Exhibit 10.1
IMPORTANT: PLEASE READ CAREFULLY BEFORE SIGNING: SIGNIFICANT
REPRESENTATIONS ARE CALLED FOR HEREIN.
Velocity Express Corporation
STOCK PURCHASE AGREEMENT
Velocity Express Corporation
0000 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Ladies and Gentlemen:
THIS STOCK PURCHASE AGREEMENT (the "Purchase Agreement"), made effective
this __ day of _________ 2003, by and between Velocity Express Corporation, a
Delaware corporation (the "Company"), and ___________, a resident of the State
of ___________.
1. (a) The Company agrees to sell to the undersigned, and the undersigned
agrees to purchase from the Company, ___________ shares of the
Company's Series I Convertible Preferred Stock, par value $0.004 per
share (the "Shares" or "Series I Preferred") for the subscription
price per Share listed in paragraph 1(b) below. The rights and
preferences of the Shares are set forth in the Certificate of
Designation of Preferences and Rights of Series I Convertible
Preferred Stock as set forth in Appendix A attached hereto. The
undersigned acknowledges that this subscription is contingent upon
acceptance in whole or in part by the Company and upon shareholder
approval of (i) the issuance of the Series I Preferred Stock and (ii)
the amendment of the Company's Certificate of Incorporation to
increase the number of shares authorized for issuance to 400,000,000
shares, of which 325,000,000 shares are Common Stock and 75,000,000
shares are Preferred Stock, at a meeting of the Company's shareholders
or by written consent. Concurrent with the delivery of this Agreement,
the undersigned has delivered cash or a check or wire transfer to the
Company in the amount of $ ________ for payment of the full purchase
price of the Shares.
(b) Subject to the Board of Directors of the Company varying the purchase
price per share of the Series I Preferred if they deem such action
necessary or appropriate to obtain sufficient funding for the Company,
the Series I Preferred shall be sold at the following price per Share
(the "Purchase Price"):
. if this Purchase Agreement is executed and the payment of the
Purchase Price is tendered to the Company on or before October
24, 2003, the Purchase Price shall be $1.50 per Share;
. if this Purchase Agreement is executed and the payment of the
Purchase Price is tendered to the Company after October 24, 2003,
but on or before October 31, 2003, the Purchase Price shall be
$1.80 per Share;
. if this Purchase Agreement is executed and the payment of the
Purchase Price is tendered to the Company after October 31, 2003,
but on or before November 14, 2003, the Purchase Price shall be
$2.20 per Share; and
. if this Purchase Agreement is executed and the payment of the
Purchase Price is tendered to the Company after November 14,
2003, but on or before November 28, 2003, the Purchase Price
shall be $3.30 per Share.
(c) The Company and the undersigned agrees that if the shareholder
approval specified in paragraph 1(a) above is not achieved, the
Company will return to the undersigned, without interest or deduction,
any Purchase Price tendered by the undersigned for the purchase of the
Series I Preferred.
2. The undersigned acknowledges and represents as follows:
(a) That the undersigned has had an opportunity to carefully review the
Company, has had the opportunity to conduct due diligence on the
Company, has had the opportunity to review its public filings with the
Securities and Exchange Commission and has reviewed the Risk Factors,
attached hereto as Appendix B, relating to the Company (the "Company
Materials"), and all documents delivered therewith or reasonably
requested by the undersigned and is aware of the fact that the Company
may use a portion of the funds generated from the sale of the Series I
Preferred to replace certain letters of credit totally $7.1 million
currently maintained by the Company and guaranteed by TH Xxx Xxxxxx
Ventures;
(b) That the undersigned is able to bear the economic risk of the
investment in the Shares;
(c) That the undersigned has knowledge and experience in financial and
business matters, that the undersigned is capable of evaluating the
merits and risks of the prospective investment in the Shares and that
the undersigned is able to bear such risks.
(d) That the undersigned understands an investment in the Shares is highly
speculative but believes that the investment is suitable for the
undersigned based upon the investment objectives and financial needs
of the undersigned, and has adequate means for providing for his, her
or its current financial needs and personal contingencies and has no
need for liquidity of investment with respect to the Shares;
(e) That the undersigned has been given access to full and complete
information regarding the Company (including the opportunity to meet
with Company officers and review such documents as the undersigned may
have requested in writing) and has utilized such access to the
satisfaction of the undersigned for the purpose of obtaining
information in addition to, or verifying information included in, the
Company Materials;
(f) That the undersigned recognizes that the Shares, are an investment,
involve a high degree of risk, including, but not limited to, the
risks described in the Company Materials;
(g) That the undersigned realizes that (i) the purchase of Shares is a
long-term investment; (ii) the purchasers of the Shares must bear the
economic risk of investment for an indefinite period of time because
the Shares have not been registered under the Securities Act of 1933,
as amended (the "Act") and, therefore, cannot be sold unless they are
subsequently registered under the Act, or an exemption from such
registration is available; and (iii) the transferability of the Shares
is restricted, and (A) requires the
2
written consent of the Company, (B) requires conformity with the
restrictions contained in paragraph 3 below, and (C) will be further
restricted by a legend placed on the certificate(s) representing the
Shares stating that the Shares have not been registered under the Act
and referring to the restrictions on transferability of the Shares,
and by stop transfer orders or notations on the Company's records
referring to the restrictions on transferability;
(h) That the undersigned is a bona fide resident of, and is domiciled in,
the state or country listed in the Recital to this Agreement and that
the Shares are being purchased solely for the beneficial interest of
the undersigned and not as nominee, for, or on behalf of, or for the
beneficial interest of, or with the intention to transfer to, any
other person, trust or organization, except as specifically set forth
in paragraph 4 of this Purchase Agreement;
(i) That pending shareholder authorization specified in paragraph 1(a)
above, the Purchase Price received by the Company pursuant to this
Purchase Agreement and other stock purchase agreements for the
subscription of the Series I Preferred shall be used for the general
corporate purposes of the Company and will not be held in a segregated
account;
(j) That the Company did not solicit the undersigned in connection with
its rights offering described in the Company's Registration Statement
filed on October 1, 2003, (File Number 333-109362) and which was later
withdrawn;
(k) That there is no minimum amount for the Company's offering of the
Series I Preferred and that there can be no assurance that the
offering of the Series I Preferred will result in a total proceeds to
the Company of any set amount; and
(l) That the undersigned constitutes an accredited investor as defined in
Rule 501(a) under the Securities Act of 1933.
3. The undersigned has been advised that the Shares are not being
registered under the Act or any other securities laws pursuant to
exemptions from the Act and such laws, and that the Company's reliance
upon such exemptions is predicated in part on the undersigned's
representations to the Company as contained herein. The undersigned
represents and warrants that the Shares are being purchased for his,
her or its own account and for investment and without the intention of
reselling or redistributing the same, that he, she or it has made no
agreement with others regarding any of such Shares and that his, her
or its financial condition is such that it is not likely that it will
be necessary to dispose of any of such Shares in the foreseeable
future. The undersigned is aware that, in the view of the Securities
and Exchange Commission, a purchase of Shares with an intent to resell
by reason of any foreseeable specific contingency or anticipated
change in market value, or any change in the condition of the Company
or its business, or in connection with a contemplated liquidation or
settlement of any loan obtained for the acquisition of the Shares and
for which the Shares were pledged as security, would represent an
intent inconsistent with the representations set forth above. The
undersigned further represents and agrees that if, contrary to his,
her or its foregoing intentions, he, she or it should later desire to
dispose of or transfer any of such Shares in any manner, he, she or it
shall not do so without first obtaining (a) the opinion of counsel
designated by the Company that such proposed disposition or transfer
lawfully may be made without the registration of such Shares for such
purpose pursuant to the Act, as then in effect, and any other
applicable securities laws, or (b) such registrations (it being
expressly understood that the Company shall not have any obligation to
register the Shares for such purpose).
3
The undersigned agrees that the Company may place a restrictive
legend on the certificate(s) representing the Shares, containing
substantially the following language:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE
ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND WITHOUT REGISTRATION
UNDER ANY OTHER SECURITIES LAWS, IN RELIANCE UPON
EXEMPTIONS CONTAINED IN THE ACT AND SUCH LAWS. NO
TRANSFER OF THESE SECURITIES OR ANY INTEREST THEREIN
MAY BE MADE IN THE ABSENCE OF EITHER AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND UNDER THE
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSACTION
IS EXEMPT FROM REGISTRATION UNDER THE ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS. FURTHER, THESE
SECURITIES ARE SUBJECT TO LIMITATIONS ON CONVERTIBILITY
AS SET FORTH IN THE STOCK PURCHASE AGREEMENT APPLICABLE
TO THE ISSUANCE OF THESE SECURITIES AND THE CERTIFICATE
OF DESIGNATION OF THOSE SECURITIES.
