyclone warning signal no.8 or
above or a black rainstorm warning signal is
hoisted in Hong Kong at any time between 9:00 a.m.
and 5:00 p.m.) on which banks in Hong Kong are
generally open for business;
	 	 	 	 	 
	“Certificates”	 	the certificates (in registered forms)
substantially in the form set out in Schedule A to
be issued under the seal of the Company evidencing
the title of the Noteholder(s) to the Note(s), as
the same may be modified or amended from time to
time in accordance with the Conditions;
	 	 	 	 	 
	“Conditions”	 	the terms and conditions of the Note(s), as the
same






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	Expression 	 	Meaning
	 	 	may be modified or varied from time to time,
as set out herein, and a “Condition” refers to the
relative numbered paragraph of the Conditions;
	 	 	 	 	 
	“Deferred Interest
Payments”	 	shall have the meaning ascribed thereto under
Condition 4;
	 	 	 	 	 
	“Director(s)”	 	the director(s) of the Company for the time being;
	 	 	 	 	 
	“Events of Default”	 	such events as set out in Condition 12;
	 	 	 	 	 
	“Financial Year”	 	the financial year of the Company and the
Subsidiaries ending on the Annual Balance Sheet
Date of each year;
	 	 	 	 	 
	“Group”	 	means the Company and the Subsidiaries for the time
being and “Group Company” means any of them;
	 	 	 	 	 
	“HK dollars” or “HK$”	 	Hong Kong dollars, the lawful currency of Hong Kong;
	 	 	 	 	 
	“Hong Kong”	 	the Hong Kong Special Administrative Region of the
People’s Republic of China;
	 	 	 	 	 
	“Interest Payment Date”	 	shall have the meaning ascribed thereto under
Condition 4;
	 	 	 	 	 
	“Issue Date”	 	in respect of a Note, the date on which it was
issued pursuant to the Conditions;
	 	 	 	 	 
	“Maturity Date”	 	30 June, 2008;
	 	 	 	 	 
	“Notes”	 	the series of secured notes due on 30 June, 2008 in
the aggregate principal amount of up to
US$7,200,000 to be issued in denomination of
US$10,000 each by the Company as evidenced by the
Certificates pursuant to the terms of this
Instrument;
	 	 	 	 	 
	“Noteholder(s)”	 	the person(s) for the time being entered in the
Register of Noteholder(s) maintained pursuant to
Condition 14 as the holder or joint holders of the
Note(s);
	 	 	 	 	 
	“PRC”	 	the People’s Republic of China (which for the
purposes only of this Instrument does not include
Hong Kong);
	 	 	 	 	 
	“Redemption Date”	 	the date on which any Note is redeemed pursuant to
Condition 5(A), (B) or (C) as the case may be;
	 	 	 	 	 
	“Redemption Interest”	 	interest calculated on the principal amount of the
Notes pursuant to Condition 4;
	 	 	 	 	 
	“Register of Noteholders”	 	a register of Noteholders maintained by the Company
in accordance with Condition 14;
	 	 	 	 	 
	“Security Agent”	 	SBI Brightline, LLC, a company incorporated in
Delaware, USA, with a registered office at 610
Newport Center Drive, Suite 1205, Newport Beach,






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	Expression 	 	Meaning
	 	 	CA
92660, USA, or such other person for the time being
appointed by the Noteholders for this purpose;
	 	 	 	 	 
	“Security Documents”	 	the following security documents:
	 	 	 	 	 
	 	 	(a)
	 	memorandum of charge in favour of SBI
Brightline, LLC as security agent in relation to a
charge over the shares of G Link Express Logistics
(KL) Sdn. Bhd., G Link Express Logistics (Penang)
Sdn. Bhd. and G Link Express Logistics (JB) Sdn.
Bhd;
	 	 	 	 	 
	 	 	(b)
	 	share charge in favour of SBI Brightline, LLC
as security agent in relation to a charge over the
shares of Stonepath Logistics (Hong Kong) Limited,
Stonepath Freight Express (Hong Kong) Limited and
Shaanxi Sunshine Cargo Service (Hong Kong) Company
Limited;
	 	 	 	 	 
	 	 	(c)
	 	share charge in favour of SBI Brightline, LLC
as security agent in relation to a charge over the
shares of G Link Express Logistics (Singapore) Pte.
Ltd.;
	 	 	 	 	 
	 	 	(d)
	 	share charge in favour of SBI Brightline, LLC
as security agent in relation to a charge over the
shares of Stonepath Logistics (China) Limited; and
	 	 	 	 	 
	 	 	(e)
	 	share charge in favour of SBI Brightline, LLC
as security agent in relation to a charge over the
shares of the Company,
	 	 	 	 	 
	 	 	and any other documents executed in favour of the
Security Agent as collateral security of the Notes,
as such documents may from time to time be amended
or supplemented;
	 	 	 	 	 
	“Shares”	 	ordinary shares of HK$1.00 each in the capital of
the Company;
	 	 	 	 	 
	“Subsidiary” and
“Holding Company”	 	have the respective meanings ascribed to the terms
“subsidiary” and “holding company” in Section 2 of
the Companies Ordinance (Chapter 32 of the Laws of
Hong Kong);
	 	 	 	 	 
	“Transaction Documents”	 	this Instrument, the Agreement and the Security
Documents;
	 	 	 	 	 
	“US dollars” or “US$”	 	the lawful currency of the United States of America.
	 	 	 	 	 





