EXHIBIT 10.3

SECURITY AGREEMENT

SECURITY AGREEMENT (this “Agreement”) dated as of July 3, 2006 (the “Effective
Date”), by VELOCITY EXPRESS CORPORATION, a corporation duly organized and
validly existing under the laws of the State of Delaware (the “Company”); each
of the Subsidiaries of the Company identified under the caption “SUBSIDIARY
GUARANTORS” on the signature pages hereto or that become “Subsidiary Guarantors”
hereunder pursuant to Section 6.06 after the date hereof (individually, a
“Subsidiary Guarantor” and, collectively, the “Subsidiary Guarantors” and,
together with the Company, individually a “Grantor Party” and, collectively, the
“Grantor Parties”); to and in favor of WELLS FARGO BANK, N.A., as Trustee for
and on behalf of the Holders under (and as defined in) the Indenture referred to
(and defined) below, acting, for purposes of this Agreement, on behalf and for
the benefit of the Holders as their duly-appointed representative and agent with
regard to all matters pertaining to the Collateral (as defined below) and the
various other rights, interests, obligations and liabilities created or
evidenced hereby (in such Trustee capacity and as so acting hereunder, the
“Trustee”).

BACKGROUND

The Company has entered into an even-dated Indenture (the
“Indenture”—capitalized terms used and not otherwise defined in this Agreement
being defined herein as therein provided) with and in favor of the Trustee,
pursuant to which the Company has issued its 12% Senior Secured Notes Due 2010
(the “Notes”), in an aggregate principal amount of $81,500,000 and, in
connection therewith has executed and/or delivered to and in favor of the
Holders (and/or the Trustee acting on their behalf) various other Transaction
Documents providing for certain further undertakings of the Company in
connection with the Indenture transaction.

Pursuant to Section 10.01 of the Indenture, each Subsidiary Guarantor has, by
its even-dated signature (or, as contemplated by such Section 10.01 and the
provisions hereof, by its later accession) to the Indenture, jointly and
severally guaranteed any and all Note Obligations at any and all times arising
or outstanding thereunder in favor of the Holders (and/or the Trustee acting on
their behalf) and has provided certain additional assurances to the Holders or
the Trustee as to the due and punctual performance of any and all Company
liabilities or obligations of any other nature or type provided for under the
Transaction Documents (the Note Obligations and such other Company liabilities
and obligations, collectively, the “Secured Obligations”).

On and subject to the terms, conditions and limitations contained in Sections
4.16 and 4.16A of the Indenture, the Grantor Parties, may, at any time or from
time to time after the Effective Date, be entering into the Senior Facility
Agreement with the Senior Facility Creditors providing, subject to the terms and
conditions thereof, for extensions of credit (by means of loans and letters of
credit) to be made by the Senior Facility Creditors to the Company and/or
applicable Subsidiary Guarantors in an aggregate principal amount not exceeding
the Applicable Facility Cap and requiring the Company’s and/or applicable
Subsidiary Guarantors’ execution and/or delivery to and in favor of the Senior
Facility Creditors and the Senior Facility Agent, as applicable, of the various
promissory notes, security agreements, mortgages, pledges, guarantees and other
agreements, instruments and documents as constituting, together with the Senior
Facility Agreement, the Senior Facility Documents referred to in the Indenture.

Accordingly, as a material inducement and fundamental condition to each Holder’s
willingness and agreement to extend and maintain, to and for the benefit of the
Company and the Subsidiary Guarantors, the financing and other accommodations
provided for in the Indenture and the other Transaction Documents, each Grantor
Party hereby agrees with, covenants to and undertakes in favor of the Trustee as
follows:

Section 1. Definitions. In addition to the incorporation into this Agreement of
Indenture definitions as above noted, the following terms shall be defined as
follows:

“Accounts” shall have the meaning assigned to such term in Article 9 of the
Uniform Commercial Code.

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“Collateral” has the meaning assigned to such term in Section 3.

“Collateral Account” means the deposit account established and maintained in
accordance with Section 4.01.

“Copyright Collateral” means all material Copyrights, whether now owned or
hereafter acquired by any Grantor Party, including each Copyright identified in
Annex 4.

“Copyrights” means all copyrights, copyright registrations and applications for
copyright registrations, including all renewals and extensions thereof, the
right to recover for all past, present and future infringements thereof, and all
other rights of any kind whatsoever accruing thereunder or pertaining thereto.

“Deposit Account” shall mean and include the Collateral Account, the Designated
Account (as defined in the Control Agreement) and each other deposit account (as
defined in Article 9 of the Uniform Commercial Code) and securities account as
defined in Article 8 of the Uniform Commercial Code) at any time titled in the
name of or in trust for, or otherwise held or maintained by, any Grantor Party,
including, without limitation, any such account into which funds are deposited
or to be deposited as contemplated by the Transaction Documents.

“Document” has the meaning assigned to such term in Section 3(g).

“Financial Assets” shall have the meaning assigned to such term in Article 8 of
the Uniform Commercial Code.

“Instruments” has the meaning assigned to such term in Section 3(d).

“Intangibles” means, with respect to any Grantor Party, all Intellectual
Property, together with such Grantor Party’s other “general intangibles”
(including goodwill, registrations, licenses, franchises, tax refund claims,
guarantee claims, contract rights, security interests and rights to
indemnification, etc.) as defined in Uniform Commercial Code.

“Intellectual Property” means collectively, all Copyright Collateral, all Patent
Collateral and all Trademark Collateral, together with (a) all inventions,
processes, software, production methods, proprietary information, know-how and
trade secrets with respect to any of the foregoing; (b) all licenses or user or
other agreements granted to any Grantor Party with respect to any of the
foregoing, including software licenses, in each case whether now or hereafter
owned or used including the licenses or other agreements with respect to the
Copyright Collateral, the Patent Collateral or the Trademark Collateral, listed
in Annex 7 and (c) all information, data, plans, blueprints, specifications,
designs, drawings, recorded knowledge, surveys, engineering reports, test
reports, manuals, materials standards, processing standards, performance
standards, catalogs, computer and automatic machinery software and programs with
respect to any of the foregoing.

“Inventory” shall have the meaning assigned to such term in Article 9 of the
Uniform Commercial Code.

“Investment Property” shall have the meaning assigned to such term in Article 9
of the Uniform Commercial Code.

 

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“Issuers” means, collectively, (a) the respective corporations, partnerships or
other entities identified under the names of the Grantor Parties on Annex 3
under the caption “Issuer” and (b) any other entity that shall at any time be a
Subsidiary Guarantor that is not a Restricted Subsidiary.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, and any lease in the
nature thereof), or the assignment or conveyance of any right to receive income
therefrom.

“Patent Collateral” means all material Patents of the Grantor Parties as
identified in Annex 5.

“Patents” means to the extent used, registered or applied for within the United
States of America or in any other jurisdiction, all patents, including the
inventions and improvements described and claimed therein together with the
reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof, all income, royalties, damages and payments now
or hereafter due and/or payable under and with respect thereto, including
damages and payments for past or future infringements thereof, the right to sue
for past, present and future infringements thereof.

“Perfection Certificate” means the Perfection Certificate completed, executed
and delivered of even date with the Effective Date by the Company to the
Trustee, whereby the Company has, for itself and on behalf of each Subsidiary
Guarantor, furnished and certified to the Trustee certain data pertaining to the
Collateral as requested therein for the Trustee’s reliance in making
determinations as to the filings, actions and undertakings as are necessary and
appropriate to result in the duly-perfected, first-priority Liens in the
Collateral for the Trustee’s’ benefit as required hereby.

“Person” means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof or
other entity of any kind.

“Pledged Debt” means any Indebtedness of a Subsidiary (as such terms are defined
in the Indenture) held by any Grantor Party, other than any Restricted
Subsidiary Indebtedness.

“Pledged Stock” has the meaning assigned to such term in Section 3(a).

“Permitted Investments” shall mean: (a) direct obligations of the United States
of America, or of any agency thereof, or obligations guaranteed as to principal
and interest by the United States of America, or of any agency thereof, in
either case maturing not more than 90 days from the date of acquisition thereof;
(b) certificates of deposit or time deposits issued by any bank or trust company
organized under the laws of the United States of America or any state thereof
and having capital, surplus and undivided profits of at least $500,000,000,
maturing not more than 90 days from the date of acquisition thereof; (c) fully
collateralized repurchase agreements with a term of not more than 90 days for
securities described in clause (a) of this definition and entered into with a
financial institution satisfying the criteria described in clause (b) of this
definition; and (d) commercial paper rated A-1 or better or P-1 by Standard &
Poor’s Ratings Services, a division of McGraw-Hill Companies, Inc., or Moody’s
Investors Services, Inc., respectively, maturing not more than 90 days from the
date of acquisition thereof; in each case so long as the same (x) provide for
the payment of principal and interest (and not principal alone or interest
alone) and (y) are not subject to any contingency regarding the payment of
principal or interest.

“Secured Obligations” has the meaning assigned to such term in the recitals
hereto.

 

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“Stock Collateral” has the meaning assigned to such term in Section 3(a)(ii).

“Trademark Collateral” means all material Trademarks, whether now owned or
hereafter acquired by any Grantor Party, including each Trademark identified in
Annex 6. Notwithstanding the foregoing, the Trademark Collateral does not and
shall not include any Trademark that would be rendered invalid, abandoned, void
or unenforceable by reason of its being included as part of the Trademark
Collateral.

“Trademarks” means, to the extent used, registered or applied for in the United
States of America or in any other jurisdiction, all trade names, trademarks and
service marks, logos, trademark and service mark registrations, and applications
for trademark and service mark registrations, including all renewals of
trademark and service mark registrations, all rights corresponding thereto
throughout the United States of America and any other jurisdiction, the right to
recover for all past, present and future infringements thereof, all other rights
of any kind whatsoever accruing thereunder or pertaining thereto, together, in
each case, with the product lines and goodwill of the business connected with
the use of, and symbolized by, each such trade name, trademark and service mark.