The undersigned agrees and consents that the Company may place a
stop transfer order on the certificate(s) representing the Shares to
assure the undersigned's compliance with this Agreement and the
matters referenced above.
The undersigned agrees to save and hold harmless, defend and
indemnify the Company and its directors, officers and agents from any
claims, liabilities, damages, losses, expenses or penalties arising
out of any misrepresentation of information furnished by the
undersigned to the Company in this Agreement.
The undersigned understands that the Company at a future date may file
a registration or offering statement (the "Registration Statement")
with the Securities and Exchange Commission to facilitate a public
offering of its securities. The undersigned agrees, for the benefit of
the Company, that should an underwritten public offering be made and
should the managing underwriter of such offering require, the
undersigned will not, without the prior written consent of the Company
and such underwriter, during the Lock Up Period as defined herein: (a)
sell, transfer or otherwise dispose of, or agree to sell, transfer or
otherwise dispose of any of the Shares beneficially held by the
undersigned during the Lock Up Period; (b) sell, transfer or otherwise
dispose of, or agree to sell, transfer or otherwise dispose of any
options, rights or warrants to purchase any of the Shares beneficially
held by the undersigned during the Lock Up Period; or (c) sell or
grant, or agree to sell or grant, options, rights or warrants with
respect to any of the Shares. The foregoing does not prohibit gifts to
donees or transfers by will or the laws of descent to heirs or
beneficiaries provided that such donees, heirs and beneficiaries shall
be bound by the restrictions set forth herein. The term "Lock Up
Period" shall mean the lesser of (x) 240 days or (y) the period during
which Company officers and directors are restricted by the managing
underwriter from effecting any sales or transfers of the Company's
securities. The Lock Up Period shall commence on the effective date of
the Registration Statement.
4
The undersigned has read and executed the Registration Rights
Agreement in the form appended hereto as Appendix C. The undersigned
agrees that, notwithstanding any registration rights granted under the
Registration Rights Agreement, the undersigned will not be entitled to
any registration rights, whether by demand, piggyback or otherwise,
until the shareholder approval of (i) the issuance of the Series I
Preferred Stock and (ii) the amendment of the Company's Certificate of
Incorporation to increase the number of shares authorized for issuance
to 400,000,000 shares, of which 325,000,000 shares are Common Stock
and 75,000,000 shares are Preferred Stock, at a meeting of the
Company's shareholders or by written consent has been obtained.
4. NASD Affiliation. The undersigned is affiliated or associated,
directly or indirectly, with a National Association of Securities
Dealers, Inc. ("NASD") member firm or person.
Yes _____ No _____
If yes, list the affiliated member firm or person:__________
_________________________________________________________________
_________________________________________________________________
Your relationship to such member firm or person:__________
______________________________________________________________________
______________________________________________________________________
5. Entities. If the undersigned is not an individual but an entity, the
individual signing on behalf of such entity and the entity jointly and
severally agree and certify that:
A. The undersigned was not organized for the specific purpose of
acquiring securities of the Company; and
B. This Agreement has been duly authorized by all necessary action on the
part of the undersigned, has been duly executed by an authorized
officer or representative of the undersigned, and is a legal, valid
and binding obligation of the undersigned enforceable in accordance
with its terms.
6. The undersigned agrees that he/she or it shall not disclose either the
existence, the contents or any of the terms and conditions of this
Purchase Agreement to any other person.
7. Miscellaneous.
A. Manner in which title is to be held: (check one)
_____ Individual Ownership
_____ Joint Tenants with Right of Survivorship*
_____ Partnership*
_____ Tenants in Common*
----------
* Multiple signatures required
5
_____ Corporation
_____ Trust
_____ Other _________________________________________
_______________________________________________________describe)
B. The undersigned agrees that the undersigned understands the meaning
and legal consequences of the agreements, representations and
warranties contained herein, agrees that such agreements,
representations and warranties shall survive and remain in full force
and effect after the execution hereof and payment for the Shares, and
further agrees to indemnify and hold harmless the Company, each
current and future officer, director, employee, agent and shareholder
from and against any and all loss, damage or liability due to, or
arising out of, a breach of any agreement, representation or warranty
of the undersigned contained herein.
C. This Agreement shall be construed and interpreted in accordance with
Minnesota law without regard to conflict of law provisions.
D. The undersigned agrees to furnish to the Company, upon request, such
additional information as may be deemed necessary to determine the
undersigned's suitability as an investor.
6
SIGNATURE PAGE
Dated: ____________, 2003.
----------------------------------------
Signature
----------------------------------------
Name Typed or Printed
----------------------------------------
Residence Address
----------------------------------------
----------------------------------------
City, State, Country and Zip Code
----------------------------------------
Mailing Address
----------------------------------------
----------------------------------------
City, State, Country and Zip Code
----------------------------------------
Tax Identification or Social
Security Number
----------------------------------------
Phone Number (home)
----------------------------------------
Phone Number (work)
----------------------------------------
Fax Number
----------------------------------------
E-mail Address
7
CERTIFICATE OF SIGNATORY
(To be completed if Shares are being subscribed by an entity.)
I, ________________________, am the ______________, ____________________
(the "Entity").
I certify that I am empowered and duly authorized by the Entity to execute
and carry out the terms of the Stock Purchase Agreement, dated __________, 2003,
by and between Velocity Express Corporation and the Entity to purchase and hold
the Shares, and certify further that the Stock Purchase Agreement has been duly
and validly executed on behalf of the Entity and constitutes a legal and binding
obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this _____ day of _____, 2003.
----------------------------------------
(Signature)
----------------------------------------
(Title)
----------------------------------------
(Please Print Name)
8
ACCEPTANCE BY THE COMPANY
-------------------------
Velocity Express Corporation hereby accepts the foregoing subscription to
the extent of _______ Shares and shall issue such Shares upon shareholder
approval of (i) the issuance of the Series I Preferred Stock and (ii) the
amendment of the Company's Certificate of Incorporation to increase the number
of shares authorized for issuance to 400,000,000 shares, of which 325,000,000
shares are Common Stock and 75,000,000 shares are Preferred Stock, at a meeting
of the Company's shareholders.
Velocity Express Corporation
By
--------------------------------------
Xxxxxx X. Xxxxxxxxxx
General Counsel and Secretary
9
APPENDIX A
Certificate of Designation
VELOCITY EXPRESS CORPORATION
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF
SERIES I CONVERTIBLE PREFERRED STOCK
Pursuant to the provisions of the General Corporation Law of the State of
Delaware, the undersigned corporation certifies the following and adopts the
attached certificate of designation:
FIRST: The name of the corporation is Velocity Express Corporation (the
"Corporation").
SECOND: Pursuant to the authority vested in the Board of Directors by
this Corporation's Amended and Restated Certificate of
Incorporation, as amended to date, the Board of Directors by
unanimous written consent did adopt on October 7, 2003, without
shareholder action, the following resolutions, authorizing the
creation and designation of a series of preferred stock
designated as Series I Convertible Preferred Stock as set forth
in Exhibit A attached hereto:
RESOLVED, that, in order to comply with and fulfill its
obligations under certain stock purchase agreements for the
Series I Convertible Preferred Stock executed prior to November
21, 2003 (the "Stock Purchase Agreements"), the Corporation will
be required to file a Certificate of Designation, in order to
designate a new class or series of its authorized preferred
shares as set forth on Exhibit A to these consent resolutions
(the "Certificate"); and
RESOLVED FURTHER, that the Board of Directors, acting under
authority of the Corporation's Amended and Restated Certificate
of Incorporation, as amended, and the General Corporate Law of
the State of Delaware, hereby approves and adopts the
Certificate; and
RESOLVED FURTHER that, in the manner required by law and by the
Corporation's Amended and Restated Certificate of Incorporation,
as amended, the appropriate officers of the Corporation be and
they hereby are authorized and directed to cause to be prepared,
and to execute, and to file with the Secretary of State of the
State of Delaware the Certificate.
10
In witness whereof, this Certificate of Designation of Series I Convertible
Preferred Stock is hereby executed on behalf of the Corporation this __ day of
_____________, 2003.
Velocity Express Corporation
----------------------------------------
Xxxxxx X. Xxxxxxxxxx,
General Counsel and Secretary
11
Exhibit A
VELOCITY EXPRESS CORPORATION (THE "CORPORATION")
SERIES I CONVERTIBLE PREFERRED STOCK TERMS
ARTICLE I DESIGNATION AND AMOUNT.
The number of authorized shares of Series I Convertible Preferred Stock,
par value $0.004 per share (the "Series I Preferred Stock"), shall be
12,810,000.
ARTICLE II DIVIDENDS.