	 	 	 	 	 
	(B)	 	Except as otherwise expressly provided, expressions defined in the Companies Ordinance (Cap.
32 of the Laws of Hong Kong) as at the date hereof have the same meanings when used in this
Instrument.






3









 







	(C)	 	A reference to a statute or statutory provision includes a reference:-






	 	(a)	 	to that statute or provision as from time to time modified or re-enacted;
	 
	 	(b)	 	to any repealed statute or statutory provision which it re-enacts (with or
without modification); and
	 
	 	(c)	 	to any orders, regulations, instruments or other subordinate legislation made
under the relevant statute or statutory provision.






	(D)	 	Unless the context otherwise requires:-






	 	(a)	 	words in the singular include the plural, and vice versa;
	 
	 	(b)	 	words importing any gender include all genders; and
	 
	 	(c)	 	a reference to a person includes a reference to a body corporate and to an
unincorporated body of persons, and vice versa.






	(E)	 	A reference to Recitals, a Condition, Sub-condition or Schedule is to the recitals, a
condition and a sub-condition of, or the schedule to, this Instrument respectively.
	 
	(F)	 	The headings are for convenience only and do not affect interpretation of this Instrument.
	 
	2.	 	AMOUNT AND ISSUE OF THE NOTES
	 
	(A)	 	The Company shall issue the Notes subject to the terms of the Conditions which shall be
binding on the Company and shall enure for the benefit of the Noteholder(s).
	 
	(B)	 	The Company shall pay all duties or stamp duties (if any) on the issue of the Notes and the
initial delivery of the Notes (including penalties, if any).
	 
	3.	 	STATUS, FORM, DENOMINATION AND TITLE OF THE NOTES
	 
	(A)	 	Each Note constitutes a direct unconditional obligation of the Company and ranks pari passu
and rateably without preference amongst other Notes and is secured on the security constituted
by the Security Documents.
	 
	(B)	 	The Notes are in registered form in the denomination of US$10,000 each without coupons. A
Certificate will be issued to each Noteholder in respect of its registered holding of Notes.
Each Certificate will have an identifying number which will be recorded on the relevant
Certificate and in the Register of Noteholders.
	 
	(C)	 	Title to each Note passes by transfer and registration in the Register of Noteholders as
described in Condition 14. The registered holder of any Note will (except as otherwise
required by law) be treated as the absolute owner of the Note for all purposes (whether or not
it is overdue and regardless of any notice of ownership, trust or any interest or any writing
on, or the theft or loss of, the Certificates issued in respect of it) and no person will be
liable for so treating such holder.
	 
	(D)	 	The Certificate for each Note, if held jointly, shall be delivered to that one of the joint
Noteholders whose name stands first in the Register of Noteholders in respect of the joint
holding.




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	4.	 	INTEREST
	 
	(A)	 	The Notes bear interest from the Issue Date at 11 per cent per annum. Interest will be paid
monthly in cash in arrears on the last Business Day of each month (each an “Interest Payment
Date”), commencing on 30 November, 2006, subject as provided herein.
	 
	(B)	 	Notwithstanding Condition 4(A), for the first four months from the Issue Date, the monthly
payment due to be made each month in respect of the interest on each Note shall be restricted
to an amount equal to 5.5 per cent per annum with the remainder interest of 5.5 per cent per
annum to be deferred (“Deferred Interest Payments”). The Deferred Interest Payments shall
become due and payable immediately in cash in one lump sum on the fourth Interest Payment
Date. In view of this, it is agreed that the following payments shall be made by the Company
on the dates indicated:-





	 	 	 
	Interest Payment Date	 	Payment under Condition 4(B)
	30 November, 2006

	 	US$32,221
	29 December, 2006

	 	US$32,221
	31 January, 2007

	 	US$32,221
	28 February, 2007

	 	US$191,404








 




			
	*	 	Note: The amount includes Deferred Interest Payments and an additional amount agreed
between the Company and the Noteholders.






	(C)	 	Whenever it is necessary to compute an amount of interest in respect of any Note for a period
of other than a full year, such interest will be calculated on the basis of a 360-day year
consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of
days elapsed.
	 
	(D)	 	Each Note will cease to bear interest from the due date for redemption thereof unless payment
of the principal or interest (if any) is improperly withheld or refused or unless default is
otherwise made in respect of any such payment. In any such event, interest (where applicable,
at the higher rate provided in Condition 4(E)) will continue to accrue (after as well as
before any judgment) up to but excluding the date on which payment in full of the principal or
interest (if any) thereof is made.
	 
