Exhibit 10.1

 

PURCHASE AGREEMENT

 

THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 21st day of December,
2004 by and among Velocity Express Corporation, a Delaware corporation (the
“Company”), and the Investors set forth on the signature pages affixed hereto
(each an “Investor” and collectively the “Investors”).

 

Recitals

 

A. The Company and the Investors are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by the
provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933,
as amended; and

 

B. The Investors wish to purchase from the Company, and the Company wishes to
sell and issue to the Investors, upon the terms and conditions stated in this
Agreement, an aggregate of $21,000,000 in face amount of the Company’s
Convertible Notes in the form of Exhibit A hereto (the “Notes”); and

 

C. Upon approval of the Proposals (as defined below) and the satisfaction of
certain other conditions, the Notes will automatically convert into shares of
Series M Convertible Preferred Stock, par value $0.004 per share (the “Preferred
Stock”), such Preferred Stock to have the relative rights, preferences and
designations set forth in the Certificate of Designation of Preferences and
Rights of Series M Convertible Preferred Stock set forth in Exhibit B hereto
(the “Certificate of Designations”); and

 

C. Contemporaneous with the sale of the Notes, the parties hereto will execute
and deliver a Registration Rights Agreement, in the form attached hereto as
Exhibit C (the “Registration Rights Agreement”), pursuant to which the Company
will agree to provide certain registration rights under the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder, and
applicable state securities laws.

 

In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

1. Definitions. In addition to those terms defined above and elsewhere in this
Agreement, for the purposes of this Agreement, the following terms shall have
the meanings set forth below:

 

“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly through one or more intermediaries Controls, is controlled by, or
is under common control with, such Person.

 

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

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

 

“Capital Increase” has the meaning set forth in Section 7.9.

 

“Common Stock” means the common stock, par value $0.004 per share, of the
Company and any securities into which the Common Stock may hereafter be
reclassified.

 

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

 

“Company’s Knowledge” means the actual knowledge of the executive officers (as
defined in Rule 405 under the 1933 Act) of the Company, after due inquiry.

 

“Confidential Information” means trade secrets, confidential information and
know-how (including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and supplier
lists and related information).

 

“Consents and Waivers” means the consents and waivers provided by the holders of
Senior Debt in the form attached hereto as Exhibit D.

 

“Control” (including the terms “controlling,” “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

 

“Conversion Date” means the date that the conversion of the Notes into Shares is
effective pursuant to the terms of the Notes.

 

“Conversion Shares” means the shares of Common Stock issuable upon conversion of
the Shares and the PIK Shares.

 

“Effective Date” means the date on which the initial Registration Statement is
declared effective by the SEC.

 

“Effectiveness Deadline” means the date on which the initial Registration
Statement is required to be declared effective by the SEC under the terms of the
Registration Rights Agreement.

 

“Intellectual Property” means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to

 

-2-

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

practice); (ii) trademarks, service marks, trade dress, trade names, corporate
names, logos, slogans and Internet domain names, together with all goodwill
associated with each of the foregoing; (iii) copyrights and copyrightable works;
(iv) registrations, applications and renewals for any of the foregoing; and (v)
proprietary computer software (including but not limited to data, data bases and
documentation).

 

“Material Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.

 

“Nasdaq” means The Nasdaq Stock Market, Inc.

 

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

 

“PIK Shares” means shares of Preferred Stock issued as pay-in-kind dividends on
the Shares or any previously issued PIK Shares.

 

“Proposals” has the meaning set forth in Section 7.9.

 

“Purchase Price” means Twenty-One Million Dollars ($21,000,000).

 

“Registration Statement” has the meaning set forth in the Registration Rights
Agreement.

 

“Reverse Split” means a reverse split of the Common Stock as determined by the
Company’s Board of Directors in the good faith exercise of its business judgment
which would achieve, immediately after giving effect thereto, a per share market
price of at least $4.00, but in any event no less than one-for-50.

 

“SEC Filings” has the meaning set forth in Section 4.6.

 

“Securities” means the Notes, the Shares, the PIK Shares and the Conversion
Shares.

 

“Security Agreement” means the Security Agreement among the Company and the
Investors in the form of Exhibit E attached hereto.

 

“Senior Debt” means the indebtedness outstanding under (i) the Amended and
Restated Loan and Security Agreement, dated as of November 26, 2003, among the
Company, the Subsidiaries named therein, Fleet Capital Corporation, Merrill
Lynch Capital and the other lenders named therein, as amended as of the date
hereof, and (ii) the Note Purchase Agreement,

 

-3-

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

dated as of November 26, 2003, among the Company, Velocity Express, Inc. and BET
Associates, L.P., as amended as of the date hereof.

 

“Shares” means the shares of Preferred Stock issuable to the Investors upon the
conversion of the Notes.

 

“SSF” means Special Situations Fund III, L.P. and its Affiliates.

 

“Subsidiary” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first Person.

 

“Transaction Documents” means this Agreement, the Notes, the Security Agreement,
the Certificate of Designations, the Registration Rights Agreement, the Voting
Agreements and the Consents and Waivers.

 

“Voting Agreement” means the Voting Agreement to be entered into among the
Company, the Investors and the other parties thereto, the form of which is
attached hereto as Exhibit F.

 

“1933 Act” means the Securities Act of 1933, as amended, or any successor
statute, and the rules and regulations promulgated thereunder.

 

“1934 Act” means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.

 

2. Purchase and Sale of the Notes. Subject to the terms and conditions of this
Agreement, on the Closing Date, each of the Investors shall severally, and not
jointly, purchase, and the Company shall sell and issue to the Investors, the
Notes at 100% of face value in the respective amounts set forth opposite the
Investors’ names on the signature pages attached hereto in exchange for the
Purchase Price as specified in Section 3 below.

 

3. Closing. (a) Upon confirmation that the other conditions to closing specified
herein have been satisfied or duly waived by the Investors, the Company shall
deliver to Lowenstein Sandler PC, in trust, the Notes, registered in such name
or names as the Investors may designate with instructions that the Notes
certificates are to be held for release to the Investors only upon payment in
full of the Purchase Price to the Company by all the Investors. Upon such
receipt by counsel to SSF of the Notes, each Investor shall promptly, but no
more than one Business Day thereafter, cause a wire transfer in same day funds
to be sent to the account of the Company as instructed in writing by the
Company, in an amount representing such Investor’s pro rata portion of the
Purchase Price as set forth on the signature pages to this Agreement. On the
date (the “Closing Date”) the Company receives the Purchase Price, the Notes
shall be released to the Investors (the “Closing”). The Closing of the purchase
and sale of

 

-4-

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

the Notes shall take place at the offices of counsel to SSF, or at such other
location and on such other date as the Company and the Investors shall mutually
agree.

 

(b) The Company may sell up to $2,000,000 in additional principal amount of the
Notes under the terms of this Agreement for up to 30 days after the Closing
Date. By execution of a counterpart of this Agreement, a purchaser of any such
additional Notes shall be deemed to be an “Investor” for all purposes hereof and
the term “Notes” shall include any such additional Notes for all purposes
herein.

 

4. Representations and Warranties of the Company. The Company hereby represents
and warrants to the Investors that, except as set forth in the schedules
delivered herewith (collectively, the “Disclosure Schedules”):

 

4.1 Organization, Good Standing and Qualification. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to carry on its business as now
conducted and to own its properties. Each of the Company and its Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or leasing necessary unless the
failure to so qualify has not and could not reasonably be expected to have a
Material Adverse Effect. The Company’s Subsidiaries are listed on Schedule 4.1
hereto.

 

4.2 Authorization. The Company has full power and authority and, except for
approval of the Proposals by its stockholders as contemplated in Section 7.9 and
the amendment of the Company’s Certificate of Incorporation contemplated by
adoption of such Proposals, has taken all requisite action on the part of the
Company, its officers, directors and stockholders necessary for (i) the
authorization, execution and delivery of the Transaction Documents, (ii)
authorization of the performance of all obligations of the Company hereunder or
thereunder (including effecting the Reverse Split and the Capital Increase), and
(iii) the authorization, issuance (or reservation for issuance) and delivery of
the Securities. The Transaction Documents constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to (i) bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally and (ii) laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies.

