**EXHIBIT 3.1**

**AMENDED AND RESTATED**

**CERTIFICATE OF INCORPORATION**

**OF**

**VELOCITY EXPRESS CORPORATION**

Velocity Express Corporation, a corporation organized and existing under the laws of the State of Delaware (the“Corporation”), hereby certifies as follows: 

FIRST: The original Certificate of Incorporation of the Corporation was filed withthe Secretary of State of the State of Delaware on December 5, 2001 under the name Velocity Express Corporation. 

SECOND: Pursuant toSection 245 of the General Corporation Law of the State of Delaware (the “DGCL”), this Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the original Certificate ofIncorporation of the Corporation. 

THIRD: The terms and provisions of this Amended and Restated Certificate of Incorporation have been dulyadopted in accordance with the provisions of Sections 242 and 245 of the DGCL. 

FOURTH: The text of the original Certificate ofIncorporation of the Corporation is hereby restated and further amended to read in its entirety as follows: 

ARTICLE I 

The name of this corporation is Velocity Express Corporation. 

ARTICLE II 

The address of the registered office of this Corporation in the State of Delaware is 2711Centerville Road, Suite 400 19808, City of Wilmington, County of New Castle. The name of its registered agent at such address is Corporation Service Company. 

ARTICLE III 

The nature of the business or purposes to be conducted or promoted is to engage in any lawfulact or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (“GCL”). 

ARTICLE IV 

 

This Corporation is authorizedto issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of capital stock that this corporation is authorized to issue is Nine Hundred Ninety Nine Million Five 

Hundred and Fifteen Thousand Two Hundred and Seventy (999,515,270) shares. Of such shares, Seven Hundred Million (700,000,000) shares shall beCommon Stock, par value $.004 per share and Two Hundred Ninety Nine Million Five Hundred and Fifteen Thousand Two Hundred and Seventy (299,515,270) shares shall be Preferred Stock, par value $.004 per share. The voting powers, designations,preferences and relative, participating, optional or other special rights (and the qualifications, limitations or restrictions thereof) of the Common Stock and the Preferred Stock are as set forth in this Article IV. 

Effective at 5:00 p.m. (EST) on February 15, 2005 (the “Effective Time”), all issued and outstanding shares of Common Stock(“Existing Common Stock”) shall be and hereby are automatically combined and reclassified as follows: each fifty (50) shares of Existing Common Stock shall be combined and reclassified (the “Reverse Stock Split”) as oneshare of issued and outstanding Common Stock (“New Common Stock”), provided that there shall be no fractional shares of New Common Stock. In the case of any holder as of the Effective Time of fewer than fifty shares of Existing CommonStock or any number of shares of Existing Common Stock which, when divided by fifty, does not result in a whole number (a “Fractional Share Holder”), the fractional share interest in New Common Stock held by such Fractional Share Holder asa result of the Reverse Split shall be rounded up to one share, and such Fractional Share Holder shall own a whole number of shares of New Common Stock equal to the number of its shares of Existing Stock divided by fifty, rounded up to the nexthighest whole number of shares. 

The Corporation shall, through its transfer agent, provide certificates representing the New Common Stockto holders of Existing Common Stock in exchange for certificates representing Existing Common Stock. From and after the Effective Time, certificates representing shares of Existing Common Stock are hereby cancelled and shall represent only the rightof the holders thereof to receive New Common Stock. 

From and after the Effective Time, the term “New CommonStock” as used in this Article IV.A shall mean Common Stock. 

 
B.Common Stock. 
Section 1. The Common Stock shall besubject to the express terms of any series of Preferred Stock set forth herein or as set forth in the Preferred Stock Designation (as defined below in Section 4.5 of this Article 4) relating thereto. Each holder of Common Stock shall have onevote in respect of each share of Common Stock held by such holder of record on the books of the Corporation for the election of directors and on all other matters on which stockholders of the Corporation are generally entitled to vote. The holdersof shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in stock or otherwise. 

Section 2. No holder of shares of capital stock of the Corporation shall have any cumulative voting rights. 

 

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Section 3. No holder of shares of any class of capital stock of the Corporation shall be entitled assuch, as a matter of right hereunder, to subscribe for, purchase or receive any part of any new or additional issue of stock of any class whatsoever, or of securities convertible into or exchangeable for any stock of any class whatsoever, whethernow or hereafter authorized and whether issued for cash or other consideration or by way of dividend. 

 
C.Preferred Stock. 
Section 1. The Board of Directorsof the Corporation is hereby expressly authorized to create and provide for the issuance of shares of Preferred Stock in one or more series and, by filing a certificate pursuant to the GCL (hereinafter referred to as a “Preferred StockDesignation”), to establish from time to time the number of shares to be included in each such series, and to fix the designations, powers, preferences and relative, participating, optional or other special rights of the shares of each suchseries and the qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, including, but not limited to, the following:

(A) the designation of and the number of shares constituting such series, which number the Board of Directors may thereafter (except asotherwise provided in the Preferred Stock Designation) increase or decrease (but not below the number of shares of such series then outstanding or reserved for issuance); 

(B) the dividend rate for the payment of dividends on such series, if any, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends, if any, shall bear tothe dividends payable on any other class or classes of or any other series of capital stock, the conditions and dates upon which such dividends, if any, shall be payable, and whether such dividends, if any, shall be cumulative or non-cumulative;

(C) whether the shares of such series shall be subject to redemption by the Corporation, and, if made subject to such redemption, thetimes, prices and other terms and conditions of such redemption; 

(D) the terms and amount of any sinking fund provided for the purchase orredemption of the shares of such series; 

(E) whether or not the shares of such series shall be convertible into or exchangeable for sharesof any other class or classes of, any other series of any class or classes of capital stock of, or any other security of, the Corporation or any other corporation, and, if provision be made for such conversion or exchange, the times, prices, rates,adjustments and any other terms and conditions of the such conversion or exchange; 

(F) the extent, if any, to which the holders of theshares of such series shall be entitled to vote as a class or otherwise with respect to the election of directors or otherwise; 

(G) therestrictions, if any, on the issue or reissue of shares of the same series or of any other class or series; 

 

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(H) the amounts payable on and the preferences, if any, of the shares of such series in the event of anyvoluntary or involuntary liquidation, dissolution or winding up of the Corporation; and 

(I) any other relative rights, preferences andlimitations of that series. 

Section 2. Subject to compliance with applicable protective voting rights that have been or may begranted to the Preferred Stock or series thereof (“Protective Provisions”), but notwithstanding any other rights of the Preferred Stock or any series thereof, the rights, powers, privileges, preferences and restrictions of any suchadditional series may be subordinated to, pari passu with or senior to any of those of any present or future class or series of Preferred Stock or Common Stock. 

Section 3. Subject to compliance with applicable protective provisions, the Board of Directors is also authorized to increase or decrease the number of shares of any series (other than the Series B PreferredStock, Series C Preferred Stock, Series D Preferred Stock or Series F Preferred Stock), prior or subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any seriesshall be so deceased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. 

 
D.Convertible Preferred Stock Designations. 
Section 1.Designation and Amount. The number of authorized shares of Preferred Stock of the following series shall be: 

(i) 10,000,000 shares ofSeries B Preferred Stock, par value $.004 per share (the “Series B Preferred Stock”); 

(ii) 5,000,000 shares of Series CPreferred Stock, par value $.004 per share (the “Series C Preferred Stock”); 

(iii) 3,000,000 shares of Series D Preferred Stock,par value $.004 per share (the “Series D Preferred Stock”); and 

(iv) 1,200,000 shares of Series F Preferred Stock, par value$.004 per share (the “Series F Preferred Stock”). 

Together, the Series B Preferred Stock, Series C Preferred Stock, Series DPreferred Stock, and Series F Preferred Stock shall constitute the “Initially Designated Preferred Stock”. 

The InitiallyDesignated Preferred Stock shall, with respect to dividend rights and rights on liquidation, dissolution and winding up, rank senior to the Common Stock and to each other series or class of capital stock of the Corporation now, or hereafterestablished, which is not, by its terms, senior or pari passu to the Initially Designated Preferred Stock (collectively, the “Junior Securities”). The definition of Junior Securities shall also include any rights or options 

 

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exercisable for or convertible into any of the Junior Securities. Each series of the Initially Designated Preferred Stock shall, with respect to dividendrights and rights on liquidation, dissolution, and winding up (except for those liquidation preferences set forth in Section 3), rank pari passu with each other series of the Initially Designated Preferred Stock. 

Section 2. Dividends. In the event that the Corporation declares or pays any dividends upon the Common Stock (whether payable in cash, securities orother property) other than dividends payable solely in shares of Common Stock, the Corporation shall also declare and pay to the holders of Preferred Stock at the same time that it declares and pays such dividends to the holders of the Common Stock,the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion of shares of the Preferred Stock which are convertible into shares of Common Stock had all such shares of the outstanding Preferred Stockbeen converted immediately prior to the record date for such dividend, or if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. 

Section 3. Liquidation Preference. Upon liquidation, dissolution and winding up of the Corporation (whether voluntary or involuntary) (a“Liquidation Event”), the Corporation shall pay to the holders of the Preferred Stock (unless otherwise provided for in the resolution or resolutions creating such stock) the aggregate Liquidation Value attributable to such shares (each, a“Share”) plus any unpaid dividends thereon. If upon any such Liquidation Event, the Corporation’s assets to be distributed among the holders of the Junior Securities, Series B Preferred Stock, Series C Preferred Stock, Series DPreferred Stock, and Series F Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid under this Section 3, then the entire assets available to be distributed to theCorporation’s stockholders shall be distributed pro rata to the holders of Series D Preferred Stock and Series F Preferred Stock in an amount up to the Liquidation Value (plus any unpaid dividends thereon); thereafter, if any of theCorporation’s assets remain that have not been distributed to the holders of Series D Preferred Stock and Series F Preferred Stock, such remaining assets shall be distributed pro rata among the holders of Series B Preferred Stock and Series CPreferred Stock based upon the aggregate Liquidation Value (plus any unpaid dividends thereon) attributable to each such holder; thereafter, if any of the Corporation’s assets remain that have not been distributed, such remaining assets shallbe distributed pro rata among the holders of the Junior Securities based upon the aggregate Liquidation Value (plus any unpaid dividends thereon) attributable to each such holder. Not less than sixty (60) days prior to the payment date statedtherein, the Corporation shall mail written notice of any such Liquidation Event to each record holder of Series D Preferred Stock and Series F Preferred Stock, setting forth in reasonable detail the amount of proceeds to be paid with respect toeach Share and each share of Common Stock in connection with such Liquidation Event. A Change of Control shall not be deemed a Liquidation Event for purposes of this Section 3. 

Section 4. Voting Rights. 

4A. Election of Directors. In the election of directors of the Corporation, the holders of the Series B Preferred Stock, voting separately as a single class to the exclusion of all other 

 

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classes or series of the Corporation’s capital stock and with each share of Series B Preferred Stock entitled to one vote, shall be entitled to electone (1) director to serve on the Corporation’s Board of Directors until his successor is duly elected by the holders of the Series B Preferred Stock or he or she is removed from office by the holders of the Series B Preferred Stock or theshareholders for cause in the manner provided by law. If the holders of the Series B Preferred Stock for any reason fail to elect anyone to fill any such directorship, such position shall remain vacant until such time as the holders of the Series BPreferred Stock elect a director to fill such position and shall not be filled by resolution or vote of the Corporation’s Board of Directors or the Corporation’s other stockholders. For so long as 20% of the Series B Preferred Stockoriginally issued by UST and assumed by the Corporation remains outstanding the Corporation’s Board of Directors shall not consist of more than nine (9) directors without the prior written approval of the holders of two-thirds of theoutstanding shares of the Series B Preferred Stock. For so long as the holders of Series B Preferred Stock are entitled to elect a director, the director so elected shall be appointed to each committee of the Corporation’s Board of Directors,including, without limitation, the Corporation’s Compensation Committee. The rights of the holders of the Series B Preferred Stock set forth in the first and fourth sentences of this Section 5A shall terminate upon the Purchasers ceasingto own beneficially and of record, at least 5% of the Common Stock Deemed Outstanding (excluding for purposes of this calculation any issuances by the Corporation of Common Stock, Options or Convertible Securities after May 31, 2000 other thanpursuant to the Preferred Warrant and the Stock Option Plan). 

4B. Other Voting Rights. The holders of the Initially Designated PreferredStock shall be entitled to notice of all stockholders meetings in accordance with the Corporation’s Bylaws, and except as otherwise required by applicable law, the holders of the Initially Designated Preferred Stock shall be entitled to vote onall matters submitted to the stockholders for a vote together with the holders of the Common Stock voting together as a single class with each share of Common Stock entitled to one vote per share, each Share of Series D Preferred Stock and Series FPreferred Stock entitled to one vote for each share of Common Stock issuable upon conversion of the such Initially Designated Preferred Stock as of the record date for such vote or, if no record date is specified, as of the date of such vote, andeach Share of Series B and Series C Preferred Stock entitled to 0.2653 votes for each share of Common Stock issuable upon conversion of such Initially Designated Preferred Stock as of the record date for such vote, or, if no record date isspecified, as of the date of such vote. 

4C. Covenants. 

(a) The Corporation shall not take any of the actions set forth below in this subsection (a) without first obtaining the affirmative vote of the holders of at least two-thirds of the then outstanding shares ofInitially Designated Preferred Stock, voting as a class: 

(i) sell, lease or otherwise dispose of any assets of the Corporation and itsSubsidiaries except for sales, leases or dispositions outside of the ordinary course of business, consistent with past custom and practice; 

 

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(ii) merge or consolidate with any person or entity; provided, that directly or indirectly wholly ownedSubsidiaries of the Corporation may merge with and into the Corporation; and 

(iii) effect any other transaction or series of relatedtransactions involving the Corporation the result of which is that any person becomes the beneficial owner (as determined in accordance with Rules 13d-3 and 13d-5 under the Exchange Act except that a person will be deemed to have beneficialownership of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the Voting Securities of the Corporation. 

(b) The Corporation shall not take any of the actions set forth below in this subsection (b) without first obtaining the affirmative vote of theholders of at least two-thirds of the then outstanding shares of each series of Initially Designated Preferred Stock expressly authorized by such subsections to vote as a series, each voting together as a separate series, for so long as at least 20%of the relevant series of Initially Designated Preferred Stock originally issued pursuant to the Purchase Agreements (excluding any Series B Preferred Stock issued upon exercise of the Preferred Warrants) remains outstanding: 

(i) alter or change the preferences, rights or powers of the relevant series of Preferred Stock (provided that only the series directly affected isentitled to vote as a series under this provision); 

(ii) increase or decrease the authorized number of shares of the relevant series ofInitially Designated Preferred Stock (provided that only the affected series is entitled to vote as a series under this provision); 

(iii)directly or indirectly declare or pay any dividends or make any distributions upon, or repurchase or redeem, any of its capital stock or other equity securities (or any securities directly or indirectly convertible into or exercisable orexchangeable for equity securities), other than (a) the repurchase of Options (or Common Stock issued upon exercise thereof) issued pursuant to the Stock Option Plans in accordance with their respective terms and (b) the mandatoryrepurchase of the Bayview Warrant (or Common Stock issued upon exercise thereof) pursuant to Section 9 thereof as in effect on the Bayview Date (provided that (x) with respect to dividends, distributions, repurchases or redemptionsinvolving the Series B Preferred Stock, only the Series C Preferred Stock is entitled to vote as a series under this provision, (y) with respect to dividends, distributions, repurchases or redemptions involving the Series C Preferred Stock,only the Series B Preferred Stock is entitled to vote as a series under this provision, and (z) with respect to dividends, distributions, repurchases or redemptions involving the Series D Preferred Stock or the Series F Preferred Stock, onlythe Series B Preferred Stock and the Series C Preferred Stock are entitled to vote as separate series under this provision; 

(iv) issue anyadditional Series B Preferred Stock (other than in connection with the exercise of the Preferred Warrants for Series B Preferred Stock) or Series C Preferred Stock or create, authorize or issue any capital stock that ranks prior (whether withrespect to dividends or upon liquidation, dissolution, winding up or otherwise) to or pari passu with the Series B Preferred Stock or Series C Preferred Stock (provided that only Series B Preferred Stock and Series C Preferred Stock are entitled tovote as separate series under this provision); 

 

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(v) issue any additional Series D Preferred Stock or Series F Preferred Stock or create, authorize orissue any capital stock that ranks prior (whether with respect to dividends or upon liquidation, dissolution, winding up or otherwise) to the Series D Preferred Stock or Series F Preferred Stock (provided that only Series D Preferred Stock andSeries F Preferred Stock are entitled to vote as separate series under this provision); 

(vi) amend, alter, repeal or waive any provisionof the Corporation’s Certificate of Incorporation (including any certificate of amendment and whether by amendment, merger or otherwise) or the Bylaws (provided that only Series B Preferred Stock and Series C Preferred Stock are entitled tovote as separate series under this provision); 

(vii) liquidate, dissolve or effect a recapitalization or reorganization in any form oftransaction (including, without limitation, any reorganization into a limited liability company, a partnership or any other non-corporate entity which is treated as a partnership for federal income tax purposes) (provided that only Series BPreferred Stock and Series C Preferred Stock are entitled to vote as separate series under this provision); 

(viii) create, incur, assumeor suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Liens on all or substantially all of the assets of the Corporation and its Subsidiaries with respect to any Indebtedness which is in excess of $5,000,000in the aggregate (other than such Liens existing as of May 31, 2000 for Series B Preferred Stock series voting and August 31, 2000 for Series C Preferred Stock series voting (“Existing Liens”) and Liens securing Indebtednesswhich refinances, replaces or amends the Indebtedness secured by such Existing Liens, provided that such Liens shall not extend to property other than property subject to such Existing Liens) (and provided further that only Series B Preferred Stockand Series C Preferred Stock are entitled to vote as separate series under this provision); and 

(ix) other than with respect to thePermitted Issuances, authorize the issuance of any Common Stock or Convertible Securities at a price below Market Price; provided, that in the event that the Corporation receives stockholders’ approval pursuant to Section 5.07 of thePurchase Agreement for the Series B Preferred Stock, this clause (ix) shall automatically terminate and be of no further force and effect (and provided further that only Series B Preferred Stock is entitled to vote as a series under thisprovision). 

Section 5. Conversion. 

 
5A.Conversion Procedure. 
(i) Subject to the terms of thisSection 5, at any time and from time to time, any holder of Preferred Stock may convert all or any portion of the Preferred Stock (including any fraction of a Share) held by such holder into a number of shares of Conversion Stock computed bymultiplying the number of Shares to be converted by: 

(i) $9.00 for Series B Preferred Stock; 

 

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(ii) $6.00 for Series C Preferred Stock; 

(iii) $8.00 for Series D Preferred Stock; and 

(iv) $11.00 for Series F Preferred Stock; 

and dividing the result by the conversion Price then in effect. 

(ii) Except as otherwise provided herein, each conversion of Preferred Stock shall be deemed to have been effected as of the close of business on thedate on which the certificate or certificates representing the Preferred Stock to be converted have been surrendered for conversion at the principal office of the Corporation. At the time any such conversion has been effected, the rights of theholder of the Shares converted as a holder of Preferred Stock shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion shall be deemed to havebecome the holder or holders of record of the shares of Conversion Stock represented thereby. 

(iii) Notwithstanding any other provisionhereof, if a conversion of Preferred Stock is to be made in connection with a transaction affecting the Corporation, the conversion of any Shares of Preferred Stock may, at the election of the holder thereof, be conditioned upon the consummation ofsuch transaction, in which case such conversion shall not be deemed to be effective until such transaction has been consummated. 

(iv) Assoon as possible after a conversion has been effected (but in any event within three (3) Business Days in the case of subparagraph (A) below), the Corporation shall deliver to the converting holder: 

(A) a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such name or names andsuch denomination or denominations as the converting holder has specified; 

(B) payment of any amount payable under subparagraph(viii) below with respect to such conversion; and 

(C) a certificate representing any Shares which were represented by the certificateor certificates delivered to the Corporation in connection with such conversion but which were not converted. 

(v) The issuance ofcertificates representing shares of Conversion Stock upon conversion of Preferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation inconnection with such conversion and the related issuance of shares of Conversion Stock. Upon conversion of each Share of Preferred Stock, the Corporation shall take all such actions as are necessary in order to insure that the Conversion Stockissuable with respect to such conversion shall be validly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof. 

 

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(vi) The Corporation shall not close its books against the transfer of Preferred Stock or of ConversionStock issued or issuable upon conversion of Preferred Stock in any manner which interferes with the timely conversion of Preferred Stock. The Corporation shall assist and cooperate with any holder of Shares required to make any governmental filingsor obtain any governmental approval prior to or in connection with any conversion of Shares hereunder (including, without limitation, making any filings required to be made by the Corporation). 

(vii) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Conversion Stock, solely for the purposeof issuance upon the conversion of the Preferred Stock, such number of shares of Conversion Stock issuable upon the conversion of all outstanding Preferred Stock. All shares of Conversion Stock which are so issuable shall, when issued, be duly andvalidly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assure that all such shares of Conversion Stock may be so issued without violation of anyapplicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Conversion Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporationupon each such issuance). The Corporation shall not take any action which would cause the number of authorized but unissued shares of Conversion Stock to be less than the number of such shares required to be reserved hereunder for issuance uponconversion of the Preferred Stock. 

(viii) If any fractional interest in a share of Conversion Stock would, except for the provisions ofthis subparagraph, be delivered upon any conversion of Preferred Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of thedate of conversion. 

(ix) If the shares of Conversion Stock issuable by reason of conversion of Preferred Stock are convertible into orexchangeable for any other stock or securities of the Corporation, the Corporation shall, at the converting holder’s option, upon surrender of the Shares to be converted by such holder as provided herein together with any notice, statement orpayment required to effect such conversion or exchange of Conversion Stock, deliver to such holder or as otherwise specified by such holder a certificate or certificates representing the stock or securities into which the shares of Conversion Stockissuable by reason of such conversion are so convertible or exchangeable, registered in such name or names and in such denomination or denominations as such holder has specified. 

 
5B.Conversion Price. 
(i) In order to prevent dilution of theconversion rights granted under this Section 5, the Conversion Price of each class of Preferred Stock shall be subject to adjustment from time to time pursuant to this Section 5B. 

 

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(ii) If and whenever after the original date of issuance of the relevant class of Preferred Stock, theCorporation issues or sells, or in accordance with Section 5C is deemed to have issued or sold, any shares of its Common Stock for a consideration per share less than the Market Price of the Common Stock determined as of the date of such issueor sale, then immediately upon such issue or sale, the Conversion Price shall be reduced to the Conversion Price determined by multiplying the Conversion Price in effect immediately prior to such issue or sale by a fraction, the numerator of whichshall be the sum of (1) the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale multiplied by the Market Price of the Common Stock determined as of the date of such issuance or sale, plus (2) theconsideration, if any, received by the Corporation upon such issue or sale, and the denominator of which shall be the product derived by multiplying the Market Price of the Common Stock by the number of shares of Common Stock Deemed Outstandingimmediately after such issue or sale. 

(iii) Notwithstanding the foregoing, there shall be no adjustment to the Conversion Price hereunderwith respect to the following (collectively referred to herein as the “Permitted Issuances”): 

(A) the issuance or granting ofCommon Stock, Options or Convertible Securities to employees, officers, consultants and directors of the Corporation and its Subsidiaries or the exercise thereof pursuant to the Stock Option Plans; 

(B) the issuance or granting of Options for up to 75,000 shares of Common Stock (as adjusted for any stock splits, reverse stock splits, sharecombinations, stock dividends or similar reclassifications) to employees and consultants of the Corporation outside of the Stock Option Plans; 

(C) for purposes of Series B Preferred Stock Conversion Price adjustment only, the issuance of Series B Preferred Stock upon exercise of the Preferred Warrants; 

(D) the issuance of Common Stock upon exercise of the Warrant To Purchase Common Stock of UST, dated as of September 24, 1999, issued to Bayview Capital Partners L.P. (the “Bayview Warrant”);

(E) the issuance of Common Stock upon conversion of the Convertible Subordinated Note, dated as of September 24, 1999, issued by USTto CEX Holdings, Inc. (the “CEX Convertible Note”); 

(F) the issuance of shares of Common Stock to Jack D. Ashabranner II (or atrust solely for his benefit) in respect of a court-approved settlement of his claim against Corporate Express Delivery Systems, Inc., solely to meet any shortfall in the market value between the 600,000 shares of Common Stock that have been issuedfor the benefit of Mr. Ashabranner in respect of such settlement and the sum of $550,000, pursuant to the terms of such settlement; and 

(G) the issuance of Common Stock upon exercise of the Common Warrants; 

 

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(H) for Series C Preferred Stock, Series D Preferred Stock, and Series F Preferred Stock Conversion Priceadjustment only, the issuance of Series D Preferred Stock upon exercise of the Bridge Warrant or upon conversion of the Bridge Note; 

(I)for Series C Preferred Stock, Series D Preferred Stock, and Series F Preferred Stock Conversion Price adjustment only, the issuance of Series C Preferred Stock upon exercise of the Series C Warrants; 

(J) for Series C Preferred Stock, Series D Preferred Stock, and Series F Preferred Stock Conversion Price adjustment only, the issuance of Common Stockupon conversion of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series F Preferred Stock; and 

(K)the issuance of Series M Convertible Preferred Stock, par value $0.004 per share (“Series M Preferred”); the issuance of up to $2,000,000 additional principal amount of 6% Convertible Note of the Company (the “Additional Series MNotes”), issued pursuant to the Purchase Agreement, dated December 21, 2004 (the “Series M Purchase Agreement”); the issuance of the Series M Preferred upon conversion of the Additional Series M Notes; the issuance of a warrantto TerraNova Capital for 4,882,174 shares of Series M Preferred (the “TerraNova Warrant”); and the issuance of Series M Preferred upon exercise of the TerraNova Warrant. 

5C. Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under paragraph 5B, the following shall beapplicable: 

(i) Issuance of Rights or Options. If the Corporation in any manner grants or sells any Options and the price per share forwhich Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is less than the Market Price of the Common Stock determined as of such time, thenthe total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to beoutstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Options for such price per share. For purposes of this paragraph, the “price per share for which Common Stock is issuable” shall bedetermined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporationupon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of such ConvertibleSecurities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon theexercise of such Options. No further adjustment of the Conversion Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock is actually issued upon the exercise of such Options or theconversion or exchange of such Convertible Securities. 

 

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(ii) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any ConvertibleSecurities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the Market Price of the Common Stock determined as of such time, then the maximum number of shares of Common Stock issuable uponconversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposesof this paragraph, the “price per share for which Common Stock is issuable” shall be determined by dividing (A) the total amount received or receivable by the Corporation as consideration for the issue or sale of such ConvertibleSecurities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion orexchange of all such Convertible Securities. No further adjustment of the Conversion Price shall be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of suchConvertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 5, no further adjustment of the Conversion Price shall be made byreason of such issue or sale. 

(iii) Change in Option Price or Conversion Rate. If the purchase price provided for in any Options, theadditional consideration, if any, payable upon the conversion or exchange of any Convertible Securities or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, the Conversion Pricein effect at the time of such change shall be immediately adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additionalconsideration or conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of Section 5C, if the terms of any Option or Convertible Security which was outstanding as of the date of issuance of thePreferred Stock with a Conversion Price to be adjusted are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchangethereof shall be deemed to have been issued as of the date of such change; provided, that (A) no such change shall at any time cause the Conversion Price hereunder to be increased, and (B) no adjustment to the Conversion Price pursuant tothis clause (iii) shall be made as a result of any adjustment to the exercise and/or conversion price with respect to the Bayview Warrant, the CEX Convertible Note, the Common Warrants, the Preferred Warrants (with respect only to the Series BPreferred Stock), and with respect to the Series D Preferred Stock and Series F Preferred Stock only, the Series B Preferred Stock, the Series C Preferred Stock, the Series C Warrants, the conversion of the Bridge Note, and the exercise of theBridge Note Warrants, pursuant to and in accordance with the antidilution protection provisions of such securities as in effect on: 

(i)May 31, 2000 for Series B Preferred Stock; 

(ii) August 31, 2000 for Series C Preferred Stock; 

 

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(iii) February 16, 2001 for Series D Preferred Stock; and 

(iv) July 12, 2001 for Series F Preferred Stock. 

Inaddition, notwithstanding the foregoing there shall be no adjustment to the Conversion Price of the Series B Preferred Stock or the Series C Preferred Stock, or to the shares of Series D Preferred Stock held by TH Li on October 4, 2001,pursuant to the provisions of this Section 5C(iii) as a result of the reduction of the Conversion Price of Series B Preferred Stock to $1.3988 and the reduction of the Conversion Price of Series C Preferred Stock to $1.3867 as a result ofamendment to this Certificate of Incorporation. 

(iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon theexpiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, the Conversion Price then in effect hereunder shall be adjusted immediately to the ConversionPrice which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. For purposes ofSection 5C, the expiration or termination of any Option or Convertible Security which was outstanding as of the date of issuance of the Preferred Stock with Conversion Price subject to adjustment shall not cause the Conversion Price hereunderto be adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible Security caused it to be deemed to have been issued after the date of issuance of the Preferred Stock with Conversion Price subject toadjustment. 

(v) Calculation of Consideration Received. If any Common Stock, Option or Convertible Security is issued or sold or deemed tohave been issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor. If any Common Stock, Option or Convertible Security is issued or sold for a consideration other than cash,the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporationshall be the Market Price thereof as of the date of receipt. The fair value of any consideration other than cash and securities shall be determined jointly by the Corporation and the holders of at least two-thirds of the each then outstanding classof Preferred Stock voting as individual classes. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such consideration shall be determined by an independent appraiser experienced in valuing such typeof consideration jointly selected by the Corporation and the holders of at least two-thirds of each of the then outstanding classes of Preferred Stock, voting as individual classes. The determination of such appraiser shall be final and binding uponthe parties, and the fees and expenses of such appraiser shall be borne by the Corporation. 

(vi) Integrated Transactions. In case anyOption (with respect to Series B Preferred Stock only, other than the Common Warrants and the Preferred Warrants) is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transactionin which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for a consideration of $.01. 

 

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(vii) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall notinclude shares owned or held by or for the account of the Corporation or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. 

(viii) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (a) to receive a dividend orother distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale ofthe shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 

5D. Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization orotherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and if the Corporation at any timecombines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased.

5E. Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification,consolidation, merger, sale of all or substantially all of the Corporation’s assets or other transaction, in each case which is effected in such a manner that the holders of Common Stock are entitled to receive (either directly or uponsubsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock held by such holders, is referred to herein as an “Organic Change”. Prior to the consummation of any Organic Change, the Corporation shallmake appropriate provisions to insure that each of the holders of Initially Designated Preferred Stock shall thereafter have the right to acquire and receive, in lieu of the shares of Conversion Stock immediately theretofore acquirable andreceivable upon the conversion of such holder’s Initially Designated Preferred Stock, such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holder had converted itsInitially Designated Preferred Stock immediately prior to such Organic Change. In each such case, the Corporation shall also make appropriate provisions to insure that the provisions of this Section 5 and Section 6 below shall thereafterbe applicable to the Initially Designated Preferred Stock. The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Corporation) resulting fromconsolidation or merger or the entity purchasing such assets assumes by written instrument, the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may beentitled to acquire. 

5F. Certain Events. If any event occurs of the type contemplated by the provisions of this Section 5 but notexpressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity 

 

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features), then the Corporation’s Board of Directors shall make an appropriate adjustment in the Conversion Price so as to protect the rights of theholders of Preferred Stock; provided, that no such adjustment shall increase the Conversion Price or decrease the number of shares of Conversion Stock issuable upon conversion of each Share of Preferred Stock as otherwise determined pursuant to thisSection 5. 

5G. Notices. 

(i) Immediately upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof to all affected holders of Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment.

(ii) The Corporation shall give written notice to all holders of Preferred Stock at least 20 days prior to the date on which theCorporation closes its books or takes a record (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to votewith respect to any Organic Change, dissolution or liquidation. 

(iii) The Corporation shall also give written notice to the holders ofPreferred Stock at least 20 days prior to the date on which any Organic Change shall take place. 

5H. Drag Along Right. In the event thatall of the then outstanding Series B Preferred Stock is converted pursuant to Section 5 hereof, upon such conversion of the Series B Preferred Stock, all of the then outstanding Initially Designated Preferred Stock, (including, withoutlimitation, any Initially Designated Preferred Stock acquired as the result of the exercise of any outstanding warrants to purchase such series of preferred stock) shall be converted automatically into shares of Conversion Stock, and the holders ofInitially Designated Preferred Stock shall surrender all of their stock certificates representing any Initially Designated Preferred Stock in exchange for certificates representing the number of shares of Conversion Stock then issuable uponconversion of any such series of Initially Designated Preferred Stock in accordance with this Section 5. 

Section 6. PurchaseRights. If at any time the Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “PurchaseRights”), then each holder of Initially Designated Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held thenumber of shares of Conversion Stock acquirable upon conversion of such holder’s Initially Designated Preferred Stock immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or if no suchrecord is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 

Section 7. Registration of Transfer. The Corporation shall keep at its principal office a register for the registration of Preferred Stock. Upon the surrender of any certificate representing Preferred Stock at such place, theCorporation shall, at the request of the record holder of such 

 

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certificate, execute and deliver (at the Corporation’s expense) a new certificate or certificates in exchange therefor representing in the aggregate thenumber of Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Shares as is requested by the holder of the surrendered certificate and shall be substantiallyidentical in form to the surrendered certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Preferred Stock represented by the surrenderedcertificate. 

Section 8. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of theregistered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Shares, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactoryto the Corporation (provided that if the holder is a financial institution or other institutional investor its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (atits expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen,destroyed or mutilated certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. 

Section 9. Definitions for Purposes of Article IV, Paragraph D. 

For the purposes of this Section D of Article IV, the following definitions shall apply. 

“Affiliate” ofany Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policiesof a Person whether through ownership of voting securities, contract or otherwise. 

“Bayview Date” means: 

 
 (i)May 31, 2000 for Series B Preferred Stock; 
 
 (ii)August 21, 2000 for Series C Preferred Stock, 
 
 (iii)February 1, 2001 for Series D Preferred Stock; and 
 
 (iv)February 1, 2001 for Series F Preferred Stock. 
“BayviewWarrant” has the meaning set forth in Section 5B(iii). “Bridge Note” means the Convertible Bridge Notes issued to TH Li pursuant to certain Bridge Loan Agreements by and between UST and TH Li dated January 4, 2001 andJanuary 31, 2001. 

 

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“Bridge Warrant” means a warrant to purchase Series D Preferred Stock issued by UST to TH Li pursuant toa certain Bridge Loan Agreement by and between UST and TH Li dated January 4, 2001. 

“CEX ConvertibleNote” has the meaning set forth in Section 5B(iii)(E). 

“Common Stock” means, collectively, the Corporation’s commonstock, par value $0.004 per share, and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate individends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation. “Common Stock Deemed Outstanding” means, at any given time, the number of shares of Common Stock actually outstanding at suchtime, plus the number of shares of Common Stock deemed to be outstanding pursuant to subparagraphs 5C(i) and 5C(ii) hereof whether or not the Options or Convertible Securities are actually exercisable at such time. 

“Common Warrants” means, collectively, the “Common Warrants” as defined in, and issued pursuant to, the Series B Purchase Agreement, and anywarrants issued in exchange, substitution or replacement therefor. 

“Conversion Price” means theconversion price of the Initially Designated Preferred Stock, as follows: 

 
 (i)$1.3988 for Series B Preferred Stock; 
 
 (ii)$1.3867 for Sales C Preferred Stock; 
 
 (iii)$0.7912 for Series D Preferred Stock; and 
 
 (iv)$0.55 for Series F Preferred Stock. 
“Conversion Stock”means shares of the Corporation’s Common Stock; provided, that if there is a change such that the securities issuable upon conversion of the Preferred Stock are issued by an entity other than the Corporation or there is a change in the type orclass of securities so issuable, then the term “Conversion Stock” shall mean one share of the security issuable upon conversion of the Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which suchsecurity is issuable if such security is not issuable in shares. 

“Convertible Securities” means any stock or securities directly orindirectly convertible into or exchangeable for Common Stock. 

“Corporation” means Velocity Express Corporation, a Delaware corporation,or, where applicable (for example, in connection with agreements dated prior to the date of incorporation of the Corporation under the GCL), UST. Where applicable, reference to certain agreements of the Corporation entered into prior to itsincorporation under the GCL refer to those as assumed by the surviving entity as a matter of law under the expected merger between the Corporation and UST. 

 

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“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Existing Liens” has the meaning set forth in Section 4C(x). 

“Indebtedness” means at a particular time, without duplication, (a) any indebtedness for borrowed money or issued in substitution for or exchangeof indebtedness for borrowed money, (b) any indebtedness or other liability evidenced by any note, bond, debenture or other debt security, (c) any indebtedness for the deferred purchase price of property or services with respect to which aPerson is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current liabilities incurred in the ordinary course of business which are not more than ninety (90) days past due), (d) anycommitment by which a Person assures a creditor against loss (including, without limitation, contingent reimbursement obligations with respect to letters of credit), (e) any indebtedness or other liability guaranteed in any manner by a Person(including, without limitation, guarantees in the form of an agreement to repurchase or reimburse), (f) any obligations under capitalized leases with respect to which a Person is liable, contingently or otherwise, as obligor, guarantor orotherwise, or with respect to which obligations a Person assures a creditor against loss, and (g) any indebtedness or other liability secured by a Lien on a Person’s assets. 

“Initially Designated Preferred Stock” means the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series F Preferred Stock. 

“Junior Securities” has the meaning set forth in Section 1. 

“Lien” means any lien, mortgage, pledge, security interest, restriction, charge or other encumbrance. 

“Liquidation Event” has the meaning set forth in Section 3. 

“Liquidation Value” of any Share as of any particular date shall be equal to: 

 
 (i)$9.00 for Series B Preferred Stock; 
 
 (ii)$6.00 for Series C Preferred Stock; 
 
 (iii)$8.00 for Series D Preferred Stock; and 
 
 (iv)$11.00 for Series F Preferred Stock. 
“Market Price” ofany security means the average of the closing prices of such security’s sales on all securities exchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of thehighest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 

 

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P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such dayin the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of the twenty (20) consecutive trading days immediately prior tothe day as of which “Market Price” is being determined. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the “Market Price” shall be the fairvalue thereof determined jointly by the Corporation and the holders of at least two-thirds of each of the then outstanding classes of Preferred Stock, voting as individual classes. If such parties are unable to reach agreement within a reasonableperiod of time, such fair value shall be determined by an independent appraiser experienced in valuing securities jointly selected by the Corporation and the holders of at least two-thirds of each of the then outstanding classes of Preferred Stock,voting as individual classes. The determination of such appraiser shall be final and binding upon the parties, and the Corporation shall pay the fees and expanses of such appraiser. 

“Options” means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.

“Permitted Issuances” means the acts described in Section 5B(iii). 

“Person” means an individual, a partnership, a corporation, a limited liability company, a limited liability, an association, a joint stock company, atrust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. 

“Preferred Warrants” means, collectively, the “Preferred Warrants” and the “Additional Warrants” as defined in, and issued pursuant to, the Purchase Agreements, and any warrants issued in exchange,substitution or replacement thereof. 

“Purchase Agreement” means: 

(i) with respect to Series B Preferred Stock, the Securities Purchase Agreement, dated as of May 15, 2000, by and among the Corporation and certaininvestors, as such agreement may from time to time be amended in accordance with its terms; 

(ii) with respect to Series C Preferred Stock,the Securities Purchase Agreement, dated as of September 1, 2000, by and among the Corporation and certain investors, as such agreement may from time to time be amended in accordance with its terms; 

(iii) with respect to Series D Preferred Stock, the Securities Purchase Agreement, dated as of February 1, 2001, by and among the Corporation andcertain investors, as such agreement may from time to time be amended in accordance with its terms; and 

(iv) with respect to Series FPreferred Stock, the Subscription Note Purchase Agreements by and among the Corporation and certain investors, as such agreements may from time to time be amended in accordance with their terms. 

 

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“Purchasers” means the “Purchasers” as defined in the Purchase Agreements and their respectiveAffiliates. 

“Series B Preferred Stock” has the meaning set forth in Article IV, C.1, Section 1. 

“Series C Preferred Stock” has the meaning set forth in Article IV, C.1, Section 1. 

“Series D Preferred Stock” has the meaning set forth in Article IV, C.1, Section 1. 

“SeriesF Preferred Stock” has the meaning set forth in Article IV, C.l, Section 1. 

“Series C Warrants” means, collectively, the“Series C Warrants” as defined in, and issued pursuant to, Securities Purchase Agreement dated as of September 1, 2000, by and among UST and certain investors, as such agreement may from time to time be amended in accordance with itsterms, and any warrants issued in exchange, substitution or replacement therefor. 

“Share” has themeaning set forth in Section 3. 

“Stock Option Plans” means, collectively, the Corporation’s 1995 Stock Option Plan, 1996Director Stock Option Plan and 2000 Stock Option Plan. 

“Subsidiary” means, with respect to any Person, any corporation, limited liabilitycompany, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election ofdirectors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company,partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that person or acombination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated amajority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing general partner of such limited liability company, partnership, association or other business entity.

“TH Li” means collectively TH Lee.Putnam Internet Partners, LP, a Delaware limited partnership, TH Lee.Putnam Internet Parallel Partners,LP, a Delaware limited partnership, THLi Coinvestment Partners LLC, a Delaware limited liability company, and Blue Star I, LLC, a Delaware limited liability company. 

“UST” means United Shipping and Technology, Inc., a Utah corporation and the predecessor of Velocity Express Corporation, a Delaware corporation. 

“Voting Securities” means securities of the Corporation ordinarily having the power to vote for the election of directors of the Corporation; provided,that when the term “Voting Securities” is 

 

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used with respect to any other Person it means the capital stock or other equity interests of any class or kind ordinarily having the power to vote for theelection of directors or other members of the governing body of such Person. 

Section 10. Amendment and Waiver. No amendment,modification or waiver shall be binding or effective with respect to any provision of Sections 1 to 11 hereof without the prior written consent of the holders of at least two-thirds of each series of Preferred Stock outstanding, voting as individualseries, at the time such action is taken. 

Section 11. Notices. Except as otherwise expressly provided hereunder, all notices referredto herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed orsent (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder’s address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). 

ARTICLE V 

Adoption, Amendment or Repealof Bylaws; Right of Inspection. In furtherance, and not in limitation, of the powers conferred by law, the Board of Directors is expressly authorized and empowered: 

(A) subject to the rights of the holders of any class or series of Preferred Stock then outstanding, to adopt, amend or repeal the Bylaws of the Corporation, provided, however, that any Bylaws adopted by the Board ofDirectors under the powers hereby conferred may be amended or repealed by the Board of Directors or by the stockholders having voting power with respect thereto; and 

(B) from time to time to determine whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the Corporation, or any of them, shall be open toinspection of stockholders; and, except as so determined, or as expressly provided in the Purchase Agreements, this Certificate of Incorporation or in any Preferred Stock Designation, no stockholder shall have any right to inspect any account, bookor document of the Corporation other than such rights as may be conferred by law. 