	(E)	 	If the date for redemption of any Notes is not an Interest Payment Date or if payment of
principal or interest (if any) is improperly withheld or refused in respect of any Notes or if
default is otherwise made in respect of any such payment or if the Notes have become due and
payable pursuant to Condition 12, interest accrued and unpaid in respect of any such Notes
from and including the Issue Date or, as the case may be, the Interest Payment Date being the
last one preceding such due date for redemption on which interest accrued up to such date was
paid or, if later, the date up to which interest in respect of such Notes accrued and was
paid, shall be paid in accordance with Condition 13.
	 
	(F)	 	In the event that an Event of Default occurs, interest on the Notes will accrue at a rate per
annum equal to two per cent above the rate set out in Condition 4(A), payable on demand. Such
interest will accrue from the day that the Event of Default occurs.




5









 






	5.	 	REDEMPTION
	 
	(A)	 	No Noteholder shall be entitled to redeem its Notes prior to the Maturity Date, except on the
occurrence of an Event of Default.
	 
	(B)	 	The Company shall, on the Maturity Date, redeem each outstanding Note at a value equal to the
aggregate of (i) the principal amount outstanding under the Note; and (ii) all interest
accrued but unpaid in respect of the Note up to (but excluding) the Maturity Date.
	 
	(C)	 	The Company shall have the right at any time prior to the Maturity Date to redeem any or all
of the outstanding Notes by delivering a one (1)-month redemption notice in writing to any one
or more of the Noteholders (as the case may be) at a value equal to the aggregate of (i) the
principal amount outstanding under such outstanding Notes; and (ii) all interest accrued but
unpaid in respect of such outstanding Notes up to (but excluding) the Redemption Date.
	 
	(D)	 	The relevant Noteholders shall surrender the relevant Certificates for cancellation against
the full payment to be made by the Company upon such redemption. Such Notes, once redeemed,
shall be cancelled forthwith by the Company.
	 
	6.	 	EXPENSES
	 
	(A)	 	The Company will pay all reasonable costs and expenses properly incurred by the Noteholders
pursuant to any stamp or other duties or taxes on or in connection with the issue of the Notes
and delivery of any of Transaction Documents or the consummation of the transactions
contemplated thereby.
	 
	(B)	 	The Company shall pay all Noteholders for, and to hold such persons harmless against
liability for, the payment of: (i) all losses (including reasonable fees and expenses properly
incurred) arising in connection with a breach by the Company of any Transaction Document, and
(ii) reasonable fees and expenses properly incurred in connection with the investigation of
any breach by the Company of any Transaction Document.
	 
	7.	 	INDEMNITY
	 
	 	 	The Company hereby unconditionally and irrevocably agrees to indemnify each Noteholder
against any loss that such Noteholder suffers due to:-






	 	(i)	 	the Company’s liability to pay any amounts hereunder being unenforceable in
whole or in part for any reason whatsoever; or
	 
	 	(ii)	 	any sum which is due and payable under the Notes not being paid in accordance
with the terms of the Notes through any act or omission of the Company.






	8.	 	REPLACEMENT OF CERTIFICATES
	 
	 	 	If any Certificate is mutilated, defaced, destroyed, stolen or lost, it may be replaced by
the Company upon delivery of a duly executed declaration of loss and indemnity from the
Noteholder in such form as may be reasonably required by the Company and payment of US$1.00
per Certificate. Any mutilated or defaced Certificate must be surrendered before
replacements will be issued.




6









 












	9.	 	RIGHTS OF THE NOTEHOLDER(S)
	 
	(A)	 	As regards voting
	 
	 	 	Neither the Notes nor the Certificates shall confer on the Noteholder(s) the right to vote
at a general meeting of the Company or any rights of a shareholder in the Company.
	 
	(B)	 	As regards taxation
	 
	 	 	Save and except any tax on the overall income of any Noteholder(s), all payments in respect
of the Notes will be made without withholding or deduction of or on account of any present
or future taxes, duties, assessments or governmental charges of whatever nature imposed or
levied by or on behalf of the government of Hong Kong or any other authorities therein or
thereof having power to tax unless the withholding or deduction of such taxes, duties,
assessments or governmental charges is required by law. In that event, the Company will pay
such additional amounts, save and except any tax on the overall income of any Noteholder(s),
as may be necessary in order that the net amounts received by the Noteholder(s) after such
withholding or deduction shall be equal to the respective amounts receivable in respect of
the Note(s) in the absence of such withholding or deduction.
	 
	10.	 	RESERVED MATTERS
	 
	 	 	Except as specifically and fairly disclosed in Schedule 8 of the Agreement, the
Company undertakes to the Noteholders that it shall not, and shall procure that none of the
Group Companies shall, do any of the things listed in Schedule B unless the same has
been approved in writing by each of the Noteholders.
	 