In the event that the Corporation declares or pays any dividends upon the
Common Stock (whether payable in cash, securities or other property), other than
dividends payable solely in shares of Common Stock, the Corporation shall also
declare and pay to the holders of Series I Preferred Stock at the same time that
it declares and pays such dividends to the holders of the Common Stock, the
dividends which would have been declared and paid with respect to the Common
Stock issuable upon conversion of shares of the Series I Preferred Stock which
are convertible into shares of Common Stock had all such shares of the
outstanding Series I Preferred Stock been converted immediately prior to the
record date for such dividend, or if no record date is fixed, the date as of
which the record holders of Common Stock entitled to such dividends are to be
determined.
ARTICLE III LIQUIDATION PREFERENCE.
Upon liquidation, dissolution and winding up of the Corporation (whether
voluntary or involuntary) (a "Liquidation Event"), the Corporation shall pay to
the holders of the Series I Preferred Stock (unless otherwise provided for in
the resolution or resolutions creating such stock) the aggregate Liquidation
Value attributable to such shares (each, a "Share") plus any accrued but unpaid
dividends thereon. If upon any such Liquidation Event, the Corporation's assets
to be distributed among the holders of the Junior Securities, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series F Preferred
Stock, Series G Preferred Stock, Series H Preferred Stock and Series I Preferred
Stock are insufficient to permit payment to such holders of the aggregate amount
of their respective liquidation preference pursuant to the Corporation's Amended
and Restated Certificate of Incorporation, as amended from time to time (the
"Charter"), as applicable, then the entire assets available to be distributed to
the Corporation's stockholders shall be distributed in accordance with the
priorities set forth in Article IV, Section 3 of the Charter, with the Series I
Preferred Stock ranking pari passu with the Series D, F, G and H Preferred Stock
and prior to the Series B and C Preferred Stock. Not less than sixty (60) days
prior to the payment date of the Liquidation Value, the Corporation shall mail
written notice of any such Liquidation Event to each record holder of Series I
Preferred Stock, setting forth in reasonable detail the amount of proceeds to be
paid with respect to each Share and each share of Common Stock in connection
with such Liquidation Event. A change of
A-1
control of the Corporation shall not be deemed a Liquidation Event for purposes
of this Section 3.
ARTICLE IV VOTING RIGHTS.
Section 4.1 Voting Rights. The Series I Preferred Stock shall have no
voting rights.
Section 4.2 Covenants.
Notwithstanding the above, the Corporation shall not take any of the
actions set forth below without first obtaining the affirmative consent of the
holders of at least two-thirds of the then outstanding shares of Series I
Preferred Stock for so long as at least 20% of the Series I Preferred Stock
originally issued pursuant to the Stock Purchase Agreements remains outstanding:
(a) alter or change the preferences, rights or powers of the Series I
Preferred Stock;
(b) increase or decrease the authorized number of shares of the
Series I Preferred Stock;
ARTICLE V CONVERSION.
Subject to the terms of this Section 5, at any time and from time to time
after (i) the authorization by stockholders of the Corporation of the issuance
of the Series I Preferred Stock and (ii) the amendment of the Charter to
increase the number of shares of the Corporation authorized for issuance to
400,000,000 shares, of which 325,000,000 shares are Common Stock and 75,000,000
shares are Preferred Stock (the time after both conditions are met, the
"Conversion Time"), any holder of Series I Preferred Stock may convert all or
any portion of the Series I Preferred Stock (including any fraction of a Share)
held by such holder into a number of shares of Conversion Stock computed by
multiplying the number of Shares to be converted by $1.50 and dividing the
result by the Conversion Price then in effect; provided, however, that, except
for Organic Changes (as defined below) to which the following limitation does
not apply, the Series I Preferred Stock shall not be convertible into Conversion
Stock to the extent that such conversion would result in the holder of the
Series I Preferred, together with such holder's Affiliates, holding 40% or more
of all of the outstanding capital stock of the Corporation on an as converted
basis.
Section 5.1 Conversion Procedure.
(a) Except as otherwise provided herein, each conversion of Preferred
Stock shall be deemed to have been effected as of the close of business on
the date on which the certificate or certificates representing the Series I
Preferred Stock to be converted have been surrendered for conversion at the
principal office of the Corporation. At the time any such conversion has
been effected, the rights of the holder of the Shares converted as a holder
of Series I Preferred Stock shall cease and the Person or Persons in whose
name or names any certificate or certificates for shares of Conversion
Stock are to be issued
A-2
upon such conversion shall be deemed to have become the holder or holders
of record of the shares of Conversion Stock represented thereby.
(b) Notwithstanding any other provision hereof, if a conversion of
Preferred Stock is to be made in connection with a transaction affecting
the Corporation, the conversion of any shares of Series I Preferred Stock
may, at the election of the holder thereof, be conditioned upon the
consummation of such transaction, in which case such conversion shall not
be deemed to be effective until such transaction has been consummated.
(c) As soon as possible after a conversion has been effected (but in
any event within three (3) Business Days in the case of subparagraph (A)
below), the Corporation shall deliver to the converting holder:
i. a certificate or certificates representing the number of
shares of Conversion Stock issuable by reason of such
conversion in such name or names and such denomination or
denominations as the converting holder has specified;
ii. payment of any amount payable under subparagraph (viii)
below with respect to such conversion; and
iii. a certificate representing any Shares, which were
represented, by the certificate or certificates delivered to
the Corporation in connection with such conversion but which
were not converted.
(d) The issuance of certificates representing shares of Conversion
Stock upon conversion of Preferred Stock shall be made without charge to
the holders of such Preferred Stock for any issuance tax in respect thereof
or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Conversion Stock. Upon
conversion of each share of Series I Preferred Stock, the Corporation shall
take all such actions as are necessary in order to insure that the
Conversion Stock issuable with respect to such conversion shall be validly
issued, fully paid and nonassessable, free and clear of all taxes, liens,
charges and encumbrances with respect to the issuance thereof.
(e) The Corporation shall not close its books against the transfer of
Preferred Stock or of Conversion Stock issued or issuable upon conversion
of the Series I Preferred Stock in any manner, which interferes with the
timely conversion of the Series I Preferred Stock. The Corporation shall
assist and cooperate with any holder of Shares required to make any
governmental filings or obtain any governmental approval prior to or in
connection with any conversion of Shares hereunder (including, without
limitation, making any filings required to be made by the Corporation).
(f) The Corporation shall at all times after the Conversion Time
reserve and keep available out of its authorized but unissued shares of
Conversion Stock, solely for the purpose of issuance upon the conversion of
the Series I Preferred Stock, such number of shares of Conversion Stock
issuable upon the conversion of all outstanding Preferred
A-3
Stock. All shares of Conversion Stock that are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges. The Corporation shall take all such
actions as may be necessary to assure that all such shares of Conversion
Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities
exchange upon which shares of Conversion Stock may be listed (except for
official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance). The Corporation shall not take any
action that would cause the number of authorized but unissued shares of
Conversion Stock to be less than the number of such shares required to be
reserved hereunder for issuance upon conversion of the Preferred Stock.
(g) If any fractional interest in a share of Conversion Stock would,
except for the provisions of this subparagraph, be delivered upon any
conversion of the Series I Preferred Stock, the Corporation, in lieu of
delivering the fractional share therefore, shall pay an amount to the
holder thereof equal to the Market Price of such fractional interest as of
the date of conversion.
(h) If the shares of Conversion Stock issuable by reason of
conversion of the Series I Preferred Stock are convertible into or
exchangeable for any other stock or securities of the Corporation, the
Corporation shall, at the converting holder's option, upon surrender of the
Shares to be converted by such holder as provided herein together with any
notice, statement or payment required to effect such conversion or exchange
of Conversion Stock, deliver to such holder or as otherwise specified by
such holder a certificate or certificates representing the stock or
securities into which the shares of Conversion Stock issuable by reason of
such conversion are so convertible or exchangeable, registered in such name
or names and in such denomination or denominations as such holder has
specified.
Section 5.2 Conversion Price.
(a) In order to prevent dilution of the conversion rights granted
under this Section 5, the Conversion Price of the Series I Preferred Stock
shall be subject to adjustment from time to time pursuant to this Section
5B.
(b) If and whenever after the original date of issuance of the first
share of Series I Preferred Stock, the Corporation issues or sells, or in
accordance with Section 5C is deemed to have issued or sold, any shares of
its Common Stock for a consideration per share less than the Market Price
of the Common Stock determined as of the date of such issue or sale, then
immediately upon such issue or sale, the Conversion Price shall be reduced
to the Conversion Price determined by multiplying the Conversion Price in
effect immediately prior to such issue or sale by a fraction, the numerator
of which shall be the sum of (1) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale multiplied by
the Market Price of the Common Stock determined as of the date of such
issuance or sale, plus (2) the consideration, if any, received by the
Corporation upon such issue or sale, and the denominator of which shall be
the product derived by multiplying the Market Price of the Common Stock by
the
A-4
number of shares of Common Stock Deemed Outstanding immediately after such
issue or sale.