“Uniform Commercial Code” or “UCC” means the Uniform Commercial Code as in
effect from time to time in the State of New York, or, to the extent governing
or mandatorily applicable to the attachment, perfection or priority of any Lien
created or evidenced (or purported to be created or evidenced) hereby in, on or
with respect to any particular item(s) of Collateral subject or purported to be
subject to any such Lien(s) and/or the terms and conditions of this Agreement,
the Uniform Commercial Code as in effect from time to time in such other
jurisdiction(s) to which such Lien(s) or Collateral is or are so governed and
subject.

SECTION 1A. SUBORDINATION AGREEMENT; EFFECT ON TRUSTEE RIGHTS AND REMEDIES. THE
TRUSTEE ACKNOWLEDGES AND AGREES WITH EACH GRANTOR PARTY THAT THIS AGREEMENT,
TOGETHER WITH ANY AND ALL RIGHTS, REMEDIES, INTERESTS AND BENEFITS HEREIN
CONFERRED ON THE TRUSTEE FOR THE BENEFIT OF THE HOLDERS, ON AND SUBJECT TO THE
TERMS AND CONDITIONS OF THE INDENTURE PERTAINING TO THE OCCURRENCE AND EFFECT OF
THE SUBORDINATION REQUIRED DATE DESCRIBED THEREIN, MAY BE MADE SUBJECT TO THE
SUBORDINATION AGREEMENT IF AND WHEN EXECUTED ON THE SUBORDINATION REQUIRED DATE
BY AND BETWEEN THE SENIOR FACILITY AGENT AND THE TRUSTEE SUBSTANTIALLY IN THE
FORM ATTACHED AS EXHIBIT B. IMMEDIATELY UPON THE SUBORDINATION REQUIRED DATE AND
FOR SO LONG THEREAFTER AS THE SAME SHALL REMAIN APPLICABLE AND IN EFFECT
PURSUANT TO ITS TERMS, THE SUBORDINATION AGREEMENT SHALL IN ALL RESPECTS GOVERN
AND CONTROL THE RELATIVE PRIORITIES, RIGHTS, INTERESTS, LIENS AND REMEDIES AS
BETWEEN THE TRUSTEE, ON THE ONE HAND, AND THE SENIOR FACILITY AGENT, ON THE
OTHER HAND, AND NO ACTIONS TAKEN OR OMISSIONS MADE AT ANY AND ALL SUCH TIMES BY
ANY PERSON PURSUANT TO AND IN COMPLIANCE WITH ALL APPLICABLE TERMS AND
CONDITIONS OF THE SUBORDINATION AGREEMENT SHALL RESULT IN ANY MISREPRESENTATION,
BREACH OR DEFAULT BY ANY GRANTOR PARTY HEREUNDER NOR GIVE RISE TO ANY RIGHT,
REMEDY OR CLAIM OF THE TRUSTEE IN RESPECT THEREOF. UPON AND AT ALL TIMES DURING
THE EFFECTIVENESS OF THE SUBORDINATION AGREEMENT, ALL TERMS AND CONDITIONS
THEREOF AS ATTACHED TO THIS AGREEMENT ON THE EFFECTIVE DATE AS EXHIBIT B HERETO
SHALL BE INCORPORATED INTO AND MADE A PART OF THIS AGREEMENT AS IF FULLY WRITTEN
AND SET FORTH HEREIN. THE TRUSTEE FURTHER AGREES THAT, UPON AND AFTER THE
SUBORDINATION REQUIRED DATE (IF AND WHEN OCCURRING), IT SHALL, AT THE SOLE COST
AND EXPENSE OF THE COMPANY, COOPERATE WITH THE COMPANY IN TAKING SUCH ACTIONS
AND PROVIDE SUCH ASSURANCES (INCLUDING, WITHOUT LIMITATION, THE HANDING OVER OF
COLLATERAL ITEMS IN OR UNDER THE SOLE POSSESSION AND CONTROL OF TRUSTEE, AS
SECURED PARTY, FOR PERFECTION PURPOSES OR OTHERWISE) AS ARE REASONABLY REQUESTED
BY THE SENIOR FACILITY AGENT AS

 

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BEING NECESSARY TO GIVE FULL EFFECT TO THE LIEN PRIORITIES AND ASSOCIATED RIGHTS
EXPRESSLY PROVIDED IN THE LATTER’S FAVOR PURSUANT TO THE SUBORDINATION AGREEMENT
TERMS AS ATTACHED IN EXHIBIT B HERETO.

EACH GRANTOR PARTY ACKNOWLEDGES AND AGREES THAT: (1) THE FOREGOING PROVISIONS OF
THIS SECTION 1A ARE STRICTLY LIMITED AS EXPRESSLY WRITTEN INTO THIS AGREEMENT,
SUCH THAT, OTHER THAN THE LIMITED EXCEPTION MADE IN FAVOR OF THE SENIOR FACILITY
AGENT PER THE SUBORDINATION AGREEMENT AS AFORESAID, THE FIRST-PRIORITY LIEN AND
SECURITY INTEREST CREATED AND GRANTED TO AND IN FAVOR OF TRUSTEE SHALL AT ALL
TIMES BE AND REMAIN ABSOLUTE AND UNCONDITIONAL; (2) FOR SO LONG AS ANY SECURED
OBLIGATIONS SHALL REMAIN OUTSTANDING, NO PERSON OTHER THAN THE SENIOR FACILITY
AGENT, ACTING IN ACCORDANCE WITH AND TO THE LIMITED EXTENT OF ITS PRIORITY
RIGHTS AND INTERESTS AS EXPRESSLY STATED IN THE SUBORDINATION AGREEMENT TERMS
ATTACHED TO THIS AGREEMENT, SHALL AT ANY SUCH TIME HAVE, RELATIVE TO THE LIENS
AND SECURITY INTERESTS IN FAVOR OF THE TRUSTEE CREATED OR EVIDENCED HEREBY OR BY
ANY OTHER TRANSACTION DOCUMENTS, ANY SENIOR, PARI PASSU OR OTHERWISE COMPETING
OR CONFLICTING RIGHTS, INTERESTS, ENTITLEMENTS OR CLAIMS WHATSOEVER IN, TO OR
WITH RESPECT TO THE COLLATERAL OR ANY OF THE VARIOUS RIGHTS, INTERESTS, REMEDIES
AND BENEFITS OTHERWISE CONFERRED (OR PURPORTED TO BE CONFERRED) ON TRUSTEE
PURSUANT HERETO; AND (3) IMMEDIATELY UPON TERMINATION OF, OR OTHERWISE TO THE
EXTENT OF THE INAPPLICABILITY IN ANY INSTANCE OR CIRCUMSTANCES OF, THE
PRIORITIES GRANTED TO THE SENIOR FACILITY AGENT UNDER THE SUBORDINATION
AGREEMENT, THE TRUSTEE’S LIENS AND SECURITY INTERESTS CREATED OR EVIDENCED
HEREBY SHALL CONTINUE IN EFFECT ON A FIRST-PRIORITY, PERFECTED BASIS AS IF SUCH
SUBORDINATION AGREEMENT AND ASSOCIATED PRIORITIES HAD NEVER BEEN GRANTED OR
EXISTED AT ANY TIME OR FOR ANY PURPOSE.

Section 2. Representations and Warranties. Each Grantor Party represents and
warrants to the Trustee that:

(a) Title and Priority. Such Grantor Party is the sole beneficial owner of the
Collateral in which it purports to grant a security interest pursuant to
Section 3 and no Lien exists or will exist upon such Collateral at any time,
except for Permitted Liens. The security interest created pursuant hereto
constitutes a valid and perfected security interest in the Collateral in which
such Grantor Party purports to grant a security interest pursuant to Section 3,
subject to no senior, equal or prior Lien except as created hereby and no other
Lien whatsoever except for Permitted Liens.

(b) Names, Etc. The full and correct legal name, type of organization,
jurisdiction of organization, organizational ID number (if applicable) and
mailing address of each Grantor Party as of the date hereof are correctly set
forth in Annex 1. Annex 1 correctly specifies the place of business of each
Grantor Party or, if such Grantor Party has more than one place of business, the
location of the chief executive office of such Grantor Party.

(c) Changes in Circumstances. Such Grantor Party has not (i) within the period
of four months prior to the date hereof, changed its “location” (as defined in
Section 9-307 of the Uniform Commercial Code), (ii) except as specified in Annex
1, heretofore changed its name, or (iii) except as specified in Annex 2,
heretofore become a “new debtor” (as defined in Section 9-102(a)(56) of the
Uniform Commercial Code) with respect to a currently effective security
agreement previously entered into by any other Person.

 

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(d) Pledged Stock. The Pledged Stock, if any, identified under the name of such
Grantor Party in Annex 3 is, and all other Pledged Stock in which such Grantor
Party shall hereafter grant a security interest pursuant to Section 3 will be,
duly authorized, validly issued, fully paid and non-assessable and none of such
Pledged Stock is or will be subject to any contractual restriction, or any
restriction under the charter, by-laws or other organizational document of the
respective Issuer of such Pledged Stock, upon the transfer of such Pledged Stock
(except for any restriction contained herein or under such organizational
documents).

(e) Ownership of Pledged Stock. The Pledged Stock, if any, identified under the
name of such Grantor Party in Annex 3 constitutes in the case of each Issuer
that is (i) a Restricted Subsidiary, 100% of all the issued and outstanding
shares of capital stock of whatever class of such Restricted Subsidiary
beneficially owned by such Grantor Party on the date hereof (whether or not
registered in the name of such Grantor Party) and (ii) an Unrestricted
Subsidiary, 65% of the issued and outstanding shares of voting stock of such
Unrestricted Subsidiary and 100% of all other issued and outstanding shares of
capital stock of whatever class of such Unrestricted Subsidiary beneficially
owned by such Grantor Party on the date hereof (whether or not registered in the
name of such Grantor Party); Annex 3 correctly identifies, as at the date
hereof, the respective Issuers of such Pledged Stock and the respective class
and par value of the shares constituting such Pledged Stock and the respective
number of shares (and registered owners thereof) represented by each such
certificate.

(f) Intellectual Property. Annexes 4, 5, and 6, respectively, set forth under
the name of such Grantor Party a complete and correct list of all material
Copyrights, material Patents and material Trademarks (in each case to the extent
encompassed within the definition of “Intellectual Property” in Section 1(b)
hereof) owned by such Grantor Party on the date hereof, and all registrations
listed in Annexes 4, 5, and 6, are properly issued and in full force and effect.
Annex 7 sets forth under the name of such Grantor Party all licenses and other
user agreements pursuant to which such Grantor Party has been granted the right
to use any Copyrights, Patents or Trademarks owned by others and material to the
business of such Grantor Party.