	11.	 	UNDERTAKINGS AND COVENANTS
	 
	 	 	Save and except with the prior approval in writing from all the Noteholders (such approval
not to be unreasonably withheld or delayed), the Company agrees and undertakes with the
Noteholders that:
	 
	(A)	 	Duration
	 
	 	 	The undertakings in this Condition shall remain in full force from and after the date of
this Instrument and so long as any Note remains outstanding.
	 
	(B)	 	Holding company
	 
	 	 	The Company will remain as the holding company of the Group for so long as any Note remains
outstanding.
	 
	(C)	 	Board meetings
	 
	 	 	The Company shall either procure that meetings of the directors of the Company are held at
least once a year to review the management accounts, sales plans and analyses, expenditures
accounts and projections and any other businesses as may be deemed necessary by the
director(s) nominated by the Noteholders, or address such issues and matters at the meetings
of the directors of the Company’s parent, as appropriate.




7









 












	(D)	 	Financial statements
	 
	 	 	The Company shall provide the Noteholders with:-






	 	(i)	 	monthly accounts of each Group Company and consolidated accounts of the Group
within 61 days after the end of each month which shall include profit and loss
accounts, balance sheets and cashflow statements;
	 
	 	(ii)	 	accounts of each Group Company and audited consolidated accounts of the Group
(to the extent that such Group Company is required by applicable law in its place of
incorporation or the places that it operates to prepare audited accounts) within 10
months after the end of each Financial Year; and
	 
	 	(iii)	 	such further information as the Noteholders may from time to time reasonably
require as to all matters relating to the businesses or affairs or the financial
position of the Group.






	(E)	 	Dividend and payments
	 
	 	 	Save in the ordinary course of business or where the person receiving the relevant payment
is itself a Group Company, none of the Group Companies may (i) declare, make or pay any
dividend or other distribution to any of its shareholder(s) or (ii) advance any loans or
repay, cancel or otherwise extinguish any loans or amounts due and owing by any Group
Company or otherwise make any payment in any form and of any nature to one another, or to
any director or shareholder of any Group Company or their respective Affiliates, or to a
person who, if such Group Company had been a listed issuer (within the meaning of the
Listing Rules) would have fallen within the definition of a “connected person” in relation
to the Company for the purposes of the Listing Rules.
	 
	(F)	 	Accounts and management accounts
	 
	 	 	The Company hereby covenants and undertakes with the Noteholder(s) that each of the
financial statements and accounts referred to in paragraphs (i) to (ii) of Condition 11(D):-






	 	(i)	 	will be prepared in accordance with the requirements of all relevant statutes
and on a basis consistent with the books of account of the Group (including, in
particular, accounting policies in respect of amortisation on royalty costs) in respect
of which they are prepared and are/will be true and accurate in all material respects;
	 
	 	(ii)	 	contain/will contain full and adequate provision or reserve for bad and
doubtful debts and for depreciation of fixed assets; and
	 
	 	(iii)	 	have made/will make full provision for all established liabilities, have
made/will make provision for (or contain a note in accordance with good accounting
practice respectively) all deferred or contingent liabilities whether liquidated or
unliquidated at the dates thereof.






	(G)	 	Authorisations, approvals, consents etc.
	 
	 	 	The Company will obtain and promptly renew (if appropriate) from time to time, and will
promptly furnish certified copies to the Noteholder(s) of, all such authorisations,
approvals, consents, licences and exemptions as may be required under any applicable law or
regulation




8









 












	 	 	to enable it to perform its obligations under the Notes or required for the validity or
enforceability of the Notes.
	 
	(H)	 	Tax returns, disputes and records
	 
	 	 	Each Group Company will make all proper returns required to be made under the applicable law
and regulations to which such Group Company is subject, and will supply all notices,
accounts and information required to be supplied, to all relevant inland revenue or any
other fiscal authority under the applicable law and regulations to which such Group Company
is subject.
	 
	(I)	 	Non-arm’s length transactions
	 
	 	 	No Group Company may be a party to any transaction or arrangement (including, but not
limited to, sharing of services, overheads or administrative charges) under which it may be
required to pay for any services or facilities of any kind an amount which is in excess of
the market value of that asset, services or facilities in any material respect or will
receive any payment for any asset, services or facilities of any kind that it has supplied
or provided or is liable to supply or provide which is less than the market value of that
asset, services or facilities in any material respect.
	 
	(J)	 	Compliance
	 
	 	 	For so long as any part of the principal amount of any Note remains outstanding, the Company
will comply in full with the terms and conditions of the Notes and will not take any action
which will cause a breach or default thereof.
	 
	(K)	 	Business
	 
	 	 	The Group will not be engaged in any business activities other than the Business.
	 
	(L)	 	Credit insurance policy






	 	(i)	 	Upon the request in writing from all the Noteholders, the Company shall use its
best efforts to maintain or procure the relevant Subsidiary to maintain a credit
insurance policy on the accounts receivable of such Subsidiary in PRC which are on
commercial terms reasonably satisfactory to the Security Agent.
	 