(c) Notwithstanding the foregoing, there shall be no adjustment to
the Conversion Price hereunder with respect to any issuances that are
exempt from adjustment with respect to any shares of Preferred Stock of any
series pursuant to Section 5B (iii) of the Charter.
Section 5.3 Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under paragraph 5B, the following
shall be applicable:
(a) Issuance of Rights or Options. If the Corporation in any manner
grants or sells any Options and the price per share for which Common Stock
is issuable upon the exercise of such Options, or upon conversion or
exchange of any Convertible Securities issuable upon exercise of such
Options, is less than the Market Price of the Common Stock determined as of
such time, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to be outstanding and to have been
issued and sold by the Corporation at the time of the granting or sale of
such Options for such price per share. For purposes of this paragraph, the
"price per share for which Common Stock is issuable" shall be determined by
dividing (A) the total amount, if any, received or receivable by the
Corporation as consideration for the granting or sale of such Options, plus
the minimum aggregate amount of additional consideration payable to the
Corporation upon exercise of all such Options, plus in the case of such
Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon
the issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of
such Options. No further adjustment of the Conversion Price shall be made
when Convertible Securities are actually issued upon the exercise of such
Options or when Common Stock is actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. If the Corporation in any
manner issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon conversion or exchange thereof is
less than the Market Price of the Common Stock determined as of such time,
then the maximum number of shares of Common Stock issuable upon conversion
or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Corporation at the time
of the issuance or sale of such Convertible Securities for such price per
share. For the purposes of this paragraph, the "price per share for which
Common Stock is issuable" shall be determined by dividing (A) the total
amount received or receivable by the Corporation as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon
the conversion or exchange thereof, by (B) the total maximum number
A-5
of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No further adjustment of the Conversion Price
shall be made when Common Stock is actually issued upon the conversion or
exchange of such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon exercise of any Options for which
adjustments of the Conversion Price had been or are to be made pursuant to
other provisions of this Section 5, no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. If the purchase price
provided for in any Options, the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities or the rate
at which any Convertible Securities are convertible into or exchangeable
for Common Stock changes at any time, the Conversion Price in effect at the
time of such change shall be immediately adjusted to the Conversion Price
which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at
the time initially granted, issued or sold. For purposes of Section 5C, if
the terms of any Option or Convertible Security which was outstanding as of
the date of issuance of the Series I Preferred Stock are changed in the
manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued and sold
as of the date of such change; provided, that (A) no such change shall at
any time cause the Conversion Price hereunder to be increased, and (B) no
adjustment to the Conversion Price pursuant to this clause (iii) shall be
made as a result of any adjustment to the exercise and/or conversion price
with respect to the outstanding capital security of the Corporation on the
date hereof pursuant to and in accordance with the antidilution protection
provisions of such securities as in effect on the date hereof.
(d) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any
right to convert or exchange any Convertible Security without the exercise
of any such Option or right, the Conversion Price then in effect hereunder
shall be adjusted immediately to the Conversion Price which would have been
in effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued. For purposes of Section 5C,
the expiration or termination of any Option or Convertible Security which
was outstanding as of the date of issuance of the Series I Preferred Stock
shall not cause the Conversion Price hereunder to be adjusted unless, and
only to the extent that, a change in the terms of such Option or
Convertible Security caused it to be deemed to have been issued after the
date of issuance of the Series I Preferred Stock.
(e) Calculation of Consideration Received. If any Common Stock,
Option or Convertible Security is issued or sold or deemed to have been
issued or sold for cash, the consideration received therefore shall be
deemed to be the amount received by the Corporation therefore. If any
Common Stock, Option or Convertible Security is issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be the fair value of such
consideration, except where
A-6
such consideration consists of securities, in which case the amount of
consideration received by the Corporation shall be the Market Price thereof
as of the date of receipt of such securities. The fair value of any
consideration other than cash and securities shall be determined jointly by
the Corporation and the holders of at least two-thirds of the Series I
Preferred Stock. If such parties are unable to reach agreement within a
reasonable period of time, the fair value of such consideration shall be
determined by an independent appraiser experienced in valuing such type of
consideration, jointly selected by the Corporation and the holders of at
least two-thirds of the Series I Preferred Stock then outstanding. The
determination of such appraiser shall be final and binding upon the
parties, and the fees and expenses of such appraiser shall be borne by the
Corporation.
(f) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the
Option shall be deemed to have been issued for a consideration of $.01.
(g) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the
account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common
Stock.
(h) Record Date. If the Corporation takes a record of the holders of
Common Stock for the purpose of entitling them (a) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible
Securities or (b) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or upon the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
Section 5.4 Subdivision or Combination of Common Stock. If the Corporation
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Corporation at any
time combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
Section 5.5 Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets or other
transaction, in each case which is effected in such a manner that the holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock held by such holders, is referred to herein as an "Organic Change".
Prior to the consummation of any Organic Change, the Corporation shall make
appropriate provisions to insure that each of the holders of Series I Preferred
Stock shall thereafter have the right to
A-7
acquire and receive, in lieu of the shares of Conversion Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Series I Preferred Stock, such shares of stock, securities or assets as such
holder would have received in connection with such Organic Change if such holder
had converted its Series I Preferred Stock immediately prior to such Organic
Change. The Corporation shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof, the successor entity (if other than
the Corporation) resulting from consolidation or merger or the entity purchasing
such assets assumes by written instrument, the obligation to deliver to each
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to acquire.
Section 5.6 Certain Events. If any event occurs of the type contemplated by
the provisions of this Section 5 but are not expressly provided for by these
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Corporation's Board of Directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Series I
Preferred Stock; provided, that no such adjustment shall increase the Conversion
Price or decrease the number of shares of Conversion Stock issuable upon
conversion of each Share of Series I Preferred Stock as otherwise determined
pursuant to this Section 5.
Section 5.7 Notices.
(a) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all affected holders of
the Series I Preferred Stock, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(b) The Corporation shall give written notice to all holders of the
Series I Preferred Stock at least 20 days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any
dividend or distribution upon Common Stock, (b) with respect to any pro
rata subscription offer to holders of Common Stock or (c) for determining
rights to vote with respect to any Organic Change, dissolution or
liquidation.
(c) The Corporation shall also give written notice to the holders of
the Series I Preferred Stock at least 20 days prior to the date on which
any Organic Change shall take place.
ARTICLE VI PURCHASE RIGHTS.
If at any time the Corporation grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights") and such rights are not concurrently granted to the holders
of the Preferred Stock, then each holder of Initially Designated Preferred Stock
or the Series I Preferred Stock shall be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder could have acquired if such holder had held the number of shares of
Conversion Stock acquirable upon conversion of such holder's Initially
Designated Preferred Stock or Series I Preferred Stock immediately before the
date on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or if no
A-8
such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.
ARTICLE VII REGISTRATION OF TRANSFER.
The Corporation shall keep or have its agent keep a register for the
registration of the Series I Preferred Stock. Upon the surrender of any
certificate representing the Series I Preferred Stock at a place designated by
the Corporation, the Corporation shall, at the request of the record holder of
such certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefore representing in the aggregate
the number of Shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
Shares as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Series I Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such Series I Preferred
Stock represented by the surrendered certificate.
ARTICLE VIII REPLACEMENT.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing the
Shares, and in the case of any such loss, theft or destruction, upon receipt of
indemnity reasonably satisfactory to the Corporation (provided that if the
holder is a financial institution or other institutional investor, its own
agreement to indemnify the Corporation shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of the Series I
Preferred Stock represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Shares represented by such new
certificate from the date to which dividends have been fully paid on such lost,
stolen, destroyed or mutilated certificate.
ARTICLE IX DEFINITIONS.
To the extent not defined herein, terms shall have the meaning set forth in
the Charter.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person, where
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through ownership of Voting
Securities, contract or otherwise.
"Common Stock" means, collectively, the Corporation's common stock, par
value $0.004 per share, and any capital stock of any class of the Corporation
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.
A-9
"Common Stock Deemed Outstanding" means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to subparagraphs 5C(i)
and 5C(ii) hereof whether or not the Options or Convertible Securities are
actually exercisable at such time.
"Conversion Price" initially means $0.15 for the Series I Preferred Stock.
"Conversion Stock" means shares of the Corporation's Common Stock;
provided, that if there is a change such that the securities issuable upon
conversion of the Series I Preferred Stock are issued by an entity other than
the Corporation or there is a change in the type or class of securities so
issuable, then the term "Conversion Stock" shall mean one share of the security
issuable upon conversion of the Series I Preferred Stock if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Convertible Securities" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock.