 

4.3 Capitalization. Schedule 4.3 sets forth, on a pro forma basis after giving
effect to the adoption of the Proposals, effecting the Capital Increase, and the
transactions contemplated by the Transaction Documents, but prior to the Reverse
Split, (a) the authorized capital stock of the Company on the date hereof; (b)
the number of shares of capital stock issued and outstanding; (c) the number of
shares of capital stock issuable pursuant to the Company’s stock plans; and (d)
the number of shares of capital stock issuable and reserved for issuance
pursuant to securities (other than the Shares, the PIK Shares and the Conversion
Shares) exercisable for, or convertible into or exchangeable for any shares of
capital stock of the Company. Excluding shares of the Company’s Series I
Preferred Stock, Series J Preferred Stock

 

-5-

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

and Series K Preferred Stock, the issuance of which requires stockholder
approval as described on Schedule 4.3, all of the issued and outstanding shares
of the Company’s capital stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of pre-emptive rights and were issued in
full compliance with applicable state and federal securities law and any rights
of third parties. Except as described on Schedule 4.3, all of the issued and
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued and are fully paid, nonassessable and free of pre-emptive
rights, were issued in full compliance with applicable state and federal
securities law and any rights of third parties and are owned by the Company,
beneficially and of record, subject to no lien, encumbrance or other adverse
claim. Except as described on Schedule 4.3, no Person is entitled to pre-emptive
or similar statutory or contractual rights with respect to any securities of the
Company. Except as described on Schedule 4.3, there are no outstanding warrants,
options, convertible securities or other rights, agreements or arrangements of
any character under which the Company or any of its Subsidiaries is or may be
obligated to issue any equity securities of any kind and except as contemplated
by this Agreement, neither the Company nor any of its Subsidiaries is currently
in negotiations for the issuance of any equity securities of any kind. Except as
described on Schedule 4.3 and except for the Registration Rights Agreement and
the Voting Agreement, there are no voting agreements, buy-sell agreements,
option or right of first purchase agreements or other agreements of any kind
among the Company and any of the securityholders of the Company relating to the
securities of the Company held by them. Except as described on Schedule 4.3 and
except as provided in the Registration Rights Agreement, no Person has the right
to require the Company to register any securities of the Company under the 1933
Act, whether on a demand basis or in connection with the registration of
securities of the Company for its own account or for the account of any other
Person.

 

Except as described on Schedule 4.3, the issuance and sale of the Securities
hereunder will not obligate the Company to issue shares of Common Stock or other
securities to any other Person (other than the Investors) and will not result in
the adjustment of the exercise, conversion, exchange or reset price of any
outstanding security.

 

Except as described on Schedule 4.3, the Company does not have outstanding
stockholder purchase rights or “poison pill” or any similar arrangement in
effect giving any Person the right to purchase any equity interest in the
Company upon the occurrence of certain events.

 

4.4 Valid Issuance. Upon the conversion of the Notes in accordance with their
terms, the Shares will be duly and validly authorized and, when issued and paid
for pursuant to this Agreement, will be validly issued, fully paid and
nonassessable, shall be free and clear of all encumbrances and restrictions
(other than those created by the Investors), except for restrictions on transfer
set forth in the Transaction Documents or imposed by applicable securities laws,
and will be entitled to the relative rights, powers and preferences set forth in
the Certificate of Designations. Upon the conversion of the Notes in accordance
with their terms, the PIK Shares will be duly and validly authorized and, when
issued pursuant to the terms of the Certificate of Designations, will be validly
issued, fully paid and nonassessable, shall be free and clear of all
encumbrances and restrictions (other than those created by the Investors),
except for restrictions on transfer set forth in the Transaction Documents or
imposed by applicable

 

-6-

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

securities laws, and will be entitled to the relative rights, powers and
preferences set forth in the Certificate of Designations. Upon the conversion of
the Shares and/or the PIK Shares, the Conversion Shares will be validly issued,
fully paid and non-assessable free and clear of all encumbrances and
restrictions, except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws and except for those created
by the Investors. Upon stockholder approval of the Proposals described in
Section 7.9 and the amendments to the Company’s Certificate of Incorporation
contemplated by adoption of such Proposals, the Company will have reserved a
sufficient number of shares of Common Stock for the issuance of the Conversion
Shares, free and clear of all encumbrances and restrictions, except for
restrictions on transfer set forth in the Transaction Documents or imposed by
applicable securities laws and except for those created by the Investors.

 

4.5 Consents. Except for approval of the Proposals by its stockholders as
contemplated in Section 7.9, the execution, delivery and performance by the
Company of the Transaction Documents and the offer, issuance and sale of the
Securities require no consent of, action by or in respect of, or filing with,
any Person, governmental body, agency, or official other than (i) filings that
have been made pursuant to applicable state securities laws, (ii) post-sale
filings pursuant to applicable state and federal securities laws and (iii) the
filing of a Listing of Additional Shares notification with Nasdaq relating to
the Conversion Shares, which the Company undertakes to file within the
applicable time periods. Subject to the accuracy of the representations and
warranties of each Investor set forth in Section 5 hereof, the Company has taken
all action necessary to exempt (i) the issuance and sale of the Notes, (ii) the
issuance of the Shares upon the due conversion of the Notes, (iii) the issuance
of the PIK Shares in accordance with the Certificate of Designations, (iv) the
issuance of the Conversion Shares upon due conversion of the Shares and the PIK
Shares, and (v) the other transactions contemplated by the Transaction Documents
from the provisions of any stockholder rights plan or other “poison pill”
arrangement, any anti-takeover, business combination or control share law or
statute binding on the Company or to which the Company or any of its assets and
properties may be subject and any provision of the Company’s Certificate of
Incorporation or By-laws that is or could reasonably be expected to become
applicable to the Investors as a result of the transactions contemplated hereby,
including without limitation, the issuance of the Securities and the ownership,
disposition or voting of the Securities by the Investors or the exercise of any
right granted to the Investors pursuant to this Agreement or the other
Transaction Documents.

 

4.6 Delivery of SEC Filings; Business. The Company has made available to the
Investors through the EDGAR system, true and complete copies of the Company’s
Annual Report on Form 10-K for the fiscal year ended June 28, 2003 (the “10-K”),
and all other reports filed by the Company pursuant to the 1934 Act since the
filing of the 10-K and prior to the date hereof (collectively, the “SEC
Filings”). The Company’s draft Form 10-K for the fiscal year ended July 3, 2004,
attached hereto as Exhibit G (the “Draft 10-K”), contains a complete and
accurate description in all material respects of the business of the Company and
its Subsidiaries. Except as described on Schedule 4.6, the SEC Filings are the
only filings required of the Company pursuant to the 1934 Act for such period.
The Company and its Subsidiaries are engaged in all material respects only in
the business described in the SEC Filings and the SEC Filings contain a complete
and accurate description in all material respects of the business of the Company
and its Subsidiaries.

 

-7-

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

4.7 Use of Proceeds. The net proceeds of the sale of the Notes hereunder shall
be used by the Company for working capital and general corporate purposes in
accordance with financial budgets approved from time to time by the Board of
Directors of the Company.

 

4.8 No Material Adverse Change. Since June 28, 2003, except for the transactions
contemplated by the Transaction Documents (including the Reverse Split and the
Capital Increase) and except as identified and described in the Draft 10-K or
the SEC Filings or as described on Schedule 4.8, there has not been:

 

(i) any change in the consolidated assets, liabilities, financial condition or
operating results of the Company from that reflected in the financial statements
included in the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 27, 2004, except for changes in the ordinary course of business which have
not and could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate;

 

(ii) any declaration or payment of any dividend, or any authorization or payment
of any distribution, on any of the capital stock of the Company, or any
redemption or repurchase of any securities of the Company;

 

(iii) any material damage, destruction or loss, whether or not covered by
insurance to any assets or properties of the Company or its Subsidiaries;

 

(iv) any waiver, not in the ordinary course of business, by the Company or any
Subsidiary of a material right or of a material debt owed to it;

 

(v) any satisfaction or discharge of any lien, claim or encumbrance or payment
of any obligation by the Company or a Subsidiary, except in the ordinary course
of business and which is not material to the assets, properties, financial
condition, operating results or business of the Company and its Subsidiaries
taken as a whole (as such business is presently conducted and as it is proposed
to be conducted);

 

(vi) any change or amendment to the Company’s Certificate of Incorporation or
By-laws, or material change to any material contract or arrangement by which the
Company or any Subsidiary is bound or to which any of their respective assets or
properties is subject;

 

(vii) any material labor difficulties or labor union organizing activities with
respect to employees of the Company or any Subsidiary;

 

(viii) any material transaction entered into by the Company or a Subsidiary
other than in the ordinary course of business;

 

(ix) the loss of the services of any key employee, or material change in the
composition or duties of the senior management of the Company or any Subsidiary;

 

-8-

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

(x) the loss or threatened loss of any customer which has had or could
reasonably be expected to have a Material Adverse Effect; or

 

(xi) any other event or condition of any character that has had or could
reasonably be expected to have a Material Adverse Effect.