	 	(ii)	 	The Company shall pay all premiums as they fall due under such policy from time
to time, provided that the monthly payment(s) of interest on the Notes falling due on
the Interest Payment Date(s) immediately following the payment of any such premium from
time to time by the Company shall be reduced by an amount (prorated, as between the
Notes, on the basis of their respective principal amounts) equal to the premium so
paid.






	12.	 	EVENTS OF DEFAULT
	 
	(A)	 	Without prejudice to the other provisions of the Conditions, the principal amount outstanding
on any Notes together with all interest accrued thereon up to and including the date of
repayment shall become immediately repayable on the occurrence of any of the following events
and the Noteholder(s) or any one of them has/have by notice in writing to the Company demanded
immediate repayment of the relevant Note(s) (as the case may be):-






	 	(i)	 	if the Company fails to make a payment of principal in respect of the relevant
Notes





9









 











	 	 	 	on the due date for payment thereof and such payment has not been made within 14
days thereafter;
	 
	 	(ii)	 	if the Company fails to make a payment of any interest in respect of the
relevant Notes on the due date for payment thereof and such payment has not been made
within 14 days thereafter;
	 
	 	(iii)	 	if there is a material default in the performance or observance of any of the
obligations of the Company or any other Group Company (including, without limitation,
its undertakings) under the Transaction Documents and (only where such failure is in
the reasonable opinion of the Security Agent capable of remedy and which is not failure
to pay money when due) such default is not remedied to the reasonable satisfaction of
the Security Agent within 14 days after the Company has received notice from any of the
Noteholders of the relevant Note(s) to remedy or procure to remedy such default;
	 
	 	(iv)	 	any Group Company defaults or receives notice of default under any agreement or
obligation relating to borrowing or any indebtedness of any Group Company becomes
payable or capable of being declared payable before its stated maturity or is not paid
when due or any encumbrance, guarantee or other security now or hereafter created by
any Group Company becomes enforceable;
	 
	 	(v)	 	if the holder of any encumbrance takes possession or a receiver is appointed of
the whole or any substantial part of the assets or undertaking of a Group Company,
which would materially and adversely affect the financial or business position of the
Group as a whole;
	 
	 	(vi)	 	if any of the Group Companies ceases or threatens to cease to carry on its
business or a substantial part of its business, the cessation of which would materially
and adversely affect the financial or business position of the Group as a whole;
	 
	 	(vii)	 	if it shall become unlawful for the Company or any Group Company to perform
all or any of its obligations under this Instrument, the relevant Notes or the
Transaction Documents (as the case may be), or this Instrument or the relevant Notes or
the Transaction Documents shall for any reason cease to be in full force or effect or
shall be declared to be void or illegal by a court of competent jurisdiction or be
repudiated by the Company or any Group Company (as the case may be) or the legality,
validity, priority, admissibility in evidence or enforceability thereof shall be
contested by the Company or any Group Company (as the case may be) or the Company or
any Group Company shall deny that it has any, or any further, liability or obligation
under or in respect of the same (as the case may be);
	 
	 	(viii)	 	if any of the Group Companies becomes insolvent or unable to pay its debts when due
or commits or permits any act of bankruptcy, which term shall include (a) the filing of
a petition in any bankruptcy, reorganisation, winding-up or liquidation proceeding or
other proceedings analogous in purpose or effect and the failure by any of the Group
Companies to have any such petition discharged within 14 days, (b) the appointment of a
receiver or trustee for the bankruptcy, reorganisation, winding-up or liquidation of
any assets or properties of any of the Group Companies and such appointment is not
discharged within 14 days, (c) the making by any of the Group Companies of an
assignment or an arrangement or composition with or for the benefit of its respective
creditors generally, (d) the entry of any court order or judgement confirming the
bankruptcy or insolvency of any of the Group Companies, or (e) if any order is made or
an effective resolution is passed for the winding up, liquidation or dissolution of any
of the Group Companies or the taking of any corporate action to authorise or give




10









 






	 	 	 	effect to any of the foregoing otherwise than for the purpose of a solvent
reconstruction or amalgamation, which, in each of the above cases, would in the
reasonable opinion of the Security Agent materially and adversely affect the
financial or business position of the Group as a whole;
	 
	 	(ix)	 	if a moratorium is agreed or declared in respect of any present or future
indebtedness of any of the Group Companies or any governmental agency or authority
confiscates or seizes or compulsorily purchases or expropriates any asset or capital of
any of the Group Companies, which would in the reasonable opinion of the Security Agent
materially and adversely affect the financial or business position of the Group as a
whole;
	 
	 	(x)	 	if a distress, attachment or execution or other legal process is levied or
enforced upon or sued against any part of the assets of any of the Group Companies and
is not discharged or stayed within 14 days thereof (or such longer period as the
Noteholder(s) may consider appropriate in relation to the jurisdiction concerned)
which, in each of the above cases, would in the reasonable opinion of the Security
Agent materially and adversely affect the financial or business position of the Group
as a whole;
	 
