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U.S. SECURITIES AND EXCHANGE
COMMISSION


WASHINGTON DC 20549





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FORM 10-K/A-1





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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended June 29, 2002





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Commission File
No. 0-28452





VELOCITY EXPRESS CORPORATION


(Exact name of registrant as specified in its charter)





Delaware

87-0355929(State or other jurisdiction of incorporation)

(IRS Employer Identification No.)





7803 Glenroy Road, Suite 200, Minneapolis, Minnesota

55439(Address of Principal Executive Offices)

(Zip Code)





(612) 492-2400


(Registrants telephone number, including area code)





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Securities registered pursuant to Section 12(b) of the Exchange Act:    None





Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, par value $0.004 per share.





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.





Yes x   No  ̈





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ̈





State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by
reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days: $8,917,666 as of September 18, 2002.





As of September 18, 2002, there were 4,162,120 shares of Common Stock of the registrant issued and outstanding.





DOCUMENTS INCORPORATED BY REFERENCE





None





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TABLE OF CONTENTSPART III
.

1ITEM 10.        Directors and Executive Officers of the Registrant

1ITEM 11.        Executive Compensation

4ITEM 12.        Security Ownership of Certain Beneficial Owners and Management

11ITEM 13.        Certain Relationships and Related Transactions

21SIGNATURES

23CERTIFICATIONS

24EXHIBIT INDEX

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PART III.





ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT





The
directors and executive officers of the Company are as follows:





Name

Age

PositionVincent A. Wasik

57

ChairmanJeffry J. Parell

47

Chief Executive Officer and DirectorTimothy G. Becker

42

DirectorJames Brown

38

DirectorDouglas Hsieh

32

DirectorAlex Paluch

46

DirectorWilliam S. Cohen

61

DirectorJack F. Kemp

67

DirectorRichard A. Kassar

55

DirectorMark E. Ties

37

Chief Financial Officer and TreasurerWesley C. Fredenburg

50

General Counsel and SecretaryD. Brad Frederiksen

49

Chief Information OfficerVictor A. Serri

47

Senior Vice PresidentOperations of Velocity ExpressSarah V. Kerrigan

40

Senior Vice President of Human Resources of Velocity ExpressDrew Kronick

39

Senior Vice President, National Accounts & Logistics Services





Vincent A. Wasik.    Mr. Wasik was
appointed as the Companys Chairman of the Board in August 2001. In 1995, Mr. Wasik co-founded MCG Global, a private equity firm sponsoring leveraged buyout acquisitions and growth capital investments and has served as Principal of MCG Global
since that time. From 1988 to 1991, Mr. Wasik served as Chairman and CEO of National Car Rental System, Inc. From 1980 to 1983, he served as President and CEO of Holland America Line. Mr. Wasik currently serves as an advisory board member of
Mitchells/Richards, the largest upscale clothing retailer in Connecticut.





Jeffry J.
Parell.    Mr. Parell was named President and Chief Executive Officer of Velocity Express in October 2000. In January 2001, he was named CEO of the Company. Prior to joining the Company, from August 1998 to December 1999, Mr.
Parell served as President of the North American Rental Division, AutoNation, Inc. From August 1997 to August 1998, he served as President of National Car Rental. From 1995 until August 1997, Mr. Parell served as Senior Vice President of National
Car Rental.





Timothy G. Becker.    Mr. Becker is a director of the Company and a
principal of Lighthouse Management Group, LLC, and until January 2001, was the Companys Executive Vice President Mergers and Acquisitions. From June 1998 to November 2000, Mr. Becker was the Companys Chief Financial Officer and
Treasurer. From March 1998 to May 1998, Mr. Becker rendered consulting services to the Company in connection with its strategic restructuring. Between February 1994 and March 1998, Mr. Becker worked as an independent financial workout consultant for
his own firm, the Becker Group, Ltd., and during this time Mr. Becker served as Chief Financial Officer of Primo Piatto, Inc. Mr. Becker has over 16 years of experience with a variety of companies during periods of financial crisis and rapid change
along with positioning companies and their balance sheets for sale, merger or acquisitions. Mr. Becker is a Certified Public Accountant and is a past board member of the Minnesota Chapter of Turnaround Management Association. Mr. Becker is currently
a member of the board of directors of Pink Business Interiors, Inc.





James G.
Brown.    Mr. Brown was elected to the Companys Board in July 2000. Mr. Brown is a founder and Managing Director of TH Lee Putnam Ventures, L.P., a $1 billion private equity fund focused exclusively on




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Internet and eCommerce companies. Previously, from 1995 to 1999, he served as a Senior Vice President and Industry Leader of GE Equity where he was responsible for strategic and financial
investments in eCommerce/Internet, consumer services and media/entertainment companies. Prior to joining GE Equity, Mr. Brown worked with Lehman Brothers as a Vice President from 1994 to 1995. Before that, he served at Bain & Co., an
international consulting firm, from 1992 to 1994. He began his career in the media industry, serving two years with A.C. Nielsen in research and two years with CBS Television Network in marketing. In addition to the Company, Mr. Brown is a director
of HomePoint Corp., FaceTime Communications, Inc., Prescient Markets, RealPulse.com, Inc. and LN Holdings, Inc.





Douglas Hsieh.    Mr. Hsieh was appointed to the Companys Board in January 2001. Mr. Hsieh has been a Principal at TH Lee Putnam Ventures since June 1999. From January 1998 until May 1999, Mr. Hsieh
was at GE Equity, focusing on Internet and media-related investments. From 1994 until December 1997, Mr. Hsieh was employed at Lehman Brothers as Assistant Vice President of Strategic Planning. Before that, he was a Financial Analyst with Dillon
Read, Inc.





Alex Paluch.    Mr. Paluch was appointed to the Board of Directors in
August 2001. Mr. Paluch is a General Partner at East River Ventures Partnership, an investment firm, focused in part on emerging technology-driven companies. Mr. Paluch currently serves on the board of directors of Equity Enterprises, Inc.





William S. Cohen.    Secretary Cohen was appointed to the Board of Directors in
November 2001. Secretary Cohen currently serves as Chairman and Chief Executive Officer of The Cohen Group, an international strategic consulting firm. Prior to that, from January 1997 until January 2001, Secretary Cohen served as U.S. Secretary of
Defense. From 1979 until January 1997, Secretary Cohen served as the U.S. Senator for the State of Maine. From 1973 until 1979, Secretary Cohen served as a member of the House of Representatives from Maines Second Congressional District.
Secretary Cohen also serves as a Director of Cendant Corporation, Nasdaq, IDT Corporation and Head NV, which file reports pursuant to the Exchange Act.





Jack F. Kemp.    Mr. Kemp has served as a director since November 2001. Mr. Kemp has been Co-Director of Empower America from 1993 to the present. Mr. Kemp served as a member
of Congress for 18 years and as Secretary of Housing and Urban Development from February 1989 until January 1993. In 1996, Mr. Kemp was the Republican candidate for Vice President of the United States. Mr. Kemp also serves as a director of Oracle
Corporation, Hawk Corp., and Knowledgemax Inc.





Richard A. Kassar.    Mr. Kassar has
been employed as Senior Vice President and Chief Financial Officer of The Meow Mix Company since February 2002. From May 2001 to January 2002, he was self-employed as a consultant to venture capital firms, advising them primarily on the acquisition
of consumer brands. From December 1999 to May 2001, Mr. Kassar was employed as Co-President and Chief Financial Officer of Global Household Brands. From 1986 to December 1999, he was employed by Chock Full ONuts in various positions, and most
recently served as Senior Vice President and Chief Operating Officer.





Mark E.
Ties.    Mr. Ties currently serves as the Companys Chief Financial Officer and Treasurer. Mr. Ties joined the Company in April 2000 as its Vice President of Finance and served in that capacity until his
appointment to CFO in January 2001. Mr. Ties has more than 13 years of financial experience, eight years of which have been at the executive level in a number of companies in varied industries. Since 1998 and prior to joining the Company, Mr. Ties
was a Manager and Senior Manager for Ernst & Young LLP in its entrepreneurial services and mergers and acquisitions departments. From 1994 to 1998 Mr. Ties was the Chief Financial Officer of Progressive Beauty Enterprises, Inc., a regional
distribution company. Prior to 1994 Mr. Ties was the corporate controller of MEI Salons, Inc. and prior to that he was a senior auditor for Coopers & Lybrand LLP. Mr. Ties is a Certified Public Accountant.





Wesley C. Fredenburg.    Mr. Fredenburg was appointed to General Counsel and Secretary in December 2000.
Prior to joining the Company from February of 1997 until August 2000, Mr. Fredenburg served as General Counsel for the Automotive Rental Group of AutoNation, Inc. From December 1995 until February 1997,




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Mr. Fredenburg served as the General Counsel of National Car Rental Systems, Inc. Prior to that, he was a partner in the law firm of Crowe and Dunlevy.





Brad Frederiksen.    Mr. Frederiksen joined Velocity Express in December 2000 as its Chief Information
Officer. In July 2001, he was appointed Chief Information Officer of the Company. Prior to joining the company, Mr. Frederiksen served as Vice President, Information Technology at MedSource Technologies, Inc. Prior to MedSource, Mr. Frederiksen
served for three years as CIO and Senior Vice President of Technology for AutoNation Inc. From 1980 until 1997, Mr. Frederiksen held various positions with Pillsbury, advancing to Senior Director, MIS-Supply Chain where he provided MIS support to
three of the companys major business lines. Subsequent to the fiscal year end, effective August 1, 2002, Mr. Frederiksen was no longer employed by the Company.





Vic Serri.    Mr. Serri joined Velocity Express in November 1998 as its Senior Vice President of Operations. Prior to that, from 1997 to 1998,
Mr. Serri served as Senior Vice President with Cemex, a multinational construction materials company. Prior to that from 1995 to 1997, Mr. Serri was General Manger with Tarmac, a multinational construction materials company.





Sarah Kerrigan.    Ms. Kerrigan joined Velocity Express in April 1998 as its Assistant General
Counsel. In December 2000, she was named Senior Vice President of Human Resources of Velocity Express. Prior to that, from 1992 to 1998, Ms. Kerrigan worked as an Associate Attorney for the law firm of Gardere Wynne Sewell & Riggs, L.L.P.
Subsequent to the fiscal year end, effective September 27, 2002, Ms. Kerrigan was no longer employed by the Company.