The Corporation may in its Bylaws confer powers upon theBoard of Directors in addition to the foregoing and in addition to the powers and authorities expressly conferred upon the Board of Directors by law. 

ARTICLE VI 

Subject to the rights of the holders of any class or series of Preferred Stock thenoutstanding, the number of directors of this Corporation shall be fixed from time to time by a bylaw or amendment thereof duly adopted by the Board of Directors or by the stockholders. 

 

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ARTICLE VII 

Elections of directors need not be by written ballot unless the Bylaws of this Corporation shall so provide. 

ARTICLE VIII 

Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The booksof this Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of this Corporation.

ARTICLE IX 

A director ofthis Corporation shall, to the fullest extent permitted by the GCL as it now exists or as it may hereafter be amended, not be personally liable to this Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director,except for liability (i) for any breach of the director’s duty of loyalty to this Corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law,(iii) under Section 174 of the General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the GCL is amended after incorporation of this Corporation to authorize corporateaction further eliminating or limiting the personal liability of directors, then the liability of a director of this Corporation shall be eliminated or limited to the fullest extent permitted by the GCL, as so amended. 

Any amendment, repeal or modification of this Article IX by the stockholders of this Corporation shall not apply to or adversely affect any right orprotection of a director of this Corporation existing at the time, or increase the liability of any director of this Corporation with respect to any acts or omissions of such director occurring prior to such amendment, repeal, modification oradoption. 

ARTICLE X 

To thefullest extent permitted by applicable law, this Corporation is authorized to provide indemnification of (and advancement of expenses to) agents of this Corporation (and any other persons to which General Corporation Law of Delaware permits thisCorporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted bySection 145 of the General Corporation Law, subject only to limits created by applicable General Corporation Law of Delaware (statutory or non-statutory), with respect to actions for breach of duty to this Corporation, its stockholders, andothers. 

Any amendment, repeal or modification of the foregoing provisions of this Article X shall not adversely affect any right orprotection of a director, officer, agent, or other person existing at the time of, or increase the liability of any director of this Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, suchamendment, repeal or modification. 

 

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ARTICLE XI 

This Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred uponstockholders herein are granted subject to this reservation. 

ARTICLE XII 

The name and address of the incorporator is: 

Wesley C. Fredenburg 

Four Paramount Plaza 

7803 Glenroy Road, Suite 200 

Bloomington, Minnesota 55439 

 

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**VELOCITY EXPRESS CORPORATION**

**CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF**

**SERIES G CONVERTIBLEPREFERRED STOCK**

Pursuant to the provisions of the General Corporation Law of the State of Delaware, the undersigned corporationcertifies the following and adopts the attached certificate of designation: 

 

FIRST:
  The name of the corporation is Velocity Express Corporation (the “Corporation”).
SECOND:
  Pursuant to the authority vested in the Board of Directors by this corporation’s Amended and Restated Certificate of Incorporation, as amended to date, the Board of Directors byunanimous written consent did adopt on April 10, 2002, without shareholder action, the following resolutions, authorizing the creation and designation of a series of preferred stock designated as Series G Convertible Preferred Stock as set forth inExhibit A attached hereto:  
RESOLVED, that, in order to comply with and fulfill its obligations under a Stock Purchase Agreement, the Corporation will be required to file a Certificate ofDesignation, in order to designate a new class or series of its authorized preferred shares as set forth on Exhibit A to these consent resolutions (the “Certificate”); and
  
RESOLVED FURTHER, that the Board of Directors, acting under authority of the Corporation’s Amended and Restated Certificate of Incorporation and the GeneralCorporate Law of the State of Delaware, hereby approves and adopts the Certificate; and
  
RESOLVED FURTHER that, in the manner required by law and by the Corporation’s Amended and Restated Certificate of Incorporation, the appropriate officers ofthe corporation be and they hereby are authorized and directed to cause to be prepared, and to execute, and to file with the Secretary of State of the State of Delaware the Certificate.

THIRD:
  As required by Section 4C(b)(iv) of the Corporation’s Amended and Restated Certificate of Incorporation, the Certificate has been approved by the holders of in excess of two-thirds ofthe outstanding Series B Preferred Stock and Series C Preferred Stock.
In witness whereof, this Certificate of Designation of Series G Convertible Preferred Stock ishereby executed on behalf of this corporation this 18th day of April, 2002. 

 

Velocity Express Corporation

/s/ Wesley C. Fredenburg

By Wesley C. Fredenburg,

Its Secretary and General Counsel

**Exhibit A**

**VELOCITY EXPRESS CORPORATION (THE “CORPORATION”)**

**SERIES G CONVERTIBLE PREFERRED STOCKTERMS**

**Section 1. Designation and Amount**. The number of authorized shares of Series G Convertible Preferred Stock,par value $0.004 per share (the “Series G Preferred Stock”), shall be 9,000,000. 

**Section 2. Dividends**. In theevent that the Corporation declares or pays any dividends upon the Common Stock (whether payable in cash, securities or other property) other than dividends payable solely in shares of Common Stock, the Corporation shall also declare and pay to theholders of Preferred Stock at the same time that it declares and pays such dividends to the holders of the Common Stock, the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion of shares of thePreferred Stock which are convertible into shares of Common Stock had all such shares of the outstanding Preferred Stock been converted immediately prior to the record date for such dividend, or if no record date is fixed, the date as of which therecord holders of Common Stock entitled to such dividends are to be determined. 

**Section 3. Liquidation Preference**. Uponliquidation, dissolution and winding up of the Corporation (whether voluntary or involuntary) (a “Liquidation Event”), the Corporation shall pay to the holders of the Series G Preferred Stock (unless otherwise provided for in theresolution or resolutions creating such stock) the aggregate Liquidation Value attributable to such shares (each, a “Share”) plus any unpaid dividends thereon. If upon any such Liquidation Event, the Corporation’s assets to bedistributed among the holders of the Junior Securities, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series F Preferred Stock and Series G Preferred Stock are insufficient to permit payment to such holders of theaggregate amount which they are entitled to be paid under this Section 3 or Article IV, Section 3 of the Corporation’s Amended and Restated Certificate of Incorporation, as amended from time to time (the “Charter”), asapplicable, then the entire assets available to be distributed to the Corporation’s stockholders shall be distributed in accordance with the priorities set forth in Article IV, Section 3 of the Charter with the Series G Preferred Stockranking parri passu with the Series D and F Preferred Stock and prior to the Series B and C Preferred Stock. Not less than sixty (60) days prior to the payment date stated therein, the Corporation shall mail written notice of any suchLiquidation Event to each record holder of Series G Preferred Stock, setting forth in reasonable detail the amount of proceeds to be paid with respect to each Share and each share of Common Stock in connection with such Liquidation Event. A Changeof Control shall not be deemed a Liquidation Event for purposes of this Section 3. 

**Section 4. Voting Rights.**

**4A. Voting Rights**. The holders of the Series G Preferred Stock shall be entitled to notice of all stockholders meetings inaccordance with the Corporation’s Bylaws, and except as otherwise required by applicable law, the holders of the Series G Preferred Stock shall be entitled to vote on all matters submitted to the stockholders for a vote together with theholders of the Common Stock, and all other classes of capital stock entitled to vote with the Common Stock, voting together as a single class with each share of and Series G Preferred Stock entitled to one 

vote for each share of Common Stock issuable upon conversion of the such Series G Preferred Stock as of the record date for such vote or, if no record dateis specified, as of the date of such vote. 

**4B. Covenants**. 

The Corporation shall not take any of the actions set forth below without first obtaining the affirmative vote of the holders of at least two-thirds ofthe then outstanding shares of Series G Preferred Stock for so long as at least 20% of the Series G Preferred Stock originally issued pursuant to the Purchase Agreements remains outstanding. 

(a) alter or change the preferences, rights or powers of the Series G Preferred Stock; 

(b) increase or decrease the authorized number of shares of the Series G Preferred Stock; 

**Section 5. Conversion.**

**5A. Conversion Procedure.**

(i) Subject to the terms of this Section 5 and the terms of Section 4 of the Stock Purchase Agreement executed in connection with the issuanceof the Series G Preferred Stock, at any time and from time to time, any holder of Series G Preferred Stock may convert all or any portion of the Series G Preferred Stock (including any fraction of a Share) held by such holder into a number of sharesof Conversion Stock computed by multiplying the number of Shares to be converted by $0.75 and dividing the result by the Conversion Price then in effect; 

(ii) Except as otherwise provided herein, each conversion of Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing theSeries G Preferred Stock to be converted have been surrendered for conversion at the principal office of the Corporation. At the time any such conversion has been effected, the rights of the holder of the Shares converted as a holder of Series GPreferred Stock shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of theshares of Conversion Stock represented thereby; 

(iii) Notwithstanding any other provision hereof, if a conversion of Preferred Stock is tobe made in connection with a transaction affecting the Corporation, the conversion of any Shares of Series G Preferred Stock may, at the election of the holder thereof, be conditioned upon the consummation of such transaction, in which case suchconversion shall not be deemed to be effective until such transaction has been consummated; 

(iv) As soon as possible after a conversionhas been effected (but in any event within three (3) Business Days in the case of subparagraph (A) below), the Corporation shall deliver to the converting holder: 

(A) a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such name or names andsuch denomination or denominations as the converting holder has specified; 

 

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(B) payment of any amount payable under subparagraph (viii) below with respect to such conversion;and 

(C) a certificate representing any Shares, which were represented, by the certificate or certificates delivered to the Corporation inconnection with such conversion but which were not converted. 

(v) The issuance of certificates representing shares of Conversion Stockupon conversion of Preferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance ofshares of Conversion Stock. Upon conversion of each Share of Series G Preferred Stock, the Corporation shall take all such actions as are necessary in order to insure that the Conversion Stock issuable with respect to such conversion shall bevalidly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof. 

(vi) The Corporation shall not close its books against the transfer of Preferred Stock or of Conversion Stock issued or issuable upon conversion of Series G Preferred Stock in any manner, which interferes with the timely conversion ofSeries G Preferred Stock. The Corporation shall assist and cooperate with any holder of Shares required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Shares hereunder(including, without limitation, making any filings required to be made by the Corporation). 

(vii) The Corporation shall at all timesreserve and keep available out of its authorized but unissued shares of Conversion Stock, solely for the purpose of issuance upon the conversion of the Series G Preferred Stock, such number of shares of Conversion Stock issuable upon the conversionof all outstanding Preferred Stock. All shares of Conversion Stock that are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all suchactions as may be necessary to assure that all such shares of Conversion Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares ofConversion Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). The Corporation shall not take any action that would cause the number of authorized but unissuedshares of Conversion Stock to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of the Preferred Stock. 

(viii) If any fractional interest in a share of Conversion Stock would, except for the provisions of this subparagraph, be delivered upon any conversion of Preferred Stock, the Corporation, in lieu of delivering thefractional share therefore, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion. 

(ix) If the shares of Conversion Stock issuable by reason of conversion of Preferred Stock are convertible into or exchangeable for any other stock or securities of the Corporation, the Corporation shall, at theconverting holder’s option, upon surrender of the Shares to be converted by such holder as provided herein together with any notice, statement or payment required to effect such conversion or exchange of Conversion Stock, deliver to such holderor as 

 

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otherwise specified by such holder a certificate or certificates representing the stock or securities into which the shares of Conversion Stock issuable byreason of such conversion are so convertible or exchangeable, registered in such name or names and in such denomination or denominations as such holder has specified. 

**5B. Conversion Price.**

(i) In order to prevent dilution of the conversion rights granted under thisSection 5, the Conversion Price of the Series G Preferred Stock shall be subject to adjustment from time to time pursuant to this Section 5B. 

(ii) If and whenever after the original date of issuance of the first share of Series G Preferred Stock, the Corporation issues or sells, or in accordance with Section 5C is deemed to have issued or sold, anyshares of its Common Stock for a consideration per share less than the Market Price of the Common Stock determined as of the date of such issue or sale, then immediately upon such issue or sale, the Conversion Price shall be reduced to theConversion Price determined by multiplying the Conversion Price in effect immediately prior to such issue or sale by a fraction, the numerator of which shall be the sum of (1) the number of shares of Common Stock Deemed Outstanding immediatelyprior to such issue or sale multiplied by the Market Price of the Common Stock determined as of the date of such issuance or sale, plus (2) the consideration, if any, received by the Corporation upon such issue or sale, and the denominator ofwhich shall be the product derived by multiplying the Market Price of the Common Stock by the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale. 

(iii) Notwithstanding the foregoing, there shall be no adjustment to the Conversion Price hereunder with respect to any issuances that are exempt fromadjustment with respect to any shares of Preferred Stock of any series pursuant to Section 5B (iii) of the Charter. 

**5C.Effect on Conversion Price of Certain Events**. For purposes of determining the adjusted Conversion Price under paragraph 5B, the following shall be applicable: 

(i) Issuance of Rights or Options. If the Corporation in any manner grants or sells any Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion orexchange of any Convertible Securities issuable upon exercise of such Options, is less than the Market Price of the Common Stock determined as of such time, then the total maximum number of shares of Common Stock issuable upon the exercise of suchOptions or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of thegranting or sale of such Options for such price per share. For purposes of this paragraph, the “price per share for which Common Stock is issuable” shall be determined by dividing (A) the total amount, if any, received or receivableby the Corporation as consideration for the granting or sale of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon exercise of all such Options, plus in the case of such Options which relateto Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximumnumber of shares of Common Stock 

 

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issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options.No further adjustment of the Conversion Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock is actually issued upon the exercise of such Options or the conversion or exchange ofsuch Convertible Securities. 

(ii) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any ConvertibleSecurities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the Market Price of the Common Stock determined as of such time, then the maximum number of shares of Common Stock issuable uponconversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposesof this paragraph, the “price per share for which Common Stock is issuable” shall be determined by dividing (A) the total amount received or receivable by the Corporation as consideration for the issue or sale of such ConvertibleSecurities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof by (B) the total maximum number of shares of Common Stock issuable upon the conversion orexchange of all such Convertible Securities. No further adjustment of the Conversion Price shall be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of suchConvertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 5, no further adjustment of the Conversion Price shall be made byreason of such issue or sale. 

(iii) Change in Option Price or Conversion Rate. If the purchase price provided for in any Options, theadditional consideration, if any, payable upon the conversion or exchange of any Convertible Securities or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, the Conversion Pricein effect at the time of such change shall be immediately adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additionalconsideration or conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of Section 5C, if the terms of any Option or Convertible Security which was outstanding as of the date of issuance of the Series GPreferred Stock are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have beenissued and sold as of the date of such change, provided, that (A) no such change shall at any time cause the Conversion Price hereunder to be increased, and (B) no adjustment to the Conversion Price pursuant to this clause (iii) shallbe made as a result of any adjustment to the exercise and/or conversion price with respect to the Bayview Warrant, the Common Warrants, the Series D Preferred Stock and Series F Preferred Stock only, the Series B Preferred Stock, the Series CPreferred Stock, the Series C Warrants, the Preferred Warrants and the exercise of the Bridge Warrants, pursuant to and in accordance with the antidilution protection provisions of such securities as in effect on the date hereof. 

 

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(iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of anyOption or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, the Conversion Price then in effect hereunder shall be adjusted immediately to the Conversion Price which wouldhave been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. For purposes of Section 5C, theexpiration or termination of any Option or Convertible Security which was outstanding as of the date of issuance of the Preferred Stock with Conversion Price subject to adjustment shall not cause the Conversion Price hereunder to be adjusted unless,and only to the extent that, a change in the terms of such Option or Convertible Security caused it to be deemed to have been issued after the date of issuance of the Preferred Stock with Conversion Price subject to adjustment. 

(v) Calculation of Consideration Received. If any Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or soldfor cash, the consideration received therefore shall be deemed to be the amount received by the Corporation therefore. If any Common Stock, Option or Convertible Security is issued or sold for a consideration other than cash, the amount of theconsideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation shall be theMarket Price thereof as of the date of receipt. The fair value of any consideration other than cash and securities shall be determined jointly by the Corporation and the holders of at least two-thirds of the Series G Preferred Stock. If such partiesare unable to reach agreement within a reasonable period of time, the fair value of such consideration shall be determined by an independent appraiser experienced in valuing such type of consideration jointly selected by the Corporation and theholders of at least two-thirds of each of the Series G Preferred Stock, voting as individual classes. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by theCorporation. 

(vi) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of theCorporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for a consideration of $.01. 

(vii) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account ofthe Corporation or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. 

(viii) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or(b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration ofsuch dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 

 

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**5D. Subdivision or Combination of Common Stock**. If the Corporation at any time subdivides (by anystock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionatelyreduced, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to suchcombination shall be proportionately increased. 

**5E. Reorganization, Reclassification, Consolidation, Merger or Sale**. Anyrecapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation’s assets or other transaction, in each case which is effected in such a manner that the holders of Common Stock areentitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock held by such holders, is referred to herein as an “Organic Change”. Prior to the consummationof any Organic Change, the Corporation shall make appropriate provisions to insure that each of the holders of Series G Preferred Stock shall thereafter have the right to acquire and receive, in lieu of the shares of Conversion Stock immediatelytheretofore acquirable and receivable upon the conversion of such holder’s Series G Preferred Stock, such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holder hadconverted its Series G Preferred Stock immediately prior to such Organic Change. In each such case, the Corporation shall also make appropriate provisions to insure that the provisions of this Section 5 and Section 6 below shall thereafterbe applicable to the Initially Designated Preferred Stock. The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Corporation) resulting fromconsolidation or merger or the entity purchasing such assets assumes by written instrument, the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may beentitled to acquire. 

**5F. Certain Events**. If any event occurs of the type contemplated by the provisions of this Section 5 butnot expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation’s Board of Directors shall make anappropriate adjustment in the Conversion Price so as to protect the rights of the holders of Preferred Stock; provided, that no such adjustment shall increase the Conversion Price or decrease the number of shares of Conversion Stock issuable uponconversion of each Share of Preferred Stock as otherwise determined pursuant to this Section 5. 

**5G. Notices.**

(i) Immediately upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof to all affected holders of PreferredStock, setting forth in reasonable detail and certifying the calculation of such adjustment. 

 

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(ii) The Corporation shall give written notice to all holders of Preferred Stock at least 20 days priorto the date on which the Corporation closes its books or takes a record (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) fordetermining rights to vote with respect to any Organic Change, dissolution or liquidation. 

(iii) The Corporation shall also give writtennotice to the holders of Preferred Stock at least 20 days prior to the date on which any Organic Change shall take place. 

**5H. DragAlong Rights.** In the event that all of the then outstanding Series B Preferred Stock is converted pursuant to Article IV.D.5. of the Charter, upon such conversion of the Series B Preferred Stock, all of the then outstanding Series G PreferredStock shall be converted automatically into shares of Conversion Stock, and the holders of Series G Preferred Stock shall surrender all of their stock certificates representing Series G Preferred Stock in exchange for certificates representing thenumber of shares of Conversion Stock then issuable upon conversion of such series of Series G Preferred Stock in accordance with this Section 5. 

**Section 6. Purchase Rights**. If at any time the Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata tothe record holders of any class of Common Stock (the “Purchase Rights”), then each holder of Initially Designated Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate PurchaseRights which such holder could have acquired if such holder had held the number of shares of Conversion Stock acquirable upon conversion of such holder’s Initially Designated Preferred Stock immediately before the date on which a record istaken for the grant, issuance or sale of such Purchase Rights, or if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 

**Section 7. Registration of Transfer**. The Corporation shall keep at its principal office a register for the registration of PreferredStock. Upon the surrender of any certificate representing Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation’s expense) a new certificate orcertificates in exchange therefore representing in the aggregate the number of Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Shares as is requested bythe holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have beenfully paid on such Preferred Stock represented by the surrendered certificate. 

**Section 8. Replacement**. Upon receipt ofevidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Shares, and in the case of any such loss,theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor its own agreement shall be satisfactory) or, in the case of any suchmutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Shares of such class represented by such lost, stolen,destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fullypaid on such lost, stolen, destroyed or mutilated certificate. 

 

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**Section 9. Definitions for Purposes of Article IV, Paragraph D**. 

For the purposes of this Section D of Article IV, the following definitions shall apply. To the extent not defined herein, terms shall have the meaningset forth in the Charter. 

“Affiliate” of any Person means any other Person directly or indirectly controlling, controlled by or undercommon control with such Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through ownership of voting securities, contract or otherwise.

“Bayview Warrant” has the meaning set forth in the Charter. 

“Bridge Warrant” means a warrant to purchase Series D Preferred Stock issued by UST to TH Li pursuant to a certain Bridge Loan Agreement by and betweenUST and TH Li dated January 4, 2001. 

“CEX Convertible Note” has the meaning set forth inSection 5B(iii)(E) of the Charter. 

“Common Stock” means, collectively, the Corporation’s common stock, par value $0.004 pershare, and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in thedistribution of assets upon any liquidation, dissolution or winding up of the Corporation. “Common Stock Deemed Outstanding” means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the numberof shares of Common Stock deemed to be outstanding pursuant to subparagraphs 5C(i) and 5C(ii) hereof whether or not the Options or Convertible Securities are actually exercisable at such time. 

“Common Warrants” means, collectively, the “Common Warrants” as defined in the Charter. 

“Conversion Price” initially means $0.75 for the Series G Preferred Stock. 

“Conversion Stock” means shares of the Corporation’s Common Stock; provided, that if there is a change such that the securities issuable uponconversion of the Preferred Stock are issued by an entity other than the Corporation or there is a change in the type or class of securities so issuable, then the term “Conversion Stock” shall mean one share of the security issuable uponconversion of the Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. 

“Convertible Securities” means any stock or securities directly or indirectly convertible into or exchangeable for Common Stock. 

“Corporation” means Velocity Express Corporation, a Delaware corporation, or, where applicable (for example, in connection with agreements dated prior to the date of incorporation of the Corporationunder the GCL), UST. Where applicable, reference to certain agreements of the Corporation entered into prior to its incorporation under the GCL refer to those as assumed by the surviving entity as a matter of law under the expected merger betweenthe Corporation and UST. 

 

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“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Junior Securities” has the meaning set forth in Section 1 of the Charter. 

“Liquidation Event” has the meaning set forth in Section 3. 

“Liquidation Value” of any share of Series G Preferred Stock shall be equal to $0.75. 

“Market Price” of any security means the average of the closing prices of such security’s sales on all securities exchanges on which such securitymay at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, theaverage of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day inthe domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of the twenty (20) consecutive trading days immediately prior tothe day as of which “Market Price” is being determined. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the “Market Price” shall be the fairvalue thereof determined jointly by the Corporation and the holders of at least two-thirds of each of the then outstanding classes of Preferred Stock, voting as individual classes. If such parties are unable to reach agreement within a reasonableperiod of time, such fair value shall be determined by an independent appraiser experienced in valuing securities jointly selected by the Corporation and the holders of at least two-thirds of each of the then outstanding classes of Preferred Stock,voting as individual classes. The determination of such appraiser shall be final and binding upon the parties, and the Corporation shall pay the fees and expenses of such appraiser. 

“Options” means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.

“Permitted Issuances” means the acts described in Section 5B(iii). 

“Person” means an individual, a partnership, a corporation, a limited liability company, a limited liability, an association, a joint stock company, atrust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. 

“Preferred Stock” shall have the meaning set forth in the Charter. 

“Preferred Warrants”means, collectively, the “Preferred Warrants” and the “Additional Warrants” as defined in the Charter. 

 

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“Purchase Agreements” means the Securities Purchase Agreements, dated as of April 2002 by and among theCorporation and certain investors, as such agreement may from time to time be amended in accordance with its terms. 

“Purchasers” means the “Purchasers” as defined in the Purchase Agreements and their respective Affiliates. 

“Series B Preferred Stock” has the meaning set forth in Article IV, C.1, Section 1 of the Charter. 

“Series C Preferred Stock” has the meaning set forth in Article IV, C.1, Section 1 of the Charter. 

“Series D Preferred Stock” has the meaning set forth in Article IV, C.1, Section 1 of the Charter. 

“Series F Preferred Stock” has the meaning set forth in Article IV, C.l, Section 1 of the Charter. 

“Series G Preferred Stock” has the meaning set forth in Article IV, C.1, Section 1 of the Charter. 

“Series C Warrants” means, collectively, the “Series C Warrants” as defined in, and issued pursuant to, Securities Purchase Agreement dated as of September 1, 2000, by and among UST and certain investors, assuch agreement may from time to time be amended in accordance with its terms, and any warrants issued in exchange, substitution or replacement therefore. 

“Share” has the meaning set forth in Section 3. 

“Stock Option Plans” means,collectively, the Corporation’s 1995 Stock Option Plan, 1996 Director Stock Option Plan and 2000 Stock Option Plan. 

“Subsidiary”means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard tothe occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combinationthereon or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by anyPerson or one or more Subsidiaries of that person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other businessentity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing general partner of such limited liability company,partnership, association or other business entity. 

“TH Li” means collectively TH Lee Putnam Ventures, LP, a Delaware limited partnership,TH Lee.Putnam Parallel Ventures, LP, a Delaware limited partnership, THLi Coinvestment Partners LLC, a Delaware limited liability company, and Blue Star I, LLC, a Delaware limited liability company. 

“UST” means United Shipping and Technology, Inc., a Utah corporation and the predecessor of Velocity Express Corporation, a Delaware corporation.

 

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“Voting Securities” means securities of the Corporation ordinarily having the power to vote for theelection of directors of the Corporation; provided, that when the term “Voting Securities” is used with respect to any other Person it means the capital stock or other equity interests of any class or kind ordinarily having the power tovote for the election of directors or other members of the governing body of such Person. 

**Section 10. Amendment andWaiver**. No amendment, modification or waiver shall be binding or effective with respect to any provision of Sections 1 to 11 hereof without the prior written consent of the holders of at least two-thirds of Series G Preferred Stockoutstanding, voting as individual series, at the time such action is taken. 

**Section 11. Notices**. Except as otherwiseexpressly provided hereunder, all notices referred to herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, andshall be deemed to have been given when so mailed or sent (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder’s address as it appears in the stock records of the Corporation (unlessotherwise indicated by any such holder). 

 

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**VELOCITY EXPRESS CORPORATION**

**CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF**

**SERIES H CONVERTIBLEPREFERRED STOCK**

Pursuant the provisions of the General Corporation Law of the State of Delaware, the undersigned corporation certifiesthe following and adopts the attached certificate of designation: 

 

FIRST:
  The name of the corporation is Velocity Express Corporation (the “Corporation”).
SECOND:
  Pursuant to the authority vested in the Board of Directors by this corporation’s Amended and Restated Certificate of Incorporation, as amended to date, the Board of Directors byunanimous written consent did adopt on October 9, 2002, without shareholder action, the following resolutions, authorizing the creation and designation of a series of preferred stock designated as Series H Convertible Preferred Stock as set forth inExhibit A attached hereto:  
RESOLVED, that, in order to comply with and fulfill its obligations under a Stock Purchase Agreement, the Corporation will be required to file a Certificate ofDesignation, in order to designate a new class or series of its authorized preferred shares as set forth on Exhibit A to these consent resolutions (the “Certificate”); and
  
RESOLVED FURTHER, that the Board of Directors, acting under authority of the Corporation’s Amended and Restated Certificate of Incorporation and the GeneralCorporate Law of the State of Delaware, hereby approves and adopts the Certificate; and
  
RESOLVED FURTHER that, in the manner required by law and by the Corporation’s Amended and Restated Certificate of Incorporation, the appropriate officers ofthe corporation be and they hereby are authorized and directed to cause to be prepared, and to execute, and to file with the Secretary of State of the State of Delaware the Certificate.

THIRD:
  As required by Section 4C(b)(iv) of the Corporation’s Amended and Restated Certificate of Incorporation, the Certificate has been approved by the holders of in excess of two-thirds ofthe outstanding Series B Preferred Stock and Series C Preferred Stock.
In witness whereof, this Certificate of Designation of Series H Convertible Preferred Stock ishereby executed on behalf of this corporation this 10 day of October, 2002. 

 

Velocity Express Corporation

/s/ Wesley C. Fredenburg

By Wesley C. Fredenburg,

Its Secretary

**Exhibit A**

**VELOCITY EXPRESS CORPORATION (THE “CORPORATION”)**

**SERIES H CONVERTIBLE PREFERRED STOCKTERMS**

**Section 1. Designation and Amount**. The number of authorized shares of Series H Convertible Preferred Stock,par value $0.004 per share (the “Series H Preferred Stock”), shall be 500,000. 

**Section 2. Dividends**. In theevent that the Corporation declares or pays any dividends upon the Common Stock (whether payable in cash, securities or other property) other than dividends payable solely in shares of Common Stock, the Corporation shall also declare and pay to theholders of Series H Preferred Stock at the same time that it declares and pays such dividends to the holders of the Common Stock, the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion ofshares of the Series H Preferred Stock which are convertible into shares of Common Stock had all such shares of the outstanding Series H Preferred Stock been converted immediately prior to the record date for such dividend, or if no record date isfixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. 

**Section 3.Liquidation Preference**. Upon liquidation, dissolution and winding up of the Corporation (whether voluntary or involuntary) (a “Liquidation Event”), the Corporation shall pay to the holders of the Series H Preferred Stock (unlessotherwise provided for in the resolution or resolutions creating such stock) the aggregate Liquidation Value attributable to such shares (each, a “Share”) plus any unpaid dividends thereon. If upon any such Liquidation Event, theCorporation’s assets to be distributed among the holders of the Junior Securities, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series F Preferred Stock, Series G Preferred Stock and Series H Preferred Stock areinsufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid under this Section 3 or Article IV, Section 3 of the Corporation’s Amended and Restated Certificate of Incorporation, as amendedfrom time to time (the “Charter”), as applicable, then the entire assets available to be distributed to the Corporation’s stockholders shall be distributed in accordance with the priorities set forth in Article IV, Section 3 ofthe Charter with the Series H Preferred Stock ranking parri passu with the Series D, F and G Preferred Stock and prior to the Series B and C Preferred Stock. Not less than sixty (60) days prior to the payment date stated therein, theCorporation shall mail written notice of any such Liquidation Event to each record holder of Series H Preferred Stock, setting forth in reasonable detail the amount of proceeds to be paid with respect to each Share and each share of Common Stock inconnection with such Liquidation Event. A Change of Control shall not be deemed a Liquidation Event for purposes of this Section 3. 

**Section 4. Voting Rights**. 

**4A. Voting Rights**. Subject to the terms of this Section 4,Section 6 hereunder and the terms of Section 4 of the Stock Purchase Agreement executed in connection with the issuance of the Series H Preferred Stock, the holders of the Series H Preferred Stock shall be entitled to notice of allstockholders meetings in accordance with the Corporation’s Bylaws, and except as otherwise required by applicable law, the holders of the Series H Preferred Stock shall be entitled 

to vote on all matters submitted to the stockholders for a vote together with the holders of the Common Stock, and all other classes of capital stockentitled to vote with the Common Stock, voting together as a single class with each share of and Series H Preferred Stock entitled to one vote for each share of Common Stock issuable upon conversion of the such Series H Preferred Stock as of therecord date for such vote or, if no record date is specified, as of the date of such vote. In addition to the limitations contained in Section 4 of the Stock Purchase Agreement executed in connection with the issuance of the Series H PreferredStock, the voting rights granted hereunder shall not be effective until the later of (a) a vote of the Company’s shareholders approving the issuance of the Series H Preferred Stock, and (b) April 30, 2003. 

**4B. Covenants**. 

The Corporationshall not take any of the actions set forth below without first obtaining the affirmative vote of the holders of at least two-thirds of the then outstanding shares of Series H Preferred Stock for so long as at least 20% of the Series H PreferredStock originally issued pursuant to the Purchase Agreements remains outstanding: 

(a) alter or change the preferences, rights or powers ofthe Series H Preferred Stock; 

(b) increase or decrease the authorized number of shares of the Series H Preferred Stock; 

**Section 5. Conversion**. 

**5A. Conversion Procedure**. 

(i) Subject to the terms of this Section 5, Section 6 hereunder and the terms ofSection 4 of the Stock Purchase Agreement executed in connection with the issuance of the Series H Preferred Stock, at any time and from time to time, any holder of Series H Preferred Stock may convert all or any portion of the Series HPreferred Stock (including any fraction of a Share) held by such holder into a number of shares of Conversion Stock computed by multiplying the number of Shares to be converted by $10.00 and dividing the result by the Conversion Price then ineffect. 

(ii) Except as otherwise provided herein, each conversion of Preferred Stock shall be deemed to have been effected as of the closeof business on the date on which the certificate or certificates representing the Series H Preferred Stock to be converted have been surrendered for conversion at the principal office of the Corporation. At the time any such conversion has beeneffected, the rights of the holder of the Shares converted as a holder of Series H Preferred Stock shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon suchconversion shall be deemed to have become the holder or holders of record of the shares of Conversion Stock represented thereby. 

(iii)Notwithstanding any other provision hereof, if a conversion of Preferred Stock is to be made in connection with a transaction affecting the Corporation, the conversion of any Shares of Series H Preferred Stock may, at the election of the holderthereof, be conditioned upon the consummation of such transaction, in which case such conversion shall not be deemed to be effective until such transaction has been consummated. 

 

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(iv) As soon as possible after a conversion has been effected (but in any event within three(3) Business Days in the case of subparagraph (A) below), the Corporation shall deliver to the converting holder: 

(A) acertificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; 

(B) payment of any amount payable under subparagraph (viii) below with respect to such conversion; and 

(C) a certificate representing any Shares, which were represented, by the certificate or certificates delivered to the Corporation in connection withsuch conversion but which were not converted. 

(v) The issuance of certificates representing shares of Conversion Stock upon conversion ofPreferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of ConversionStock. Upon conversion of each Share of Series H Preferred Stock, the Corporation shall take all such actions as are necessary in order to insure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paidand nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof. 

(vi) The Corporationshall not close its books against the transfer of Preferred Stock or of Conversion Stock issued or issuable upon conversion of Series H Preferred Stock in any manner, which interferes with the timely conversion of Series H Preferred Stock. TheCorporation shall assist and cooperate with any holder of Shares required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Shares hereunder (including, without limitation, makingany filings required to be made by the Corporation). 

(vii) The Corporation shall at all times reserve and keep available out of itsauthorized but unissued shares of Conversion Stock, solely for the purpose of issuance upon the conversion of the Series H Preferred Stock, such number of shares of Conversion Stock issuable upon the conversion of all outstanding Preferred Stock.All shares of Conversion Stock that are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assurethat all such shares of Conversion Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Conversion Stock may be listed (except forofficial notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). The Corporation shall not take any action that would cause the number of authorized but unissued shares of Conversion Stock to be less thanthe number of such shares required to be reserved hereunder for issuance upon conversion of the Preferred Stock. 

 

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(viii) If any fractional interest in a share of Conversion Stock would, except for the provisions of thissubparagraph, be delivered upon any conversion of Preferred Stock, the Corporation, in lieu of delivering the fractional share therefore, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the dateof conversion. 

(ix) If the shares of Conversion Stock issuable by reason of conversion of Preferred Stock are convertible into orexchangeable for any other stock or securities of the Corporation, the Corporation shall, at the converting holder’s option, upon surrender of the Shares to be converted by such holder as provided herein together with any notice, statement orpayment required to effect such conversion or exchange of Conversion Stock, deliver to such holder or as otherwise specified by such holder a certificate or certificates representing the stock or securities into which the shares of Conversion Stockissuable by reason of such conversion are so convertible or exchangeable, registered in such name or names and in such denomination or denominations as such holder has specified. 

**5B. Conversion Price**. 

(i) In orderto prevent dilution of the conversion rights granted under this Section 5, the Conversion Price of the Series H Preferred Stock shall be subject to adjustment from time to time pursuant to this Section 5B. 

(ii) If and whenever after the original date of issuance of the first share of Series H Preferred Stock, the Corporation issues or sells, or inaccordance with Section 5C is deemed to have issued or sold, any shares of its Common Stock for a consideration per share less than the Market Price of the Common Stock determined as of the date of such issue or sale, then immediately upon suchissue or sale, the Conversion Price shall be reduced to the Conversion Price determined by multiplying the Conversion Price in effect immediately prior to such issue or sale by a fraction, the numerator of which shall be the sum of (1) thenumber of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale multiplied by the Market Price of the Common Stock determined as of the date of such issuance or sale, plus (2) the consideration, if any, received bythe Corporation upon such issue or sale, and the denominator of which shall be the product derived by multiplying the Market Price of the Common Stock by the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale.

(iii) Notwithstanding the foregoing, there shall be no adjustment to the Conversion Price hereunder with respect to any issuances that areexempt from adjustment with respect to any shares of Preferred Stock of any series pursuant to Section 5B (iii) of the Charter. 

**5C. Effect on Conversion Price of Certain Events**. For purposes of determining the adjusted Conversion Price under paragraph 5B, the following shall be applicable: 

(i) Issuance of Rights or Options. If the Corporation in any manner grants or sells any Options and the price per share for which Common Stock isissuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is less than the Market Price of the Common Stock determined as of such time, then the total maximumnumber of shares of Common Stock issuable upon the 

 

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exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Optionsshall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Options for such price per share. For purposes of this paragraph, the “price per share for which Common Stock isissuable” shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of such Options, plus the minimum aggregate amount of additional considerationpayable to the Corporation upon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance orsale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such ConvertibleSecurities issuable upon the exercise of such Options. No further adjustment of the Conversion Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock is actually issued upon theexercise of such Options or the conversion or exchange of such Convertible Securities. 

(ii) Issuance of Convertible Securities. If theCorporation in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the Market Price of the Common Stock determined as of such time, thenthe maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the issuance or sale of suchConvertible Securities for such price per share. For the purposes of this paragraph, the “price per share for which Common Stock is issuable” shall be determined by dividing (A) the total amount received or receivable by theCorporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (B) the totalmaximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Conversion Price shall be made when Common Stock is actually issued upon the conversion or exchange ofsuch Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of thisSection 5, no further adjustment of the Conversion Price shall be made by reason of such issue or sale. 

(iii) Change in Option Priceor Conversion Rate. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities or the rate at which any Convertible Securities are convertible intoor exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be immediately adjusted to the Conversion Price which would have been in effect at such time had such Options or ConvertibleSecurities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of Section 5C, if the terms of any Option orConvertible Security which was outstanding as of the date of issuance of the Series H Preferred Stock are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemedissuable upon exercise, 

 

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conversion or exchange thereof shall be deemed to have been issued and sold as of the date of such change; provided, that (A) no such change shall atany time cause the Conversion Price hereunder to be increased, and (B) no adjustment to the Conversion Price pursuant to this clause (iii) shall be made as a result of any adjustment to the exercise and/or conversion price with respect tothe Bayview Warrant, the Common Warrants, the Series D Preferred Stock and Series F Preferred Stock only, the Series B Preferred Stock, the Series C Preferred Stock, the Series C Warrants, the Preferred Warrants and the exercise of the BridgeWarrants, pursuant to and in accordance with the antidilution protection provisions of such securities as in effect on the date hereof. 

(iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right,the Conversion Price then in effect hereunder shall be adjusted immediately to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstandingimmediately prior to such expiration or termination, never been issued. For purposes of Section 5C, the expiration or termination of any Option or Convertible Security which was outstanding as of the date of issuance of the Preferred Stock withConversion Price subject to adjustment shall not cause the Conversion Price hereunder to be adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible Security caused it to be deemed to have been issued afterthe date of issuance of the Preferred Stock with Conversion Price subject to adjustment. 

(v) Calculation of Consideration Received. If anyCommon Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefore shall be deemed to be the amount received by the Corporation therefore. If any Common Stock, Optionor Convertible Security is issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists ofsecurities, in which case the amount of consideration received by the Corporation shall be the Market Price thereof as of the date of receipt. The fair value of any consideration other than cash and securities shall be determined jointly by theCorporation and the holders of at least two-thirds of the Series H Preferred Stock. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such consideration shall be determined by an independentappraiser experienced in valuing such type of consideration jointly selected by the Corporation and the holders of at least two-thirds of each of the Series H Preferred Stock, voting as individual classes. The determination of such appraiser shallbe final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Corporation. 

(vi) IntegratedTransactions. In case any Option is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the partiesthereto, the Option shall be deemed to have been issued for a consideration of $.01. 

(vii) Treasury Shares. The number of shares of CommonStock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock.

 

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(viii) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose ofentitling them (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shallbe deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right ofsubscription or purchase, as the case may be. 

**5D. Subdivision or Combination of Common Stock**. If the Corporation at any timesubdivides (by any stock split, stock dividend, recapitalization of otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shallbe proportionately reduced, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediatelyprior to such combination shall be proportionately increased. 

**5E. Reorganization, Reclassification, Consolidation, Merger or Sale**.Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation’s assets or other transaction, in each case which is effected in such a manner that the holders of Common Stockare entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock held by such holders, is referred to herein as an “Organic Change”. Prior to theconsummation of any Organic Change, the Corporation shall make appropriate provisions to insure that each of the holders of Series H Preferred Stock shall thereafter have the right to acquire and receive, in lieu of the shares of Conversion Stockimmediately theretofore acquirable and receivable upon the conversion of such holder’s Series H Preferred Stock, such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holderhad converted its Series H Preferred Stock immediately prior to such Organic Change. In each such case, the Corporation shall also make appropriate provisions to insure that the provisions of this Section 5 and Section 6 below shallthereafter be applicable to the Initially Designated Preferred Stock. The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Corporation) resultingfrom consolidation or merger or the entity purchasing such assets assumes by written instrument, the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holdermay be entitled to acquire. 

**5F. Certain Events**. If any event occurs of the type contemplated by the provisions of thisSection 5 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation’s Board of Directorsshall make an appropriate adjustment in the Conversion Price so as to protect the rights of the holders of Preferred Stock; provided, that no such adjustment shall increase the Conversion Price or decrease the number of shares of Conversion Stockissuable upon conversion of each Share of Preferred Stock as otherwise determined pursuant to this Section 5. 

 

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**5G. Notices.**

(i) Immediately upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof to all affected holders of Preferred Stock, setting forth in reasonable detail and certifying thecalculation of such adjustment. 

(ii) The Corporation shall give written notice to all holders of Preferred Stock at least 20 days prior tothe date on which the Corporation closes its books or takes a record (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) fordetermining rights to vote with respect to any Organic Change, dissolution or liquidation. 

(iii) The Corporation shall also give writtennotice to the holders of Preferred Stock at least 20 days prior to the date on which any Organic Change shall take place. 

**5H. DragAlong Right.** In the event that all of the then outstanding Series B Preferred Stock is converted pursuant to Article IV.D.5. of the Charter, upon such conversion of the Series B Preferred Stock, all of the then outstanding Series H PreferredStock shall be converted automatically into shares of Conversion Stock, and the holders of Series H Preferred Stock shall surrender all of their stock certificates representing Series H Preferred Stock in exchange for certificates representing thenumber of shares of Conversion Stock then issuable upon conversion of such series of Series H Preferred Stock in accordance with this Section 5. 