	 	(xi)	 	any event occurs which has an analogous effect to any of the events referred to
in paragraphs (vii) to (ix) above;
	 
	 	(xii)	 	if any certificate, representation, warranty or statement given or made by the
Company, or by any of the parties to the Security Documents, whether in this
Instrument, the Agreement or any of the Security Documents, or in any notice,
certificate, instrument, document or statement contemplated hereby or thereby or made
or delivered pursuant hereto or thereto is or proves to be or have been untrue or
inaccurate in any material respect;
	 
	 	(xiii)	 	if in respect of any Group Company, (a) any loan, guarantee, indemnity or other
indebtedness or any other obligation for borrowed money shall become or be declared or
become capable (all grace periods, if any, having expired) of being declared due
prematurely by reason of a default of its obligations in respect of the same or (b) it
shall, save and except in connection with indebtedness due to another Group Company,
fail to make any payment in respect of such loan, guarantee, indemnity or other
indebtedness or obligation for borrowed money on the due date for such payment, or (c)
the security for any such loan, guarantee, indemnity or other indebtedness or
obligation for borrowed money shall become enforceable, save and except in connection
with indebtedness due to another Group Company;
	 
	 	(xiv)	 	the Holding Company of the Company defaults or receives notice of default
under any agreement or obligation relating to borrowing to which it is a party or any
indebtedness becomes payable or capable of being declared payable before its stated
maturity or is not paid when due or any encumbrance, guarantee or other security now or
hereafter created by the Holding Company becomes enforceable;
	 
	 	(xv)	 	if there is a material default in the performance or observance by the Holding
Company of the Company of any of its obligations under any agreement or contract to
which it is a party and such default (i) does not relate to failure to pay money when
due and (ii) is not remedied to the reasonable satisfaction of the Security Agent and
shall continue for not less than twenty-one (21) days after the Company has received
notice from any of the Noteholders of the relevant Note(s) to remedy or procure to
remedy such default.




11









 












	(B)	 	The Company will forthwith on becoming aware of any such Event of Default give notice in
writing thereof to each of the Noteholder(s).
	 
	(C)	 	At any time after the relevant Note(s) have become immediately payable pursuant to Sub-
condition (A) above, the Noteholder(s) of the relevant Note(s) may without further notice
institute such proceedings as it may think fit to enforce payment of the monies due.
	 
	(D)	 	Upon notice being given to the Company by a Noteholder pursuant to Sub-condition (A) above,
the relevant Note(s) in respect of which such notice has been given shall immediately become
due and repayable at a sum equivalent to the aggregate of (a) the principal amount outstanding
under the relevant Note(s); and (b) all interest accrued but unpaid in respect of the relevant
Note(s) pursuant to Condition 4 up to (but excluding) the date of repayment; and (c) the
Redemption Interest calculated from the date of issue of the relevant Note(s) to (but
excluding) the date of repayment.
	 
	(E)	 	The Company will fully indemnify each Noteholder of the relevant Note(s) in respect of the
liability of the Company hereunder upon the occurrence of an Event of Default with respect to
the relevant Note(s) and from and against any costs, expenses, liabilities and losses
(including all reasonable legal fees and costs properly incurred) which such Noteholders would
suffer or incur as a result of or in connection with enforcing repayment of the relevant
Note(s) and/or any obligation of the Company under the relevant Note(s).
	 
	13.	 	PAYMENTS
	 
	 	 	All payments to be made by the Company to the Noteholder(s) hereunder shall be made by the
Company by remitting the amount to be paid in US dollars and not later than 11:00 a.m. (Hong
Kong time) on the due date in funds which are for same date settlement to the Noteholder(s)’
account with a bank in Hong Kong as may be notified by the Noteholder(s) from time to time
or, upon the request of the Noteholder(s), by delivery of bank draft issued by a bank(s) in
Hong Kong to the Noteholder(s) at their addresses as specified in the Register of
Noteholder(s).
	 
	14.	 	TRANSFER, TRANSMISSION AND REGISTER
	 
	(A)	 	The Company shall at all times maintain in Hong Kong a transfer office for the Notes which
shall, unless the Company shall otherwise notify the Noteholder(s), be the registered office
of the Company in Hong Kong.
	 
	(B)	 	A Register of the Noteholder(s) shall be kept by the Company at the aforementioned transfer
office and there shall be entered in such Register of Noteholders the names and addresses of
the holder(s) for the time being and the amount of the Notes held by such Noteholder(s). Any
change of the legal name or address of a Noteholder shall forthwith be notified to the Company
in writing and thereupon the Register of Noteholders shall be altered accordingly.
	 
	(C)	 	Except as required by law or as provided by the Conditions, the Company shall recognise the
registered holder of any Note as the absolute owner thereof and the Company shall not be bound
by or be required to recognise any trust to which any Note may be subject.
	 
	(D)	 	Every Noteholder will be recognised by the Company as entitled to its Note free from any
equity, set-off or counter-claim on the part of the Company against the original or any
intermediate holder of the Note.
	 