Drew Kronick.    Mr. Kronick joined Velocity Express in December 2001 as its Senior Vice President of National Accounts and Logistics Services. Most recently, from December 1999 to October 2001, Mr. Kronick
served as President of Veredex Logistics and was co-founder of deliverEnow.com, both technology and same-day logistics solutions companies. Prior to that, from November 1995 to December 1999, he served as Corporate Vice President of Sales and
Marketing of Consolidated Delivery & Logistics, a national provider of time-critical delivery and logistics solutions, a company of which he was a founding member.





There is no family relationship between directors or executive officers of the Company.





Section 16(a) Beneficial Ownership Reporting Compliance





Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Companys directors and officers and the holders of 10% or more of the Companys stock to file with the Securities and Exchange Commission
initial reports of changes in ownership of equity securities of the Company. Based on the Companys review of copies of such reports received by it, or written representations from reporting persons, the Company believes that during fiscal
2002, its directors, executive officers and holders of 10% or more of the Companys stock filed all reports on a timely basis except as follows: Initial Statements of Beneficial Ownership were not timely filed for Messrs. Cohen and Kronick and
for East River Ventures II, LP. Mr. Parell did not timely file one Form 5 related to two stock option grants received in fiscal 2001. Mr. Ties did not timely file one Form 5 related to two stock option grants received in fiscal 2001. Mr. Ties filed
one Form 4 late reporting four purchases of common stock that were executed on the same day. Mr. Kronick filed one Form 4 late reporting one purchase of preferred stock and one purchase of a common warrant. Mr. Wasik was late filing four Form 4s
covering eleven purchases of common stock, one purchase of preferred stock and one purchase of a common warrant. Mr. Brown did not timely file one Form 5 related to one stock option grant received in fiscal 2001. Mr. Brown did not timely file
three Form 4s related to four purchases of preferred stock and two purchases of preferred warrants by TH Lee Putnam Ventures. Mr. Hsieh did not timely file one Form 5 related to one stock option grant received in fiscal 2001. Mr. Hsieh did not
timely file one Form 4 related to one purchase of preferred stock by TH Lee Putnam Ventures. Mr. Paluch did not timely file two Form 4s related to two purchases of preferred stock and two purchases of common warrants directly, two purchases of
preferred stock and two purchases of common warrants by East River Ventures, II LP, and one purchase of preferred stock and one purchase of common warrants by ERV Partners, LLC. Mr. Becker did not file two Form 5s related to three stock option
grants received in fiscal 2000 and fiscal 2001. East River Ventures II LP did not timely file one Form 4 related to one purchase of preferred stock and one purchase of common warrants.




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The Company believes the following holders of 10% or more of the Companys
stock have not filed Form 4s with respect to the following purchases: HomePoint Corporation with respect to one purchase of preferred stock, TenX Venture Partners, LLC with respect to one purchase of preferred stock and one purchase of a common
warrant, and TH Lee Putnam Ventures and affiliated entities (TH Lee Putnam Ventures, LP, TH Lee Putnam Parallel Ventures, L.P., THLi Co Investment Partners, LLC and Blue Star I, LLC) with respect to five purchases of preferred stock, three purchases
of preferred warrants, and one purchase of common warrants.





ITEM 11.    EXECUTIVE COMPENSATION





The following table sets forth,
for the fiscal years ended June 29, 2002, June 30, 2001 and July 1, 2000, the aggregate compensation paid or accrued with respect to the Companys Chief Executive Officer and up to the four most highly compensated executive officers other than
the Chief Executive Officer who were serving as executive officers as of June 29, 2002 (the Named Executive Officers), based upon salary and bonus earned by such executive officers and individuals in fiscal 2002.





SUMMARY COMPENSATION TABLE


ANNUAL COMPENSATION





Annual Compensation


Long-Term Compensation AwardsName and Principal Position

Year

Salary

Bonus

Other Annual Compensation


Securities Underlying Options(2)Jeffry J. Parell

2002

$
334,556

$


$
6,828
(1)

140,000Chief Executive Officer

2001


231,228





2,518
(1)

60,0002000











D. Brad Frederiksen

2002


221,397





75,500
(3)

10,000Chief Information Officer

2001


122,506








25,0002000











Victor A. Serri

2002


236,283








46,052Senior Vice President of

2001


230,520








7,000Operations of Velocity Express

2000


160,000








3,949Wesley C. Fredenburg

2002


221,397





8,000
(4)

50,000General Counsel

2001


126,689








20,000and Secretary

2000











Mark E. Ties

2002


196,902








88,000Chief Financial Officer

2001


170,056








20,000and Treasurer

2000


23,702











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|(1) |  | For 2002, includes $6,209 for vehicle allowance and $619 for premiums on a term life insurance policy for Mr. Parell. In 2001, represents vehicle allowance
for Mr. Parell.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Represents stock options granted in the years shown with exercise prices equal to or not less than fair market value on the date of grant. No SARs were granted
in such years. In 2002, 5,000 options granted to Mr. Parell, 5,000 options granted to Mr. Serri, 5,000 options granted to Mr. Fredenburg, and 5,000 options granted to Mr. Ties were granted outside the Companys 1995 or 2000 Stock Option Plans.
In 2001, in connection with their offers of employment with the Company, 50,000 options granted to Mr. Parell, 25,000 options granted to Mr. Frederiksen, and 25,000 options granted to Mr. Fredenburg were granted outside the Companys 1995 or
2000 Stock Option Plans. For 2002, includes options granted with the cancellation of a similar number of options. Options reissued for Messrs. Serri and Ties were 12,052 and 8,000, respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Represents payments agreed to upon the Company hiring Mr. Frederiksen in December 2000 as set forth in his employment contract. Payments were made in July and
August 2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(4) |  | Represents a retention payment agreed to upon the Company hiring Mr. Fredenburg in December 2000 as set forth in his employment contract. The payment was made
in July 2001.
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The following table sets forth information with respect to stock options granted
to the Named Executive Officers in fiscal 2002:





OPTION GRANTS IN LAST FISCAL YEAR





Number of Securities Underlying Options Granted (#)

% of Total Options Granted to Employees in Fiscal Year


Exercise Price ($/Sh)

Expiration Date

Potential Realized Value
at Assumed Annual Rates of Stock Price
Appreciation for Option Term(9)Name





5%($)

10%($)Jeffry J. Parell(1)

140,000

19.0
%

$
6.250

10/29/2011

$
550,283

$
1,394,525D. Brad Frederiksen(2)

10,000

1.4
%


6.250

10/29/2011


39,306


99,609Victor A. Serri(3)

30,000

4.1
%


6.250

10/29/2011


117,918


298,827Victor A. Serri(4)

4,000

0.5
%


6.250

10/29/2011


15,722


39,844Victor A. Serri(5)

12,052

1.6
%


8.250

6/1/2010


47,473


113,706Wesley C. Fredenburg(6)

50,000

6.8
%


6.250

10/29/2011


196,530


498,045Mark E. Ties(7)

80,000

10.8
%


6.250

10/29/2011


314,447


796,871Mark E. Ties(8)

8,000

1.1
%


8.250

6/1/2010


31,512


75,477


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|(1) |  | In October 2001, Mr. Parell was granted an option to purchase 140,000 shares of Common Stock, 5,000 of which were granted outside the Companys 1995 or
2000 Stock Option Plans. The option vests ratably over two years on each six-month anniversary of the date of grant. These options contain a repricing feature that becomes effective in the event of a change of control of the Company or a successful
placement of debt or equity during the vesting period of the option. If one of the conditions for repricing as listed in the option agreement is met, the options will be repriced to $2.00 per share. Further, in the event of a change of control, the
option shall become immediately vested and fully exercisable.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | In October 2001, Mr. Frederiksen was granted an option to purchase 10,000 shares of Common Stock. The option vests ratably over three years, commencing on the
first anniversary of the date of grant.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | In October 2001, Mr. Serri was granted an option to purchase 30,000 shares of Common Stock, 5,000 of which were granted outside the Companys 1995 or 2000
Stock Option Plans. The option vests ratably over two years on each six-month anniversary of the date of grant. These options contain a repricing feature that becomes effective in the event of a change of control of the Company or a successful
placement of debt or equity during the vesting period of the option. If one of the conditions for repricing as listed in the option agreement is met, the options will be repriced to $2.00 per share. Further, in the event of a change of control, the
option shall become immediately vested and fully exercisable.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(4) |  | In October 2001, Mr. Serri was granted an option to purchase 4,000 shares of Common Stock. The option vests ratably over three years, commencing on the first
anniversary of the date of grant.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(5) |  | In January 2002, Mr. Serri was granted an option to purchase 12,052 shares of Common Stock. The option was granted six months and one day after the cancellation
of a similar number of options. The option vested fully six months from the grant date.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(6) |  | In October 2001, Mr. Fredenburg was granted an option to purchase 50,000 shares of Common Stock, 5,000 of which were granted outside the Companys 1995 or
2000 Stock Option Plans. The option vests ratably over two years on each six-month anniversary of the date of grant. These options contain a repricing feature that becomes effective in the event of a change of control of the Company or a successful
placement of debt or equity during the vesting period of the option. If one of the conditions for repricing as listed in the option agreement is met, the options will be repriced to $2.00 per share. Further, in the event of a change of control, the
option shall become immediately vested and fully exercisable.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(7) |  | In October 2001, Mr. Ties was granted an option to purchase 80,000 shares of Common Stock, 5,000 of which were granted outside the Companys 1995 or 2000
Stock Option Plans. The option vests ratably over two years on each six-month anniversary of the date of grant. These options contain a repricing feature that becomes effective in the event of a change of control of the Company or a successful
placement of debt or equity during the vesting period of the option. If one of the conditions for repricing as listed in the option agreement is met, the options will be repriced to $2.00 per share. Further, in the event of a change of control, the
option shall become immediately vested and fully exercisable.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(8) |  | In January 2002, Mr. Ties was granted an option to purchase 8,000 shares of Common Stock. The option was granted six months and one day after the cancellation
of a similar number of options. The option vested fully six months from the grant date.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(9) |  | Potential realizable value is based on the assumption that the price of the common stock appreciates at the rates shown, compounded annually, from the date of
grant until the end of the option term. The values are calculated in accordance with rules promulgated by the Securities and Exchange Commission and do not reflect the Companys estimate of future stock price appreciation.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The following table sets forth certain information regarding options to purchase shares of the
Companys common stock that were held by the Named Executive Officers in fiscal 2002. No such options were exercised during fiscal 2002.





AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR


AND FISCAL YEAR-END OPTION VALUES





Number of Shares Underlying Unexercised Options at June 29, 2002

Value of Unexercised In-the-Money Options at June 29, 2002Name

Exercisable

Unexercisable

Exercisable

UnexercisableJeffry J. Parell

61,666

138,334

$


$
Brad Frederiksen

8,333

26,667





Victor A. Serri

27,501

29,500


1,725


Wesley C. Fredenburg

19,166

50,834





Mark E. Ties

33,000

75,000











COMPENSATION OF DIRECTORS





Cash Compensation.    The Company has not paid any cash compensation to a director in his or her capacity as a
director and has no present plan to pay directors fees.





Stock Options and Restricted
Stock.    In February 1996, the Company adopted its 1996 Director Stock Option Plan. Until February 2002, each outside director was granted an option to purchase 3,000 shares of Common Stock for each year of service as a
director. The term of each option granted under the plan is five years and the exercise price per share for stock granted under the plan is 100% of the fair market value per share on the date on which the respective option is granted.





Effective February 2002 on an annual basis, each director is granted 4,000 options, and the Chairman of the Board is granted an
additional 2,000 options. Audit and Executive Committee members are granted 2,000 options, Compensation Committee members are granted 1,000 options, and Executive IT Committee members are granted 1,500 options. The chairperson of each committee
receives an additional 1,000 options. The term of each option granted under the plan is five years and the exercise price per share for stock granted under the plan is 100% of the fair market value per share on the date on which the respective
option is granted.




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Effective September 2002, directors and committee members will be granted, on an
annual basis, shares of restricted stock as compensation for board and committee service. The shares will vest one year from the date of grant of the restricted stock. Directors will be awarded 4,000 shares, and the Chairman of the Board will be
granted an additional 2,000 shares. Audit and Executive Committee members will be granted 2,000 shares, Compensation Committee members will be granted 1,000 shares, and Executive IT Committee members will be granted 1,500 shares. The chairperson of
each committee will receive an additional 1,000 shares.





In November 2001 upon their appointment to the Board of
Directors, Messrs. Cohen and Kemp were each granted 75,000 options from the 2000 Plan. The options were granted at an exercise price of $6.00 per share and vest in equal installments over two years, with the first vesting occurring on the date of
grant, and the remaining two vestings occurring on the one-year anniversary of the grant. The term of the options is ten years.





EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND


CHANGE IN CONTROL AGREEMENTS





The Company has employment contracts and severance agreements in effect with Jeffry J. Parell, its Chief Executive Officer, D. Brad
Frederiksen, its Chief Information Officer, Victor A. Serri, its Senior Vice President of Operations, Wesley C. Fredenburg, its General Counsel and Secretary and Mark E. Ties, its Chief Financial Officer and Treasurer.





The Company and Mr. Parell are parties to an employment agreement dated October 16, 2000, governing his employment with the Company. The
agreement sets forth Mr. Parells compensation level and eligibility for salary increases, bonuses, benefits and option grants under stock option plans. Pursuant to the agreement, Mr. Parells employment is voluntary and may be terminated
by the Company with two months prior written notice, and by Mr. Parell with four months written notice. If the Company terminates Mr. Parells employment without cause or upon the happening of other events set forth in his employment agreement,
Mr. Parell shall receive an amount equal to his base salary per month at the end of each of the eighteen months following the date of his termination. The Company may immediately terminate Mr. Parells employment for cause upon written notice
without any further obligation to Mr. Parell. The term of the employment agreement is for two years, at which time, the agreement will automatically renew for a six-month term, unless either Executive or Company provides the other with written
notice of intention not to renew at least ninety days prior to the expiration of the initial term, and at least sixty days prior to the expiration of any extension term.





The Company and Mr. Frederiksen were parties to an employment agreement dated December 4, 2000 governing his employment with the Company. The agreement set forth Mr.
Frederiksens compensation level and eligibility for salary increases, bonuses, benefits and option grants under stock option plans. If the Company were to terminate Mr. Frederiksens employment without cause or upon the happening of other
events set forth in his employment agreement, Mr. Frederiksen shall receive an amount equal to his base salary per month at the end of each of the twelve months following the date of his termination. Effective August 1, 2002, Mr. Frederiksens
employment with the Company terminated. He is eligible for severance as a result of the separation, and will receive such payments until the earlier of February 1, 2003 or upon obtaining other employment.





The Company and Mr. Serri are parties to an employment agreement dated October 19, 1998 governing his employment with the Company. The
agreement sets forth Mr. Serris compensation level and eligibility for salary increases, bonuses, benefits and option grants under stock option plans. Pursuant to the agreement, Mr. Serris employment is voluntary and may be terminated by
the Company or Mr. Serri with or without written notice. If the Company terminates Mr. Serris employment without cause or upon the happening of other events set forth in his employment agreement, Mr. Serri shall receive an amount equal to his
base salary per month at the end of each of the twelve months following the date of his termination. The Company may immediately terminate Mr. Serris employment for cause upon written notice without any further obligation to Mr. Serri.




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The Company and Mr. Fredenburg are parties to an employment agreement dated
December 4, 2000, governing his employment with the Company. The agreement sets forth Mr. Fredenburgs compensation level and eligibility for salary increases, bonuses, benefits and option grants under stock option plans. Pursuant to the
agreement, Mr. Fredenburgs employment is voluntary and may be terminated by the Company with or without written notice, or by Mr. Fredenburg with two months prior notice. If the Company terminates Mr. Fredenburgs employment without cause
or upon the happening of other events set forth in his employment agreement, Mr. Fredenburg shall receive an amount equal to his base salary per month at the end of each of the twelve months following the date of his termination. The Company may
immediately terminate Mr. Fredenburgs employment for cause upon written notice without any further obligation to Mr. Fredenburg.





The Company and Mr. Ties are parties to an employment agreement dated June 2001, governing his employment with the Company. The agreement sets forth Mr. Ties compensation level and eligibility for salary increases,
bonuses, benefits and option grants under stock option plans. Pursuant to the agreement, Mr. Ties employment is voluntary and may be terminated by the Company with or without written notice, or by Mr. Ties with two months prior notice. If the
Company terminates Mr. Ties employment without cause or upon the happening of other events set forth in his employment agreement, Mr. Ties shall receive an amount equal to his base salary per month at the end of each of the twelve months
following the date of his termination. The Company may immediately terminate Mr. Ties employment for cause upon written notice without any further obligation to Mr. Ties.





REPORT ON REPRICING OF OPTIONS





This
table heading and the column heading below use the term repricing as required by the applicable regulation; however, the option treatment decribed below was a cancellation and regrant of options.





In 2001, the Compensation Committee approved the cancellation and regrant of all options outstanding under agreements originally entered
into in June of 2000. The original options were priced at the then current market price of $53.38 per share. All employees holding such options were given the option of surrendering these options in exchange for a similar number of options to be
granted six months and one day from the cancellation date, to be priced at the market price on the date of regrant. Three executive officers participated in the cancellation and regrant of options.





The following table sets forth information with respect to the cancellation and regrant of those options held by executive officers:





Name and Principal Position

Date


Number of Securities Underlying Options Repriced or Amended

Market Price of Stock at Time of Repricing or Amendment

Exercise Price at Time of Repricing or Amendment

New Exercise Price

Length of Original Option Term in
Years Remaining at Date of Repricing or AmendmentVictor A. Serri Senior Vice President of Operations of Velocity Express

1/31/02
(1)

12,052

$
3.50

$
53.38

$
8.25

8.3Mark E. Ties Chief Financial Officer and Treasurer

1/31/02
(1)

8,000

$
3.50

$
53.38

$
8.25

8.3Sarah V. Kerrigan(2) Senior Vice President of Human Resources of Velocity Express

1/31/02
(1)

3,013

$
3.50

$
53.38

$
8.25

8.3


---

|(1) |  | In July 2001, options that had been granted on June 2, 2000 at an exercise price of $53.38 per share to executive officers and employees were cancelled. The
options were reissued on January 31, 2002 at the current market price of $8.25 per share.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Effective September 27, 2002 Ms. Kerrigan was no longer employed by the Company.
|--- |  | --------------------------------------------------------------------------------



8




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##### Table of Contents

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION





During fiscal 2002, the Compensation Committee of the board consisted of James G. Brown, Vince Wasik and Alex Paluch. For a portion of the year and until his resignation
from the Board, Peter Kooman was a member of the Compensation Committee. None of these individuals were at any time during fiscal 2002 or at any other time, an officer or employee of the Company or any of its subsidiaries. No executive officer of
the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the board or the compensation committee of the Company. Through his position as Managing
Director of TH Lee Putnam Ventures, L.P., James G. Brown had relationships with the Company requiring disclosure under Item 404 of SEC Regulation S-K. See Certain Relationships and Related Party Transactions.





COMPENSATION COMMITTEE REPORT





The following is the report of the compensation committee of the board describing compensation policies and rationales applicable to the Companys executive officers with respect to the
compensation paid to such executive officers for the fiscal year ended June 29, 2002.





Compensation
Philosophy.    The philosophy of the Companys compensation committee regarding executive compensation is to link executive pay to corporate performance. A significant portion of executive compensation is tied to the
Companys success in meeting one or more specified performance goals and to appreciation in the Companys market valuation. The goals of the compensation program are to attract and retain highly talented executives and to motivate them to
high levels of performance, recognizing the different impact that various executives have on the achievement of corporate goals.





The key elements of the executive compensation are generally base salary, annual bonus (dependent on corporate and individual performance) and stock options. The compensation committee approves compensation and pay levels as well as
stock option grants to executive officers.





Base Salaries.    Base salaries for
executive officers are determined by evaluating the responsibilities of the position and the experience of the individual. Base salaries are reviewed annually, and are adjusted based upon performance contribution, management recommendation and
market conditions.





Bonus.    The Companys executive officers are eligible for an
annual cash bonus. Individual and corporate performance objectives are established at the beginning of each year, and eligible executives are assigned target bonus levels. In fiscal 2002, no executive officers received bonus payments.





Stock Options.    The purpose of the Companys stock option plans is to provide an additional
incentive to certain employees of the Company to work to maximize stockholder value. Option grants with short-term vesting are used to reward past performance while option grants with long-term vesting are awarded to encourage employees to take into
account the long-term interests of the Company, align employees and shareholders interests, as well as to create a valuable retention device for key employees. Stock options are typically granted at the time of hire, at the time of
promotion or at the time of achievement of a significant corporate objective.