 

4.9 SEC Filings.

 

(a) Except as described in Schedule 4.9, at the time of filing thereof, the SEC
Filings complied as to form in all material respects with the requirements of
the 1934 Act and did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.

 

(b) Each registration statement and any amendment thereto filed by the Company
and which has become effective since January 1, 2001 pursuant to the 1933 Act
and the rules and regulations thereunder, as of the date such statement or
amendment became effective, complied as to form in all material respects with
the 1933 Act and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein not misleading; and each prospectus filed
pursuant to Rule 424(b) under the 1933 Act, as of its issue date and as of the
closing of any sale of securities pursuant thereto did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.

 

4.10 No Conflict, Breach, Violation or Default. Subject to the stockholder
approval of the Proposals described in Section 7.9 and the amendment of the
Company’s Certificate of Incorporation contemplated by the adoption of such
Proposals, the execution, delivery and performance of the Transaction Documents
by the Company and the issuance and sale of the Securities will not conflict
with or result in a breach or violation of any of the terms and provisions of,
or constitute a default under (i) the Company’s Certificate of Incorporation or
the Company’s Bylaws, both as in effect on the date hereof (true and complete
copies of which have been made available to the Investors through the EDGAR
system), or (ii)(a) any statute, rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over the
Company, any Subsidiary or any of their respective assets or properties, or (b)
any agreement or instrument to which the Company or any Subsidiary is a party or
by which the Company or a Subsidiary is bound or to which any of their
respective assets or properties is subject.

 

4.11 Tax Matters. Except as described in Schedule 4.11, the Company and each
Subsidiary has timely prepared and filed all tax returns required to have been
filed by the Company or such Subsidiary with all appropriate governmental
agencies and timely paid all taxes shown thereon or otherwise owed by it. The
charges, accruals and reserves on the books of the Company in respect of taxes
for all fiscal periods are adequate in all material respects, and there are no
material unpaid assessments against the Company or any Subsidiary nor, to the

 

-9-

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

Company’s Knowledge, any basis for the assessment of any additional taxes,
penalties or interest for any fiscal period or audits by any federal, state or
local taxing authority except for any assessment which is not material to the
Company and its Subsidiaries, taken as a whole. All taxes and other assessments
and levies that the Company or any Subsidiary is required to withhold or to
collect for payment have been duly withheld and collected and paid to the proper
governmental entity or third party when due. There are no tax liens or claims
pending or, to the Company’s Knowledge, threatened against the Company or any
Subsidiary or any of their respective assets or property. Except as described on
Schedule 4.11, there are no outstanding tax sharing agreements or other such
arrangements between the Company and any Subsidiary or other corporation or
entity.

 

4.12 Title to Properties. Except as disclosed in the SEC Filings and except for
liens, encumbrances and defects that arise in the ordinary course of business
and do not impair the Company’s ownership or use of such properties, the Company
and each Subsidiary has good and marketable title to all real properties and all
other properties and assets owned by it, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or currently planned to be made thereof
by them; and except as disclosed in the SEC Filings, the Company and each
Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.

 

4.13 Certificates, Authorities and Permits. The Company and each Subsidiary
possess adequate certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now operated
by it, and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or such
Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.

 

4.14 Labor Matters.

 

(a) The Company has complied with the federal Worker Adjustment and Retraining
Notification Act of 1988, as amended, in connection with the transactions
contemplated by this Agreement and the Transaction Documents.

 

(b) Except as set forth on Schedule 4.14, the Company is not a party to or bound
by any collective bargaining agreements or other agreements with labor
organizations. The Company has not violated in any material respect any laws,
regulations, orders or contract terms, affecting the collective bargaining
rights of employees, labor organizations or any laws, regulations or orders
affecting employment discrimination, equal opportunity employment, or employees’
health, safety, welfare, wages and hours.

 

(c) (i) There are no labor disputes existing, or to the Company’s Knowledge,
threatened, involving strikes, slow-downs, work stoppages, job actions,
disputes, lockouts or any other disruptions of or by the Company’s employees,
(ii) there are no unfair labor practices or petitions for election pending or,
to the Company’s Knowledge, threatened before the National

 

-10-

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

Labor Relations Board or any other federal, state or local labor commission
relating to the Company’s employees, (iii) no demand for recognition or
certification heretofore made by any labor organization or group of employees is
pending with respect to the Company and (iv) to the Company’s Knowledge, the
Company enjoys good labor and employee relations with its employees and labor
organizations.

 

(d) The Company is, and at all times has been, in full compliance in all
material respects with all applicable laws respecting employment (including laws
relating to classification of employees and independent contractors) and
employment practices, terms and conditions of employment, wages and hours, and
immigration and naturalization. There no claims are pending against the Company
before the Equal Employment Opportunity Commission or any other administrative
body or in any court asserting any violation of Title VII of the Civil Rights
Act of 1964, the Age Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or
any other federal, state or local Law, statute or ordinance barring
discrimination in employment.

 

(e) The Company is not a party to, or bound by, any employment or other contract
or agreement that contains any severance, termination pay or change of control
liability or obligation, including, without limitation, any “excess parachute
payment,” as defined in Section 2806(b) of the Internal Revenue Code.

 

(f) Except as specified in Schedule 4.14, each of the Company’s employees is a
Person who is either a United States citizen or a permanent resident entitled to
work in the United States. To the Company’s Knowledge, the Company has no
liability for the improper classification by the Company of such employees as
independent contractors or leased employees prior to the Closing.

 

4.15 Intellectual Property.

 

(a) All Intellectual Property of the Company and its Subsidiaries is currently
in compliance with all legal requirements (including timely filings, proofs and
payments of fees) and is valid and enforceable, except where the failure to be
in compliance or to be valid and enforceable has not and could not reasonably be
expected to have a Material Adverse Effect on the Company and its Subsidiaries
taken as a whole. No Intellectual Property of the Company or its Subsidiaries
which is necessary for the conduct of Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be
conducted has been or is now involved in any cancellation, dispute or
litigation, and, to the Company’s Knowledge, no such action is threatened. No
patent of the Company or its Subsidiaries has been or is now involved in any
interference, reissue, re-examination or opposition proceeding.

 

(b) All of the licenses and sublicenses and consent, royalty or other agreements
concerning Intellectual Property which are necessary for the conduct of the
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted to which the Company or any
Subsidiary is a party or by which any of their assets are bound (other than
generally commercially available, non-custom, off-the-shelf software application
programs having a retail acquisition price of less than $10,000

 

-11-

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

per license) (collectively, “License Agreements”) are valid and binding
obligations of the Company or its Subsidiaries that are parties thereto and, to
the Company’s Knowledge, the other parties thereto, enforceable in accordance
with their terms, except to the extent that enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors’ rights generally, and
there exists no event or condition which will result in a material violation or
breach of or constitute (with or without due notice or lapse of time or both) a
default by the Company or any of its Subsidiaries under any such License
Agreement.

 

(c) The Company and its Subsidiaries own or have the valid right to use all of
the Intellectual Property that is necessary for the conduct of the Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted and for the ownership, maintenance and
operation of the Company’s and its Subsidiaries’ properties and assets, free and
clear of all liens, encumbrances, adverse claims or obligations to license all
such owned Intellectual Property and Confidential Information, other than
licenses entered into in the ordinary course of the Company’s and its
Subsidiaries’ businesses. The Company and its Subsidiaries have a valid and
enforceable right to use all third party Intellectual Property and Confidential
Information used or held for use in the respective businesses of the Company and
its Subsidiaries.

 

(d) The conduct of the Company’s and its Subsidiaries’ businesses as currently
conducted does not infringe or otherwise impair or conflict with (collectively,
“Infringe”) any Intellectual Property rights of any third party or any
confidentiality obligation owed to a third party, and, to the Company’s
Knowledge, the Intellectual Property and Confidential Information of the Company
and its Subsidiaries which are necessary for the conduct of Company’s and each
of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted are not being Infringed by any third party.
There is no litigation or order pending or outstanding or, to the Company’s
Knowledge, threatened or imminent, that seeks to limit or challenge or that
concerns the ownership, use, validity or enforceability of any Intellectual
Property or Confidential Information of the Company and its Subsidiaries and the
Company’s and its Subsidiaries’ use of any Intellectual Property or Confidential
Information owned by a third party, and, to the Company’s Knowledge, there is no
valid basis for the same.

 

(e) The consummation of the transactions contemplated hereby and by the other
Transaction Documents will not result in the alteration, loss, impairment of or
restriction on the Company’s or any of its Subsidiaries’ ownership or right to
use any of the Intellectual Property or Confidential Information which is
necessary for the conduct of Company’s and each of its Subsidiaries’ respective
businesses as currently conducted or as currently proposed to be conducted.