	(E)	 	The Notes may be transferred by the holder thereof without
requiring the consent of the Company.




12









 






	(F)	 	Every instrument of transfer for the transfer of any Note shall be in the form set out in
Schedule C and signed by or on behalf of both the transferor and the transferee thereof and
must be delivered to the aforementioned transfer office of the Company for registration
accompanied by the Certificate(s) for the Note(s) to be transferred.
	 
	(G)	 	Any Noteholder(s), and any person authorised in writing by any Noteholder(s), shall be at
liberty at all reasonable times during office hours upon prior appointment with the Company to
inspect the Register of Noteholders and take copies thereof or any part thereof.
	 
	15.	 	VARIATIONS TO THE CONDITIONS
	 
	 	 	The terms of this Instrument and the Certificate may only be varied by agreement in writing
between the Company and all Noteholder(s).
	 
	16.	 	NOTICES
	 
	 	 	Any notices to be given to the Noteholder(s) or to the Company shall be given in writing and
by sending the notice by hand or in a prepaid envelope by registered post (by registered
airmail if to an overseas address), in the case of Noteholder(s), to their respective
addresses as specified in the Register of Noteholders or, in the case of the Company, to its
registered office in Hong Kong for the time being (for the attention of: the Company
Secretary), or to such other address in Hong Kong as the Noteholder(s) or, as the case may
be, the Company shall have notified to the others by not less than 5 Business Days’ prior
notice from time to time; and any such notice, if delivered by hand, shall be deemed to be
served at the time of delivery, or (as the case may be) if delivered by registered post,
shall be deemed to be served 48 hours (3 Business Days if posted by registered airmail from
or to an overseas address) after posting, or if sooner upon acknowledgement of receipt by or
on behalf of the party to which it is addressed.
	 
	17.	 	GOVERNING LAW
	 
	 	 	The Notes, including the Conditions and the Certificates, shall be governed by and construed
in accordance with the laws of Hong Kong and the Noteholders and the Company hereby
irrevocably submit to the non-exclusive jurisdiction of the Hong Kong courts in connection
therewith.
	 
	18.	 	PROCESS AGENT
	 
	 	 	Each of the following parties hereby irrevocably appoints the person set opposite its name
below as its agent to receive on its behalf service of proceedings issued out of the courts
of Hong Kong in any action or proceedings arising out of or in connection with this
Instrument, the Notes, the Conditions and/or the Certificates. In the event of such agent
ceasing to act, the relevant parties shall immediately appoint another person as its agent
for such purpose and give notice in writing of such appointment to all the other parties:




13









 











	 	 	 
	Parties	 	Names & addresses of agents
	 
	 	 
	SBI Brightline, LLC

	 	Bedrock China Futures, Limited
	 

	 	Room 4301 — 09
	 

	 	Jardine House
	 

	 	One Connaught Place
	 

	 	Central
	 

	 	Hong Kong
	 
	 	 
	Hong Kong League Central

	 	Bedrock China Futures, Limited
	Credit Union

	 	Room 4301 — 09
	 

	 	Jardine House
	 

	 	One Connaught Place
	 

	 	Central
	 

	 	Hong Kong






14









 






SCHEDULE A




FORM OF CERTIFICATE




US$[•]




Certificate no.: [•]




STONEPATH HOLDINGS (HONG KONG) LIMITED

(Incorporated in Hong Kong with limited liability)




UP TO US$7,200,000 11% SECURED NOTES DUE 30 JUNE, 2008



STONEPATH HOLDINGS (HONG KONG) LIMITED (the “Company”) hereby certifies that [•] of [•]
is, at the date hereof, entered in the Register of Noteholders as the registered holder of the note
in the principal amount of US$[•] (the “Note”). The Note is constituted by the Instrument of
the Company dated [•] and is subject to, and has the benefit of, the terms and conditions
(the “Conditions”) set out in such Instrument. For value received, the Company promises to pay the
person who appears at the relevant time on the Register of Noteholders as Noteholder of the Note in
respect of which this Certificate is issued such amount or amounts as shall become due in respect
of such Note and otherwise to comply with the terms and conditions of the Instrument.




This Certificate is evidence of entitlement only. Title to the Note passes only on due
registration on the Register of Noteholders and only the duly registered Noteholder is entitled to
payments on the Note in respect of which this Certificate is issued.



This Certificate is governed by, and shall be construed in accordance with, the laws of the Hong
Kong Special Administrative Region of the People’s Republic of China.



	 	 	 	 	 	 	 	 	 
	Issued on [•]
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	THE COMMON SEAL OF

	 	 	)	 	 	 	 	 
	STONEPATH HOLDINGS

	 	 	)	 	 	 	 	 
	(HONG KONG) LIMITED

	 	 	)	 	 	 	 	 
	was hereunto affixed

	 	 	)	 	 	 	 	 
	in the presence of :-

	 	 	)	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

Director

	 	 	 	 	 	 

Director/Secretary
	 	 






15









 






SCHEDULE B




RESERVED MATTERS





	1.	 	The entry by the Company or any of the other Group Companies into any agreement, commitment
or understanding or transaction (including, for instance, payments of remuneration or
declaration of dividends) with one another, or with any director or shareholder of any Group
Company or their respective Affiliates other than in the ordinary course of business.
	 
