Document:

Exhibit 10.26

 

THIS WARRANT
AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS.  THIS WARRANT AND THE
COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT 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.

 

Right to Purchase up to 2,500,000 Shares of Common
Stock of

Stonepath Group, Inc.

(subject to adjustment as provided herein)

 

COMMON STOCK
PURCHASE WARRANT

 

	
  No.                                   

  	
   

  	
  Issue Date: August 31, 2005

  

 

STONEPATH GROUP, INC., a corporation organized under
the laws of the State of Delaware (the “Company”), hereby certifies that, for
value received, LAURUS MASTER FUND, LTD., or assigns (the “Holder”), is
entitled, subject to the terms set forth below, to purchase from the Company
(as defined herein) from and after the Issue Date of this Warrant and at any
time or from time to time before 5:00 p.m., New York time, through the
close of business on August 30, 2010 (the “Expiration Date”), up to
2,500,000 fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $0.001 par value per share, at the applicable Exercise Price per
share (as defined below).  The number and
character of such shares of Common Stock and the applicable Exercise Price per
share are subject to adjustment as provided herein.

 

As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:

 

(a)                                  The
term “Common Stock” includes (i) the Company’s Common Stock, par value
$0.001 per share; and (ii) any other securities into which or for which
any of the securities described in the preceding clause (i) may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.

 

(b)                                 The
term “Company” shall include Stonepath Group, Inc. and any person or
entity which shall succeed, or assume the obligations of, Stonepath Group, Inc.
hereunder.

 

(c)                                  The
“Exercise Price” applicable under this Warrant shall be as follows:

 

(i)                                     a
price of $1.13 for the first 900,000 shares acquired hereunder;

 

 

(ii)                                  a
price of $1.41 for the next 700,000 shares acquired hereunder;

 

(iii)                               a
price of $4.70 for the next 450,000 shares acquired hereunder; and

 

(iv)                              a
price of $7.52 for the last 450,000 shares acquired hereunder.

 

(d)                                 The
term “Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which
the holder of the Warrant at any time shall be entitled to receive, or shall
have received, on the exercise of the Warrant, in lieu of or in addition to
Common Stock, or which at any time shall be issuable or shall have been issued
in exchange for or in replacement of Common Stock or Other Securities pursuant
to Section 4 or otherwise.

 

1.                                       Exercise
of Warrant.

 

1.1.                              Number
of Shares Issuable upon Exercise. 
From and after the date hereof through and including the Expiration
Date, the Holder shall be entitled to receive, upon exercise of this Warrant in
whole or in part, by delivery of an original or fax copy of an exercise notice
in the form attached hereto as Exhibit A (the “Exercise Notice”),
accompanied by payment of the then applicable Exercise Price, shares of Common
Stock of the Company, subject to adjustment pursuant to Section 4.

 

1.2.                              Fair
Market Value.  For purposes hereof,
the “Fair Market Value” of a share of Common Stock as of a particular date (the
“Determination Date”) shall mean:

 

(a)                                  If
the Company’s Common Stock is traded on the American Stock Exchange or another
national exchange or is quoted on the National or SmallCap Market of The Nasdaq
Stock Market, Inc. (“Nasdaq”), then the closing or last sale price, respectively,
reported for the last business day immediately preceding the Determination
Date.

 

(b)                                 If
the Company’s Common Stock is not traded on the American Stock Exchange or
another national exchange or on the Nasdaq but is traded on the NASD Over the Counter
Bulletin Board, then the mean of the average of the closing bid and asked
prices reported for the last business day immediately preceding the
Determination Date.

 

(c)                                  Except
as provided in clause (d) below, if the Company’s Common Stock is not publicly
traded, then as the Holder and the Company agree or in the absence of agreement
by arbitration in accordance with the rules then in effect of the American
Arbitration Association, before a single arbitrator to be chosen from a panel
of persons qualified by education and training to pass on the matter to be
decided.

 

(d)                                 If
the Determination Date is the date of a liquidation, dissolution or winding up,
or any event deemed to be a liquidation, dissolution or winding up pursuant to
the Company’s charter, then all amounts to be payable per share to holders of
the Common Stock pursuant to the charter in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per share in
respect of the Common 

 

2

 

Stock in liquidation under the charter, assuming for the purposes of
this clause (d) that all of the shares of Common Stock then issuable upon
exercise of the Warrant are outstanding at the Determination Date.

 

1.3.                              Company
Acknowledgment.  The Company will, at
the time of the exercise of this Warrant, upon the request of the Holder
acknowledge in writing its continuing obligation to afford to the Holder any
rights to which such Holder shall continue to be entitled after such exercise
in accordance with the provisions of this Warrant.  If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to the Holder any such rights.

 

1.4.                              Trustee
for Warrant Holders.  In the event
that a bank or trust company shall have been appointed as trustee for the
Holder of this Warrant pursuant to Subsection 3.2, such bank or trust
company shall have all the powers and duties of a warrant agent (as hereinafter
described) and shall accept, in its own name for the account of the Company or
such successor person as may be entitled thereto, all amounts otherwise payable
to the Company or such successor, as the case may be, on exercise of this
Warrant pursuant to this Section 1.

 

2.                                       Procedure
for Exercise.

 

2.1.                              Delivery
of Stock Certificates, Etc., on Exercise. 
The Company agrees that the shares of Common Stock purchased upon
exercise of this Warrant shall be deemed to be issued to the Holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment shall have been made for
such shares in accordance herewith.  As
soon as practicable after the exercise of this Warrant in full or in part, and
in any event within three (3) business days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder, or as the Holder (upon
payment by the Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which the Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which the Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise.

 

2.2.                              Exercise.  Payment may be made, in the Holder’s
discretion, either in cash or by certified or official bank check payable to
the order of the Company equal to the applicable aggregate Exercise Price, for
the number of Common Shares specified in such Exercise Notice (as such exercise
number shall be adjusted to reflect any adjustment in the total number of
shares of Common Stock issuable to the Holder per the terms of this Warrant)
and the Holder shall thereupon be entitled to receive the number of duly
authorized, validly issued, fully-paid and non-assessable shares of Common
Stock (or Other Securities) determined as provided herein.