**Section 6. Call Rights**. At anytime and from time to time prior to April 30, 2003, and subject to the requirements of Section 1(a) of the Stock Purchase Agreement executed in connectionwith the issuance of the Series H Preferred Stock, the Company will have the right, exercisable upon not less than ten (10) days prior written notice to the holder of preferred stock, to repurchase any or all of the shares of Series H PreferredStock at a per Share purchase price equal to $10.00. This call right will terminate on April 29, 2003. 

**Section 7. PurchaseRights**. If at any time the Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the“Purchase Rights”), then each holder of Initially Designated Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if suchholder had held the number of shares of Conversion Stock acquirable upon conversion of such holder’s Initially Designated Preferred Stock immediately before the date on which a record is taken for the grant, issuance or sale of such PurchaseRights, or if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 

**Section 8. Registration of Transfer**. The Corporation shall keep at its principal office a register for the registration of Preferred Stock. Upon the surrender of any certificate representingPreferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation’s expense) a new certificate or certificates in 

 

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exchange therefore representing in the aggregate the number of Shares represented by the surrendered certificate. Each such new certificate shall beregistered in such name and shall represent such number of Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the PreferredStock represented by such new certificate from the date to which dividends have been fully paid on such Preferred Stock represented by the surrendered certificate. 

**Section 9. Replacement**. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft,destruction or mutilation of any certificate evidencing Shares, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution orother institutional investor its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a newcertificate of like kind representing the number of Shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue onthe Preferred Stock represented by such new certificate from date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. 

**Section 10. Definitions for Purposes of Article IV, Paragraph D**. 

For the purposes ofthis Section D of Article IV, the following definitions shall apply. To the extent not defined herein, terms shall have the meaning set forth in the Charter. 

“Affiliate” of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person, where “control” means the possession, directly or indirectly, of thepower to direct the management and policies of a Person whether through ownership of voting securities, contract or otherwise. 

“Bayview Warrant” has the meaning set forth in the Charter. 

“Bridge Warrant” means a warrant to purchase SeriesD Preferred Stock issued by UST to TH Li pursuant to a certain Bridge Loan Agreement by and between UST and TH Li dated January 4, 2001. 

“CEX Convertible Note” has the meaning set forth in Section 5B(iii)(E) of the Charter. 

“Common Stock” means, collectively, the Corporation’s common stock, par value $0.004 per share, and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum orpercentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation. “Common Stock DeemedOutstanding” means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to subparagraphs 5C(i) and 5C(ii) hereof whether or notthe Options or Convertible Securities are actually exercisable at such time. 

 

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“Common Warrants” means, collectively, the “Common Warrants”as defined in the Charter. 

“Conversion Price” initially means $1.00 for the Series H Preferred Stock.

“Conversion Stock” means shares of the Corporation’s Common Stock; provided, that if there is a change such that the securitiesissuable upon conversion of the Preferred Stock are issued by an entity other than the Corporation or there is a change in the type or class of securities so issuable, then the term “Conversion Stock” shall mean one share of the securityissuable upon conversion of the Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. 

“Convertible Securities” means any stock or securities directly or indirectly convertible into or exchangeable for Common Stock. 

“Corporation” means Velocity Express Corporation, a Delaware corporation, or, where applicable (for example, in connection with agreements dated priorto the date of incorporation of the Corporation under the GCL), UST. Where applicable, reference to certain agreements of the Corporation entered into prior to its incorporation under the GCL refer to those as assumed by the surviving entity as amatter of law under the expected merger between the Corporation and UST. 

“Exchange Act” means theSecurities Exchange Act of 1934, as amended. 

“Junior Securities” has the meaning set forth inSection 1 of the Charter. 

“Liquidation Event” has the meaning set forth in Section 3.

“Liquidation Value” of any share of Series H Preferred Stock shall be equal to $10.00. 

“Market Price” of any security means the average of the closing prices of such security’s sales on all securities exchanges on which such securitymay at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, theaverage of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day inthe domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of the twenty (20) consecutive trading days immediately prior tothe day as of which “Market Price” is being determined. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the “Market Price” shall be the fairvalue thereof determined jointly by the Corporation and the holders of at least two-thirds of each of the then outstanding classes of Preferred Stock, voting as individual classes. If such parties are unable to reach agreement within a reasonableperiod of time, such fair value shall be determined by an independent appraiser experienced in valuing securities jointly selected by the Corporation and the holders of at least two-thirds of each of the then outstanding classes of Preferred Stock,voting as individual classes. The determination of such appraiser shall be final and binding upon the parties, and the Corporation shall pay the fees and expenses of such appraiser. 

 

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“Options” means any rights, warrants or options to subscribe for orpurchase Common Stock or Convertible Securities. 

“Permitted Issuances” means the acts described inSection 5B(iii). 

“Person” means an individual, a partnership, a corporation, a limited liability company, a limited liability, anassociation, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. 

“Preferred Stock” shall have the meaning set forth in the Charter. 

“Preferred Warrants” means, collectively, the “Preferred Warrants” and the “Additional Warrants” as defined in the Charter.

“Purchase Agreements” means the Securities Purchase Agreements, dated as of April 2002 by and among the Corporation and certaininvestors, as such agreement may from time to time be amended in accordance with its terms. 

“Purchasers”means the “Purchasers” as defined in the Purchase Agreements and their respective Affiliates. 

“Series BPreferred Stock” has the meaning set forth in Article IV, C.1, Section 1 of the Charter. 

“Series CPreferred Stock” has the meaning set forth in Article IV, C.1, Section 1 of the Charter. 

“Series DPreferred Stock” has the meaning set forth in Article IV, C.1, Section 1 of the Charter. 

“Series FPreferred Stock” has the meaning set forth in Article IV, C.1, Section 1 of the Charter. 

“Series GPreferred Stock” has the meaning set forth in Article IV, C.1, Section 1 of the Charter. 

“Series HPreferred Stock” has the meaning set forth in Article IV, C.1, Section 1 of the Charter. 

“Series C Warrants” means,collectively, the “Series C Warrants” as defined in, and issued pursuant to, Securities Purchase Agreement dated as of September 1, 2000, by and among UST and certain investors, as such agreement may from time to time be amended inaccordance with its terms, and any warrants issued in exchange, substitution or replacement therefore. 

“Share” has the meaning set forth in Section 3. 

“Stock Option Plans” means, collectively, theCorporation’s 1995 Stock Option Plan, 1996 Director Stock Option Plan and 2000 Stock Option Plan. 

“Subsidiary” means, with respectto any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence ofany contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other 

 

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Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, amajority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that person or a combination thereof. For purposes hereof, a Person orPersons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership,association or other business entity gains or losses or shall be or control the managing general partner of such limited liability company, partnership, association or other business entity. 

“TH Li” or “THLPV” means collectively TH Lee Putnam Ventures, LP, a Delaware limited partnership, TH Lee.Putnam Parallel Ventures, LP, aDelaware limited partnership, THLi Coinvestment Partners LLC, a Delaware limited liability company, and Blue Star I, LLC, a Delaware limited liability company. 

“UST” means United Shipping and Technology, Inc., a Utah corporation and the predecessor of Velocity Express Corporation, a Delaware corporation. 

“Voting Securities” means securities of the Corporation ordinarily having the power to vote for the election of directors of the Corporation; provided, that when the term “Voting Securities”is used with respect to any other Person it means the capital stock or other equity interests of any class or kind ordinarily having the power to vote for the election of directors and other members of the governing body of such Person. 

**Section 11. Amendment and Waiver**. No amendment, modification or waiver shall be binding or effective with respect to any provisionof Sections 1 to 11 hereof without the prior written consent of the holders of at least two-thirds of Series H Preferred Stock outstanding, voting as individual series, at the time such action is taken. 

**Section 12. Notices**. Except as otherwise expressly provided hereunder, all notices referred to herein shall be in writing and shall bedelivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) to the Corporation, at itsprincipal executive offices and (ii) to any stockholder, at such holder’s address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). 

 

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**VELOCITY EXPRESS CORPORATION**

**CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF**

**SERIES I CONVERTIBLEPREFERRED STOCK**

**SERIES J CONVERTIBLE PREFERRED STOCK**

**SERIES K CONVERTIBLE PREFERRED STOCK**

**SERIES L CONVERTIBLE PREFERRED STOCK**

Pursuant to the authority vested in the Board of Directors of Velocity Express Corporation, a Delaware corporation (the “Company”), by theAmended and Restated Certificate of Incorporation of the Company, the Board of Directors, in accordance with section 151 of the Delaware General Corporation Law, duly adopts the attached following resolutions, authorizing the creation anddesignation of four series of preferred stock of the Company, designated as Series I Convertible Preferred Stock, par value $0.004 per shares, Series J Convertible Preferred Stock, par value $0.004 per shares, Series K Convertible Preferred Stock,par value $0.004 per shares and Series L Convertible Preferred Stock, par value $0.004 per shares: 

 

FIRST:
  The name of the corporation is Velocity Express Corporation (the “Company”).
SECOND:
  Attached hereto as Exhibit A is the resolutions authorizing the creation and designation of the Company’s Series I Convertible Preferred Stock, par value $0.004 pershare.
THIRD:
  Attached hereto as Exhibit B is the resolutions authorizing the creation and designation of the Company’s Series J Convertible Preferred Stock, par value $0.004 pershare.
FOURTH:
  Attached hereto as Exhibit C is the resolutions authorizing the creation and designation of the Company’s Series K Convertible Preferred Stock, par value $0.004 pershare.
FIFTH:
  Attached hereto as Exhibit D is the resolutions authorizing the creation and designation of the Company’s Series L Convertible Preferred Stock, par value $0.004 pershare.
RESOLVED FURTHER, that the Board of Directors, acting under authority of the Company’sAmended and Restated Certificate of Incorporation, as amended, and the General Corporate Law of the State of Delaware, hereby approves and adopts this Certificate; and 

RESOLVED FURTHER, that, in the manner required by law and by the Company’s Amended and Restated Certificate of Incorporation, as amended, the appropriate officers of the Company be and they hereby are authorizedand directed to cause to be prepared, and to execute, and to file with the Secretary of the State of Delaware this Certificate. 

ThisCertificate of Designation shall be deemed to be effective as of 8:00 p.m. (EST) on February 14, 2005. 

In witness whereof, this Certificate of Designation is hereby executed on behalf of the Company onFebruary 14, 2005. 

 

Velocity Express Corporation

/s/ Wesley C. Fredenburg

Wesley C. Fredenburg,

General Counsel and Secretary

 

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**Exhibit A**

**VELOCITY EXPRESS CORPORATION (THE “CORPORATION”)**

**SERIES I CONVERTIBLE PREFERRED STOCKTERMS**

Section 1. Designation and Amount. The number of authorized shares of Series I Convertible Preferred Stock, parvalue $0.004 per share (the “Series I Preferred Stock”), shall be 16,810,000. 

Section 2. Dividends. In the eventthat the Corporation declares or pays any dividends upon the Common Stock (whether payable in cash, securities or other property), other than dividends payable solely in shares of Common Stock, the Corporation shall also declare and pay to theholders of Series I Preferred Stock at the same time that it declares and pays such dividends to the holders of the Common Stock, the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion ofshares of the Series I Preferred Stock which are convertible into shares of Common Stock had all such shares of the outstanding Series I Preferred Stock been converted immediately prior to the record date for such dividend, or if no record date isfixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. 

Section 3.Liquidation Preference. Upon liquidation, dissolution and winding up of the Corporation (whether voluntary or involuntary) (a “Liquidation Event”), the Corporation shall pay to the holders of the Series I Preferred Stock (unlessotherwise provided for in the resolution or resolutions creating such stock) the aggregate Liquidation Value attributable to such shares (each, a “Share”) plus any accrued but unpaid dividends thereon. If upon any such Liquidation Event,the Corporation’s assets to be distributed among the holders of the Junior Securities, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stockand Series I Preferred Stock are insufficient to permit payment to such holders of the aggregate amount of their respective liquidation preference pursuant to the Corporation’s Amended and Restated Certificate of Incorporation, as amended fromtime to time (the “Charter”), as applicable, then the entire assets available to be distributed to the Corporation’s stockholders shall be distributed in accordance with the priorities set forth in Article IV, Section 3 of theCharter, with the Series I Preferred Stock ranking pari passu with the Series D, F, G and H Preferred Stock and prior to the Series B and C Preferred Stock. Not less than sixty (60) days prior to the payment date of the Liquidation Value, theCorporation shall mail written notice of any such Liquidation Event to each record holder of Series I Preferred Stock, setting forth in reasonable detail the amount of proceeds to be paid with respect to each Share and each share of Common Stock inconnection with such Liquidation Event. A change of control of the Corporation shall not be deemed a Liquidation Event for purposes of this Section 3. 

Section 4. Voting Rights. 

4A. Voting Rights. The Series I PreferredStock shall have no voting rights. 

 

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4B. Covenants. 

Notwithstanding the above, the Corporation shall not take any of the actions set forth below without first obtaining the affirmativeconsent of the holders of at least two-thirds of the then outstanding shares of Series I Preferred Stock for so long as at least 20% of the Series I Preferred Stock originally issued pursuant to the Stock Purchase Agreements remains outstanding:

(a) alter or change the preferences, rights or powers of the Series I Preferred Stock; 

(b) increase or decrease the authorized number of shares of the Series I Preferred Stock; 

Section 5. Conversion. Subject to the terms of this Section 5, at any time and from time to time after (i) the authorization bystockholders of the Corporation of the issuance of the Series I Preferred Stock and (ii) the amendment of the Charter to increase the number of shares of the Corporation authorized for issuance to 400,000,000 shares, of which 325,000,000 sharesare Common Stock and 75,000,000 shares are Preferred Stock (the time after both conditions are met, the “Conversion Time”), any holder of Series I Preferred Stock may convert all or any portion of the Series I Preferred Stock (includingany fraction of a Share) held by such holder into a number of shares of Conversion Stock computed by multiplying the number of Shares to be converted by $1.50 and dividing the result by the Conversion Price then in effect. 

5A. Conversion Procedure. 

(i) Except as otherwise provided herein, each conversion of Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing theSeries I Preferred Stock to be converted have been surrendered for conversion at the principal office of the Corporation. At the time any such conversion has been effected, the rights of the holder of the Shares converted as a holder of Series IPreferred Stock shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of theshares of Conversion Stock represented thereby. 

(ii) Notwithstanding any other provision hereof, if a conversion ofPreferred Stock is to be made in connection with a transaction affecting the Corporation, the conversion of any shares of Series I Preferred Stock may, at the election of the holder thereof, be conditioned upon the consummation of such transaction,in which case such conversion shall not be deemed to be effective until such transaction has been consummated. 

(iii) Assoon as possible after a conversion has been effected (but in any event within three (3) Business Days in the case of subparagraph (A) below), the Corporation shall deliver to the converting holder: 

(A) a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in suchname or names and such denomination or denominations as the converting holder has specified; 

 

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(B) payment of any amount payable under subparagraph (viii) below with respect tosuch conversion; and 

(C) a certificate representing any Shares, which were represented, by the certificate or certificatesdelivered to the Corporation in connection with such conversion but which were not converted. 

(iv) The issuance ofcertificates representing shares of Conversion Stock upon conversion of Preferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation inconnection with such conversion and the related issuance of shares of Conversion Stock. Upon conversion of each share of Series I Preferred Stock, the Corporation shall take all such actions as are necessary in order to insure that the ConversionStock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof. 

(v) The Corporation shall not close its books against the transfer of Preferred Stock or of Conversion Stock issued or issuable uponconversion of the Series I Preferred Stock in any manner, which interferes with the timely conversion of the Series I Preferred Stock. The Corporation shall assist and cooperate with any holder of Shares required to make any governmental filings orobtain any governmental approval prior to or in connection with any conversion of Shares hereunder (including, without limitation, making any filings required to be made by the Corporation). 

(vi) The Corporation shall at all times after the Conversion Time reserve and keep available out of its authorized but unissued shares ofConversion Stock, solely for the purpose of issuance upon the conversion of the Series I Preferred Stock, such number of shares of Conversion Stock issuable upon the conversion of all outstanding Preferred Stock. All shares of Conversion Stock thatare so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assure that all such shares of ConversionStock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Conversion Stock may be listed (except for official notice of issuance which shallbe immediately delivered by the Corporation upon each such issuance). The Corporation shall not take any action that would cause the number of authorized but unissued shares of Conversion Stock to be less than the number of such shares required tobe reserved hereunder for issuance upon conversion of the Preferred Stock. 

 

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(vii) If any fractional interest in a share of Conversion Stock would, except for theprovisions of this subparagraph, be delivered upon any conversion of the Series I Preferred Stock, the Corporation, in lieu of delivering the fractional share therefore, shall pay an amount to the holder thereof equal to the Market Price of suchfractional interest as of the date of conversion. 

(viii) If the shares of Conversion Stock issuable by reason of conversionof the Series I Preferred Stock are convertible into or exchangeable for any other stock or securities of the Corporation, the Corporation shall, at the converting holder’s option, upon surrender of the Shares to be converted by such holder asprovided herein together with any notice, statement or payment required to effect such conversion or exchange of Conversion Stock, deliver to such holder or as otherwise specified by such holder a certificate or certificates representing the stockor securities into which the shares of Conversion Stock issuable by reason of such conversion are so convertible or exchangeable, registered in such name or names and in such denomination or denominations as such holder has specified. 

5B. Conversion Price. 

(i) In order to prevent dilution of the conversion rights granted under this Section 5, the Conversion Price of the Series I Preferred Stock shall be subject to adjustment from time to time pursuant to thisSection 5B. 

(ii) If and whenever after the original date of issuance of the first share of Series I Preferred Stock,the Corporation issues or sells, or in accordance with Section 5C is deemed to have issued or sold, any shares of its Common Stock for a consideration per share less than the Market Price of the Common Stock determined as of the date of suchissue or sale, then immediately upon such issue or sale, the Conversion Price shall be reduced to the Conversion Price determined by multiplying the Conversion Price in effect immediately prior to such issue or sale by a fraction, the numerator ofwhich shall be the sum of (1) the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale multiplied by the Market Price of the Common Stock determined as of the date of such issuance or sale, plus(2) the consideration, if any, received by the Corporation upon such issue or sale, and the denominator of which shall be the product derived by multiplying the Market Price of the Common Stock by the number of shares of Common Stock DeemedOutstanding immediately after such issue or sale. 

(iii) Notwithstanding the foregoing, there shall be no adjustment to theConversion Price hereunder with respect to any issuances that are exempt from adjustment with respect to any shares of Preferred Stock of any series pursuant to Section 5B(iii) of the Charter. 

 

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5C. Effect on Conversion Price of Certain Events. For purposes of determining theadjusted Conversion Price under paragraph 5B, the following shall be applicable: 

(i) Issuance of Rights or Options.If the Corporation in any manner grants or sells any Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of suchOptions, is less than the Market Price of the Common Stock determined as of such time, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount ofsuch Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Options for such price per share. For purposesof this paragraph, the “price per share for which Common Stock is issuable” shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of suchOptions, plus the minimum aggregate amount of additional consideration payable to the Corporation upon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additionalconsideration, if any, payable to the Corporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of suchOptions or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Conversion Price shall be made when Convertible Securities are actually issued upon the exerciseof such Options or when Common Stock is actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities. 

(ii) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchangethereof is less than the Market Price of the Common Stock determined as of such time, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to havebeen issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this paragraph, the “price per share for which Common Stock is issuable” shall bedetermined by dividing (A) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to theCorporation upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Conversion Price shall bemade when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or 

 

A-5 

sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant toother provisions of this Section 5, no further adjustment of the Conversion Price shall be made by reason of such issue or sale. 

(iii) Change in Option Price or Conversion Rate. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities orthe rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be immediately adjusted to the Conversion Price which would havebeen in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. Forpurposes of Section 5C, if the terms of any Option or Convertible Security which was outstanding as of the date of issuance of the Series I Preferred Stock are changed in the manner described in the immediately preceding sentence, then suchOption or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued and sold as of the date of such change; provided, that (A) no such change shall at any timecause the Conversion Price hereunder to be increased, and (B) no adjustment to the Conversion Price pursuant to this clause (iii) shall be made as a result of any adjustment to the exercise and/or conversion price with respect to theoutstanding capital security of the Corporation on the date hereof pursuant to and in accordance with the antidilution protection provisions of such securities as in effect on the date hereof. 

(iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination ofany right to convert or exchange any Convertible Security without the exercise of any such Option or right, the Conversion Price then in effect hereunder shall be adjusted immediately to the Conversion Price which would have been in effect at thetime of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. For purposes of Section 5C, the expiration or termination of anyOption or Convertible Security which was outstanding as of the date of issuance of the Series I Preferred Stock shall not cause the Conversion Price hereunder to be adjusted unless, and only to the extent that, a change in the terms of such Optionor Convertible Security caused it to be deemed to have been issued after the date of issuance of the Series I Preferred Stock. 

(v) Calculation of Consideration Received. If any Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefore shall be deemed to be the amountreceived by the Corporation therefore. If any Common Stock, Option or Convertible Security is issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be 

 

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the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by theCorporation shall be the Market Price thereof as of the date of receipt of such securities. The fair value of any consideration other than cash and securities shall be determined jointly by the Corporation and the holders of at least two-thirds ofthe Series I Preferred Stock. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such consideration shall be determined by an independent appraiser experienced in valuing such type of consideration,jointly selected by the Corporation and the holders of at least two-thirds of the Series I Preferred Stock then outstanding. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraisershall be borne by the Corporation. 

(vi) Integrated Transactions. In case any Option is issued in connection with theissue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for aconsideration of $.01. 

(vii) Treasury Shares. The number of shares of Common Stock outstanding at any given timeshall not include shares owned or held by or for the account of the Corporation or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. 

(viii) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (a) toreceive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date ofthe issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the casemay be. 

5D. Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stocksplit, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionatelyreduced, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to suchcombination shall be proportionately increased. 

5E. Reorganization, Reclassification, Consolidation, Merger or Sale.Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation’s assets or other transaction, in each case which is effected in such a manner that the holders of Common Stockare entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to 

 

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or in exchange for Common Stock held by such holders, is referred to herein as an “Organic Change”. Prior to the consummation of any OrganicChange, the Corporation shall make appropriate provisions to insure that each of the holders of Series I Preferred Stock shall thereafter have the right to acquire and receive, in lieu of the shares of Conversion Stock immediately theretoforeacquirable and receivable upon the conversion of such holder’s Series I Preferred Stock, such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holder had converted itsSeries I Preferred Stock immediately prior to such Organic Change. The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Corporation) resulting fromconsolidation or merger or the entity purchasing such assets assumes by written instrument, the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may beentitled to acquire. 

5F. Certain Events. If any event occurs of the type contemplated by the provisions of thisSection 5 but are not expressly provided for by these provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation’s Board ofDirectors shall make an appropriate adjustment in the Conversion Price so as to protect the rights of the holders of the Series I Preferred Stock; provided, that no such adjustment shall increase the Conversion Price or decrease the number of sharesof Conversion Stock issuable upon conversion of each Share of Series I Preferred Stock as otherwise determined pursuant to this Section 5. 

5G. Notices. 

(i) Immediately upon any adjustment of the Conversion Price, theCorporation shall give written notice thereof to all affected holders of the Series I Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment. 

(ii) The Corporation shall give written notice to all holders of the Series I Preferred Stock at least 20 days prior to the date on whichthe Corporation closes its books or takes a record (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights tovote with respect to any Organic Change, dissolution or liquidation. 

(iii) The Corporation shall also give written noticeto the holders of the Series I Preferred Stock at least 20 days prior to the date on which any Organic Change shall take place. 

5H. Drag Along Right. In the event that all of the then outstanding Series B Preferred Stock is converted pursuant to Article IV.D.5. of the Charter, upon such conversion of the Series B Preferred Stock, all of the then outstandingSeries I Preferred Stock shall be converted automatically into shares of Conversion Stock, and the holders 

 

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of Series I Preferred Stock shall surrender all of their stock certificates representing Series I Preferred Stock in exchange for certificates representingthe number of shares of Conversion Stock then issuable upon conversion of such series of Series I Preferred Stock in accordance with this Section 5. 

Section 6. Purchase Rights. If at any time the Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to therecord holders of any class of Common Stock (the “Purchase Rights”) and such rights are not concurrently granted to the holders of the Preferred Stock, then each holder of Initially Designated Preferred Stock or the Series I PreferredStock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Conversion Stock acquirable upon conversion ofsuch holder’s Initially Designated Preferred Stock or Series I Preferred Stock immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or if no such record is taken, the date as of whichthe record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 

Section 7.Registration of Transfer. The Corporation shall keep or have its agent keep a register for the registration of the Series I Preferred Stock. Upon the surrender of any certificate representing the Series I Preferred Stock at a place designatedby the Corporation, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation’s expense) a new certificate or certificates in exchange therefore representing in the aggregate thenumber of Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Shares as is requested by the holder of the surrendered certificate and shall be substantiallyidentical in form to the surrendered certificate, and dividends shall accrue on the Series I Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Series I Preferred Stock represented bythe surrendered certificate. 

Section 8. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (anaffidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing the Shares, and in the case of any such loss, theft or destruction, upon receipt of indemnityreasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor, its own agreement to indemnify the Corporation shall be satisfactory), or, in the case of any such mutilation uponsurrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of the Series I Preferred Stock represented by such lost, stolen,destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Shares represented by such new certificate from the date to which dividends have been fully paid onsuch lost, stolen, destroyed or mutilated certificate. 

Section 9. Definitions. To the extent not defined herein, terms shallhave the meaning set forth in the Charter. 

 

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“Affiliate” of any Person means any other Person directly or indirectly controlling,controlled by or under common control with such Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through ownership of Voting Securities, contractor otherwise. 

“Common Stock” means, collectively, the Corporation’s common stock, par value $0.004 per share, andany capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution ofassets upon any liquidation, dissolution or winding up of the Corporation. 

“Common Stock Deemed Outstanding” means, atany given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to subparagraphs 5C(i) and 5C(ii) hereof whether or not the Options or ConvertibleSecurities are actually exercisable at such time. 

“Conversion Price” initially means $0.15 for the Series I PreferredStock. 

“Conversion Stock” means shares of the Corporation’s Common Stock, provided, that if there is a change suchthat the securities issuable upon conversion of the Series I Preferred Stock are issued by an entity other than the Corporation or there is a change in the type or class of securities so issuable, then the term “Conversion Stock” shallmean one share of the security issuable upon conversion of the Series I Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares.

“Convertible Securities” means any stock or securities directly or indirectly convertible into or exchangeable for CommonStock. 

“Corporation” means Velocity Express Corporation, a Delaware corporation, or, where applicable (for example, inconnection with agreements dated prior to the date of incorporation of the Corporation under the GCL), UST. Where applicable, reference to certain agreements of the Corporation entered into prior to its incorporation under the Delaware GeneralCorporation Law refer to those as assumed by the surviving entity as a matter of law under the merger between the Corporation and UST, effective on January 4, 2002. 

“Exchange Act” means the Securities Exchange Act of 1934, as amended. 

“JuniorSecurities” has the meaning set forth in Section 1 of the Charter. 

“Liquidation Event” has the meaning setforth in Section 3. 

“Liquidation Value” of any share of Series I Preferred Stock shall be equal to $1.50.

“Market Price” of any security means the average of the closing prices of such security’s sales on all securitiesexchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day suchsecurity is not so 

 

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listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security isnot quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in eachsuch case averaged over a period of the twenty (20) consecutive trading days immediately prior to the date for which “Market Price” is being determined. If at any time such security is not listed on any securities exchange or quotedin the NASDAQ System or the over-the-counter market, the “Market Price” shall be the fair value thereof determined jointly by the Corporation and the holders of at least two-thirds of each of the then outstanding classes of PreferredStock, voting as individual classes. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an independent appraiser experienced in valuing securities jointly selected by theCorporation and the holders of at least two-thirds of each of the then outstanding classes of Preferred Stock, voting as individual classes. The determination of such appraiser shall be final and binding upon the parties, and the Corporation shallpay the fees and expenses of such appraiser. 

“Options” means any rights, warrants or options to subscribe for or purchaseCommon Stock or Convertible Securities. 

“Permitted Issuances” means the acts described in Section 5B(iii) of theCharter. 

“Person” means an individual, a partnership, a corporation, a limited liability company, a limited liability, anassociation, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. 

“Preferred Stock” shall have the meaning set forth in the Charter. 

“Series B Preferred Stock” shall mean the Corporation’s Series B Convertible Preferred Stock, par value $0.004 per share.

“Series C Preferred Stock” shall mean the Corporation’s Series C Convertible Preferred Stock, par value $0.004 pershare. 

“Series D Preferred Stock” shall mean the Corporation’s Series D Convertible Preferred Stock, par value$0.004 per share. 

“Series F Preferred Stock” shall mean the Corporation’s Series F Convertible Preferred Stock, parvalue $0.004 per share. 

“Series G Preferred Stock” shall mean the Corporation’s Series G Convertible PreferredStock, par value $0.004 per share. 

“Series H Preferred Stock” shall mean the Corporation’s Series H ConvertiblePreferred Stock, par value $0.004 per share. 

“Series I Preferred Stock” shall mean the Corporation’s Series IConvertible Preferred Stock, par value $0.004 per share. 

 

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“Share” has the meaning set forth in Section 3. 

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other businessentity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time ownedor controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of thepartnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall bedeemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or otherbusiness entity gains or losses or shall be or control the managing general partner of such limited liability company, partnership, association or other business entity. 

“UST” means United Shipping and Technology, Inc., a Utah corporation and the predecessor of Velocity Express Corporation, a Delaware corporation. 

“Voting Securities” means securities of the Corporation ordinarily having the power to vote for the election of directors of theCorporation; provided, that when the term “Voting Securities” is used with respect to any other Person, it means the capital stock or other equity interests of any class or kind ordinarily having the power to vote for theelection of directors or other members of the governing body of such Person. 

Section 10. Amendment and Waiver. No amendment,modification or waiver shall be binding or effective with respect to any provisions hereof without the prior written consent of the holders of at least two-thirds of Series I Preferred Stock outstanding, voting as a separate class, at the time suchaction is taken. 

Section 11. Notices. Except as otherwise expressly provided hereunder, all notices referred to herein shallbe in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) tothe Corporation, at its principal executive offices and (ii) to any stockholder, at such holder’s address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). 

 

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**Exhibit B**

**VELOCITY EXPRESS CORPORATION (THE “CORPORATION”)**

**SERIES J CONVERTIBLE PREFERRED STOCKTERMS**

**ARTICLE I**

**DESIGNATION AND AMOUNT**

The number of authorized shares of Series J Convertible Preferred Stock, par value $0.004per share (the “Series J Preferred Stock”), shall be 8,000,000. 

**ARTICLE II**

**DIVIDENDS**

In the event thatthe Corporation declares or pays any dividends upon the Common Stock (whether payable in cash, securities or other property), other than dividends payable solely in shares of Common Stock, the Corporation shall also declare and pay to the holders ofSeries J Preferred Stock at the same time that it declares and pays such dividends to the holders of the Common Stock, the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion of shares of theSeries J Preferred Stock which are convertible into shares of Common Stock had all such shares of the outstanding Series J Preferred Stock been converted immediately prior to the record date for such dividend, or if no record date is fixed, the dateas of which the record holders of Common Stock entitled to such dividends are to be determined. 

**ARTICLE III**

**LIQUIDATION PREFERENCE**

Uponliquidation, dissolution and winding up of the Corporation (whether voluntary or involuntary) (a “Liquidation Event”), the Corporation shall pay to the holders of the Series J Preferred Stock (unless otherwise provided for in theresolution or resolutions creating such stock) the aggregate Liquidation Value attributable to such shares (each, a “Share”) plus any accrued but unpaid dividends thereon. If upon any such Liquidation Event, the Corporation’s assetsto be distributed among the holders of the Junior Securities, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock andSeries J Preferred Stock are insufficient to permit payment to such holders of the aggregate amount of their respective liquidation preference pursuant to the Corporation’s Amended and Restated Certificate of Incorporation, as amended from timeto time (the “Charter”), as applicable, then the entire assets available to be distributed to the Corporation’s stockholders shall be distributed in accordance with the priorities set forth in Article IV, Section 3 of theCharter, with the Series J Preferred Stock ranking parri passu with the Series D, F, G, H and I Preferred Stock and prior to the Series B and C Preferred Stock. Not less than sixty (60) days prior to the payment date of the LiquidationValue, the Corporation shall mail written notice of any such Liquidation Event to each record holder of Series J Preferred Stock, setting forth in reasonable detail the amount of proceeds to be paid with respect to each Share and each share ofCommon Stock in connection with such Liquidation Event. A change of control of the Corporation shall not be deemed a Liquidation Event for purposes of this Section 3. 

 

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**ARTICLE IV**

**VOTING RIGHTS**

Section 4.1. Voting Rights. The Series J Preferred Stock shallhave no voting rights. 

Section 4.2. Covenants. 

Notwithstanding the above, the Corporation shall not take any of the actions set forth below without first obtaining the affirmative consent of the holders of at least two-thirds of the then outstanding shares ofSeries J Preferred Stock for so long as at least 20% of the Series J Preferred Stock originally issued pursuant to the Stock Purchase Agreement remains outstanding: 

(a) alter or change the preferences, rights or powers of the Series J Preferred Stock; 

(b) increase or decrease the authorized number of shares of the Series J Preferred Stock. 

**ARTICLE V**

**CONVERSION**

Subject to the terms of this Article V, at any time and from time to time after (i) the authorization by stockholders of theCorporation of the issuance of the Series J Preferred Stock and (ii) the amendment of the Charter to increase the number of shares of the Corporation authorized for issuance to 500,000,000 shares, of which 425,000,000 shares are Common Stockand 75,000,000 shares are Preferred Stock (the time after both conditions are met, the “Conversion Time”), any holder of Series J Preferred Stock may convert all or any portion of the Series J Preferred Stock (including any fraction of aShare) held by such holder into a number of shares of Conversion Stock computed by multiplying the number of Shares to be converted by $1.50 and dividing the result by the Conversion Price then in effect. 

Section 5.1. Conversion Procedure. 

(a) Except as otherwise provided herein, each conversion of Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing theSeries J Preferred Stock to be converted have been surrendered for conversion at the principal office of the Corporation. At the time any such conversion has been effected, the rights of the holder of the Shares converted as a holder of Series JPreferred Stock shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of theshares of Conversion Stock represented thereby. 

 

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(b) Notwithstanding any other provision hereof, if a conversion of Preferred Stock is tobe made in connection with a transaction affecting the Corporation, the conversion of any shares of Series J Preferred Stock may, at the election of the holder thereof, be conditioned upon the consummation of such transaction, in which case suchconversion shall not be deemed to be effective until such transaction has been consummated. 

(c) As soon as possible after aconversion has been effected (but in any event within three (3) Business Days in the case of subparagraph (A) below), the Corporation shall deliver to the converting holder: 

(i) a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such nameor names and such denomination or denominations as the converting holder has specified; 

(ii) payment of any amount payableunder subparagraph (viii) below with respect to such conversion; and 

(iii) a certificate representing any Shares,which were represented, by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. 

(d) The issuance of certificates representing shares of Conversion Stock upon conversion of Preferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereofor other cost incurred by the Corporation in connection with such conversion and the related issuance of share of Conversion Stock. Upon conversion of each share of Series J Preferred Stock, the Corporation shall take all such actions as arenecessary in order to insure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof.

(e) The Corporation shall not close its books against the transfer of Preferred Stock or of Conversion Stock issued orissuable upon conversion of the Series J Preferred Stock in any manner, which interferes with the timely conversion of the Series J Preferred Stock. The Corporation shall assist and cooperate with any holder of Shares required to make anygovernmental filings or obtain any governmental approval prior to or in connection with any conversion of Shares hereunder (including, without limitation, making any filings required to be made by the Corporation). 

(f) The Corporation shall at all times after the Conversion Time reserve and keep available out of its authorized but unissued shares ofConversion Stock, solely for the purpose of issuance upon the conversion of the Series J Preferred Stock, such number of shares of Conversion Stock issuable upon the conversion of all outstanding Preferred Stock. All shares of Conversion Stock thatare so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assure that 

 

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all such shares of Conversion Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domesticsecurities exchange upon which shares of Conversion Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). The Corporation shall not take any action that wouldcause the number of authorized but unissued shares of Conversion Stock to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of the Preferred Stock. 

(g) If any fractional interest in a share of Conversion Stock would, except for the provisions of this subparagraph, be delivered upon anyconversion of the Series J Preferred Stock, the Corporation, in lieu of delivering the fractional share therefore, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion.

(h) If the shares of Conversion Stock issuable by reason of conversion of the Series J Preferred Stock are convertible intoor exchangeable for any other stock or securities of the Corporation, the Corporation shall, at the converting holder’s option, upon surrender of the Shares to be converted by such holder as provided herein together with any notice, statementor payment required to effect such conversion or exchange of Conversion Stock, deliver to such holder or as otherwise specified by such holder a certificate or certificates representing the stock or securities into which the shares of ConversionStock issuable by reason of such conversion are so convertible or exchangeable, registered in such name or names and in such denomination or denominations as such holder has specified. 

Section 5.2. Conversion Price. 

(a) In order to prevent dilution of the conversion rights granted under this Section 5, the Conversion Price of the Series J Preferred Stock shall be subject to adjustment from time to time pursuant to thisSection 5.2. 

(b) If and whenever after the original date of issuance of the first share of Series J Preferred Stock,the Corporation issues or sells, or in accordance with Section 5.2 is deemed to have issued or sold, any shares of its Common Stock for a consideration per share less than the Market Price of the Common Stock determined as of the date of suchissue or sale, then immediately upon such issue or sale, the Conversion Price shall be reduced to the Conversion Price determined by multiplying the Conversion Price in effect immediately prior to such issue or sale by a fraction, the numerator ofwhich shall be the sum of (1) the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale multiplied by the Market Price of the Common Stock determined as of the date of such issuance or sale, plus(2) the consideration, if any, received by the Corporation upon such issue or sale, and the denominator of which shall be the product derived by multiplying the Market Price of the Common Stock by the number of shares of Common Stock DeemedOutstanding immediately after such issue or sale. 

 

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(c) Notwithstanding the foregoing, there shall be no adjustment to the Conversion Pricehereunder with respect to any issuances that are exempt from adjustment with respect to any shares of Preferred Stock of any series pursuant to Section 5B(iii) of the Charter. 

Section 5.3. Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under paragraph 5B, thefollowing shall be applicable: 

(a) Issuance of Rights or Options. If the Corporation in any manner grants or sellsany Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is less than the Market Price of theCommon Stock determined as of such time, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon theexercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Options for such price per share. For purposes of this paragraph, the “price per sharefor which Common Stock is issuable” shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of such Options, plus the minimum aggregate amount ofadditional consideration payable to the Corporation upon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to theCorporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchangeof all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Conversion Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock isactually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities. 

(b)Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the Market Price ofthe Common Stock determined as of such time, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Corporationat the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this paragraph, the “price per share for which Common Stock is issuable” shall be determined by dividing (A) the totalamount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchangethereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Conversion Price shall be made 

 

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when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of such ConvertibleSecurities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 5, no further adjustment of the Conversion Price shall be made by reason ofsuch issue or sale. 

(c) Change in Option Price or Conversion Rate. If the purchase price provided for in anyOptions, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, theConversion Price in effect at the time of such change shall be immediately adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchaseprice, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of Section 5.3, if the terms of any Option or Convertible Security which was outstanding as of the date ofissuance of the Series J Preferred Stock are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall bedeemed to have been issued and sold as of the date of such change; provided, that (A) no such change shall at any time cause the Conversion Price hereunder to be increased, and (B) no adjustment to the Conversion Price pursuant to thisclause (iii) shall be made as a result of any adjustment to the exercise and/or conversion price with respect to the outstanding capital security of the Corporation on the date hereof pursuant to and in accordance with the antidilutionprotection provisions of such securities as in effect on the date hereof. 

(d) Treatment of Expired Options andUnexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, the Conversion Price then in effect hereundershall be adjusted immediately to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration ortermination, never been issued. For purposes of Section 5.3, the expiration or termination of any Option or Convertible Security which was outstanding as of the date of issuance of the Series J Preferred Stock shall not cause the ConversionPrice hereunder to be adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible Security caused it to be deemed to have been issued after the date of issuance of the Series J Preferred Stock. 

(e) Calculation of Consideration Received. If any Common Stock, Option or Convertible Security is issued or sold or deemed to havebeen issued or sold for cash, the consideration received therefore shall be deemed to be the amount received by the Corporation therefore. In any Common Stock, Option or Convertible Security is issued or sold for a consideration other than cash, theamount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporationshall be the Market Price thereof as of the date 

 

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of receipt of such securities. The fair value of any consideration other than cash and securities shall be determined jointly by the Corporation and theholders of at least two-thirds of the Series J Preferred Stock. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such consideration shall be determined by an independent appraiser experienced invaluing such type of consideration, jointly selected by the Corporation and the holders of at least two-thirds of the Series J Preferred Stock then outstanding. The determination of such appraiser shall be final and binding upon the parties, and thefees and expenses of such appraiser shall be borne by the Corporation. 

(f) Integrated Transactions. In case anyOption is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall bedeemed to have been issued for a consideration of $.01. 

(g) Treasury Shares. The number of shares of Common Stockoutstanding at any given time shall not include shares owned or held by or for the account of the Corporation or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. 

(h) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (a) toreceive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date ofthe issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right or subscription or purchase, as the casemay be. 

Section 5.4. Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stocksplit, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionatelyreduced, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to suchcombination shall be proportionately increased. 

Section 5.5. Reorganization, Reclassification, Consolidation, Merger or Sale.Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation’s assets or other transaction, in each case which is effected in such a manner that the holders of Common Stockare entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock held by such holders, is referred to herein as an “Organic Change”. Prior to theconsummation of any Organic Change, the Corporation shall make appropriate provisions to insure that each of the holders of Series J Preferred Stock shall thereafter have the right to acquire and receive, in lieu of the shares of Conversion Stockimmediately theretofore acquirable 

 

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and receivable upon the conversion of such holder’s Series J Preferred Stock, such shares of stock, securities or assets as such holder would havereceived in connection with such Organic Change if such holder had converted its Series J Preferred Stock immediately prior to such Organic Change. The Corporation shall not effect any such consolidation, merger or sale, unless prior to theconsummation thereof, the successor entity (if other than the Corporation) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument, the obligation to deliver to each such holder such shares of stock,securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. 

Section 5.6. CertainEvents. If any event occurs of the type contemplated by the provisions of this Section 5 but are not expressly provided for by these provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rightsor other rights with equity features), then the Corporation’s Board of Directors shall make an appropriate adjustment in the Conversion Price so as to protect the rights of the holders of the Series J Preferred Stock; provided, that no suchadjustment shall increase the Conversion Price or decrease the number of shares of Conversion Stock issuable upon conversion of each Share of Series J Preferred Stock as otherwise determined pursuant to this Section 5. 

Section 5.7. Notices. 

(a) Immediately upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof to all affected holders of the Series J Preferred Stock, setting forth in reasonable detail and certifying the calculation ofsuch adjustment. 

(b) The Corporation shall give written notice to all holders of the Series J Preferred Stock at least 20days prior to the date on which the Corporation closes its books or takes a record (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or(c) for determining rights to vote with respect to any Organic Change, dissolution or liquidation. 