To such Grantor Party’s knowledge, (i) except as set forth in Annex 4, 5 or 6,
there is no violation by others of any right of such Grantor Party with respect
to any material Copyright, Patent or Trademark listed in Annexes 4, 5, and 6,
respectively, under the name of such Grantor Party and (ii) such Grantor Party
is not infringing in any material respect upon any copyright, patent or
trademark of any other Person by virtue of the conduct of its business or, in
the case of any such patent, use in connection with production at any of such
Grantor Party’s facilities, as applicable; and no proceedings have been
instituted or are pending against such Grantor Party or, to such Grantor Party’s
knowledge, threatened, and no claim against such Grantor Party has been received
by such Grantor Party, alleging any such violation, except as may be set forth
in Annex 7.

As of the date hereof, such Grantor Party does not own any Trademarks registered
in the United States of America to which the last sentence of the definition of
Trademark Collateral applies.

Section 3. Collateral. As collateral security for the prompt payment in full
when due (whether at stated maturity, by acceleration or otherwise) of the
Secured Obligations, each Grantor Party hereby pledges and grants to the
Trustee, for the benefit of the Holders, a first-priority Lien on and security
interest in all of such Grantor Party’s right, title and interest in the
following property, whether now owned by such Grantor Party or hereafter
acquired and whether now existing or hereafter coming into existence (all being
collectively referred to herein as “Collateral”):

(a) the shares of voting stock of the Issuers identified in Annex 3 under the
name of such Grantor Party and all other shares of capital stock of whatever
class of the Issuers together with all rights,

 

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privileges, authority and power of such Issuer with respect to such shares, in
each case together with the certificates, instruments and agreements, if any,
evidencing the same (collectively, the “Pledged Stock”), together with:

(i) all shares, securities, moneys or property representing a dividend on any of
the Pledged Stock, or representing a distribution or return of capital upon or
in respect of the Pledged Stock, or resulting from a split-up, revision,
reclassification or other like change of the Pledged Stock or otherwise received
in exchange therefor, and any subscription warrants, rights, agreements or
options issued to the holders of, or otherwise in respect of, the Pledged Stock;
and

(ii) in the event of any consolidation or merger in which an Issuer is not the
surviving corporation, all shares of each class of the capital stock of the
successor corporation (unless such successor corporation is such Grantor Party
itself) formed by or resulting from such consolidation or merger (the Pledged
Stock, together with all other certificates, shares, securities, properties or
moneys as may from time to time be pledged hereunder pursuant to this clause
(ii) and clause (i) above being herein collectively called the “Stock
Collateral”);

provided that, notwithstanding the foregoing, the Stock Collateral of any
Unrestricted Subsidiary shall be limited to 65% of the issued and outstanding
shares of voting stock of such Unrestricted Subsidiary and 100% of all other
issued and outstanding shares of capital stock of whatever class of such Issuer;

(b) the Pledged Debt;

(c) all Deposit Accounts (including all cash, Cash Equivalents, Investment
Property, Financial Assets and other funds and assets deposited or maintained
therein), Cash Equivalents and Accounts;

(d) all instruments, chattel paper (whether tangible or electronic), letter of
credit rights (each as defined in the Uniform Commercial Code) of such Grantor
Party, including (but not limited to) promissory notes, drafts, bills of
exchange and trade acceptances (herein collectively called “Instruments”);

(e) all Inventory and all computer hardware/software, equipment and fixtures (as
defined in the Uniform Commercial Code), and all improvements and accessions
hereto;

(f) each contract and other agreement of such Grantor Party relating to the
Permitted Business and all Intellectual Property and other Intangibles
(including payment intangibles) of such Grantor Party relating to the Permitted
Business;

(g) all documents of title (as defined in the Uniform Commercial Code) or other
receipts of such Grantor Party covering, evidencing or representing Inventory
(herein collectively called “Documents”);

(h) all rights, claims and benefits of such Grantor Party against any Person
arising out of, relating to or in connection with the Permitted Business
conducted by such Grantor Party;

(i) all Investment Property and Financial Assets maintained in the Collateral
Account (including any Cash Equivalents constituting either of the foregoing
that are so maintained);

(j) the balance from time to time in the Collateral Account; and

 

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(k) all proceeds, products, offspring, accessions, rents, profits, income,
benefits, substitutions and replacements of and to any of the Collateral and, to
the extent related to any Collateral, all books, correspondence, credit files,
records, invoices and other papers, including without limitation all tapes,
cards, computer runs and other papers and documents in the possession or under
the control of such Grantor Party or any computer bureau or service company from
time to time acting for such Grantor Party.

Section 4. Cash Proceeds of Collateral.

4.01 Collateral Account. The Trustee will cause to be established at a banking
institution to be selected by the Trustee one or more cash collateral accounts
(collectively, the “Collateral Account”), which

(i) to the extent of all Investment Property or Financial Assets (other than
cash) shall be a “securities account” (as defined in Section 8-501 of the
Uniform Commercial Code) in respect of which the Trustee shall be the
“entitlement holder” (as defined in Section 8-102(a)(7) of the Uniform
Commercial Code) and

(ii) to the extent of any cash, shall be a deposit account in respect of which
the Trustee is the customer (as contemplated by Section 9-104(a)(3) of the
Uniform Commercial Code) and

into which there shall be deposited from time to time the cash proceeds of any
of the Collateral (including proceeds of insurance thereon) that the Trustee
requests pursuant to Section 4.02 be delivered hereunder and into which a
Grantor Party may from time to time deposit any additional amounts that any of
them wishes to pledge to the Trustee as additional collateral security
hereunder. The balance from time to time in the Collateral Account shall
constitute part of the Collateral hereunder and shall not constitute payment of
the Secured Obligations until applied as hereinafter provided. If at any time
following request by the Trustee pursuant to Section 4.02 no Event of Default
shall be continuing, the Trustee shall remit the collected balance standing to
the credit of the Collateral Account to or upon the order of the respective
Grantor Party as such Grantor Party through the Company shall from time to time
instruct, provided that at any time during the continuance of an Event of
Default, the Trustee may in its discretion apply or cause to be applied (subject
to collection) the balance from time to time standing to the credit of the
Collateral Account to the payment of any Secured Obligation then due and payable
in the manner specified in Section 5.09. In addition, the Company may at any
time request that the balance from time to time standing to the credit of the
Collateral Account be applied to the payment of any Secured Obligations then due
and payable in the manner specified in Section 5.09. The balance from time to
time in the Collateral Account shall be subject to withdrawal only as provided
herein.

4.02 Proceeds of Accounts and Pledged Debt. If requested by the Trustee at any
time after the occurrence and during the continuance of an Event of Default,
each Grantor Party shall instruct (i) all account debtors and other Persons
obligated in respect of all Accounts of such Grantor Party to make all payments
in respect of the Accounts of such Grantor Party either (a) directly to the
Trustee (by instructing that such payments be remitted to a post office box
which shall be in the name and under the control of the Trustee) or (b) to one
or more other banks in the United States of America (by instructing that such
payments be remitted to a post office box which shall be in the name and under
the control of the Trustee) under arrangements, in form and substance reasonably
satisfactory to the Trustee, pursuant to which such Grantor Party shall have
irrevocably instructed such other bank (and such other bank shall have agreed)
to remit all proceeds of such payments directly to the Trustee for deposit into
the Collateral Account and (ii) all Domestic Subsidiaries obligated in respect
of all Pledged Debt to make all payments in respect of the Pledged Debt directly
to the Trustee. All payments made to the Trustee, as provided in the preceding
sentence, shall be immediately deposited by the Trustee in the Collateral
Account. In addition to the foregoing, each Grantor Party agrees that after the
occurrence and during the continuance of an Event of Default, if the proceeds of
any Collateral hereunder (including the payments made in respect of Accounts and
Pledged Debt) shall be received by it, such Grantor Party shall, upon the
request of the Trustee, as promptly as possible deposit

 

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such proceeds into the Collateral Account. Until so deposited, all such proceeds
shall be held in trust by such Grantor Party for and as the property of the
Trustee and shall not be commingled with any other funds or property of such
Grantor Party.

4.03 Investment of Balance in Collateral Account. The cash balance standing to
the credit of the Collateral Account shall be invested from time to time in such
Permitted Investments as the respective Grantor Party through the Company (or,
after the occurrence and during the continuance of a Default, the Trustee) shall
determine, which Permitted Investments shall be held in the name and be under
the control of the Trustee (and, if the Collateral Account is a securities
account, credited to the Trustee), provided that at any time after the
occurrence and during the continuance of an Event of Default, the Trustee may in
its discretion at any time and from time to time elect to liquidate any such
Permitted Investments and to apply or cause to be applied the proceeds thereof
to the payment of the Secured Obligations then due and payable in the manner
specified in Section 5.09.

4.04 Designated Account Control Agreement. Each Grantor Party hereby agrees to
execute and deliver to and in favor of the Trustee and the Securities
Intermediary referred to therein, a Designated Account Control Agreement (the
“Control Agreement”) in substantially the form attached as Exhibit A hereto.
Such Control Agreement shall apply to and in all respects govern and control any
and all items of Collateral meeting the definition of “Article 8 Collateral” as
contained therein and not otherwise subject to perfection of Liens in accordance
with the methods and procedures of perfection as contemplated hereby.

