Velocity Express, management group ink recapitalization agreement

By Caroline Salls

Pittsburgh, Aug. 4 - Velocity Express Corp. has entered into a recapitalization agreement with the management buyout group that has agreed to buy Velocity's $102 million of senior secured notes, according to an 8-K filed with the Securities and Exchange Commission.

Velocity said it was required under the notes indenture to launch a process to attempt to sell substantially all of its assets or the senior secured notes.

On June 23, the company entered into a letter of intent with a management buyout group led by Velocity chief executive officer Vincent A. Wasik and his private equity firm, MCG Global, LLC.

The company and the management group entered into the recapitalization agreement on July 31. Under that agreement, MCG Acquisition LLC, an entity to be formed by the management group, must secure financing and enter into agreements with the noteholders and holders of related warrants to purchase the notes.

The cash purchase price will be $10 million if all of the notes are bought.

In addition, if the recapitalization transactions close, the purchase price will include 10% of Velocity's common stock.

After the proposed recapitalization, 68.5% of Velocity's common stock would be held by the management group and its financing source; 10% of the stock would be held by the current noteholders; 19.9% of the common stock would be held by holders of the company's outstanding preferred stock; and 1.6% would be retained by existing stockholders and some options or warrantholders.

According to the 8-K, the management group has entered into purchase agreements with holders of a substantial majority of the notes, and it has consents from a majority of the preferred stockholders to proceed with the recapitalization.

However, until the management group has actually closed on its financing and completed purchases of at least two-thirds of the outstanding notes, Velocity can terminate the recapitalization agreement if it receives a superior proposal.

If Velocity does choose an alternative transaction, it would pay a $750,000 break-up fee to the management group and reimburse up to $150,000 of its expenses.

Velocity Express is a regional delivery services provider based in Westport, Conn.

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