(c) The Corporationshall also give written notice to the holders of the Series J Preferred Stock at least 20 days prior to the date on which any Organic Change shall take place. 

Section 5.8. Drag Along Right. In the event that all of the then outstanding Series B Preferred Stock is converted pursuant to Article IV.D.5. of the Charter, upon such conversion of the Series BPreferred Stock, all of the then outstanding Series J Preferred Stock shall be converted automatically into shares of Conversion Stock, and the holders of Series J Preferred Stock shall surrender all of their stock certificates representing Series JPreferred Stock in exchange for certificates representing the number of shares of Conversion Stock then issuable upon conversion of such series of Series J Preferred Stock in accordance with this Article V. 

 

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**ARTICLE VI**

**PURCHASE RIGHTS**

If at any time the Corporation grants, issues or sells any Options,Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”) and such rights are not concurrently granted to the holders ofthe Preferred Stock, then each holder of Initially Designated Preferred Stock or the Series J Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could haveacquired if such holder had held the number of shares of Conversion Stock acquirable upon conversion of such holder’s Initially Designated Preferred Stock or Series J Preferred Stock immediately before the date on which a record is taken forthe grant, issuance or sale of such Purchase Rights, or if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 

**ARTICLE VII**

**REGISTRATION OFTRANSFER**

The Corporation shall keep or have its agent keep a register for the registration of the Series J Preferred Stock. Uponthe surrender of any certificate representing the Series J Preferred Stock at a place designated by the Corporation, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation’sexpense) a new certificate or certificates in exchange therefore representing in the aggregate the number of Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent suchnumber of Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Series J Preferred Stock represented by such new certificatefrom the date to which dividends have been fully paid on such Series J Preferred Stock represented by the surrendered certificate. 

**ARTICLE VIII**

**REPLACEMENT**

Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificateevidencing the Shares, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor, its ownagreement to indemnify the Corporation shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate oflike kind representing the number of shares of the Series J Preferred Stock represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrueon the Shares represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. 

**ARTICLE IX**

**DEFINITIONS**

To the extent not defined herein, terms shall have the meaning set forth in the Charter. 

 

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“Affiliate” of any Person means any other Person directly or indirectly controlling,controlled by or under common control with such Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through ownership of Voting Securities, contractor otherwise. 

“Common Stock” means, collectively, the Corporation’s common stock, par value $0.004 per share, andany capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution ofassets upon any liquidation, dissolution or winding up of the Corporation. 

“Common Stock Deemed Outstanding” means, atany given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to subparagraphs 5C(i) and 5C(ii) hereof whether or not the Options or ConvertibleSecurities are actually exercisable at such time. 

“Conversion Price” initially means $0.15 for the Series J PreferredStock. 

“Conversion Stock” means shares of the Corporation’s Common Stock; provided, that if there is a change suchthat the securities issuable upon conversion of the Series J Preferred Stock are issued by an entity other than the Corporation or there is a change in the type or class of securities so issuable, then the term “Conversion Stock” shallmean one share of the security issuable upon conversion of the Series J Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares.

“Convertible Securities” means any stock or securities directly or indirectly convertible into or exchangeable for CommonStock. 

“Corporation” means Velocity Express Corporation, a Delaware corporation, or, where applicable (for example, inconnection with agreements dated prior to the date of incorporation of the Corporation under the GCL), UST. Where applicable, reference to certain agreements of the Corporation entered into prior to its incorporation under the Delaware GeneralCorporation Law refer to those as assumed by the surviving entity as a matter of law under the merger between the Corporation and UST, effective on January 4, 2002. 

“Exchange Act” means the Securities Exchange Act of 1934, as amended. 

“JuniorSecurities” has the meaning set forth in Section 1 of the Charter. 

“Liquidation Event” has the meaning setforth in Section 3. 

“Liquidation Value” of any share of Series J Preferred Stock shall be equal to $1.50.

“Market Price” of any security means the average of the closing prices of such security’s sales on all securitiesexchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day suchsecurities is not so 

 

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listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security isnot quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in eachsuch case averaged over a period of the twenty (20) consecutive trading days immediately prior to the day for which “Market Price” is being determined. If at any time such security is not listed on any securities exchange or quoted inthe NASDAQ System or the over-the-counter market, the “Market Price” shall be the fair value thereof determined jointly by the Corporation and the holders of at least two-thirds of each of the then outstanding classes of Preferred Stock,voting as individual classes. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an independent appraiser experienced in valuing securities jointly selected by the Corporation andthe holders of at least two-thirds of each of the then outstanding classes of Preferred Stock, voting as individual classes. The determination of such appraiser shall be final and binding upon the parties, and the Corporation shall pay the fees andexpenses of such appraiser. 

“Options” means any rights, warrants or options to subscribe for or purchase Common Stock orConvertible Securities. 

“Permitted Issuances” means the acts described in Section 5B(iii) of the Charter.

“Person” means an individual, a partnership, a corporation, a limited liability company, a limited liability, anassociation, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. 

“Preferred Stock” shall have the meaning set forth in the Charter. 

“Series B Preferred Stock” shall mean the Corporation’s Series B Convertible Preferred Stock, par value $0.004 per share.

“Series C Preferred Stock” shall mean the Corporation’s Series C Convertible Preferred Stock, par value $0.004 pershare. 

“Series D Preferred Stock” shall mean the Corporation’s Series D Convertible Preferred Stock, par value$0.004 per share. 

“Series F Preferred Stock” shall mean the Corporation’s Series F Convertible Preferred Stock, parvalue $0.004 per share. 

“Series G Preferred Stock” shall mean the Corporation’s Series G Convertible PreferredStock, par value $0.004 per share. 

“Series H Preferred Stock” shall mean the Corporation’s Series H ConvertiblePreferred Stock, par value $0.004 per share. 

“Series I Preferred Stock” shall mean the Corporation’s Series IConvertible Preferred Stock, par value $0.004 per share. 

 

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“Series J Preferred Stock” shall mean the Corporation’s Series J ConvertiblePreferred Stock, par value $0.004 per share. 

“Share” has the meaning set forth in Section 3. 

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other businessentity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time ownedor controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person of a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of thepartnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall bedeemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or otherbusiness entity gains or losses or shall be or control the managing general partner of such limited liability company, partnership, association or other business entity. 

“UST” means United Shipping and Technology, Inc., a Utah corporation and the predecessor of Velocity Express Corporation, a Delaware corporation. 

“Voting Securities” means securities of the Corporation ordinarily having the power to vote for the election of directors of theCorporation; provided, that when the term “Voting Securities” is used with respect to any other Person, it means the capital stock or other equity interests of any class or kind ordinarily having the power to vote for theelection of directors or other members of the governing body of such Person. 

**ARTICLE X**

**AMENDMENT AND WAIVER**

Noamendment, modification or waiver shall be binding or effective with respect to any provisions hereof without the prior written consent of the holders of at least two-thirds of Series J Preferred Stock outstanding, voting as a separate class, at thetime such action is taken. 

**ARTICLE XI**

**NOTICES**

Except as otherwise expressly provided hereunder, all notices referred to hereinshall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent(i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder’s address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). 

 

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**Exhibit C**

**VELOCITY EXPRESS CORPORATION (THE “CORPORATION”)**

**SERIES K CONVERTIBLE PREFERRED STOCKTERMS**

**ARTICLE I**

**DESIGNATION AND AMOUNT**

The number of authorized shares of Series K Convertible Preferred Stock, par value $0.004per share (the “Series K Preferred Stock”), shall be 9,900,000. 

**ARTICLE II**

**DIVIDENDS**

In the event thatthe Corporation declares or pays any dividends upon the Common Stock (whether payable in cash, securities or other property), other than dividends payable solely in shares of Common Stock, the Corporation shall also declare and pay to the holders ofSeries K Preferred Stock at the same time that it declares and pays such dividends to the holders of the Common Stock, the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion of shares of theSeries K Preferred Stock which are convertible into shares of Common Stock had all such shares of the outstanding Series K Preferred Stock been converted immediately prior to the record date for such dividend, or if no record date is fixed, the dateas of which the record holders of Common Stock entitled to such dividends are to be determined. 

**ARTICLE III**

**LIQUIDATION PREFERENCE**

Uponliquidation, dissolution and winding up of the Corporation (whether voluntary or involuntary) (a “Liquidation Event”), the Corporation shall pay to the holders of the Series K Preferred Stock (unless otherwise provided for in theresolution or resolutions creating such stock) the aggregate Liquidation Value attributable to such shares (each, a “Share”) plus any accrued but unpaid dividends thereon. If upon any such Liquidation Event, the Corporation’s assetsto be distributed among the holders of the Junior Securities, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock,Series J Preferred Stock and the Series K Preferred Stock are insufficient to the permit payment to such holders of the aggregate amount of their respective liquidation preference pursuant to the Corporation’s Amended and Restated Certificateof Incorporation, as amended from time to time (the “Charter”), as applicable, then the entire assets available to be distributed to the Corporation’s stockholders shall be distributed in accordance with the priorities set forth inArticle IV, Section 3 of the Charter, with the Series K Preferred Stock ranking parri passu with the Series D, F, G, H, I and J Preferred Stock and prior to the Series B and C Preferred Stock. Not less than sixty (60) days prior to thepayment date of the Liquidation Value, the Corporation shall mail written notice of any such Liquidation Event to each record holder of Series K Preferred Stock, setting forth in reasonable detail the amount of proceeds to be paid with respect toeach Share and each share of Common Stock in connection with such Liquidation Event. A change in control of the Corporation shall not be deemed a Liquidation Event for purposes of this Section 3. 

 

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**ARTICLE IV**

**VOTING RIGHTS**

Section 4.1. Voting Rights. The Series K Preferred Stock shallhave no voting rights. 

Section 4.2. Covenants. 

Notwithstanding the above, the Corporation shall not take any of the actions set forth below without first obtaining the affirmative consent of the holders of at least two-thirds of the then outstanding shares ofSeries K Preferred Stock for so long as at least 20% of the Series K Preferred Stock originally issued pursuant to the Stock Purchase Agreement remains outstanding: 

(a) alter or change the preferences, rights or powers of the Series K Preferred Stock; 

(b) increase or decrease the authorized number of shares of the Series K Preferred Stock; 

**ARTICLE V**

**CONVERSION**

Subject to the terms of this Article V, at any time and from time to time after (i) the authorization by stockholders of theCorporation of the issuance of the Series K Preferred Stock and (ii) the amendment of the Charter to increase the number of shares of the Corporation authorized for issuance to 775,000,000 shares, of which 700,000,000 shares are Common Stockand 75,000,000 shares are Preferred Stock (the time after both conditions are met, the “Conversion Time”), any holder of Series K Preferred Stock may convert all or any portion of the Series K Preferred Stock (including any fraction of aShare) held by such holder into a number of shares of Conversion Stock computed by multiplying the number of Shares to be converted by $1.50 and dividing the result by the Conversion Price then in effect. 

Section 5.1. Conversion Procedure. 

(a) Except as otherwise provided herein, each conversion of Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing theSeries K Preferred Stock to be converted have been surrendered for conversion at the principal office of the Corporation. At the time any such conversion has been effected, the rights of the holder of the Shares converted as a holder of Series KPreferred Stock shall cease and the Person or persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of theshares of Conversion Stock represented thereby. 

 

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(b) Notwithstanding any other provision hereof, if a conversion of Preferred Stock is tobe made in connection with a transaction affecting the Corporation, the conversion of any shares of Series K Preferred Stock may, at the election of the holder thereof, be conditioned upon the consummation of such transaction, in which case suchconversion shall not be deemed to be effective until such transaction has been consummated. 

(c) As soon as possible after aconversion has been effected (but in any event within three (3) Business Days in the case of subparagraph (A) below), the Corporation shall deliver to the converting holder: 

(i) a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such nameor names and such denomination or denominations as the converting holder has specified; 

(ii) payment of any amount payableunder subparagraph (viii) below with respect to such conversion; and 

(iii) a certificate representing any Shares,which were represented, by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. 

(d) The issuance of certificates representing shares of Conversion Stock upon conversion of Preferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereofor other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Conversion Stock. Upon conversion of each share of Series K Preferred Stock, the Corporation shall take all such actions as arenecessary in order to insure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof.

(e) The Corporation shall not close its books against the transfer of Preferred Stock or of Conversion Stock issued orissuable upon conversion of the Series K Preferred Stock in any manner, which interferes with the timely conversion of the Series K Preferred Stock. The Corporation shall assist and cooperate with any holder of Shares required to make anygovernmental filings or obtain any governmental approval prior to or in connection with any conversion of Shares hereunder (including, without limitation, making any filings required to be made by the Corporation). 

(f) The Corporation shall at all times after the Conversion Time reserve and keep available out of its authorized but unissued shares ofConversion Stock, solely for the purpose of issuance upon the conversion of the Series K Preferred Stock, such number of shares of Conversion Stock issuable upon the conversion of all outstanding Preferred Stock. All shares of Conversion Stock thatare so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assure that 

 

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all such shares of Conversion Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domesticsecurities exchange upon which shares of Conversion Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). The Corporation shall not take any action that wouldcause the number of authorized but unissued shares of Conversion Stock to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of the Preferred Stock. 

(g) If any fractional interest in a share of Conversion Stock would, except for the provisions of this subparagraph, be delivered upon anyconversion of the Series K Preferred Stock, the Corporation, in lieu of delivering the fractional share therefore, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion.

(h) If the shares of Conversion Stock issuable by reason of conversion of the Series K Preferred Stock are convertible intoor exchangeable for any other stock or securities of the Corporation, the Corporation shall, at the converting holder’s option, upon surrender of the Shares to be converted by such holder as provided herein together with any notice, statementor payment required to effect such conversion or exchange of Conversion Stock, deliver to such holder or as otherwise specified by such holder a certificate or certificates representing the stock or securities into which the shares of ConversionStock issuable by reason of such conversion are so convertible or exchangeable, registered in such name or names and in such denomination or denominations as such holder has specified. 

Section 5.2. Conversion Price. 

(a) In order to prevent dilution of the conversion rights granted under this Section 5, the Conversion Price of the Series K Preferred Stock shall be subject to adjustment from time to time pursuant to thisSection 5.2. 

(b) If and whenever after the original date of issuance of the first share of Series K Preferred Stock,the Corporation issues or sells, or in accordance with Section 5.2 is deemed to have issued or sold, any shares of its Common Stock for a consideration per share less than the Market Price of the Common Stock determined as of the date of suchissue or sale, then immediately upon such issue or sale, the Conversion Price shall be reduced to the Conversion Price determined by multiplying the Conversion Price in effect immediately prior to such issue or sale by a fraction, the numerator ofwhich shall be the sum of (1) the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale multiplied by the Market Price of the Common Stock determined as of the date of such issuance or sale, plus(2) the consideration, if any, received by the Corporation upon such issue or sale, and the denominator of which shall be the product derived by multiplying the Market Price of the Common Stock by the number of shares of Common Stock DeemedOutstanding immediately after such issue or sale. 

 

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(c) Notwithstanding the foregoing, there shall be no adjustment to the Conversion Pricehereunder with respect to any issuances that are exempt from adjustment with respect to any shares of Preferred Stock of any series pursuant to Section 5B(iii) of the Charter. 

Section 5.3. Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under paragraph 5B, thefollowing shall be applicable: 

(a) Issuance of Rights or Options. If the Corporation in any manner grants or sellsany Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is less than the Market Price of theCommon Stock determined as of such time, than the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon theexercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Options for such price per share. For purposes of this paragraph, the “price per sharefor which Common Stock is issuable” shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of such Options, plus the minimum aggregate amount ofadditional consideration payable to the Corporation upon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to theCorporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchangeof all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Conversion Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock isactually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities. 

(b)Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the Market Price ofthe Common Stock determined as of such time, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Corporationat the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this paragraph, the “price per share for which Common Stock is issuable” shall be determined by dividing (A) the totalamount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchangethereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Conversion Price shall be made 

 

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when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of such ConvertibleSecurities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 5, no further adjustment of the Conversion Price shall be made by reason ofsuch issue or sale. 

(c) Change in Option Price or Conversion Rate. If the purchase price provided for in anyOptions, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, theConversion Price in effect at the time of such change shall be immediately adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchaseprice, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of Section 5.3, if the terms of any Option or Convertible Security which was outstanding as of the date ofissuance of the Series K Preferred Stock are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall bedeemed to have been issued and sold as of the date of such change; provided, that (A) no such change shall at any time cause the Conversion Price hereunder to be increased, and (B) no adjustment to the Conversion Price pursuant to thisclause (iii) shall be made as a result of any adjustment to the exercise and/or conversion price with respect to the outstanding capital security of the Corporation on the date hereof pursuant to and in accordance with the antidilutionprotection provisions of such securities as in effect on the date hereof. 

(d) Treatment of Expired Options andUnexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, the Conversion Price then in effect hereundershall be adjusted immediately to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extend outstanding immediately prior to such expiration ortermination, never been issued. For purposes of Section 5.3, the expiration or termination of any Option or Convertible Security which was outstanding as of the date of issuance of the Series K Preferred Stock shall not cause the ConversionPrice hereunder to be adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible Security caused it to be deemed to have been issued after the date of issuance of the Series K Preferred Stock. 

(e) Calculation of Consideration Received. If any Common Stock, Option or Convertible Security is issued or sold or deemed to havebeen issued or sold for cash, the consideration received therefore shall be deemed to be the amount received by the Corporation therefore. If any Common Stock, Option or Convertible Security is issued or sold for a consideration other than cash, theamount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporationshall be the Market Price thereof as of the date of receipt of 

 

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such securities. The fair value of any consideration other than cash and securities shall be determined jointly by the Corporation and the holders of atleast two-thirds of the Series K Preferred Stock. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such consideration shall be determined by an independent appraiser experienced in valuing such typeof consideration, jointly selected by the Corporation and the holders of at least two-thirds of the Series K Preferred Stock then outstanding. The determination of such appraiser shall be final and binding upon the parties, and the fees and expensesof such appraiser shall be borne by the Corporation. 

(f) Integrated Transactions. In case any Option is issued inconnection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have beenissued for a consideration of $.01. 

(g) Treasury Shares. The number of shares of Common Stock outstanding at anygiven time shall not include shares owned or held by or for the account of the Corporation or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. 

(h) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (a) toreceive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date ofthe issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the casemay be. 

Section 5.4. Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stocksplit, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionatelyreduced, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to suchcombination shall be proportionately increased. 

Section 5.5. Reorganization, Reclassification, Consolidation, Merger or Sale.Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation’s assets or other transaction, in each case which is effected in such a manner that the holders of Common Stockare entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock held by such holders, is referred to herein as an “Organic Change.” Prior to theconsummation of any Organic Change, the Corporation shall make appropriate provisions to insure that each of the holders of Series K Preferred Stock shall thereafter have right to acquire and receive, in lieu of the shares of Conversion Stockimmediately theretofore acquirable and receivable upon the conversion of such holder’s Series K Preferred Stock, such shares of stock, 

 

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securities or assets as such holder would have received in connection with such Organic Change if such holder had converted it Series K Preferred Stockimmediately prior to such Organic Change. The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Corporation) resulting from consolidation or mergeror the entity purchasing such assets assumes by written instrument, the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire.

Section 5.6. Certain Events. If any event occurs of the type contemplated by the provisions of this Section 5 but are notexpressly provided for by these provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation’s Board of Directors shall make anappropriate adjustment in the Conversion Price so as to protect the rights of the holders of the Series K Preferred Stock; provided, that no such adjustment shall increase the Conversion Price or decrease the number of shares of Conversion Stockissuable upon conversion of each Share of Series K Preferred Stock as otherwise determined pursuant to this Section 5. 

Section 5.7. Notices. 

(a) Immediately upon any adjustment of the Conversion Price, the Corporationshall give written notice thereof to all affected holders of the Series K Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment. 

(b) The Corporation shall give written notice to all holders of the Series K Preferred Stock at least 20 days prior to the date on whichthe Corporation closes its books or takes a record (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights tovote with respect to any Organic Change, dissolution or liquidation. 

(c) The Corporation shall also give written notice tothe holders of the Series K Preferred Stock at least 20 days prior to the date on which any Organic Change shall take place. 

Section 5.8 Drag Along Right. In the event that all of the then outstanding Series B Preferred Stock is converted pursuant to Article IV.D.5. of the Charter, upon such conversion of the Series B Preferred Stock, all of the thenoutstanding Series K Preferred Stock shall be converted automatically into shares of Conversion Stock, and the holders of Series K Preferred Stock shall surrender all of their stock certificates representing Series K Preferred Stock in exchange forcertificates representing the number of shares of Conversion Stock then issuable upon conversion of such series of Series K Preferred Stock in accordance with this Article V. 

**ARTICLE VI**

**PURCHASE RIGHTS**

If at any time the Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or otherproperty pro rata to the record holders of 

 

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any class of Common Stock (the “Purchase Rights”) and such rights are not concurrently granted to the holders of the Preferred Stock, then eachholder of Initially Designated Preferred Stock or the Series K Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder hadheld the number of shares of Conversion Stock acquirable upon conversion of such holder’s Initially Designated Preferred Stock or Series K Preferred Stock immediately before the date on which a record is taken for the grant, issuance or sale ofsuch Purchase Rights, or if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. 

**ARTICLE VII**

**REGISTRATION OF TRANSFER**

The Corporation shall keep or have its agent keep a register for the registration of the Series K Preferred Stock. Upon the surrender of any certificaterepresenting the Series K Preferred Stock at a place designated by the Corporation, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation’s expense) a new certificate orcertificates in exchange therefore representing in the aggregate the number of Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Shares as is requested bythe holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Series K Preferred Stock represented by such new certificate from the date to which dividendshave been fully paid on such Series K Preferred Stock represented by the surrendered certificate. 

**ARTICLE VIII**

**REPLACEMENT**

Upon receipt ofevidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing the Shares, and in the case of any suchloss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor, its own agreement to indemnify the Corporation shall besatisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of theSeries K Preferred Stock represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Shares represented by such new certificatefrom the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. 

**ARTICLE IX**

**DEFINITIONS**

To the extent not defined herein, terms shall have the meaning set forth in the Charter. 

 

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“Affiliate” of any Person means any other Person directly or indirectly controlling,controlled by or under common control with such Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through ownership of Voting Securities, contractor otherwise. 

“Common Stock” means, collectively, the Corporation’s common stock, par value $0.004 per share, andany capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution ofassets upon any liquidation, dissolution or winding up of the Corporation. 

“Common Stock Deemed Outstanding” means, atany given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to subparagraphs 5C(i) and 5C(ii) hereof whether or not the Options or ConvertibleSecurities are actually exercisable at such time. 

“Conversion Price” initially means $0.15 for the Series K PreferredStock. 

“Conversion Stock” means shares of the Corporation’s Common Stock; provided, that if there is a change suchthat the securities issuable upon conversion of the Series K Preferred Stock are issued by an entity other than the Corporation or there is a chance in the type or class of securities so issuable, then the term “Conversion Stock” shallmean one share of the security issuable upon conversion of the Series K Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares.

“Convertible Securities” means any stock or securities directly or indirectly convertible into or exchangeable for CommonStock. 

“Corporation” means Velocity Express Corporation, a Delaware corporation, or, where applicable (for example, inconnection with agreements dated prior to the date of incorporation of the Corporation under the GCL), UST. Where applicable, reference to certain agreements of the Corporation entered into prior to its incorporation under the Delaware GeneralCorporation Law refer to those as assumed by the surviving entity as a matter of law under the merger between the Corporation and UST, effective on January 4, 2002. 

“Exchange Act” means the Securities Exchange Act of 1934, as amended. 

“JuniorSecurities” has the meaning set forth in Section 1 of the Charter. 

“Liquidation Event” has the meaning setforth in Section 3. 

“Liquidation Value” of any share of Series K Preferred Stock shall be equal to $1.50.

“Market Price” of any security means the average of the closing prices of such security’s sales on all securitiesexchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day suchsecurity is not so 

 

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listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security isnot quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in eachsuch case averaged over a period of the twenty (20) consecutive trading days immediately prior to the day for which “Market Price” is being determined. If at any time such security is not listed on any securities exchange or quoted inthe NASDAQ System or the over-the-counter market, the “Market Price” shall be the fair value thereof determined jointly by the Corporation and the holders of at least two-thirds of each of the then outstanding classes of Preferred Stock,voting as individual classes. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an independent appraiser experienced in valuing securities jointly selected by the Corporation andthe holders of at least two-thirds of each of the then outstanding classes of Preferred Stock, voting as individual classes. The determination of such appraiser shall be final and binding upon the parties, and the Corporation shall pay the fees andexpenses of such appraiser. 

“Options” means any rights, warrants or options to subscribe for or purchase Common Stock orConvertible Securities. 

“Permitted Issuances” means the acts described in Section 5B(iii) of the Charter.

“Person” means an individual, a partnership, a corporation, a limited liability company, a limited liability, anassociation, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. 

“Preferred Stock” shall have the meaning set forth in the Charter. 

“Series B Preferred Stock” shall mean the Corporation’s Series B Convertible Preferred Stock, par value $0.004 per share.

“Series C Preferred Stock” shall mean the Corporation’s Series C Convertible Preferred Stock, par value $0.004 pershare. 

“Series D Preferred Stock” shall mean the Corporation’s Series D Convertible Preferred Stock, par value$0.004 per share. 

“Series F Preferred Stock” shall mean the Corporation’s Series F Convertible Preferred Stock, parvalue $0.004 per share. 

“Series G Preferred Stock” shall mean the Corporation’s Series G Convertible PreferredStock, par value $0.004 per share. 

“Series H Preferred Stock” shall mean the Corporation’s Series H ConvertiblePreferred Stock, par value $0.004 per share. 

“Series I Preferred Stock” shall mean the Corporation’s Series IConvertible Preferred Stock, par value $0.004 per share. 

 

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“Series J Preferred Stock” shall mean the Corporation’s Series J ConvertiblePreferred Stock, par value $0.004 per share. 

“Series K Preferred Stock” shall mean the Corporation’s Series JConvertible Preferred Stock, par value $0.004 per share. 

“Share” has the meaning set forth in Section 3. 

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or otherbusiness entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at thetime owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, amajority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person orPersons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership,association or other business entity gains or losses or shall be or control the managing general partner of such limited liability company, partnership, association or other business entity. 

“Voting Securities” means securities of the Corporation ordinarily having the power to vote for the election of directors of theCorporation; provided, that when the term “Voting Securities” is used with respect to any other Person, it means the capital stock or other equity interests of any class or kind ordinarily having the power to vote for theelection of directors or other members of the governing body of such Person. 

**ARTICLE X**

**AMENDMENT AND WAIVER**

Noamendment, modification or waiver shall be binding or effective with respect to any provisions hereof without the prior written consent of the holders of at least two-thirds of Series K Preferred Stock outstanding, voting as separate class, at thetime such action is taken. 

**ARTICLE XI**

**NOTICES**

Except that otherwise expressly provided hereunder, all notices referred to hereinshall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent(i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder’s address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). 

 

C-12 

**EXHIBIT D**

**VELOCITY EXPRESS CORPORATION (THE “CORPORATION”)**

**SERIES L CONVERTIBLE PREFERRED STOCKTERMS**

**ARTICLE I**

**DESIGNATION AND AMOUNT**

The number of authorized shares of Series L Convertible Preferred Stock, par value $0.004per share (the “Series L Preferred Stock”), shall be 7,000,000. 

**ARTICLE II**

**DIVIDENDS**

In the event thatthe Corporation declares or pays any dividends upon the Common Stock (whether payable in cash, securities or other property), other than dividends payable solely in shares of Common Stock, the Corporation shall also declare and pay to the holders ofSeries L Preferred Stock at the same time that it declares and pays such dividends to the holders of the Common Stock, the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion of shares of theSeries L Preferred Stock which are convertible into shares of Common Stock had all such shares of the outstanding Series L Preferred Stock been converted immediately prior to the record date for such dividend, or if no record date is fixed, the dateas of which the record holders of Common Stock entitled to such dividends are to be determined. 

**ARTICLE III**

**LIQUIDATION PREFERENCE**

Uponliquidation, dissolution and winding up of the Corporation (whether voluntary or involuntary) (a “Liquidation Event”), the Corporation shall pay to the holders of the Series L Preferred Stock (unless otherwise provided for in theresolution or resolutions creating such stock) the aggregate Liquidation Value attributable to such shares (each, a “Share”) plus any accrued but unpaid dividends thereon. If upon any such Liquidation Event, the Corporation’s assetsto be distributed among the holders of the Junior Securities, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock,Series J Preferred Stock, the Series K Preferred Stock and the Series L Preferred Stock are insufficient to permit payment to such holders of the aggregate amount of their respective liquidation preference pursuant to the Corporation’s Amendedand Restated Certificate of Incorporation, as amended from time to time (the “Charter”), as applicable, then the entire assets available to be distributed to the Corporation’s stockholders shall be distributed in accordance with thepriorities set forth in Article IV, Section 3 of the Charter, with the Series L Preferred Stock ranking parri passu with the Series D, F, G, H, I, J and K Preferred Stock and prior to the Series B and C Preferred Stock. Not less than sixty(60) days prior to the payment date of the Liquidation Value, the Corporation shall mail written notice of any such Liquidation Event to each record holder of Series L Preferred Stock, setting forth in reasonable detail and amount of proceedsto be paid with respect to each Share and each share of Common Stock in connection with such Liquidation Event. A change of control of the Corporation shall not be deemed a Liquidation Event for purposes of this Section 3. 

 

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**ARTICLE IV**

**VOTING RIGHTS**

Section 4.1. Voting Rights. The Series L Preferred Stock shallhave no voting rights. 

Section 4.2. Covenants. 

Notwithstanding the above, the Corporation shall not take any of the actions set forth below without first obtaining the affirmative consent of the holders of at least two-thirds of the then outstanding shares ofSeries L Preferred Stock for so long as at least 20% of the Series L Preferred Stock originally issued pursuant to the Stock Purchase Agreement remains outstanding: 

(a) alter or change the preferences, rights or powers of the Series L Preferred Stock; 

(b) increase or decrease the authorized number of shares of the Series L Preferred Stock; 

**ARTICLE V**

**CONVERSION**

Subject to the terms of this Article V, at any time and from time to time after (i) the authorization by stockholders of theCorporation of the issuance of the Series L Preferred Stock and (ii) the amendment of the Charter to increase the number of shares of the Corporation authorized for issuance to amount necessary to provide for the proper issuance of all approvedshares are Common Stock and shares are Preferred Stock (the time after both conditions are met, the “Conversion Time”), any holder of Series L Preferred Stock may convert all or any portion of the Series L Preferred Stock (including anyfraction of a Share) held by such holder into a number of shares of Conversion Stock computed by multiplying the number of Shares to be converted by $1.00 and dividing the result by the Conversion Price then in effect. 

Section 5.1. Conversion Procedure. 

(a) Except as otherwise provided herein, each conversion of Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing theSeries L Preferred Stock to be converted have been surrendered for conversion at the principal office of the Corporation. At the time any such conversion has been effected, the rights of the holder of the Shares converted as a holder of Series LPreferred Stock shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of theshares of Conversion Stock represented thereby. 

 

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(b) Notwithstanding any other provision hereof, if a conversion of Preferred Stock is tobe made in connection with a transaction affecting the Corporation, the conversion of any shares of Series L Preferred Stock may, at the election of the holder thereof, be conditioned upon the consummation of such transaction, in which case suchconversion shall not be deemed to be effective until such transaction has been consummated. 

(c) As soon as possible after aconversion has been effected (but in any event within three (3) Business Days in the case of subparagraph (A) below), the Corporation shall deliver to the converting holder: 

(i) a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such nameor names and such denomination or denominations as the converting holder has specified; 

(ii) payment of any amount payableunder subparagraph (viii) below with respect to such conversion; and 

(iii) a certificate representing any Shares,which were represented, by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. 

(d) The issuance of certificates representing shares of Conversion Stock upon conversion of Preferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereofor other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Conversion Stock. Upon conversion of each share of Series L Preferred Stock, the Corporation shall take all such actions as arenecessary in order to insure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof.

(e) The Corporation shall not close its books against the transfer of Preferred Stock or of Conversion Stock issued orissuable upon conversion of the Series L Preferred Stock in any manner, which interferes with the timely conversion of the Series L Preferred Stock. The Corporation shall assist and cooperate with any holder of Shares required to make anygovernmental filings or obtain any governmental approval prior to or in connection with any conversion of Shares hereunder (including, without limitation, making any filings required to be made by the Corporation). 

(f) The Corporation shall at all times after the Conversion Time reserve and keep available out of its authorized but unissued shares ofConversion Stock, solely for the purpose of issuance upon the conversion of the Series L Preferred Stock, such number of shares of Conversion Stock issuable upon the conversion of all outstanding Preferred Stock. All shares of Conversion Stock thatare so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assure that 

 

D-3 

all such shares of Conversion Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domesticsecurities exchange upon which shares of Conversion Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). The Corporation shall not take any action that wouldcause the number of authorized but unissued shares of Conversion Stock to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of the Preferred Stock. 

(g) If any fractional interest in a share of Conversion Stock would, except for the provisions of this subparagraph, be delivered upon anyconversion of the Series L Preferred Stock, the Corporation, in lieu of delivering the fractional share therefore, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion.

(h) If the shares of Conversion Stock issuable by reason of conversion of the Series L Preferred Stock are convertible intoor exchangeable for any other stock or securities of the Corporation, the Corporation shall, at the converting holder’s option, upon surrender of the Shares to be converted by such holder as provided herein together with any notice, statementor payment required to effect such conversion or exchange of Conversion Stock, deliver to such holder or as otherwise specified by such holder a certificate or certificates representing the stock or securities into which the shares of ConversionStock issuable by reason of such conversion are so convertible or exchangeable, registered in such name or names and in such denomination or denominations as such holder has specified. 

Section 5.2. Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend,recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and if theCorporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall beproportionately increased. 

Section 5.3. Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization,reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation’s assets or other transaction, in each case which is effected in such a manner that the holders of Common Stock are entitled to receive(either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock held by such holders, is referred to herein as an “Organic Change.” Prior to the consummation of any OrganicChange, the Corporation shall make appropriate provisions to insure that each of the holders of Series L Preferred Stock shall thereafter have the right to acquire and receive, in lieu of the shares of Conversion Stock immediately theretoforeacquirable and receivable upon the conversion of such holder’s Series L Preferred Stock, such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holder has converted itsSeries L Preferred Stock immediately prior to such 

 

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Organic Change. The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (ifother than the Corporation) resulting from consolidation or merger of the entity purchasing such assets assumes by written instrument, the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance withthe foregoing provisions, such holder may be entitled to acquire. 

Section 5.4. Notices. 

(a) Immediately upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof to all affected holders ofthe Series L Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment. 

(b) TheCorporation shall give written notice to all holders of the Series L Preferred Stock at least 20 days prior to the date on which the Corporation closes its books or takes a record (a) with respect to any dividend or distribution upon CommonStock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any Organic Change, dissolution or liquidation. 

(c) The Corporation shall also give written notice to the holders of the Series L Preferred Stock at least 20 days prior to the dateon which any Organic Change shall take place. 

Section 5.5. Drag Along Right. In the event that all of the then outstandingSeries B Preferred Stock is converted pursuant to Article IV.D.5. of the Charter, upon such conversion of the Series B Preferred Stock, all of the then outstanding Series L Preferred Stock shall be converted automatically into shares of ConversionStock, the and holders of Series L Preferred Stock shall surrender all of their stock certificates representing Series L Preferred Stock in exchange for certificates representing the number of shares Conversion Stock then issuable upon conversion ofsuch series of Series L Preferred Stock in accordance with this Article V. 

**ARTICLE VI**

**PURCHASE RIGHTS**

If at any timethe Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”) and suchrights are not concurrently granted to the holders of the Preferred Stock, then each holder of Initially Designated Preferred Stock or the Series L Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, theaggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Conversion Stock acquirable upon conversion of such holder’s Initially Designated Preferred Stock or Series L Preferred Stockimmediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or saleof such Purchase Rights. 

 

D-5 

**ARTICLE VII**

**REGISTRATION OF TRANSFER**

The Corporation shall keep or have its agent keep a register forthe registration of the Series L Preferred Stock. Upon the surrender of any certificate representing the Series L Preferred Stock at a place designated by the Corporation, the Corporation shall, at the request of the record holder of suchcertificate, execute and deliver (at the Corporation’s expense) a new certificate or certificates in exchange therefore representing in the aggregate the number of Shares represented by the surrendered certificate. Each such new certificateshall be registered in such name and shall represent such number of Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on theSeries L Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Series L Preferred Stock represented by the surrendered certificate. 

**ARTICLE VIII**

**REPLACEMENT**

Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership andthe loss, theft, destruction or mutilation of any certificate evidencing the Shares, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is afinancial institution or other institutional investor, its own agreement to indemnify the Corporation shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall be (at its expense)execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of the Series L Preferred Stock represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost,stolen, destroyed or mutilated certificate, and dividends shall accrue on the Shares represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. 

**ARTICLE IX**

**DEFINITIONS**

To the extent not defined herein, terms shall have the meaning set forth in the Charter. 

“Affiliate” of any Person means any other Person directly or indirectly controlling, controlled by or under common control with suchPerson, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through ownership of Voting Securities, contract or otherwise. 

“Common Stock” means, collectively, the Corporation’s common stock, par value $0.004 per share, and any capital stock of any classof the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation,dissolution or winding up of the Corporation. 

 

D-6 

“Common Stock Deemed Outstanding” means, at any given time, the number of shares ofCommon Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to subparagraphs 5C(i) and 5C(ii) hereof whether or not the Options or Convertible Securities are actually exercisable atsuch time. 

“Conversion Price” initially means $0.10 for the Series L Preferred Stock. 

“Conversion Stock” means shares of the Corporation’s Common Stock; provided, that if there is a change such that the securitiesissuable upon conversion of the Series L Preferred Stock are issued by an entity other than the Corporation or there is a change in the type or class of securities so issuable, then the term “Conversion Stock” shall mean one share of thesecurity issuable upon conversion of the Series L Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. 

“Convertible Securities” means any stock or securities directly or indirectly convertible into or exchangeable for Common Stock.

“Corporation” means Velocity Express Corporation, a Delaware corporation, or, where applicable (for example, inconnection with agreements dated prior to the date of incorporation of the Corporation under the GCL), UST. Where applicable, reference to certain agreements of the Corporation entered into prior to its incorporation under the Delaware GeneralCorporation Law refer to those as assumed by the surviving entity as a matter of law under the merger between the Corporation and UST, effective on January 4, 2002. 

“Exchange Act” means the Securities Exchange Act of 1934, as amended. 

“JuniorSecurities” has the meaning set forth in Section 1 of the Charter. 

“Liquidation Event” has the meaning setforth in Section 3. 

“Liquidation Value” of any share of Series L Preferred Stock shall be equal to $1.00.

“Market Price” of any security means the average of the closing prices of such security’s sales on all securitiesexchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day suchsecurity is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid andlowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of the twenty (20) consecutivetrading days immediately prior to the day for which “Market Price” is being determined. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the “MarketPrice” shall be the fair value thereof determined jointly by the Corporation and the holders of at least two-thirds of each of the then outstanding classes of Preferred Stock, voting as individual classes. If such parties are unable to reachagreement within a reasonable period of time, such fair value shall be determined jointly by an 

 

D-7 

independent appraiser experienced in valuing securities jointly selected by the Corporation and the holders of at least two-thirds of each of the thenoutstanding classes of Preferred Stock, voting as individual classes. The determination of such appraiser shall be final and binding upon the parties, and the Corporation shall pay the fees and expenses of such appraiser. 

“Options” means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. 

“Permitted Issuances” means the acts described in Section 5B(iii) of the Charter. 

“Person” means an individual, a partnership, a corporation, a limited liability company, a limited liability, an association, a jointstock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. 

“Preferred Stock” shall have the meaning set forth in the Charter. 

“Series BPreferred Stock” shall mean the Corporation’s Series B Convertible Preferred Stock, par value $0.004 per share. 

“Series C Preferred Stock” shall mean the Corporation’s Series C Convertible Preferred Stock, par value $0.004 per share. 

“Series D Preferred Stock” shall mean the Corporation’s Series D Convertible Preferred Stock, par value $0.004 per share. 

“Series F Preferred Stock” shall mean the Corporation’s Series F Convertible Preferred Stock, par value $0.004 per share.

“Series G Preferred Stock” shall mean the Corporation’s Series G Convertible Preferred Stock, par value $0.004 pershare. 

“Series H Preferred Stock” shall mean the Corporation’s Series H Convertible Preferred Stock, par value$0.004 per share. 

“Series I Preferred Stock” shall mean the Corporation’s Series I Convertible Preferred Stock, parvalue $0.004 per share. 

“Series J Preferred Stock” shall mean the Corporation’s Series J Convertible PreferredStock, par value $0.004 per share. 

“Series K Preferred Stock” shall mean the Corporation’s Series K ConvertiblePreferred Stock, par value $0.004 per share. 

“Series L Preferred Stock” shall mean the Corporation’s Series LConvertible Preferred Stock, par value $0.004 per share. 

“Share” has the meaning set forth in Section 3. 

 

D-8 

“Subsidiary” means, with respect to any Person, any corporation, limited liabilitycompany, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election ofdirectors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company,partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or acombination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated amajority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing general partner of such limited liability company, partnership, association or other business entity.

“Voting Securities” means securities of the Corporation ordinarily having the power to vote for the election of directorsof the Corporation; provided, that when the term “Voting Securities” is used with respect to any other Person, it means the capital stock or other equity interests of any class or kind ordinarily having the power to vote forthe election of directors or other members of the governing body of such Person. 

**ARTICLE X**

**AMENDMENT AND WAIVER**

Noamendment, modification or waiver shall be binding or effective with respect to any provisions hereof without the prior written consent of the holders of at least two-thirds of Series L Preferred Stock outstanding, voting as separate class, at thetime such action is taken. 

**ARTICLE XI**

**NOTICES**

Except as otherwise expressly provided hereunder, all notices referred to hereinshall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent(i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder’s address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). 

 

D-9 

**CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS**

**OF**

**SERIES M CONVERTIBLE PREFERREDSTOCK**

**OF**

**VELOCITY EXPRESS CORPORATION**

**(Pursuant to Section 151 of the**

**Delaware General Corporation Law)**

Velocity Express Corporation, a corporation organized and existing under the laws of the State of Delaware (the “Company”), hereby certifies that, pursuant to authority vested in the Board of Directors of the Company by Article IVof the Certificate of Incorporation of the Company, the following resolution was adopted as of December 20, 2005, by the Board of Directors of the Company pursuant to Section 151 of the Delaware General Corporation Law: 

“RESOLVED” that, pursuant to authority vested in the Board of Directors of the Company by Article IV of the Company’s Certificate ofIncorporation, out of the total authorized number of 299,515,270 shares of its preferred stock, par value $0.004 per share (“Preferred Stock”), there shall be designated a series of 7,500,000 shares which shall be issued in and constitutea single series to be known as “Series M Convertible Preferred Stock” (hereinafter called the “Series M Preferred Stock”). The shares of Series M Preferred Stock have the voting powers, designations, preferences and other specialrights, and qualifications, limitations and restrictions thereof set forth below: 

1. Certain Definitions. 

As used in this Certificate of Designations, Preferences and Rights of Series M Convertible Preferred Stock of Velocity Express Corporation, thefollowing terms shall have the respective meanings set forth below: 

“Affiliate”, as applied to any Person, means anyother Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”,“controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whetherthrough the ownership of voting securities or by contract or otherwise. 