Section 5. Further Assurances; Remedies. In furtherance of the grant of the
pledge and security interest pursuant to Section 3, the Grantor Parties hereby
jointly and severally agree with the Trustee as follows:

5.01 Delivery and Other Perfection. Each Grantor Party shall:

(a) if any of the shares, securities, moneys or property required to be pledged
by such Grantor Party under clauses (a)(i) or (a)(ii) of Section 3 are received
by such Grantor Party forthwith, transfer and deliver to the Trustee such shares
or securities so received by such Grantor Party (together with the certificates
for any such shares and securities duly endorsed in blank or accompanied by
undated stock powers duly executed in blank), all of which thereafter shall be
held by the Trustee, pursuant to the terms of this Agreement, as part of the
Collateral;

(b) deliver and pledge to the Trustee any and all Instruments constituting part
of the Collateral in which such Grantor Party purports to grant a security
interest hereunder, endorsed and/or accompanied by such instruments of
assignment and transfer in such form and substance as the Trustee may request;
provided, that so long as no Event of Default shall have occurred and be
continuing, such Grantor Party may retain for collection in the ordinary course
any Instruments received by such Grantor Party in the ordinary course of its
business and the Trustee shall, promptly upon request of such Grantor Party
through the Company, make appropriate arrangements for making any Instrument
pledged by such Grantor Party available to such Grantor Party for purposes of
presentation, collection or renewal (any such arrangement to be effected, to the
extent deemed appropriate by the Trustee, against trust receipt or like
document);

(c) deliver and pledge to the Trustee any and all promissory notes or other
instruments evidencing any of the Pledged Debt, endorsed and/or accompanied by
such instruments of assignment and transfer in such form and substance as the
Trustee may request;

(d) give, execute, deliver, file, register and record, authorize or obtain all
such financing statements, notices, instruments, documents, agreements or other
papers, and take such other action, as

 

9

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may be necessary or desirable (in the reasonable judgment of the Trustee) to
create, preserve, publish notice of, perfect, validate or preserve the
perfection and priority of the security interest granted pursuant hereto or to
enable the Trustee to exercise and enforce its rights hereunder with respect to
such pledge and security interest, including causing any or all of the Stock
Collateral to be transferred of record into the name of the Trustee or its
nominee (and the Trustee agrees that if any Stock Collateral is transferred into
its name or the name of its nominee, the Trustee will thereafter promptly give
to the respective Grantor Party copies of any notices and communications
received by it with respect to the Stock Collateral pledged by such Grantor
Party hereunder), provided that notices to account debtors in respect of any
Accounts or Instruments shall be subject to the provisions of clause (h) below;

(e) keep accurate books and records relating to the Collateral, and stamp or
otherwise mark such books and records in such manner as the Trustee may
reasonably require in order to reflect the security interests granted by this
Agreement;

(f) permit representatives of the Trustee, upon reasonable notice, at any time
during normal business hours to inspect and make abstracts from its books and
records pertaining to the Collateral, and, during the continuance of an Event of
Default, permit representatives of the Trustee to be present at such Grantor
Party’s place of business to receive copies of all communications and
remittances relating to the Collateral, and forward copies of any notices or
communications received by such Grantor Party with respect to the Collateral,
all in such manner as the Trustee may reasonably require;

(g) execute and deliver and, subject to the execution thereof by the Trustee,
cause to be filed, such continuation statements, and do such other acts and
things, as may be necessary to maintain the perfection of the security interest
granted pursuant hereto; and

(h) without limiting the provisions of Section 4.02 hereof, upon the occurrence
and during the continuance of any Default, upon request of the Trustee, promptly
notify (and such Grantor Party hereby authorizes the Trustee so to notify) each
account debtor in respect of any Accounts or Instruments that such Collateral
has been assigned to the Trustee hereunder, and that any payments due or to
become due in respect of such Collateral are to be made directly to the Trustee.

5.02 Perfection Certificates and Updated Collateral Reporting. The Company
hereby represents, warrants and covenants as follows, for itself and on behalf
of each of the Subsidiary Guarantors, to and in favor of the Trustee for its
express reliance in taking or refraining from taking action with respect to the
Secured Obligations and/or the Collateral for and on behalf of the Holders:

(a) the Perfection Certificate truly, accurately and completely reflects, in all
material respects on and as of the Effective Date, the composition, location,
nature, ownership and other requested data with respect to all assets, rights
and interests of the Company and/or the Subsidiary Guarantors that are or may be
subject to definition as, or purported or otherwise required to be pledged for
the benefit of the Trustee as, part of the Collateral subject to this Agreement
and the other Security Documents;

(b) the Perfection Certificate initially delivered on and with respect to the
Effective Date shall thereafter be updated (including, in the case of any
updates of a material nature or scope such as would be required, for example,
upon the Merger Closing, by means of restatement of the Perfection Certificate
in its entirety in order to truly, accurately and completely reflect any and all
Collateral as then constituted and existing) simultaneously with any additions
to, subtractions from or other changes in or to the Collateral occurring on or
after the Effective Date (including by reason of the Merger Closing and the
immediate and automatic inclusion among the Collateral subject hereto of the
various assets, rights, interests or Capital Stock acquired by applicable
Grantor Parties simultaneously therewith), except, in each case, for such
additions, subtractions and/or other changes as relate to Collateral items
having de minimus value relative to the properly-reflected Collateral as a
whole; and

 

10

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(c) matters set forth with respect to the Collateral in the Perfection
Certificate and/or applicable updates as and when required thereto shall
constitute representations and warranties made and, with each such update,
affirmed in and pursuant to the Security Documents and, accordingly, any
misrepresentation, inaccuracy or incompleteness therein or thereof shall
constitute, except as and unless (x) relating to Collateral items having de
minimus value relative to the properly-reflected Collateral as a whole or
(y) otherwise fully and promptly remedied (by the Company’s written delivery of
true, accurate and complete updating data and the taking of all appropriate
Company/Subsidiary Guarantor actions as requisite to the valid attachment and
due perfection of the Trustee’s first-priority Liens as required hereby in and
on all Collateral as reflected among such updates) within fifteen (15) Business
Days following Trustee’s notice, an Event of Default as described in
Section 6.01(5) or, to the extent that the Notes are not then accelerated by
virtue thereof, Section 6.01(4) of the Indenture.

5.03 Preservation of Rights. The Trustee shall not be required to take steps
necessary to preserve any rights against prior parties to any of the Collateral
or to create, perfect or maintain the perfection or priority of any security
interest in any of the Collateral.

5.04 Special Provisions Relating to Certain Collateral.

(a) Stock Collateral.

(1) Percentage Pledged. The Grantor Parties will cause the Stock Collateral to
constitute at all times, in the case of all Issuers that are (i) Restricted
Subsidiaries, 100% of all the total number of shares of capital stock of each
such Issuer then issued and outstanding and (ii) Unrestricted Subsidiaries, 65%
of the total number of shares of the voting stock and 100% of the total number
of shares of all other classes of capital stock of such Issuer then issued and
outstanding.

(2) Voting and Other Rights. So long as no Event of Default shall have occurred
and be continuing, the Grantor Parties shall have the right to exercise all
voting, consensual and other powers of ownership pertaining to the Stock
Collateral for all purposes not inconsistent with the terms of this Agreement;
provided that the Grantor Parties jointly and severally agree that they will not
vote the Stock Collateral in any manner that results in a violation of the terms
of this Agreement; and the Trustee shall execute and deliver to the Grantor
Parties or cause to be executed and delivered to the Grantor Parties all such
proxies, powers of attorney, dividend and other orders, and all such
instruments, without recourse, as the Grantor Parties may reasonably request for
the purpose of enabling the Grantor Parties to exercise the rights and powers
that they are entitled to exercise pursuant to this Section 5.04(a)(2).

(3) Dividends. Unless and until an Event of Default has occurred and is
continuing, the Grantor Parties shall be entitled to receive and retain any
dividends on the Stock Collateral paid in cash out of earned surplus.

(4) Rights Following Default. If any Event of Default shall have occurred, then
so long as such Event of Default shall continue, and whether or not the Trustee
exercises any available right to declare any Secured Obligation due and payable
or seeks or pursues any other relief or remedy available to it under applicable
law or under or in respect of this Agreement or the Indenture, all dividends and
other distributions on the Stock Collateral shall be paid directly to the
Trustee and retained by it in the Collateral Account as part of the Stock
Collateral, subject to the terms of this Agreement, and, if the Trustee shall so
request in writing, the Grantor Parties jointly and severally agree to execute
and deliver to the Trustee appropriate additional dividend, distribution and
other orders and documents to that end, provided that if such Event of Default
is cured, any such dividend or distribution theretofore paid to the Trustee
shall, upon

 

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request of the Grantor Parties (except to the extent theretofore applied to the
Secured Obligations), be returned by the Trustee to the Grantor Parties.

(b) Intellectual Property.

(1) For the purpose of enabling the Trustee to exercise rights and remedies
under Section 5.05 at such time as the Trustee shall be lawfully entitled to
exercise such rights and remedies, and for no other purpose, each Grantor Party
hereby grants to the Trustee, to the extent assignable, an irrevocable,
non-exclusive right (exercisable without payment of royalty or other
compensation to such Grantor Party) to use, assign, license or sublicense any of
the Intellectual Property now owned or hereafter acquired by such Grantor Party,
wherever the same may be located, including in such right reasonable access to
all media in which any of the Intellectual Property may be recorded or stored
and to all computer programs used for the compilation or printout thereof.

(2) Notwithstanding anything contained herein to the contrary, the Grantor
Parties will be permitted to exploit, use, enjoy, protect, license, sublicense,
assign, sell, dispose of or take other actions with respect to the Intellectual
Property in the ordinary course of the business of the Grantor Parties. In
furtherance of the foregoing, unless an Event of Default shall have occurred and
be continuing the Trustee shall from time to time, upon the request of the
respective Grantor Party, execute and deliver any instruments, certificates or
other documents, in the form so requested, that such Grantor Party through the
Company shall have certified are appropriate (in its judgment) to allow it to
take any action permitted above (including relinquishment of the right provided
pursuant to clause (1) immediately above as to any specific Intellectual
Property). Further, upon the payment in full of all of the Secured Obligations
or earlier expiration of this Agreement or release of the Collateral, the
Trustee shall grant back to the Grantor Parties the right granted pursuant to
clause (1) immediately above. The exercise of rights and remedies under
Section 5.05 by the Trustee shall not terminate the rights of the holders of any
licenses or sublicenses theretofore granted by the Grantor Parties in accordance
with the first sentence of this clause (2).