Compensation of Chief Executive
Officer.    The compensation committee approved the compensation of Jeffry Parell in 2002. The cash component of Mr. Parells compensation did not change during fiscal 2002. The compensation committee determined
the Chief Executive Officers compensation after considering the same factors used to determine the compensation of other executive officers. In fiscal 2002, Mr. Parell received options to purchase 140,000 shares at exercise prices equal to the
fair market value on the dates of grant.





Summary.    It is the opinion of the
compensation committee that the executive compensation policies and programs in effect for the Companys executive officers provide an appropriate level of total remuneration that properly aligns the Companys performance and interests of
the Companys shareholders with competitive executive compensation in a balanced and reasonable manner.





COMPENSATION COMMITTEE





James G. Brown


Vincent Wasik


Alex Paluch




9




---

##### Table of Contents

Stock Performance Graph





In accordance with Exchange Act regulations, the following performance graph compares the cumulative total shareholder return on the companys common stock to the cumulative total return on the Nasdaq Stock Market and a
selected group of peer issuers over the same period. The peer issuers consist of Consolidated Delivery and Logistics, Inc. and Dynamex. The graph assumes that the value of the investment in the Companys common stock and each index was $100 in
1997 and that all dividends were reinvested. The information contained in the performance graphs shall not be deemed to be soliciting material or to be filed with the Securities and Exchange Commission, nor shall such
information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.





Comparison of 5 Year Cumulative Total Return


Assumes Initial Investment of $100


June 2002





LOGO





Year

Velocity Express Corporation

S&P SmallCap 600

Nasdaq

Peer Group1997

$100.00

$100.00

$100.00

$100.001998

66.67

119.46

131.62

157.341999

191.67

116.70

189.31

54.382000

533.34

133.49

279.93

32.992001

38.67

148.33

151.75

24.692002

40.67

148.74

102.81

26.52




10




---

##### Table of Contents

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





As of June 29, 2002, the Company had issued and outstanding 3,662,603 shares of Common Stock, 2,806,797 shares of Series B Preferred, 2,000,000 shares of Series C Preferred, 1,829,944 shares of Series D Preferred, 1,066,390 shares of
Series F Preferred and 5,865,331 shares of Series G Preferred. The following tables contain certain information known to the Company regarding beneficial ownership of its outstanding voting securities as of June 29, 2002, by (i) each person who is
known to the Company to own beneficially more than five percent of each class of the Companys voting securities, (ii) each of the Companys directors, (iii) each of the Companys executive officers, and (iv) all current executive
officers and directors as a group. Beneficial ownership listed in the tables below based on ownership of the Companys convertible preferred shares reflects Common Stock equivalents. Each share of Common Stock is entitled to one vote. As of
June 29, 2002, each share of Series B Preferred was convertible into approximately 1.326 shares of Common Stock, each share of Series C Preferred was convertible into approximately 0.893 shares of Common Stock, each share of Series D Preferred was
convertible into 2.434 shares of Common Stock, and each share of Series F Preferred was convertible into 4.814 shares of Common Stock. Holders of Outstanding Preferred are entitled to one vote for each share of Common Stock issuable upon conversion
of the Outstanding Preferred. All convertible preferred shares and a warrant issued to Bayview Capital Partners LP (the Bayview Warrant) are subject to adjustment to prevent dilution.





Pursuant to Stock Purchase Agreements entered into during April 2002, the Company issued 5,865,331 shares of Series G Convertible Preferred Stock (Series G
Preferred) for $0.75 per share. Subject to shareholder approval, holders of Series G Preferred may convert their shares into a number of shares of common 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. However, because the conversion of the Series G Preferred is subject to shareholder approval, pursuant to Rule 13d-3(d)(1)(i), holders of Series G Preferred would not be deemed to be beneficial
owners of the underlying common stock.





Unless otherwise noted and subject to applicable community property laws,
each person identified below has sole voting and investment power with respect to such shares and the address of each person identified below is Velocity Express Corporation, 7803 Glenroy Road, Suite 200, Bloomington, Minnesota 55439. To the
Companys knowledge, except as indicated in the footnotes to the tables below, the persons named in the tables below have sole voting and investment power with respect to all voting securities. Beneficial ownership is determined in accordance
with the rules of the SEC and includes the class of capital stock identified on each table and securities convertible into or exercisable for the class of capital stock identified on each table owned by or for, among others, the spouse, children or
certain other relatives of such person as well as other securities as to which the person has or shares voting or investment power or has the right to acquire within 60 days of June 29, 2002.





Reference made herein to TH Lee Putnam Ventures (THLPV) includes TH Lee Putnam Ventures, L.P., TH Lee Putnam Parallel Ventures, L.P., THLi Co Investment
Partners, LLC, and Blue Star I, LLC.




11




---

##### Table of Contents

Common Stock





Name and Address of Beneficial Owner

Beneficially Owned

Beneficially Owned(1)TH Lee Putnam Ventures(2)(5)

8,828,055

70.7
%200 Madison Avenue, Suite 2225, New York, NY 10016James G. Brown(3)

8,828,055

70.7
%200 Madison Avenue, Suite 2225, New York, NY 10016Douglas Hsieh(4)

8,828,055

70.7
%200 Madison Avenue, Suite 2225, New York, NY 10016Richard and Mabeth Neslund(6)

1,397,837

29.8
%15210 Wayzata Boulevard, Wayzata, MN 55391Neuberger Berman, LLC(7)

1,101,812

23.1
%666 Fifth Avenue, 34th Floor, New York, NY 10103HomePoint Corporation(5)(8)

912,346

19.9
%c/o TenX Venture Partners, LLCOne First Avenue, Suite 100, Conshohocken, PA 19428RS Investment Management Co. LLC(9)

846,383

19.8
%338 Market Street, Suite 200, San Francisco, CA 94111Vincent A. Wasik(10)

668,905

15.7
%Alexander I. Paluch(11)

658,746

15.2
%East River Ventures II, LP(12)

609,522

14.3
%645 Madison Avenue, Ste 2200, New York, NY 10022Bayview Capital Partners LP(13)

534,939

12.7
%641 East Lake Street, Suite 230, Wayzata, MN 55391TenX Venture Partners, LLC(5)(14)

425,952

10.4
%One First Avenue, Suite 100, Conshohocken, PA 19428Robert McCullough(15)

330,012

8.3
%455 Belvedere, Belvedere, CA 94920Perkins Capital Management, Inc.(16)

261,395

6.7
%730 East Lake Street, Wayzata, MN 55391MCG USHP LLC(17)

245,000

6.3
%One Morningside Drive N., Ste 200, Westport, CT 06880Andrew K. Boszhardt, Jr.(18)

234,425

6.0
%666 Fifth Avenue, 34th Floor, New York, NY 10103Rich Schottenfeld(19)

210,985

5.4
%399 Park Avenue, 37th Floor, New York, NY 10022BLG Ventures, LLC(20)

200,000

5.2
%150 John F. Kennedy Pkwy., Short Hills, NJ 07078Jeffry J. Parell(21)

74,884

2.0
%Timothy G. Becker(22)

67,334

1.8
%Mark E. Ties(23)

44,095

1.2
%Victor A. Serri(24)

29,936

*Wesley C. Fredenburg(25)

27,727

*William S. Cohen(26)

25,000

*Jack F. Kemp(27)

25,000

*D. Brad Frederiksen(28)

13,021

*Richard A. Kassar



0
%All directors and officers as a group (15 persons)(25)

10,566,485

74.7
%




12




---

##### Table of Contents

---

|* |  | Represents less than 1%
|- |  | -----------------------




|(1) |  | Percentage of beneficial ownership is based on 3,662,603 shares of Common Stock outstanding as of June 29, 2002. Beneficial ownership based upon ownership of
convertible preferred stock reflects Common Stock equivalents on an as-if-converted basis. Common Stock issuable pursuant to outstanding warrants, stock options and convertible preferred stock is deemed outstanding for computing the percentage of
the holders thereof, but not for computing the percentage of any other person. More than one person may beneficially own the same shares.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Includes: (i) 2,048,247 shares issuable upon conversion of Series B Preferred owned by TH Lee Putnam Ventures, L.P., 1,511,537 shares issuable upon conversion
of Series B Preferred owned by TH Lee Putnam Parallel Ventures, L.P., 116,677 shares issuable upon conversion of Series B Preferred owned by THLi Co Investment Partners, LLC, and 44,316 shares issuable upon conversion of Series B Preferred owned by
Blue Star I, LLC; (ii) 982,637 shares issuable upon conversion of Series C Preferred owned by TH Lee Putnam Ventures, L.P., 725,153 shares issuable upon conversion of Series C owned by TH Lee Putnam Parallel Ventures, L.P., 55,800 shares issuable
upon conversion of Series C Preferred owned by THLi Co Investment Partners, LLC, and 21,435 shares issuable upon conversion of Series C Preferred owned by Blue Star I, LLC; (iii) 405,575 shares issuable upon the exercise and conversion of warrants
to purchase Series C Preferred owned by TH Lee Putnam Ventures, L.P., 299,301 shares issuable upon the exercise and conversion of warrants to purchase Series C Preferred owned by TH Lee Putnam Parallel Ventures, L.P., 23,030 shares issuable upon the
exercise and conversion of warrants to purchase Series C Preferred owned by THLi Co Investment Partners, LLC, and 8,847 shares issuable upon the exercise and conversion of warrants to purchase Series C owned by Blue Star I, LLC; (iv) 1,170,153
shares issuable upon conversion of Series D Preferred owned by TH Lee Putnam Ventures, L.P., 863,532 shares issuable upon conversion of Series D Preferred owned by TH Lee Putnam Parallel Ventures, L.P., 66,318 shares issuable upon conversion of
Series D Preferred owned by THLi Co Investment Partners, LLC, and 25,655 shares issuable upon conversion of Series D Preferred owned by Blue Star I, LLC; (v) 249,009 shares issuable upon the exercise and conversion of warrants to purchase Series D
Preferred owned by TH Lee Putnam Ventures, L.P., 183,761 shares issuable upon the exercise and conversion of warrants to purchase Series D Preferred owned by TH Lee Putnam Parallel Ventures, L.P., 14,113 shares issuable upon the exercise and
conversion of warrants to purchase Series D Preferred owned by THLi Co Investment Partners, LLC, and 5,459 shares issuable upon the exercise of warrants to purchase Series D Preferred owned by Blue Star I, LLC; and (vi) 7,500 shares issuable upon
the exercise of options to purchase Common Stock issued to TH Lee Putnam Fund Advisors, L.P. Does not include 228,469 shares issuable upon exercise of warrants to purchase Common Stock owned by TH Lee Putnam Ventures, L.P. and 196,531 shares
issuable upon exercise of warrants to purchase Common Stock owned by TH Lee Putnam Parallel Ventures, L.P. (collectively the Common Warrants). The Common Warrants become exercisable only in the event and to the extent that 3,000,000
options granted under the Companys 2000 Stock Option Plan are exercised, on a pro rata basis. TH Lee Putnam Parallel Ventures, L.P., THLi Co Investment Partners, LLC and Blue Star I, LLC are affiliates of TH Lee Putnam Ventures.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Consists of shares beneficially owned by THLPV, for which Mr. Brown disclaims beneficial ownership.
|--- |  | ---------------------------------------------------------------------------------------------------