"Corporation" means Velocity Express Corporation, a Delaware corporation,
or, where applicable (for example, in connection with agreements dated prior to
the date of incorporation of the Corporation under the GCL), UST. Where
applicable, reference to certain agreements of the Corporation entered into
prior to its incorporation under the Delaware General Corporation Law refer to
those as assumed by the surviving entity as a matter of law under the merger
between the Corporation and UST, effective on January 4, 2002.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Initially Designated Preferred Stock" shall mean the Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series F Preferred
Stock, Series G Preferred Stock and Series H Preferred Stock, together.
"Junior Securities" has the meaning set forth in Section 1 of the Charter.
"Liquidation Event" has the meaning set forth in Section 3.
"Liquidation Value" of any share of Series I Preferred Stock shall be equal
to $1.50.
"Market Price" of any security means the average of the closing prices of
such security's sales on all securities exchanges on which such security may at
the time be listed, or, if there has been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is
not quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of the twenty (20) consecutive trading
days immediately prior to the day for which "Market Price" is being determined.
If at any time such security is not listed on any securities exchange or quoted
in the NASDAQ System
A-10
or the over-the-counter market, the "Market Price" shall be the fair value
thereof determined jointly by the Corporation and the holders of at least
two-thirds of each of the then outstanding classes of Preferred Stock, voting as
individual classes. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an independent
appraiser experienced in valuing securities jointly selected by the Corporation
and the holders of at least two-thirds of each of the then outstanding classes
of Preferred Stock, voting as individual classes. The determination of such
appraiser shall be final and binding upon the parties, and the Corporation shall
pay the fees and expenses of such appraiser.
"Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"Permitted Issuances" means the acts described in Section 5B(iii) of the
Charter.
"Person" means an individual, a partnership, a corporation, a limited
liability company, a limited liability, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization and a governmental entity
or any department, agency or political subdivision thereof.
"Preferred Stock" shall have the meaning set forth in the Charter.
"Series B Preferred Stock" shall mean the Corporation's Series B
Convertible Preferred Stock, par value $0.004 per share.
"Series C Preferred Stock" shall mean the Corporation's Series C
Convertible Preferred Stock, par value $0.004 per share.
"Series D Preferred Stock" shall mean the Corporation's Series D
Convertible Preferred Stock, par value $0.004 per share.
"Series F Preferred Stock" shall mean the Corporation's Series F
Convertible Preferred Stock, par value $0.004 per share.
"Series G Preferred Stock" shall mean the Corporation's Series G
Convertible Preferred Stock, par value $0.004 per share.
"Series H Preferred Stock" shall mean the Corporation's Series H
Convertible Preferred Stock, par value $0.004 per share.
"Series I Preferred Stock" shall mean the Corporation's Series I
Convertible Preferred Stock, par value $0.004 per share.
"Share" has the meaning set forth in Section 3.
"Subsidiary" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time
A-11
owned or controlled, directly or indirectly, by that Person or one or more of
the other Subsidiaries of that Person or a combination thereof, or (ii) if a
limited liability company, partnership, association or other business entity, a
majority of the partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by any Person or one or
more Subsidiaries of that Person or a combination thereof. For purposes hereof,
a Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control the managing general partner of such limited liability
company, partnership, association or other business entity.
"UST" means United Shipping and Technology, Inc., a Utah corporation and
the predecessor of Velocity Express Corporation, a Delaware corporation.
"Voting Securities" means securities of the Corporation ordinarily having
the power to vote for the election of directors of the Corporation; provided,
that when the term "Voting Securities" is used with respect to any other Person,
it means the capital stock or other equity interests of any class or kind
ordinarily having the power to vote for the election of directors or other
members of the governing body of such Person.
ARTICLE X AMENDMENT AND WAIVER.
No amendment, modification or waiver shall be binding or effective with
respect to any provisions hereof without the prior written consent of the
holders of at least two-thirds of Series I Preferred Stock outstanding, voting
as a separate class, at the time such action is taken.
ARTICLE XII NOTICES.
Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (i) to the Corporation, at its principal executive offices and
(ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
A-12
APPENDIX B
Risk Factors
An investment in our Series I Preferred involves risks. You should
carefully consider the following risk factors, and all other information
contained and incorporated by reference in this prospectus before you decide to
purchase shares of our common stock. The risks described below are not the only
risks we face. Additional risks that we do not yet know of or that we currently
think are immaterial may also impair our business operations. Any of the events
or circumstances described in the following risks could have a material adverse
impact on our business, financial condition and results of operations if they
were to actually occur. If that happens, the trading price of our common stock
could decline, and you may lose all or part of your investment.
Risks Related To Our Business
We have sustained losses applicable to holders of our Common Stock in the
past and we may continue to sustain losses applicable to holders of our Common
Stock in the future.
We experienced net losses applicable to holders of our Common Stock of
approximately $35.0 million for the fiscal year ended June 30, 2001,
approximately $20.4 million for the fiscal year ended June 29, 2002 and $15.6
million for the fiscal year ended June 28, 2003. The nature and extent of any
future losses applicable to holders of our Common Stock will depend on the
success of our financial and business strategies, and on other factors, some of
which may be beyond our control. We cannot assure you that we will eliminate net
losses applicable to holders of our Common Stock and achieve profitable
operations.
We may not be successful in implementing our growth plans.
We face the risks, expenses and uncertainties frequently encountered by
emerging companies that operate in evolving markets. Successfully achieving our
growth plan depends upon, among other things, our ability to:
. continue to reduce losses and position ourselves to continue positive
cash flow;
. successfully promote our national brand;
. deliver services that are equal or superior to those of our
competitors; and
. obtain and maintain a technological competitive advantage.
We may need additional capital to finance our growth and working capital
needs.
We have sustained net losses in each of the past three years and may
continue to do so in the future. If we continue to experience operating losses,
we will need additional cash to offset these losses, which may not be available
to us on acceptable terms, or at all. Achieving our financial goals involves
implementing a number of strategies, some of which may not develop when or as
planned. To date, we have primarily relied upon debt and equity investments to
fund our operations and growth.
B-1
We have substantial indebtedness.
On January 28, 2002, we entered into a new $40 million revolving credit
facility with a group of banks led by Fleet Capital Corporation and repaid all
amounts outstanding under our old credit facility with a group of banks led by
General Electric Capital Corporation. As of June 28, 2003, $39.0 million was
outstanding under the new revolving credit facility and we had an additional $5
million in subordinated indebtedness. On September 24, 1999, we entered into a
Note and Warrant Purchase Agreement with Bayview Capital Partners L.P.
("Bayview"), under which the Company borrowed from Bayview $5,000,000 at a per
annum interest rate of 12%, due quarterly. On September 8, 2003, the Company
also borrowed $1,000,000 from an individual investor with an agreement to repay
the principal and a lump sum interest payment of $25,000 within 90 days.
Substantially all of our assets are pledged to secure our indebtedness. Subject
to the restrictions in our existing credit agreements, we and our subsidiaries
may incur additional indebtedness from time to time to increase working capital,
finance capital expenditures, and for other general corporate purposes.
Our revolving credit facility matures on January 28, 2004.
Our ability to refinance the revolving credit facility upon maturity will
depend to a great degree on our operating performance at the time of maturity.
If we cannot successfully refinance the revolving credit facility upon maturity,
we will be required to raise capital through the issuance of additional debt or
equity securities or sales of some or all of our assets in order to meet our
repayment obligations under the facility. We cannot assure you that we will be
able to raise such capital or that the terms for raising such capital would be
acceptable to us.
Our debt instruments contain significant financial and operational
requirements.
Our revolving credit agreement contains a number of financial covenants
that, among other things, require us to maintain specified interest coverage
ratios and specified levels of availability under the revolving credit facility
based upon our interest coverage ratio. The credit agreement also restricts our
ability to dispose of assets, incur additional indebtedness, amend our debt
instruments, make payments on subordinated debt, pay dividends or other
distributions, create liens on assets, make capital expenditures, enter into
sale and leaseback transactions, allow our subsidiaries to issue securities or
make any sales on a repurchase or return basis, make investments, loans or
advances, engage in mergers, consolidations, joint ventures, acquisitions or
structural changes, change our organizational documents or our fiscal year end,
enter into leases or negative pledges, and engage in transactions with
affiliates.
Our ability to comply with the financial covenants in our credit agreements
will be affected by our financial performance as well as events beyond our
control, including prevailing economic, financial and industry conditions.
The breach of any of the covenants in our credit agreements could result in
a default, which would permit the lenders to declare all amounts borrowed
thereunder to be due and payable, together with accrued and unpaid interest. If
we are unable to repay our indebtedness, the lenders could proceed against the
collateral securing the indebtedness.