 

(f) The Company and its Subsidiaries have taken reasonable steps to protect the
Company’s and its Subsidiaries’ rights in their Intellectual Property and
Confidential Information. Each employee, consultant and contractor who has had
access to Confidential Information which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently
conducted or as currently proposed to be conducted has

 

-12-

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

executed an agreement to maintain the confidentiality of such Confidential
Information and has executed appropriate agreements that are substantially
consistent with the Company’s standard forms thereof. Except under
confidentiality obligations, there has been no material disclosure of any of the
Company’s or its Subsidiaries’ Confidential Information to any third party.

 

4.16 Environmental Matters. Neither the Company nor any Subsidiary is in
violation of any statute, rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign, relating to the
use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, “Environmental Laws”), owns or operates any real
property contaminated with any substance that is subject to any Environmental
Laws, is liable for any off-site disposal or contamination pursuant to any
Environmental Laws, and is subject to any claim relating to any Environmental
Laws, which violation, contamination, liability or claim has had or could
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate; and there is no pending or, to the Company’s Knowledge, threatened
investigation that might lead to such a claim.

 

4.17 Litigation. Except as described on Schedule 4.17, there are no pending
actions, suits or proceedings against or affecting the Company, its Subsidiaries
or any of its or their properties involving an amount in controversy in excess
of $175,000; and to the Company’s Knowledge, no such actions, suits or
proceedings are threatened or contemplated.

 

4.18 Financial Statements. Except as described on Schedule 4.18, the financial
statements included in each SEC Filing, and the draft financial statements for
the fiscal year ended July 3, 2004 (included in the Draft 10-K), and the quarter
ended October 2, 2004 (attached hereto as Exhibit H) (the “Interim Financial
Statements”), present fairly, in all material respects, the consolidated
financial position of the Company as of the dates shown and its consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with United States generally
accepted accounting principles applied on a consistent basis (“GAAP”) (except as
may be disclosed therein or in the notes thereto, and, in the case of quarterly
financial statements, as permitted by Form 10-Q under the 1934 Act). Except as
set forth in the financial statements of the Company included in the SEC Filings
filed prior to the date hereof, the Interim Financial Statements or as described
on Schedule 4.18, neither the Company nor any of its Subsidiaries has incurred
any liabilities, contingent or otherwise, except those incurred in the ordinary
course of business, consistent (as to amount and nature) with past practices
since the date of such financial statements, none of which, individually or in
the aggregate, have had or could reasonably be expected to have a Material
Adverse Effect.

 

4.19 Insurance Coverage. The Company and each Subsidiary maintains in full force
and effect insurance coverage that is customary for comparably situated
companies for the business being conducted and properties owned or leased by the
Company and each Subsidiary, and the Company reasonably believes such insurance
coverage to be adequate against all liabilities, claims and risks against which
it is customary for comparably situated companies to insure.

 

-13-

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

4.20 Compliance with Nasdaq Continued Listing Requirements. Except as described
in Schedule 4.20, the Company is in compliance with applicable Nasdaq continued
listing requirements. Except as described in Schedule 4.20, there are no
proceedings pending or, to the Company’s Knowledge, threatened against the
Company relating to the continued listing of the Company’s Common Stock on
Nasdaq and the Company has not received any notice of, nor to the Company’s
Knowledge is there any basis for, the delisting of the Common Stock from Nasdaq.
Except as described in Schedule 4.20, the Company is in material compliance with
NASD rules and regulations applicable to the Company.

 

4.21 Brokers and Finders. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company, other than as
described in Schedule 4.21.

 

4.22 No Directed Selling Efforts or General Solicitation. Neither the Company
nor any Person acting on its behalf has conducted any general solicitation or
general advertising (as those terms are used in Regulation D) in connection with
the offer or sale of any of the Securities.

 

4.23 No Integrated Offering. Neither the Company nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any Company security or solicited any offers to buy any
security, under circumstances that would adversely affect reliance by the
Company on Section 4(2) for the exemption from registration for the transactions
contemplated hereby or would require registration of the Securities under the
1933 Act.

 

4.24 Private Placement. Assuming the truth and accuracy of the Investors’
representations set forth in Section 5 of this Agreement, the offer and sale of
the Securities to the Investors as contemplated hereby is exempt from the
registration requirements of the 1933 Act.

 

4.25 Questionable Payments. Neither the Company nor any of its Subsidiaries nor,
to the Company’s Knowledge, any of their respective current or former
stockholders, directors, officers, employees, agents or other Persons acting on
behalf of the Company or any Subsidiary, has on behalf of the Company or any
Subsidiary or in connection with their respective businesses: (a) used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (b) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (c) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (d) made any false or fictitious entries on
the books and records of the Company or any Subsidiary; or (e) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment of
any nature.

 

4.26 Transactions with Affiliates. Except as disclosed in the SEC Filings or as
disclosed on Schedule 4.26, none of the officers or directors of the Company
and, to the Company’s Knowledge, none of the employees of the Company is
presently a party to any

 

-14-

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

transaction with the Company or any Subsidiary (other than as holders of stock
options and/or warrants, and for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the Company’s Knowledge, any entity in which
any officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

 

4.27 Internal Controls. Except as described in Schedule 4.27, the Company is in
material compliance with the provisions of the Sarbanes-Oxley Act of 2002
currently applicable to the Company. The Company and the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. Except as described in Schedule 4.27,
the Company has established disclosure controls and procedures (as defined in
1934 Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company, including the Subsidiaries, is made known to the certifying officers by
others within those entities, particularly during the period in which the
Company’s most recently filed period report under the 1934 Act, as the case may
be, is being prepared. Except as described in Schedule 4.27, the Company’s
certifying officers have evaluated the effectiveness of the Company’s controls
and procedures as of the end of the period covered by the most recently filed
periodic report under the 1934 Act (such date, the “Evaluation Date”). Except as
described in Schedule 4.27, the Company presented in its most recently filed
periodic report under the 1934 Act the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Except as described in Schedule 4.27,
since the Evaluation Date, there have been no significant changes in the
Company’s internal controls (as such term is defined in Item 307(b) of
Regulation S-K) or, to the Company’s Knowledge, in other factors that could
significantly affect the Company’s internal controls. The Company maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP and the applicable requirements of the 1934
Act.

 

4.28 Disclosures. Prior to the Effectiveness Deadline, the Company shall take
such actions as may be necessary so that at the Effectiveness Deadline, neither
the Company nor any Person acting on its behalf will have provided the Investors
or their agents or counsel with any information that continues to constitute or
might constitute material, non-public information. The written materials
delivered to the Investors in connection with the transactions contemplated by
the Transaction Documents do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.

 

-15-

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

4.29 Effect of Consents and Waivers. Upon the execution and delivery of the
Consents and Waivers by the holders of Senior Debt, no event of default or event
which, with the giving of notice, the lapse of time or both, would become an
event of default shall exist under any agreement, instrument or other document
evidencing Senior Debt or relating thereto.

 

4.30 Effect of Voting Agreements. The terms of the Voting Agreements are
sufficient to effect the conversion of all outstanding shares of all classes and
series of the Company’s preferred stock (or any rights to receive any such
preferred stock) into shares of Common Stock in accordance with the terms of the
Company’s Certificate of Incorporation (or any agreement evidencing such right
to receive preferred stock), subject only to the approval of the Proposals and
the filing of an amendment to the Certificate of Incorporation to effect the
Capital Increase (as defined in Section 7.9).

 

4.31 Unqualified Audit Opinion. The Company has been advised by its independent
public accountant that upon the Closing of the sale of the Notes and the
effectiveness of the Consents and Waivers, the accountants will issue an opinion
on the Company’s financial statements for the year ended December 31, 2003 that
will not contain an explanatory paragraph relating to the Company’s ability to
continue as a going concern.

 

5. Representations and Warranties of the Investors. Each of the Investors hereby
severally, and not jointly, represents and warrants to the Company that:

 

5.1 Organization and Existence. Such Investor is a validly existing corporation,
limited partnership or limited liability company and has all requisite
corporate, partnership or limited liability company power and authority to
invest in the Securities pursuant to this Agreement.

 

5.2 Authorization. The execution, delivery and performance by such Investor of
the Transaction Documents to which such Investor is a party have been duly
authorized and will each constitute the valid and legally binding obligation of
such Investor, enforceable against such Investor in accordance with their
respective terms, subject to (i) bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability, relating
to or affecting creditors’ rights generally and (ii) laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.

 

5.3 Purchase Entirely for Own Account. The Securities to be received by such
Investor hereunder will be acquired for such Investor’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the 1933 Act, and such Investor has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act without prejudice, however, to such Investor’s right
at all times to sell or otherwise dispose of all or any part of such Securities
in compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation or warranty by such Investor
to hold the Securities for any period of time. Such Investor is not a
broker-dealer registered with the SEC under the 1934 Act or an entity engaged in
a business that would require it to be so registered.