(3) The Grantor Parties will furnish to the Trustee from time to time upon its
request (but, unless a Default (as defined in the Indenture) shall have occurred
and be continuing, no more frequently than semi-annually) statements and
schedules further identifying and describing the Copyright Collateral, the
Patent Collateral and the Trademark Collateral, respectively, and such other
reports in connection with the Copyright Collateral, the Patent Collateral and
the Trademark Collateral as the Trustee may reasonably request, all in
reasonable detail; and promptly upon request of the Trustee, following receipt
by the Trustee of any statements, schedules or reports pursuant to this
clause (3), modify this Agreement by amending Annexes 4, 5 and/or 6, as the case
may be, to include any Copyright, Patent or Trademark that becomes part of the
Collateral under this Agreement.

(4) Until termination of this Agreement pursuant to Section 5.12 upon payment in
full of all Secured Obligations, each Grantor Party hereby undertakes to, at its
own cost and expense, submit or deliver to, and/or file or record with, the
United States Patent and Trademark Office such notices, statements and other
filings and recordings as may be necessary or appropriate to evidence the Liens
and security interests in favor of Trustee for the benefit of the Holders on, in
or with respect to the Copyright Collateral, the Patent Collateral and the
Trademark Collateral and appoints, constitutes and empowers the Trustee, as its
agent and attorney-in-fact, to effect any or all of the foregoing actions in
such Grantor Party’s name and stead and on its behalf, which appointment shall
be coupled with and interest and irrevocable until such termination as
aforesaid.

 

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5.05 Events of Default, Etc. During the period during which an Event of Default
shall have occurred and be continuing:

(a) each Grantor Party shall, at the request of the Trustee, assemble the
Collateral owned by it at such place or places, reasonably convenient to both
the Trustee and such Grantor Party, designated in the Trustee’s request;

(b) the Trustee may make any reasonable compromise or settlement deemed
desirable with respect to any of the Collateral and may extend the time of
payment, arrange for payment in installments, or otherwise modify the terms of,
any of the Collateral;

(c) the Trustee shall have all of the rights and remedies with respect to the
Collateral of a secured party under the Uniform Commercial Code (whether or not
the Uniform Commercial Code is in effect in the jurisdiction where the rights
and remedies are asserted) and such additional rights and remedies to which a
secured party is entitled under the laws in effect in any jurisdiction where any
rights and remedies hereunder may be asserted, including the right, to the
fullest extent permitted by applicable law, to exercise all voting, consensual
and other powers of ownership pertaining to the Collateral as if the Trustee
were the sole and absolute owner thereof (and each Grantor Party agrees to take
all such action as may be appropriate to give effect to such right);

(d) the Trustee in its discretion may, in its name or in the name of any Grantor
Party or otherwise, demand, sue for, collect or receive any money or property at
any time payable or receivable on account of or in exchange for any of the
Collateral, but shall be under no obligation to do so; and

(e) the Trustee may, upon 10 Business Days’ prior written notice to the Grantor
Parties of the time and place, with respect to the Collateral or any part
thereof which shall then be or shall thereafter come into the possession,
custody or control of the Trustee, sell, lease, assign or otherwise dispose of
all or any part of such Collateral, at such place or places as the Trustee deems
best, and for cash or for credit or for future delivery (without thereby
assuming any credit risk), at public or private sale, without demand of
performance or notice of intention to effect any such disposition or of the time
or place thereof (except such notice as is required above or by applicable
statute and cannot be waived), and the Trustee or anyone else may be the
purchaser, lessee, assignee or recipient of any or all of the Collateral so
disposed of at any public sale (or, to the extent permitted by law, at any
private sale) and thereafter, to the fullest extent permitted by law, hold the
same absolutely, free from any claim or right of whatsoever kind, including any
right or equity of redemption (statutory or otherwise), of the Grantor Parties,
any such demand, notice and right or equity being hereby expressly waived and
released, to the fullest extent permitted by law. In the event of any sale,
assignment, or other disposition of any of the Trademark Collateral, the
goodwill connected with and symbolized by the Trademark Collateral subject to
such disposition shall be included, and the Grantor Parties shall supply to the
Trustee or its designee, for inclusion in such sale, assignment or other
disposition, all Intellectual Property relating to such Trademark Collateral.
The Trustee may, without notice or publication, adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement at the
time and place fixed for the sale, and such sale may be made at any time or
place to which the sale may be so adjourned.

The proceeds of each collection, sale or other disposition under this
Section 5.05 shall be applied in accordance with Section 5.09.

The Grantor Parties recognize that, by reason of certain prohibitions contained
in the Securities Act of 1933, as amended, and applicable state securities laws,
the Trustee may be compelled, with respect to any sale of all or any part of the
Collateral, to limit purchasers to those who will agree, among other things, to
acquire the

 

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Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. The Grantor Parties acknowledge that any such
private sales may be at prices and on terms less favorable to the Trustee than
those obtainable through a public sale without such restrictions, and,
notwithstanding such circumstances, agree that any such private sale shall be
deemed to have been made in a commercially reasonable manner and that the
Trustee shall have no obligation to engage in public sales and no obligation to
delay the sale of any Collateral for the period of time necessary to permit the
Company or issuer thereof to register it for public sale.

5.06 Deficiency. If the proceeds of sale, collection or other realization of or
upon the Collateral pursuant to Section 5.05 are insufficient to cover the costs
and expenses of such realization and the payment in full of the Secured
Obligations, the Grantor Parties shall remain liable for any deficiency.

5.07 Locations; Names. Without at least 30 days’ prior written notice to the
Trustee, no Grantor Party shall change its “location” (as defined in
Section 9-307 of the Uniform Commercial Code) or change its name from the name
shown as its current legal name on Annex 1.

5.08 Private Sale. The Trustee shall incur no liability as a result of the sale
of the Collateral, or any part thereof, at any private sale pursuant to
Section 5.05 conducted in a commercially reasonable manner. Each Grantor Party
hereby waives any claims against the Trustee arising by reason of the fact that
the price at which the Collateral may have been sold at such a private sale was
less than the price which might have been obtained at a public sale or was less
than the aggregate amount of the Secured Obligations, even if the Trustee
accepts the first offer received and does not offer the Collateral to more than
one offeree.

5.09 Application of Proceeds. Except as otherwise herein expressly provided, the
proceeds of any collection, sale or other realization of all or any part of the
Collateral pursuant hereto, and any other cash at the time held by the Trustee
under this Section 5, shall be applied by the Trustee:

First, to the payment of the costs and expenses of such collection, sale or
other realization, including reasonable out-of-pocket costs and expenses of the
Trustee and the fees and expenses of its agents and counsel, and all expenses
incurred and advances made by the Trustee in connection therewith;

Second, to the payment in full of the Secured Obligations in such manner of
application as required under the Indenture, the Notes and/or the other
Transaction Documents; and

Finally, to the payment to the respective Grantor Parties, or their respective
successors or assigns, or as a court of competent jurisdiction may direct, of
any surplus then remaining.

5.10 Attorney-in-Fact. Without limiting any rights or powers granted by this
Agreement to the Trustee while no Event of Default has occurred and is
continuing, upon the occurrence and during the continuance of any Event of
Default the Trustee is hereby appointed the attorney-in-fact of each Grantor
Party for the purpose of carrying out the provisions of this Section 5 and
taking any action and executing any instruments which the Trustee may reasonably
deem necessary or advisable to accomplish the purposes hereof, which appointment
as attorney-in-fact is irrevocable and coupled with an interest. Without
limiting the generality of the foregoing, so long as the Trustee shall be
entitled under this Section 5 to make collections in respect of the Collateral,
the Trustee shall have the right and power to receive, endorse and collect all
checks made payable to the order of any Grantor Party representing any dividend,
payment or other distribution in respect of the Collateral or any part thereof
and to give full discharge for the same.

5.11 Perfection. Prior to or concurrently with the execution and delivery of
this Agreement, each Grantor Party shall (i) file such financing statements and
other documents in such offices as the Trustee may reasonably request to perfect
the security interests granted by Section 3 of this Agreement, (ii) deliver to
the Trustee

 

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all certificates evidencing any of the Pledged Stock, accompanied by undated
stock powers duly executed in blank, and, to the extent required by
Section 3(b), all promissory notes and other instruments evidencing any Pledged
Debt identified in Annex 8 and (iii) execute and deliver such short form
assignments or security agreements relating to Collateral consisting of the
Intellectual Property as the Trustee may reasonably request. Without limiting
the foregoing, each Grantor Party consents that Uniform Commercial Code
financing statements may be filed describing the Collateral as set forth in
Section 3.

5.12 Termination. When all Secured Obligations shall have been paid in full,
this Agreement, together with all security interests and Liens created or
evidenced hereby, shall immediately and automatically terminate and be of no
further force or effect, and the Trustee shall forthwith cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral and money received in
respect thereof, to or on the order of the respective Grantor Party. The Trustee
shall, at the expense of the Company, also execute and deliver to the respective
Grantor Party upon such termination such Uniform Commercial Code termination
statements and such other documentation as shall be reasonably requested by the
respective Grantor Party to effect the termination and release of the Liens on
the Collateral.

5.13 Further Assurances. Each Grantor Party agrees that, from time to time upon
the written request of the Trustee, such Grantor Party will execute and deliver
such further documents and do such other acts and things as the Trustee may
reasonably request in order fully to effect the purposes of this Agreement.

Section 6. Miscellaneous.

6.01 Notices. All notices, requests, consents and demands hereunder shall be in
writing and telecopied or delivered to the respective parties hereto in the
manner and at the locations specified for such parties in Section 12.02 of the
Indenture.

6.02 No Waiver. No failure on the part of the Trustee or any Holder to exercise,
and no course of dealing with respect to, and no delay in exercising, any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise by the Trustee of any right, power or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies herein are cumulative and are not
exclusive of any remedies provided by law.

6.03 Amendments, Etc. The terms of this Agreement may be waived, altered or
amended only by an instrument in writing duly executed by each Grantor Party and
the Trustee.