Rapid technological changes in communications technology may require
substantial expenditures by us.
The industry in which we compete is characterized by rapidly changing
technology, evolving industry standards, frequent new service announcements,
introductions and enhancements, compromises in security and changing customer
demands. Accordingly, our future success may depend on our ability to respond to
rapidly changing technologies, to adapt our services to evolving industry
standards and to continually improve the performance, features and reliability
of our technology and services in response to competitive service offerings and
the evolving demands of the marketplace.
B-2
Obtaining and maintaining a technological competitive advantage may require us
to make substantial expenditures, which could have a material adverse effect on
our business, results of operations and financial condition.
We face significant risks of tax authorities classifying independent
contractors as our employees.
A significant number of our drivers are currently independent contractors
(meaning that they are not our employees). From time to time, federal and state
taxing authorities have sought to assert that independent contractor drivers in
the same-day delivery and transportation industries are employees. We do not pay
or withhold federal or state employment taxes with respect to drivers who are
independent contractors. Although we believe that the independent contractors we
utilize are not our employees under existing interpretations of federal and
state laws, we cannot guarantee you that federal and state authorities will not
challenge our position or that other laws or regulations, including tax laws and
laws relating to employment and worker compensation, will not change. If the IRS
were to successfully assert that our independent contractors are in fact our
employees, we would be required to pay withholding taxes and extend additional
employee benefits to these persons. In addition, we could become responsible for
past and future employment taxes. If we are required to pay withholding taxes
with respect to amounts previously paid to these persons, we could be required
to pay penalties or be subject to other liabilities as a result of incorrectly
classifying employees. If our drivers are deemed to be employees rather than
independent contractors, we could be required to increase their compensation
since they may no longer be receiving commission-based compensation. Any of the
foregoing possibilities could increase our operating costs and have a material
adverse effect on our business, financial condition and results of operations.
We could be subject to claims for personal injury, death and property
damage.
We could be exposed to claims for personal injury, death and property
damage as a result of accidents involving our employees and independent
contractors. While we carry liability insurance and require that our independent
contractors maintain at least the minimum amount of liability insurance required
by state law, we cannot assure you that any claims made against us will not
exceed the amount of our insurance coverage. Successful claims for personal
injury, death or property damage in excess of our insurance coverage could have
a material adverse effect on our business, financial condition and results of
operations.
We could be subject to claims for non-delivery or delayed delivery of
packages.
We could be subject to claims resulting from non-delivery or delayed
delivery of packages, many of which could be significant because of unique or
time sensitive deliveries. While our customer contracts contain limitations of
our liability for non-delivery or delayed delivery of packages, we cannot assure
you that we will be able to successfully limit our liability for package
deliveries by contract. Successful claims for non-delivery or delayed delivery
of packages could have a material adverse effect on our business, financial
condition and results of operations.
We face many risks unique to the package shipping and same-day delivery
industries.
Numerous events and factors that affect the delivery services industry
could also affect (and recently have affected) our business, financial condition
and results of operations, including:
. weather conditions;
. fuel prices and shortages;
B-3
. economic factors affecting customers, as well as general economic
conditions affecting prices and operating margins;
. the ability of United States companies to maintain continuous
operation of supply and communications systems;
. downturns in the level of general economic activity or employment in
the United States, which could affect the demand for package and
priority document delivery; and
. labor shortages and disputes.
We must comply with various governmental regulations.
Various local, state and federal regulations require us to obtain and
maintain permits and licenses in connection with our operations. Some of our
operations may also involve the delivery of items subject to more stringent
regulation, including hazardous materials, which would require us to obtain
additional permits. In addition, we cannot assure you that existing laws or
regulations will not be revised or that new laws or regulations, which could
have an adverse impact on our operations, will not be adopted or become
applicable to us. Our failure to maintain required permits and licenses, or to
comply with applicable regulations, could result in substantial fines or
revocation of permits and licenses, any of which could have a material adverse
effect on our business, financial condition and results of operations.
We face intense competition in the market for same-day delivery services.
We expect that competition will continue to intensify in the same day
delivery business. Companies such as UPS(R), Federal Express(R), and DHL(R)
dominate the next day commercial package shipping market. The market for
point-to-point delivery services is also highly competitive, with a number of
companies having multi-state and multi-city operations. A number of these
competitors have greater financial and technical resources and more industry
recognition than we do. Any of these companies could elect to enter the same-day
delivery market in direct competition with us. Increased competitive pressure
could have a material adverse effect on our business, financial condition and
results of operations.
We depend on our key personnel.
We depend upon the continued services of our senior management for our
success. The loss of a member of our senior management could have a material
adverse effect on our business, financial condition and results of operations.
We cannot assure you that we will be able to retain our senior management or our
other key personnel.
The loss of significant customers could adversely affect our business.
Our contracts with our commercial customers typically have a term of 1 to 3
years, but are terminable upon 30 or 60 days notice. Although we have no reason
to believe that these contracts will be terminated prior to the expiration of
their terms, early termination of these contracts could have a material adverse
effect on our business, financial condition and results of operations.
Our stock may be delisted from Nasdaq because we may not meet the minimum
bid price and market capitalization requirements for continued listing.
In the past, we have been notified by Nasdaq that our stock was subject to
delisting because our common stock has failed to maintain a minimum bid price of
$1.00 over the previous 30 consecutive trading days and that we were not in
compliance of the market capitalization requirement of $35,000,000
B-4
as required by The Nasdaq SmallCap Market under its Marketplace Rules. We are
currently operating under a delisting notice relative to the minimum bid price
requirements and have been given until January 16, 2004 to regain compliance. In
the event that we are unable to maintain the standards for continued listing,
our shares would be subject to delisting from The Nasdaq SmallCap Market.
We have a substantial investment in equipment and technology.
As a part of our business strategy, we have invested significantly in
equipment and technology, and we will continue to make investments that we
believe are necessary or appropriate to maintain our presence in the same-day
delivery industry. While we believe that these investments will give us an
advantage over our competitors, we cannot assure you that this strategy will be
successful or that we will be able to recover our investment through increased
revenues or profits. Additionally, disruptions in electrical and other energy
supplies could cause a disruption of, or damage to, our technology and
communication systems.
Terrorist attacks and threats or actual war may negatively impact all
aspects of our operations.
Recent terrorist attacks in the United States, as well as future events
occurring in response to them, including, without limitation, future terrorist
attacks against U.S. targets, rumors or threats of war, actual conflicts
involving the United States or its allies or military or trade disruptions
impacting our domestic or foreign customers have had and could continue to have,
a significant impact on our business. These effects have included, and may
continue to include, reduced demand for our services and delays in our ability
to deliver services to our customers. More generally, any of these events could
cause consumer confidence and spending to decrease or result in increased
volatility in the U.S. and worldwide financial markets and economy. They could
also result in economic recession in the U.S. or abroad. Any of these
occurrences could have a material adverse effect on our business, financial
condition and results of operations.
B-5
APPENDIX C
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of October
___, 2003, among Velocity Express Corporation, a Delaware corporation (the
"Company) and the persons executing a Series I Purchaser Signature Page attached
hereto (each a "Series I Purchaser"). Capitalized terms used herein but not
otherwise defined have the meaning set forth in Section 1 hereof.
WHEREAS, the Series I Purchasers and the Company have entered into
certain Stock Purchase Agreements, pursuant to which the Series I Purchasers
purchased from the Company certain of the shares of the Company's Series I
Convertible Preferred Stock, par value $.004 per share (the "Series I Preferred
Stock").
WHEREAS, the Company hereby desires to, among other things, grant the
Series I Purchasers certain registration rights.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Definitions.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banks in New York City are authorized or obligated by law or executive
order to close.
"Commission" means the United States Securities and Exchange
Commission, or any successor Commission or agency having similar powers.
"Common Stock" means the Common Stock of the Company, $0.004 par value
per share.
"Registrable Securities" means, the Series I Registrable Securities.
"Registration Expenses" has the meaning set forth in Section 6(a)
hereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Series I Purchasers" means any purchasers of Series I Preferred
Stock.
2. Demand Registrations.
(a) Requests for Registration. Subject to the limitations and lock-up period
set forth in the Series I Stock purchase Agreement, the holders of a
majority of the Series I Registrable Securities may request Short-Form
Registrations, if available. Each request for a Demand Registration (as
defined below) shall specify the approximate number of Registrable
Securities requested to be registered and the anticipated per share price
range for such offering. Within ten (10) days after receipt of any such
request, the Company will give written notice of such requested
registration to all other holders of Registrable Securities and will
include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein
within twenty (20) days after
C-1
the receipt of the Company's notice. All registrations requested pursuant
to this paragraph 2(a) are referred to herein as "Demand Registrations".