 

3

 

3.                                       Effect
of Reorganization, Etc.; Adjustment of Exercise Price.

 

3.1.                              Reorganization,
Consolidation, Merger, Etc.  In case
at any time or from time to time the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer
all or substantially all of its properties or assets to any other person under
any plan or arrangement contemplating the dissolution of the Company, then, in
each such case, as a condition to the consummation of such a transaction,
proper and adequate provision shall be made by the Company whereby the Holder,
on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if
such Holder had so exercised this Warrant, immediately prior thereto, all
subject to further adjustment thereafter as provided in Section 4.

 

3.2.                              Dissolution.  In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, concurrently with any distributions made to holders of its
Common Stock, shall at its expense deliver or cause to be delivered to the
Holder the stock and other securities and property (including cash, where
applicable) receivable by the Holder pursuant to Section 3.1, or, if the
Holder shall so instruct the Company, to a bank or trust company specified by
the Holder and having its principal office in New York, NY as trustee for the
Holder (the “Trustee”), in each case against payment of the Exercise Price by
the Holder.

 

3.3.                              Continuation
of Terms.  Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force
and effect and the terms hereof shall be applicable to the shares of stock and
other securities and property receivable on the exercise of this Warrant after
the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case may be,
and shall be binding upon the issuer of any such stock or other securities,
including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company, whether or not
such person shall have expressly assumed the terms of this Warrant as provided
in Section 4.  In the event this
Warrant does not continue in full force and effect after the consummation of
the transactions described in this Section 3, then the Company’s
securities and property (including cash, where applicable) receivable by the
Holder will be delivered to the Holder or the Trustee as contemplated by Section 3.2.

 

4.                                       Extraordinary
Events Regarding Common Stock.  In
the event that the Company shall (a) issue additional shares of the Common
Stock as a dividend or other distribution on outstanding Common Stock or any
preferred stock issued by the Company, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the
Common Stock into a smaller number of shares of the Common Stock, then, in each
such event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such event, and
the product so obtained shall thereafter be the Exercise Price then in effect.
The Exercise 

 

4

 

Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.  The number of shares of Common Stock that the
Holder shall thereafter, on the exercise hereof as provided in Section 1,
be entitled to receive shall be adjusted to a number determined by multiplying
the number of shares of Common Stock that would otherwise (but for the
provisions of this Section 4) be issuable on such exercise by a fraction
of which (a) the numerator is the Exercise Price that would otherwise (but
for the provisions of this Section 4) be in effect, and (b) the
denominator is the Exercise Price in effect on the date of such exercise
(taking into account the provisions of this Section 4).

 

5.                                       Certificate
as to Adjustments.  In each case of
any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable on the exercise of this Warrant, the Company at its
expense will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the
terms of this Warrant and prepare a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration
received or receivable by the Company for any additional shares of Common Stock
(or Other Securities) issued or sold or deemed to have been issued or sold, (b) the
number of shares of Common Stock (or Other Securities) outstanding or deemed to
be outstanding, and (c) the Exercise Price and the number of shares of
Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted or
readjusted as provided in this Warrant. 
The Company will forthwith mail a copy of each such certificate to the
Holder and any Warrant agent of the Company (appointed pursuant to Section 11
hereof).

 

6.                                       Reservation
of Stock, Etc., Issuable on Exercise of Warrant.  The Company will at all times reserve and
keep available, solely for issuance and delivery on the exercise of this
Warrant, shares of Common Stock (or Other Securities) from time to time
issuable on the exercise of this Warrant.

 

7.                                       Assignment;
Exchange of Warrant.  Subject to
compliance with applicable securities laws, this Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a “Transferor”)
in whole or in part.  On the surrender
for exchange of this Warrant, with the Transferor’s endorsement in the form of Exhibit B
attached hereto (the “Transferor Endorsement Form”) and together with evidence
reasonably satisfactory to the Company demonstrating compliance with applicable
securities laws, which shall include, without limitation, the provision of a
legal opinion from the Transferor’s counsel (at the Transferor’s expense) that
such transfer is exempt from the registration requirements of applicable
securities laws, the Company at its expense (but with payment by the Transferor
of any applicable transfer taxes) will issue and deliver to or on the order of
the Transferor thereof a new Warrant of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each
a “Transferee”), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.

 

8.                                       Replacement
of Warrant.  On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement or security 

 

5

 

reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu thereof, a new Warrant
of like tenor.

 

9.                                       Registration
Rights.  The Holder has been granted
certain registration rights by the Company. 
These registration rights are set forth in a Registration Rights
Agreement entered into by the Company and Holder dated as of the date hereof,
as the same may be amended, modified and/or supplemented from time to time.

 

10.                                 Maximum
Exercise.  Notwithstanding anything
contained herein to the contrary, the Holder shall not be entitled to exercise
this Warrant in connection with that number of shares of Common Stock which
would exceed the difference between (i) 4.99% of the issued and
outstanding shares of Common Stock and (ii) the number of shares of Common
Stock beneficially owned by the 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.  The conversion limitation described in this Section 10
shall automatically become null and void following notice to the Company upon
the occurrence and during the continuance of an Event of Default under and as
defined in the Note made by the Company and certain subsidiaries of Company to
the Holder dated the date hereof (as amended, modified or supplemented from
time to time, the “Note”), or upon 75 days prior notice to the Company, 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 Company and
acquirable by the Holder at a price below $0.91 per share pursuant to the terms
of this Warrant, the Note, the Security Agreement (as defined in the Note), any
Ancillary Agreement (as defined in the Security Agreement) or otherwise, shall
not exceed an aggregate of 8,738,173 shares of Common Stock (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 Company’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 Warrant, the Note, the
Security Agreement or any Ancillary Agreement, together with the number of
shares of Common Stock that would then be issuable by the Company to the Holder
in the event of a conversion or exercise pursuant to the terms of this Warrant,
the Note, the Security Agreement, any Ancillary Agreement or otherwise, would
exceed the Maximum Common Stock Issuance but for this Section 10, the
Company 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.

 

11.                                 Warrant
Agent.  The Company may, by written
notice to the Holder of the Warrant, appoint an agent for the purpose of
issuing Common Stock (or Other Securities) on the exercise of this Warrant
pursuant to Section 1, exchanging this Warrant pursuant to Section 7,
and replacing this Warrant pursuant to Section 8, or any of the foregoing,
and thereafter any such issuance, exchange or replacement, as the case may be,
shall be made at such office by such agent.

 

6

 

12.                                 Transfer
on the Company’s Books.  Until this
Warrant is transferred on the books of the Company, the Company may treat the
registered Holder hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.

 

13.                                 Notices,
Etc.  All notices and other communications
from the Company to the Holder shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by the Holder from time to time.