“Common Stock” means the common stock, $0.004 par value per share, of the Company,including the stock into which the Series M Preferred Stock is convertible, and any securities into which the Common Stock may be reclassified. 

“Excluded Stock” means (A) capital stock, Options (as defined in Section 4D(1)) or Convertible Securities (as defined in Section 4D(l)) issued to employees, consultants, officers or directors of the Companypursuant 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) sharesof Common Stock issued upon the conversion or exercise of Options or Convertible Securities issued prior to the date hereof, provided that such securities have not been amended since the date hereof, (C) securities issued pursuant to thatcertain Purchase Agreement dated December 21, 2004, among the Company and the Investors named therein (the “Purchase Agreement”) and securities issued upon the exercise or conversion of those securities, (D) capital stock orConvertible Securities issued to a lender in connection with the provision of credit to the Company, (E) shares of Common Stock issued or issuable by reason of a dividend, stock split or other distribution on shares of Common Stock (but only tothe extent that such a dividend, split or distribution results in an adjustment in the Conversion Price pursuant to the other provisions of this Series M Preferred Stock) and (F) any issuance of shares of Series N, O, P or Q ConvertiblePreferred Stock, including without limitation any issuance in payment of dividends with respect to the same series of preferred stock. 

“Person” shall be construed in the broadest sense and means and includes any natural person, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, anunincorporated organization and other entity or governmental or quasi-governmental entity. 

“Series M Stated Value” means$3.685 (appropriately adjusted for any stock split, reverse stock split, stock dividend or other reclassification or combination of the Series M Preferred Stock occurring after the date hereof). 

“Subsidiary” means any corporation, association or other business entity (i) at least 50% of the outstanding voting securities ofwhich are at the time owned or controlled, directly or indirectly, by the Company; or (ii) with respect to which the Company possesses, directly or indirectly, the power to direct or cause the direction of the affairs or management of suchperson; 

2. Dividends. 

(a) Each holder of Series M Preferred Stock, in preference and priority to the holders of all other classes of stock other than holders of the Company’s Series P Convertible Preferred Stock (“Series P Preferred”) and Series QConvertible Preferred Stock (“Series Q Preferred”), shall be entitled to receive, with respect to each share of Series M Preferred Stock then outstanding and held by such holder of Series M Preferred Stock, dividends, commencing from thedate of issuance of such share of Series M Preferred Stock, at the rate of six percent (6%) per annum of the Series M Stated Value (the “Series M Preferred Dividends”). The Series M Preferred Dividends shall be cumulative, whether ornot earned or declared, and shall be paid quarterly in arrears on the first day 

 

2 

of March, June, September and December in each year. During the first two (2) years following the date of issuance, the Series M Preferred Dividendsshall be paid by issuing to each holder of Series M Preferred Stock such number of shares of Series M Preferred Stock equal to the Series M Preferred Dividend divided by the Series M Stated Value (“PIK Shares”). From and after the secondanniversary of the date of issuance, the Company shall have the option to pay the Series M Preferred Dividends in PIK Shares or in cash out of legally available funds therefor. Any election by the Company to pay dividends in shares of Series MPreferred Stock or cash shall be made uniformly with respect to all outstanding shares of Series M Preferred Stock for a given dividend period. 

(b) No dividends shall be paid on any Common Stock of the Company or any other capital stock of the Company other than the Series Q Preferred during any fiscal year of the Company until all outstanding Series M Preferred Dividends (withrespect to the current fiscal year and all prior fiscal years) shall have been paid or declared and set apart for payment to the holders of Series M Preferred Stock. 

(c) In the event that the Company shall at any time pay a dividend on the Common Stock (other than a dividend payable solely in shares of Common Stock) or any other class or series of capital stock of the Companyother than the Series P Preferred and the Series Q Preferred, the Company shall, at the same time, pay to each holder of Series M Preferred Stock a dividend equal to the dividend that would have been payable to such holder if the shares of Series MPreferred Stock held by such holder had been converted into Common Stock on the date of determination of holders of Common Stock entitled to receive such dividends. 

3. Liquidation; Redemption. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the shares of Series M Preferred Stock shall rank (i) senior tothe holders of the Common Stock and any other class or series of capital stock of the Company other than the Series P Preferred and the Series Q Preferred, (ii) junior to the holders of the Series Q Preferred, and (iii) on parity with theholders of the Series P Preferred, as to such distributions, and shall be entitled to be paid an amount per share equal to the Series M Stated Value plus any accrued and unpaid Series M Preferred Dividends (the “Liquidation Preference”).If upon such liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the assets to be distributed among the holders of the Series M Preferred Stock and any class or Series of capital stock ranking on a parity withthe Series M Preferred Stock as to such distributions shall be insufficient to permit payment to the holders of the Series M Preferred Stock and any such class or series of capital stock of their respective liquidation amount, then the entire assetsof the Company to be distributed shall be distributed pro rata to the holders of Series M Preferred Stock and the holders of such class or series of capital stock ranking on a parity with the Series M Preferred Stock as to such distributionsaccording to the preferential amounts due thereon. Unless waived in writing by the holders of at least 62.5 percent of the Series M Preferred Stock then outstanding, voting together as one class, a consolidation or merger of the Company into or withany other entity or entities, or the sale or transfer by the Company of all or substantially all its assets, in each case under circumstances in which the holders of a majority in voting power of the outstanding capital stock of the Company,immediately prior to such a merger, consolidation or sale, own less than a majority in voting power of the outstanding capital stock of the corporation or the surviving or resulting corporation or acquirer, as the case may be, immediately followingsuch a merger, consolidation or sale (each such 

 

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transaction being hereinafter referred to as a “Corporate Transaction”) shall be deemed to be a liquidation within the meaning of thisSection 3; provided, however, that the holder(s) of any share or shares of Series M Preferred Stock shall have the right, at its option, upon consummation of a Corporate Transaction, to require the Company to redeem such holder(s) share orshares of Series M Preferred Stock for an amount equal to such holder’s Liquidation Preference. 

4. Conversion. 

4A. Right to Convert; Mandatory Conversion. 

(a) Subject to the terms and conditions of this paragraph 4A, the holder of any share or shares of Series M Preferred Stock shall have the right, at its option at any time, to convert any such shares of Series M Preferred Stock into suchnumber of fully paid and nonassessable whole shares of Common Stock as is obtained by multiplying the number of shares of Series M Preferred Stock so to be converted by the Liquidation Preference per share and dividing the result by the conversionprice of $3.685 per share or, if there has been an adjustment of the conversion price, by the conversion price as last adjusted and in effect at the date any share or shares of Series M Preferred Stock are surrendered for conversion (such price, orsuch price as last adjusted, being referred to herein as the “Conversion Price”). Such rights of conversion shall be exercised by the holder thereof by surrender of a certificate or certificates for the shares to be converted to theCompany at its principal office (or such other office or agency of the Company as the Company may designate by notice in writing to the holder or holders of the Series M Preferred Stock) at any time during its usual business hours on the date setforth in such notice, together with a properly completed notice of conversion in the form attached to the Series M Preferred Stock certificate with a statement of the name or names (with address), subject to compliance with applicable laws to theextent such designation shall involve a transfer, in which the certificate or certificates for shares of Common Stock, shall be issued. Such conversion shall be deemed to have been effected and the Conversion Price shall be determined as of theclose of business on the date on which such written notice shall have been received by the Company and the certificate or certificates for such shares shall have been surrendered as aforesaid. 

(b) All issued and outstanding shares of Series M Preferred Stock shall be converted into fully paid and nonassessable whole shares of Common Stock atthe Conversion Price automatically and without any action on the part of the holders thereof upon the vote or written consent of the holders of at least 62.5% of the issued and outstanding shares of Series M Preferred Stock. The Company shallprovide prompt written notice to the holders of Series M Preferred Stock of any conversion effected pursuant to this subsection 4A(b) but in no event more than five days after the effective date of such conversion. From and after any conversioneffected pursuant to this subsection 4A(b), the holders of the Series M Preferred Stock shall have the right to receive shares of Common Stock in accordance with and upon compliance with the other provisions of subsections 4A, 4B and 4C hereof.

4B. Issuance of Certificates; Time Conversion Effected. Promptly after the conversion of the Series M Preferred Stock and surrenderof the certificate or certificates for the share or shares of the Series M Preferred Stock being converted, the Company shall issue and 

 

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deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, subject to compliance withapplicable laws to the extent such designation shall involve a transfer, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Series M Preferred Stock. Upon theeffective date of any such conversion, the rights of the holder of the shares of Series M Preferred Stock being converted shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shallbe issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. 

4C.Fractional Shares; Dividends; Partial Conversion. No fractional shares shall be issued upon conversion of the Series M Preferred Stock into Common Stock, and the number of shares of Common Stock to be issued shall be rounded down to thenearest whole share. In case the number of shares of Series M Preferred Stock represented by the certificate or certificates surrendered pursuant to subsection 4A(a) exceeds the number of shares converted, the Company shall upon such conversion,execute and deliver to the holder thereof at the expense of the Company, a new certificate for the number of shares of Series M Preferred Stock represented by the certificate or certificates surrendered which are not to be converted. 

4D. Adjustment of Conversion Price. If the Company shall issue or sell, or is, in accordance with subsection 4D(1) through 4D(8) below, deemed tohave issued or sold, any Additional Shares of Common Stock without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to the time of such issue or sale, then and in each such case (a“Trigger Issuance”) the then-existing Conversion Price, shall be reduced, as of the close of business on the effective date of the Trigger Issuance, to a price determined as follows: 

 

Adjusted Conversion Price
 =  (A x B) + D     A+C  
where 

“A” equals the number of shares of Common Stock outstanding, including Additional Shares of Common Stock (as defined below) deemed to be issued hereunder, immediately preceding such Trigger Issuance;

“B” equals the Conversion Price in effect immediately preceding such Trigger Issuance; 

“C” equals the number of Additional Shares of Common Stock issued or deemed issued hereunder as a result of the Trigger Issuance; and

“D” equals the aggregate consideration, if any, received or deemed to be received by the Company upon such Trigger Issuance;

provided, however, that in no event shall the Conversion Price after giving effect to such Trigger Issuance be greater than the ConversionPrice in effect prior to such Trigger Issuance. 

 

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For purposes of this subsection 4D, “Additional Shares of Common Stock” shall mean all sharesof Common Stock issued by the Company or deemed to be issued pursuant to this subsection 4D, other than Excluded Stock. 

For purposes ofthis subsection 4D, the following paragraphs 4D(1) to 4D(8) shall also be applicable: 

4D(1) Issuance of Rights or Options. In caseat any time the Company shall in any manner grant (directly and not by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or securityconvertible into or exchangeable for Common Stock (such warrants, rights or options being called “Options” and such convertible or exchangeable stock or securities being called “Convertible Securities”) whether or not suchOptions or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of suchConvertible Securities (determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options,plus (y) the aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus (z), in the case of such Options which relate to Convertible Securities, the aggregate amount of additionalconsideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon theconversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Conversion Price in effect immediately prior to the time of the granting of such Options, then the total number of shares ofCommon Stock issuable upon the exercise of such Options or upon conversion or exchange of the total amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as ofthe date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price. Except as otherwise provided in subsection 4D(3), no adjustment ofthe Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities.

4D(2) Issuance of Convertible Securities. In case the Company shall in any manner issue (directly and not by assumption in a mergeror otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion ofexchange (determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities,plus (y) the aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (ii) the total number of shares of Common Stock issuable upon the conversion or exchange of all suchConvertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon 

 

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conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale ofsuch Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price, provided that (a) except as otherwise provided in subsection 4D(3), no adjustment of the Conversion Price shall be madeupon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities and (b) no further adjustment of the Conversion Price shall be made by reason of the issue or sale of Convertible Securities upon exerciseof any Options to purchase any such Convertible Securities for which adjustments of the Conversion Price have been made pursuant to the other provisions of subsection 4D. 

4D(3) Change in Option Price or Conversion Rate. Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subsection 4D(1) hereof, theadditional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subsections 4D(1) or 4D(2), or the rate at which Convertible Securities referred to in subsections 4D(1) or 4D(2) are convertibleinto or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed to protect against dilution), the Conversion Price in effect at the time of such event shall forthwithbe readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case maybe, at the time initially granted, issued or sold. On the termination of any Option for which any adjustment was made pursuant to this subsection 4(D) or any right to convert or exchange Convertible Securities for which any adjustment was madepursuant to this subsection 4(D) (including without limitation, upon the redemption or purchase for consideration of such Convertible Securities by the Company), the Conversion Price then in effect hereunder shall forthwith be changed to theConversion Price which would have been in effect at the time of such termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such termination, never been issued. 

4D(4) Stock Dividends. Subject to the provisions of this subsection 4D, in case the Company shall declare a dividend or make any otherdistribution upon any stock of the Company (other than the Common Stock) payable in Common Stock, Options or Convertible Securities, then any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividendor distribution shall be deemed to have been issued or sold without consideration; provided, however, that the provisions of this subsection 4D(4) shall not apply to the issuance of PIK Shares in accordance with the terms hereof. 

4D(5) Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greaternumber of shares or shall declare or pay a dividend on its outstanding shares of Common Stock payable in shares of Common Stock, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely,in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. 

 

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4D(6) Consideration for Stock. In case any shares of Common Stock, Options or ConvertibleSecurities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor, after deduction therefrom of any expenses incurred or any underwriting commissions or concessionspaid or allowed by the Company in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received bythe Company shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Company, after deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed bythe Company in connection therewith. In case any Options shall be issued in connection with the issue and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to suchOptions by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Company. If Common Stock, Options or Convertible Securities shall be issued or soldby the Company and, in connection therewith, other Options or Convertible Securities (the “Additional Rights”) are issued, then the consideration received or deemed to be received by the Company shall be reduced by the fair market value ofthe Additional Rights (as determined using the Black-Scholes option pricing model or another method mutually agreed to by the Company and the holder). The Board of Directors of the Company shall respond promptly, in writing, to an inquiry by theholder as to the fair market value of the Additional Rights. In the event that the Board of Directors of the Company and the holder are unable to agree upon the fair market value of the Additional Rights, the Company and the holder shall jointlyselect an appraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne evenly by the Company and the holder. 

4D(7) Record Date. In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (i) toreceive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date ofthe issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case maybe. 

4D(8) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned orheld by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof) shall be considered an issue or sale of Common Stock for the purpose ofthis Section 4D. 

4E Stock Splits and Dividends. If the Company shall, at any time or from time to time while the Series MPreferred Stock is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stockinto a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger 

 

8 

in which the Company is the continuing corporation), then the Conversion Price in effect immediately prior to the date upon which such change shall becomeeffective shall be adjusted by the Company so that the holder thereafter converting its shares of Series M Preferred Stock shall be entitled to receive the number of shares of Common Stock or other capital stock which the such holder would havereceived if the shares of Series M Preferred Stock had been converted immediately prior to such event. Such adjustments shall be made successively whenever any event listed above shall occur. 

4F. Reorganization or Reclassification. If any capital reorganization or reclassification of the capital stock of the Company shall be effected insuch a way (including, without limitation, by way of consolidation or merger) that holders of Common Stock but not holders of Series M Preferred Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for CommonStock then, as a condition of such reorganization or reclassification, lawful and adequate provision shall be made whereby each holder of a share or shares of Series M Preferred Stock shall thereafter have the right to receive, upon the basis andupon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Company immediately theretofore receivable upon the conversion of such share or shares of the Series M Preferred Stock, such shares of stock, securitiesor assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of such stock immediately theretofore so receivable had such reorganization or reclassification nottaken place and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Conversion Price)shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights (including an immediate adjustment, by reason of such reorganization orreclassification, of the Conversion Price to the value for the Common Stock reflected by the terms of such reorganization or reclassification if the value so reflected is less than the Conversion Price in effect immediately prior to suchreorganization or reclassification). In the event of a merger or consolidation of the Company as a result of which a greater or lesser number of shares of common stock of the surviving corporation are issuable to holders of the Common Stock of theCompany outstanding immediately prior to such merger or consolidation, the Conversion Price in effect immediately prior to such merger or consolidation shall be adjusted in the same manner as though there were a subdivision or combination of theoutstanding shares of Common Stock of the Company. 

4G. Distributions. In case the Company shall fix a payment date for the makingof a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividendsor cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 4E), or subscription rights or warrants, the Conversion Price to be in effect after such payment date shall bedetermined by multiplying the Conversion Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price (as defined below)per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscriptionrights or 

 

9 

warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of CommonStock immediately prior to such payment date. “Market Price” as of a particular date (the “Valuation Date”) shall mean the following: (a) if the Common Stock is then listed on a national stock exchange, the closing saleprice of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq Stock Market, Inc. (“Nasdaq”), the National Association of SecuritiesDealers, Inc. OTC Bulletin Board (the “Bulletin Board”) or such similar exchange or association, the closing sale price of one share of Common Stock on Nasdaq, the Bulletin Board or such other exchange or association on the last tradingday prior to the Valuation Date or, if no such closing sale price is available, the average of the high bid and the low asked price quoted thereon on the last trading day prior to the Valuation Date; or (c) if the Common Stock is not thenlisted on a national stock exchange or quoted on Nasdaq, the Bulletin Board or such other exchange or association, the fair market value of one share of Common Stock as of the Valuation Date, shall be determined in good faith by the Board ofDirectors of the Company and the holders of at least 62.5% of the outstanding Series M Preferred Stock. If the Common Stock is not then listed on a national securities exchange, the Bulletin Board or such other exchange or association, the Board ofDirectors of the Company shall respond promptly, in writing, to an inquiry by a holder of Series M Preferred Stock prior to the exercise hereunder as to the fair market value of a share of Common Stock as determined by the Board of Directors of theCompany. In the event that the Board of Directors of the Company and the holders of at least 62.5% of the outstanding Series M Preferred Stock are unable to agree upon the fair market value in respect of subpart (c) hereof, the Company and theholders of at least 62.5% of the outstanding Series M Preferred Stock shall jointly select an appraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borneequally by the Company and such holders. Such adjustment shall be made successively whenever such a payment date is fixed. 

4H.Effective Date of Adjustment. An adjustment to the Conversion Price shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event whichrequires an adjustment. 

4I. Subsequent Adjustments. In the event that, as a result of an adjustment made pursuant to thisSection 4, holders of Series M Preferred Stock shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon the conversion of the Series MPreferred Stock shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Conversion Shares contained herein. 

4J. Notice of Adjustment. Upon any adjustment of the Conversion Price, then, and in each such case the Company shall give written notice thereofby first class mail, postage prepaid, addressed to each holder of shares of Series M Preferred Stock at the address of such holder as shown on the books of the Company, which notice shall state the Conversion Price resulting from such adjustment,setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 

 

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4K. Other Notices. In case at any time: 

(1) the Company shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its CommonStock; 

(2) the Company shall offer for subscription prorata to the holders of its Common Stock any additional shares ofsuch stock of any class or other rights; 

(3) there shall be any capital reorganization or reclassification of the capital stock of theCompany, or a consolidation or merger of the Company with, or a sale of all or substantially all its assets to, another corporation; or 

(4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; 

then, in any one or more ofsaid cases, the Company shall give, by first class mail, postage prepaid, addressed to each holder of any shares of Series M Preferred Stock at the address of such holder as shown on the books of the Company, (a) at least 15 days prior writtennotice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification,consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 15 days prior written notice ofthe date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall beentitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable uponsuch reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 

4L.Stock to be Reserved. 

(1) The Company will at all times reserve and keep available out of its authorized but unissued Common Stocksolely for the purpose of issuance upon the conversion of the Series M Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series M Preferred Stock. Allshares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof (including, without limitation, in respectof taxes) and, without limiting the generality of the foregoing, the Company covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to orless than the effective Conversion Price. The Company will take all such action within its control as may be necessary on its part to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation,or of any requirements of any national securities exchange upon which the Common Stock of the Company may be listed. The Company will not take any action which results in any adjustment of the Conversion Price if after such action the total numberof shares of Common Stock issued and outstanding and thereafter issuable upon exercise of all options and conversion of Convertible Securities, including upon conversion of the Series M Preferred Stock, would exceed the total number of shares ofsuch class of Common Stock then authorized by the Company’s Certificate of Incorporation. 

 

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(2) The Company will at all times reserve and keep available out of its authorized Series M PreferredStock such number of shares of Series M Preferred Stock as is equal to the number of shares of Series M Preferred Stock then outstanding. All shares of Series M Preferred Stock which shall be so issued shall be duly and validly issued and fully paidand nonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof (including, without limitation, in respect of taxes). 

4M. No Reissuance of Series M Preferred Stock. Shares of Series M Preferred Stock that are converted into shares of Common Stock as provided herein shall be retired and may not be reissued as Series M PreferredStock but may be reissued as all or part of another series of Preferred Stock. 

4N. Issue Tax. The issuance of certificates forshares of Common Stock upon conversion of the Series M Preferred Stock shall be made without charge to the holders thereof for any issuance tax, stamp tax, transfer tax, duty or charge in respect thereof, provided that the Company shall not berequired to pay any tax, duty or charge which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Series M Preferred Stock which is being converted.

4O. Closing of Books. The Company will at no time close its transfer books against the transfer of any Series M Preferred Stock orof any shares of Common Stock issued or issuable upon the conversion of any shares of Series M Preferred Stock in any manner which interferes with the timely conversion of such Series M Preferred Stock; provided, however, nothingherein shall be construed to prevent the Company from setting record dates for the holders of its securities. 

5. Voting - Series MPreferred Stock. 

(a) So long as shares of Series M Preferred Stock are outstanding, the Company shall give the holders of the Series MPreferred Stock written notice of each meeting of the Company’s Board of Directors and each committee thereof at least at the same time and in the same manner as notice is given to the directors and the holders of the Series M Preferred Stockshall have the right to designate (in such manner as they shall determine in their sole discretion) three representatives who shall have the right to attend as observers all meetings of the Company’s Board of Directors and all committeesthereof; provided that in the case of telephonic meetings conducted in accordance with the Company’s bylaws and applicable law, the holders’ representatives shall be given the opportunity to listen to such telephonic meetings. Theholders’ representatives shall be entitled to receive all written materials and other information (including without limitation copies of meeting minutes) given to directors in connection with such meetings at the same time such materials andinformation are given to the directors. If the Company proposes to take any action by written consent in lieu of a meeting of its Board of Directors or of any committee thereof, the Company shall 

 

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give written notice thereof to the holders’ representative and each of the Company’s directors prior to the effective date of such consentdescribing in reasonable detail the nature and substance of such action. The Company shall pay the reasonable out-of-pocket expenses of the holders’ representatives incurred in connection with attending such board and committee meetings.

(b) So long as shares of Series M Preferred Stock are outstanding, the holders of Series M Preferred Stock, voting as a separate class,shall have the right to elect one member of Company’s Board of Directors (the “Series M Director”). The Company shall pay the reasonable out-of-pocket expenses of the Series M Director incurred in connection with attending meetings ofthe Company’s Board of Directors and any committees thereof on which such Series M Director serves. During the term of any Series M Director elected by the holders of Series M Preferred Stock in accordance with this subsection 5(b), the numberof observers which such holders have the right to designate pursuant to subsection 5(a) shall be reduced to two. 

(c) In addition to anyclass voting rights provided by law and this Certificate of Designation, the holders of Series M Preferred Stock shall have the right to vote together with the holders of Common Stock as a single class on any matter on which the holders of CommonStock are entitled to vote (including the election of directors other than the Series M Director). With respect to the voting rights of the holders of the Series M Preferred Stock pursuant to the preceding sentence, each holder of Series M PreferredStock shall be entitled to one vote for each share of Common Stock that would be issuable to such holder upon the conversion of all the shares of Series M Preferred Stock held by such holder on the record date for the determination of shareholdersentitled to vote. 

6. Certain Restrictions. In addition to any other vote of the holders of Series M Preferred Stock required by lawor by the Certificate of Incorporation, without the prior consent of the holders of at least 62.5% of the outstanding Series M Preferred Stock, given in person or by proxy, either in writing or at a special meeting called for that purpose, at whichmeeting the holders of the shares of such Series M Preferred Stock shall vote together as a class, the Company will not: 

(a) authorize,create, designate, establish or issue (whether by merger or otherwise) (i) an increased number of shares of Series M Preferred Stock (other than shares of Series M Preferred Stock payable as payment-in-kind dividends on outstanding shares ofSeries M Preferred Stock), or (ii) any other class or series of capital stock ranking senior to or on parity with the Series M Preferred Stock as to dividends or upon liquidation or reclassify any shares of Common Stock into shares having anypreference or priority as to dividends or upon liquidation superior to or on parity with any such preference or priority of Series M Preferred Stock; 

(b) adopt a plan for the liquidation, dissolution or winding up of the affairs of the Company or any recapitalization plan (whether occurring by merger, consolidation or otherwise), file any petition seekingprotection under any federal or state bankruptcy or insolvency law or make a general assignment for the benefit of creditors unless the holders of the Series M Preferred Stock will receive an amount in cash at least equal to the LiquidationPreference in such transaction; 

 

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(c) merge into or consolidate with engage in any share exchange with any other Person or permit anyPerson to merge into or consolidate with or engage in any share exchange the Company if immediately thereafter, less than 50% of the voting power of the surviving entity is retained by the holders of voting power of the Company immediately priorthereto unless the holders of the Series M Preferred Stock will receive an amount in cash at least equal to the Liquidation Preference in such transaction; 

(d) adopt any stock option, stock compensation or stock purchase plan (other than the Stock Option Plan (as defined in the Purchase Agreement)), maintain any stock option, stock compensation or stock purchase planwhich contains any “evergreen” or formula provisions increasing the number of shares of Common Stock available for grant thereunder (other than customary anti-dilution adjustments) or amend any existing stock option, stock compensation orstock purchase plan so as to increase the number of shares of Common Stock covered thereby; 

(e) (not used); 

(f) enter into or consummate the sale, lease, transfer, assignment or other disposition of all or any substantial part of its assets, whether in a singletransaction or series of related transactions, to any Person unless the holders of the Series M Preferred Stock will receive an amount in cash at least equal to the Liquidation Preference in such transaction; 

(g) amend, alter or repeal, whether by merger, consolidation or otherwise, the Certificate of Incorporation or By-laws of the Company or the Resolutionscontained in this Certificate of Designations of the Series M Preferred Stock and the powers, preferences, privileges, relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof, which wouldadversely affect any right, preference, privilege or voting power of the Series M Preferred Stock, or which would increase or decrease the amount of authorized shares of the Series M Preferred Stock or of any other series of preferred stock rankingsenior to the Series M Preferred Stock, with respect to the payment of dividends (whether or not such series of preferred stock is cumulative or noncumulative as to payment of dividends) or upon liquidation 

(h) directly or indirectly, declare or pay any dividend (other than dividends permitted pursuant to Section 2 and dividends payable in shares ofCommon Stock but only to the extent that such stock dividend results in an adjustment of the Conversion Price pursuant to Section 4(D)(4)) or directly or indirectly purchase, redeem, repurchase or otherwise acquire or permit any Subsidiary toredeem, purchase, repurchase or otherwise acquire (or make any payment to a sinking fund for such redemption, purchase, repurchase or other acquisition) any share of Common Stock or any other class or series of the Company’s capital stock(except for shares of Common Stock repurchased from current of former employees, consultants, or directors upon termination of service in accordance with plans approved by the Company board of directors) whether in cash, securities or property or inobligations of the Company or any Subsidiary; 

(i) materially change the nature or scope of the business of the Company or enter into anynew line of business; 

 

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(j) consummate or agree to make any sale, transfer, assignment, pledge, lease, license or similartransaction by which the Company grants any rights to any of the Company’s intellectual property or technology other than non-exclusive licenses granted by the Company to customers in connection with the sale of the Company’s products inthe ordinary course of business consistent with past practices; 

(k) increase or decrease the number of directors comprising theCompany’s Board of Directors (including the Series M Director); or 

(l) agree to do any of the foregoing. 

7. No Waiver. Except as otherwise modified or provided for herein, the holders of Series M Preferred Stock shall also be entitled to, and shallnot be deemed to have waived, any other applicable rights granted to such holders under the Delaware General Corporation Law. 

8. NoImpairment. The Company will not, through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to beobserved or performed hereunder by the Company but will at all time in good faith assist in the carrying out of all the provisions of this Article IV and in the taking of all such action as may be necessary or appropriate in order to protect theconversion rights and liquidation preferences granted hereunder of the holders of the Series M Preferred Stock against impairment.” 

9. Amendment; Waiver. Any term of the Series M Preferred Stock may be amended or waived (including the adjustment provisions included in Section 4(D) hereof) upon the written consent of the Company and the holders of at least62.5% of the Series M Preferred Stock then outstanding; provided, however that the number of Conversion Shares issuable hereunder and the Conversion Price may not be amended, and the right to convert the Series M Preferred Stock maynot be altered or waived, without the written consent of the holders of all of the Series M Preferred Stock then outstanding. 

10.Action By Holders. Any action or consent to be taken or given by the holders of the Series M Preferred Stock may be given either at a meeting of the holders of the Series M Preferred Stock called and held for such purpose or by writtenconsent. 

11. Transactions with Affiliates. The Company shall not enter into any transaction with an Affiliate or stockholder of theCompany unless the same is approved by: (i) the Audit Committee of the Company’s Board of Directors or (ii) a majority of the members of the Company’s Board of Directors who fall within the definition of “independent”employed within the listing standards promulgated by The Nasdaq Stock Market, Inc. 

 

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**CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS**

**OF**

**SERIES N CONVERTIBLE PREFERREDSTOCK**

**OF**

**VELOCITY EXPRESS CORPORATION**

**(Pursuant to Section 151 of the**

**Delaware General Corporation Law)**

Velocity Express Corporation, a corporation organized and existing under the laws of the State of Delaware (the “Company”), hereby certifies that, pursuant to authority vested in the Board of Directors of the Company by Article IVof the Certificate of Incorporation of the Company, the following resolution was adopted as of April 14, 2005 by the Board of Directors of the Company pursuant to Section 151 of the Delaware General Corporation Law: 

“RESOLVED that, pursuant to authority vested in the Board of Directors of the Company by Article IV of the Company’s Certificate ofIncorporation, out of the total authorized number of 299,515,270 shares of its preferred stock, par value $0.004 per share (“Preferred Stock”), there shall be designated a series of 2,544,098 shares which shall be issued in and constitutea single series to be known as “Series N Convertible Preferred Stock” (hereinafter called the “Series N Preferred Stock”). The shares of Series N Preferred Stock have the voting powers, designations, preferences and other specialrights, and qualifications, limitations and restrictions thereof set forth below: 

1. Certain Definitions. 

As used in this Certificate of Designations, Preferences and Rights of Series N Convertible Preferred Stock of Velocity Express Corporation, thefollowing terms shall have the respective meanings set forth below: 

“Affiliate”, as applied to any Person, means anyother Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, “control” (including, without correlative meanings, the terms “controlling”,“controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whetherthrough the ownership of voting securities or by contract or otherwise. 

“Common Stock” means the common stock, $0.004 par value per share, of the Company,including the stock into which the Series N Preferred Stock is convertible, and any securities into which the Common Stock may be reclassified. 

“Excluded Stock” means (A) capital stock, Options (as defined in Section 4D(1)) or Convertible Securities (as defined in Section 4D(1)) issued to employees, consultants, officers or directors of the Companypursuant 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) sharesof Common Stock issued upon the conversion or exercise of Options or Convertible Securities issued prior to the date hereof, provided that such securities have not been amended since the date hereof, (C) capital stock or Convertible Securitiesissued to a lender in connection with the provision of credit to the Company, (D) shares of Common Stock issued or issuable by reason of a dividend, stock split or other distribution on shares of Common Stock (but only to the extent that such adividend, split or distribution results in an adjustment in the Conversion Price pursuant to the other provisions of this Series N Preferred Stock) and (E) any issuance of shares of Series M, O, P or Q Convertible Preferred Stock, includingwithout limitation any issuance in payment of dividends with respect to the same series of preferred stock. 

“MarketPrice” means the lower of market value of the Common Stock as of (i) the date of the binding agreement to issue the Series N Preferred Stock or (ii) the date of issuance of the Series N Preferred Stock. 

“Person” shall be construed in the broadest sense and means and includes any natural person, a partnership, a corporation, anassociation, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and other entity or governmental or quasi-governmental entity. 

“Series N Stated Value” means $3.685 (appropriately adjusted for any stock split, reverse stock split, stock dividend or otherreclassification or combination of the Series N Preferred Stock occurring after the date hereof). 

“Subsidiary” means anycorporation, association or other business entity (i) at least 50% of the outstanding voting securities of which are at the time owned or controlled, directly or indirectly, by the Company; or (ii) with respect to which the Companypossesses, directly or indirectly, the power to direct or cause the direction of the affairs or management of such Person. 

2.Dividends. 

(a) Each holder of Series N Preferred Stock, in preference and priority to the holders of all other classes of stockother than holders of the Company’s Series M Convertible Preferred Stock (“Series M Preferred”), Series P Convertible Preferred Stock (“Series P Preferred”) and Series Q Convertible Preferred Stock (“Series QPreferred”), shall be entitled to receive, with respect to each share of Series N Preferred Stock then outstanding and held by such holder of Series N Preferred Stock, dividends, commencing from the date of issuance of such share of Series N

 

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Preferred Stock, at the rate of six percent (6%) per annum of the Series N Stated Value (the “Series N Preferred Dividends”). The Series NPreferred Dividends shall be cumulative, whether or not earned or declared, and shall be paid quarterly in arrears on the first day of March, June, September and December in each year. During the first two (2) years following the date ofissuance, the Series N Preferred Dividends shall be paid by issuing to each holder of Series N Preferred Stock such number of shares of Series N Preferred Stock equal to the Series N Preferred Dividend divided by the Series N Stated Value (“PIKShares”). From and after the second anniversary of the date of issuance, the Company shall have the option to pay the Series N Preferred Dividends in PIK Shares or in cash out of legally available funds therefor. Any election by the Company topay dividends in shares of Series N Preferred Stock or cash shall be made uniformly with respect to all outstanding shares of Series N Preferred Stock for a given dividend period. 

(b) No dividends shall be paid on any Common Stock of the Company or any other capital stock of the Company other than the Series M Preferred, Series PPreferred and the Series Q Preferred during any fiscal year of the Company until all outstanding Series N Preferred Dividends (with respect to the current fiscal year and all prior fiscal years) shall have been paid or declared and set apart forpayment to the holders of Series N Preferred Stock. 

(c) In the event that the Company shall at any time pay a dividend on the Common Stock(other than a dividend payable solely in shares of Common Stock) or any other class or series of capital stock of the Company other than the Series M Preferred, Series P Preferred and the Series Q Preferred, the Company shall, at the same time, payto each holder of Series N Preferred Stock a dividend equal to the dividend that would have been payable to such holder if the shares of Series N Preferred Stock held by such holder had been converted into Common Stock on the date of determinationof holders of Common Stock entitled to receive such dividends. 

3. Liquidation; Redemption. Upon any liquidation, dissolution orwinding up of the Company, whether voluntary or involuntary, the holders of the shares of Series N Preferred Stock shall rank (i) senior to the holders of the Common Stock and any other class or series of capital stock of the Company other thanthe Series M Preferred, Series P Preferred and the Series Q Preferred and (ii) junior to the holders of the Series M Preferred, Series P Preferred and the Series Q Preferred, as to such distributions, and shall be entitled to be paid an amountper share equal to the Series N Stated Value plus any accrued and unpaid Series N Preferred Dividends (the “Liquidation Preference”). If upon such liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, theassets to be distributed among the holders of the Series N Preferred Stock and any class or Series of capital stock ranking on a parity with the Series N Preferred Stock as to such distributions shall be insufficient to permit payment to the holdersof the Series N Preferred Stock and any such class or series of capital stock of their respective liquidation amount, then the entire assets of the Company to be distributed shall be distributed pro rata to the holders of Series N Preferred Stockand the holders of such class or series of capital stock ranking on a parity with the Series N Preferred Stock as to such distributions according to the preferential amounts due thereon. Unless waived in writing by the holders of at least 62.5percent of the Series N Preferred Stock then outstanding, voting together as one class, a consolidation or merger of the Company into or with any other entity or entities, or the sale or transfer by the Company of all or substantially all itsassets, in each case under circumstances 

 

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in which the holders of a majority in voting power of the outstanding capital stock of the Company, immediately prior to such a merger, consolidation orsale, own less than a majority in voting power of the outstanding capital stock of the corporation or the surviving or resulting corporation or acquirer, as the case may be, immediately following such a merger, consolidation or sale (each suchtransaction being hereinafter referred to as a “Corporate Transaction”) shall be deemed to be a liquidation within the meaning of this Section 3; provided, however, that the holder(s) of any share or shares of Series N Preferred Stockshall have the right, at its option, upon consummation of a Corporate Transaction, to require the Company to redeem such holder(s) share or shares of Series N Preferred Stock for an amount equal to such holder’s Liquidation Preference.

4. Conversion. 

4A.Right to Convert. Subject to the terms and conditions of this paragraph 4A, the holder of any share or shares of Series N Preferred Stock shall have the right, at its option at any time, to convert any such shares of Series N Preferred Stockinto such number of fully paid and nonassessable whole shares of Common Stock as is obtained by multiplying the number of shares of Series N Preferred Stock so to be converted by the Liquidation Preference per share and dividing the result by theconversion price of $3.685 per share or, if there has been an adjustment of the conversion price, by the conversion price as last adjusted and in effect at the date any share or shares of Series N Preferred Stock are surrendered for conversion (suchprice, or such price as last adjusted, being referred to herein as the “Conversion Price”). Such rights of conversion shall be exercised by the holder thereof by surrender of a certificate or certificates for the shares to be converted tothe Company at its principal office (or such other office or agency of the Company as the Company may designate by notice in writing to the holder or holders of the Series N Preferred Stock) at any time during its usual business hours on the dateset forth in such notice, together with a properly completed notice of conversion in the form attached to the Series N Preferred Stock certificate with a statement of the name or names (with address), subject to compliance with applicable laws tothe extent such designation shall involve a transfer, in which the certificate or certificates for shares of Common Stock, shall be issued. Such conversion shall be deemed to have been effected and the Conversion Price shall be determined as of theclose of business on the date on which such written notice shall have been received by the Company and the certificate or certificates for such shares shall have been surrendered as aforesaid. 

4B. Issuance of Certificates; Time Conversion Effected. Within three business days after the conversion of the Series N Preferred Stock andsurrender of the certificate or certificates for the share or shares of the Series N Preferred Stock being converted, the Company shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as suchholder may direct, subject to compliance with applicable laws to the extent such designation shall involve a transfer, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or sharesof Series N Preferred Stock. Upon the effective date of any such conversion, the rights of the holder of the shares of Series N Preferred Stock being converted shall cease, and the person or persons in whose name or names any certificate orcertificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. 

 

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4C. Fractional Shares; Dividends; Partial Conversion. No fractional shares shall be issued uponconversion of the Series N Preferred Stock into Common Stock, and the number of shares of Common Stock to be issued shall be rounded down to the nearest whole share. In case the number of shares of Series N Preferred Stock represented by thecertificate or certificates surrendered pursuant to subsection 4A(a) exceeds the number of shares converted, the Company shall upon such conversion, execute and deliver to the holder thereof at the expense of the Company, a new certificate for thenumber of shares of Series N Preferred Stock represented by the certificate or certificates surrendered which are not to be converted. 

4D.Adjustment of Conversion Price. If the Company shall issue or sell, or is, in accordance with subsections 4D(1) through 4D(8) below, deemed to have issued or sold, any Additional Shares of Common Stock without consideration or for aconsideration per share less than the Conversion Price in effect immediately prior to the time of such issue or sale, then and in each such case (a “Trigger Issuance”) the then-existing Conversion Price, shall be reduced, as of theclose of business on the effective date of the Trigger Issuance, to a price determined as follows: 

 

Adjusted Conversion Price
 =  (A x B) + D     A + C  
where 

“A” equals the number of shares of Common Stock outstanding, including Additional Shares of Common Stock (as defined below)deemed to be issued hereunder, immediately preceding such Trigger Issuance; 

“B” equals the Conversion Price ineffect immediately preceding such Trigger Issuance; 

“C” equals the number of Additional Shares of Common Stockissued or deemed issued hereunder as a result of the Trigger Issuance; and 

“D” equals the aggregateconsideration, if any, received or deemed to be received by the Company upon such Trigger Issuance; 

provided, however, that in no event shall theConversion Price after giving effect to such Trigger Issuance be greater than the Conversion Price in effect prior to such Trigger Issuance. 

For purposes of this subsection 4D, “Additional Shares of Common Stock” shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this subsection 4D, other than Excluded Stock. 

 

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For purposes of this subsection 4D, the following paragraphs 4D(1) to 4D(8) shall also be applicable:

4D(1) Issuance of Rights or Options. In case at any time the Company shall in any manner grant (directly and not by assumption in amerger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options beingcalled “Options” and such convertible or exchangeable stock or securities being called “Convertible Securities”) whether or not such Options or the right to convert or exchange any such Convertible Securities are immediatelyexercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the sum (which sum shall constitute theapplicable consideration) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus (y) the aggregate amount of additional consideration payable to the Company upon theexercise of all such Options, plus (z), in the case of such Options which relate to Convertible Securities, the aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon theconversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of suchOptions) shall be less than the Conversion Price in effect immediately prior to the time of the granting of such Options, then the total number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange ofthe total amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities andthereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price. Except as otherwise provided in subsection 4D(3), no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock or of suchConvertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 

4D(2) Issuance of Convertible Securities. In case the Company shall in any manner issue (directly and not by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights toexchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the sum (which sum shall constitute theapplicable consideration) of (x) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus (y) the aggregate amount of additional consideration, if any, payable tothe Company upon the conversion or exchange thereof, by (ii) the total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Conversion Price in effect immediatelyprior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date ofthe issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price, provided that (a) except as otherwise provided in subsection 4D(3), no adjustment of theConversion Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities and (b) no further adjustment of the Conversion Price shall be made by reason of the issue or sale ofConvertible Securities upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Conversion Price have been made pursuant to the other provisions of subsection 4D. 

 

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4D(3) Change in Option Price or Conversion Rate. Upon the happening of any of the followingevents, namely, if the purchase price provided for in any Option referred to in subsection 4D(1) hereof, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subsections 4D(1) or4D(2), or the rate at which Convertible Securities referred to in subsections 4D(1) or 4D(2) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisionsdesigned to protect against dilution), the Conversion Price in effect at the time of such event shall forthwith be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities stilloutstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. On the termination of any Option for which any adjustment was made pursuant to thissubsection 4(D) or any right to convert or exchange Convertible Securities for which any adjustment was made pursuant to this subsection 4(D) (including without limitation upon the redemption or purchase for consideration of such ConvertibleSecurities by the Company), the Conversion Price then in effect hereunder shall forthwith be changed to the Conversion Price which would have been in effect at the time of such termination had such Option or Convertible Securities, to the extentoutstanding immediately prior to such termination, never been issued. 

4D(4) Stock Dividends. Subject to the provisions of thissubsection 4D, in case the Company shall declare a dividend or make any other distribution upon any stock of the Company (other than the Common Stock) payable in Common Stock, Options or Convertible Securities, then any Common Stock, Options orConvertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration; provided, however, that the provisions of this subsection 4D(4) shall not apply tothe issuance of PIK Shares in accordance with the terms hereof. 

4D(5) Subdivision or Combination of Stock. In case the Companyshall at any time subdivide its outstanding shares of Common Stock into a greater number of shares or shall declare or pay a dividend on its outstanding shares of Common Stock payable in shares of Common Stock, the Conversion Price in effectimmediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Conversion Price in effect immediately priorto such combination shall be proportionately increased. 

4D(6) Consideration for Stock. In case any shares of Common Stock, Optionsor Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor, after deduction therefrom of any expenses incurred or any underwriting commissionsor concessions paid or allowed by the Company in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cashreceived by the Company shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Company, after deduction of any expenses 

 

7 

incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. In case any Options shall be issued inconnection with the issue and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have beenissued for such consideration as determined in good faith by the Board of Directors of the Company. If Common Stock, Options or Convertible Securities shall be issued or sold by the Company and, in connection therewith, other Options or ConvertibleSecurities (the “Additional Rights”) are issued, then the consideration received or deemed to be received by the Company shall be reduced by the fair market value of the Additional Rights (as determined using the Black-Scholes optionpricing model or another method mutually agreed to by the Company and the holder). The Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the holder as to the fair market value of the Additional Rights. In theevent that the Board of Directors of the Company and the holder are unable to agree upon the fair market value of the Additional Rights, the Company and the holder shall jointly select an appraiser, who is experienced in such matters. The decisionof such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne evenly by the Company and the holder. 

4D(7)Record Date. In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or(ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declarationof such dividend or the making of such other distribution or the date of the granting of such right or subscription or purchase, as the case may be. 

4D(8) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company or any of its wholly-owned subsidiaries, andthe disposition of any such shares (other than the cancellation or retirement thereof) shall be considered an issue or sale of Common Stock for the purpose of this Section 4D. 

4E. Stock Splits and Dividends. If the Company shall, at any time or from time to time while the Series N Preferred Stock is outstanding, pay adividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares orissue by reclassification of its outstanding shares of Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification inconnection with a consolidation or merger in which the Company is the continuing corporation), then the Conversion Price in effect immediately prior to the date upon which such change shall become effective shall be adjusted by the Company so thatthe holder thereafter converting its shares of Series N Preferred Stock shall be entitled to receive the number of shares of Common Stock or other capital stock which the such holder would have received if the shares of Series N Preferred Stock hadbeen converted immediately prior to such event. Such adjustments shall be made successively whenever any event listed above shall occur. 

 

8 

4F. Reorganization or Reclassification. If any capital reorganization or reclassification of thecapital stock of the Company shall be effected in such a way (including, without limitation, by way of consolidation or merger) that holders of Common Stock but not holders of Series N Preferred Stock shall be entitled to receive stock, securitiesor assets with respect to or in exchange for Common Stock then, as a condition of such reorganization or reclassification, lawful and adequate provision shall be made whereby each holder of a share or shares of Series N Preferred Stock shallthereafter have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Company immediately theretofore receivable upon the conversion of such share or shares of theSeries N Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of such stock immediately theretofore soreceivable had such reorganization or reclassification not taken place and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including withoutlimitation provisions for adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights(including an immediate adjustment, by reason of such reorganization or reclassification, of the Conversion Price to the value for the Common Stock reflected by the terms of such reorganization or reclassification if the value so reflected is lessthan the Conversion Price in effect immediately prior to such reorganization or reclassification). In the event of a merger or consolidation of the Company as a result of which a greater or lesser number of shares of common stock of the survivingcorporation are issuable to holders of the Common Stock of the Company outstanding immediately prior to such merger or consolidation, the Conversion Price in effect immediately prior to such merger or consolidation shall be adjusted in the samemanner as though there were a subdivision or combination of the outstanding shares of Common Stock of the Company. 

4G.Distributions. In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is thecontinuing corporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 4E), or subscriptionrights or warrants, the Conversion Price to be in effect after such payment date shall be determined by multiplying the Conversion Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total numberof shares of Common Stock outstanding multiplied by the Market Price (as defined below) per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board of Directors in goodfaith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share ofCommon Stock immediately prior to such payment date. “Market Price” as of a particular date (the “Valuation Date”) shall mean the following: (a) if the Common Stock is then listed on a national stock exchange, the closingsale price of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq Stock Market, Inc. (“Nasdaq”), the National Association of SecuritiesDealers, Inc. OTC Bulletin Board (the “Bulletin Board”) or such similar exchange or association, the closing sale price of one share of Common Stock on Nasdaq, the 

 

9 

Bulletin Board or such other exchange or association on the last trading day prior to the Valuation Date or, if no such closing sale price is available, theaverage of the high bid and the low asked price quoted thereon on the last trading day prior to the Valuation Date; or (c) if the Common Stock is not then listed on a national stock exchange or quoted on Nasdaq, the Bulletin Board or such otherexchange or association, the fair market value of one share of Common Stock as of the Valuation Date, shall be determined in good faith by the Board of Directors of the Company and the holders of at least 62.5% of the outstanding Series N PreferredStock. If the Common Stock is not then listed on a national securities exchange, the Bulletin Board or such other exchange or association, the Board of Directors of the Company shall respond promptly, in writing, to an inquiry by a holder of SeriesN Preferred Stock prior to the exercise hereunder as to the fair market value of a share of Common Stock as determined by the Board of Directors of the Company. In the event that the Board of Directors of the Company and the holders of at least62.5% of the outstanding Series N Preferred Stock are unable to agree upon the fair market value in respect of subpart (c) hereof, the Company and the holders of at least 62.5% of the outstanding Series N Preferred Stock shall jointly select anappraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne equally by the Company and such holders. Such adjustment shall be made successively wheneversuch a payment date is fixed. 

4H. Effective Date of Adjustment. An adjustment to the Conversion Price shall become effectiveimmediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment. 

4I. Subsequent Adjustments. In the event that, as a result of an adjustment made pursuant to this Section 4, holders of Series N Preferred Stock shall become entitled to receive any shares of capital stockof the Company other than shares of Common Stock, the number of such other shares so receivable upon the conversion of the Series N Preferred Stock shall be subject thereafter to adjustment from time to time in a manner and on terms as nearlyequivalent as practicable to the provisions with respect to the Conversion Shares contained herein. 

4J. Notice of Adjustment. Uponany adjustment of the Conversion Price, then, and in each such case the Company shall give written notice thereof by first class mail, postage prepaid, addressed to each holder of shares of Series N Preferred Stock at the address of such holder asshown on the books of the Company, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 

4K. Other Notices. In case at any time: 

(1) the Company shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock; 

(2) the Company shall offer for subscription prorata to the holders of its Common Stock any additional shares of such stockof any class or other rights; 

 

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(3) there shall be any capital reorganization or reclassification of the capital stock ofthe Company, or a consolidation or merger of the Company with, or a sale of all or substantially all its assets to, another corporation; or 

(4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; 

then, in any one ormore of said cases, the Company shall give, by first class mail, postage prepaid, addressed to each holder of any shares of Series N Preferred Stock at the address of such holder as shown on the books of the Company, (a) at least 15 days priorwritten notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification,consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 15 days prior written notice ofthe date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall beentitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable uponsuch reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 

4L.Stock to be Reserved. 

(1) The Company will at all times reserve and keep available out of its authorized butunissued Common Stock solely for the purpose of issuance upon the conversion of the Series N Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of SeriesN Preferred Stock. All shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof (including, withoutlimitation, in respect of taxes) and, without limiting the generality of the foregoing, the Company covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is atall times equal to or less than the effective Conversion Price. The Company will take all such action within its control as may be necessary on its part to assure that all such shares of Common Stock may be so issued without violation of anyapplicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Company may be listed. The Company will not take any action which results in any adjustment of the Conversion Price if aftersuch action the total number of shares of Common Stock issued and outstanding and thereafter issuable upon exercise of all options and conversion of Convertible Securities, including upon conversion of the Series N Preferred Stock, would exceed thetotal number of shares of such class of Common Stock then authorized by the Company’s Certificate of Incorporation. 

(2) The Company will at all times reserve and keep available out of its authorized Series N Preferred Stock such number of shares of Series N Preferred Stock as is equal to the number 

 

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of shares of Series N Preferred Stock then outstanding. All shares of Series N Preferred Stock which shall be so issued shall be duly and validly issued andfully paid and nonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof (including, without limitation, in respect of taxes). 

4M. No Reissuance of Series N Preferred Stock. Shares of Series N Preferred Stock that are converted into shares of Common Stock as providedherein shall be retired and may not be reissued as Series N Preferred Stock but may be reissued as all or part of another series of Preferred Stock. 

4N. Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of the Series N Preferred Stock shall be made without charge to the holders thereof for any issuance tax, stamp tax,transfer tax, duty or charge in respect thereof, provided that the Company shall not be required to pay any tax, duty or charge which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name otherthan that of the holder of the Series N Preferred Stock which is being converted. 

4O. Closing of Books. The Company will at no timeclose its transfer books against the transfer of any Series N Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series N Preferred Stock in any manner which interferes with the timely conversionof such Series N Preferred Stock; provided, however, nothing herein shall be construed to prevent the Company from setting record dates for the holders of its securities. 

4P. Beneficial Ownership Limitation. Any holder of Series N Preferred Stock may, upon delivering written notice to the Company, irrevocably electto have all (but not some) of its Series N Preferred Stock to be governed by this Section 4P (each such holder being an “Electing Holder”). With respect to each Electing Holder, the Company shall not effect any conversion of itsSeries N Preferred Stock, and an Electing Holder shall not have the right to convert any portion of its Series N Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable notice of conversion, suchElecting Holder (together with such holder’s Affiliates, and any other person or entity acting as a group together with such holder or any of such holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation(as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by an Electing Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series NPreferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock that are issuable upon (A) conversion of the remaining, unconverted Series N Preferred Stock beneficially owned bysuch Electing Holder and its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation containedherein (including the warrants originally issued in conjunction with the Series N Preferred Stock) beneficially owned by such Electing Holder and its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4P,beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations promulgated thereunder. To the extent that the limitation contained inthis Section 4P applies, the determination of whether the Series N Preferred Stock is convertible (in 

 

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relation to other securities owned by such holder together with any Affiliates) and of how many shares of Series N Preferred Stock are convertible shall bein the sole discretion of such Electing Holder, and the submission of a notice of conversion shall be deemed to be such Electing Holder’s determination of whether the shares of Series N Preferred Stock may be converted (in relation to othersecurities owned by such Electing Holder together with any Affiliates) and how many shares of the Series N Preferred Stock are convertible, in each case subject to such aggregate percentage limitations. To ensure compliance with this restriction,each Electing Holder will be deemed to represent to the Company each time it delivers a notice of conversion that such notice of conversion has not violated the restrictions set forth in this Section 4P and the Company shall have no obligationto verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulationspromulgated thereunder. For purposes of this Section 4P, in determining the number of outstanding shares of Common Stock, an Electing Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of thefollowing: (A) the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent notice by the Company or the Company’s transfer agent settingforth the number of shares of Common Stock outstanding. Upon the written or oral request of an Electing Holder, the Company shall within two business days confirm orally and in writing to such Electing Holder the number of shares of Common Stockoutstanding as of the most recent practicable date. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Series N PreferredStock, by such Electing Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stockoutstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Series N Preferred Stock held by the applicable Electing Holder. The Beneficial Ownership Limitation provisions of this Section 4Pmay be waived by such holder, at the election of such Electing Holder, upon not less than 61 days’ prior written notice to the Company, to change the Beneficial Ownership Limitation to 9.99% of the number of shares of the Common Stockoutstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of Series N Preferred Stock held by the applicable Electing Holder and the provisions of this Section 4P shall continue to apply. Upon such achange by an Electing Holder of the Beneficial Ownership Limitation from such 4.99% limitation to such 9.99% limitation, the Beneficial Ownership Limitation shall not be further waived by such Electing Holder. The provisions of this paragraph shallbe construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4P to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial OwnershipLimitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to any successor to an Electing Holder. 

5. Voting - Series N Preferred Stock. In addition to any class voting rights provided by law and this Certificate of Designations, the holders ofSeries N Preferred Stock shall have the right to vote together with the holders of Common Stock as a single class on any matter on which the holders of Common Stock are entitled to vote. With respect to the voting rights of the holders of the SeriesN Preferred Stock pursuant to the preceding sentence, each holder of Series N 

 

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Preferred Stock shall be entitled to vote a number of votes equal to the ratio of the Series N Stated Value to the Market Price multiplied by the number ofshares held by such holder, rounded down to the nearest whole number. 

6. Certain Restrictions. In addition to any other vote of theholders of Series N Preferred Stock required by law or by the Certificate of Incorporation, without the prior consent of the holders of at least 62.5% of the outstanding Series N Preferred Stock, given in person or by proxy, either in writing or ata special meeting called for that purpose, at which meeting the holders of the shares of such Series N Preferred Stock shall vote together as a class, the Company will not: 

(a) authorize, create, designate, establish or issue (whether by merger or otherwise) (i) an increased number of shares of Series N Preferred Stock(other than shares of Series N Preferred Stock payable as payment-in-kind dividends on outstanding shares of Series N Preferred Stock), or (ii) any other class or series of capital stock ranking senior to or on parity with the Series NPreferred Stock as to dividends or upon liquidation or reclassify any shares of Common Stock into shares having any preference or priority as to dividends or upon liquidation superior to or on parity with any such preference or priority of Series NPreferred Stock; 

(b) adopt a plan for the liquidation, dissolution or winding up of the affairs of the Company or any recapitalizationplan (whether occurring by merger, consolidation or otherwise), file any petition seeking protection under any federal or state bankruptcy or insolvency law or make a general assignment for the benefit of creditors unless the holders of the Series NPreferred Stock will receive an amount in cash at least equal to the Liquidation Preference in such transaction; 

(c) merge into orconsolidate with engage in any share exchange with any other Person or permit any Person to merge into or consolidate with or engage in any share exchange the Company if immediately thereafter, less than 50% of the voting power of the survivingentity is retained by the holders of voting power of the Company immediately prior thereto unless the holders of the Series N Preferred Stock will receive an amount in cash at least equal to the Liquidation Preference in such transaction;

(d) adopt any stock option, stock compensation or stock purchase plan (other than the Stock Option Plan (as defined in the PurchaseAgreement)), maintain any stock option, stock compensation or stock purchase plan which contains any “evergreen” or formula provisions increasing the number of shares of Common Stock available for grant thereunder (other than customaryanti-dilution adjustments) or amend any existing stock option, stock compensation or stock purchase plan so as to increase the number of shares of Common Stock covered thereby; 

(e) (not used); 

(f) enter into orconsummate the sale, lease, transfer, assignment or other disposition of all or any substantial part of its assets, whether in a single transaction or series of related transactions, to any Person unless the holders of the Series N Preferred Stockwill receive an amount in cash at least equal to the Liquidation Preference in such transaction; 

 

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(g) amend, alter or repeal, whether by merger, consolidation or otherwise, the Certificate ofIncorporation or By-laws of the Company or the Resolutions contained in this Certificate of Designations of the Series N Preferred Stock and the powers, preferences, privileges, relative, participating, optional and other special rights andqualifications, limitations and restrictions thereof, which would adversely affect any right, preference, privilege or voting power of the Series N Preferred Stock, or which would increase or decrease the amount of authorized shares of the Series NPreferred Stock or of any other series of preferred stock ranking senior to the Series N Preferred Stock, with respect to the payment of dividends (whether or not such series of preferred stock is cumulative or noncumulative as to payment ofdividends) or upon liquidation; 

(h) directly or indirectly, declare or pay any dividend (other than dividends permitted pursuant toSection 2 and dividends payable in shares of Common Stock but only to the extent that such stock dividend results in an adjustment of the Conversion Price pursuant to Section 4(D)(4)) or directly or indirectly purchase, redeem, repurchaseor otherwise acquire or permit any Subsidiary to redeem, purchase, repurchase or otherwise acquire (or make any payment to a sinking fund for such redemption, purchase, repurchase or other acquisition) any share of Common Stock or any other class orseries of the Company’s capital stock (except for shares of Common Stock repurchased from current of former employees, consultants, or directors upon termination of service in accordance with plans approved by the Company board of directors)whether in cash, securities or property or in obligations of the Company or any Subsidiary; 

(i) materially change the nature or scope ofthe business of the Company or enter into any new line of business; 

(j) consummate or agree to make any sale, transfer, assignment,pledge, lease, license or similar transaction by which the Company grants any rights to any of the Company’s intellectual property or technology other than non-exclusive licenses granted by the Company to customers in connection with the saleof the Company’s products in the ordinary course of business consistent with past practices; 

(k) increase or decrease the number ofdirectors comprising the Company’s Board of Directors; or 

(l) agree to do any of the foregoing. 

7. No Waiver. Except as otherwise modified or provided for herein, the holders of Series N Preferred Stock shall also be entitled to, and shallnot be deemed to have waived, any other applicable rights granted to such holders under the Delaware General Corporation Law. 

8. NoImpairment. The Company will not, through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to beobserved or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions hereunder and in the taking of all such action as may be necessary or appropriate in order to protect the conversionrights and liquidation preferences granted hereunder of the holders of the Series N Preferred Stock against impairment. 

 

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9. Amendment; Waiver. Any term of the Series N Preferred Stock may be amended or waived (includingthe adjustment provisions included in Section 4(D) hereof) upon the written consent of the Company and the holders of at least 62.5% of the Series N Preferred Stock then outstanding; provided, however that the number of ConversionShares issuable hereunder and the Conversion Price may not be amended, and the right to convert the Series N Preferred Stock may not be altered or waived, without the written consent of the holders of all of the Series N Preferred Stock thenoutstanding. 

10. Action By Holders. Any action or consent to be taken or given by the holders of the Series N Preferred Stock maybe given either at a meeting of the holders of the Series N Preferred Stock called and held for such purpose or by written consent. 

11.Transactions with Affiliates. The Company shall not enter into any transaction with an Affiliate or stockholder of the Company unless the same is approved by: (i) the Audit Committee of the Company’s Board of Directors or(ii) a majority of the members of the Company’s Board of Directors who fall within the definition of “independent” employed within the listing standards promulgated by The Nasdaq Stock Market, Inc. 

 

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**CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS**

**OF**

**SERIES O CONVERTIBLE PREFERREDSTOCK**

**OF**

**VELOCITY EXPRESS CORPORATION**

**(Pursuant to Section 151 of the**

**Delaware General Corporation Law)**

Velocity Express Corporation, a corporation organized and existing under the laws of the State of Delaware (the “Company”), hereby certifies that, pursuant to authority vested in the Board of Directors of the Company by Article IVof the Certificate of Incorporation of the Company, the following resolution was adopted as of July 18, 2005 by the Board of Directors of the Company pursuant to Section 151 of the Delaware General Corporation Law: 

“RESOLVED that, pursuant to authority vested in the Board of Directors of the Company by Article IV of the Company’s Certificate ofIncorporation, out of the total authorized number of 299,515,270 shares of its preferred stock, par value $0.004 per share (“Preferred Stock”), there shall be designated a series of 1,625,000 shares which shall be issued in and constitutea single series to be known as “Series O Convertible Preferred Stock” (hereinafter called the “Series O Preferred Stock”). The shares of Series O Preferred Stock have the voting powers, designations, preferences and other specialrights, and qualifications, limitations and restrictions thereof set forth below: 

1. Certain Definitions. 

As used in this Certificate of Designations, Preferences and Rights of Series O Convertible Preferred Stock of Velocity Express Corporation, thefollowing terms shall have the respective meanings set forth below: 

“Affiliate”, as applied to any Person, means anyother Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, “control” (including with correlative meanings, the terms “controlling”,“controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whetherthrough the ownership of voting securities or by contract or otherwise. 

“Common Stock” means the common stock, $0.004 par value per share, of the Company,including the stock into which the Series O Preferred Stock is convertible, and any securities into which the Common Stock may be reclassified. 

“Excluded Stock” means (A) capital stock, Options (as defined in Section 4D(1)) or Convertible Securities (as defined in Section 4D(1)) issued to employees, consultants, officers or directors of the Companypursuant 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) sharesof Common Stock issued upon the conversion or exercise of Options or Convertible Securities issued prior to the date hereof, provided that such securities have not been amended since the date hereof, (C) capital stock or Convertible Securitiesissued to a lender in connection with the provision of credit to the Company, (D) shares of Common Stock issued or issuable by reason of a dividend, stock split or other distribution on shares of Common Stock (but only to the extent that such adividend, split or distribution results in an adjustment in the Conversion Price pursuant to the other provisions of this Series N Preferred Stock) and (E) any issuance of shares of Series M, N, P or Q Convertible Preferred Stock, includingwithout limitation any issuance in payment of dividends with respect to the same series of preferred stock. 

“MarketPrice” means the lower of market value of the Common Stock as of (i) the date of the binding agreement to issue the Series O Preferred Stock or (ii) the date of issuance of the Series O Preferred Stock. 

“Person” shall be construed in the broadest sense and means and includes any natural person, a partnership, a corporation, anassociation, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and other entity or governmental or quasi-governmental entity. 

“Series O Stated Value” means $4.00 (appropriately adjusted for any stock split, reverse stock split, stock dividend or otherreclassification or combination of the Series O Preferred Stock occurring after the date hereof). 

“Subsidiary” means anycorporation, association or other business entity (i) at least 50% of the outstanding voting securities of which are at the time owned or controlled, directly or indirectly, by the Company; or (ii) with respect to which the Companypossesses, directly or indirectly, the power to direct or cause the direction of the affairs or management of such Person. 

2.Dividends. 

(a) Each holder of Series O Preferred Stock, in preference and priority to the holders of all other classes of stockother than holders of the Company’s Series M Convertible Preferred Stock (“Series M Preferred”), Series N Convertible Preferred Stock (“Series N Preferred”), Series P Convertible Preferred Stock (“Series PPreferred”) and Series Q Convertible Preferred Stock (“Series Q Preferred”), shall be entitled to receive, with respect to each share of Series O Preferred Stock then outstanding and held by such holder of Series O Preferred Stock,dividends, commencing 

 

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from the date of issuance of such share of Series O Preferred Stock, at the rate of six percent (6%) per annum of the Series O Stated Value (the“Series O Preferred Dividends”). The Series O Preferred Dividends shall be cumulative, whether or not earned or declared, and shall be paid quarterly in arrears on the first day of March, June, September and December in each year. Duringthe first two (2) years following the date of issuance, the Series O Preferred Dividends shall be paid by issuing to each holder of Series O Preferred Stock such number of shares of Series O Preferred Stock equal to the Series O PreferredDividend divided by the Series O Stated Value (“PIK Shares”). From and after the second anniversary of the date of issuance, the Company shall have the option to pay the Series O Preferred Dividends in PIK Shares or in cash out of legallyavailable funds therefor. Any election by the Company to pay dividends in shares of Series O Preferred Stock or cash shall be made uniformly with respect to all outstanding shares of Series O Preferred Stock for a given dividend period. 

(b) No dividends shall be paid on any Common Stock of the Company or any other capital stock of the Company other than the Series M Preferred, SeriesN Preferred, Series P Preferred and the Series Q Preferred during any fiscal year of the Company until all outstanding Series O Preferred Dividends (with respect to the current fiscal year and all prior fiscal years) shall have been paid or declaredand set apart for payment to the holders of Series O Preferred Stock. 

(c) In the event that the Company shall at any time pay a dividendon the Common Stock (other than a dividend payable solely in shares of Common Stock) or any other class or series of capital stock of the Company other than the Series M Preferred, Series N Preferred, Series P Preferred and the Series Q Preferred,the Company shall, at the same time, pay to each holder of Series O Preferred Stock a dividend equal to the dividend that would have been payable to such holder if the shares of Series O Preferred Stock held by such holder had been converted intoCommon Stock on the date of determination of holders of Common Stock entitled to receive such dividends. 

3. Liquidation;Redemption. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the shares of Series O Preferred Stock shall rank (i) senior to the holders of the Common Stock, and(ii) junior to the holders of the Series M Preferred, Series N Preferred, Series P Preferred and the Series Q Preferred, as to such distributions, and shall be entitled to be paid an amount per share equal to the Series O Stated Value plus anyaccrued and unpaid Series O Preferred Dividends (the “Liquidation Preference”). If upon such liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the assets to be distributed among the holders of theSeries O Preferred Stock and any class or Series of capital stock ranking on a parity with the Series O Preferred Stock as to such distributions shall be insufficient to permit payment to the holders of the Series O Preferred Stock and any suchclass or series of capital stock of their respective liquidation amount, then the entire assets of the Company to be distributed shall be distributed pro rata to the holders of Series O Preferred Stock and the holders of such class or series ofcapital stock ranking on a parity with the Series O Preferred Stock as to such distributions according to the preferential amounts due thereon. Unless waived in writing by the holders of at least 62.5 percent of the Series O Preferred Stock thenoutstanding, voting together as one class, a consolidation or merger of the Company into or with any other entity or entities, or the sale or transfer by the Company of all or substantially all its assets, in each case under circumstances in whichthe holders of a majority in voting power of the outstanding capital stock of the Company, 

 

3 

immediately prior to such a merger, consolidation or sale, own less than a majority in voting power of the outstanding capital stock of the corporation orthe surviving or resulting corporation or acquirer, as the case may be, immediately following such a merger, consolidation or sale (each such transaction being hereinafter referred to as a “Corporate Transaction”) shall be deemed to be aliquidation within the meaning of this Section 3; provided, however, that the holder(s) of any share or shares of Series O Preferred Stock shall have the right, at its option, upon consummation of a Corporate Transaction, to require the Companyto redeem such holder(s) share or shares of Series O Preferred Stock for an amount equal to such holder’s Liquidation Preference. 

4.Conversion. 

4A. Right to Convert. Subject to the terms and conditions of this paragraph 4A, the holder of any share orshares of Series O Preferred Stock shall have the right, at its option at any time, to convert any such shares of Series O Preferred Stock into such number of fully paid and nonassessable whole shares of Common Stock as is obtained by multiplyingthe number of shares of Series O Preferred Stock so to be converted by the Liquidation Preference per share and dividing the result by the conversion price of $4.00 per share or, if there has been an adjustment of the conversion price, by theconversion price as last adjusted and in effect at the date any share or shares of Series O Preferred Stock are surrendered for conversion (such price, or such price as last adjusted, being referred to herein as the “Conversion Price”).Such rights of conversion shall be exercised by the holder thereof by surrender of a certificate or certificates for the shares to be converted to the Company at its principal office (or such other office or agency of the Company as the Company maydesignate by notice in writing to the holder or holders of the Series O Preferred Stock) at any time during its usual business hours on the date set forth in such notice, together with a properly completed notice of conversion in the form attachedto the Series O Preferred Stock certificate with a statement of the name or names (with address), subject to compliance with applicable laws to the extent such designation shall involve a transfer, in which the certificate or certificates for sharesof Common Stock, shall be issued. Such conversion shall be deemed to have been effected and the Conversion Price shall be determined as of the close of business on the date on which such written notice shall have been received by the Company and thecertificate or certificates for such shares shall have been surrendered as aforesaid. 

4B. Issuance of Certificates; Time ConversionEffected. Within five business days after the conversion of the Series O Preferred Stock and surrender of the certificate or certificates for the share or shares of the Series O Preferred Stock being converted, the Company shall issue anddeliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, subject to compliance with applicable laws to the extent such designation shall involve a transfer, a certificate orcertificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Series O Preferred Stock. Upon the effective date of any such conversion, the rights of the holder of the shares of Series OPreferred Stock being converted shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders ofrecord of the shares represented thereby. 

 

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4C. Fractional Shares; Dividends; Partial Conversion. No fractional shares shall be issued uponconversion of the Series O Preferred Stock into Common Stock, and the number of shares of Common Stock to be issued shall be rounded down to the nearest whole share. In case the number of shares of Series O Preferred Stock represented by thecertificate or certificates surrendered pursuant to subsection 4A(a) exceeds the number of shares converted, the Company shall upon such conversion, execute and deliver to the holder thereof at the expense of the Company, a new certificate for thenumber of shares of Series N Preferred Stock represented by the certificate or certificates surrendered which are not to be converted. 

4D.Adjustment of Conversion Price. If the Company shall issue or sell, or is, in accordance with subsections 4D(1) through 4D(8) below, deemed to have issued or sold, any Additional Shares of Common Stock without consideration or for aconsideration per share less than the Conversion Price in effect immediately prior to the time of such issue or sale, then and in each such case (a “Trigger Issuance”) the then-existing Conversion Price, shall be reduced, as of theclose of business on the effective date of the Trigger Issuance, to a price determined as follows: 

 

Adjusted Conversion Price
 =  (A x B) + D     A+C  
where 

“A” equals the number of shares of Common Stock outstanding, including Additional Shares of Common Stock (as defined below) deemed to be issued hereunder, immediately preceding such Trigger Issuance;

“B” equals the Conversion Price in effect immediately preceding such Trigger Issuance; 

“C” equals the number of Additional Shares of Common Stock issued or deemed issued hereunder as a result of the Trigger Issuance; and

“D” equals the aggregate consideration, if any, received or deemed to be received by the Company upon such Trigger Issuance;

provided, however, that in no event shall the Conversion Price after giving effect to such Trigger Issuance be greater than the ConversionPrice in effect prior to such Trigger Issuance. 

For purposes of this subsection 4D, “Additional Shares of Common Stock” shallmean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this subsection 4D, other than Excluded Stock. 

Inthe event that the adjustment to the conversion price would result in the Company issuing a total number of common shares, upon conversion of the Series O Preferred shares, that is in excess of 20% of the Company’s outstanding Common Stock orvoting stock as of the date of the Series O Preferred Stock Purchase Agreement, then no adjustment will occur until the Company’s shareholders approve the issuance of the Series O Preferred. 

 

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For purposes of this subsection 4D, the following paragraphs 4D(1) to 4D(8) shall also be applicable:

4D(1) Issuance of Rights or Options. In case at any time the Company shall in any manner grant (directly and not by assumption in amerger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options beingcalled “Options” and such convertible or exchangeable stock or securities being called “Convertible Securities”) whether or not such Options or the right to convert or exchange any such Convertible Securities are immediatelyexercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities (determined by dividing (i) the sum (which sum shall constitute theapplicable consideration) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus (y) the aggregate amount of additional consideration payable to the Company upon theexercise of all such Options, plus (z), in the case of such Options which relate to Convertible Securities, the aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon theconversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of suchOptions) shall be less than the Conversion Price in effect immediately prior to the time of the granting of such Options, then the total number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange ofthe total amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities andthereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price. Except as otherwise provided in subsection 4D(3), no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock or of suchConvertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 

4D(2) Issuance of Convertible Securities. In case the Company shall in any manner issue (directly and not by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights toexchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the sum (which sum shall constitute theapplicable consideration) of (x) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus (y) the aggregate amount of additional consideration, if any, payable tothe Company upon the conversion or exchange thereof, by (ii) the total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Conversion Price in effect immediatelyprior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date ofthe issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price, provided that (a) except as otherwise provided in subsection 4D(3), no adjustment of theConversion Price shall be 

 

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made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities and (b) no further adjustment of theConversion Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Conversion Price have been made pursuant to the otherprovisions of subsection 4D. 

4D(3) Change in Option Price or Conversion Rate. Upon the happening of any of the following events,namely, if the purchase price provided for in any Option referred to in subsection 4D(1) hereof, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subsections 4D(1) or 4D(2),or the rate at which Convertible Securities referred to in subsections 4D(1) or 4D(2) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or by reason of provisions designed toprotect against dilution), the Conversion Price in effect at the time of such event shall forthwith be readjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstandingprovided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. On the termination of any Option for which any adjustment was made pursuant to this subsection4(D) or any right to convert or exchange Convertible Securities for which any adjustment was made pursuant to this subsection 4(D) (including without limitation upon the redemption or purchase for consideration of such Convertible Securities by theCompany), the Conversion Price then in effect hereunder shall forthwith be changed to the Conversion Price which would have been in effect at the time of such termination had such Option or Convertible Securities, to the extent outstandingimmediately prior to such termination, never been issued. 

4D(4) Stock Dividends. Subject to the provisions of this subsection 4D,in case the Company shall declare a dividend or make any other distribution upon any stock of the Company (other than the Common Stock) payable in Common Stock, Options or Convertible Securities, then any Common Stock, Options or ConvertibleSecurities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration; provided, however, that the provisions of this subsection 4D(4) shall not apply to the issuanceof PIK Shares in accordance with the terms hereof. 

4D(5) Subdivision or Combination of Stock. In case the Company shall at any timesubdivide its outstanding shares of Common Stock into a greater number of shares or shall declare or pay a dividend on its outstanding shares of Common Stock payable in shares of Common Stock, the Conversion Price in effect immediately prior to suchsubdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shallbe proportionately increased. 

4D(6) Consideration for Stock. In case any shares of Common Stock, Options or Convertible Securitiesshall be issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor, after deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid orallowed by the Company in connection therewith. In case any shares of Common Stock, Options or Convertible Securities 

 

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shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to bethe fair value of such consideration as determined in good faith by the Board of Directors of the Company, after deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connectiontherewith. In case any Options shall be issued in connection with the issue and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Options by the partiesthereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Company. If Common Stock, Options or Convertible Securities shall be issued or sold by the Company and, inconnection therewith, other Options or Convertible Securities (the “Additional Rights”) are issued, then the consideration received or deemed to be received by the Company shall be reduced by the fair market value of the Additional Rights(as determined using the Black-Scholes option pricing model or another method mutually agreed to by the Company and the holder). The Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the holder as to the fairmarket value of the Additional Rights. In the event that the Board of Directors of the Company and the holder are unable to agree upon the fair market value of the Additional Rights, the Company and the holder shall jointly select an appraiser, whois experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne evenly by the Company and the holder. 

4D(7) Record Date. In case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (i) toreceive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date ofthe issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case maybe. 

4D(8) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned orheld by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof) shall be considered an issue or sale of Common Stock for the purpose ofthis Section 4D. 

4E. Stock Splits and Dividends. If the Company shall, at any time or from time to time while the Series OPreferred Stock is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stockinto a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is thecontinuing corporation), then the Conversion Price in effect immediately prior to the date upon which such change shall become effective shall be adjusted by the Company so that the holder thereafter converting its shares of Series O Preferred Stockshall be entitled to receive the number of shares of Common Stock or other capital stock which the such holder would have received if the shares of Series O Preferred Stock had been converted immediately prior to such event. Such adjustments shallbe made successively whenever any event listed above shall occur. 

 

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4F. Reorganization or Reclassification. If any capital reorganization or reclassification of thecapital stock of the Company shall be effected in such a way (including, without limitation, by way of consolidation or merger) that holders of Common Stock but not holders of Series O Preferred Stock shall be entitled to receive stock, securitiesor assets with respect to or in exchange for Common Stock then, as a condition of such reorganization or reclassification, lawful and adequate provision shall be made whereby each holder of a share or shares of Series O Preferred Stock shallthereafter have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Company immediately theretofore receivable upon the conversion of such share or shares of theSeries O Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of such stock immediately theretofore soreceivable had such reorganization or reclassification not taken place and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including withoutlimitation provisions for adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights(including an immediate adjustment, by reason of such reorganization or reclassification, of the Conversion Price to the value for the Common Stock reflected by the terms of such reorganization or reclassification if the value so reflected is lessthan the Conversion Price in effect immediately prior to such reorganization or reclassification). In the event of a merger or consolidation of the Company as a result of which a greater or lesser number of shares of common stock of the survivingcorporation are issuable to holders of the Common Stock of the Company outstanding immediately prior to such merger or consolidation, the Conversion Price in effect immediately prior to such merger or consolidation shall be adjusted in the samemanner as though there were a subdivision or combination of the outstanding shares of Common Stock of the Company. 

4G.Distributions. In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation merger in which the Company is the continuingcorporation) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 4E), or subscription rights orwarrants, the Conversion Price to be in effect after such payment date shall be determined by multiplying the Conversion Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of sharesof Common Stock outstanding multiplied by the Market Price (as defined below) per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board of Directors in good faith) of saidassets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stockimmediately prior to such payment date. “Market Price” as of a particular date (the “Valuation Date”) shall mean the following: (a) if the Common Stock is then listed on a national stock exchange, the closing sale price ofone share of Common Stock on such exchange on the last trading day prior to the Valuation Date; 

 

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(b) if the Common Stock is then quoted on The Nasdaq Stock Market, Inc. (“Nasdaq”), the National Association of Securities Dealers, Inc. OTCBulletin Board (the “Bulletin Board”) or such similar exchange or association, the closing sale price of one share of Common Stock on Nasdaq, the Bulletin Board or such other exchange or association on the last trading day prior to theValuation Date or, if no such closing sale price is available, the average of the high bid and the low asked price quoted thereon on the last trading day prior to the Valuation Date; or (c) if the Common Stock is not then listed on a nationalstock exchange or quoted on Nasdaq, the Bulletin Board or such other exchange or association, the fair market value of one share of Common Stock as of the Valuation Date, shall be determined in good faith by the Board of Directors of the Company andthe holders of at least 62.5% of the outstanding Series O Preferred Stock. If the Common Stock is not then listed on a national securities exchange, the Bulletin Board or such other exchange or association, the Board of Directors of the Companyshall respond promptly, in writing, to an inquiry by a holder of Series O Preferred Stock prior to the exercise hereunder as to the fair market value of a share of Common Stock as determined by the Board of Directors of the Company. In the eventthat the Board of Directors of the Company and the holders of at least 62.5% of the outstanding Series O Preferred Stock are unable to agree upon the fair market value in respect of subpart (c) hereof, the Company and the holders of at least62.5% of the outstanding Series O Preferred Stock shall jointly select an appraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne equally by theCompany and such holders. Such adjustment shall be made successively whenever such a payment date is fixed. 

4H. Effective Date ofAdjustment. An adjustment to the Conversion Price shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment.

4I. Subsequent Adjustments. In the event that, as a result of an adjustment made pursuant to this Section 4, holders of SeriesO Preferred Stock shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon the conversion of the Series O Preferred Stock shall be subjectthereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Conversion Shares contained herein. 

4J. Notice of Adjustment. Upon any adjustment of the Conversion Price, then, and in each such case the Company shall give written notice thereofby first class mail, postage prepaid, addressed to each holder of shares of Series O Preferred Stock at the address of such holder as shown on the books of the Company, which notice shall state the Conversion Price resulting from such adjustment,setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 

4K. Other Notices.In case at any time: 

(1) the Company shall declare any dividend upon its Common Stock payable in cash or stock or make any otherdistribution to the holders of its Common Stock; 

 

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(2) the Company shall offer for subscription pro rata to the holders of its Common Stock anyadditional shares of such stock of any class or other rights; 

(3) there shall be any capital reorganization or reclassification of thecapital stock of the Company, or a consolidation or merger of the Company with, or a sale of all or substantially all its assets to, another corporation; or 

(4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; 

then,in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to each holder of any shares of Series O Preferred Stock at the address of such holder as shown on the books of the Company, (a) at least15 days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization,reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 15 days priorwritten notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders ofCommon Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or otherproperty deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 

4L. Stock to be Reserved. 

(1) The Company will at all times reserve and keep available out of itsauthorized but unissued Common Stock solely for the purpose of issuance upon the conversion of the Series O Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstandingshares of Series O Preferred Stock. All shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof(including, without limitation, in respect of taxes) and, without limiting the generality of the foregoing, the Company covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of theCommon Stock is at all times equal to or less than the effective Conversion Price. The Company will take all such action within its control as may be necessary on its part to assure that all such shares of Common Stock may be so issued withoutviolation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Company may be listed. The Company will not take any action which results in any adjustment of theConversion Price if after such action the total number of shares of Common Stock issued and outstanding and thereafter issuable upon exercise of all options and conversion of Convertible Securities, including upon conversion of the Series OPreferred Stock, would exceed the total number of shares of such class of Common Stock then authorized by the Company’s Certificate of Incorporation. 

 

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(2) The Company will at all times reserve and keep available out of its authorized Series O PreferredStock such number of shares of Series O Preferred Stock as is equal to the number of shares of Series O Preferred Stock then outstanding. All shares of Series O Preferred Stock, which shall be so issued shall be duly and validly issued andfully paid and nonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof (including, without limitation, in respect of taxes). 

4M. No Reissuance of Series O Preferred Stock. Shares of Series O Preferred Stock that are converted into shares of Common Stock as providedherein shall be retired and may not be reissued as Series O Preferred Stock but may be reissued as all or part of another series of Preferred Stock. 

4N. Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of the Series O Preferred Stock shall be made without charge to the holders thereof for any issuance tax, stamp tax,transfer tax, duty or charge in respect thereof, provided that the Company shall not be required to pay any tax, duty or charge which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name otherthan that of the holder of the Series O Preferred Sock which is being converted. 

4O. Closing of Books. The Company will at no timeclose its transfer books against the transfer of any Series O Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series O Preferred Stock in any manner which interferes with the timely conversionof such Series O Preferred Stock; provided, however, nothing herein shall be construed to prevent the Company from setting record dates for the holders of its securities. 

4P. Beneficial Ownership Limitation. Any holder of Series O Preferred Stock may, upon delivering written notice to the Company, irrevocably electto have all (but not some) of its Series O Preferred Stock to be governed by this Section 4P (each such holder being an “Electing Holder”). With respect to each Electing Holder, the Company shall not effect any conversion of itsSeries O Preferred Stock, and an Electing Holder shall not have the right to convert any portion of its Series O Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable notice of conversion, suchElecting Holder (together with such holder’s Affiliates, and any other person or entity acting as a group together with such holder or any of such holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation(as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by an Electing Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series OPreferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock that are issuable upon (A) conversion of the remaining, unconverted Series O Preferred Stock beneficially owned bysuch Electing Holder and its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation containedherein (including the warrants originally issued in conjunction with the Series O Preferred Stock) beneficially owned by such Electing Holder and its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4P,beneficial ownership 

 

12 

shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulationspromulgated thereunder. To the extent that the limitation contained in this Section 4P applies, the determination of whether the Series O Preferred Stock is convertible (in relation to other securities owned by such holder together with anyAffiliates) and of how many shares of Series O Preferred Stock are convertible shall be in the sole discretion of such Electing Holder, and the submission of a notice of conversion shall be deemed to be such Electing Holder’s determination ofwhether the shares of Series O Preferred Stock may be converted (in relation to other securities owned by such Electing Holder together with any Affiliates) and how many shares of the Series O Preferred Stock are convertible, in each case subject tosuch aggregate percentage limitations. To ensure compliance with this restriction, each Electing Holder will be deemed to represent to the Company each time it delivers a notice of conversion that such notice of conversion has not violated therestrictions set forth in this Section 4P and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined inaccordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4P, in determining the number of outstanding shares of Common Stock, an Electing Holder may rely on thenumber of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (B) a more recent public announcement by the Company or (C) amore recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of an Electing Holder, the Company shall within two business days confirm orallyand in writing to such Electing Holder the number of shares of Common Stock outstanding as of the most recent practicable date. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversionor exercise of securities of the Company, including the Series O Preferred Stock, by such Electing Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial OwnershipLimitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Series O Preferred Stock held by the applicable ElectingHolder. The Beneficial Ownership Limitation provisions of this Section 4P may be waived by such holder, at the election of such Electing Holder, upon not less than 61 days’ prior written notice to the Company, to change the BeneficialOwnership Limitation to 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of Series O Preferred Stock held by the applicable Electing Holder andthe provisions of this Section 4P shall continue to apply. Upon such a change by an Electing Holder of the Beneficial Ownership Limitation from such 4.99% limitation to such 9.99% limitation, the Beneficial Ownership Limitation shall not befurther waived by such Electing Holder. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4P to correct this paragraph (or any portion hereof)which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in thisparagraph shall apply to any successor to an Electing Holder. 