(b) Short-Form Registrations. Subject to the limitations and lock-up period
set forth in the Series I Stock purchase Agreement, the holders of the
Series I Registrable Securities will be entitled to request up to three
(3) Short-Form Registrations in which the Company will pay all
Registration Expenses; provided, that the holders of Registrable
Securities shall not be entitled to require the Company to effect any
Short-Form Registration if the aggregate offering price of Registrable
Securities (based on the mid-point of the price range specified in the
request for such Short-Form Registration) to be included in such
Short-Form Registration is less than $1,000,000. Demand Registrations will
be Short-Form Registrations whenever the Company is permitted to use any
applicable short form. The Company will use its best efforts to make
Short-Form Registrations on FormS-3 available for the sale of Registrable
Securities.
(c) Priority on Demand Registrations. If a Demand Registration is an
underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such
offering exceeds the number of Registrable Securities and other
securities, if any, which can be sold therein without adversely affecting
the marketability of the offering, the Company will include in such
registration (i) first, securities requested to be registered pursuant to
that certain Third Amended Registration Rights Agreement, by and among the
parties thereto (the "Original Registrable Securities") , (ii) second, the
number of Registrable Securities requested to be included in such Demand
Registration by the holders initially requesting such Demand Registration
pro rata, if necessary, among the holders of such Registrable Securities
based on the number of such Registrable Securities owned by each such
holder, and (iii) third, the number of other Registrable Securities not
included pursuant to clause (i) above pro rata, if necessary, among the
holders of such Registrable Securities based on the number of such
Registrable Securities owned by each such holder, and (iii) third, any
other securities of the Company requested to be included in such Demand
Registration.
(d) Restrictions on Demand Registrations. The Company will not be obligated to
effect any Demand Registration within sixty (60) days after the effective
date of a previous registration of equity securities by the Company. The
Company may postpone for up to ninety (90) days the filing or the
effectiveness of a registration statement for a Demand Registration if the
Company's Board of Directors determines in good faith that such Demand
Registration would reasonably be expected to be seriously detrimental to
the Company and its shareholders; provided, that in such event, (i) the
Company shall give written notice to the holders of Registrable Securities
as soon after such determination as practicable, but in any event within
ten (10) days thereafter, (ii) the holders of Registrable Securities
initially requesting such Demand Registration will be entitled to withdraw
such request and such Demand Registration will not count as one of the
permitted Demand Registrations hereunder and the Company will pay all
Registration Expenses in connection with such registration and (iii) the
Company may postpone a Demand Registration pursuant hereto only once in
any 365-day period.
(e) Selection of Underwriters. If any Demand Registration is an underwritten
offering, the selection of investment banker(s) and manager(s) for the
offering, which investment banker(s) and manager(s) shall be nationally
recognized, shall be made by the Company.
3. Piggyback Registrations.
(a) Right to Piggyback. Subject to the lock-up period set forth in the Series
I Stock purchase Agreement, whenever the Company proposes to register any
of its securities under the Securities Act (other than pursuant to a
Demand Registration) and the registration form to be used may be used for
the
C-2
registration of Registrable Securities (a "Piggyback Registration"), the
Company will give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration and will include
in such registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within twenty
(20) days after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the
managing underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering without adversely
affecting the marketability of the offering, the Company will include in
such registration (i) first, the securities the Company proposes to sell,
and (ii) second, the securities requested to be registered pursuant to
that certain Third Amended Registration Rights Agreement, and (iii) third,
the Registrable Securities requested to be included in such Piggyback
Registration, pro rata, if necessary, among the holders of such
Registrable Securities on the basis of the number of Registrable
Securities owned by each such holder and (iv) fourth, other securities
requested to be included in such Piggyback Registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing
that in their opinion the number of securities requested to be included in
such registration exceeds the number which can be sold in such offering
without adversely affecting the marketability of the offering, the Company
will include in such Piggyback Registration (i) first, the securities
requested to be included therein by the holders requesting such
registration, (ii) second, the Original Registrable Securities requested
to be included in such Piggyback Registration, pro rata among the holders
of such Original Registrable Securities on the basis of the number of
Registrable Securities owned by each such holder and (iii) third, the
holders of the Registrable Securities and other securities requested to be
included in such Piggyback Registration.
(e) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the selection by the Company of investment
banker(s) and manager(s), which investment banker(s) and manager(s) shall
be nationally recognized, for the offering must be approved by the holders
of a majority of the Registrable Securities included in such Piggyback
Registration, which approval shall not be unreasonably withheld.
4. Holdback Agreements.
(a) Each holder of Registrable Securities agrees not to effect any public sale
or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven (7) days
prior to and the ninety (90)-day period beginning on the effective date of
any underwritten Demand Registration or any underwritten Piggyback
Registration in which Registrable Securities are included (except as part
of such underwritten registration), unless the underwriters managing the
registered public offering otherwise agree.
(b) The Company agrees not to effect any public sale or distribution of its
equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven (7) days prior to and
during the ninety (90)-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback
Registration (except as part of such
C-3
underwritten registration or pursuant to registrations on Form S-8 or Form
S-4 or any successor forms thereto), unless the underwriters managing the
registered public offering otherwise agree.
5. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof including the registration of common
stock that may be obtained upon conversion of Preferred Stock held by a holder
of Registrable Securities requesting registration, and pursuant thereto the
Company will as expeditiously as possible:
(a) prepare and file (in the case of a Demand Registration not more than
ninety (90) days after request therefor) with the Commission a
registration statement with respect to such Registrable Securities and use
its best efforts to cause such registration statement to become effective
(provided that as far in advance as practicable before filing a
registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to the counsel selected by the holders
of a majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which
documents will be subject to the review of such counsel);
(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 keep such registration statement
effective for a period of not less than one hundred and eighty (180) days
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition
by the sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of copies of
such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable Securities
under such other securities or blue sky laws of such jurisdictions as any
seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where
it would not otherwise be required to qualify but for this subparagraph,
(ii) subject itself to taxation in any such jurisdiction or (iii) consent
to general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such seller,
the Company will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a
material fact or omit to state any fact necessary to make the statements
therein not misleading;
(f) cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed
and, if not so listed, to be listed on the National Association of
Securities Dealers automated quotation system;
C-4
(g) provide a transfer agent and registrar for all such Registrable Securities
not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting agreements in
customary form) and take all such other actions as the holders of a
majority of the Registrable Securities being sold or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition
of such Registrable Securities (including, without limitation, effecting a
stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable Securities, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration
statement;
(j) permit any holder of Registrable Securities which holder, in its sole and
exclusive judgment, might be deemed to be an underwriter or a controlling
person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein
of material, furnished to the Company in writing, which in the reasonable
judgment of such holder and its counsel should be included;
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the
qualification of any common stock included in such registration statement
for sale in any jurisdiction, the Company will promptly notify the holders
of Registrable Securities and will use its reasonable best efforts
promptly to obtain the withdrawal of such order;
(l) obtain a cold comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the holders of a majority
of the Registrable Securities being sold reasonably request; and
(m) in connection with an underwritten public offering, (i) cooperate with the
selling holders of Registrable Securities, the underwriters participating
in the offering and their counsel in any due diligence investigation
reasonably requested by the selling holders or the underwriters in
connection therewith and (ii) participate, to the extent reasonably
requested by the managing underwriter for the offering or the selling
holder, in efforts to sell the Registrable Securities under the offering
(including, without limitation, participating in "roadshow" meetings with
prospective investors) that would be customary for underwritten primary
offerings of a comparable amount of equity securities by the Company.
6. Registration Expenses.
(a) All expenses incident to the Company's performance of or compliance with
this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws,
printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified
public accountants, underwriters (excluding discounts and commissions) and
other Persons retained by the Company (all such expenses being herein
called "Registration Expenses"), will be borne as provided in this
Agreement, except that the Company will, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense
of any annual audit or quarterly review, the expense of any liability
insurance and the expenses and fees for
C-5
listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on the
National Association of Securities Dealers automated quotation system. The
Company shall not be required to pay an underwriting discount with respect
to any shares being sold by any party other than the Company in connection
with an underwritten public offering of any of the Company's securities
pursuant to this Agreement.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company will reimburse the holders of Registrable
Securities covered by such registration for the reasonable fees and
disbursements of one counsel chosen by the holders of a majority of the
Registrable Securities initially requesting such registration.
(c) The Company will reimburse the holders of Registrable Securities for the
reasonable fees and expenses (including the fees and expenses of counsel
chosen by the holders of a majority of the Registrable Securities)
incurred by such holders in enforcing any of their rights under this
Agreement.