 

-16-

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

5.4 Investment Experience. Such Investor acknowledges that it can bear the
economic risk and complete loss of its investment in the Securities and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment contemplated hereby.

 

5.5 Disclosure of Information. Such Investor has had an opportunity to receive
all information related to the Company requested by it and to ask questions of
and receive answers from the Company regarding the Company, its business and the
terms and conditions of the offering of the Securities. Such Investor
acknowledges receipt of copies of the SEC Filings. Neither such inquiries nor
any other due diligence investigation conducted by such Investor shall modify,
amend or affect such Investor’s right to rely on the Company’s representations
and warranties contained in this Agreement.

 

5.6 Restricted Securities. Such Investor understands that the Securities are
characterized as “restricted securities” under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the 1933 Act only in
certain limited circumstances.

 

5.7 Legends. It is understood that, except as provided below, certificates
evidencing the Securities may bear the following or any similar legend:

 

(a) “The securities represented hereby may not be transferred unless (i) such
securities have been registered for sale pursuant to the Securities Act of 1933,
as amended, (ii) such securities are sold pursuant to Rule 144(k), or (iii) the
Company has received an opinion of counsel reasonably satisfactory to it that
such transfer may lawfully be made without registration under the Securities Act
of 1933.”

 

(b) If required by the authorities of any state in connection with the issuance
of sale of the Securities, the legend required by such state authority.

 

5.8 Accredited Investor. Such Investor is an accredited investor as defined in
Rule 501(a) of Regulation D, as amended, under the 1933 Act.

 

5.9 No General Solicitation. Such Investor did not learn of the investment in
the Securities as a result of any public advertising or general solicitation.

 

5.10 Brokers and Finders. No Person will have, as a result of the transactions
contemplated by the Transaction Documents, any valid right, interest or claim
against or upon the Company, any Subsidiary or an Investor for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of such Investor.

 

5.11 Prohibited Transactions. During the last thirty (30) days prior to the date
hereof, neither such Investor nor any Affiliate of such Investor, which (x) had
knowledge of the transactions contemplated hereby, (y) has or shares discretion
relating to such Investor’s

 

-17-

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

investments or trading or information concerning such Investor’s investments,
including in respect of the Securities, or (z) is subject to such Investor’s
review or input concerning such Affiliate’s investments or trading
(collectively, “Trading Affiliates”), has, directly or indirectly, effected or
agreed to effect any short sale, whether or not against the box, established any
“put equivalent position” (as defined in Rule 16a-1(h) under the 1934 Act) with
respect to the Common Stock, granted any other right (including, without
limitation, any put or call option) with respect to the Common Stock or with
respect to any security that includes, relates to or derived any significant
part of its value from the Common Stock or otherwise sought to hedge its
position in the Securities (each, a “Prohibited Transaction”). Prior to the
earliest to occur of (i) the termination of this Agreement, (ii) the Effective
Date or (iii) 90 days after the Closing Date, such Investor shall not, and shall
cause its Trading Affiliates not to, engage, directly or indirectly, in a
Prohibited Transaction. Such Investor acknowledges that the representations,
warranties and covenants contained in this Section 5.11 are being made for the
benefit of the Investors as well as the Company and that each of the other
Investors shall have an independent right to assert any claims against such
Investor arising out of any breach or violation of the provisions of this
Section 5.11.

 

6. Conditions to Closing.

 

6.1 Conditions to the Investors’ Obligations. The obligation of each Investor to
purchase the Notes at the Closing is subject to the fulfillment to such
Investor’s satisfaction, on or prior to the Closing Date, of the following
conditions, any of which may be waived by such Investor (as to itself only):

 

(a) The representations and warranties made by the Company in Section 4 hereof
qualified as to materiality shall be true and correct at all times prior to and
on the Closing Date, except to the extent any such representation or warranty
expressly speaks as of an earlier date, in which case such representation or
warranty shall be true and correct as of such earlier date, and, the
representations and warranties made by the Company in Section 4 hereof not
qualified as to materiality shall be true and correct in all material respects
at all times prior to and on the Closing Date, except to the extent any such
representation or warranty expressly speaks as of an earlier date, in which case
such representation or warranty shall be true and correct in all material
respects as of such earlier date. The Company shall have performed in all
material respects all obligations and conditions herein required to be performed
or observed by it on or prior to the Closing Date.

 

(b) The Company shall have obtained any and all consents, permits, approvals,
registrations and waivers (other than the approval of the Proposals by its
stockholders in accordance with applicable law and the applicable requirements
of any stock exchange or market on which the Common Stock is traded or quoted)
necessary or appropriate for consummation of the purchase and sale of the
Securities and the consummation of the other transactions contemplated by the
Transaction Documents, all of which shall be in full force and effect.

 

(c) The Company shall have executed and delivered the Registration Rights
Agreement.

 

-18-

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

(d) [Intentionally Omitted]

 

(e) The Company shall have received confirmation from Nasdaq to the effect that
the issuance and sale of the Notes as contemplated hereby will not require
stockholder approval pursuant to the requirements of Nasdaq Marketplace Rule
4350(i).

 

(f) No judgment, writ, order, injunction, award or decree of or by any court, or
judge, justice or magistrate, including any bankruptcy court or judge, or any
order of or by any governmental authority, shall have been issued, and no action
or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated hereby
or in the other Transaction Documents.

 

(g) The Company shall have delivered a Certificate, executed on behalf of the
Company by its Chief Executive Officer or its Chief Financial Officer, dated as
of the Closing Date, certifying to the fulfillment of the conditions specified
in subsections (a), (b), (d), (e), (f) and (j) of this Section 6.1.

 

(h) The Company shall have delivered a Certificate, executed on behalf of the
Company by its Secretary, dated as of the Closing Date, certifying the
resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents
(including the Reverse Split) and the issuance of the Securities, certifying the
current versions of the Certificate of Incorporation and Bylaws of the Company
and certifying as to the signatures and authority of persons signing the
Transaction Documents and related documents on behalf of the Company.

 

(i) The Investors shall have received an opinion of counsel to the Company,
dated as of the Closing Date, in form and substance reasonably acceptable to the
Investors and addressing such legal matters as the Investors may reasonably
request.

 

(j) No stop order or suspension of trading shall have been imposed by Nasdaq,
the SEC or any other governmental or regulatory body with respect to public
trading in the Common Stock.

 

(k) [Intentionally Omitted]

 

(l) The holders of the Senior Debt shall have executed and delivered the
Consents and Waivers.

 

(m) [Intentionally Omitted]

 

(n) The Company and the stockholders listed on Schedule 6.1 hereto shall have
executed and delivered one or more Voting Agreements providing for, among other
things, the conversion of all issued and outstanding shares of the Company’s
preferred stock, par value $0.004 per share, into Common Stock upon the approval
of the Proposals on the terms described therein.

 

-19-

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

(o) [Intentionally Omitted]

 

6.2 Conditions to Obligations of the Company. The Company’s obligation to sell
and issue the Notes at the Closing is subject to the fulfillment to the
satisfaction of the Company on or prior to the Closing Date of the following
conditions, any of which may be waived by the Company:

 

(a) The representations and warranties made by the Investors in Section 5
hereof, other than the representations and warranties contained in Sections 5.3,
5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be
true and correct in all material respects when made, and shall be true and
correct in all material respects on the Closing Date with the same force and
effect as if they had been made on and as of said date. The Investment
Representations shall be true and correct in all respects when made, and shall
be true and correct in all respects on the Closing Date with the same force and
effect as if they had been made on and as of said date. The Investors shall have
performed in all material respects all obligations and conditions herein
required to be performed or observed by them on or prior to the Closing Date.

 

(b) The Investors shall have executed and delivered the Registration Rights
Agreement.

 

(c) The Investors shall have delivered the Purchase Price to the Company.

 

6.3 Termination of Obligations to Effect Closing; Effects.

 

(a) The obligations of the Company, on the one hand, and the Investors, on the
other hand, to effect the Closing shall terminate as follows:

 

(i) Upon the mutual written consent of the Company and the Investors;

 

(ii) By the Company if any of the conditions set forth in Section 6.2 shall have
become incapable of fulfillment, and shall not have been waived by the Company;

 

(iii) By an Investor (with respect to itself only) if any of the conditions set
forth in Section 6.1 shall have become incapable of fulfillment, and shall not
have been waived by the Investor; or

 

(iv) By either the Company or any Investor (with respect to itself only) if the
Closing has not occurred on or prior to                         ;

 

provided, however, that, except in the case of clause (i) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations,

 

-20-

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

warranties, covenants or agreements contained in this Agreement or the other
Transaction Documents if such breach has resulted in the circumstances giving
rise to such party’s seeking to terminate its obligation to effect the Closing.