6.04 Expenses. The Grantor Parties jointly and severally agree to reimburse the
Trustee for all reasonable costs and expenses incurred by the Trustee (including
the expenses and reasonable fees of legal counsel) in connection with (i) any
Default and any enforcement or collection proceeding resulting therefrom,
including all manner of participation in or other involvement with
(w) performance by the Trustee of any obligations of the Grantor Parties in
respect of the Collateral that the Grantor Parties have failed or refused to
perform, (x) bankruptcy, insolvency, receivership, foreclosure, winding up or
liquidation proceedings, or any actual or attempted sale, or any exchange,
enforcement, collection, compromise or settlement in respect of any of the
Collateral, and for the care of the Collateral and defending or asserting rights
and claims of the Trustee in respect thereof, by litigation or otherwise,
including expenses of insurance, (y) judicial or regulatory proceedings and
(z) workout, restructuring or other negotiations or proceedings (whether or not
the workout, restructuring or transaction contemplated thereby is consummated)
and (ii) the enforcement of this Section 6.04, and all such costs and expenses
shall be Secured Obligations entitled to the benefits of the collateral security
provided pursuant to Section 3.

 

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6.05 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns of each Grantor Party, the
Trustee and each holder of any of the Secured Obligations; provided that no
Grantor Party shall assign or transfer its rights or obligations hereunder
without the prior written consent of the Trustee.

6.06 Additional Subsidiary Guarantors. New Subsidiaries of the Company formed or
acquired by the Company after the date hereof and any Subsidiary that ceases to
be an “Unrestricted Subsidiary” (as defined in the Indenture) which become a
Subsidiary Guarantor under the Indenture shall become a “Subsidiary Guarantor”
under this Agreement, by executing and delivering to the Trustee an instrument
of assumption of guaranty and accession hereto in form and substance reasonably
satisfactory to the Trustee. Accordingly, upon such execution and delivery by
any such Subsidiary, such new Subsidiary shall automatically and immediately,
and without any further action on the part of any Person, become a “Subsidiary
Guarantor” and an “Grantor Party” for all purposes of this Agreement.

6.07 Counterparts. This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument and any
of the parties hereto may execute this Agreement by signing any such
counterpart.

6.08 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York.

6.09 Captions. The captions and section headings appearing herein are included
solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.

6.10 Agents and Attorneys-in-Fact. The Trustee may employ agents and
attorneys-in-fact in connection herewith and shall not be responsible for the
negligence or willful misconduct of any such agents or attorneys-in-fact
selected by it with due care.

6.11 Severability. If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
(b) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.

[Signatures appear on following pages]

 

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EXHIBIT 10.7

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed and delivered as of the day and year first above written.

THE COMPANY

 

VELOCITY EXPRESS CORPORATION

By:  

/s/ Edward W. Stone

  Name: Edward W. Stone   Title:   Chief Financial Officer

SUBSIDIARY GUARANTORS

 

VELOCITY EXPRESS, INC

VXP MID-WEST, INC.

CORPORATE EXPRESS DISTRIBUTION SERVICES, INC.

VELOCITY EXPRESS LEASING, INC.

VXP LEASING MID-WEST, INC.

CD&L ACQUISITION CORP.

By:  

/s/ Edward W. Stone

  Name: Edward W. Stone   Title:   Chief Financial Officer

THE `TRUSTEE

 

WELLS FARGO BANK, N.A., as Trustee

By:  

/s/ Jane Y. Schweiger

  Name: Jane Y. Schweiger  

Title:   Vice President

Signature Page to

Security Agreement

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ANNEX 1

FILING DETAILS

 

Current Legal Name
(no trade names)

  

Type of
Organization
(corporation, limited liability
company, etc.)

 

Jurisdiction of

Organization

 

Organizational
ID Number

(if applicable)

 

Current Mailing
Address

 

Place of Business or

Location of Chief
Executive Officer

Velocity Express Corporation    Corporation   Delaware   87-0355929   One
Morningside Drive, Westport, CT 06880   One Morningside Drive, Westport, CT
06880 Velocity Express, Inc.    Corporation   Delaware   76-0424426   One
Morningside Drive, Westport, CT 06880   One Morningside Drive, Westport, CT
06880 CD&L Acquisition Corp.    Corporation   Delaware   4177343   One
Morningside Drive, Westport, CT 06880   One Morningside Drive, Westport, CT
06880 VXP Leasing Mid-West, Inc.    Corporation   Delaware   76-0660846   One
Morningside Drive, Westport, CT 06880   One Morningside Drive, Westport, CT
06880 VXP Mid-West, Inc.    Corporation   Delaware   76-0660845   One
Morningside Drive, Westport, CT 06880   One Morningside Drive, Westport, CT
06880 Velocity Express Leasing, Inc.    Corporation   Delaware   76-0486733  
One Morningside Drive, Westport, CT 06880   One Morningside Drive, Westport, CT
06880 Corporate Express Distribution Services, Inc.    Corporation   Michigan  
38-1889687   One Morningside Drive, Westport, CT 06880   One Morningside Drive,
Westport, CT 06880

Annex 1 to Security Agreement

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ANNEX 2

“NEW DEBTOR” EVENTS

None.

Annex 2 to Security Agreement

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ANNEX 3

PLEDGED STOCK

Pledgor Party: VELOCITY EXPRESS CORPORATION

 

Issuer

 

Certificate
No(s).

 

Registered Owner

 

Authorized Shares/

Outstanding Shares

 

Number of Shares Pledged (100% of total authorized shares)

Velocity Express, Inc.   1   Velocity Express Corporation   10,000†   10,000
shares common stock, par value $0.01 per share CD&L Acquisition Corp. (f/k/a
Cobra Acquisition Corp.)   1   Velocity Express Corporation   1,000†   1,000
shares common stock, par value $0.004 per share CD&L Inc.   Pending   Velocity
Express Corporation   30,000,000 (auth’d)/
22,803,970 (outstg)††   9,185,886 shares common stock, par value $0.001 per
share

Pledgor Party: VELOCITY EXPRESS, INC.

 

Issuer

 

Certificate
No(s).

 

Registered Owner

 

Authorized Shares

 

Number of Shares Pledged (100% of total authorized shares)

Velocity Express Leasing, Inc. (f/k/a Velocity Express Leasing Southwest, Inc.)
  1   Velocity Express, Inc.   1,000†   1,000 shares common stock, par value
$1.00 per share VXP Mid-West, Inc.   1   Velocity Express, Inc.   1,000†   1,000
shares common stock, par value $0.01 per share Corporate Express Distribution
Services, Inc.   1   Velocity Express, Inc.   1,000†   1,000 shares common
stock, par value $1.00 per share

--------------------------------------------------------------------------------

† Denotes that all authorized stock is issued and outstanding.

†† Based solely on Company’s reliance upon Target representations/warranties
made in Target Merger Agreement, without Company investigation or inquiry.

Annex 3 to Security Agreement

--------------------------------------------------------------------------------

Pledgor Party: VELOCITY EXPRESS, INC. (cont’d)

 

Issuer

 

Certificate
No(s).

 

Registered Owner

 

Authorized
Shares

 

Number of Shares Pledged
(65% of total authorized shares)

USDS Canada Ltd.

  A-3   Velocity Express, Inc.   100,000†   65,000 shares Class A Common Stock  
B-7   Velocity Express, Inc.   22,410†   14,566.5 shares of Class B Common Stock
  C-5   Velocity Express, Inc.   23,323†   15,159.95 shares of Class C Common
Stock   D-4   Velocity Express, Inc.   15,872†   10,316.8 shares of Class D
Common Stock

Pledgor Party: VXP Mid-West, Inc.

 

Issuer

  

Certificate
No(s).

  

Registered Owner

  

Authorized Shares

  

Number of Shares Pledged
(100% of total authorized shares)

VXP Leasing Mid-West, Inc.

   1    VXP Mid-West, Inc.    1,000†    1,000 shares common stock, par value
$0.01 per share

--------------------------------------------------------------------------------

† Denotes that all authorized stock is issued and outstanding.

Annex 3 to Security Agreement

--------------------------------------------------------------------------------

ANNEX 4

LIST OF COPYRIGHTS, COPYRIGHT REGISTRATIONS AND

APPLICATIONS FOR COPYRIGHT REGISTRATIONS

NONE

Annex 4 to Security Agreement

--------------------------------------------------------------------------------

ANNEX 5

LIST OF PATENTS AND PATENT APPLICATIONS

NONE

Annex 5 to Security Agreement

--------------------------------------------------------------------------------

ANNEX 6

LIST OF TRADE NAMES, TRADEMARKS, SERVICES MARKS,

TRADEMARK AND SERVICE MARK REGISTRATIONS AND

APPLICATIONS FOR TRADEMARK AND SERVICE MARK REGISTRATIONS

VELOCITY EXPRESS CORPORATION / VELOCITY EXPRESS INC.

Material U.S. Trademark Applications

NONE

Material Non-US Trademark Applications

NONE

Material U.S. Trademark Registrations

 

Owner

  

Trademark

  

Country

  

Registration No.

Velocity Express Corporation

   Relentless Reliability    U.S.    2765219

Velocity Express Inc.

   VXP    U.S.    2660102

Velocity Express Inc.

   Velocity    U.S.    2817675

Velocity Express Inc.

   Velocity Express    U.S.    2684089

Material Non-U.S. Trademark Registrations

NONE

Annex 6 to Security Agreement

--------------------------------------------------------------------------------

ANNEX 7

LIST OF MATERIAL LICENSES AND OTHER USER AGREEMENTS

NONE

PROCEEDINGS / CLAIMS

On November 30, 2000, Velocity Express, Inc. entered into a Settlement Agreement
with Velocity Courier, Inc. in connection with the parties’ use of certain
“Velocity” trademarks. Pursuant to the terms of the settlement, Velocity
Express, Inc. is permitted to use the Velocity trademarks anywhere in the United
States except the City of Chicago and the territory that extends 50 miles from
the Chicago city limits, but within the State of Illinois. The Settlement
Agreement required Velocity Express, Inc. to amend its trademark applications to
reflect this exclusion. The Company anticipates that it will initiate concurrent
use proceedings in order to clarify territorial rights with respect to two
“Velocity” trademark registrations (Velocity and Velocity Express).

Annex 7 to Security Agreement

--------------------------------------------------------------------------------

ANNEX 8

PLEDGED DEBT

CD&L, Inc. Series A Convertible Subordinated Debentures in an aggregate
principal amount of $4,000,000 acquired by the Company simultaneously with the
Effective Date pursuant to the Series A Convertible Subordinated Debenture
Purchase Agreement entered into by the Company of even date with the various
holders thereof.