	2.	 	The borrowing by any Group Companies of any new borrowing facilities except in the ordinary
course of business of the Group or inter-company borrowings within the Group.
	 
	3.	 	The giving of any guarantee by any Group Company in respect of indebtedness of any person,
other than any other Group Company, and other than in the ordinary course of business.
	 
	4.	 	The giving of any loan to any of the shareholders of the Company or shareholders of the Group
Company exceeding the sum of US$40,000.
	 
	5.	 	The sale, purchase, transfer, leasing, licensing or disposal by any Group Company of all or
any part of its business, undertaking or assets whether by a single transaction or series of
transactions exceeding the sum of US$100,000, other than in the ordinary course of business.
	 
	6.	 	Any variation in the authorized or issued share capital (or the rights attaching to it or any
class of it) of any Group Company or the creation of any options or other rights to subscribe
for or to convert into shares in such a company or the purchase (by any Group Company) of any
shares in the capital of such a company.
	 
	7.	 	Any redemption or repurchase of the issued share capital or other securities of any Group
Company (save for the Notes).
	 
	8.	 	Any amendment to the memorandum or articles of association or equivalent constitutional
documents of any Group Company other than any amendments that do not affect the rights of the
Noteholders under the Notes.
	 
	9.	 	Any alteration of the accounting reference date, except insofar as is necessary to comply
with the accounting policies and practices of the Company.
	 
	10.	 	Any material alteration (including cessation) to the general nature of the business of any
Group Company.
	 
	11.	 	The entry into merger, liquidation, dissolution, winding-up, bankruptcy, insolvency or
recapitalising by any Group Company.
	 
	12.	 	Any individual acquisition, capital expenditure or expenditure in excess of an aggregate of
US$100,000, other than in the ordinary course of business.




16









 











SCHEDULE C




FORM OF INSTRUMENT OF TRANSFER




UP TO US$7,200,000 11% SECURED NOTES DUE 30 JUNE, 2008




(Being the registered noteholder of the enclosed Note(s) forming part of the secured notes of an
aggregate principal amount of up to US$7,200,000 (the “Notes”) issued by Stonepath Holdings (Hong
Kong) Limited (the “Issuer”) pursuant to a resolution of the board of directors of the Issuer
passed on [•], 2006.)



Terms defined in the enclosed Note(s) (as it may be amended from time to time) shall bear the same
meaning in this Form of Transfer.



FOR VALUE RECEIVED the undersigned hereby transfers to the transferee (the “Transferee”) whose
particulars are set out below the enclosed Note(s), and all rights in respect thereof, and
irrevocably requests the Issuer to register and to issue new Note(s) in accordance with the terms
of the Notes (as it may be amended from time to time).



Particulars of the Transferee are as follows:-

(PLEASE PRINT OR TYPE IN THE RELEVANT INFORMATION)



	 	 	 
	Name of Transferee:
	 	 
	 
	 	 
	Registered Address:
	 	 
	 
	 	 
	Correspondence
	 	 
	Address:
	 	 
	 
	 	 
	Facsimile:
	 	 
	 
	 	 
	US dollar registered account for the purposes of
payments under the Notes:

	 	•     Name of Account

•     Account No.

•     Sort Code:

•     Name of Bank:

•     Address of Bank:






	 	 	 	 	 
	Dated:
	 	 	 	 
	 
	 	 	 	 
	Transferor’s Name:

	 	Transferee’s Name:	 	 
	 
	 	 	 	 
	 


	 	 

	 	 
	 
	 	 	 	 
	Transferor’s authorised signature:

	 	Transferee’s authorised signature:	 	 
	 
	 	 	 	 
	 


	 	 

	 	 






17









 






	 	 	 	 	 
	Witness to Transferor’s signature:

	 	Witness to Transferee’s signature:	 	 
	 
	 	 	 	 
	[signature]

	 	[signature]	 	 
	 
	 	 	 	 
	 

name

	 	 

name
	 	 






Notes:





	1.	 	A representative of the Noteholder should state the capacity in which he signs (e.g.
director).
	 
	2.	 	In the case of joint holders, all joint holders must sign this transfer form.
	 
	3.	 	The signature of the person effecting a transfer shall conform to any list of duly authorised
specimen signatures supplied by the registered holder or be certified by a recognised bank,
notary public or in such other manner as the Agent or the Registrar may require.




18









 











	 	 	 
	THE COMMON SEAL OF
	 	)
	STONEPATH HOLDINGS
	 	)
	(HONG KONG) LIMITED
	 	)
	was hereunto affixed
	 	)
	in the presence of :-
	 	)






19