7. Indemnification.
(a) Indemnification of Selling Stockholders by the Company. The Company agrees
to indemnify and hold harmless each holder of Registrable Securities which
are registered pursuant hereto (each a "Selling Stockholder") and each
person, if any, who controls any Selling Stockholder within the meaning of
Section 15 of the Securities Act or Section 20 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as follows:
(i) against any and all loss, liability, claim, damage and expense whatsoever,
as incurred, arising out of any untrue statement or alleged untrue
statement of a material fact contained in the registration statement (or
any amendment thereto), or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue statement
or alleged untrue statement of a material fact contained in any
preliminary prospectus or the prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense whatsoever,
as incurred, to the extent of the aggregate amount paid in settlement of
any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue
statement or omission; provided, that subject to Section 7(d) below any
such settlement is effected with the prior written consent of the Company;
and
(iii) against any and all expense whatsoever, as incurred (including the fees
and disbursements of counsel chosen by such Selling Stockholder),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or
(ii) above; Notwithstanding the foregoing, this indemnity agreement shall
not apply to any loss, liability, claim, damage or expense to the extent
arising out of any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with written
information furnished to the Company by the Selling Stockholder expressly
for use in the registration statement (or any amendment thereto), or any
preliminary prospectus or the prospectus (or any amendment or supplement
thereto) or by such Selling Stockholder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements
thereto after the Company has furnished such Selling Stockholder with a
sufficient number of copies of the same.
C-6
(b) Indemnification of Company by the Selling Stockholders. Each Selling
Stockholder, severally and not jointly, agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
registration statement and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, against any and all loss, liability, claim, damage and
expense described in the indemnity contained in Section 7(a) above, as
incurred, but only with respect to untrue or alleged untrue statements or
omissions made in the registration statement (or any amendment thereto),
or any preliminary prospectus or any prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Selling
Stockholder with respect to such Selling Stockholder expressly for use in
the registration statement (or any amendment or supplement thereto);
provided, that such Selling Stockholder's aggregate liability under this
Section 7 shall be limited to an amount equal to the net proceeds (after
deducting the underwriting discount, but before deducting expenses)
received by such Selling Stockholder from the sale of Registrable
Securities pursuant to a registration statement filed pursuant to this
Agreement.
(c) Actions against Parties; Notification. Each indemnified party shall give
notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent
it is not materially prejudiced as a result thereof and in any event shall
not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 7(a), counsel to the indemnified parties shall be
selected by the Company, subject to the approval of the holders of a
majority of the Registrable Securities included in a registration
hereunder, which shall not be unreasonably withheld and, in the case of
parties indemnified pursuant to Section 7(b), counsel to the indemnified
parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action and
counsel to the indemnifying party shall also be counsel for the
indemnified parties; provided, that if under applicable principals of
legal ethics, there is a conflict of interest that prohibits such counsel
from representing the indemnifying parties as well as the indemnified
parties, the indemnifying parties shall be liable for fees and expenses of
one additional counsel (in addition to any local counsel) separate from
their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution
could be sought under this Section 7 (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement
as to or an admission of fault, culpability or a failure to act by or on
behalf of any indemnified party.
(d) Settlement without Consent. If at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for
fees and expenses of counsel, such indemnifying party agrees that it shall
be liable for any settlement of the nature contemplated by Section
7(a)(ii) effected without its written consent if (i) such settlement is
entered into more than forty-five (45) days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party
shall have received notice of the terms of such settlement at least thirty
(30) days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) Contribution.
C-7
(i) If a claim for indemnification under Section 7(a) or 7(b) is unavailable
to an indemnified party because of a failure or refusal of a governmental
authority to enforce such indemnification in accordance with its terms (by
reason of public policy or otherwise), then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, in such proportion as is appropriate to reflect the relative fault
of the indemnifying party and the indemnified party in connection with the
actions, statements or omissions that resulted in such losses as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference
to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or
alleged omission of a material fact, has been taken or made by, or relates
to information supplied by, such indemnifying party or indemnified party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The
amount paid or payable by a party as a result of any losses shall be
deemed to include, subject to the limitations set forth in this Section,
any reasonable attorneys' or other reasonable fees or expenses incurred by
such party in connection with any proceeding to the extent such party
would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party
in accordance with its terms.
(ii) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(e) were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 7(e),
a holder shall not be required to contribute, in the aggregate, any amount
in excess of the amount by which the proceeds actually received by such
holder from the sale of the Registrable Securities subject to the
proceeding exceeds the amount of any damages that the holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty
of such fraudulent misrepresentation.
(iii) The indemnity and contribution agreements contained in this Section are in
addition to any liability that the indemnifying parties may have to the
indemnified parties.
8. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided, that no
holder of Registrable Securities included in any underwritten registration shall
be required to make any representations or warranties to the Company or the
underwriters other than representations and warranties regarding such holder,
such holder's Registrable Securities and such holder's intended method of
distribution or to undertake any indemnification obligations to the Company or
the underwriters with respect thereto, except as otherwise provided in Section 7
hereof.
9. Miscellaneous.
(a) Remedies. Any Person having rights under any provision of this Agreement
will be entitled to enforce such rights specifically to recover damages
caused by reason of any breach of any provision
C-8
of this Agreement and to exercise all other rights granted by law. The
parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and
that any party may in its sole discretion apply to any court of law or
equity of competent jurisdiction (without posting any bond or other
security) for specific performance and for other injunctive relief in
order to enforce or prevent violation of the provisions of this Agreement.
(b) Successors and Assigns. All covenants and agreements in this Agreement by
or on behalf of any of the parties hereto will bind and inure to the
benefit of the permitted respective successors and assigns of the parties
hereto whether so expressed or not. In addition, whether or not any
express assignment has been made, the provisions of this Agreement which
are for the benefit of purchasers or holders of Registrable Securities are
also for the benefit of, and enforceable by, any subsequent holder of
Registrable Securities.
(c) Notices. All notices, requests, consents and other communications provided
for herein shall be in writing and shall be (i) delivered in person, (ii)
transmitted by telecopy, (iii) sent by first-class, registered or
certified mail, postage prepaid, or (iv) sent by reputable overnight
courier service, fees prepaid, to the recipient at the address or telecopy
number set forth below, or such other address or telecopy number as may
hereafter be designated in writing by such recipient. Notices shall be
deemed given upon personal delivery, seven days following deposit in the
mail as set forth above, upon acknowledgment by the receiving telecopier
or one day following deposit with an overnight courier service.
If to the Company:
Velocity Express Corporation
0000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxxxx
Secretary and General Counsel
If to any of the Series I Purchasers:
To the address for such Series I Purchaser indicated on the
Series I Purchaser Signature Page.
or such other address or to the attention of such other Person as the recipient
party shall have specified by prior written notice to the sending party.
(d) Interpretation of Agreement; Severability. The provisions of this
Agreement shall be applied and interpreted in a manner consistent with
each other so as to carry out the purposes and intent of the parties
hereto, but if for any reason any provision hereof is determined to be
unenforceable or invalid, such provision or such part thereof as may be
unenforceable or invalid shall be deemed severed from the Agreement and
the remaining provisions carried out with the same force and effect as if
the severed provision or part thereof had not been a part of this
Agreement.
C-9
(e) Governing Law. The corporate law of the State of Delaware shall govern all
issues concerning the relative rights of the Company and its stockholders.
All other provisions of this Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York, without
giving effect to principles of conflicts of laws or choice of law of the
State of New York or any other jurisdiction which would result in the
application of the laws of any jurisdiction other than the State of New
York.
(f) Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which taken
together shall constitute one and the same Agreement.
(g) Entire Agreement. This document, the Purchase Agreement and the "Related
Documents" (as defined in the Purchase Agreement) embodies the complete
agreement and understanding among the parties hereto with respect to the
subject matter hereof and supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral,
which may have related to the subject matter hereof in any way.
(h) Waiver of Jury Trial. The parties to this Agreement each hereby waives, to
the fullest extent permitted by law, any right to trial by jury of any
claim, demand, action, or cause of action (i) arising under this Agreement
or (ii) in any way connected with or related or incidental to the dealings
of the parties hereto in respect of this Agreement or any of the
transactions related hereto, in each case whether now existing or
hereafter arising, and whether in contract, tort, equity, or otherwise.
The parties to this Agreement each hereby agrees and consents that any
such claim, demand, action, or cause of action shall be decided by court
trial without a jury and that the parties to this Agreement may file an
original counterpart of a copy of this Agreement with any court as written
evidence of the consent of the parties hereto to the waiver of their right
to trial by jury.
* * * * *
C-10
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the date first written above.
Velocity Express Corporation
By:
-------------------------------------
C-11
SERIES I PURCHASERS SIGNATURE PAGE
By
--------------------------------------
Name:
Address for Notices:
C-12