|(4) |  | Consists of shares beneficially owned by THLPV, for which Mr. Hsieh disclaims beneficial ownership.
|--- |  | ---------------------------------------------------------------------------------------------------




|(5) |  | THLPV is the largest shareholder of HomePoint Corporation. TenX Venture Partners, LLC has an agreement to provide management services to HomePoint Corporation.
A shareholder of THLPV is a member of HomePoint Corporations board of directors.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(6) |  | Consists of 377,114 shares owned directly, 79,855 shares issuable pursuant to warrants and 940,868 shares issuable upon conversion of Series F Preferred.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------




|(7) |  | Consists of (i) 39,063 shares issuable upon exercise of warrants and 547,013 shares issuable upon conversion of Series F Preferred owned by Oscar Private Equity
Investments, L.P.; (ii) 18,750 shares issuable upon exercise of warrants and 262,567 shares issuable upon conversion of Series F Preferred owned by Oscar Investment Fund, LP; (iii) 6,250 shares issuable upon exercise of warrants and 87,518 shares
issuable upon conversion of Series F Preferred owned by Oscar Opportunistic Fund, LLC; (iv) 3,125
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13




---

##### Table of Contents

| | shares issuable upon exercise of warrants and 43,757 shares issuable upon conversion of Series F Preferred owned by Oscar Opportunistic Offshore Fund, Ltd.; and (v) 6,250 shares issuable upon
exercise of warrants and 87,519 shares issuable upon conversion of Series F Preferred owned by Oscar Fund (Cayman) Limited. Oscar Investment Fund, LP, Oscar Opportunistic Fund, LLC, Oscar Opportunistic Offshore Fund, Ltd. and Oscar Fund (Cayman)
Limited are affiliates of Neuberger Berman, LLC.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(8) |  | Consists of shares issuable upon conversion of Series D Preferred.
|--- |  | ------------------------------------------------------------------




|(9) |  | Consists of 238,000 shares owned directly and 608,383 shares issuable upon conversion of Series D Preferred.
|--- |  | ------------------------------------------------------------------------------------------------------------




|(10) |  | Consists of 72,260 shares owned directly, 23,438 shares issuable upon exercise of warrants, 328,207 shares issuable upon conversion of Series F Preferred, and
245,000 shares issuable upon exercise of warrants beneficially owned by MCG USHP, LLC.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(11) |  | Consists of 2,345 shares issuable upon exercise of warrants, 32,814 shares issuable upon conversion of Series F Preferred, 40,625 shares issuable upon exercise
of warrants and 568,897 shares issuable upon conversion of Series F Preferred owned by East River Ventures II, LP, and 938 shares issuable upon exercise of warrants and 13,127 shares issuable upon conversion of series F Preferred owned by ERV
Partners LLC.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(12) |  | Consists of 40,625 shares issuable upon exercise of warrants and 568,897 shares issuable upon conversion of Series F Preferred.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------




|(13) |  | Consists of shares issuable upon exercise of the Bayview Warrants.
|---- |  | ------------------------------------------------------------------




|(14) |  | Consists of 121,761 shares issuable upon exercise of a warrant and 304,191 shares issuable upon conversion of Series D Preferred.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------




|(15) |  | Consists of (i) 3,200 shares owned directly, 14,563 shares issuable upon exercise of warrants and 196,921 shares issuable upon conversion of Series F Preferred;
(ii) 2,344 shares issuable upon exercise of warrants and 32,820 shares issuable upon conversion of Series F Preferred owned by the Robert F. McCullough, Sr. Family Foundation; (iii) 45,000 shares owned directly by the McCullough Living Trust; and
(iv) 2,344 shares issuable upon exercise of warrants and 32,820 shares issuable upon conversion of Series F Preferred owned by the Robert F. McCullough, Sr. IRA.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(16) |  | Consists of (i) 20,000 shares owned directly, 20,875 shares issuable upon exercise of warrants, and 96,275 shares issuable upon conversion of Series F Preferred
owned by Pyramid Partners, LP, (ii) 5,157 shares issuable upon exercise of warrants and 72,206 shares issuable upon conversion of Series F Preferred owned by Union Bank & Trust Industricorp & Co., Inc FBO Twin City Carpenters Pension Plan;
(iii) 1,719 shares issuable upon exercise of warrants and 24,069 shares issuable upon conversion of Series F Preferred owned by Robert G. Allison; and (iv) 1,406 shares issuable upon exercise of warrants and 19,688 shares issuable upon conversion of
Series F Preferred owned by David M. Westrum. Pyramid Partners, LP, Union Bank & Trust Industricorp & Co., Inc FBO Twin City Carpenters Pension Plan, Robert G. Allison, and David M. Westrum are entities affiliated with Perkins Capital
Management, Inc.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(17) |  | Consists of shares issuable upon exercise of warrants.
|---- |  | ------------------------------------------------------




|(18) |  | Consists of 15,626 shares issuable upon exercise of warrants and 218,799 shares issuable upon conversion of Series F Preferred.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------




|(19) |  | Consists of 10,938 shares issuable upon exercise of warrants and 153,165 shares issuable upon conversion of Series F Preferred owned by Schottenfeld Qualified
Associates, L.P. and 3,125 shares issuable upon exercise of warrants and 43,757 shares issuable upon conversion of Series F Preferred owned by CSL Associates, L.P. Schottenfeld Qualified Associates, L.P. and CSL Associates, L.P. are entities
affiliated with Mr. Schottenfeld.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(20) |  | Consists of shares issuable upon exercise of warrants.
|---- |  | ------------------------------------------------------




|(21) |  | Consists of 1,500 shares owned directly, 61,666 shares issuable upon exercise of options, 782 shares issuable upon exercise of warrants and 10,936 shares
issuable upon conversion of Series F Preferred.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14




---

##### Table of Contents




|(22) |  | Consists of 8,334 shares owned directly and 59,000 shares issuable upon exercise of options.
|---- |  | --------------------------------------------------------------------------------------------




|(23) |  | Consists of 780 shares owned directly, 33,000 shares issuable upon exercise of options, 688 shares issuable upon exercise of warrants and 9,627 shares issuable
upon conversion of Series F Preferred.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(24) |  | Consists of 27,501 shares issuable upon exercise of options, 163 shares issuable upon exercise of warrants and 2,272 shares issuable upon conversion of Series F
Preferred.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(25) |  | Consists of 2,000 shares owned directly, 19,166 shares issuable upon exercise of options, 438 shares issuable upon exercise of warrants and 6,123 shares
issuable upon conversion of Series F Preferred.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(26) |  | Consists of shares issuable upon exercise of warrants.
|---- |  | ------------------------------------------------------




|(27) |  | Consists of shares issuable upon exercise of warrants.
|---- |  | ------------------------------------------------------




|(28) |  | Consists of 8,333 shares issuable upon exercise of options, 313 shares issuable upon exercise of warrants and 4,375 shares issuable upon conversion of Series F
Preferred.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------






15




---

##### Table of Contents

Series B Preferred Stock





Name and Address of Beneficial Owner

Amount and Nature of Beneficial Ownership

Percentage Owned(1)TH Lee Putnam Ventures(2)

2,806,797

100.0
%200 Madison Avenue, Suite 2225, New York, NY 10016James G. Brown(3)

2,806,797

100.0
%200 Madison Avenue, Suite 2225, New York, NY 10016Douglas Hsieh(3)

2,806,797

100.0
%200 Madison Avenue, Suite 2225, New York, NY 10016Vincent A. Wasik



0
%Jeffry J. Parell



0
%Timothy G. Becker



0
%Alex Paluch



0
%William S. Cohen



0
%Jack F. Kemp



0
%Richard A. Kassar



0
%D. Brad Frederiksen



0
%Victor A. Serri



0
%Wesley C. Fredenburg



0
%Mark E. Ties



0
%All directors and executive officers as a group (15 persons)(3)

2,806,797

100.0
%


---

|(1) |  | Percentage of beneficial ownership is based on 2,806,797 of Series B Preferred outstanding as of June 29, 2002, which were convertible into an aggregate of
3,720,777 shares of Common Stock. See Common Stock Security Ownership table. More than one person may beneficially own the same shares.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Includes shares of Series B Preferred held as follows: 1,545,111 shares directly owned by TH Lee Putnam Ventures, L.P., 1,140,240 shares directly owned by TH
Lee Putnam Parallel Ventures, L.P., 88,016 shares directly owned by THLi Co Investment Partners, LLC, and 33,430 shares directly owned by Blue Star I, LLC.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Consists of shares beneficially owned by TH Lee Putnam Ventures, for which Messrs. Brown and Hsieh disclaim beneficial ownership.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------



16




---

##### Table of Contents

Series C Preferred Stock





Name and Address of Beneficial Owner

Amount and Nature of Beneficial Ownership

Percentage Owned(1)TH Lee Putnam Ventures(2)

2,825,484

100.0
%200 Madison Avenue, Suite 2225, New York, NY 10016James G. Brown(3)

2,825,484

100.0
%200 Madison Avenue, Suite 2225, New York, NY 10016Douglas Hsieh(3)

2,825,484

100.0
%200 Madison Avenue, Suite 2225, New York, NY 10016Vincent A. Wasik



0
%Jeffry J. Parell



0
%Timothy G. Becker



0
%Alex Paluch



0
%William S. Cohen



0
%Jack F. Kemp



0
%Richard A. Kassar



0
%D. Brad Frederiksen



0
%Victor A. Serri



0
%Wesley C. Fredenburg



0
%Mark E. Ties



0
%All directors and executive officers as a group (15 persons)(3)