--------------------------------------------------------------------------------

EXHIBIT A

to Security Agreement

FORM OF

DESIGNATED ACCOUNT CONTROL AGREEMENT

This DESIGNATED ACCOUNT CONTROL AGREEMENT (this “Control Agreement”) dated as of
June 30, 2006 (the “Effective Date”) by and among (A) VELOCITY EXPRESS
CORPORATION, a Delaware corporation (the “Pledgor”), and each of the several
Subsidiary Guarantors referred to in the Security Agreement described (and
defined) below (each, a “Subsidiary Pledgor” and, collectively, the “Subsidiary
Pledgor” and, together with Pledgor, the “Pledgor Parties”) (B) WELLS FARGO
BROKERAGE SERVICES, LLC, a Delaware limited liability company, in its capacity
as securities intermediary (the “Securities Intermediary”) hereunder and
(C) WELLS FARGO BANK, N.A., a national banking association, as Trustee (the
“Trustee”) for the benefit of the Holders under (and as defined in) the
even-dated Indenture (as defined in the Security Agreement hereinafter referred
to) and the even-dated Security Agreement by the Pledgor Parties to and in favor
of the Trustee (as amended, amended and restated, supplemented or otherwise
modified from time to time, the “Security Agreement”). Capitalized terms used
but not defined herein shall have the meanings assigned to such terms in the
Security Agreement or, to the extent not so defined therein, in the Indenture
referred to (and defined) therein. This Control Agreement is for the purpose of
perfecting, with regard to certain Collateral items that are securities,
securities entitlements or other property underlying any financial assets, or
are otherwise of a nature or type such that, as directed by applicable
provisions of UCC Article 8, a security interest therein may only be (or is
otherwise most-effectively) perfected by means of a control agreement entered
into along the lines hereof (any and all Collateral items of any such nature or
type that are at any time after the Effective Date owned, held or maintained by
any Pledgor Party, collectively, the “Article 8 Collateral”), the Liens granted
by the Pledgor Parties in favor of the Trustee pursuant to the Security
Agreement. All references herein to the “UCC” shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York.

1. Confirmation of Establishment and Maintenance of the Designated Account. The
Securities Intermediary hereby confirms that (i) the Securities Intermediary has
established for the Pledgor Parties on or prior to the Effective Date and, as of
such date, maintains and shall thereafter maintain the Designated Account listed
in Schedule I attached hereto (such account, the “Designated Account”), for the
purpose of receiving deposits and credits of, and otherwise maintaining therein
as subject to the first-priority, perfected Liens of the Trustee pursuant to the
Security Agreement, the Article 8 Collateral, (ii) the Designated Account is a
“securities account” as such term is defined in Section 8-501(a) of the UCC,
(iii) the Securities Intermediary shall, unless it shall have received contrary
written instruction from the Trustee to the effect that the applicable Pledgor
Parties are not so entitled under specified Transaction Document provisions and
as otherwise subject to the terms of this Control Agreement and the Security
Agreement, treat each Pledgor Party as entitled to the benefit, exercise and
enforcement of voting, divident or other rights that comprise or appertain to
any Article 8 Collateral credited to the Designated Account and (iv) all Article
8 Collateral credited to the Designated Account as of the Effective Date is and,
for so long as any Secured Obligations shall remain outstanding, shall be
registered in the name of the Securities Intermediary, indorsed to the
Securities Intermediary or in blank or credited to another securities or other
designated account maintained in the name of the Securities Intermediary and in
no case will Article 8 Collateral credited to the Designated Account be
registered in the name of any Pledgor Party, payable to the order of any Pledgor
Party or indorsed to any Pledgor Party, except to the extent the foregoing have
been indorsed to the Securities Intermediary or in blank.

2. Pledgor Party Deposits/Credits to Designated Account. Each Pledgor Party
represents, warrants and covenants to and for the benefit of the Trustee that
such Pledgor Party has, on or prior to the Effective Date, duly deposited or
caused to be duly deposited or credited to the Designated Account and, for so
long as any Secured Obligations shall remain outstanding, shall at all times
thereafter deposit or cause to be so deposited or credited any and all Article 8
Collateral at any and all such times owned, held or maintained by such Pledgor
Party.

--------------------------------------------------------------------------------

3. “Financial Assets” Election. The Securities Intermediary hereby agrees that
each item of Article 8 Collateral credited to the Designated Account shall be
treated as a “financial asset” within the meaning of Section 8-102(a)(9) of the
UCC.

4. Entitlement Order. If at any time the Securities Intermediary shall receive
an “entitlement order”(within the meaning of Section 8-102(a)(8) of the UCC)
from the Trustee and relating to the Designated Account, the Securities
Intermediary shall comply with such entitlement order without further consent by
the Company or any other Person.

5. Subordination of Lien; Waiver of Set-Off. In the event that the Securities
Intermediary subsequently obtains by agreement, operation of law or otherwise a
security interest or other Lien in, on or with respect to the Designated Account
or any Collateral, the Securities Intermediary hereby agrees that such Lien
shall be subordinate to the Liens in favor of the Trustee, except as provided
herein with respect to Securities Intermediary’s liens securing fees and
charges, and payment for open trade commitments. The financial assets and other
items deposited to the Designated Account will not be subject to deduction,
set-off, banker’s lien, or any other right or Lien in favor of any Person other
than the Trustee for the benefit of the Holders (except for Securities
Intermediary’s liens securing: (i) fees and charges owed by Pledgor with respect
to the holding of the Article 8 Collateral, (ii) payment owed to Securities
Intermediary for open trade commitments with respect to the Article 8
Collateral; and (iii) except that the Securities Intermediary may set off the
face amount of any checks or other items which have been credited to any
Designated Account but are subsequently returned unpaid because of uncollected
or insufficient funds).

6. Choice of Law. Both this Control Agreement and the Designated Account shall
be governed by the laws of the State of New York. Regardless of any provision in
any other agreement, for purposes of the UCC, New York shall be deemed to be the
Securities Intermediary’s jurisdiction and the Designated Account (as well as
the security entitlements related thereto) shall be governed by the laws of the
State of New York.

7. Conflict with Other Agreements; Amendments. As of the date hereof, there are
no other agreements entered into between the Securities Intermediary and the
Pledgor Parties with respect to the Designated Account or any security
entitlements or other financial assets credited thereto (other than the Security
Agreement and standard and customary documentation with respect to the
establishment and maintenance of the Designated Account). The Securities
Intermediary and the Pledgor Parties will not enter into any other agreement
with respect to the Designated Account unless the Trustee shall have received
prior written notice thereof. The Securities Intermediary and the Pledgor
Parties will not enter into any other agreement with respect to creation or
perfection of any security interest or other Lien in or on, or control of
security entitlements maintained in the Designated Account without the prior
written consent of the Trustee acting in its sole discretion. In the event of
any conflict with respect to “control” over the Designated Account between this
Control Agreement (or any portion hereof) and any other agreement now existing
or hereafter entered into, the terms of this Control Agreement shall prevail. No
amendment or modification of this Control Agreement or waiver of any rights
hereunder shall be binding on any party hereto unless it is in writing and is
signed by all the parties hereto.

8. Certain Agreements.

(a) The Trustee has delivered to the Securities Intermediary a list, signed by
its authorized representative, of the officers of the Trustee authorized (each,
an “Authorized Trustee Representative”) to give approvals or instructions under
this Control Agreement (including notices and other instructions under Section 9
hereof) and the Securities Intermediary shall be entitled to rely on
communications from such Authorized Trustee Representatives until the earlier of
(i) the termination of this Control Agreement in accordance with the terms
hereof, (ii) notification by an Authorized Trustee Representative of a change in
the Authorized Trustee Representatives and (iii) the assignment of the rights of
the Trustee in accordance with Section 11 hereof.

(b) Notice of Adverse Claims. Except for the Trustee’s Liens pursuant to the
Security Agreement, the Securities Intermediary on the date hereof does not know
of any claim to, or security interest or other Lien in or on, the Designated
Account or in any “financial asset” (as defined in Section

--------------------------------------------------------------------------------

8-102(a) of the UCC) credited thereto and does not know of any claim that any
Person other than the Trustee has been given “control” of the Designated Account
or any such financial asset. If any Person asserts any Lien, encumbrance or
adverse claim (including any writ, garnishment, judgment, warrant of attachment,
execution or similar process and any claim of “control”) against any financial
asset or other Article 8 Collateral carried in the Designated Account, the
Securities Intermediary will promptly notify the Trustee and the Pledgor Parties
thereof.

(c) Maintenance of the Designated Account. In addition to, and not in lieu of,
the obligation of the Securities Intermediary to honor entitlement orders as
agreed in Section 3 hereof, the Securities Intermediary agrees to maintain the
Designated Account as follows:

(d) Notice of Sole Control. If at any time the Trustee delivers to the
Securities Intermediary a notice of sole control, signed by an Authorized
Trustee Representative, in substantially the form set forth in Exhibit A
attached hereto (the “Notice of Sole Control”) with respect to the Designated
Account, the Securities Intermediary agrees that, after receipt of such notice,
it will take all instructions with respect to the Designated Account solely from
the Trustee (without consent from the Pledgor Parties). Permitting settlement of
trades pending at the time of receipt of such notice shall not constitute a
violation of the immediately preceding sentence. Without limiting the generality
of the first sentence of this paragraph, upon receipt of a Notice of Sole
Control, the Securities Intermediary shall (x) no longer permit any trading with
respect to the applicable Article 8 Collateral to be initiated by the Pledgor
Parties or any representative of, or investment manager appointed by, the
Pledgor Parties and the Securities Intermediary shall follow all instructions
given by an Authorized Trustee Representative, including without limitation
instructions for distribution or transfer of any Article 8 Collateral in the
Designated Account to be made to the Trustee and (y) follow all instructions
given by an Authorized Trustee Representative, including, without limitation,
instructions for distribution or transfer of any funds in the Designated Account
to be made to the Trustee.

(e) Statements and Confirmations. The Securities Intermediary will send copies
of all statements and other correspondence (excluding routine confirmations)
required under this Agreement, in Section 2(g) or elsewhere in the Security
Agreement or otherwise concerning the Designated Account or any financial assets
constituting Collateral credited thereto simultaneously to each of the Pledgor
Parties and the Trustee at their respective addresses as provided in Section 12.