 

(b) In the event of termination by the Company or any Investor of its
obligations to effect the Closing pursuant to this Section 6.3, written notice
thereof shall forthwith be given to the other Investors and the other Investors
shall have the right to terminate their obligations to effect the Closing upon
written notice to the Company and the other Investors. Nothing in this Section
6.3 shall be deemed to release any party from any liability for any breach by
such party of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel specific
performance by any other party of its obligations under this Agreement or the
other Transaction Documents.

 

7. Covenants and Agreements of the Company.

 

7.1 Reservation of Common Stock. Following stockholder adoption of the Proposals
described in Section 7.9 and the effectiveness of the amendments to the
Company’s Certificate of Incorporation contemplated by the adoption of the
Proposals, the Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
providing for the issuance of the Conversion Shares, such number of shares of
Common Stock as shall from time to time equal the number of Conversion Shares
issuable pursuant to the Shares and the PIK Shares.

 

7.2 Reports. The Company will furnish to such Investors and/or their assignees
such information relating to the Company and its Subsidiaries as from time to
time may reasonably be requested by such Investors and/or their assignees;
provided, however, that the Company shall not disclose material nonpublic
information to the Investors, or to advisors to or representatives of the
Investors, unless prior to disclosure of such information the Company identifies
such information as being material nonpublic information and provides the
Investors, such advisors and representatives with the opportunity to accept or
refuse to accept such material nonpublic information for review and any Investor
wishing to obtain such information enters into an appropriate confidentiality
agreement with the Company with respect thereto.

 

7.3 No Conflicting Agreements. The Company will not take any action, enter into
any agreement or make any commitment that would conflict or interfere in any
material respect with the Company’s obligations to the Investors under the
Transaction Documents.

 

7.4 Insurance. The Company shall not materially reduce the insurance coverages
described in Section 4.19.

 

7.5 Compliance with Laws. The Company will comply in all material respects with
all applicable laws, rules, regulations, orders and decrees of all governmental
authorities.

 

7.6 Listing of Underlying Shares and Related Matters. Promptly following the
date hereof, the Company shall take all necessary action to cause the Conversion
Shares to be

 

-21-

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

listed on the Nasdaq SmallCap Market no later than the Conversion Date. Further,
if the Company applies to have its Common Stock or other securities traded on
any other principal stock exchange or market, it shall include in such
application the Conversion Shares and will take such other action as is
necessary to cause such Common Stock to be so listed. The Company will use
commercially reasonable efforts to continue the listing and trading of its
Common Stock on the Nasdaq Stock Market (including effecting the Reverse Split
promptly following stockholder approval of the Proposals) and, in accordance,
therewith, will use commercially reasonable efforts to comply in all respects
with the Company’s reporting, filing and other obligations under the bylaws or
rules of such market or exchange, as applicable.

 

7.7 Termination of Covenants. The provisions of Sections 7.2 through 7.5 shall
terminate and be of no further force and effect on the date on which the
Company’s obligations under the Registration Rights Agreement to register or
maintain the effectiveness of any registration covering the Registrable
Securities (as such term is defined in the Registration Rights Agreement) shall
terminate.

 

7.8 Removal of Legends. Upon the earlier of (i) registration for resale pursuant
to the Registration Rights Agreement and receipt by the Company of the
Investor’s written confirmation that such Securities will not be disposed of
except in compliance with the prospectus delivery requirements of the 1933 Act
or (ii) Rule 144(k) becoming available the Company shall, upon an Investor’s
written request, promptly cause certificates evidencing the Investor’s
Securities to be replaced with certificates which do not bear such restrictive
legends, and Shares subsequently issued upon due conversion of the Notes and
Conversion Shares subsequently issued upon due conversion of the Shares or the
PIK Shares shall not bear such restrictive legends provided the provisions of
either clause (i) or clause (ii) above, as applicable, are satisfied with
respect thereto. When the Company is required to cause unlegended certificates
to replace previously issued legended certificates, if unlegended certificates
are not delivered to an Investor within three (3) Business Days of submission by
that Investor of legended certificate(s) to the Company’s transfer agent
together with a representation letter in customary form, the Company shall be
liable to the Investor for liquidated damages in an amount equal to 1% of the
aggregate purchase price of the Securities evidenced by such certificate(s) for
each thirty (30) day period (or portion thereof) beyond such three (3) Business
Day that the unlegended certificates have not been so delivered.

 

7.9 Proxy Statement; Stockholders Meeting. (a) Promptly following the execution
and delivery of this Agreement the Company shall take all action necessary to
call a meeting of its stockholders (the “Stockholders Meeting”), which shall
occur not later than April 30, 2005 (the “Stockholders Meeting Deadline”), for
the purpose of seeking approval of the Company’s stockholders for (i) the
issuance and sale to the Investors of the Securities and (ii), the Reverse
Split, (iii) the adoption of the Stock Option Plan (as defined below) and (iv)
the increase in the Company’s capital stock in at least an amount as will allow
the Company to satisfy its obligations under the Transaction Documents
(including the conversion of the Notes and the Series M Preferred Stock) and
under any other agreements or arrangements entered into by the Company prior to
the date hereof (the “Capital Increase”) (collectively, the “Proposals”). In
connection therewith, the Company will promptly prepare and file with the SEC
proxy materials (including a proxy statement and form of proxy) for use at the
Stockholders Meeting

 

-22-

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

and, after receiving and promptly responding to any comments of the SEC thereon,
shall promptly mail such proxy materials to the stockholders of the Company.
Each Investor shall promptly furnish in writing to the Company such information
relating to such Investor and its investment in the Company as the Company may
reasonably request for inclusion in the Proxy Statement. The Company will comply
with Section 14(a) of the 1934 Act and the rules promulgated thereunder in
relation to any proxy statement (as amended or supplemented, the “Proxy
Statement”) and any form of proxy to be sent to the stockholders of the Company
in connection with the Stockholders Meeting, and the Proxy Statement shall not,
on the date that the Proxy Statement (or any amendment thereof or supplement
thereto) is first mailed to stockholders or at the time of the Stockholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein not false
or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies or the Stockholders Meeting which has become false or misleading. If the
Company should discover at any time prior to the Stockholders Meeting, any event
relating to the Company or any of its Subsidiaries or any of their respective
affiliates, officers or directors that is required to be set forth in a
supplement or amendment to the Proxy Statement, in addition to the Company’s
obligations under the 1934 Act, the Company will promptly inform the Investors
thereof.

 

(b) Subject to their fiduciary obligations under applicable law (as determined
in good faith by the Company’s Board of Directors after consultation with the
Company’s outside counsel), the Company’s Board of Directors shall recommend to
the Company’s stockholders (and, subject to their fiduciary obligations, not
revoke or amend such recommendation) that the stockholders vote in favor of the
Proposals and shall cause the Company to take all commercially reasonable action
to solicit the approval of the stockholders for the Proposals. Whether or not
the Company’s Board of Directors determines at any time after the date hereof
that, due to its fiduciary duties, it must revoke or amend its recommendation to
the Company’s stockholders, the Company shall be required to, and will take, in
accordance with applicable law and its Certificate of Incorporation and By-laws,
all action necessary to convene the Stockholders Meeting as promptly as
practicable, but no later than the Stockholders Meeting Deadline, to consider
and vote upon the approval of the Proposals.

 

7.10 Prohibited Sales. Except as provided in Section 3(b) or as described on
Schedule 7.10, from and after the Closing Date and continuing for a period until
the earlier to occur of (i) three (3) years thereafter, or (ii) the date on
which the Investors beneficially own in the aggregate less than 10% of the
Company’s outstanding Common Stock, the Company will not, and will cause its
Subsidiaries not to, issue any:

 

  (i) shares of preferred stock which are convertible into shares of Common
Stock other than on a conversion ratio which is fixed, except in the case of
normal adjustments which may include customary anti-dilution provisions, among
other things, but which shall not include in any case any adjustment in the
conversion ratio of such shares of Preferred Stock as a result of the market
price of the Common Stock after the date of closing of the issuance of such
shares of preferred stock;

 

-23-

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

  (ii) convertible debt in the Company which is convertible into shares of
Common Stock of the Company other than on a conversion ratio which is fixed,
except in the case of normal adjustments which may include customary
anti-dilution provisions, among other things, but which shall not include in any
case any adjustment in the conversion ratio of such convertible debt based on
the market price of the Common Stock after the date of closing of the issuance
of such convertible debt; or

 

  (iii) shares of Common Stock of the Company other than for a fixed price at
the time of issuance of such shares of Common Stock, except in the case of
normal adjustments which may include customary anti-dilution provisions, among
other things, but which shall not include in any case any adjustments to the
issued shares of Common Stock which require the issuance of additional shares of
Common Stock during that time based on the market price of the Common Stock.