2,825,484

100.0
%


---

|(1) |  | Percentage of beneficial ownership is based on 2,000,000 of Series C Preferred outstanding as of June 29, 2002, which were convertible into an aggregate of
1,785,024 shares of Common Stock. See Common Stock Security Ownership table. More than one person may beneficially own the same shares.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Includes 1,100,978 shares owned directly and 454,420 shares issuable upon exercise of warrants owned by TH Lee Putnam Ventures, L.P., 812,485 shares owned
directly and 335,347 shares issuable upon exercise of warrants owned by TH Lee Putnam Parallel Ventures, L.P., 62,520 shares owned directly and 25,804 shares issuable upon exercise of warrants owned by THLi Co Investment Partners, LLC and 24,017
shares owned directly and 9,913 shares issuable upon exercise of warrants owned by Blue Star I, LLC.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Consists of shares beneficially owned by TH Lee Putnam Ventures, L.P., for which Messrs. Brown and Hsieh disclaim beneficial ownership.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------



17




---

##### Table of Contents

Series D Preferred Stock





Name and Address of Beneficial Owner

Amount and Nature of Beneficial Ownership

Percentage Owned(1)TH Lee Putnam Ventures(2)

1,234,071

60.3
%200 Madison Avenue, Suite 2225, New York, NY 10016James G. Brown(3)

1,234,071

60.3
%200 Madison Avenue, Suite 2225, New York, NY 10016Douglas Hsieh(3)

1,234,071

60.3
%200 Madison Avenue, Suite 2225, New York, NY 10016HomePoint Corporation(4)

374,906

20.5
%c/o TenX Venture Partners, LLCOne First Avenue, Suite 100, Conshohocken, PA 19428RS Investment Management, Inc.

250,000

13.7
%388 Market Street, San Francisco, CA 94111TenX Venture Partners, LLC

125,000

6.8
%One First Avenue, Suite 100, Conshohocken, PA 19428Vincent A. Wasik



0
%Jeffry J. Parell



0
%Timothy G. Becker



0
%Alex Paluch



0
%William S. Cohen



0
%Jack F. Kemp



0
%Richard A. Kassar



0
%D. Brad Frederiksen



0
%Victor A. Serri



0
%Wesley C. Fredenburg



0
%Mark E. Ties



0
%All directors and executive officers as a group (15 persons)(3)

1,234,071

60.3
%


---

|(1) |  | Percentage of beneficial ownership is based on 1,829,944 shares of Series D Preferred outstanding as of June 29, 2002, which were convertible into an aggregate
of 4,102,673 shares of Common Stock. See Common Stock Security Ownership table. More than one person may beneficially own the same shares.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Includes 560,144 shares owned directly and 119,199 shares issuable upon exercise of warrants owned by TH Lee Putnam Ventures, L.P., 413,367 shares owned
directly and 87,965 shares issuable upon exercise of warrants owned by TH Lee Putnam Parallel Ventures, L.P., 31,746 shares owned directly and 6,756 shares issuable upon exercise of warrants owned by THLi Co Investment Partners, LLC and 12,281
shares owned directly and 2,613 shares issuable upon exercise of warrants owned by Blue Star I, LLC.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Consists of shares beneficially owned by the TH Lee Putnam Ventures, for which Messrs. Brown and Hsieh disclaim beneficial ownership.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------




|(4) |  | THLi Co Investment Partners, LLC is the largest shareholder of HomePoint Corporation. TenX Venture Partners, LLC has an agreement to provide management services
to HomePoint Corporation. A shareholder of THLPV is a member of HomePoint Corporations board of directors.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18




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##### Table of Contents

Series F Preferred Stock





Name and Address of Beneficial Owner

Amount and Nature of Beneficial Ownership

Percentage Owned(1)Neuberger Berman, LLC(2) 2666 Fifth Avenue, 34th Floor, New York, NY 10103

213,632

20.0
%Richard Neslund 15210 Wayzata Boulevard, Wayzata, MN 55391

195,453

18.3
%Alex Paluch(3)

127,725

12.0
%East River Ventures II, LP 645 Madison Avenue, Ste 2200, New York, NY 10022

118,181

11.1
%Vincent A. Wasik

68,181

6.4
%Robert McCullough(4) 455 Belvedere, Belvedere, CA 94920

54,544

5.1
%Jeffry J. Parell

2,272

*Mark E. Ties

2,000

*Wesley C. Fredenburg

1,272

*D. Brad Frederiksen

909

*Victor A. Serri

472

*Timothy G. Becker



0
%William S. Cohen



0
%Jack F. Kemp



0
%Richard A. Kassar



0
%All directors and executive officers as a group (15 persons)(3)

221,465

20.8
%


---

|* |  | Represents less than 1%
|- |  | -----------------------




|(1) |  | Percentage of beneficial ownership is based on 1,066,390 shares of Series F Preferred outstanding as of June 29, 2002, which were convertible into an aggregate
of 5,133,325 shares of Common Stock. See Common Stock Security Ownership table. More than one person may beneficially own the same shares.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Consists of 113,635 shares owned by Oscar Private Equity Investments, LP, 54,545 shares owed by Oscar Investment Fund, LP, 18,181 shares owned by Oscar Fund
(Cayman) Limited, 18,181 shares owned by Oscar Opportunistic Fund, LLC and 9,090 shares owned by Oscar Opportunistic Offshore Fund, Ltd. Oscar Private Equity Investments, LP, Oscar Investment Fund, LP, Oscar Opportunistic Fund, LLC, Oscar
Opportunistic Offshore Fund, Ltd. and Oscar Fund (Cayman) Limited are affiliates of Neuberger Berman, LLC.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Consists 6,817 shares owned directly, 118,181 shares owned by East River Ventures II, LP, and 2,727 shares owned by ERV Partners, LLC. Mr. Paluch is a General
Partner of East River Ventures II, LP and a Managing Member of ERV Partners, LLC. Mr. Paluch disclaims beneficial ownership of the shares held of record by each of East River Ventures II, LP and ERV Partners, LLC.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(4) |  | Consists of 40,908 shares owned directly, 6,818 shares owned directly by the Robert F. McCullough Sr. Family Foundation, and 6,818 shares owned directly by the
Robert F. McCullough Sr. IRA.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Series G Preferred Stock





Name and Address of Beneficial Owner

Amount and Nature of Beneficial Ownership

Percentage Owned(1)TH Lee Putnam Ventures(2)

3,333,333

56.8
%200 Madison Avenue, Suite 2225, New York, NY 10016James G. Brown(3)

3,333,333

56.8
%200 Madison Avenue, Suite 2225, New York, NY 10016Douglas Hsieh(3)

3,333,333

56.8
%200 Madison Avenue, Suite 2225, New York, NY 10016John Kennedy

500,000

8.5
%2100 First National Ctr., Oklahoma City, OK 73102Mike Samis

500,000

8.5
%2100 First National Ctr., Oklahoma City, OK 73102Andrew K. Boszhardt, Jr.

300,000

5.1
%2666 Fifth Avenue, 34th Floor, New York, NY 10103MCG Global LLC

293,333

5.0
%One Morningside Drive N., Ste 200, Westport, CT 06880Vincent A. Wasik(4)

293,333

5.0
%Mark E. Ties

40,000

*Jeffry J. Parell



0
%Timothy G. Becker



0
%Alex Paluch



0
%William S. Cohen



0
%Jack F. Kemp



0
%Richard A. Kassar



0
%D. Brad Frederiksen



0
%Victor A. Serri



0
%Wesley C. Fredenburg



0
%All directors and executive officers as a group (15 persons)(3)

3,666,666

62.5
%


---

|* |  | Represents less than 1%
|- |  | -----------------------




|(1) |  | Percentage of beneficial ownership is based on 5,865,331 shares of Series G Preferred outstanding as of June 29, 2002, which were convertible into an aggregate
of 1,173,061 shares of Common Stock. Subject to shareholder approval, holders of Series G Preferred may convert their shares into common stock. However, because the conversion of the Series G Preferred is subject to shareholder approval, pursuant to
Rule 13d-3(d)(1)(i), holders of Series G Preferred would not be deemed to be beneficial owners of the underlying common stock. More than one person may beneficially own the same shares.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) |  | Includes shares of Series G Preferred held as follows: 1,832,167 shares directly owned by TH Lee Putnam Ventures, L.P., 1,355,183 shares directly owned by TH
Lee Putnam Parallel Ventures, L.P., 103,488 shares directly owned by THLi Co Investment Partners, LLC, and 42,495 shares directly owned by Blue Star I, LLC.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(3) |  | Consists of shares beneficially owned by TH Lee Putnam Ventures, for which Messrs. Brown and Hsieh
|--- |  | --------------------------------------------------------------------------------------------------

disclaim beneficial ownership.





|(4) |  | Consists of 293,333 shares owned directly by MCG Global, LLC., for which Mr. Wasik disclaims beneficial ownership. Mr. Wasik is the founder and a principal of
MCG Global, LLC.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20




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##### Table of Contents




ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





Transactions with Management
and Others





Issuance of Series G Convertible Preferred Stock





Pursuant to Stock Purchase Agreements entered into during April 2002, the Company issued 5,865,331 shares of Series G Convertible Preferred Stock (Series G
Preferred) to one institutional investor, twelve accredited investors and four employees of the Company for $0.75 per share for proceeds of $4.4 million. Of the total proceeds, $4.1 million was received in cash, and $310,000 was in exchange
for services performed for the Company. The initial conversion price of the Series G Preferred was $3.75, and, at the time of issuance, each share of Series G Preferred was convertible, upon shareholder approval, into 0.2 shares of the
Companys common stock. Additionally, no holder of the Series G Preferred Stock is permitted to request registration of the common stock underlying the preferred for 180 days from the date of purchase. The Company sold the Series G Preferred to
the following directors, officers and/or beneficial owners of 5% of this class of stock:





Name of Beneficial Owner

Number of Shares of Series G PreferredTH Lee Putnam Ventures

3,333,333John Kennedy

500,000Mike Samis

500,000Andrew Boszhardt

300,000MCG Global LLC

293,333Vincent Wasik(1)

293,333


---

|(1) |  | Consists of 293,333 shares owned directly by MCG Global, LLC, for which Mr. Wasik disclaims beneficial ownership. Mr. Wasik is the founder and a principal of
MCG Global, LLC.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Issuance of Series F Convertible Preferred Stock