9. Voting Rights; Dispositions. Except to the extent expressly permitted by the
Security Agreement, Pledgor Parties shall have no right to direct the Securities
Intermediary with respect to the sale, exchange or transfer of such Article 8
Collateral held in the Designated Account. At such time as the Securities
Intermediary receives a Notice of Sole Control pursuant to Section 8(e) of this
Section, the Trustee exclusively shall direct the Securities Intermediary with
respect to the matters contemplated in the immediately preceding sentence.

10. Bailee for Perfection. The Securities Intermediary acknowledges that, in the
event that it should come into possession of any certificate representing any
security or other assets held as Article 8 Collateral in the Designated Account,
the Securities Intermediary shall retain possession of the same for the benefit
of the Trustee (and such act shall cause the Securities Intermediary to be
deemed a bailee for the Trustee, if necessary) to perfect the Trustee’s Liens in
such securities or assets. The Securities Intermediary hereby acknowledges its
receipt of a copy of the Security Agreement as notice to the Securities
Intermediary regarding notice of a Lien in favor of Trustee in collateral held
by a bailee.

11. Representations, Warranties and Covenants of the Securities Intermediary.
The Securities Intermediary hereby makes the following representations,
warranties and covenants:

(a) The Designated Account has been established as set forth in Section 1 hereof
and the Designated Account will be maintained in the manner set forth herein and
in the Security Agreement until termination of this Control Agreement and the
Security Agreement. The Securities Intermediary

--------------------------------------------------------------------------------

shall not change the name or account number of the Designated Account without
the prior written consent of the Trustee.

(b) No financial asset constituting Collateral is or will be registered in the
name of the applicable Pledgor Party, payable to its order or indorsed to it,
except to the extent such financial asset has been indorsed to the Securities
Intermediary (or its nominee) or in blank.

(c) This Control Agreement is the valid and legally binding obligation of the
Securities Intermediary.

(d) The Securities Intermediary has not entered into any agreement with any
other Person pursuant to which it has agreed to comply with entitlement orders
(as defined in Section 8-102(a)(8) of the UCC) with respect to the financial
assets credited to the Designated Account, except for the Security Agreement.
Until the termination of this Control Agreement and the Security Agreement, the
Securities Intermediary will not, without the written approval of the Trustee,
enter into any agreement with any Person relating to the Designated Account or
any financial assets credited thereto pursuant to which it agrees to comply with
entitlement orders of such Person, except for the Security Agreement.

(e) The Securities Intermediary has not entered into any other agreement with
the Pledgor Parties or Trustee purporting to limit or condition the obligation
of the Securities Intermediary to comply with entitlement orders with respect to
financial assets credited to the Designated Account as set forth in Section 3
hereof other than the Security Agreement.

12. Successors; Assignment. The terms of this Control Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
corporate successors and permitted assignees.

13. Notices; Wiring Instructions. All notices, instructions and communications
required to be given hereunder shall be in writing in English and shall be
deemed sufficiently given when received by hand or courier delivery, by
telecopier or registered or certified mail, postage prepaid, return receipt
requested at the addresses specified below each party’s signature hereto (with
all notices to any Subsidiary Pledgor to be sent care of and to be deemed duly
delivered if transmitted to Pledgor) until such time as the parties hereto
designate a different or additional address or addresses in the manner provided
herein or therein. Wiring instructions for each of the parties hereto are either
contained in the Security Agreement or will be provided to the Securities
Intermediary in a timely written notice signed by an Authorized Trustee
Representative.

14. Termination. The obligations of the Securities Intermediary hereunder shall
continue in effect until the Liens in favor of the Trustee for the benefit of
the Noteholders with respect to the Article 8 Collateral and other Collateral
have been terminated in accordance with the provisions of the Security Agreement
and an Authorized Trustee Representative has notified the Securities
Intermediary of such termination in writing; or until thirty (30) days after
Trustee’s receipt of notice from any Pledgor Party or the Securities
Intermediary of the termination of the Designated Account and Securities
Intermediary’s delivery of all Article 8 Collateral to Trustee or its designee
in accordance with Trustee’s written instructions.

15. Severability. If any term or provision set forth in this Agreement shall be
invalid or unenforceable, the remainder of this Agreement, other than those
provisions held invalid or unenforceable, shall be construed in all respects as
if such invalid or unenforceable term or provision were omitted.

16. Counterparts. This Control Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Control Agreement by signing and delivering one or
more counterparts.

17. EFFECT OF SUBORDINATION AGREEMENT. UPON AND DURING EFFECTIVENESS OF THE
SUBORDINATION AGREEMENT REFERRED TO IN SECTION 1A OF THE SECURITY AGREEMENT,

--------------------------------------------------------------------------------

SUCH SUBORDINATION AGREEMENT SHALL IN ALL RESPECTS GOVERN AND CONTROL ALL
RIGHTS, INTERESTS, REMEDIES AND OBLIGATIONS TO THE SAME EXTENT AS PROVIDED IN
SUCH SECTION 1A AS IF THIS ENTIRE CONTROL AGREEMENT WERE FULLY INCORPORATED INTO
AND SET FORTH WITHIN THE BODY OF THE SECURITY AGREEMENT ITSELF.

18. AGREEMENT OF THE PLEDGOR PARTIES. Pledgor Parties agree to indemnify and
hold harmless Securities Intermediary, its officers, directors, employees and
agents, against claims, liabilities or expenses (including reasonable attorney’s
fees) arising out of Securities Intermediary’s compliance with any instructions
from Trustee with respect to the Designated Account, except if such claims,
liabilities or expenses are caused by Securities Intermediary’s negligence or
willful misconduct.

[Singature pages follow]

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have duly executed this Control Agreement as of
the day first written above.

 

SECURITIES INTERMEDIARY

        WELLS FARGO BROKERAGE SERVICES, LLC,

            as Securities Intermediary

        By:

 

 

 

Name:

   

Title:

   

Address for Notices:

Wells Fargo Brokerage Services, LLC

 

Institutional Brokerage & Sales

 

MAC N9303-050, Suite 500

 

608 Second Avenue South

 

Minneapolis, MN 55479

 

Attn:                                     
                                        
                                                

 

Fax:                                      
                                        
                                                

TRUSTEE  

        WELLS FARGO BANK, N.A., as Trustee

        By:

 

 

 

Name:

   

Title:

   

 

Address for Notices:

   

Wells Fargo Bank, N.A.

   

Corporate Trust Services

   

Sixth and Marquette, Mac N9303-120

 

Minneapolis, MN 55479

   

Attn: Lynn M. Steiner, Vice President

 

Fax No. 612-667-9825

   

with copies to each of:

   

Morgan, Lewis & Bockius LLP

  Kelley Drye & Warren LLP  

101 Park Avenue

  8000 Towers Crescent Dr., Suite 1200  

New York, New York 10178

  Vienna, VA 22182  

Attn: Stephen P. Farrell, Esq.

  Attn: Jay Schifferli  

Fax No. 212-309-6001

  Fax No. 703-918-2450

Signature Page to

Designated Account Control Agreement

--------------------------------------------------------------------------------

 

PLEDGOR    

        VELOCITY EXPRESS CORPORATION

 

        By:

        Name:     Title:     Address for Notices:     Velocity Express
Corporation   One Morningside Drive North   Building B Suite 300     Westport,
CT 06880     Attn: Ted Stone    

Fax No. (952) 835-4997

 

with copies to each of:

 

  Briggs and Morgan, P.A.   Budd Larner   2200 IDS Center  
150 John F. Kennedy Parkway   80 South Eighth Street   Short Hills, New Jersey
07078   Minneapolis, MN 55402   Attn: Mark Larner   Attn: Avron L. Gordon   Fax
No. 973-379-7734   Fax No. 612-977-8650   SUBSIDIARY PLEDGORS

        VELOCITY EXPRESS, INC.

        VXP MID-WEST, INC.

        CORPORATE EXPRESS DISTRIBUTION SERVICES, INC.

        VELOCITY EXPRESS LEASING, INC.

        VXP LEASING MID-WEST, INC.

        CD&L ACQUISITION CORP. (f/k/a Cobra Acquisition Corp.)

        By:

          Name:   Title:   Address for Notices:   All notices to name applicable
Subsidiary Pledgor addressee(s) and be sent care of Pledgor at its address set
forth above.

Signature Page to

Designated Account Control Agreement

--------------------------------------------------------------------------------

SCHEDULE I

Designated Account

Velocity Express Corporation Pledge Security Account

Account No.: 12907473

--------------------------------------------------------------------------------

EXHIBIT A

to

Designated Account Control Agreement

FORM OF NOTICE OF SOLE CONTROL

[LETTERHEAD OF TRUSTEE]

Dated [                        ]

Wells Fargo Brokerage Services, LLC

Institutional Brokerage & Sales

MAC N9303-050, Suite 500

608 Second Avenue South

Minneapolis, MN 55479

Attn:

Re: Notice of Sole Control—Velocity Express Corporation Designated Account
No. 12907473

Dear [                    ]:

As referenced in Section 7(e) of the Designated Account Control Agreement dated
as of June 30, 2006 (the “Control Agreement”; capitalized terms used but not
defined herein shall have the meanings assigned to such terms in the Control
Agreement, a copy of which is attached) among Wells Fargo Brokerage Services,
LLC, a Delaware limited liability company, as Securities Intermediary, Wells
Fargo Bank, N.A., a national banking association, as Trustee, and Velocity
Express Corporation, a Delaware corporation, as Pledgor, we hereby give you
notice of our sole control over Article 8 Collateral maintained in the
Designated Account, account number 12907473 (the “Designated Account”). You are
hereby instructed not to accept any direction, instruction or entitlement order
with respect to the Article 8 Collateral maintained in the Designated Account or
the financial assets constituting Article 8 Collateral credited thereto from any
Person other than the undersigned, unless otherwise ordered by a court of
competent jurisdiction.

You are instructed to deliver a copy of this notice by facsimile transmission to
Pledgor.

 

Very truly yours,

 

Wells Fargo Bank, N.A., as Trustee

 

By:

 

 

 

Name:

 

Title: