VOTING, CONSENT, AMENDMENT AND WAIVER AGREEMENT

EX-10.2 5 dex102.htm FORM OF VOTING, CONSENT, AMENDMENT AND WAIVER AGREEMENT Form of Voting, Consent, Amendment and Waiver Agreement

EXHIBIT 10.2

This VOTING, CONSENT, AMENDMENT AND WAIVER AGREEMENT (this “Agreement”) is dated effective June 29, 2006, and entered into by and among Velocity Express Corporation, a Delaware corporation (the “Company”) and each of the stockholder signatories hereto constituting the holders (collectively, the “Holders”) of at least: (i) 62.5 percent of the issued and outstanding Series M Convertible Preferred Stock, par value $.004 per share (the “Series M Holders”), (ii) 62.5 percent of the issued and outstanding Series N Convertible Preferred Stock, par value $.004 per share (the “Series N Holders”), and (iii) 62.5 percent of the issued and outstanding Series O Convertible Preferred Stock, par value $.004 per share (the “Series O Holders”) (such series of preferred stock are referred to collectively herein as the “Existing Preferred”), together with the Holders of at least 50.1 percent of the Company’s issued and outstanding common stock (“Common Stock”), par value $.004 per share (including outstanding shares of other classes or series of the Company’s capital stock entitled to vote on any matter on which the holders of Common Stock are entitled to vote (collectively, the “Common Stock Holders”)).

W I T N E S S E T H:

WHEREAS, the Company and certain new investors (the “Series Q Purchasers”) intend to enter into a stock purchase agreement (the “Stock Purchase Agreement”) pursuant to which the Company will issue to the Series Q Purchasers up to 45,000,000 shares of the Company’s Series Q Convertible Preferred Stock, par value $.004 per share, (“Series Q Preferred Stock”) convertible into an equal number of shares of Common Stock, subject to adjustment, on the terms and conditions set forth in the Stock Purchase Agreement;

WHEREAS, the proposed Certificate of Designations, Preferences and Rights of the Series Q Preferred Stock provides for the payment of dividends thereon, at the option of the Company, in the form of shares of Series Q Preferred Stock (“PIK Shares”);

WHEREAS, certain rights and preferences set forth in the proposed Series Q Preferred Stock Certificate of Designations, Preferences and Rights are inconsistent with the rights and preferences of each series of the Existing Preferred, necessitating amendments to the Certificates of Designations, Preferences and Rights of each of the Existing Preferred;

WHEREAS, the Certificates of Designations, Preferences and Rights of the Existing Preferred preclude the designation of the preferences and rights of the Series Q Preferred Stock and the issuance of the Series Q Preferred Stock in the absence of prior written consent from the holders of not less than 62.5 percent of the outstanding shares of each series of the Existing Preferred;

WHEREAS, the purchase agreements governing the Company’s sale of the Existing Preferred to the Holders provide for rights of participation applicable to the Company’s proposed issuance and sale of the Series Q Preferred Stock;

WHEREAS, the Company intends to enter into purchase agreements (the “Note and Warrant Purchase Agreements”) with certain investors (the “Senior Note Investors”), pursuant to which the Company will issue Senior Secured Notes (the “Notes”) and four-year warrants (each a “Note Warrant”) to purchase an aggregate of approximately 26,000,000 shares of Common Stock, subject to adjustment, at an exercise price of $1.45 per share, subject to adjustment;

WHEREAS, the execution and delivery of this Agreement by the parties hereto is a condition precedent to the Company entering into the Stock Purchase Agreement and the Note and Warrant Purchase Agreements;

WHEREAS, proceeds from the issuance and sale of the Series Q Preferred, the Notes and the Warrants, together with the issuance of shares of Common Stock, or securities convertible into or exercisable for Common Stock or a combination thereof with an aggregate fair value of approximately $3,200,000 (“Exeter Securities”), will be used to effect the purchase of a portion of the issued and outstanding capital stock, and securities convertible into shares of the capital stock, of another company (the “Proposed Acquisition”);

WHEREAS, in connection with the transactions contemplated by the Stock Purchase Agreement and the Note and Warrant Purchase Agreements, the Company proposes to issue to Jefferies and Company, Broadband Capital, Meritage Funds and Terra Nova Trading, LLC, in payment of placement agent and finders fees, an aggregate of approximately 2,550,000 shares of Series Q Preferred Stock;

WHEREAS, the Company proposes to issue to TH Lee Putnam Ventures, a stockholder of the Company, warrants (“THLPV Warrants”) to purchase up to 250,000 and 547,500 shares, respectively, of Common Stock at a price of $.01 per share, in consideration for merger and acquisition services and credit enhancements in the form of loan guarantees provided to the Company;

WHEREAS, in connection with the Proposed Acquisition, the Company intends to issue: (i) warrants to purchase up to 400,000 shares of Common Stock at a price of $1.50 per share (the “Scura Rise Warrants”) to Scura Rise & Partners, LLC in satisfaction of investment banking fees; and (ii) up to approximately 500,000 shares of Common Stock to certain individuals in payment for consulting services;

WHEREAS, the Company proposes to issue 375,000 shares of Series Q Preferred Stock to Pequot Capital Management, a stockholder of the Company, in consideration for credit enhancements in the form of loan guarantees provided for the benefit of the Company;

WHEREAS, the shares of Common Stock issuable: (a) upon conversion of the Series Q Preferred Stock, (b) upon conversion of PIK Shares issuable as dividends on the Series Q Preferred Stock, (c) upon exercise of the Note Warrants, THLPV Warrants and Scura Rise Warrants, and (d) in connection with the Exeter Securities, together with the shares of Common Stock issuable in payment for consulting services: (i) will have aggregate voting power equal to or in excess of 20 percent of the voting power of the Company’s presently issued and outstanding shares of Common Stock; (ii) will have an aggregate share denomination equal to or in excess of 20 percent of the Company’s presently issued and outstanding shares of Common Stock; and (iii) may result in a change of control of the Company;

WHEREAS, certain of the proposed issuances of securities described above may result in the issuance of Common Stock at an effective price less than the greater of the book value or market value of the Company’s Common Stock;

WHEREAS, Marketplace Rule 4350(i)(1) promulgated by The Nasdaq Stock Market, Inc. (“Nasdaq”) requires stockholder consent prior to the issuance of shares of Common Stock or securities convertible into shares of Common Stock that will result in the acquisition of the stock or assets of another company if: (i) the present or potential issuance of Common Stock will have upon issuance voting power equal to or in excess of 20 percent of the voting power outstanding before such issuance or potential issuance, or (ii) the number of shares of Common Stock to be issued is or will be equal to or greater than 20 percent of the Company’s presently issued and outstanding shares of Common Stock;

WHEREAS, Marketplace Rule 4350(i)(1) requires stockholder consent prior to the issuance of shares of Common Stock or securities convertible into shares of Common Stock a price less than the greater of the book value or market value of the Company’s Common Stock if: (i) the Common Stock will have upon issuance voting power equal to or in excess of 20 percent of the voting power outstanding before such issuance or potential issuance, or (ii) the number of shares of Common Stock to be issued is or will be equal to or greater than 20 percent of the Company’s presently issued and outstanding shares of Common Stock;

WHEREAS, Marketplace Rule 4350(i)(1) also requires stockholder consent prior to the issuance of shares of Common Stock or securities convertible into shares of Common Stock that will result in a change of control of the Company;

WHEREAS, in order to induce the Series Q Purchasers and the Senior Note Investors to consummate their proposed investment transactions for the benefit of all stockholders of the Company, including the Holders, the Company has requested, and the Holders have agreed, to enter into this Agreement; and

WHEREAS, it is the intent of the parties to this Agreement that the consents set forth herein are provided pursuant to, and in compliance with, Section 228 of the General Corporation Law of the state of Delaware.

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

A G R E E M E N T:

(1) Common Stock Holder Consents. Each Common Stock Holder hereby consents to the Company’s issuance of: (i) the Series Q Preferred Stock as described in the preceding paragraphs, together with any PIK Shares issuable in payment of dividends on the Series Q Preferred Stock, (ii) the Note Warrants, THLPV Warrants and Scura Rise Warrants, (iii) the Exeter Securities, and (iv) effective upon the 20th calendar day following the Company’s mailing

to its stockholders a related information statement prepared in compliance with Regulation 14C promulgated under the Securities Exchange Act of 1934, as amended, the shares of Common Stock issuable upon conversion of the Series Q Preferred Stock and any PIK Shares, and upon the exercise of the Note Warrants, THLPV Warrants and Scura Rise Warrants, and the shares of Common Stock issuable in consideration for consulting services and in connection with the Exeter Securities, with the understanding that the issuance of such securities by the Company:

(a) may be at an effective price per share of Common Stock less than the greater of the book value or market value of the Company’s Common Stock;

(b) will result in the issuance of Common Stock with voting power equal to or in excess of 20 percent of the voting power of the Company’s presently issued and outstanding shares of Common Stock;

(c) will result in the issuance of Common Stock in an aggregate share denomination equal to or in excess of 20 percent of the Company’s presently issued and outstanding shares of Common Stock; and

(d) may result in a change in control of the Company.

Each Common Stock Holder hereby consents to and ratifies the Certificate of Amendment to Amended and Restated Certificate of Incorporation attached as Exhibit A hereto.

(2) Series M Holder Consent, Waiver, and Amendment. Each of the undersigned Series M Holders hereby:

(a) consents to the Company’s designation of the preferences and rights of the Series Q Preferred Stock, including without limitation the superiority of the Series Q Preferred Stock in right of preference as to dividends and distributions made upon the liquidation of the Company, and the proposed issuance and sale of the Series Q Preferred Stock as described in the preceding paragraphs;

(b) consents to and ratifies the Certificate of Amendment to Amended and Restated Certificate of Incorporation attached as Exhibit A hereto;

(d) consents to and ratifies each of the transactions described in the Company’s Proxy Statement for Annual Meeting of Stockholders to be held June 28, 2006 under the caption “Certain Relationships and Related Transactions.”

(3) Series N Holder Consent, Waiver, and Amendment. Each of the undersigned Series N Holders hereby:

(b) consents to and ratifies the Certificate of Amendment to Amended and Restated Certificate of Incorporation attached as Exhibit A hereto;

(4) Series O Holder Consent, Waiver, and Amendment. Each of the undersigned Series O Holders hereby:

(b) consents to and ratifies the Certificate of Amendment to Amended and Restated Certificate of Incorporation attached as Exhibit A hereto; and

(c) waives, in connection with the issuance of the Series Q Preferred Stock, the Note Warrants, THLPV Warrants, Scura Rise Warrants, Exeter Securities and the Common Stock, all as described in the preceding paragraphs, the application of: (i) Section 4D of the Series O Certificate of Designations, Preferences and Rights to reduce the Conversion Price to an amount less than $2.10 per share; and (ii) the Right of First Refusal on Future Financings set forth in Section 5 of the stock purchase agreement governing the sale of the Series O Convertible Preferred Stock to the Series O Holder.

(5) Notice to Holders. Within 30 days following the issuance of the Series Q Preferred Stock as contemplated in the preceding paragraphs, the Company shall deliver written notice to the undersigned Holders of the Existing Preferred that the Conversion Price for their shares of Series M, N and O Preferred Stock has been reduced to $2.10 per share pursuant to the terms of this Agreement.

(6) Voting and Support. At all times throughout the four-month period commencing on the date of the first signature appearing on the signature pages hereto (the “Term”), each Holder does hereby irrevocably agree to consent or vote (or cause to be voted) all of the Shares

beneficially owned by such Holder at every annual, special or adjourned meeting of the stockholders (including any written consent in lieu of a meeting) of the Company: (i) in favor of the adoption of each of the Proposals substantially as set forth on Exhibit B attached hereto, (ii) against any proposal relating to any action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Stock Purchase Agreement or the Note and Warrant Purchase Agreements or which would result in any of the conditions to the Company’s obligations under the Stock Purchase Agreement or the Note and Warrant Purchase Agreements not being fulfilled, (iii) in favor of any other matter relating to the consummation of the transactions contemplated by the Stock Purchase Agreement and the Note and Warrant Purchase Agreements, and (iv) except as specifically requested in writing by the Company in advance, against any other action which is intended or would reasonably be expected to impede, interfere with, delay, postpone, discourage or materially adversely affect the transactions contemplated by the Stock Purchase Agreement and the Note and Warrant Purchase Agreements or the contemplated economic benefits of any of the foregoing. During the Term, the Holders will not enter into any agreement or understanding with any Person to vote in any manner inconsistent with this Section (5).

(7) IRREVOCABLE PROXY. EACH HOLDER DOES HEREBY GRANT TO, AND APPOINT VINCENT WASIK AND EDWARD STONE, AND EACH OF THEM INDIVIDUALLY, IN THEIR RESPECTIVE CAPACITIES AS OFFICERS OR REPRESENTATIVES OF THE COMPANY, AND ANY INDIVIDUAL WHO SHALL HEREAFTER SUCCEED TO ANY OFFICE OF THE COMPANY HELD THEREBY, AS ITS IRREVOCABLE PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE ITS SHARES OR PROVIDE ANY CONSENT AS PROVIDED IN SECTION (5) ABOVE AND WITH RESPECT TO ANY OTHER VOTE OR CONSENT SET FORTH IN SECTIONS (1) THROUGH (4) ABOVE (TO THE EXTENT NOT ALREADY GIVEN AND EFFECTIVE) AND ANY OF THE TERMS, CONDITIONS AND OTHER PROVISIONS CONTAINED IN THIS AGREEMENT DURING THE TERM. EACH HOLDER INTENDS THIS PROXY TO BE IRREVOCABLE AND COUPLED WITH AN INTEREST AND WILL TAKE SUCH FURTHER ACTION AND EXECUTE AND DELIVER SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS IRREVOCABLE PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY SUCH HOLDER WITH RESPECT TO THE SHARES. NOTWITHSTANDING THE FOREGOING, THIS IRREVOCABLE PROXY WILL BE AUTOMATICALLY REVOKED WITHOUT ANY FURTHER ACTION ON THE PART OF THE HOLDERS OR THE COMPANY AT THE END OF THE TERM.

(8) Conduct of Holders. None of the Holders will: (i) take, agree or commit to take any action that would make any representation and warranty of the Holders hereunder inaccurate in any respect at any time during the Term, or (ii) omit, or agree or commit to omit, to take any action necessary to prevent any representation or warranty from being inaccurate in any respect at any time during the Term, in each case except to the extent required by applicable law.

(9) Further Assurances. During the Term, the Holders will take such further actions and execute such further documents and instruments as may reasonably be requested by the Company to further and facilitate the purposes of this Agreement.

(10) Representations and Warranties. Each Holder represents and warrants, severally and not jointly, to the Company as follows:

(a) Access to Information. Such Holder has been provided with any and all documents describing the proposed transactions contemplated by this Agreement requested by such Holder, and has been provided access to officers of the Company and other members of its management to obtain any other information deemed relevant to the Holder’s decision whether or not to enter into this Agreement.

(b) Valid Title, etc. With respect to the Existing Preferred and Common Stock such Holder beneficially owns (as defined in Rule 13d-3 of the Securities and Exchange Act of 1934 (each a “Share” and collectively, the “Shares”) there are no restrictions on the rights of disposition pertaining thereto, except for any restrictions contemplated herein or arising under applicable securities laws, such Holder has exclusive power to vote, exclusive power of disposition and exclusive power to agree to all of the matters set forth in this Agreement, in each case with respect to all of such Holder’s Shares with no limitations, qualifications or restrictions on these rights. Each Holder represents that neither the Holder nor any of the Holder’s affiliates is party to or bound by any agreement with respect to the voting (by proxy or otherwise), sale or other disposition of the Shares (other than this Agreement).

(c) Non-Contravention. The execution and delivery of this Agreement by such Holder and the performance by such Holder of such Holder’s obligations under this Agreement: (i) are within such Holder’s powers, have been duly authorized by all necessary action (including any consultation, approval or other action by or with any other person), (ii) require no action by or in respect of, or filing with, any governmental body, agency, official or authority, and (iii) do not and will not contravene or constitute a default under, or give rise to a right of termination, cancellation or acceleration of any right or obligation of such Holder or to a loss of any material benefit of such Holder under, any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree, or other instrument binding on him or result in the imposition of any lien on any asset of such Holder other than any conflicts, breaches, violations, defaults, obligations, rights or losses that individually or in the aggregate would not: (x) impair the ability of such Holder to perform the Holder’s obligations under this Agreement or (y) prevent or delay the consummation of any of the transactions contemplated hereby.

(11) Binding Effect; Indemnification. This Agreement has been duly executed and delivered by such Holder, and this Agreement is the valid and binding agreement of the Holder, enforceable against the Holder in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and to general principles of equity. Holder acknowledges and agrees that the provisions of this Agreement are enforceable against Holder, subject to the limitations referred to above, regardless of the effect of this Agreement on persons not a party hereto. Holder may not sell, transfer or otherwise dispose of, in any manner (“Transfer”) any shares of Existing Preferred without delivering to the Company the written consent of the transferee binding the transferee to the terms and conditions of this Agreement and Holder shall indemnify the Company from and against any costs, expenses, liabilities, losses or damages of any other kind or nature arising from any Transfer of Holder’s shares of Existing Preferred in contravention of this covenant.

(12) Notices. Any notices provided for in this Agreement shall be in writing and shall be either personally delivered, sent by reputable overnight courier service, faxed or mailed by first class mail, return receipt requested, to the recipient at the address below indicated:

if to the Company:

One Morningside Drive

Suite 200

Westport, CT 06880

Telecopy: (203) ###-###-####

Attention: Edward Stone

if to a Holder:

At the address for such Holder as set forth in the records of the Company.

or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered, sent or mailed.

(13) Miscellaneous.

(a) Each Holder acknowledges and agrees that this Agreement constitutes a binding agreement of such Holder and that the Company may be irreparably damaged if for any reason such Holder fails to perform any of its obligations hereunder, and that the Company would not have an adequate remedy at law for money damages in that event. Accordingly, the Company will be entitled to specific performance and injunctive and other equitable relief to enforce the performance of this Agreement by the Holders. This provision is without prejudice to any other rights that the Company may have against any Holder for any failure to perform its respective obligations under this Agreement.

(b) Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any action in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

(c) This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

(d) This Agreement, together with any Exhibit hereto, embodies the complete agreement and understanding among the parties concerning the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, with respect to the subject matter hereof.

(e) Governing Law; Jurisdiction; Waiver of Jury Trial. THE PROVISIONS OF THIS AGREEMENT AND THE DOCUMENTS DELIVERED PURSUANT HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (EXCLUDING ANY CONFLICT OF LAW RULE OR PRINCIPLE THAT WOULD REFER TO THE LAWS OF ANOTHER JURISDICTION). EACH PARTY HERETO IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE STATE OF DELAWARE OR ANY DELAWARE STATE COURT, IN ANY ACTION OR PROCEEDING THAT IS OTHERWISE PERMITTED UNDER THIS AGREEMENT OR ANY OTHER AGREEMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT, AND EACH PARTY HERETO HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MUST BE BROUGHT AND/OR DEFENDED IN SUCH COURT. EACH PARTY HERETO HEREBY CONSENTS TO SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY THE APPLICABLE LAW OF THE FORUM IN ANY ACTION BROUGHT UNDER OR ARISING OUT OF THIS AGREEMENT, AND EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT EFFECTIVELY, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT. EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING HEREUNDER.

(f) This Agreement shall be binding upon and inure solely to the benefit of: (i) each party hereto, (ii) the Series Q Purchasers, (iii) the Senior Note Investors, and (iv) all other proposed recipients of the Company’s securities identified herein, together with the respective successors, assigns and transferees of each of the above, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

(g) Confidentiality. Each Holder acknowledges that this Agreement and its terms, until otherwise disclosed by the Company are confidential information and that the Holder has received and will continue to receive additional confidential information regarding the Company. Accordingly, the Holders agree to use their reasonable efforts to prevent the unauthorized disclosure of any confidential information concerning the Company that has been or is disclosed to it or its agents in connection with the entry of the parties in to this Agreement and the transactions contemplated hereby. Notwithstanding the foregoing, any Holder may make confidential information available to the Holder’s counsel, accountants and financial advisors; provided, however, the disclosing Holder shall remain liable to the Company and all other parties hereto damaged by any unauthorized disclosure by the Holder’s representative.

(h) The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.

(i) All costs and expenses incurred in connection with this Agreement will be paid by the party incurring such cost or expense.

(j) No amendment, modification or waiver shall be binding or effective with respect to any provision hereof without the prior written consent of the holders of at least 62.5 percent of each series of Existing Preferred outstanding, voting as a separate class, and a majority of the outstanding Common Stock (including other classes or series of capital stock entitled to vote on any matter on which the holders of Common Stock are entitled to vote) at the time such action is taken.

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[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, the undersigned have executed this Voting, Consent, Amendment and Waiver Agreement as of the dates indicated below.


VELOCITY EXPRESS CORPORATION

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EXHIBIT A

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

VELOCITY EXPRESS CORPORATION

Velocity Express Corporation, a Delaware corporation (the “Corporation”), does hereby certify that:

FIRST: This Certificate of Amendment amends the provisions of the Corporation’s Certificate of Incorporation, as amended (the “Certificate of Incorporation”).

SECOND: The Amendment to the Corporation’s Certificate of Incorporation set forth below was duly adopted in accordance with the provisions of Section 242 and has been consented to in writing by stockholders of the Corporation in accordance with Section 228 of the General Corporation Law of the state of Delaware.

THIRD: Sections 2 and 3 of the Certificate of Designations, Rights and Preferences of Series M Convertible Preferred Stock set forth in the Certificate of Incorporation, as amended, are hereby amended by deleting Sections 2 and 3 in their entirety and replacing them with the following (changes from the current Certificate are marked):

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 Q Convertible 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 the date 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 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 of issuance, the Series M Preferred Dividends shall 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 second anniversary 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 M Preferred 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 (with respect 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.

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(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 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 M 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 the shares of Series M 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 than the Series Q Preferred and (ii) junior to the holders of the Series Q 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 with the 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 assets of 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 distributions according 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 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 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 following such a merger, consolidation or sale (each such transaction 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 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 or shares of Series M Preferred Stock for an amount equal to such holder’s Liquidation Preference.

FOURTH: The definition of the term “Excluded Stock” appearing in Section 1 of the Certificate of Designations, Rights and Preferences of Series M Convertible Preferred Stock set forth in the Certificate of Incorporation, as amended, is hereby amended by replacing the word “and” which precedes “(E)” with a comma “,” and inserting at the end of the sentence: “and (F) any issuance of shares of Series N, O, P or Q Convertible Preferred Stock, including without limitation any issuance in payment of dividends with respect to the same series of preferred stock.”

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FIFTH: Section 6 of the Certificate of Designations, Rights and Preferences of Series M Convertible Preferred Stock set forth in the Certificate of Incorporation, as amended, is hereby amended by striking the text appearing in subsection (e) and replacing it with “(not used)”.

SIXTH: The Certificate of Designations, Rights and Preferences of Series M Convertible Preferred Stock set forth in the Certificate of Incorporation, as amended, is further amended by inserting a Section 11 containing the following text:

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.

SEVENTH: Sections 2 and 3 of the Certificate of Designations, Rights and Preferences of Series N Convertible Preferred Stock set forth in the Certificate of Incorporation, as amended, are hereby amended by deleting Sections 2 and 3 in their entirety and replacing them with the following (changes from the current Certificate are marked):

2. Dividends.

(a) Each holder of Series N 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 (“Series M Preferred”), Series P Convertible Preferred Stock (“Series P Preferred”) and Series Q Convertible Preferred Stock (“Series Q Preferred”), 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 Preferred Stock, at the rate of six percent (6%) per annum of the Series N Stated Value (the “Series N Preferred Dividends”). The Series N 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. During the first two (2) years following the date of issuance, 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 (“PIK Shares”). 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 to pay 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 P Preferred 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 for payment to the holders of Series N Preferred Stock.

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(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, pay to 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 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 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 than the 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 amount per 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, the assets 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 holders of 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 Stock and 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 62.5 percent 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 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 following such a merger, consolidation or sale (each such transaction 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 Stock shall 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.

EIGHTH: The definition of the term “Excluded Stock” appearing in Section 1 of the Certificate of Designations, Rights and Preferences of Series N Convertible Preferred Stock set forth in the Certificate of Incorporation, as amended, is hereby amended by replacing the word “and” which precedes “(D)” with a comma “,” and inserting at the end of the sentence: “and (E) any issuance of shares of Series M, O, P or Q Convertible Preferred Stock, including without limitation any issuance in payment of dividends with respect to the same series of preferred stock.”

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NINTH: Section 6 of the Certificate of Designations, Rights and Preferences of Series N Convertible Preferred Stock set forth in the Certificate of Incorporation, as amended, is hereby amended by striking the text appearing in subsection (e) and replacing it with “(not used)”.

TENTH: The Certificate of Designations, Rights and Preferences of Series N Convertible Preferred Stock set forth in the Certificate of Incorporation, as amended, is further amended by inserting a Section 11 containing the following text:

ELEVENTH: Sections 2 and 3 of the Certificate of Designations, Rights and Preferences of Series O Convertible Preferred Stock set forth in the Certificate of Incorporation, as amended, are hereby amended by deleting Sections 2 and 3 in their entirety and replacing them with the following (changes from the current Certificate are marked):

2. Dividends.

(a) Each holder of Series O 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 (“Series M Preferred”), Series N Convertible Preferred Stock (“Series N Preferred”), Series P Convertible Preferred Stock (“Series P Preferred”) 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 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. During the 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 Preferred Dividend 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 legally available 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, Series N 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 declared and set apart for payment to the holders of Series O Preferred Stock.

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(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 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 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 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 any accrued 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 the Series 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 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 O Preferred Stock and the holders of such class or series of capital 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 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 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 following such a merger, consolidation or sale (each such transaction 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 O 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 or shares of Series O Preferred Stock for an amount equal to such holder’s Liquidation Preference.

TWELFTH: The definition of the term “Excluded Stock” appearing in Section 1 of the Certificate of Designations, Rights and Preferences of Series O Convertible Preferred Stock set forth in the Certificate of Incorporation, as amended, is hereby amended by replacing the word “and” which precedes “(D)” with a comma “,” and inserting at the end of the sentence: “and (E) any issuance of shares of Series M, N, P or Q Convertible Preferred Stock, including without limitation any issuance in payment of dividends with respect to the same series of preferred stock.”

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THIRTEENTH: Sections 2 and 3 of the Certificate of Designations, Rights and Preferences of Series P Convertible Preferred Stock set forth in the Certificate of Incorporation, as amended, is hereby amended by deleting Sections 2 and 3 in their entirety and replacing them with the following (changes from the current Certificate are marked):

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 M Preferred”) 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 Preferred Stock, 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, that from and after the Company’s issuance of not less than 36,000,000 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 each Holder 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 the Series 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 the Holders 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 other class 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 been payable 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 the shares 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

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of at least 62.5% of the then outstanding Series P Preferred. 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 P Preferred Stock and any class or Series P capital stock ranking on a parity with the Series P Preferred Stock as to such distributions shall 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, 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 such class 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.

FOURTEENTH: The definition of the term “Excluded Stock” appearing in Section 1 of the Certificate of Designations, Rights and Preferences of Series P Convertible Preferred Stock set forth in the Certificate of Incorporation, as amended, is hereby amended by replacing the word “and” which precedes “(C)” with a comma “,” and inserting at the end of the sentence: “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.”

FIFTEENTH: The defined term “Event of Default” and the definition of such term appearing thereafter in Section 1 of the Certificate of Designations, Rights and Preferences of Series P Convertible Preferred Stock, together with Section 4(c) thereof are hereby stricken in their entirety.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its officer thereunto duly authorized this day of June, 2006.


By:
Name:
Title:

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EXHIBIT B

PROPOSALS

(1) To approve the designation of the preferences and rights of the Series Q Convertible Preferred Stock, and the issuance of up to 50,000,000 shares of the Company’s Series Q Convertible Preferred Stock, par value $.004 per share, convertible into an equal number of shares of Common Stock, subject to adjustment, together with the potential future issuance of additional shares of Series Q Preferred Stock in payment of dividends, which shares shall also be convertible into shares of Common Stock.

(2) To approve the issuance of four-year warrants to purchase up to 26,000,000 shares of Common Stock, subject to adjustment, at an exercise price of $1.45 per share, subject to adjustment, in connection with the Company’s issuance of its senior secured notes.

(3) To approve the issuance of issuance of shares of Common Stock, or securities convertible into or exercisable for Common Stock or a combination thereof with an aggregate fair value of approximately $3,200,000, in connection with the acquisition of the capital stock and securities convertible into the capital stock of another company.

(4) To approve the issuance of four-year warrants to purchase up to 250,000 and 547,500 shares, respectively, of Common Stock, subject to adjustment, at an exercise price of $.01 per share in consideration for merger and acquisition services and credit enhancements in the form of loan guarantees.

(5) To approve the issuance of four-year warrants to purchase up to 400,000 shares of Common Stock, subject to adjustment, at an exercise price of $1.50 per share in satisfaction of investment banking fees.

(6) To approve the issuance of up to 500,000 shares of Common Stock in consideration for consulting services.

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