During fiscal 2002, the Company issued 1,072,752 shares of Series F Preferred to a group of institutional investors and eleven officers of
the Company for net proceeds of approximately $11.3 million. The initial conversion price of the Series F Preferred was $2.75, and, at the time of issuance, each share of Series F Preferred was convertible into four shares of the Companys
common stock. Both the conversion price and the number of common shares into which the Series F is convertible are subject to adjustment in order to prevent dilution. The Company also issued warrants to purchase 360,128 shares of common stock in
connection with these sales. At June 29, 2002, 1,066,390 shares of Series F Preferred are outstanding. The Company sold the Series F Subscription Notes to the following directors, officers and/or beneficial owners of 5% of this class of stock:





Name of Beneficial Owner

Number of Shares of Series F PreferredNeuberger Berman LLC

213,632Richard Neslund

195,453Alex Paluch(1)

127,725East River Ventures II, LP

118,181Vincent A. Wasik

68,181Robert McCullough

54,544


---

|(1) |  | Consists 6,817 shares owned directly, 118,181 shares owned by East River Ventures II, LP, and 2,727 shares owned by ERV Partners, LLC. Mr. Paluch is a General
Partner of East River Ventures II, LP and a Managing Member of ERV Partners, LLC. Mr. Paluch disclaims beneficial ownership of the shares held of record by each of East River Ventures II, LP and ERV Partners, LLC.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents




Contracts and arrangements with MCG Global, LLC





The Company has entered into service agreements with MCG Global, LLC and its related entities (MCG). Vincent A. Wasik,
currently a shareholder and Chairman of the Board of the Company, is a owner and principal of MCG, although he was neither a shareholder nor Chairman of the Board at the time the initial service agreement was entered into. Under the agreements, MCG
has provided services in connection with Companys business that include the following matters, (1) management and consulting assistance with operations, debt structure, vendors and contractual obligations, (2) negotiation and settlement of the
Companys rights and obligations under the September 24, 1999 Merger Agreement under which the Company acquired Velocity; (3) assistance with all aspects of the Companys replacement of its Senior Revolving Credit Facility held by GE
Capital Corporation and mezzanine debt facility held by Bayview Capital Partners LP, and (4) services in connection with Companys centralization of data platforms, cash and lock-box management, consolidation of back office functions,
technology initiatives and strategic planning. The Company granted a total of 245,000 warrants to purchase common stock. Cash and warrant-based compensation for these services amounted to $1.8 million in fiscal 2002.







22




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##### Table of Contents

SIGNATURES





In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Minneapolis, state of Minnesota on October 7, 2002.





VELOCITY EXPRESS CORPORATIONBy:

/s/    JEFFRY J. PARELLJeffry J. ParellChief Executive OfficerBy:

/s/    MARK E. TIESMark E. TiesChief Financial Officer(Principal Accounting and Financial Officer)





Pursuant to Powers of Attorney executed in conjunction with the
filing of Form 10-K and in accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.





Signature

Title

Date* Vincent A. Wasik

Chairman

October 7, 2002* Jeffry J. Parell

Chief Executive Officer and Director

October 7, 2002* Timothy Becker

Director

October 7, 2002* James Brown

Director

October 7, 2002* Douglas Hsieh

Director

October 7, 2002* Alex Paluch

Director

October 7, 2002* William S. Cohen

Director

October 7, 2002* Jack Kemp

Director

October 7, 2002* Richard A. Kassar

Director

October 7, 2002


---

|* |  | By: Wesley C. Fredenburg, Attorney-in-Fact
|- |  | ------------------------------------------



23




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##### Table of Contents




CERTIFICATIONS





I, Jeffry J. Parell, certify that:





|1. |  | I have reviewed this annual report of Velocity Express Corporation;
|-- |  | -------------------------------------------------------------------




|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Dated: October 7, 2002





/s/    JEFFRY J. PARELLJeffry J. Parell Chief Executive Officer





I, Mark E. Ties, certify that:





|1. |  | I have reviewed this annual report of Velocity Express Corporation;
|-- |  | -------------------------------------------------------------------




|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Dated: October 7, 2002





/s/    MARK E.
TIESMark E. Ties Chief Financial Officer




24




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##### Table of Contents




EXHIBIT INDEX





Exhibit Number

Description2.1

Merger Agreement by and among CEX Holdings, Inc., Corporate Express Delivery Systems, Inc., United Shipping & Technology, Inc. and United Shipping &
Technology Acquisition Corp., dated as of September 8, 1999 (incorporated by reference to the Companys Form 8-K, filed October 8, 1999).2.2

Amendment No. 1 to Merger Agreement by and among CEX Holdings, Inc., Corporate Express Delivery Systems, Inc., United Shipping & Technology, Inc. and
United Shipping & Technology Acquisition Corp., dated as of September 22, 1999 (incorporated by reference to the Companys 8-K, filed October 8, 1999).2.3

Securities Purchase Agreement among United Shipping & Technology, Inc., TH Lee.Putnam Internet Partners, L.P. and TH Lee.Putnam Internet Parallel
Partners, L.P., dated as of May 15, 2000 (incorporated by reference to the Companys Form 8-K, filed June 2, 2000).2.4

Securities Purchase Agreement among United Shipping & Technology, Inc., TH Lee.Putnam Internet Partners, L.P., TH Lee.Putnam Internet Parallel Partners,
L.P., THLi Coinvestment Partners LLC and Blue Star I, LLC, dated as of September 1, 2000 (incorporated by reference to the Companys Form 8-K, filed September 8, 2000).2.5

Amendment No. 2 to Merger Agreement, Settlement and General Release Agreement by and among Corporate Express, Inc., successor by merger to CEX Holdings,
Inc., Velocity Express, Inc. f/k/a Corporate Express Delivery Systems, Inc., and United Shipping & Technology, Inc. dated August 2, 2001 (incorporated by reference to the Companys Form 10-Q, filed November 13, 2001).2.6

Agreement and Plan of Merger by and between United Shipping & Technology, Inc., a Utah corporation, and Velocity Express Corporation, a Delaware
corporation, dated as of December 6, 2001 (incorporated by reference to the Companys Form 8-K, filed January 9, 2002).2.7

Certificate of Merger of United Shipping & Technology, Inc. (a Utah corporation) into Velocity Express Corporation (a Delaware corporation) (incorporated
by reference to the Companys Form 10-K, filed September 27, 2002).3.1

Articles of Incorporation of United Shipping & Technology, Inc., as amended (incorporated by reference to the Companys Form 8-K, filed June 2,
2000).3.2

Certificate of Designation of Preferences and Rights of Series C Convertible Preferred Stock and Articles of Amendment to the Restated Articles of
Incorporation (incorporated by reference to the Companys Form 8-K, filed September 8, 2000).3.3

Certificate of Designation of Preferences and Rights of Series D Convertible Preferred Stock and Articles of Amendment to the Restated Articles of
Incorporation (incorporated by reference to the Companys Form 8-K, filed May 21, 2001).3.4

The Companys Articles of Incorporation, as amended and restated (incorporated by reference to the Companys Form 10-KSB for the year ended June
30, 2001).3.5

The Companys Bylaws, as amended (incorporated by reference to the Companys Form 10-KSB for the year ended June 30, 2001).3.6

Certificate of Designation of Preferences and Rights of Series F Convertible Preferred Stock and Articles of Amendment to the Restated Articles of
Incorporation (incorporated by reference to the Companys Form 8-K, filed July 20, 2001).3.7

The Companys Bylaws, as amended (incorporated by reference to the Companys Registration Statement on Form SB-2, File No.
333-01652C).3.8

Certificate of Incorporation of Velocity Express Corporation dated as of December 5, 2001 (incorporated by reference to the Companys Form 8-K, filed
January 9, 2002).







25




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##### Table of Contents




Exhibit Number

Description3.9

Bylaws of Velocity Express Corporation (incorporated by reference to the Companys Form 8-K, filed January 9, 2002).3.10

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Velocity Express Corporation (incorporated by reference to the
Companys Form S-3/A, File No. 333-88568, filed June 3, 2002).3.11

Certificate of Designation of Preferences and Rights of Series G Convertible Preferred Stock (incorporated by reference to the Companys Form 10-K,
filed September 27, 2002).4.1

Specimen form of the Companys Common Stock certificate (incorporated by reference to the Companys Statement on Form SB-2, File No.
333-01652C).4.2

Specimen form of Velocity Express Corporation Common Stock Certificate (incorporated by reference to the Companys Form 8-K filed April 5,
2002).4.3

Specimen form of Velocity Express Corporation Common Stock Certificate (incorporated by reference to the Companys Form 10-K, filed September 27,
2002).10.1

Form of warrant issued pursuant to bridge loan financing completed by the Company in December 1995 (incorporated by reference to the Companys Statement
on Form SB-2, File No. 333-01652C).10.2

1996 Director Stock Option Plan, as amended (incorporated by reference to the Companys Form 10-QSB for the fiscal quarter ended January 1, 2000).10.3

2000 Stock Option Plan (incorporated by reference to the Companys Definitive Schedule 14A filed on May 8, 2000).10.4

Exchange Agreement by and among United Shipping & Technology, Inc., UST Delivery Systems, Inc. and CEX Holdings, Inc., dated as of September 24, 1999
(incorporated by reference to the Companys Form 8-K, filed October 8, 1999).10.5

Note and Warrant Purchase Agreement by and among United Shipping & Technology, Inc., UST Delivery Systems, Inc. and Bayview Capital Partners LP, dated as
of September 24, 1999 (incorporated by reference to the Companys Form 8-K, filed October 8, 1999).10.6

Senior Subordinated Note by and among United Shipping & Technology, Inc., UST Delivery Systems, Inc. and Bayview Capital Partners LP, dated September 24,
1999 (incorporated by reference to the Companys Form 8-K, filed October 8, 1999).10.7

Warrant to Purchase Common Stock of United Shipping & Technology, Inc. issued to Bayview Capital Partners LP, dated September 24, 1999 (incorporated by
reference to the Companys Form 8-K, filed October 8, 1999).10.8

Stock Purchase Warrant to Acquire Common Stock, issued May 31, 2000, granted by United Shipping & Technology, Inc. to TH Lee.Putnam Internet Partners,
L.P. for up to 228,469 shares of Common Stock (incorporated by reference to the Companys Form 8-K, filed June 2, 2000).10.9

Stock Purchase Warrant to Acquire Common Stock, issued May 31, 2000, granted by United Shipping & Technology, Inc. to TH Lee.Putnam Internet Parallel
Partners, L.P. for up to 196,531 shares of Common Stock (incorporated by reference to the Companys Form 8-K, filed June 2, 2000).10.10

Stock Purchase Warrant to Acquire Series B Preferred Stock, issued May 31, 2000, granted by United Shipping & Technology, Inc. to TH Lee.Putnam Internet
Partners, L.P. for up to 243,468 shares of Series B Preferred Stock (incorporated by reference to the Companys Form 8-K, filed June 2, 2000).