5. Voting - Series O Preferred Stock. In addition to any class votingrights provided by law and this Certificate of Designations, the holders of Series O Preferred Stock shall 

 

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have the right to vote together with the holders of Common Stock as a single class on any matter on which the holders of Common Stock are entitled to vote.With respect to the voting rights of the holders of the Series O Preferred Stock pursuant to the preceding sentence, each holder of Series O Preferred Stock shall be entitled to vote a number of votes equal to the ratio of the Series O StatedValue to the Market Price multiplied by the number of shares held by such holder, rounded down to the nearest whole number. 

6. CertainRestrictions. In addition to any other vote of the holders of Series O Preferred Stock required by law or by the Certificate of Incorporation, without the prior consent of the holders of at least 62.5% of the outstanding Series O PreferredStock, given in person or by proxy, either in writing or at a special meeting called for that purpose, at which meeting the holders of the shares of such Series O Preferred Stock shall vote together as a class, the Company will not: 

(a) authorize, create, designate, establish or issue (whether by merger or otherwise) (i) an increased number of shares of Series O Preferred Stock(other than shares of Series O Preferred Stock payable as payment-in-kind dividends on outstanding shares of Series O Preferred Stock), or (ii) any other class or series of capital stock ranking senior to or on parity with the Series OPreferred Stock as to dividends or upon liquidation or reclassify any shares of Common Stock into shares having any preference or priority as to dividends or upon liquidation superior to or on parity with any such preference or priority of Series OPreferred Stock; 

(b) adopt a plan for the liquidation, dissolution or winding up of the affairs of the Company or any recapitalizationplan (whether occurring by merger, consolidation or otherwise), file any petition seeking protection under any federal or state bankruptcy or insolvency law or make a general assignment for the benefit of creditors unless the holders of the Series OPreferred Stock will receive an amount in cash at least equal to the Liquidation Preference in such transaction; 

(c) amend, alter orrepeal, whether by merger, consolidation or otherwise, the Certificate of Incorporation or By-laws of the Company or the Resolutions contained in this Certificate of Designations of the Series O Preferred Stock and the powers, preferences,privileges, relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof, which would adversely affect any right, preference, privilege or voting power of the Series O Preferred Stock, or whichwould increase or decrease the amount of authorized shares of the Series O Preferred Stock or of any other series of preferred stock ranking senior to the Series O Preferred Stock, with respect to the payment of dividends (whether or not such seriesof preferred stock is cumulative or noncumulative as to payment of dividends) or upon liquidation; 

(d) agree to do any of the foregoing.

7. No Waiver. Except as otherwise modified or provided for herein, the holders of Series O Preferred Stock shall also be entitledto, and shall not be deemed to have waived, any other applicable rights granted to such holders under the Delaware General Corporation Law. 

8. No Impairment. The Company will not, through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek 

 

14 

to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist inthe carrying out of all the provisions hereunder and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights and liquidation preferences granted hereunder of the holders of the Series O PreferredStock against impairment. 

9. Amendment; Waiver. Any term of the Series O Preferred Stock may be amended or waived (including theadjustment provisions included in Section 4(D) hereof) upon the written consent of the Company and the holders of at least 62.5% of the Series O Preferred Stock then outstanding; provided, however that the number of ConversionShares issuable hereunder and the Conversion Price may not be amended, and the right to convert the Series O Preferred Stock may not be altered or waived, without the written consent of the holders of all of the Series O Preferred Stock thenoutstanding. 

10. Action By Holders. Any action or consent to be taken or given by the holders of the Series O Preferred Stock maybe given either at a meeting of the holders of the Series O Preferred Stock called and held for such purpose or by written consent. 

 

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**CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS**

**OF**

**SERIES P CONVERTIBLE PREFERREDSTOCK**

**OF**

**VELOCITY EXPRESS CORPORATION**

**(Pursuant to Section 151 of the**

**Delaware General Corporation Law)**

Velocity Express Corporation, a corporation organized and existing under the laws of the State of Delaware (the “Company”), hereby certifies that, pursuant to authority vested in the Board of Directors of the Company by Article IVof the Certificate of Incorporation of the Company, the following resolution was adopted as of October 7, 2005 by the Board of Directors of the Company pursuant to Section 151 of the Delaware General Corporation Law: 

“RESOLVED that, pursuant to authority vested in the Board of Directors of the Company by Article IV of the Company’s Certificate ofIncorporation, out of the total authorized number of 299,515,155 shares of its preferred stock, par value $0.004 per share (“Preferred Stock”), there shall be designated a Series P, 5,022,000 shares which shall be issued in and constitutea single series to be known as “Series P Convertible Preferred Stock” (hereinafter called the “Series P Preferred Stock”). The shares of Series P Preferred Stock have the voting powers, designations, preferences and other specialrights, and qualifications, limitations and restrictions thereof set forth below: 

1. Certain Definitions. 

As used in this Certificate of Designations, Preferences and Rights of Series P Convertible Preferred Stock of Velocity Express Corporation, thefollowing terms shall have the respective meanings set forth below: 

“Affiliate”, as applied to any Person, means anyother Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”,“controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whetherthrough the ownership of voting securities or by contract or otherwise. 

“Closing Date” means the Closing Date as definedin the Series P Preferred Stock Purchase Agreement. 

 

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“Common Stock” means the common stock, $0.004 par value per share, of the Company,including the stock into which the Series P Preferred Stock is convertible, and any securities into which the Common Stock may be reclassified. 

“Excluded Stock” means (A) capital stock, Options (as defined in Section 4D(1)) or Convertible Securities (as defined in Section 4D(1)) issued to employees, officers or directors of the Company pursuant toany 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) shares of CommonStock issued upon the conversion or exercise of Options or Convertible Securities issued prior to the date hereof, provided that such securities have not been amended since the date hereof, (C) shares of Common Stock issued or issuable byreason of a dividend, stock split or other distribution on shares of Common Stock (but only to the extent that such a dividend, split or distribution results in an adjustment in the Conversion Price pursuant to the other provisions of this Series NPreferred Stock) and (D) any issuance of shares of Series M, N, O or Q Convertible Preferred Stock, including without limitation any issuance in payment of dividends with respect to the same series of preferred stock. 

“Market Price” means the lower of the average closing prices of the Common Stock for the five trading days preceding (i) the dateof the binding agreement to issue the Series P Preferred Stock or (ii) the date of issuance of the Series P Preferred Stock. 

“Person” shall be construed in the broadest sense and means and includes any natural person, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, anunincorporated organization and other entity or governmental or quasi-governmental entity. 

“Registration Statement” meansthat registration statement required to be filed under the terms of the Series P Preferred Registration Rights Agreement. 

“SeriesP Stated Value” means $3.34 (appropriately adjusted for any stock split, reverse stock split, stock dividend or other reclassification or combination of the Series P Preferred Stock occurring after the date hereof). 

“Series P Stock Purchase Agreement” means the stock purchase agreement entered into between the Investor and the Company for thepurchase and sale of Series P Preferred Stock. 

“Subsidiary” means any corporation, association or other business entity(i) at least 50% of the outstanding voting securities of which are at the time owned or controlled, directly or indirectly, by the Company; or (ii) with respect to which the Company possesses, directly or indirectly, the power to direct orcause the direction of the affairs or management of such Person. 

“Term” means three-years from the Closing Date.

 

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2. Dividends. 

(a) Each Holder of Series P Preferred Stock, in preference and priority to the Holders of all other classes of stock other than Holders of the Company’s Series M Convertible Preferred Stock (the “Series MPreferred”) and the Series Q Convertible Preferred Stock (the “Series Q Preferred”), shall be entitled to receive, with respect to each share of Series P Preferred Stock then outstanding and held by such Holder of Series P PreferredStock, dividends, commencing from the date of issuance of such share of Series P Preferred Stock, at the rate of eight percent (8%) per annum of the Series P Stated Value (the “Series P Preferred Dividends”); provided, however, thatfrom and after the Company’s issuance of not less than 3,960,000 shares of Series Q Preferred, the Series P Preferred dividend rate shall be reduced to six percent (6%) per annum. The Series P Preferred Dividends shall be cumulative,whether or not earned or declared, and shall be paid quarterly in arrears on the first day of February, May, August and November in each year. At the election of the Company, the Series P Preferred Dividends shall be paid by (a) issuing eachHolder of Series P Preferred Stock such number of shares of Series P Preferred Stock equal to the Series P Preferred Dividend divided by the Series P Stated Value (“PIK Shares”), or (b) cash out of legally available funds therefor.Any election by the Company to pay dividends in shares of Series P Preferred Stock or cash shall be made uniformly with respect to all outstanding shares of Series P Preferred Stock for a given dividend period. 

(b) No dividends shall be paid on any Common Stock of the Company or any other capital stock of the Company other than the Series M Preferred and theSeries Q Preferred during any fiscal year of the Company until all outstanding Series P Preferred Dividends (with respect to the current fiscal year and all prior fiscal years) shall have been paid or declared and set apart for payment to theHolders of Series P Preferred Stock. 

(c) In the event that the Company shall at any time pay a dividend on the Common Stock or any otherclass or series of capital stock of the Company other than the Series M Preferred and the Series Q Preferred, the Company shall, at the same time, pay to each Holder of Series P Preferred Stock a dividend equal to the dividend that would have beenpayable to such Holder if the shares of Series P Preferred Stock held by such Holder had been converted into Common Stock on the date of determination of Holders of Common Stock entitled to receive such dividends. 

3. Liquidation; Redemption. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the Holders of theshares of Series P Preferred Stock shall rank (i) senior to the Holders of the Common Stock and the Company’s Series N Convertible Preferred Stock and Series O Convertible Preferred, (ii) junior to the Holders of Series Q Preferred,and (iii) on parity with the Holders of the Series M Preferred, as to such distributions, and shall be entitled to be paid an amount per share equal to the Series P Stated Value plus any accrued and unpaid Series P Preferred Dividends (the“Liquidation Preference”). No modification of this Liquidation Preference shall be made without the prior written approval of at least 62.5% of the then outstanding Series P Preferred. If upon such liquidation, dissolution or winding up ofthe Company, whether voluntary or involuntary, the assets to be distributed among the Holders of the Series P Preferred Stock and any class or Series P capital stock ranking on a parity with the Series P Preferred Stock as to such distributionsshall be insufficient to permit payment to the Holders of the Series P Preferred Stock and any such class or series of capital stock of their respective liquidation amount, 

 

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then the entire assets of the Company to be distributed shall be distributed pro rata to the Holders of Series P Preferred Stock and the Holders of suchclass or series of capital stock ranking on a parity with the Series P Preferred Stock as to such distributions according to the preferential amounts due thereon. 

4. Redemption. 

(a) At any time after the effective date of the Registration Statement and(i) prior to the Term, or (ii) upon a Change of Control, the Company shall have the right, but not the obligation, to redeem all or a portion of the shares of Series P Preferred Stock by tendering to the Holder 130% of the Stated Value ofthe outstanding Series P Preferred Stock together with all accrued but unpaid dividends. At the Term, the Company shall have the right, but not the obligation, to redeem all or a portion of the shares of Series P Preferred Stock by tendering to theHolder 100% of the Conversion Price together with all accrued but unpaid dividends. 

(b) In the event that the Company elects to redeem theSeries P prior to the Registration Statement becoming effective, the Company may redeem the Series P by paying to the Investor the greater of: (1) 130% of the outstanding Stated Value of the Series P plus accrued but unpaid dividends, and(2) 100% of the Stated Value of the Series P plus all accrued but unpaid dividends, plus 50% of the difference between the Fixed Conversion Price then in effect and the average closing price of the Company’s common stock for the 30calendar days preceding such redemption. 

5. Conversion. 

5A. Right to Convert. Subject to the terms and conditions of this paragraph 5A and 5B, the Holder of any share or shares of Series P PreferredStock shall have the right, at its option at any time, to convert any such shares of Series P Preferred Stock into such number of fully paid and nonassessable whole shares of Common Stock as is obtained by multiplying the number of shares of SeriesP Preferred Stock so to be converted by the Liquidation Preference per share and dividing the result by the conversion price of $3.34 per share or, if there has been an adjustment of the conversion price, by the conversion price as last adjusted andin effect at the date any share or shares of Series P Preferred Stock are surrendered for conversion (such price, or such price as last adjusted, being referred to herein as the “Conversion Price”). Such rights of conversion shall beexercised by the Holder at any time during its usual business hours on the date set forth in such notice, together with a properly completed notice of conversion in the form attached hereto with a statement of the name or names (with address),subject to compliance with applicable laws to the extent such designation shall involve a transfer, in which the certificate or certificates for shares of Common Stock, shall be issued. Such conversion shall be deemed to have been effected and theConversion Price shall be determined as of the close of business on the date on which such written notice shall have been given by the Holder. The Holder may not convert that amount of the Obligation Amount on a Conversion Date in amounts that wouldresult in the Holder having a beneficial ownership of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on such Conversion Date, and (ii) thenumber of shares of Common Stock issuable upon the conversion of the Series P 

 

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and accrued dividends with respect to which the determination of this proviso is being made on such Conversion Date, which would result in beneficialownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordancewith Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to successive exercises which would result in the aggregate issuance of more than4.99%. The Holder may revoke the conversion limitation described in this Paragraph, in whole or in part, upon 61 days prior notice to the Company. The Holder may allocate which of the equity of the Company deemed beneficially owned by the Holdershall be included in the 4.99% amount described above and which shall be allocated to the excess above 4.99%. 

5B. MandatoryConversion. If at any time after the Closing Date, and after the Registration Statement has been effective for a minimum of 20 consecutive trading days, the closing price of the Company’s Common Stock is at least $6.00 for twenty(20) consecutive trading days, at the election of the Company, each Holder must convert its Series P Preferred Stock into shares of the Company’s Common Stock (the “Mandatory Conversion”). Each Mandatory Conversion in anycalendar month shall be limited to ten percent (10%) of the total dollar volume traded in Company’s common stock in the previous calendar month. 

5C. Issuance of Certificates; Time Conversion Effected. Within three (3) business days after the conversion of the Series P Preferred Stock, the Company shall issue and deliver, or cause to be issued anddelivered, to the Holder, registered in such name or names as such Holder may direct, subject to compliance with applicable laws to the extent such designation shall involve a transfer of, a certificate or certificates for the number of whole sharesof Common Stock issuable upon the conversion of such share or shares of Series P Preferred Stock. Upon the effective date of any such conversion, the rights of the Holder of the shares of Series P Preferred Stock being converted shall cease, and theperson or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the Holder or Holders of record of the shares represented thereby. The Companyunderstands that a delay in the delivery of Common Stock upon (i) conversion of the Series P Preferred Stock in the form required pursuant to this Certificate and the Stock Purchase Agreement, or (ii) in response to a proper request tohave a restrictive legend removed under Rule 144 of the Securities Act of 1933, could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay (as liquidated damages and not as a penalty) to theHolder for such late delivery of Common Stock upon Conversion of the Series P Preferred Stock in the amount of $100 per business day after the third business day after a request for conversion, or a legend removal, has been made for each $10,000 ofSeries P Preferred Stock and accrued dividends being converted, or the corresponding Common Stock, for which a legend removal has been requested, which is not timely delivered. The Company shall pay any payments incurred under this section inimmediately available funds upon demand. Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery as stated in this Section 5C, the Holder will beentitled to revoke all or part of the relevant notice of conversion by delivery of a notice to such effect to the Company whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the delivery ofsuch notice, except that the liquidated damages described above shall be payable through the date notice of revocation is given to the Company. 

 

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5D. Fractional Shares; Dividends; Partial Conversion. No fractional shares shall be issued uponconversion of the Series P Preferred Stock into Common Stock, and the number of shares of Common Stock to be issued shall be rounded up to the nearest whole share. In addition to any other rights available to the Holder, if the Company fails to maketimely delivery to the Holder such certificate or certificates, pursuant to Section 5C, within five (5) business days and if within seven (7) business days thereafter the Holder purchases (in an open market transaction or otherwise)shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Common Stock which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall pay in cash to the Holder (in addition to anyremedies available to or elected by the Holder) within five (5) business days after written notice from the Holder, the amount by which (A) the Holder’s total purchase price (including brokerage commissions, if any) for the shares ofCommon Stock so purchased exceeds (B) the aggregate Stated Value of the shares of Series A Preferred Stock for which such conversion was not timely honored, together with interest thereon at a rate of 15% per annum, accruing until suchamount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty). For example, if the Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-Inwith respect to an attempted conversion of $10,000 of Stated Value of Series A Preferred Stock, the Company shall be required to pay the Holder $1,000, plus interest. The Holder shall provide the Company written notice indicating the amounts payableto the Holder in respect of the Buy-In. 

5E. Adjustment of Conversion Price. If the Company shall issue or sell, or is, inaccordance with subsections 5E(1) through 5E(8) below, deemed to have issued or sold, any Additional Shares of Common Stock without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to the timeof such issue or sale, then and in each such case (a “Trigger Issuance”) the then-existing Conversion Price, shall be reduced, as of the close of business on the effective date of the Trigger Issuance, to a price determined asfollows: 

 

Adjusted Conversion Price
 =  (A x B) + D     A+C  
where 

“A” equals the number of shares of Common Stock outstanding, including Additional Shares of Common Stock (as defined below)deemed to be issued hereunder, immediately preceding such Trigger Issuance; 

“B” equals the Conversion Price ineffect immediately preceding such Trigger Issuance; 

“C” equals the number of Additional Shares of Common Stockissued or deemed issued hereunder as a result of the Trigger Issuance; and 

 

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“D” equals the aggregate consideration, if any, received or deemed to bereceived by the Company upon such Trigger Issuance; 

provided, however, that in no event shall the Conversion Price after giving effect to such TriggerIssuance be greater than the Conversion Price in effect prior to such Trigger Issuance. 

For purposes of this subsection 5E,“Additional Shares of Common Stock” shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this subsection 5E, other than Excluded Stock. 

In the event that the adjustment to the conversion price would result in the Company issuing a total number of common shares, uponconversion of the Series P Preferred shares, that is in excess of 20% of the Company’s outstanding Common Stock or voting stock as of the date of the Series P Preferred Stock Purchase Agreement, then no adjustment will occur until theCompany’s shareholders approve the issuance of the Series P Preferred. 

For purposes of this subsection 5E, thefollowing paragraphs 5E(1) to 5E(8) shall also be applicable: 

5E1) Issuance of Rights or Options. In case at any time the Companyshall in any manner grant (directly and not by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into orexchangeable for Common Stock (such warrants, rights or options being called “Options” and such convertible or exchangeable stock or securities being called “Convertible Securities”) whether or not such Options or the right toconvert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities(determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus (y) theaggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus (z), in the case of such Options which relate to Convertible Securities, the aggregate amount of additional consideration, if any,payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchangeof all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Conversion Price in effect immediately prior to the time of the granting of such Options, then the total number of shares of Common Stock issuableupon the exercise of such Options or upon conversion or exchange of the total amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting ofsuch Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price. Except as otherwise provided in subsection 5E(3) no adjustment of the Conversion Price shallbe made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 

 

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5E(2) Issuance of Convertible Securities. In case the Company shall in any manner issue (directlyand not by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock isissuable upon such conversion or exchange (determined by dividing (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amount received or receivable by the Company as consideration for the issue or sale ofsuch Convertible Securities, plus (y) the aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (ii) the total number of shares of Common Stock issuable upon the conversionor exchange of all such Convertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange ofall such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding for purposes of adjusting the ConversionPrice, provided that (a) except as otherwise provided in subsection 5E(3), no adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities and(b) no further adjustment of the Conversion Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Conversion Price havebeen made pursuant to the other provisions of subsection 5D. 

5E(3) Change in Option Price or Conversion Rate. Upon the happening ofany of the following events, namely, if the purchase price provided for in any Option referred to in subsection 5E(1) hereof, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to insubsections 5E(1) or 5E(2), or the rate at which Convertible Securities referred to in subsections 5D(1) or 5D(2) are convertible into or exchangeable for Common Stock shall change at any time (including, but not limited to, changes under or byreason of provisions designed to protect against dilution), the Conversion Price in effect at the time of such event shall forthwith be readjusted to the Conversion Price which would have been in effect at such time had such Options or ConvertibleSecurities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. On the termination of any Option for which any adjustment was madepursuant to this subsection 5(E) or any right to convert or exchange Convertible Securities for which any adjustment was made pursuant to this subsection 5(E) (including without limitation upon the redemption or purchase for consideration of suchConvertible Securities by the Company), and after five (5) calendar days notice to the Holder, the Conversion Price then in effect hereunder shall forthwith be changed to the Conversion Price which would have been in effect at the time of suchtermination had such Option or Convertible Securities, to the extent outstanding immediately prior to such termination, never been issued. 

5E(4) Stock Dividends. Subject to the provisions of this subsection 4D, in case the Company shall declare a dividend or make any other distribution upon any stock of the Company (other than the Common Stock) payable in Common Stock,Options or Convertible Securities, then any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration; 

 

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provided, however, that the provisions of this subsection 5E(4) shall not apply to the issuance of PIK Shares in accordance with the terms hereof.

5E(5) Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of Common Stockinto a greater number of shares or shall declare or pay a dividend on its outstanding shares of Common Stock payable in shares of Common Stock, the Conversion Price is effect immediately prior to such subdivision shall be proportionately reduced,and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. 

5E(6) Consideration for Stock. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, theconsideration received therefor shall be deemed to be the net amount received by the Company therefor, after deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connectiontherewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the fairvalue of such consideration as determined in good faith by the Board of Directors of the Company, after deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. In caseany Options shall be issued in connection with the issue and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Optionsshall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Company. If Common Stock, Options or Convertible Securities shall be issued or sold by the Company and, in connection therewith,other Options or Convertible Securities (the “Additional Rights”) are issued, then the consideration received or deemed to be received by the Company shall be reduced by the fair market value of the Additional Rights (as determined usingthe Black-Scholes option pricing model or another method mutually agreed to by the Company and the Holder). The Board of Directors of the Company shall respond promptly, in writing, to an inquiry by the Holder as to the fair market value of theAdditional Rights. In the event that the Board of Directors of the Company and the Holder are unable to agree upon the fair market value of the Additional Rights, the Company and the Holder shall jointly select an appraiser, who is experienced insuch matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne by the Company. 

5E(7) Record Date. In case the Company shall take a record of the Holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or ConvertibleSecurities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon thedeclaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 

 

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5E(8) Treasury Shares. The number of shares of Common Stock outstanding at any given time shallnot include shares owned or held by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof) shall be considered an issue or sale of CommonStock for the purpose of this Section 4E. 

5F Stock Splits and Dividends. If the Company shall, at any time or from time totime while the Series P Preferred Stock is outstanding, pay a dividend or make a distribution on its Common Stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstandingshares of Common Stock into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in whichthe Company is the continuing corporation), then the Conversion Price in effect immediately prior to the date upon which such change shall become effective shall be adjusted by the Company so that the Holder thereafter converting its shares ofSeries P Preferred Stock shall be entitled to receive the number of shares of Common Stock or other capital stock which the such Holder would have received if the shares of Series P Preferred Stock had been converted immediately prior to such event.Such adjustments shall be made successively whenever any event listed above shall occur. 

5G. Reorganization or Reclassification. Ifany capital reorganization or reclassification of the capital stock of the Company shall be effected in such a way (including, without limitation, by way of consolidation or merger) that Holders of Common Stock but not Holders of Series P PreferredStock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock then, as a condition of such reorganization or reclassification, lawful and adequate provision shall be made whereby each Holder of ashare or shares of Series P Preferred Stock shall thereafter have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Company immediately theretofore receivableupon the conversion of such share or shares of the Series P Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the numberof shares of such stock immediately theretofore so receivable had such reorganization or reclassification not taken place and in any such case appropriate provision shall be made with respect to the rights and interests of such Holder to the endthat the provisions hereof (including without limitation provisions for adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable uponthe exercise of such conversion rights (including an immediate adjustment, by reason of such reorganization or reclassification, of the Conversion Price to the value for the Common Stock reflected by the terms of such reorganization orreclassification if the value so reflected is less than the Conversion Price in effect immediately prior to such reorganization or reclassification). In the event of a merger or consolidation of the Company as a result of which a greater or lessernumber of shares of common stock of the surviving corporation are issuable to Holders of the Common Stock of the Company outstanding immediately prior to such merger or consolidation, the Conversion Price in effect immediately prior to such mergeror consolidation shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding shares of Common Stock of the Company. 

 

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5H. Distributions. In case the Company shall fix a payment date for the making of a distributionto all Holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness or assets (other than cash dividends or cashdistributions payable out of consolidated earnings or earned surplus or dividends or distributions referred to in Section 5F), or subscription rights or warrants, the Conversion Price to be in effect after such payment date shall be determinedby multiplying the Conversion Price in effect immediately prior to such payment date by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding multiplied by the Market Price (as defined below) per share ofCommon Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board of Directors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights orwarrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such Market Price per share of Common Stock immediately prior to such payment date. “Market Price” as of a particular date(the “Valuation Date”) shall mean the following: (a) if the Common Stock is then listed on a national stock exchange, the closing sale price of one share of Common Stock on such exchange on the last trading day prior to the ValuationDate; (b) if the Common Stock is then quoted on The Nasdaq Stock Market, Inc. (“Nasdaq”), the National Association of Securities Dealers, Inc. OTC Bulletin Board (the “Bulletin Board”) or such similar exchange orassociation, the closing sale price of one share of Common Stock on Nasdaq, the Bulletin Board or such other exchange or association on the last trading day prior to the Valuation Date or, if no such closing sale price is available, the average ofthe high bid and the low asked price quoted thereon over the immediately preceding three trading day period prior to the Valuation Date; or (c) if the Common Stock is not then listed on a national stock exchange or quoted on Nasdaq, theBulletin Board or such other exchange or association, the fair market value of one share of Common Stock as of the Valuation Date, shall be determined in good faith by the Board of Directors of the Company and the Holders of at least 62.5% of theoutstanding Series P Preferred Stock. If the Common Stock is not then listed on a national securities exchange, the Bulletin Board or such other exchange or association, the Board of Directors of the Company shall respond promptly, in writing, to aninquiry by a Holder of Series P Preferred Stock prior to the exercise hereunder as to the fair market value of a share of Common Stock as determined by the Board of Directors of the Company. In the event that the Board of Directors of the Companyand the Holders of at least 62.5% of the outstanding Series P Preferred Stock are unable to agree upon the fair market value in respect of subpart (c) hereof, the Company and the Holders of at least 62.5% of the outstanding Series P PreferredStock shall jointly select an appraiser, who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne by the Company. Such adjustment shall be made successivelywhenever such a payment date is fixed. 

5I. Effective Date of Adjustment. An adjustment to the Conversion Price shall becomeeffective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment. 

5J. Subsequent Adjustments. In the event that, as a result of an adjustment made pursuant to this Section 4, Holders of Series P PreferredStock shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon the conversion of the Series P Preferred Stock shall be subject thereafter to

 

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adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Conversion Shares containedherein. 

5K. Notice of Adjustment. Upon any adjustment of the Conversion Price, then, and in each such case the Company shall givewritten notice thereof by first class mail, postage prepaid, addressed to each Holder of shares of Series P Preferred Stock at the address of such Holder as shown on the books of the Company, which notice shall state the Conversion Price resultingfrom such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 

5L.Other Notices. In case at any time: 

(1) the Company shall declare any dividend upon its Common Stock payable in cash or stock ormake any other distribution to the Holders of its Common Stock; 

(2) the Company shall offer for subscription pro rata to theHolders of its Common Stock any additional shares of such stock of any class or other rights; 

(3) there shall be any capitalreorganization or reclassification of the capital stock of the Company, or a consolidation or merger of the Company with, or a sale of all or substantially all its assets to, another corporation; or 

(4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; 

then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to each Holder of any shares of Series PPreferred Stock at the address of such Holder as shown on the books of the Company, (a) at least 15 days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distributionor subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, and (b) in the case of any such reorganization,reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 15 days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify,in the case of any such dividend, distribution or subscription rights, the date on which the Holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which theHolders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case maybe. 

5M. Stock to be Reserved. 

(1) The Company will at all times reserve and keep available out of its authorized but unissued Common Stock solely for the purpose of issuance upon the conversion of the Series P Preferred Stock as herein provided, 150% of such number ofshares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series P Preferred Stock. All shares of 

 

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Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all liens, duties and charges arisingout of or by reason of the issue thereof (including, without limitation, in respect of taxes) and, without limiting the generality of the foregoing, the Company covenants that it will from time to time take all such action as may be requisite toassure that the par value per share of the Common Stock is at all times equal to or less than the effective Conversion Price. The Company will take all such action within its control as may be necessary on its part to assure that all such shares ofCommon Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Company may be listed. The Company will not take any action whichresults in any adjustment of the Conversion Price if after such action the total number of shares of Common Stock issued and outstanding and thereafter issuable upon exercise of all options and conversion of Convertible Securities, including uponconversion of the Series P Preferred Stock, would exceed the total number of shares of such class of Common Stock then authorized by the Company’s Certificate of Incorporation, or result in a conversion price less than the par value.

(2) The Company will at all times reserve and keep available out of its authorized Series P Preferred Stock such number of shares ofSeries P Preferred Stock as is equal to the number of share of Series P Preferred Stock then outstanding. All shares of Series P Preferred Stock, which shall be so issued shall be duly and validly issued and fully paid and nonassessable and freefrom all liens, duties and charges arising out of or by reason of the issue thereof (including, without limitation, in respect of taxes). 

 

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5N. No Reissuance or Additional Issuance of Series P Preferred Stock. Shares of Series P PreferredStock that are converted into shares of Common Stock as provided herein shall be retired and may not be reissued as Series P Preferred Stock but may be reissued as all or part of another Series P Preferred Stock. No additional Shares of Series PPreferred will be authorized or issued, other than as originally authorized. 

5O. Issue Tax. The issuance of certificates for sharesof Common Stock upon conversion of the Series P Preferred Stock shall be made without charge to the Holders thereof for any issuance tax, stamp tax, transfer tax, duty or charge in respect thereof, provided that the Company shall not be required topay any tax, duty or charge which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the Holder of the Series P Preferred Stock which is being converted. 

5P. Closing of Books. The Company will at no time close its transfer books against the transfer of any Series P Preferred Stock or of any sharesof Common Stock issued or issuable upon the conversion of any shares of Series P Preferred Stock in any manner which interferes with the timely conversion of such Series P Preferred Stock; provided, however, nothing herein shall beconstrued to prevent the Company from setting record dates for the Holders of its securities. 

6. Other Covenants. As long as atleast 60% of the Series P Preferred remains outstanding, the Holders, acting as a single class, shall have the right to appoint one (1) person to attend all meetings of the Company’s Board of Directors as a monitor. 

7. Offering Restrictions. For so long as Series P Preferred Stock is outstanding, the Company will not enter into any equity line of credit orsimilar agreement, nor issue nor agree to issue any floating or variable priced equity linked instruments nor any of the foregoing or equity with price reset rights. 

8. No Waiver. Except as otherwise modified or provided for herein, the Holders of Series P Preferred Stock shall also be entitled to, and shall not be deemed to have waived, any other applicable rights grantedto such Holders under the Delaware General Corporation Law. 

9. No Impairment. The Company will not, through any reorganization,transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all timesin good faith assist in the carrying out of all the provisions hereunder and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights and liquidation preferences granted hereunder of the Holdersof the Series P Preferred Stock against impairment. 

10. Action By Holders. Any action or consent to be taken or given by theHolders of the Series P Preferred Stock may be given either at a meeting of the Holders of the Series P Preferred Stock called and held for such purpose or by written consent. 

 

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**CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS**

**OF**

**SERIES Q CONVERTIBLE PREFERREDSTOCK**

**OF**

**VELOCITY EXPRESS CORPORATION**

**(Pursuant to Section 151 of the**

**Delaware General Corporation Law)**

Velocity Express Corporation, a corporation organized and existing under the laws of the state of Delaware (the “Company”), hereby certifies that, pursuant to authority vested in the Board of Directors of the Company by Article IVof the Certificate of Incorporation of the Company, the following resolution was adopted as of June 26, 2006 by the Board of Directors of the Company pursuant to Section 151 of the Delaware General Corporation Law: 

“RESOLVED that, pursuant to authority vested in the Board of Directors of the Company by Article IV of the Company’s Certificate ofIncorporation, out of the total authorized number of 299,515,270 shares of its preferred stock, par value $0.004 per share (“Preferred Stock”), there shall be designated a series of 9,704,813 shares which shall be issued in and constitutea single series to be known as “Series Q Convertible Preferred Stock” (hereinafter referred to as the “Series Q Preferred Stock”). The shares of Series Q Preferred Stock have the voting powers, designations, preferences and otherspecial rights, and qualifications, limitations and restrictions thereof set forth below: 

1. Certain Definitions. 

As used in this Certificate of Designations, Preferences and Rights of Series Q Convertible Preferred Stock of Velocity Express Corporation, thefollowing terms shall have the respective meanings set forth below: 

“Additional Rights” has the meaning set forth inSection 5E(6). 

“Additional Shares of Common Stock” has the meaning set forth in Section 5E. 

“Affiliate”, as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common controlwith, that Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as applied to any Person,means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. 

“Board of Directors” or “Board” means the board of directors of theCompany. 

“Bulletin Board” has the meaning set forth in Section 5G. 

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

“Buy-In” has the meaning set forth in Section 5D. 

“Capital Stock” means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or businessentity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) any other interest orparticipation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person and (v) all warrants, options or other rights to acquire any item listed in (i) through(iv) of this definition. 

“Closing Date” means the Closing Date as defined in the Series Q Preferred Stock PurchaseAgreement. 

“Common Stock” means the common stock, $0.004 par value per share, of the Company, including the stock intowhich the Series Q Preferred Stock is convertible, and any securities into which the Common Stock may be reclassified. 

“CommonStock Equivalents” means any securities of the Company or any Subsidiary which entitled the holder thereof to acquire Common Stock at any time, including, without limitation, any debt, preferred stock, rights, Options (as defined inSection 5E(1)), warrants, Convertible Securities (as defined in Section 5E(1)) or other instrument that is at any time convertible into or exchangeable or exercisable for, or otherwise entitles the holder thereof to receive, Common Stockor other securities that entitle the holder to receive, directly or indirectly, Common Stock. 

“Conversion Price” has themeaning set forth in Section 5A. 

“Convertible Securities” has the meaning set forth in Section 5E(1).

“Corporate Transaction” has the meaning set forth in Section 3. 

“Dividend Payment Date” has the meaning set forth in Section 2(a). 

“Equity Line of Credit” has the meaning set forth in Section 6. 

 

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“Excluded Stock” means (A) Capital Stock, Options or Convertible Securities issuedto employees, 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-employeedirectors established for such purpose, (B) shares of Common Stock issued upon the conversion or exercise of Options or Convertible Securities or other rights issued on or prior to the date hereof, provided that such securities have not beenamended since the date hereof, (C) shares of Common Stock issued or issuable by reason of a dividend, stock split or other distribution on shares of Common Stock (but only to the extent that such a dividend, split or distribution results in anadjustment in the Conversion Price pursuant to the other provisions of this Series Q Preferred Stock) and (D) PIK Shares (as defined in Section 2(b)), the Warrant Shares and shares issued as payment-in–kind dividends with respect toother series of the Company’s Preferred Stock. 

“Forced Conversion” has the meaning set forth in Section 5B.

“Junior Capital Stock” shall mean (A) the Common Stock, (B) Common Stock Equivalents of the Company,(C) all existing or hereafter created series of Preferred Stock of the Company and (D) all other existing or hereinafter created equity securities of the Company. 

“Liquidation Preference” has the meaning set forth in Section 3. 

“Mandatory Redemption Date” has the meaning set forth in Section 4B. 

“Mandatory Redemption Price” has the meaning set forth in Section 4B. 

“Market Price” has the meaning set forth in Section 5G. 

“Nasdaq” has the meaning set forth in Section 5G. 

“Notes” shall mean the Company’s 12% Senior Secured Notes due 2010 issued pursuant to the Indenture dated July 3, 2006 by and between the Company and Wells Fargo, N.A., as Trustee (the“Indenture”). 

“Offered Shares” has the meaning set forth in Section 7(a). 

“Options” has the meaning set forth in Section 5E(1). 

“Person” shall be construed in the broadest sense and means and includes any natural person, a partnership, a corporation, anassociation, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and other entity or governmental or quasi-governmental entity. 

“PIK Shares” has the meaning set forth in Section 2(b). 

“Price Reset” has the meaning set forth in Section 6. 

 

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“Readjustment Event” has the meaning set forth in Section 5E(3). 

“Redemption Date” has the meaning set forth in Section 4A. 

“Redemption Premium” has the meaning set forth in Section 4B. 

“Redemption Price” has the meaning set forth in Section 4A. 

“Registration Rights Agreement” means the Registration Rights Agreement dated as of July 3, 2006 by and among the Company, thepurchasers of Series Q Preferred Stock, the purchasers of the Company’s 12% Senior Secured Notes and Warrants and the other parties named therein. 

“Registration Statement” means that certain shelf registration statement required to be filed pursuant to the terms of the Registration Rights Agreement. 

“Sale Notice” has the meaning set forth in Section 7(a). 

“Securities Act” has the meaning set forth in Section 2(b). 

“Series Q Dividends” has the meaning set forth in Section 2(a). 

“Series Q Preferred Stock Purchase Agreement” means that certain Stock Purchase Agreement dated July 3, 2006 by and among theCompany and the investors named therein for the purchase and sale of Series Q Preferred Stock. 

“Special RedemptionTrigger” shall mean the earliest to occur of the following: 

(i) the closing or consummation of a TargetAlternative Transaction; or 

(ii) effectiveness of termination of the Merger Agreement by any party or for any reason; or

(iii) failure for any other reason of the closing under the Merger Agreement to occur on or prior to the date 270 daysafter the date hereof, regardless of the disposition or status at such time of the Merger Agreement. 

“Stated Value” hasthe meaning set forth in Section 2(a). 

“Subsidiary” means any corporation, association or other business entity(i) at least 50% of the outstanding voting securities of which are at the time owned or controlled, directly or indirectly, by the Company; or (ii) with respect to which the Company possesses, directly or indirectly, the power to direct orcause the direction of the affairs or management of such Person. 

“Target” means CD&L, Inc., a Delaware corporation.

 

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“Target Acquisition” means the merger of Cobra Acquisition Corp., a newly-formedwholly-owned Subsidiary of the Company (“Merger Sub”), and Target, pursuant to the terms of an Agreement and Plan of Merger dated July 3, 2006 (“Merger Agreement”), by and among the Company, Merger Sub and Target.

“Target Alternative Transaction” means the merger or acquisition of or with respect to Target, as directed byTarget’s Board of Directors in the exercise of its fiduciary responsibilities, consummated or to be consummated by or with any Person, on any terms or otherwise in any manner other than consummation of the closing pursuant to the terms andconditions as documented and agreed in the Merger Agreement. 

“Threshold Trading Period” has the meaning set forth inSection 5B. 

“Trigger Issuance” has the meaning set forth in Section 5E. 

“Variable Priced Equity Linked Instruments” has the meaning set forth in Section 6. 

“Valuation Date” has the meaning set forth in Section 5G. 

“VWAP” shall mean, with respect to any date of determination, the daily volume weighted average price (determined using data provided byBloomberg L.P. (or, if Bloomberg L.P. terminates such reporting, then using such other reporting system as the Board of Directors may designate in good faith)) of the Common Stock on the NASDAQ Capital Market (or any other securities exchange onwhich the Common Stock is then traded or included for quotation) on such date of determination, or if there is no such price on such date of determination, then the daily volume weighted average price of the Common Stock on the date nearestpreceding such date. 

“Warrants” shall mean stock purchase warrants of the Company issued pursuant to that certain Noteand Warrant Purchase Agreement dated July 3, 2006 by and among the Company and the investors named therein. 

“WarrantShares” shall mean Common Stock of the Company issued upon exercise of the Warrants. 

2. Dividends. 

(a) The holders of shares of Series Q Preferred Stock shall be entitled, in preference to the holders of any Junior Capital Stock to receive when and asdeclared by the Board of Directors out of funds legally available therefor dividends (the “Series Q Dividends”) on the Series Q Preferred Stock in cash, subject to any payment restrictions contained in any indenture, note or otheragreement evidencing the Company’s indebtedness, at the rate of six percent (6%) per annum on the stated value of each share of Series Q Preferred Stock of $10.00, adjusted proportionately for any stock split, reverse stock split, stockdividend or other reclassification or 

 

5 

combination occurring after the date hereof (the “Stated Value”). The Series Q Dividends shall be cumulative, whether or not earned or declared,and shall be payable quarterly in arrears on the first day of October, January, April and July in each year (each a “Dividend Payment Date”) and if such date is not a Business Day then the next succeeding Business Day. 

(b) At the election of the Company, the Series Q Dividends may be paid: (i) by issuing each holder of Series Q Preferred Stock such number of sharesof Series Q Preferred Stock equal to the Series Q Dividend divided by the Series Q Preferred Stock Stated Value (hereinafter “PIK Shares”); or (ii) in cash out of legally available funds therefor. Any election by the Company to paydividends in shares of Series Q Preferred Stock or cash shall be made uniformly with respect to all outstanding shares of Series Q Preferred Stock for a given dividend period. The Company shall deliver written notice to each holder indicating themanner in which it intends to pay the Series Q Dividend at least five Business Days prior to each Dividend Payment Date, but may indicate in such notice that the election contained therein shall continue for subsequent Dividend Payment Dates untilrevised. Failure to provide timely written notice shall be deemed an election by the Company to pay such dividends in cash. The Company may not deliver PIK Shares at any time when the shares of Common Stock into which such PIK Shares are convertibleshall not be registered for immediate resale by the holders thereof under the Securities Act of 1933, as amended (the “Securities Act”) and/or other applicable federal or state securities law, rules and regulations; provided, that, withthe approval of at least 70% of the Series Q Preferred Stock then outstanding given prior to the relevant Dividend Payment Date, the Company may pay the Series Q Dividend by delivering PIK Shares when the shares of Common Stock into which such PIKShares are convertible are not registered for immediate resale. In addition to the foregoing, the Company shall be entitled to effect such election to pay Series Q Dividends using PIK Shares only for so long as the Common Stock of the Company islisted or quoted, without any stop-trade order or other suspension in trading (whether or not initiated by the Company), on such exchanges or trading systems as permit the resale of the Common Stock on the applicable dividend payment date.