 

7.11 Right of First Refusal on Future Financings. From the date hereof until one
year after the Closing Date, upon any financing by the Company of its Common
Stock or Common Stock Equivalents (a “Subsequent Financing”), each Investor
shall have the right to participate in such Subsequent Financing as described
herein. At least five (5) Business Days prior to the closing of the Subsequent
Financing, the Company shall deliver to each Investor a written notice of its
intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice
shall ask such Investor if it wants to review the details of such financing
(such additional notice, a “Subsequent Financing Notice”). Upon the request of
an Investor, and only upon a request by such Investor, for a Subsequent
Financing Notice, the Company shall promptly, but no later than one Business Day
after such request, deliver a Subsequent Financing Notice to such Investor. The
Subsequent Financing Notice shall describe in reasonable detail the proposed
terms of such Subsequent Financing, the amount of proceeds intended to be raised
thereunder, the Person with whom such Subsequent Financing is proposed to be
effected, and attached to which shall be a term sheet or similar document
relating thereto. Each Investor shall notify the Company by 6:30 p.m. (New York
City time) on the fifth (5th) Business Day after their receipt of the Subsequent
Financing Notice of its willingness to provide the Subsequent Financing on the
terms described in the Subsequent Financing Notice, subject to completion of
mutually acceptable documentation. If one or more Investors shall fail to so
notify the Company of their willingness to participate in the Subsequent
Financing, the Investors agreeing to participate in the Subsequent Financing
(the “Participating Investors”) shall have the right to provide all of the
Subsequent Financing. If one or more Investors fail to notify the Company of
their willingness to provide all of the Subsequent Financing and the
Participating Investors do not agree to provide all of the Subsequent Financing,
the Company may effect the remaining portion of such Subsequent Financing on the
terms and to the Persons set forth in the Subsequent Financing Notice; provided
that the Company must provide the Investors with a second Subsequent Financing
Notice, and the Investors will again have the right of first refusal set forth
above in this Section 7.11, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms set
forth in such Subsequent Financing Notice within 60 Business Days after the date
of the initial Subsequent Financing Notice with the Person identified in the
Subsequent Financing Notice. In the event the Company receives responses to
Subsequent Financing Notices from Investors seeking to purchase more than the

 

-24-

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

financing sought by the Company in the Subsequent Financing such Investors shall
have the right to purchase their Pro Rata Portion (as defined below) of the
Common Stock or Common Stock Equivalents to be issued in such Subsequent
Financing. “Pro Rata Portion” is the ratio of (x) the amount invested by such
Investor pursuant to this Agreement (the “Subscription Amount”) and (y) the
aggregate sum of all of the Subscription Amounts. Notwithstanding the foregoing,
this Section 7.11 shall not apply in respect of the issuance of (a) shares of
Common Stock or options to employees, consultants, officers or directors of the
Company pursuant to any stock or option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise of or conversion of any convertible
securities, options or warrants issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of
this Agreement and (c) securities to a strategic partner in a transaction, the
primary purpose of which is not the raising of capital and (d) securities to a
lender in connection with the provision of credit to the Company.

 

7.12 Conversion of Notes. The Company shall use its commercially reasonable
efforts to satisfy the conditions to the conversion of the Notes as promptly as
practicable after the date hereof. Without limiting the generality of the
foregoing, within two Business Days of the stockholder approval of the
Proposals, the Company will file the Certificate of Designations and an
amendment to the Company’s Certificate of Incorporation to effect the Capital
Increase and the Reverse Split.

 

7.13 Stock Grants and Awards. The Company shall have the right to grant stock
options, restricted shares, performance units and other awards (collectively
“Awards”) only to directors, officers, employees and independent contractors and
only under a stock award plan adopted by the Board of Directors of the Company
and approved by the Company’s stockholders (such plan, the “Stock Option Plan”).
The Stock Option Plan shall provide for the granting of Awards up to a specific
number of shares of Common Stock (subject to customary anti-dilution
adjustments) which in the aggregate shall not exceed 10.3% of the Company’s
Common Stock (less the number of shares of Common Stock available for grant
under any existing stock option, stock compensation or stock purchase plan),
determined on a fully diluted basis assuming the exercise, conversion or
exchange of all securities exercisable, convertible or exchangeable for or into
shares of Common Stock; provided, however, that all securities having an
exercise price, conversion price or exchange price greater than $0.51 per share
shall be excluded from such calculation) and shall not contain any “evergreen”
or formula provisions increasing the number of shares of Common Stock available
for grant thereunder (other than customary anti-dilution adjustments). Such
Awards shall have an exercise price of not less than the effective price per
share of Common Stock acquired by the Investors hereunder (assuming immediate
conversion of the Notes into Series M Preferred Stock and the immediate
conversion of the Series M Preferred Stock into Common Stock) and shall be
granted subject to the terms and conditions summarized on Schedule 7.13 hereto.

 

-25-

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

8. Survival and Indemnification.

 

8.1 Survival. The representations, warranties, covenants and agreements
contained in this Agreement shall survive the Closing of the transactions
contemplated by this Agreement.

 

8.2 Indemnification. The Company agrees to indemnify and hold harmless each
Investor and its Affiliates and their respective directors, officers, employees
and agents from and against any and all losses, claims, damages, liabilities and
expenses (including without limitation reasonable attorney fees and
disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement thereof) (collectively, “Losses”) to which such
Person may become subject as a result of any breach of representation, warranty,
covenant or agreement made by or to be performed on the part of the Company
under the Transaction Documents, and will reimburse any such Person for all such
amounts as they are incurred by such Person.

 

8.3 Conduct of Indemnification Proceedings. Promptly after receipt by any Person
(the “Indemnified Person”) of notice of any demand, claim or circumstances which
would or might give rise to a claim or the commencement of any action,
proceeding or investigation in respect of which indemnity may be sought pursuant
to Section 8.2, such Indemnified Person shall promptly notify the Company in
writing and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Person, and
shall assume the payment of all fees and expenses; provided, however, that the
failure of any Indemnified Person so to notify the Company shall not relieve the
Company of its obligations hereunder except to the extent that the Company is
materially prejudiced by such failure to notify. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed to
the retention of such counsel; or (ii) in the reasonable judgment of counsel to
such Indemnified Person representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The Company shall not be liable for any settlement of any proceeding effected
without its written consent, which consent shall not be unreasonably withheld,
but if settled with such consent, or if there be a final judgment for the
plaintiff, the Company shall indemnify and hold harmless such Indemnified Person
from and against any loss or liability (to the extent stated above) by reason of
such settlement or judgment. Without the prior written consent of the
Indemnified Person, which consent shall not be unreasonably withheld, the
Company shall not effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Person is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Person
from all liability arising out of such proceeding.

 

9. Miscellaneous.

 

9.1 Successors and Assigns. This Agreement may not be assigned by a party hereto
without the prior written consent of the Company or the Investors, as
applicable, provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Securities in a

 

-26-

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

private transaction without the prior written consent of the Company or the
other Investors, after notice duly given by such Investor to the Company and the
other Investors, provided, that no such assignment or obligation shall affect
the obligations of such Investor hereunder. The provisions of this Agreement
shall inure to the benefit of and be binding upon the respective permitted
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

 

9.2 Counterparts; Faxes. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed via facsimile, which shall be deemed an original.

 

9.3 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

 

9.4 Notices. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
as hereinafter described (i) if given by personal delivery, then such notice
shall be deemed given upon such delivery, (ii) if given by telex or telecopier,
then such notice shall be deemed given upon receipt of confirmation of complete
transmittal, (iii) if given by mail, then such notice shall be deemed given upon
the earlier of (A) receipt of such notice by the recipient or (B) three days
after such notice is deposited in first class mail, postage prepaid, and (iv) if
given by an internationally recognized overnight air courier, then such notice
shall be deemed given one business day after delivery to such carrier. All
notices shall be addressed to the party to be notified at the address as
follows, or at such other address as such party may designate by ten days’
advance written notice to the other party:

 

If to the Company:

 

Velocity Express Corporation

One Morningside Drive North

Building B — Suite 300

Westport, CT 06880

Attention:

Fax:

 

With a copy to:

 

Dorsey & Whitney LLP

Fifty South Sixth Street, Suite 1500

Minneapolis, MN 55402

Attention: Jonathan B. Abram, Esq.