 

14.                                 Miscellaneous.  This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought.  THIS WARRANT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF STATE OF NEW
YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.  ANY ACTION BROUGHT CONCERNING THE
TRANSACTIONS CONTEMPLATED BY THIS WARRANT SHALL BE BROUGHT ONLY IN THE STATE
COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK;
PROVIDED, HOWEVER, THAT THE HOLDER MAY CHOOSE TO WAIVE THIS PROVISION AND
BRING AN ACTION OUTSIDE THE STATE OF NEW YORK. 
The individuals executing this Warrant on behalf of the Company agree to
submit to the jurisdiction of such courts and waive trial by jury.  The prevailing party shall be entitled to
recover from the other party its reasonable attorneys’ fees and costs.  In the event that any provision of this
Warrant 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 Warrant.  The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the terms
hereof.  The Company acknowledges that legal
counsel participated in the preparation of this Warrant 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 Warrant to favor any party against the other party.

 

[BALANCE OF PAGE
INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Company has executed this
Warrant as of the date first written above.

 

 

	
   

  	
  STONEPATH GROUP, INC.

  
	
   

  	
   

  
	
  WITNESS:

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
				

 

8

 

Exhibit A

 

FORM OF SUBSCRIPTION

(To Be Signed Only On Exercise Of Warrant)

 

TO:                            Stonepath
Group, Inc.

1930 6th Avenue S., Suite 401

Seattle, Washington 98134

Attention:                                         Chief
Financial Officer

 

The undersigned, pursuant to the provisions set forth
in the attached Warrant (No.        ),
hereby irrevocably elects to purchase :

 

                
shares of the Common Stock covered by such Warrant.

 

The undersigned herewith makes payment of the full
Exercise Price for such shares at the price per share provided for in such
Warrant, which is $                      .  Such payment takes the form of:

 

$                    
in lawful money of the United States.

 

 

The undersigned requests that the certificates for
such shares be issued in the name of, and delivered to                                                                                             
whose address is                                                                                                                                                       .

 

The undersigned represents and warrants that all
offers and sales by the undersigned of the securities issuable upon exercise of
the within Warrant 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.

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform to name of holder
  as

  specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  

 

A-1

 

Exhibit B

 

FORM OF TRANSFEROR ENDORSEMENT

(To Be Signed Only On Transfer Of Warrant)

 

For value received, the undersigned hereby sells,
assigns, and transfers unto the person(s) named below under the heading “Transferees”
the right represented by the within Warrant to purchase the percentage and
number of shares of Common Stock of Stonepath Group, Inc. into which the
within Warrant relates specified under the headings “Percentage Transferred”
and “Number Transferred,” respectively, opposite the name(s) of such person(s)
and appoints each such person attorney to transfer its respective right on the
books of Stonepath Group, Inc. with full power of substitution in the
premises.

 

	
  Transferees

  	
   

  	
  Address

  	
   

  	
  Percentage

  Transferred

  	
   

  	
  Number

  Transferred

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform to name of holder
  as

  specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SIGNED IN THE PRESENCE OF:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Name)

  
	
   

  	
   

  
	
  ACCEPTED AND AGREED:

  	
   

  
	
  [TRANSFEREE]

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Name)

  	
   

  	
   

  
						

 

B-1Exhibit
10.27

 

MINIMUM BORROWING
NOTE REGISTRATION RIGHTS AGREEMENT

 

This Minimum Borrowing Note Registration Rights
Agreement (this “Agreement”) is made and entered into as of August 31,
2005, by and between Stonepath Group, Inc., a Delaware corporation (the “Company”),
and Laurus Master Fund, Ltd. (the “Purchaser”).

 

This Agreement is made pursuant to the Security
Agreement, dated as of the date hereof, by and among the Purchaser, the Company
and various subsidiaries of the Company (as amended, modified or supplemented
from time to time, the “Security Agreement”), and pursuant to the Notes and the
Warrants referred to therein.

 

The Company and the Purchaser hereby agree as follows:

 

1.             Definitions. 
Capitalized terms used and not otherwise defined herein that are defined
in the Security Agreement shall have the meanings given such terms in the
Security Agreement.  As used in this
Agreement, the following terms shall have the following meanings:

 

“Blackout Period” means, with
respect to a registration, a period, in each case commencing on the day
immediately after the Holders have received written notice from the Company
notifying the Holders that the Holders are required to suspend offers and sales
of Registrable Securities pursuant to Section 7 hereof due to the fact
that (1) (a) there is material non-public information regarding the
Company which the Company’s Board of Directors (the “Board”), after advice of
legal counsel, reasonably determines not to be in the Company’s best interest
to disclose and which the Company is not otherwise required to then disclose or
(b) there is a significant business opportunity (including, but not
limited to, the acquisition or disposition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer or
other similar transaction available to the Company which the Board reasonably
determines would be seriously detrimental to the Company and its stockholders
to then disclose, and which the Company would be required to disclose in a
Registration Statement; provided that such period shall end on the earlier to
occur of (i) the date upon which the circumstance that give rise to the
commencement of the period would no longer cause the registration and
distribution of the Registrable Securities to be seriously detrimental to the
Company and its stockholders and (ii) such time as the Company (A) notifies
the Holders that the Company will no longer delay such filing of the
registration statement, (B) recommences steps to make such registration
statement effective or (c) allows sales pursuant to such registration
statement to resume; provided further in no event shall the aggregate Blackout
Periods in any rolling 12-month period exceed 45 days in the aggregate for such
12-month period.

 

“Commission” means the Securities
and Exchange Commission.

 

“Common Stock” means shares of
the Company’s common stock, par value $0.001 per share.

 

“Effectiveness Date” means, (i) with
respect to the initial Registration Statement required to be filed hereunder, a
date no later than one-hundred twenty (120) days following the date hereof and (ii) with
respect to each additional Registration Statement required to be filed
hereunder, a date no later than sixty (60) days following the applicable Filing
Date.

 

 

“Effectiveness Period” has the
meaning set forth in Section 2(a).

 

“Exchange Act” means the
Securities Exchange Act of 1934, as amended, and any successor statute.

 

“Filing Date” means, with respect
to (1) the Loans evidenced by the Minimum Borrowing Note made on the
initial funding date, the date which is sixty (60) days after the date hereof, (2) each
$10,000,000 tranche of Loans evidenced by a Minimum Borrowing Note funded after
the date hereof, the date which is sixty (60) days after such funding of such
additional tranche of Loans evidenced by a Minimum Borrowing Note, (3) the
shares of Common Stock issuable to the Holder upon exercise of a Warrant, the
date which is sixty (60) days after the issuance of such Warrant and (4) the
shares of Common Stock issuable to the Holder as a result of adjustments to the
Fixed Conversion Price made pursuant to Section 2.6 of the Revolving
Notes, Section 3.6 of the Minimum Borrowing Note, Section 4 of the
Warrant or otherwise, sixty (60) days after the occurrence of such event or the
date of the adjustment of the Fixed Conversion Price.

 

“Holder” or “Holders”
means the Purchaser or any of its affiliates or transferees to the extent any
of them hold Registrable Securities, other than those purchasing Registrable
Securities in a market transaction.

 

“Indemnified Party” has the
meaning set forth in Section 5(c).

 

“Indemnifying Party” has the
meaning set forth in Section 5(c).

 

“Proceeding” means an action,
claim, suit, investigation or proceeding (including, without limitation, an investigation
or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Prospectus” means the prospectus
included in a Registration Statement (including, without limitation, a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Securities covered by such Registration Statement, and all
other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.

 

“Registrable Securities” means
the shares of Common Stock issued upon the conversion of the Minimum Borrowing
Note and issuable upon exercise of the Warrants, provided that the term “Registrable
Securities” excludes (i) any securities that have been publicly sold or
may be immediately, freely sold without registration under the Securities Act
either pursuant to Rule 144(k) under the Securities Act or otherwise, (ii) any
securities sold by a person in a transaction pursuant to a registration statement
filed under the Securities Act or (iii) any securities that are at the
time subject to an effective registration statement under the Securities Act.

 

2

 

“Registration Statement” means
each registration statement required to be filed hereunder, including the
Prospectus therein, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.

 

“Rule 144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.

 

“Rule 415” means Rule 415
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.

 

“Securities Act” means the
Securities Act of 1933, as amended, and any successor statute.

 

“Security Agreement” has the
meaning given to such term in the Preamble hereto.

 

“Trading Day” means each day the
Trading Market on which the Common Stock is traded is open and available to
trade securities.

 

“Trading Market” means any of the
NASD OTC Bulletin Board, NASDAQ SmallCap Market, the Nasdaq National Market,
the American Stock Exchange or the New York Stock Exchange

 

“Warrants” means the Common Stock
purchase warrants issued pursuant to the Security Agreement.

 

2.             Registration.

 

(a)           On or
prior to each Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the Registrable Securities for a
selling stockholder resale offering to be made on a continuous basis pursuant
to Rule 415.  Each Registration
Statement shall be on Form S-3 (except if the Company is not then eligible
to register for resale the Registrable Securities on Form S-3, in which
case such registration shall be on another appropriate form in accordance
herewith).  The Company shall cause each
Registration Statement to become effective and remain effective as provided herein.  The Company shall use its reasonable
commercial efforts to cause each Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event no later than the Effectiveness Date.  The Company shall use its reasonable
commercial efforts to keep each Registration Statement continuously effective
under the Securities Act until the date which is the earlier date of when (i) all
Registrable Securities covered by such Registration Statement have been sold or
(ii) all Registrable Securities covered by such Registration Statement may
be sold immediately without registration under the Securities Act and without
volume restrictions pursuant to Rule 144(k), as determined by the counsel
to the Company pursuant to a written opinion letter to such effect, addressed
and 

 

3

 

acceptable to the Company’s transfer agent and the affected Holders
(each, an “Effectiveness Period”).

 

(b)           If:  (i) any Registration Statement is not
filed on or prior to the applicable Filing Date for such Registration
Statement; (ii) a Registration Statement filed hereunder is not declared
effective by the Commission by the applicable Effectiveness Date; (iii) after
a Registration Statement is filed with and declared effective by the
Commission, a Discontinuation Event (as hereafter defined) shall occur and be
continuing, or such Registration Statement ceases to be effective (by
suspension or otherwise) as to all Registrable Securities to which it is
required to relate at any time prior to the expiration of the Effectiveness
Period applicable to such Registration Statement (without being succeeded
immediately by an additional Registration Statement filed and declared
effective), for a period of time which shall exceed 60 days in the aggregate
per year (defined as a period of 365 days commencing on the date such
Registration Statement is declared effective) or more than 20 consecutive
calendar days; (iv) after a Registration Statement is filed with and
declared effective by the Commission, a Blackout Period shall occur and be
continuing for a period of time which shall exceed 45 days in the aggregate, in
each case for all such Blackout Periods during any rolling 12-month period; or (v) the
Common Stock is not listed or quoted, or is suspended from trading on any
Trading Market for a period of three (3) consecutive Trading Days
(provided the Company shall not have been able to cure such trading suspension
within 30 days of the notice thereof or list the Common Stock on another
Trading Market) (any such failure or breach as described in clauses (i) through
(v) above, being referred to as an “Event,” and, for purposes of clause (i) or
(ii) above, the date on which such Event occurs, or for purposes of clause
(iii) above, the date which such 60 day or 20 consecutive day period (as
the case may be) is exceeded, or for purposes of clause (iv) above, the
date which such 45 day or 30 consecutive day period (as the case may be) is
exceeded or for purposes of clause (v) above, the date on which such three
(3) Trading Day period is exceeded (after expiration of the 30-day notice
period expressly set forth in such clause (v) above), being referred to as
“Event Date”), then as partial relief for the damages to the Purchaser by
reason of the occurrence of any such Event (which remedy shall not be exclusive
of any other remedies available at law or in equity), the Company shall pay to
the Purchaser, as liquidated damages and not as a penalty, for each day that an
Event has occurred and is continuing, an amount in cash equal to one-thirtieth
(1/30th) of the product of (A) the
original principal amount of the Minimum Borrowing Note multiplied by (B) 0.015.  In the event the Company fails to make any
payments pursuant to this Section 2(b) in a timely manner, such
payments shall bear interest at the rate of 1.5% per month (prorated for
partial months) until paid in full. 
Amounts payable as liquidated damages to each Holder with respect to
each share of Registrable Securities shall cease when the Holder no longer
holds such share of Registrable Securities or such share of Registrable
Securities can be immediately sold by the Holder in reliance on Rule 144.

 

(c)           Within
three business days of the Effectiveness Date, the Company shall cause its
counsel to issue a blanket opinion in the form attached hereto as Exhibit A,
to the transfer agent stating that the shares are subject to an effective
registration statement and can be reissued free of restrictive legend upon
notice of a sale by the Purchaser and confirmation by the Purchaser that it has
complied with the prospectus delivery requirements, provided that the Company
has not advised the transfer agent orally or in writing that the opinion has
been withdrawn. Copies of the blanket opinion required by this Section 2(c) shall
be delivered to the Purchaser within the time frame set forth above.

 

4

 

3.             Registration Procedures. 
If and whenever the Company is required by the provisions hereof to
effect the registration of any Registrable Securities under the Securities Act,
the Company will, as expeditiously as practicable:

 

(a)           prepare
and file with the Commission a Registration Statement with respect to such
Registrable Securities, respond as promptly as practicable to any comments
received from the Commission, and use its best efforts to cause such
Registration Statement to become and remain effective for the Effectiveness
Period with respect thereto, and promptly provide to the Purchaser copies of
all filings and Commission letters of comment relating thereto;

 

(b)           prepare
and file with the Commission such amendments and supplements to such
Registration Statement and the Prospectus used in connection therewith as may
be necessary to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such Registration
Statement and to keep such Registration Statement effective until the
expiration of the Effectiveness Period applicable to such Registration
Statement;

 

(c)           furnish to
the Purchaser such number of copies of the Registration Statement and the
Prospectus included therein (including each preliminary Prospectus) as the
Purchaser reasonably may request to facilitate the public sale or disposition
of the Registrable Securities covered by such Registration Statement;

 

(d)           use its
commercially reasonable efforts to register or qualify the Purchaser’s
Registrable Securities covered by such Registration Statement under the
securities or “blue sky” laws of such jurisdictions within the United States as
the Purchaser may reasonably request, provided, however, that the Company shall
not for any such purpose be required to qualify generally to transact business
as a foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;

 

(e)           list the
Registrable Securities covered by such Registration Statement with any
securities exchange on which the Common Stock of the Company is then listed;

 

(f)            promptly
(but in no event later than 3 business days following the occurrence of any
such event) notify the Purchaser at any time when a Prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event of which the Company has knowledge as a result of which the Prospectus
contained in such Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and

 

(g)           make
available for inspection by the Purchaser and any attorney, accountant or other
agent retained by the Purchaser, all publicly available, non-confidential
financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company’s officers, directors and employees to
supply all publicly available, non-confidential information reasonably
requested by the attorney, accountant or agent of the Purchaser.

 

5

 

4.             Registration Expenses. 
All expenses relating to the Company’s compliance with Sections 2 and 3
hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of the Company’s counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or “blue sky” laws, fees of the NASD, transfer taxes, fees of
transfer agents and registrars, fees of, and disbursements incurred by, one
counsel for the Holders (which such fees of counsel for the Holders shall not
exceed $15,000 in the aggregate) are called “Registration Expenses”. All
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Holders beyond those
included in Registration Expenses, are called “Selling Expenses.”  The Company shall only be responsible for all
Registration Expenses.

 

5.             Indemnification.

 

(a)           In the
event of a registration of any Registrable Securities under the Securities Act
pursuant to this Agreement, the Company will indemnify and hold harmless each
Holder, and its officers, directors and each other person, if any, who controls
such Holder within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such Holder, or such
persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Statement under which such
Registrable Securities were registered under the Securities Act pursuant to
this Agreement, any preliminary Prospectus or final Prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse such Holder, and each such other person for any
reasonable legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case if and to
the extent that (i) any such loss, claim, damage or liability (or action
in respect thereof) arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by or on behalf of the Purchaser or any such other
person in writing specifically for use in any such document, (ii) if the
person asserting any such loss, claim, damage, liability (or action in respect
thereof) who purchased the Registrable Securities that are the subject thereof
did not receive a copy of the final Prospectus (or the final Prospectus as
amended or supplemented) at or prior to the written confirmation of the sale of
such Registrable Securities to such person (the “Confirmation Date”) because of
the failure of such Holder to so provide such final Prospectus (or final
Prospectus as amended or supplemented) and the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact that is the
subject to the claim and was made in a preliminary Prospectus or final
Prospectus was corrected in the final Prospectus (or the final Prospectus as
amended or supplemented) and was made available to such Holder by the Company
prior to the Confirmation Date.

 

(b)           In the
event of a registration of any Registrable Securities under the Securities Act
pursuant to this Agreement, the Purchaser will indemnify and hold harmless the
Company, and its officers, directors and each other person, if any, who
controls the Company 

 

6

 

within the meaning of the Securities Act, against all losses, claims,
damages or liabilities (or actions in respect thereof), joint or several, to
which the Company or such other persons may become subject under the Securities
Act or otherwise, insofar as (i) such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact which was
furnished in writing by the Purchaser to the Company expressly for use in (and
such information is contained in) the Registration Statement under which such
Registrable Securities were registered under the Securities Act pursuant to
this Agreement, any preliminary Prospectus or final Prospectus contained therein,
or any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii) such
losses, claims, damages, liabilities (or actions in respect thereof) arise from
claims of a person who purchased the Registrable Securities that are the
subject thereof who did not receive a copy of the final Prospectus (or the
final Propsectus as amended or supplemented) at or prior to the Confirmation
Date because of the failure of the Purchaser to so provide such final
Prospectus (or final Prospectus as amended or supplemented) and the untrue
statement or alleged untrue statement or omission or alleged omission of a material
fact that is the subject to the claim and was made in a preliminary Prospectus
or final Prospectus was corrected in the final prospectus (or the final
Prospectus as amended or supplemented) and was made available to the Purchaser
by the Company prior to the Confirmation Date, and, in each such case, will
reimburse the Company and each such person for any reasonable legal or other
expenses incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action. 
Notwithstanding the provisions of this paragraph, the Purchaser shall
not be required to indemnify any person or entity in excess of the amount of
the aggregate net proceeds received by the Purchaser in respect of Registrable
Securities in connection with any such registration under the Securities Act.

 

(c)           Promptly
after receipt by a party entitled to claim indemnification hereunder (an “Indemnified
Party”) of notice of the commencement of any action, such Indemnified Party
shall, if a claim for indemnification in respect thereof is to be made against
a party hereto obligated to indemnify such Indemnified Party (an “Indemnifying
Party”), notify the Indemnifying Party in writing thereof, but the omission so
to notify the Indemnifying Party shall not relieve it from any liability which
it may have to such Indemnified Party other than under this Section 5(c) and
shall only relieve it from any liability which it may have to such Indemnified
Party under this Section 5(c) if and to the extent the Indemnifying Party
is prejudiced by such omission. In case any such action shall be brought
against any Indemnified Party and such Indemnified Party shall have notified
the Indemnifying Party of the commencement thereof, the Indemnifying Party
shall be entitled to participate in and, to the extent it shall wish, to assume
and undertake the defense thereof with counsel reasonably satisfactory to such
Indemnified Party, and, after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume and undertake the defense
thereof, the Indemnifying Party shall not be liable to such Indemnified Party
under this Section 5 for any legal expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof. If the Indemnified
Party retains its own counsel, then the Indemnified Party shall pay all fees,
costs and expenses of such counsel, provided, however, that, if
the defendants in any such action include both the Indemnified Party and the
Indemnifying Party and the Indemnified Party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the Indemnifying Party or if the interests
of the 

 

7

 

Indemnified Party reasonably may be deemed to conflict with the
interests of the Indemnifying Party, the Indemnified Party (together with any
other such similarly situated Indemnified Party shall have the right to select
one separate counsel (for all such similarly situated Indemnified Parties) and
to assume such legal defenses and otherwise to participate in the defense of
such action, with the reasonable expenses and fees of such one separate counsel
and other expenses related to such participation to be reimbursed by the
Indemnifying Party as incurred.

 

(d)           In order
to provide for just and equitable contribution in the event of joint liability
under the Securities Act in any case in which either (i) an Indemnified
Party makes a claim for indemnification pursuant to this Section 5 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 5 provides for
indemnification in such case, or (ii) contribution under the Securities
Act may be required on the part of such Indemnified Party in circumstances for
which indemnification is provided under this Section 5; then, and in each
such case, the Company and the Purchaser will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Purchaser is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the Registration Statement bears to
the public offering price of all securities offered by such Registration
Statement, provided, however, that, in any such case, (A) the
Purchaser will not be required to contribute any amount in excess of the public
offering price of all such securities offered by it pursuant to such
Registration Statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.

 

6.             Representations and Warranties.  The Company hereby represents and warrants to
the Purchaser as follows:

 

(a)           The Common
Stock is registered pursuant to Section 12(b) or 12(g) of the
Exchange Act and, except with respect to certain matters which the Company has
disclosed to the Purchaser on Schedule 12(u) to the Security
Agreement, the Company has timely filed all proxy statements, reports,
schedules, forms, statements and other documents required to be filed by it
under the Exchange Act.  The Company has
filed (i) its Annual Report on Form 10-K for the fiscal year ended December 31,
2004 and (ii) its Quarterly Report on Form 10-Q for the fiscal
quarters ended March 31, 2005 and June 30, 2005 (collectively, the “SEC
Reports”).  Each SEC Report was, at the
time of its filing, in substantial compliance with the requirements of its
respective form and none of the SEC Reports, nor the financial statements (and
the notes thereto) included in the SEC Reports, as of their respective filing
dates, contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.  The financial statements of the Company
included in the SEC Reports comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations
of the Commission or other applicable rules and regulations with respect
thereto.  Such financial statements have
been prepared in accordance with generally accepted accounting principles (“GAAP”)
applied on a consistent basis during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto or
(ii) in the case of 

 

8

 

unaudited interim statements, to the extent they may not include
footnotes or may be condensed, or are subject to normal year end adjustments)
and fairly present in all material respects the financial condition, the
results of operations and the cash flows of the Company and its subsidiaries,
on a consolidated basis, as of, and for, the periods presented in each such SEC
Report.

 

(b)           The Common
Stock is listed for trading on the American Stock Exchange and satisfies all
requirements for the continuation of such listing, and the Company shall do all
commercially reasonable things necessary for the continuation of such
listing.  The Company has not received
any notice that its Common Stock will be delisted from the American Stock
Exchange or that the Common Stock does not meet all requirements for the
continuation of such listing.

 

(c)           Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would cause
the offering of the Securities pursuant to the Security Agreement to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Common Stock pursuant to Rule 506
under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
subsidiaries take any action or steps that would cause the offering of the
Common Stock to be integrated with other offerings (other than such concurrent
offering to the Purchaser).

 

(d)           The
Warrants, the Notes and the shares of Common Stock which the Purchaser may
acquire pursuant to the Warrants and the Notes are all restricted securities
under the Securities Act as of the date of this Agreement.  The Company will not issue any stop transfer
order or other order impeding the sale and delivery of any of the Registrable
Securities at such time as such Registrable Securities are registered for
public sale or an exemption from registration is available, except as required
by federal or state securities laws or as a consequence of the commencement and
continuation of a Blackout Period.

 

(e)           The
Company understands the nature of the Registrable Securities issuable upon the
conversion of each Note and the exercise of each Warrant and recognizes that
the issuance of such Registrable Securities may have a potential dilutive
effect.  The Company specifically
acknowledges that its obligation to issue the Registrable Securities is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.

 

(f)            There is
no agreement required to be filed with the Commission as an exhibit to a
registration statement or to a form required to be filed by the Company under
the Exchange Act which has not been so filed.

 

(g)           The
Company will at all times have authorized and reserved a sufficient number of
shares of Common Stock for the full conversion of each Note and exercise of the
Warrants.

 

9

 

7.             Miscellaneous.

 

(a)           Suspension of Offers and Sales.  Each Holder of Registrable Securities
acknowledges that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in Section 3(f) hereof
or of the commencement of any Blackout Period or Discontinuation Event (as
defined in Section 9(d) below), such Holder shall discontinue dispositions
of Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Holder’s receipt of copies of the
supplemented Prospectus and/or amended Registration Statement and/or until it
is advised in writing by the Company that the use of the applicable Prospectus
may be resumed and/or upon expiration of such Blackout Period or
Discontinuation Event, as the case may be.

 

(b)           Information by Holder. 
It shall be a condition precedent to the obligation of the Company to
include the Registrable Securities of any Holder in a Registration Statement
that such Holder deliver to the Company, at least five (5) days prior to
the anticipated filing date of such Registration Statement, such information
regarding itself, the Registrable Securities and other securities of the
Company held by such Holder, the Holder’s intended method of disposition of the
Registrable Securities and all such other information as shall be reasonably
required to effect the registration of such Holder’s Registrable Securities;
provided that such obligation shall arise only if the Company shall have
delivered to the Holder at least fifteen (15) days prior to the anticipated
filing date a questionnaire for the purpose of obtaining such required information.

 

(c)           Remedies.  In the
event of a breach by the Company or by a Holder, of any of their respective
obligations under this Agreement, each Holder or the Company, as the case may
be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.

 

(d)           No Piggyback on Registrations.  Except as and to the extent set forth on Schedule 7(d) hereto,
neither the Company nor any of its security holders (other than the Holders in
such capacity pursuant hereto) may include securities of the Company in any
Registration Statement other than the Registrable Securities, and the Company
shall not after the date hereof enter into any agreement providing any such
right for inclusion of shares in the Registration Statement to any of its
security holders.  Except as and to the
extent specified in Schedule 7(d) hereto, the Company has not
previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person that have not been fully
satisfied.

 

(e)           Compliance.  Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to any Registration Statement.

 

(f)            Discontinued Disposition. 
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of a
Discontinuation Event (as defined below), such Holder will forthwith
discontinue disposition of such Registrable Securities under the applicable
Registration Statement until such Holder’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement or until it is
advised in writing (the “Advice”) by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or 

 

10

 

supplemental filings that are incorporated or deemed to be incorporated
by reference in such Prospectus or Registration Statement.  The Company may provide appropriate stop
orders to enforce the provisions of this Section.  For purposes of this Section 7(f), a “Discontinuation
Event” shall mean (i) when the Commission notifies the Company whether
there will be a “review” of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company
shall provide true and complete copies thereof and all written responses
thereto to each of the Holders); (ii) any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to
such Registration Statement or Prospectus or for additional information; (iii) the
issuance by the Commission of any stop order suspending the effectiveness of
such Registration Statement covering any or all of the Registrable Securities
or the initiation of any Proceedings for that purpose; (iv) the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and/or (v) the occurrence of any event or
passage of time that makes the financial statements included in such
Registration Statement ineligible for inclusion therein or any statement made
in such Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires any revisions to such Registration Statement, Prospectus or
other documents so that, in the case of such Registration Statement or
Prospectus, as the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.

 

(g)           Piggy-Back Registrations. 
If at any time during any Effectiveness Period there is not an effective
Registration Statement covering all of the Registrable Securities required to
be covered during such Effectiveness Period and the Company shall determine to
prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities, other than on Form S-4 or Form S-8
(each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send to each Holder written notice of such determination and, if within
fifteen (15) days after receipt of such notice, any such Holder shall so
request in writing, the Company shall include in such registration statement
all or any part of such Registrable Securities such Holder requests to be
registered, to the extent the Company may do so without violating registration
rights of others which exist as of the date of this Agreement, subject to
customary underwriter cutbacks applicable to all holders of piggy-back
registration rights and subject to obtaining any required consent of any
selling stockholder(s) to such inclusion under such registration statement.

 

(h)           Amendments and Waivers. 
The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless the same
shall be in writing and signed by the Company and the Holders of the then
outstanding Registrable Securities. 
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of certain Holders and that 

 

11

 

does not directly or indirectly affect the rights of other Holders may
be given by Holders of at least a majority of the Registrable Securities to
which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding sentence.

 

(i)            Notices.  Any notice
or request hereunder may be given to the Company or the Purchaser at the
respective addresses set forth below or as may hereafter be specified in a
notice designated as a change of address under this Section 7(i).  Notices to any Holder other than the
Purchaser shall be given at the address for such Holder designated in writing
from time to time by such Holder to the Company, and in the event not so
designated to the address for such Holder in the Company’s records.  Any notice or request hereunder shall be
given by registered or certified mail, return receipt requested, hand delivery,
overnight mail, Federal Express or other national overnight next day carrier
(collectively, “Courier”) or telecopy (confirmed by mail).  Notices and requests shall be, in the case of
those by hand delivery, deemed to have been given when delivered to any party
to whom it is addressed; in the case of those by mail or overnight mail, deemed
to have been given three (3) business days after the date when deposited
in the mail or with the overnight mail carrier; in the case of a Courier, the
next business day following timely delivery of the package with the Courier;
and, in the case of a telecopy, when confirmed. 
The address for such notices and communications shall be as follows:

 

	
  If to the Company:

  	
   

  	
  Stonepath Group, Inc.

  2200 Alaskan Way, Suite 200

  Seattle, WA 98121

  Attention:        Chief Financial Officer

  Facsimile:         206-624-2116

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Buchanan Ingersoll PC

  1835 Market Street, 14th Floor

  Philadelphia, Pennsylvania 19103

  Attention:        Brian S. North

  Facsimile:         (215) 665-8760

  
	
   

  	
   

  	
   

  
	
  If to a Purchaser:

  	
   

  	
  To the address set forth under such
  Purchaser’s name on the signature pages hereto

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Loeb & Loeb LLP

  345 Park Avenue

  New York, New York 10154

  Attention:        Scott J. Giordano, Esq.

  Facsimile:         (212) 407-4990

  
	
   

  	
   

  	
   

  
	
  If to any other Person who is then the registered
  Holder:

  	
   

  	
  To the address of such Holder as it appears
  in the stock transfer books of the Company

  

 

or such other address as may be designated in writing
hereafter in accordance with this Section 7(i)by such Person.

 

12

 

(j)            Successors and Assigns. 
This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of each of the parties and shall inure to the
benefit of each Holder.  The Company may
not assign its rights or obligations hereunder without the prior written
consent of each Holder.  Each Holder may
assign its respective rights hereunder in the manner and to the Persons as
permitted under the Notes and the Securities Purchase Agreement so long as (i) such
transfer or assignment is effected in accordance with applicable securities
laws, (ii) such transferee or assignee agrees in writing to become subject
to the terms of this Agreement and (iii) the Company is given written
notice by such Holder of such transfer or assignment, stating the name and
address of the transferee or assignee and identifying the Registrable
Securities with respect to which such rights are being transferred or assigned.

 

(k)           Execution and Counterparts. 
This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and, all of which
taken together shall constitute one and the same agreement.  In the event that any signature is delivered
by facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile
signature were the original thereof.

 

(l)            Governing Law, Jurisdiction and Waiver of Jury Trial.  This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to contracts made and performed in such State, without regard to
principles of conflicts of law.  The Company
and the Holders hereby consent and agree that the state or federal courts
located in the County of New York, State of New York shall have exclusion
jurisdiction to hear and determine any Proceeding between the Company, on the
one hand, and the Holders, on the other hand, pertaining to this Agreement or
to any matter arising out of or related to this Agreement; provided,
that Holders and the Company acknowledge 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 Agreement
shall be deemed or operate to preclude any Holder from bringing a Proceeding 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 Holders.  The
Company and the Holders expressly submit and consent in advance to such
jurisdiction in any Proceeding commenced in any such court, and the Company and
the Holders hereby waive any objection which they may have based upon lack of
personal jurisdiction, improper venue or forum non conveniens.  The Company hereby waives personal service of
the summons, complaint and other process issued in any such Proceeding 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 Section 7(i) 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.  The parties hereto desire that their 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, the parties hereto
waive all rights to trial by jury in any Proceeding brought to resolve any
dispute, whether arising in contract, tort, or otherwise between the Holders
and/or the Company arising out of, connected with, related or incidental to the
relationship established between then in connection with this Agreement.  If any party hereto shall commence a
Proceeding to enforce any provisions of this Agreement, the Security Agreement
or any other Ancillary Agreement, then the prevailing party in such Proceeding
shall be reimbursed by the 

 

13

 

other party for its reasonable attorneys’ fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
Proceeding.

 

(m)          Cumulative Remedies. 
The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.

 

(n)           Severability.  If any
term, provision, covenant or restriction of this Agreement is held by a court
of competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their reasonable efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.

 

(o)           Headings.  The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.

 

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

 

14

 

IN WITNESS WHEREOF, the parties have executed this
Minimum Borrowing Note Registration Rights Agreement as of the date first
written above.

 

	
   

  	
  STONEPATH
  GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LAURUS MASTER FUND,
  LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for
  Notices:

  
	
   

  	
   

  
	
   

  	
  825 Third
  Avenue, 14th Floor

  
	
   

  	
  New York,
  New York 10022

  
	
   

  	
  Attention:
  David Grin

  
	
   

  	
  Facsimile:
  212-541-4434

  
					

 

15

 

EXHIBIT A

 

                        ,
200      

 

StockTrans, Inc. 

44 West Lancaster Avenue 

Ardmore, PA 19003

 

Re:                               Stonepath
Group, Inc.

 

Ladies and Gentlemen:

 

We have acted as counsel to Stonepath Group, Inc.,
a Delaware corporation (the “Company”), in connection with the registration
under the Securities Act of 1933, as amended, of [*] shares of Common Stock,
$.001 par value (“Common Stock”), which consist of : (i) [*] shares of
Common Stock which have been reserved for issuance upon the exercise of a
Secured Convertible Minimum Borrowing Note (the “Convertible Note Shares”); and
(ii) [*] shares of Common Stock which have been reserved for issuance upon
the exercise of warrants (the “Warrant Shares” and collectively with the Note
Shares, the “Shares”).  The Secured
Convertible Minimum Borrowing Note and the warrants were previously issued by
the Company in a private placement transaction described in the Prospectus (the
“Prospectus”) included in the Company’s Registration Statement on Form S-1
(No. 333-                     ).  A copy of the Registration Statement is
attached for your reference.

 

We have reviewed the Company’s Registration Statement,
which includes the Prospectus, and have considered such questions of law and
fact as we have deemed necessary for the purpose of this letter.  As a result of the Registration Statement
becoming effective, the person identified within the Prospectus as the “Selling
Shareholder” may sell the Shares issued in its name and, upon presentation of
certificates representing such Shares together with a Certificate of Selling
Shareholder in the form attached hereto as Exhibit A, you may register the
transfer of such Shares by such person until such date on which we shall notify
you in writing that the Registration Statement covering such proposed
transactions is no longer valid.

 

Please note that this letter does not authorize you to
remove legends from the Shares other than in connection with a proposed
transfer.

 

Very
truly yours,

 

BUCHANAN INGERSOLL PC

 

16

 

Exhibit A

(to Form of Opinion)

 

CERTIFICATE OF
SELLING SHAREHOLDER

 

The Undersigned, being a Selling Shareholder
identified in the accompanying Prospectus of Stonepath Group, Inc. (the “Company”)
dated                           ,
2005 (the “Prospectus”), does hereby provide the following representations to
the Company in connection with the public distribution of shares covered by the
Prospectus (the “Covered Shares”).  For
this purpose, the term “Covered Shares” means those outstanding shares of the
Company’s Common Stock and those shares of Common Stock that may be issued in
the future upon the conversion, if at all, of the Secured Convertible Minimum
Borrowing Note or the exercise, if at all, of the Common Stock Purchase Warrant
(the “Warrant”) identified in the section of the Prospectus entitled
Selling Shareholder:

 

(1)           The
Undersigned is or may be offering the Covered Shares for sale for its, his or
her own account, and not for the account of the Company.  The Company will not receive any proceeds
from the sale of the Covered Shares by the Undersigned;

 

(2)           The
Undersigned has reviewed the Section of the Prospectus entitled “Selling
Shareholder” and finds the same, as it pertains to the Undersigned, to be true
and correct as of the date hereof;

 

(3)           The
Undersigned has also reviewed the section of the Prospectus entitled “Plan
of Distribution,” and confirms hereby that: (i) the Undersigned has agreed
to sell or offer for sale the Covered Shares in the manner discussed therein;
and (ii) the Undersigned is aware of no arrangements regarding the sale of
Covered Shares not discussed therein;

 

(4)           The
Undersigned is aware that public sales of securities covered by the Prospectus
may only be made during periods when the Prospectus is “current” under Section 10(a)(3) of
the Securities Act of 1933, as amended (the “Securities Act”), and that events
may occur which cause the Prospectus not to be “current”.

 

(5)           The
Undersigned has received two copies of the Prospectus(1); and

 

(6)           The
Undersigned agrees that in connection with an offer of Covered Shares pursuant
to the Prospectus:

 

(a)           No
offers or sales will be effected other than pursuant to the terms of the
Prospectus;

 

(b)           The
Undersigned is aware of and will comply with the prospectus delivery
requirements under the Securities Act; and

 

(1)           The
Company will provide additional copies of the Prospectus upon request.

 

17

 

(c)           The
Undersigned is aware of, and will engage in no distribution of Covered Shares
or any other market making or other activities in violation of the Rules promulgated
under the Securities Exchange Act of 1934, including Regulation M thereunder.

 

	
   

  	
  SELLING SHAREHOLDER

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Print Name

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  or, if entity

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name of Entity

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

18

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