26




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##### Table of Contents




Exhibit Number

Description10.11

Stock Purchase Warrant to Acquire Series B Preferred Stock, issued May 31, 2000, granted by United Shipping & Technology, Inc. to TH Lee Putnam Internet
Parallel Partners, L.P. for up to 209,433 shares of Series B Preferred Stock (incorporated by reference to the Companys Form 8-K, filed June 2, 2000).10.12

Stock Purchase Warrant to Acquire Series C Preferred Stock, issued September 1, 2000 by United Shipping & Technology, Inc. to TH Lee.Putnam Internet
Partners, L.P. for 187,290 shares of Series C Preferred Stock at a price per share equal to $0.01 (incorporated by reference to the Companys Form 8-K, filed September 8, 2000).10.13

Stock Purchase Warrant to Acquire Series C Preferred Stock, issued September 1, 2000 by United Shipping & Technology, Inc. to TH Lee.Putnam Internet
Partners, L.P. for 142,042 shares of Series C Preferred Stock at a price per share equal to $0.01 (incorporated by reference to the Companys Form 8-K, filed September 8, 2000).10.14

Stock Purchase Warrant to Acquire Series C Preferred Stock, issued September 1, 2000 by United Shipping & Technology, Inc. to THLi Coinvestment Partners,
LLC for 10,598 shares of Series C Preferred Stock at a price per share equal to $0.01 (incorporated by reference to the Companys Form 8-K, filed September 8, 2000).10.15

Stock Purchase Warrant to Acquire Series C Preferred Stock, issued September 1, 2000 by United Shipping & Technology, Inc. to Blue Star I, LLC for 4,024
shares of Series C Preferred Stock at a price per share equal to $0.01 (incorporated by reference to the Companys Form 8-K, filed September 8, 2000).10.16

Stock Purchase Warrant to Acquire Series C Preferred Stock, to be issued at the time of the Second Closing by United Shipping & Technology Inc. to TH
Lee.Putnam Internet Partners, L.P. for 262,204 shares of Series C Preferred Stock at a price per share equal to $0.01 (incorporated by reference to the Companys Form 8-K, filed September 8, 2000).10.17

Stock Purchase Warrant to Acquire Series C Preferred Stock, to be issued at the time of the Second Closing by United Shipping & Technology, Inc. to TH
Lee.Putnam Internet Parallel Partners, L.P. for 198,855 shares of Series C Preferred Stock at a price per share equal to $0.01 (incorporated by reference to the Companys Form 8-K, filed September 8, 2000).10.18

Stock Purchase Warrant to Acquire Series C Preferred Stock, to be issued at the time of the Second Closing by United Shipping & Technology, Inc. to THLi
Coinvestment Partners LLC for 14,837 shares of Series C Preferred Stock at a price per share equal to $0.01 (incorporated by reference to the Companys Form 8-K, filed September 8, 2000).10.19

Stock Purchase Warrant to Acquire Series C Preferred Stock, to be issued at the time of the Second Closing by United Shipping & Technology, Inc. to Blue
Star I, LLC for 5,634 shares of Series C Preferred Stock at a price per share equal to $0.01 (incorporated by reference to the Companys Form 8-K, filed September 8, 2000).10.20

Form of Warrant issued to Bayview Capital Partners LP as of May 2000 (incorporated by reference to the Companys Statement on Form 10-KSB for the fiscal
year ended July 1, 2000).10.21

Form of Warrant issued to Bayview Capital Partners LP as of July 2000 (incorporated by reference to the Companys Statement on Form 10-KSB for the
fiscal year ended July 1, 2000).10.22

Form of non-qualified stock option issued to employees as of June 2000 (incorporated by reference to the Companys Statement on Form 10-KSB for the
fiscal year ended July 1, 2000).10.23

Bridge Loan Agreement dated as of January 4, 2001, by and between the Company, TH Lee.Putnam Internet Partners, L.P., TH Lee.Putnam Internet Parallel
Partners, L.P., THLi Coinvestment Partners LLC and Blue Star I, LLC (incorporated by reference to the Companys Current Report on Form 8-K, filed January 9, 2001).




27




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##### Table of Contents




Exhibit Number

Description10.24

Convertible Bridge Note for $3,500,000 dated January 4, 2001, issued by the Company to TH Lee.Putnam Internet Partners, L.P., TH Lee.Putnam Internet Parallel
Partners, L.P., THLi Coinvestment Partners LLC and Blue Star I, LLC (incorporated by reference to the Companys Current Report on Form 8-K, filed January 9, 2001).10.25

Form of Stock Purchase Warrant to Acquire Preferred Stock dated January 4, 2001, issued by the Company to TH Lee.Putnam Internet Partners, L.P., TH
Lee.Putnam Internet Parallel Partners, L.P., THLi Coinvestment Partners LLC and Blue Star I, LLC (incorporated by reference to the Companys Current Report on Form 8-K, filed January 9, 2001).10.26

Supplemental Bridge Loan Agreement dated as of January 31, 2001, by and between the Company, TH Lee.Putnam Internet Partners, L.P., TH Lee.Putnam Internet
Parallel Partners, L.P., THLi Coinvestment Partners LLC and Blue Star I, LLC (incorporated by reference to the Companys Form 10-QSB for the fiscal quarter ended December 30, 2000).10.27

Securities Purchase Agreement dated as of March 1, 2001 among the Company and RS Investment Management, Inc. (incorporated by reference to the Companys
Form 8-K, filed May 21, 2001).10.28

Form of Stock Purchase Agreement to acquire Subscription Notes presently convertible into an aggregate 624,906 shares of Series D Preferred entered into
during March 2001 between the Company and TenX Venture Partners, LLC, HomePoint Corporation, Salah Al-Qahtani and AL-MAL Islamic Company (incorporated by reference to the
Companys Form 8-K, filed May 21, 2001).10.29

Form of Subscription Notes presently convertible into an aggregate 624,906 shares of Series D Preferred issued to TenX Venture Partners, LLC, HomePoint
Corporation, Salah Al-Qahtani and AL-MAL Islamic Company pursuant to Stock Purchase Agreements entered into during March 2001 (incorporated by reference to the Companys
Form 8-K, filed May 21, 2001).10.30

Form of Warrant to purchase shares of Series D Preferred issued to entities affiliated with TH Lee.Putnam Internet Parallel Partners, L.P. on January 4, 2001
(incorporated by reference to the Companys Form 8-K, filed May 21, 2001).10.31

Form of Subscription Note Purchase Agreement to purchase Series F Convertible Preferred Stock entered into between the Company and certain investors in July
of 2001. (incorporated by reference to the Companys Form 10-KSB for the year ended June 30, 2001).10.32

Form of Subscription Note issued in connection with the Companys Series F Convertible Preferred Stock financing in July of 2001. (incorporated by
reference to the Companys Form 10-KSB for the year ended June 30, 2001).10.33

Form of Warrant to purchase shares of Common Stock used in connection with the Companys Series F Convertible Preferred Stock financing in July of 2001.
incorporated by reference to the Companys Form 10-KSB for the year ended June 30, 2001).10.34

Third Amended and Restated Registration Rights Agreement dated as of July 2001, among the Company, TH Lee.Putnam Internet Partners, L.P., TH Lee.Putnam
Internet Parallel Partners, L.P., THLi Coinvestment Partners LLC, Blue Star I, LLC, RS Investment Management, Inc., Marshall T. Masko, Home Point Corporation, TenX Venture Partners, LLC, Al-Mal Islamic Company, Sheikh Salah A.H. Al-Qahtani and each
Series F Convertible Preferred Stock purchaser. (incorporated by reference to the Companys Form 10-KSB for the year ended June 30, 2001).10.35

Employment Agreement between Velocity Express, Inc. and Jeffry J. Parell dated October 16, 2000. (incorporated by reference to the Companys Form
10-KSB/A for the year ended June 30, 2001).10.36

Employment Agreement between United Shipping & Technology, Inc. and Mark E. Ties dated June 2001. (incorporated by reference to the Companys Form
10-KSB/A for the year ended June 30, 2001).




28




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Exhibit Number

Description10.37

Employment Agreement between United Shipping & Technology, Inc. and Wesley C. Fredenburg dated December 4, 2000. (incorporated by reference to the
Companys Form 10-KSB/A for the year ended June 30, 2001).10.38

Contractor Services Agreement between United Shipping & Technology, Inc. and MCG Global, LLC dated May 15, 2001 (incorporated by reference to the
Companys Form 10-Q filed November 13, 2001).10.39

Warrant to purchase up to 1,000,000 shares of Common Stock at a price of $0.40 per share issued by the Company to MCG Global, LLC dated May 15, 2001
(incorporated by reference to the Companys Form 10-Q filed November 13, 2001).10.40

Warrant to purchase up to 1,000,000 shares of Common Stock at a price of $0.40 per share issued by the Company to BLG Ventures, LLC dated August 23, 2001
(incorporated by reference to the Companys Form 10-Q filed November 13, 2001).10.41

Loan and Security Agreement by and among Velocity Express, Inc. and related borrowers, and Fleet Capital Corporation dated as of January 25, 2002.
(incorporated by reference to the Companys Form 10-Q filed May 3, 2002).10.42

Form of Incentive Stock Option Agreement between United Shipping & Technology, Inc., and management, dated October 29, 2001. (incorporated by reference
to the Companys Form 10-Q filed May 3, 2002).10.43

Form of Stock Purchase Agreement to purchase Series G Convertible Preferred Stock entered into between the Company and certain investors in April 2002.
(incorporated by reference to the Companys Form 10-Q filed May 3, 2002).10.44

Employment Agreement between Corporate Express Delivery Systems (predecessor of Velocity Express, Inc.) and Victor A. Serri dated October 19,
1998.99.1

CEO Certification pursuant to 18 U.S.C as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200299.2

CFO Certification pursuant to 18 U.S.C as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




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