Fax: (612) 340-2868

 

-27-

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

If to the Investors:

 

to the addresses set forth on the signature pages hereto.

 

9.5 Expenses. The parties hereto shall pay their own costs and expenses in
connection herewith, except that the Company shall pay the reasonable fees and
expenses of counsel to the Investors, not to exceed $100,000. Such expenses
shall be paid not later than the Closing. The Company shall reimburse the
Investors upon demand for all reasonable out-of-pocket expenses incurred by the
Investors, including without limitation reimbursement of attorneys’ fees and
disbursements, in connection with any amendment, modification or waiver of this
Agreement or the other Transaction Documents. In the event that legal
proceedings are commenced by any party to this Agreement against another party
to this Agreement in connection with this Agreement or the other Transaction
Documents, the party or parties which do not prevail in such proceedings shall
severally, but not jointly, pay their pro rata share of the reasonable
attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred
by the prevailing party in such proceedings.

 

9.6 Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investors. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Securities purchased under this Agreement at the time outstanding, each
future holder of all such Securities, and the Company.

 

9.7 Publicity. Except as set forth below, no public release or announcement
concerning the transactions contemplated hereby shall be issued by the Company
or the Investors without the prior consent of the Company (in the case of a
release or announcement by the Investors) or the Investors (in the case of a
release or announcement by the Company) (which consents shall not be
unreasonably withheld), except as such release or announcement may be required
by law or the applicable rules or regulations of any securities exchange or
securities market, in which case the Company or the Investors, as the case may
be, shall allow the Investors or the Company, as applicable, to the extent
reasonably practicable in the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance. By 8:30 a.m. (New York City
time) on the trading day immediately following the Closing Date, the Company
shall issue a press release disclosing the consummation of the transactions
contemplated by this Agreement. No later than the third trading day following
the Closing Date, the Company will file a Current Report on Form 8-K attaching
the press release described in the foregoing sentence as well as copies of the
Transaction Documents. In addition, the Company will make such other filings and
notices in the manner and time required by the SEC or Nasdaq. Notwithstanding
the foregoing, the Company shall not publicly disclose the name of any Investor,
or include the name of any Investor in any filing with the SEC (other than the
Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the 1934 Act)
or any regulatory agency or Nasdaq, without the prior written consent of such
Investor, except to the extent such disclosure is

 

-28-

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

required by law or trading market regulations, in which case the Company shall
provide the Investors with prior notice of such disclosure.

 

9.8 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.

 

9.9 Entire Agreement. This Agreement, including the Exhibits and the Disclosure
Schedules, and the other Transaction Documents constitute the entire agreement
among the parties hereof with respect to the subject matter hereof and thereof
and supersede all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof and thereof.

 

9.10 Further Assurances. The parties shall execute and deliver all such further
instruments and documents and take all such other actions as may reasonably be
required to carry out the transactions contemplated hereby and to evidence the
fulfillment of the agreements herein contained.

 

9.11 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York without regard to the choice of law principles
thereof. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for
the giving of notices under this Agreement. Each of the parties hereto
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A
TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS
THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

9.12 Independent Nature of Investors’ Obligations and Rights. The obligations of
each Investor under any Transaction Document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under any
Transaction Document. The decision of each Investor to purchase Securities
pursuant to the Transaction Documents has been made by such

 

-29-

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

Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including, without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.

 

[signature page follows]

 

-30-

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

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their
duly authorized officers to execute this Agreement as of the date first above
written.

 

The Company:       VELOCITY EXPRESS CORPORATION            

By:

               

Name:

               

Title:

   

 

-31-

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

The Investors:      

SPECIAL SITUATIONS FUND III, L.P.

           

By:

               

Name:

 

Austin W. Marxe

           

Title:

 

General Partner

 

Aggregate Purchase Price: $2,250,000

Principal Amount of Notes: $2,250,000

 

Address for Notice:

 

153 E. 53rd Street

55th Floor

New York, NY 10022

 

        SPECIAL SITUATIONS CAYMAN FUND, L.P.            

By:

               

Name:

 

Austin W. Marxe

           

Title:

 

General Partner

 

Aggregate Purchase Price: $750,000

Principal Amount of Notes: $750,000

 

Address for Notice:

 

153 E. 53rd Street

55th Floor

New York, NY 10022

 

-32-

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

SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P. By:     Name:   Austin W. Marxe
Title:   General Partner

 

Aggregate Purchase Price: $3,000,000

Principal Amount of Notes: $3,000,000

 

153 E. 53rd Street

55th Floor

New York, NY 10022

 

-33-

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

SCORPION CAPITAL PARTNERS, L.P.

By:

   

Name:

   

Title:

   

 

Aggregate Purchase Price: $5,000,000

Principal Amount of Notes: $5,000,000

 

Address for Notice:

 

245 Fifth Avenue, 25th Floor

New York, NY 10016

(212) 213-9190

(212) 213-9607 fax

 

SCORPION ACQUISITION, LLC

By:

   

Name:

   

Title:

   

 

Aggregate Purchase Price: $800,000

Principal Amount of Notes: $800,000

 

Address for Notice:

 

245 Fifth Avenue, 25th Floor

New York, NY 10016

(212) 213-9190

(212) 213-9607 fax

 

-34-

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

PEQUOT SCOUT FUND, L.P.

By Pequot Capital Management, Inc.

as Investment Manager

By:

   

Name:

 

Aryeh Davis

Title:

 

General Counsel

 

Aggregate Purchase Price: $2,907,600

Principal Amount of Notes: $2,907,600

 

Address for Notice:

 

PEQUOT NAVIGATOR ONSHORE FUND, L.P.

By Pequot Capital Management, Inc.

as Investment Manager

By:

   

Name:

 

Aryeh Davis

Title:

 

General Counsel

 

Aggregate Purchase Price: $1,724,700

Principal Amount of Notes: $1,724,700

 

Address for Notice:

 

PEQUOT NAVIGATOR OFFSHORE FUND, INC.

By Pequot Capital Management, Inc.

as Investment Advisor

By:

   

Name:

 

Aryeh Davis

Title:

 

General Counsel

 

-35-

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

Aggregate Purchase Price: $1,266,700

Principal Amount of Notes: $1,266,700

 

Address for Notice:

 

PREMIUM SERIES PCC LIMITED - CELL 33

By:    

Name: Michael Griffin

Title: Authorized Signatory

 

Aggregate Purchase Price: $101,000

Principal Amount of Notes: $101,000

 

Address for Notice:

 

-36-

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

TH LEE PUTNAM VENTURES, L.P.

By:  

TH Lee Putnam Fund Advisors, L.P.,

its General Partner

By:

 

TH Lee Putnam Fund Advisors, LLC,

its General Partner

 

By:    

Name: James Brown

Title: Managing Director

 

Aggregate Purchase Price: $965,392

Principal Amount of Notes: $965,392

 

Address for Notice:

 

TH LEE PUTNAM PARALLEL VENTURES, L.P.

By:  

TH Lee Putnam Fund Advisors, L.P.,

its General Partner

By:

 

TH Lee Putnam Fund Advisors, LLC,

its General Partner

 

By:    

Name: James Brown

Title: Managing Director

 

Aggregate Purchase Price: $706,204

Principal Amount of Notes: $706,204

 

-37-

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

Address for Notice:

 

THLi COINVESTMENT PARTNERS, LLC By:  

TH Lee Putnam Fund Advisors, L.P.,
its General Partner

By:  

TH Lee Putnam Fund Advisors, LLC,
its General Partner

By:    

Name:

 

James Brown

Title:

 

Managing Director

 

Aggregate Purchase Price: $56,531

Principal Amount of Notes: $56,531

 

Address for Notice:

 

BLUE STAR I, LLC

By:    

Name:

 

Thomas H. Lee

Title:

 

Managing Member

 

Aggregate Purchase Price: $21,873

Principal Amount of Notes: $21,873

 

Address for Notice:

 

-38-

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

  Jack Duffy

Aggregate Purchase Price: $250,000

Principal Amount of Notes: $250,000

 

Address for Notice:

 

  William Kingston

Aggregate Purchase Price: $250,000

Principal Amount of Notes: $250,000

 

Address for Notice:

 

  Dolph DiBiaso

 

Aggregate Purchase Price: $250,000

Principal Amount of Notes: $250,000

 

Address for Notice:

 

-39-

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

    Vincent Wasik

 

Aggregate Purchase Price: $500,000

Principal Amount of Notes: $500,000

 

Address for Notice:

 

-40-

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

PALM BEACH OVERSEAS INVESTORS, LIMITED By:        

Name: Mark Kesselman

   

Title: Authorized Signatory

 

Aggregate Purchase Price: $200,000

Principal Amount of Notes: $200,000

 

Address for Notice:

 

-41-