(c) No cash or other value dividends shall be paid on any Junior Capital Stock of the Company during any fiscal year of the Company untilall accumulated Series Q Dividends (with respect to the current fiscal year and all prior fiscal years) shall have been paid to the holders of Series Q Preferred Stock. 

(d) In the event that the Company declares or pays any dividends upon any class or series of its Capital Stock (whether payable in cash, securities or other property) other than dividends payable solely in shares ofCommon Stock, and other than cumulative dividends payable with respect to any other series of the Company’s Preferred Stock in accordance with the terms of the Company’s Certificate of Incorporation, the Company shall also declare and payto the holders of the Series Q Preferred Stock at the same time that it declares and pays such dividends to the holders of the Capital Stock, the dividends which would have been declared and paid with respect to the Common Stock issuable uponconversion of the Series Q Preferred Stock had all of the outstanding Series Q Preferred Stock been converted immediately prior to the 

 

6 

record date for such dividend, or if no record date is fixed, the date as of which the record holders of Capital Stock entitled to such dividends are to bedetermined. 

3. Liquidation. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of theshares of Series Q Preferred Stock shall rank senior to the holders of all Junior Capital Stock of the Company and shall be entitled to be paid an amount per share equal to the Series Q Preferred Stock Stated Value plus any accumulated, accrued,earned or declared and unpaid Series Q Dividends (the “Liquidation Preference”). No modification of this Liquidation Preference shall be made without the prior written approval of holders of at least a majority of the then outstandingSeries Q Preferred Stock. If, upon such liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the assets to be distributed among the holders of the Series Q Preferred Stock and any class or series of Capital Stockranking on a parity with the Series Q Preferred Stock as to such distributions shall be insufficient to permit payment to the holders of the Series Q Preferred Stock and such class or series of Capital Stock of their respective liquidation amount,then the entire assets of the Company to be distributed shall be distributed pro rata to the holders of Series Q Preferred Stock. Prior to the time of any liquidation, dissolution, dissolution or winding up of the Company, the Company shall declare,or shall be deemed to have declared, for payment all accumulated, accrued or earned but not yet paid dividends with respect to the Series Q Preferred Stock as to such distributions according to the preferential amounts due thereon. Unless waived inwriting by the holders of at least 62.5% of the Series Q Preferred Stock then outstanding, voting together as one class, a consolidation or merger of the Company into or with any other entity or entities, or the sale or transfer by the Company ofall or substantially all of its assets, in each case under circumstances in which the holders of a majority in voting power of the outstanding capital stock of the Company, immediately prior to such a merger, consolidation or sale, own less than amajority in voting power of the outstanding capital stock of the corporation or the surviving or resulting corporation or acquirer, as the case may be, immediately following such a merger, consolidation or sale (each such transaction beinghereinafter referred to as a “Corporate Transaction”) shall be deemed to be a liquidation within the meaning of this Section 3. 

4.Redemption. 

4A. Redemption at the Option of the Company. The Company shall have the right and option to redeem all of the Series QPreferred Stock on the following terms and conditions: 

(a) The Series Q Preferred Stock is redeemable at the option of the Company at anytime after the date on which the registration statement has been declared effective out of funds legally available for redemptions. Immediately prior to authorizing or making any such redemption with respect to the Series Q Preferred Stock (and inno event later than the date specified for redemption in the redemption notice described below), the Company, by resolution of its Board of Directors, shall declare, or be deemed to have declared, a dividend on the Series Q Preferred Stock to beredeemed, which shall be in an amount equal to any accrued, 

 

7 

accumulated or earned and unpaid Series Q Dividends up to and including the date designated for such redemption (the “Redemption Date”). Redemptionshall be made on the Redemption Date at a redemption price per share of Series Q Preferred Stock equal to 125 percent of the Stated Value thereof as of the Redemption Date plus the amount in cash equal to all Series Q Dividends unpaid, accumulated,accrued or earned thereon and declared (or deemed declared) by the Board pursuant to the preceding sentence (the “Redemption Price”). 

(b) Notice of any redemption pursuant to this Section 4A shall be mailed at least 20 days in advance of the Redemption Date to the holders of record of Series Q Preferred Stock at their respective addresses shown in the records of theCompany. Each such notice shall state: (i) the Redemption Date; (ii) the Redemption Price per share; (iii) the place or places where certificates for such shares of Series Q Preferred Stock are to be surrendered for payment of theredemption price; and (iv) that dividends on the shares of Series Q Preferred Stock to be redeemed will cease to accrue as of the Redemption Date. To facilitate the redemption of the Series Q Preferred Stock, the Board of Directors may fix arecord date for the determination of holders of Series Q Preferred Stock to be redeemed not more than 60 days prior to the Redemption Date. 

(c) On or before the Redemption Date, each holder of Series Q Preferred Stock shall surrender to the Company the certificates representing the shares redeemed, duly endorsed or assigned to the Company, and the holder shall thereafter beentitled to receive payment of the Redemption Price. In case fewer than the total number of Series Q Preferred Stock represented by any certificate are redeemed, a new certificate representing the number of unredeemed Series Q Preferred Stock shallbe issued to the holder thereof without cost to such holder within 3 Business Days after surrender of the certificate representing the Series Q Preferred Stock. 

(d) On the Redemption Date and subject to the complete satisfaction by the Company of its obligations due to the holders of the Series Q Preferred Stock including without limitation the Company’s obligation tomake in full the deposit described in Section 4A(e) below: (i) dividends on the Series Q Preferred Stock called for redemption shall cease to accrue; (ii) such shares of Series Q Preferred Stock shall be deemed no longer outstanding;and (iii) all rights of such holder as a holder of Series Q Preferred Stock (except the right to receive from the Company the Redemption Price payable upon surrender of certificates representing such shares of Series Q Preferred Stock),including the right to convert the Series Q Preferred Stock, shall cease. Notwithstanding the delivery to any holder of Series Q Preferred Stock of a redemption notice described above, if, prior to the close of business on the Business Day precedingthe Redemption Date, such holder gives written notice to the Company of its election to convert all of any part of such holder’s shares of Series Q Preferred Stock into shares of Common Stock, pursuant to Section 5 below (accompanied by acertificate or certificates for such shares, duly endorsed or assigned to the Company), then such shares of Series Q Preferred Stock that were otherwise scheduled to be redeemed shall instead be converted into shares of Common Stock as provided inSection 5 hereof as of the Redemption Date. The Company shall be prohibited from redeeming any holder’s Series Q Preferred Stock under this Section 4A at any time the holder is 

 

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unable to convert such Series Q Preferred Stock under Section 5A into shares of Common Stock registered for immediate resale under the Securities Actand/or other applicable federal or state securities law, rules and regulations. 

(e) The Company shall, on or after any Redemption Date,deposit with its transfer agent or other redemption agent selected by the Board of Directors, as a trust fund, a sufficient sum to redeem, on the Redemption Date, the shares of Series Q Preferred Stock then called for redemption, with instructionsand authority to such transfer agent or other redemption agent to pay the Redemption Price on or after the Redemption Date upon receipt of certificates representing the shares of Series Q Preferred Stock then being redeemed. Any funds so depositedand unclaimed at the end of two years from such Redemption Date shall be released or repaid to the Company, after which the holders of the shares so called for redemption shall be entitled to receive payment of the Redemption Price only from theCompany. Any interest accrued on any funds deposited shall belong to the Company, and shall be paid to it from time to time on demand. 

(f)So long as any Series Q Preferred Stock remains outstanding, neither the Company nor any Subsidiary shall redeem or otherwise acquire any Series Q Preferred Stock, except as expressly authorized in this Series Q Certificate of Designations. So longas any Series Q Preferred Stock remains outstanding, neither the Company nor any Subsidiary shall redeem or otherwise repurchase any Junior Capital Stock. 

4B. Mandatory Redemption. Upon the Special Redemption Trigger, the Company shall be required to effect the redemption of all outstanding shares of Series Q Preferred Stock as of the date which is twenty(20) Business Days after the date of the Special Redemption Trigger (the “Mandatory Redemption Date”) at a redemption price per share of Series Q Preferred Stock equal to the Stated Value thereof, together with accrued, accumulated,earned or declared and unpaid Series Q Dividends prorated to the Mandatory Redemption Date (the “Mandatory Redemption Price”), together with a redemption premium per share of Series Q Preferred Stock equal to 50 percent of the annualdividend payable with respect to such share of Series Q Preferred Stock (the “Redemption Premium”). The Mandatory Redemption Price per share of Series Q Preferred Stock shall be paid in cash by the Company. The Redemption Premium shall, atthe option of the Company, be payable in either cash or shares of the Company’s Common Stock, which shares shall be valued at the VWAP for ten trading days ending on the date preceding the Mandatory Redemption Date; provided, that the Companymay not deliver Common Stock in payment of the Redemption Premium at any time when such shares of Common Stock shall not be registered for immediate resale by the holders thereof under the Securities Act and/or other applicable federal or statesecurities law, rules and regulations. On and after the Mandatory Redemption Date, subject to each holder’s option to decline redemption pursuant to Section 4B(b) below, all rights of holders of the Series Q Preferred Stock hereunder(including the right to receive dividends) shall cease to exist except for the right to receive the Mandatory Redemption Price and the Redemption Premium. The Company shall not redeem any Series Q Preferred Stock pursuant to this Section 4Buntil all of the Company’s obligations to effect a Special Mandatory Redemption (as defined in the Indenture) under the terms of the Indenture have been satisfied. 

 

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(a) Upon the occurrence of a Special Redemption Trigger, notice of the Mandatory Redemption Date will bepromptly delivered by nationally recognized overnight courier to each holder of the Series Q Preferred Stock at his, her or its last address as the same appears on the register maintained by the Company. The notice shall state that the Series QPreferred Stock will be redeemed (including the CUSIP Number thereof) and shall set forth: 

(i) The Mandatory RedemptionDate; 

(ii) The Mandatory Redemption Price and the Redemption Premium; 

(iii) A statement that certificates representing the shares of Series Q Preferred Stock must be surrendered to the Company to receive theMandatory Redemption Price and the Redemption Premium; 

(iv) A statement that unless the Company defaults in the making ofthe Special Mandatory Redemption (including the payment in full of the Mandatory Redemption Price and the Redemption Premium), all rights of holders of Series Q Preferred Stock hereunder (including the right to receive dividends) shall cease toexist on and after the Mandatory Redemption Date; and 

(v) A statement that the Special Mandatory Redemption is beingeffected pursuant to Section 4B hereof. 

The Company shall, promptly following delivery of the notice of the Mandatory Redemption Date, deposit withits transfer agent or other redemption agent selected by the Board of Directors, as a trust fund, a sufficient sum of cash and, to the extent used to pay the Redemption Premium, shares of the Company’s Common Stock, to redeem, on the MandatoryRedemption Date, the shares of Series Q Preferred Stock then called for redemption, with instructions and authority to such transfer agent or other redemption agent to pay the Mandatory Redemption Price and Redemption Premium on or after theMandatory Redemption Date upon receipt of certificates representing the shares of Series Q Preferred Stock then being redeemed. Any funds and shares so deposited and unclaimed at the end of two years from such Mandatory Redemption Date shall bereleased or repaid to the Company, after which the holders of the shares so called for redemption shall be entitled to receive payment of the Mandatory Redemption Price and Redemption Premium only from the Company. Any interest accrued on any fundsdeposited shall belong to the Company, and shall be paid to it from time to time on demand. 

(b) Once the Notice of Special Redemptiondescribed in Section 4B(a) is mailed, the Company shall be obligated to redeem the Series Q Preferred Stock on the Mandatory Redemption Date at the Mandatory Redemption Price plus the Redemption Premium; provided, however, that each holder ofSeries Q Preferred Stock may, by written notice to the Company 

 

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given not later than five (5) Business Days preceding the Mandatory Redemption Date, decline to have its shares of Series Q Preferred Stock redeemed bythe Company under this Section 4B, and to retain ownership of its Series Q Preferred Stock following the Mandatory Redemption Date. If the Mandatory Redemption Date is a legal holiday, payment shall be made on the next succeeding Business Dayand no interest or dividends shall accrue thereon for the period from such Mandatory Redemption Date to such succeeding Business Day. 

5.Conversion. 

5A. Right to Convert. Subject to the terms and conditions of this Section 5A, the holder of any share orshares of Series Q Preferred Stock shall be entitled, at any time and from time to time, to convert any such shares of Series Q Preferred Stock into the number of fully paid and nonassessable whole shares of Common Stock obtained by multiplying thenumber of shares of Series Q Preferred Stock to be converted by the Liquidation Preference per share and dividing the result by the initial conversion price of $1.10 per share or, if there has been an adjustment of the initial conversion price, bythe conversion price as last adjusted and in effect at the date any share or shares of Series Q Preferred Stock are surrendered for conversion (such price, or such price as last adjusted, being referred to herein as the “ConversionPrice”). Such rights of conversion shall be exercised by the holder thereof by surrender of a certificate or certificates for the shares to be converted (or if lost, a Certificate of Lost Affidavit attesting to the loss of the certificate(s)representing the Series Q Preferred Stock shares), to the Company at its principal office and to the Company’s transfer agent (or such other office or agency of the Company as the Company may designate by notice in writing to the holder orholders of the Series Q Preferred Stock) at any time during their usual business hours on the date set forth in such notice, together with a properly completed notice of conversion in the form attached to the Series Q Preferred Stock certificatewith a statement of the name or names (with address), in which the certificate or certificates for shares of Common Stock, shall be issued (subject to compliance with applicable laws to the extent such designation shall involve a transfer). Suchconversion shall be deemed to have been effected and the Conversion Price shall be determined as of the close of business on the date on which such written notice shall have been received by the Company and the Company’s transfer agent and thecertificate or certificates for such shares of Series Q Preferred Stock shall have been surrendered as aforesaid. Within five Business Days following receipt of such certificates, the Company shall issue and deliver, or cause to be issued anddelivered, to the holder, registered in such name or names as such holder may direct (subject to compliance with applicable laws to the extent such designation shall involve a transfer) a certificate or certificates for the number of whole shares ofCommon Stock issuable upon the conversion of such share or shares of Series Q Preferred Stock. 

No conversion of the Series Q PreferredStock may be effected by the holders thereof or by the Company pursuant to Section 5 hereof unless and until the issuance of the Common Stock upon conversion of the Series Q Preferred Stock has been approved by the stockholders of the Companyin compliance with Nasdaq Marketplace Rule 4350(i)(1) and Regulation 14C under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). If such stockholder 

 

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approval is not effective within 120 days following the Closing Date (the “Approval Deadline”), then the Company will make pro rata payments toeach holder of Series Q Preferred Stock, as liquidated damages and not as a penalty, in an amount equal to one percent (1%) of the aggregate purchase price paid for the Series Q Preferred Stock then held by such holder (which amount shallinclude the original purchase price paid by such holder pursuant to the Series Q Preferred Stock Purchase Agreement for the Series Q Preferred Stock) for each 30-day period or pro rata for any portion thereof following the Approval Deadline untilsuch stockholder approval is effective. Such payments shall be in partial compensation to the holders, and shall not constitute the holders’ exclusive remedy for such events. The amounts payable as liquidated damages pursuant to this paragraphshall be paid monthly within three (3) business days of the last day of each month following the Approval Deadline until such stockholder approval is effective. Such payments shall be made to each holder in cash. 

5B. Forced Conversion. 

(a) All orany part of the Series Q Preferred Stock may be converted into shares of Common Stock at the option of the Company at any time after the first anniversary of the Closing Date (the “Forced Conversion”): (i) when the average daily VWAPof the Common Stock for 20 out of 30 consecutive trading days (the “Threshold Trading Period”) is equal to or greater than 200 percent of the Conversion Price; and (ii) a registration statement has been filed and has become effectivewith the U.S. Securities and Exchange Commission to permit resale of the Common Stock issuable upon the conversion of the Series Q Preferred Stock. There may be successive Forced Conversions; provided, however, that the value of thenumber of shares of Series Q Preferred Stock that may be subject to Forced Conversion in any calendar month may not exceed 20 percent of the notional value of the Common Stock traded during the previous Threshold Trading Period. In the event thatthe Company opts to convert less than all outstanding shares of Series Q Preferred Stock in respect of any Forced Conversion, the shares of Series Q Preferred Stock subject to such Forced Conversion shall be selected on a pro rata basis from theshares of Series Q Preferred Stock held by all holders of Series Q Preferred Stock. 

(b) Upon any Forced Conversion, each holder ofcertificates for shares of Series Q Preferred Stock that are subject to such Forced Conversion shall, following receipt of the notice specified in Section 5(B)(c) hereof, promptly surrender to the Company’s transfer agent such certificatesin exchange for appropriate stock certificates representing the number of shares of Common Stock of the Company into which such shares of Series Q Preferred Stock are to be converted. Each holder of shares of Series Q Preferred Stock that is subjectto a Forced Conversion shall be entitled to receive the full number of shares of Common Stock into which such shares of Series Q Preferred Stock held by such holder could be converted if such holder had exercised its conversion right pursuant toSection 5A on the last day of the applicable Threshold Trading Period. 

 

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(c) In the event that the Company opts to effect a Forced Conversion, the Company shall mail writtennotice to each holder of record of the shares of Series Q Preferred Stock subject to such Forced Conversion a notice setting forth: 

(i) A statement that the average daily VWAP for the Common Stock of the Company was equal or greater than 200% of the Conversion Price during the Threshold Trading Period specified in the notice; 

(ii) That the conditions for a Forced Conversion have occurred and that the Company has opted to effect a Forced Conversion of theaggregate number of shares of Series Q Preferred Stock specified in the notice as of the date specified in the notice (the “Forced Conversion Date”); 

(iii) The number of shares of Series Q Preferred Stock held by that holder that are subject to the Forced Conversion; the then applicableConversion Price; the number of shares of Common Stock into which such shares of Series Q Preferred Stock will be converted; and a Letter of Transmittal to the Company’s transfer agent. 

5C. Issuance of Certificates; Time Conversion Effected. In connection with any conversion of Series Q Preferred Stock pursuant to Section 5Beach holder of share of Series Q Preferred Stock to be converted shall promptly after receipt of the notice specified in Section 5(B)(c) above deliver to the Company’s transfer agent certificates representing the Series Q Preferred Stockshares so converted, duly endorsed for transfer (or if lost, a Certificate of Lost Affidavit attesting to the loss of the certificate representing the Series Q Preferred Stock shares), together with a properly completed notice of conversion in theform attached to the Series Q Preferred Stock certificate with a statement of the name or names (with address), in which the certificate or certificates for shares of Common Stock, shall be issued (subject to compliance with applicable laws to theextent such designation shall involve a transfer). Such conversion shall be deemed to have been effected and the Conversion Price shall be determined as of the close of business on the Forced Conversion Date. Within five Business Days followingreceipt of such certificates, (i) provided that the Company’s transfer agent (the “Transfer Agent”) is participating in the Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program, theTransfer Agent will credit such aggregate number of shares of Common Stock to which the converting holder of shares of Series Q Preferred Stock shall be entitled to such holder’s or its designee’s balance account with DTC through itsDeposit Withdrawal Agent Commission system, or (ii) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate,registered in the name of such holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled (subject to compliance with applicable laws to the extent such designation shall involve a transfer). Subject tothe last sentence of this Section 5C, upon the effective date of any conversion pursuant to this Section 5, the rights of the holder of the shares of Series Q Preferred Stock being converted shall cease, and such holders shall be deemed tobe holders of the shares of Common Stock issued or issuable 

 

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upon such conversion. The Company understands that a delay in the delivery of Common Stock upon: (i) conversion of the Series Q Preferred Stock pursuantto this Section 5; or (ii) in response to a proper request to have a restrictive legend removed under Rule 144 of the Securities Act, could result in economic loss to the holder. As compensation to the holder for such loss, the Companyagrees to pay (as liquidated damages and not as a penalty) to the holder for such late delivery of Common Stock upon conversion of the Series Q Preferred Stock in the amount of $100 per Business Day after the third Business Day after a request forconversion, or a legend removal, has been made for each $10,000 of Series Q Preferred Stock and accrued dividends being converted, or the corresponding Common Stock, for which a legend removal has been requested, which is not timely delivered. TheCompany shall pay any payments incurred under this section in immediately available funds upon demand. Furthermore, in addition to any other remedies which may be available to the holder, in the event that the Company fails for any reason to effecttimely delivery of shares of Common Stock in connection with a conversion pursuant to Section 5A, the holder will be entitled to revoke all or part of the relevant notice of conversion by delivery of a notice to such effect to the Companywhereupon the Company and the holder shall each be restored to their respective positions immediately prior to the delivery of such notice, except that the liquidated damages described above shall be payable through the date notice of revocation isgiven to the Company. 

5D. Fractional Shares; Dividends; Partial Conversion. No fractional shares shall be issued as a result of anyconversion hereunder, and any holder entitled to a fractional share of Common Stock upon the date of such conversion shall be entitled, upon surrender to the Company of the certificates presented for conversion, to receive a cash payment in anamount equal to the product obtained by multiplying the fractional interest by the Market Price of a share of Common Stock. In addition to any other rights available to the holder, if the Company fails to make timely delivery in accordance with theprovisions of Section 5C above, to a holder of a certificate or certificates representing the shares of Common Stock into which such holder’s shares of Series Q Preferred Stock have been converted, and if within seven Business Daysthereafter such holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such holder of the Common Stock which the holder anticipated receiving upon such conversion (a“Buy-In”), then the Company shall pay in cash to the holder (in addition to any remedies available to or elected by the holder) within five Business Days after written notice from the holder, the amount by which (i) the holder’stotal purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (ii) the aggregate Stated Value of the shares of Series Q Preferred Stock for which such conversion was not timely honored,together with interest thereon at a rate of 15 percent per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty). For example, if the holderpurchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of Stated Value of Series Q Preferred Stock, the Company shall be required to pay the holder $1,000, plusinterest. The holder shall provide the Company written notice indicating the amounts payable to the holder in respect of the Buy-In. 

 

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5E. Adjustment of Conversion Price. If the Company shall issue or sell, or is, in accordance withsubsections 5E(1) through 5E(8) below, deemed to have issued or sold, any Additional Shares of Common Stock (as defined below) without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to thetime of such issue or sale, then and in each such case (a “Trigger Issuance”) the then-existing Conversion Price shall be reduced, as of the close of business on the effective date of the Trigger Issuance, to a price determined as follows:

 

Adjusted Conversion Price
 =  (A x B) + D     A + C  
where 

“A” equals the number of shares of Common Stock outstanding, including Additional Shares of Common Stock deemed to be issuedhereunder, immediately preceding such Trigger Issuance; 

“B” equals the Conversion Price in effect immediatelypreceding such Trigger Issuance; 

“C” equals the number of Additional Shares of Common Stock issued or deemedissued hereunder as a result of the Trigger Issuance; and 

“D” equals the aggregate consideration, if any,received or deemed to be received by the Company upon such Trigger Issuance; 

provided, however, that in no event shall theConversion Price after giving effect to such Trigger Issuance be greater than the Conversion Price in effect prior to such Trigger Issuance. 

For purposes of this subsection 5E, “Additional Shares of Common Stock” shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this subsection 5E, other than Excluded Stock. 

For purposes of this subsection 5E, the following Sections 5E(1) to 5E(8) shall also be applicable: 

5E(1) Issuance of Rights or Options. In case at any time the Company shall in any manner grant (directly and not by assumption in a merger orotherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called“Options” and such convertible or exchangeable stock or securities being called “Convertible Securities”) whether or not such Options or the right to convert or exchange any such Convertible Securities are immediatelyexercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon the conversion or 

 

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exchange of such Convertible Securities (determined by dividing: (i) the sum (which sum shall constitute the applicable consideration) of (x) thetotal amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus (y) the aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus (z), inthe case of such Options which relate to Convertible Securities, the aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) thetotal maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Conversion Price ineffect immediately prior to the time of the granting of such Options, then the total number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total amount of such Convertible Securitiesissuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options or the issuance of such Convertible Securities and thereafter shall be deemed to be outstanding forpurposes of adjusting the Conversion Price. Except as otherwise provided in subsection 5E(3) no adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of suchOptions or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 

5E(2) Issuance ofConvertible Securities. In case the Company shall in any manner issue (directly and not by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert any such Convertible Securitiesare immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing: (i) the sum (which sum shall constitute the applicable consideration) of (x) the total amountreceived or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus (y) the aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by(ii) the total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the totalmaximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities andthereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price, provided that: (a) except as otherwise provided in subsection 5E(3), no adjustment of the Conversion Price shall be made upon the actual issuance ofsuch Common Stock upon conversion or exchange of such Convertible Securities; and (b) no further adjustment of the Conversion Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchaseany such Convertible Securities for which adjustments of the Conversion Price have been made pursuant to the other provisions of subsection 5E. 

5E(3) Change in Option Price or Conversion Rate. If: (i) the purchase price provided for in any Right or Option referred to in subsection 5E(l) hereof; (ii) the additional consideration, if 

 

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any, payable upon the conversion or exchange of any Convertible Securities referred to in subsections 5E(l) or 5E(2); (iii) or the rate at whichConvertible Securities referred to in subsections 5E(l) or 5E(2) are convertible into Common Stock shall change at any time (each, a “Readjustment Event”) (including, but not limited to, changes under or by reason of provisions designed toprotect against dilution), the Conversion Price in effect at the time of such event shall forthwith be readjusted to the Conversion Price which would have been in effect had such Readjustment Event occurred at the time the Options or ConvertibleSecurities still outstanding were initially granted, issued or sold. Upon the termination of any Option for which any adjustment was made pursuant to this subsection 5(E) or any right to convert Convertible Securities for which any adjustment wasmade pursuant to this subsection 5(E) (including without limitation upon the redemption or purchase for consideration of such Convertible Securities by the Company), and after five calendar days notice to the holder, the Conversion Price then ineffect hereunder shall forthwith be changed to the Conversion Price which would have been in effect at the time of such termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such termination, neverbeen issued. 

5E(4) Stock Dividends In case the Company shall declare a dividend or make any other distribution upon any stock ofthe Company payable in Common Stock, Options or Convertible Securities, then any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or soldwithout consideration and the Conversion Price then in effect shall be adjusted accordingly. 

5E(5) Subdivision or Combination ofStock. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced. In case theCompany at any time shall combine its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. 

5E(6) Consideration for Stock. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, theconsideration received therefor shall be deemed to be the net amount received by the Company therefor, after deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connectiontherewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the fairvalue of such consideration as determined in good faith by the Board of Directors of the Company, after deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Company in connection therewith. In caseany Options shall be issued in connection with the issue and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Optionsshall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Company. If Common Stock, Options or 

 

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Convertible Securities shall be issued or sold by the Company and, in connection therewith, other Options or Convertible Securities (the “AdditionalRights”) are issued, then the consideration received or deemed to be received by the Company shall be reduced by the fair market value of the Additional Rights (as determined using the Black-Scholes option pricing model or another methodmutually agreed to by the Company and the holder). The Board of Directors of the Company shall respond promptly, in writing, to any inquiry by the holder as to the fair market value of the Additional Rights. In the event that the Board of Directorsof the Company and the holder are unable to agree upon the fair market value of the Additional Rights, the Company and the holder shall jointly select an appraiser who is experienced in such matters. The decision of such appraiser shall be final andconclusive, and the cost of such appraiser shall be borne by the Company. 

5E(7) Record Date. In case the Company shall take arecord of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock,Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such otherdistribution or the date of the granting of such right of subscription or purchase, as the case may be. 

5E(8) Treasury Shares. Thenumber of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company or any of its wholly-owned Subsidiaries, and the disposition of any such shares (other than the cancellationor retirement thereof) shall be considered an issue or sale of Common Stock for the purpose of this Section 5E. 

5F. Reorganizationor Reclassification; Consolidation or Merger. 

(a) If the Company shall, at any time or from time to time while the Series Q PreferredStock is outstanding, issue by reorganization or by reclassification of its outstanding shares of Common Stock any shares of its Capital Stock (including any reclassification in connection with a consolidation or merger in which the Company is thecontinuing corporation), then the Conversion Price in effect immediately prior to the date upon which such change shall become effective shall be adjusted by the Company so that the holder thereafter converting its shares of Series Q Preferred Stockshall be entitled to receive the number of shares of Common Stock or other Capital Stock which the such holder would have received if the shares of Series Q Preferred Stock had been converted immediately prior to such event. Such adjustments shallbe made successively whenever any event listed above shall occur. 

(b) If any capital reorganization or reclassification of the CapitalStock of the Company shall be effected in such a way (including, without limitation, by way of consolidation or merger) that holders of Common Stock but not holders of Series Q Preferred Stock shall be entitled to receive stock, securities or assetswith respect to or in exchange for Common Stock 

 

18 

then, as a condition of such reorganization or reclassification, lawful and adequate provision shall be made whereby each holder of a share or shares ofSeries Q Preferred Stock shall thereafter have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Company immediately theretofore receivable upon the conversion ofsuch share or shares of the Series Q Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of suchstock immediately theretofore so receivable had such reorganization or reclassification not taken place and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to the end that the provisionshereof (including without limitation provisions for adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of suchconversion rights (including an immediate adjustment, by reason of such reorganization or reclassification, of the Conversion Price to the value for the Common Stock reflected by the terms of such reorganization or reclassification if the value soreflected is less than the Conversion Price in effect immediately prior to such reorganization or reclassification). In the event of a merger or consolidation of the Company as a result of which a greater or lesser number of shares of Common Stockof the surviving corporation are issuable to holders of the Common Stock of the Company outstanding immediately prior to such merger or consolidation, the Conversion Price in effect immediately prior to such merger or consolidation shall be adjustedin the same manner as though there were a subdivision or combination of the outstanding shares of Common Stock of the Company. 

5G.Distributions. In case the Company shall fix a payment date for the making of a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is thecontinuing corporation or any distribution made in connection with a sale of the Company’s assets) of evidences of indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus),or subscription rights or warrants, the Conversion Price to be in effect after such payment date shall be determined by multiplying the Conversion Price in effect immediately prior to such payment date by a fraction, the numerator of which shall bethe total number of shares of Common Stock outstanding multiplied by the Market Price (as defined below) per share of Common Stock immediately prior to such payment date, less the fair market value (as determined by the Company’s Board ofDirectors in good faith) of said assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by such MarketPrice per share of Common Stock immediately prior to such payment date. “Market Price” as of a particular date (the “Valuation Date”) shall mean the following: (a) if the Common Stock is then listed on a national stockexchange, the closing sale price of one share of Common Stock on such exchange on the last trading day prior to the Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq Stock Market (“Nasdaq”), the National Associationof Securities Dealers, Inc. OTC Bulletin Board (the “Bulletin Board”) or such similar exchange or association, the closing sale price of one share of Common Stock on Nasdaq, 

 

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the Bulletin Board or such other exchange or association on the last trading day prior to the Valuation Date or, if no such closing sale price is available,the average of the high bid and the low asked price quoted thereon over the immediately preceding three trading day period prior to the Valuation Date; or (c) if the Common Stock is not then listed on a national stock exchange or quoted onNasdaq, the Bulletin Board or such other exchange or association, the fair market value of one share of Common Stock as of the Valuation Date, shall be determined in good faith by the Board of Directors of the Company and the holders of at least amajority of the outstanding Series Q Preferred Stock. If the Common Stock is not then listed on a national securities exchange, the Bulletin Board or such other exchange or association, the Board of Directors of the Company shall respond promptly,in writing, to an inquiry by a holder of Series Q Preferred Stock prior to the exercise hereunder as to the fair market value of a share of Common Stock as determined by the Board of Directors of the Company. In the event that the Board of Directorsof the Company and the holders of at least a majority of the outstanding Series Q Preferred Stock are unable to agree upon the fair market value in respect of subpart (c) hereof, the Company and the holders of at least a majority of theoutstanding Series Q Preferred Stock shall jointly select an appraiser who is experienced in such matters. The decision of such appraiser shall be final and conclusive, and the cost of such appraiser shall be borne by the Company. Such adjustmentshall be made successively whenever such a payment date is fixed. 

5H. Effective Date of Adjustment. An adjustment to the ConversionPrice shall become effective immediately after the payment date in the case of each dividend or distribution and immediately after the effective date of each other event which requires an adjustment. 

5I. Subsequent Adjustments. In the event that, as a result of an adjustment made pursuant to this Section 5, holders of Series Q PreferredStock shall become entitled to receive any shares of Capital Stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon the conversion of the Series Q Preferred Stock shall be subject thereafter toadjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions contained herein with respect to the shares of Common Stock receivable upon conversion of the Series Q Preferred Stock. 

5J. Notice of Adjustment. Upon any adjustment of the Conversion Price, then, and in each such case the Company shall give written notice thereofby first class mail, postage prepaid, addressed to each holder of shares of Series Q Preferred Stock at the address of such holder as shown on the books of the Company, which notice shall state the Conversion Price resulting from such adjustment,setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 

5K. Other Notices.In case at any time: 

(1) the Company shall declare any dividend upon its Common Stock payable in cash or stock or make any otherdistribution to the holders of its Common Stock; 

 

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(2) the Company shall offer for subscription pro rata to the holders of its Common Stock any additionalshares of such stock of any class or other rights; 

(3) there shall be any capital reorganization or reclassification of the Capital Stockof the Company, or a consolidation or merger of the Company with, or a sale of all or substantially all its assets to, another corporation; or 

(4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; 

then, in any one or more ofsuch occurrences, the Company shall give, by first class mail, postage prepaid, addressed to each holder of any shares of Series Q Preferred Stock at the address of such holder as shown on the books of the Company: (i) at least 15 days priorwritten notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification,consolidation, merger, sale, dissolution, liquidation or winding up; and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 15 days’ prior writtennotice of the date when the same shall take place. Such notice in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stockshall be entitled thereto, and such notice in accordance with the foregoing clause (ii) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other propertydeliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 

5L. Stock to be Reserved. 

(1) The Company will at all times reserve and keep available out of its authorized but unissuedCommon Stock solely for the purpose of issuance upon the conversion of the Series Q Preferred Stock as herein provided, 150 percent of such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares ofSeries Q Preferred Stock. All shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof (including,without limitation, in respect of taxes) and, without limiting the generality of the foregoing, the Company covenants that it will from time to time take all such action as may be required to insure that the par value per share of the Common Stockis at all times equal to or less than the effective Conversion Price. The Company will take all such action within its control as may be necessary on its part to assure that all such shares of Common Stock may be so issued without violation of anyapplicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Company may be listed. The Company will not take any action which results in any adjustment of the Conversion Price if aftersuch action the total number of shares of Common Stock issued and outstanding and 

 

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thereafter issuable upon exercise of all Options and conversion of Convertible Securities, including upon conversion of the Series Q Preferred Stock, wouldexceed the total number of shares of such class of Common Stock then authorized by the Company’s Certificate of Incorporation, or result in a Conversion Price less than the par value. 

(2) The Company will at all times reserve and keep available out of its authorized but unissued Series Q Preferred Stock such number of shares of SeriesQ Preferred Stock as is equal to the number of shares of Series Q Preferred Stock then outstanding for use as PIK Shares. All shares of Series Q Preferred Stock, which shall be so issued shall be duly and validly issued and fully paid andnonassessable and free from all liens, duties and charges arising out of or by reason of the issue thereof (including, without limitation, in respect of taxes). 

5M. Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of the Series Q Preferred Stock shall be made without charge to the holders thereof for any issuance tax, stamp tax,transfer tax, duty or charge in respect thereof, provided that the Company shall not be required to pay any tax, duty or charge which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name otherthan that of the holder of the Series Q Preferred Stock which is being converted. 

5N. Closing of Books. The Company will at no timeclose its transfer books against the transfer of any Series Q Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series Q Preferred Stock in any manner which interferes with the timely conversionof such Series Q Preferred Stock; provided, however, that nothing herein shall be construed to prevent the Company from setting record dates for the holders of its securities. 

5O. Limitation on Conversion. A holder of Series Q Preferred Stock shall not have the right to convert any shares of Series Q Preferred Stock thatwould result in such holder having a beneficial ownership of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the holder and its affiliates after giving effect to suchconversion, and (ii) the number of shares of Common Stock issuable upon the conversion of such holder’s Series Q Preferred Stock, which would result in beneficial ownership by the holder and its affiliates of more than 4.99% of theoutstanding shares of Common Stock. For the purposes of this Section 5O, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and Rule 13d-3 thereunder. Subject to the foregoing, the holder shallnot be limited to successive conversions which would result in the aggregate issuance of more than 4.99% (the “Maximum Percentage”). By written notice to the Company, a holder may, from time to time, increase or decrease the MaximumPercentage to any other percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (ii) anysuch increase or decrease will apply only to the holder providing such written notice and not to any other holder of Series Q Preferred Stock. Notwithstanding the foregoing, any holder may revoke the application of the conversion limitationdescribed in this Section 5O to such holder, in whole or in part, upon 61 days prior notice to the Company. 

 

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6. Offering Restrictions. For so long as any shares of Series Q Preferred Stock remainoutstanding, the Company will not enter into any Equity Line of Credit (as defined below) or similar agreement, nor issue nor agree to issue any floating or Variable Priced Equity Linked Instruments nor any of the foregoing or equity with PriceReset Rights. For purposes of such restriction: 

(a) the term “Equity Line of Credit” means a financing structure that wouldallow the Company to “draw down” against a pre-determined amount of capital committed to by a purchaser during a specified period of time (the Company “draws down” the Equity Line of Credit by making periodic sales of itssecurities to the purchaser); and 

(b) “Variable Priced Equity Linked Instruments” is a transaction involving the purchase ofcommon stock or the conversion price of a convertible security which fluctuates in relation to the market price of the stock of a corporate issuer, and in which the effective price will ultimately depend upon the direction of the market price of anissuer’s stock; and 

(c) “Price Reset” means where the price of common stock or the conversion price of a convertiblesecurity is set after a closing date and subject to adjustment (downward or upward) based on various criteria that can include fundamental performance, a specified event, or the stock price of a corporate issuer at a given point in time afterclosing. 

7. Rights of First Refusal. 

(a) Sale Notice. If at any time during the period beginning on the Closing Date and ending on the first anniversary of the Closing Date, the Company proposes to issue and sell Capital Stock (a “Equity Offering”) to one ormore third parties in a transaction, the primary purpose of which is a financing (an “Equity Financing”), then the Company shall give written notice (the “Sale Notice”) to the holders of shares of Series Q Preferred Stock of theCompany’s intention to consummate such Equity Financing. The Sale Notice shall state (i) a description of the Capital Stock to be sold (“Offered Shares”), (ii) the identity of the prospective purchaser(s) and (iii) theconsideration and the material terms and conditions upon which the proposed Equity Financing is to be made. The Sale Notice shall certify that the Company has received a firm offer from the prospective purchaser(s) and in good faith believes abinding agreement for the Equity Financing is obtainable on the terms set forth in the Sale Notice. The Sale Notice shall also include a copy of any written proposal, term sheet or letter of intent or other agreement relating to the proposed EquityFinancing. An Equity Financing shall not include any issuance of Excluded Stock. 

(b) Purchase Option. Each holder of Series QPreferred Stock shall have the option for a period of twenty (20) days from such holder’s receipt of the Sale Notice from the Company set forth in Section 7(a) to elect to purchase such holder’s pro rata share of the OfferedShares at 

 

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the same price and subject to the same material terms and conditions as described in the Sale Notice. Each holder may exercise such purchase option and,thereby, purchase all or any portion of his, her or its pro rata share (with any reallotments as provided below) of the Offered Shares, by notifying the Company in writing, before expiration of the twenty (20) day period as to the number ofsuch shares which he, she or it wishes to purchase (including any reallotment). Each holder’s pro rata share of the Offered Shares shall be a fraction of the Offered Shares, of which the number of shares of Common Stock issuable upon conversionof the Series Q Preferred Stock owned by such holder on the date of the Sale Notice shall be the numerator and the total number of shares of Common Stock issuable upon conversion of the Series Q Preferred Stock held by all holders of Series QPreferred Stock on the date of the Sale Notice shall be the denominator. Each holder shall have a right of reallotment such that, if any other holder fails to exercise the right to purchase its full pro rata share of the Offered Shares, the otherparticipating holders may exercise an additional right to purchase, on a pro rata basis, the Offered Shares not previously purchased. Each holder shall be entitled to apportion Offered Shares to be purchased among its partners and affiliates,provided that such holder notifies the Company of such allocation. If a holder gives the Company notice that it desires to purchase its pro rata share of the Offered Shares and, if applicable, its reallotment, then payment for the Offered Sharesshall be by check or wire transfer, against delivery of the Offered Shares to be purchased at a place agreed upon between the parties and at the time of the scheduled closing therefor, which shall be no later than forty-five (45) days after theholder’s receipt of the Sale Notice, unless the Sale Notice contemplated a later closing with the prospective third party purchaser(s). 

8. NoWaiver. Except as otherwise modified or provided for herein, the holders of Series Q Preferred Stock shall also be entitled to, and shall not be deemed to have waived, any other applicable rights granted to such holders under the DelawareGeneral Corporation Law. 

9. No Impairment. The Company will not, through any reorganization, transfer of assets, merger, dissolution, issue or saleof securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all theprovisions hereunder and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights and liquidation preferences granted hereunder of the holders of the Series Q Preferred Stock against impairment.

10. Amendment; Waiver. Except as expressly provided for otherwise herein, any term of the Series Q Preferred Stock may be amended or waived(including the adjustment provisions included in Section 5E hereof) upon the vote or written consent of the Company and the holders of at least 70% of the Series Q Preferred Stock then outstanding; provided, however that anamendment or waiver relating to the right to convert the Series Q Preferred Stock or the Conversion Price thereof shall only be binding upon a holder who has given a vote or written consent in favor thereof. 

 

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11. Action By holders. Any action or consent to be taken or given by the holders of the Series Q Preferred Stockmay be given either at a meeting of the holders of the Series Q Preferred Stock called and held for such purpose or by written consent. 

12. Notice ofStockholder Approval. Within two (2) Business Days after stockholder approval of the issuance of the Common Stock upon conversion of the Series Q Preferred Stock is effective in compliance with Nasdaq Marketplace Rule 4350(i)(1) andRegulation 14C under the Exchange Act, the Company will (i) send written notification to each holder of Series Q Preferred Stock that such holder may exercise its conversion rights in accordance with the terms of the Series Q Preferred Stockand (ii) amend the Certificate of Designations, Rights and Preferences for the Series Q Preferred Stock to reflect such stockholder approval. 

13.Registration Rights Agreement. Holders of the Series Q Preferred Stock shall be entitled to the benefits of the Registration Rights Agreement (subject to the terms and conditions set forth therein). The Company shall provide to each holder ofSeries Q Preferred Stock, upon request, and without charge, a copy of the Registration Rights Agreement. 

 

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