As filed with the Securities and Exchange Commission on November 24, 1999
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PACEL CORP.
(Name of small business issues in its charter)
VIRGINIA 54-1712558
- ------------------------------ ---------------------------- -------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
8870 RIXLEW LANE, SUITE 201, MANASSAS, VIRGINIA 20109-3795; (703) 257-4759
(Address and telephone number of principal executive offices)
8870 RIXLEW LANE, SUITE 201, MANASSAS, VIRGINIA 20109-3795
(Address of principal place of business or intended principal place of business)
DAVID E. CALKINS, PRESIDENT AND CEO
PACEL CORP.
8870 RIXLEW LANE, SUITE 201
MANASAS, VIRGINIA 20109
(703) 257-4759
(Name, address and telephone number of agent for service)
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
Martin L. Meyrowitz, P.C.
Michael S. Sadow, P.C.
SILVER, FREEDMAN & TAFF, L.L.P.
(a limited liability partnership including professional corporations)
1100 New York Avenue, NW
Seventh Floor, East Tower
Washington, DC 20005-3934
(202) 414-6100
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE REGISTRATION FEE(1)
- ------------------------------------ ---------------- ----------------
Common Stock, no par value per share $ 3,000,000 $ 834
================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PROSPECTUS
Up To
20,000,000 Shares
Common Stock
[PACEL CORP. LOGO]
PACEL CORP.
This is an offering of up to 20,000,000 shares of common stock of PACEL Corp.
PACEL's common stock is traded on the Over-the-Counter Electronic Bulletin Board
under the symbol "PLRP." On November 22, 1999, the last reported sale price for
the common stock on the Over-the-Counter Electronic Bulletin Board was $0.1250
per share.
- --------------------------------------------------------------------------------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 6.
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Per Share Total
------------ ----------
Public offering price $0.15 $3,000,000
Commissions $ $
Proceeds to PACEL $ $
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is ____________, ____
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and the related notes included elsewhere in
this prospectus. All information in this prospectus relating to the number of
shares of our common stock and options is adjusted to reflect all stock splits
and reverse stock splits declared and paid by PACEL to date. Unless otherwise
specifically stated, the information in this prospectus does not take into
account the possible issuance and sale of additional shares of common stock to
the underwriters to cover over-allotments.
Our Company
PACEL Corp. was organized as a Virginia corporation to engage in the
design, development, deployment, service and support of user-friendly
off-the-shelf software business products for industry. We have also expanded our
activities to offer a full line of Internet services and provide information
technology consulting services. In order to provide total solutions to our
target markets, the scope of our activities include:
o off-the-shelf business software products;
o custom software development;
o computer hardware sales;
o systems integration;
o web-site design, development and hosting;
o on-line reseller of products;
o e-commerce site design and consulting;
o training; and
o information technology consulting.
Our most recently developed software product is ChildWatchTM. ChildWatchTM is a
security system which allows parents to connect to a database of
Family-unfriendly Internet sites. The database is updated on a frequent basis
and offers parents the ability to protect their children from unwanted web sites
and monitor their activity without the necessity of finding the sites
beforehand, or relying on a robotic search engine. ChildWatchTM also assists
ChildWatch of North America in its ongoing attempts to locate missing children
and advise families how they can protect their own. See "Business - Software
Applications Development and Systems Integration - Off-the-Shelf Business
Software Products."
2
<PAGE>
Our Market Opportunity
Our target markets are related to the product or service provided.
o Energy
- off-the-shelf business software products
- systems integration
- information technology consulting
o Aerospace
- off-the-shelf business software products
- systems integration
o Government
- off-the-shelf business software products
- custom software development
- computer hardware sales
- systems integration
- web-site design, development and hosting
- training
- information technology consulting
o Small to Mid-Sized Businesses
- off-the-shelf business software products
- custom software development
- computer hardware sales
- systems integration
- web-site design, development and hosting
- training
- on-line reseller of products
- e-commerce site design and consulting
- information technology consulting
o Personal
- off-the-shelf business software products
- web-site design, development and hosting
- on-line reseller of products
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<PAGE>
Our Strategy
PACEL operates on the premise that the management of information technology
for business is not inherently a do-it-yourself project. In order to
differentiate ourselves and expand our business, we intend to:
o emphasize excellence in performance;
o build a relationship-oriented business;
o focus on target markets;
o deliver service and support;
o reinvest revenues in the company;
o leverage technology relationships; and
o hire and retain skilled professionals.
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common stock offered by PACEL Corp. . . . . . . . . . . Up to 20,000,000 shares
Common stock outstanding after the offering . . . . . . 33,263,569 shares, assuming
sale of the entire 20,000,000
shares offered hereby
Use of proceeds . . . . . . . . . . . . . . . . . . . PACEL will use the proceeds of this
offering to reduce outstanding debt
and for general corporate purposes,
including working capital, expansion
of operations and sales and
marketing capabilities and possible
acquisitions. See "Use of Proceeds."
Over-the-Counter Electronic
Bulletin Board symbol . . . . . . . . . . . . . . .PLRP
</TABLE>
----------------------
We started our business in 1994 as a Virginia corporation. Our principal
offices are at 8870 Rixlew Lane, Suite 201 in Manassas, Virginia 20109. Our
telephone number is 703-257-4759. We maintain a Web site at www.pacel.com.
Information contained on our Web site is for informational purposes only and is
not incorporated by reference into this prospectus.
4
<PAGE>
Summary Consolidated Financial Data
The following tables contain selected consolidated financial data as of
December 31 for the years 1997 and 1998 and as of September 30, 1999 and for
each of the years in the two-year period ended December 31, 1998, and for the
nine-month periods ended September 30, 1998 and 1999. The selected consolidated
financial data for each of the years in the two-year period ended December 31,
1998 have been derived from PACEL's consolidated financial statements, which
have been audited by Peter C. Cosmas Co., CPAs, independent accountants. The
selected consolidated financial data as of September 30, 1999 and for the
nine-month periods ended September 30, 1998 and 1999 are unaudited and include
all adjustments, consisting only of normal, recurring adjustments that PACEL
considers necessary for a fair presentation of the consolidated financial
position and the consolidated results of operations for those periods. Operating
results for the nine-month period ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1999. The selected financial data are qualified by reference to,
and should be read in conjunction with, PACEL's consolidated financial
statements and the notes to those financial statements, included elsewhere in
this prospectus. Outstanding stock options, convertible debentures and
convertible preferred stock to purchase 1,638,200 shares of common stock were
not considered in computing diluted earnings per common share because they are
antidultive.
<TABLE>
<CAPTION>
For the For the
Nine Months Ended Years Ended
September 30, December 31,
----------------------------------------------------------
1999 1998 1998 1997
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<S> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues.................................................. $ 37,955 $ 29,093 $ 52,447 $ 56,799
Operating Costs and Expenses.............................. 930,573 464,307 866,005 327,258
Net income (loss)......................................... (892,628) (435,214) (813,558) (270,459)
Basic and Diluted net income (loss)
per common share........................................ (0.11) (0.09) (0.17) (0.06)
Weighted average common shares
outstanding - Basic and Diluted......................... 8,083,629 4,878,937 4,877,247 4,476,000
</TABLE>
<TABLE>
<CAPTION>
At At
September 30, December 31,
1999 1998
------------------------------------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.................................................... $ 125,915 $ 28,857
Working capital (deficit).................................................... (37,961) (283,593)
Total assets ................................................................ 323,756 247,737
Stockholders' equity (deficit) .............................................. 104,686 (145,097)
</TABLE>
5
<PAGE>
RISK FACTORS
An investment in our common stock involves risks. You should carefully
consider the risks described below and the other information in this prospectus
including our financial statements and the notes to those financial statements
before you decide to buy our common stock. The trading price of our common stock
could decline due to any of these risks, and you could lose all or part of your
investment.
Except for any historical information, the matters we discuss in this
prospectus concerning PACEL contain forward-looking statements. These
forward-looking statements include statements about our beliefs, plans,
objectives, goals, expectations, anticipations, estimates and intentions, that
are subject to significant risks and uncertainties, and are subject to change
based on various factors, some of which are beyond our control. Any statements
in this prospectus that are not statements of historical fact are intended to
be, and are, "forward-looking statements" under the safe harbor provided by
Section 27(a) of the Securities Act of 1933. Without limitation, the words
"anticipates," "believes," "estimates," "expects," "intends," "plans" and
similar expressions are intended to identify forward-looking statements. The
important factors we discuss below and under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as other factors identified in PACEL's filings with the SEC and those
presented elsewhere by its management from time to time, could cause actual
results to differ materially from those indicated by the forward-looking
statements made in this prospectus. We do not undertake to update any
forward-looking statement, whether written or oral, that may be made from time
to time by or on behalf of PACEL.
We only began actively selling our products in mid-1997 and, as a result,
you may have difficulty evaluating our business and operating results.
We have a limited operating history and cannot be certain that our business
strategy will be successful. We were incorporated in May 1994, but since that
time the majority of our efforts were expended in research and development,
product development and beta testing. We released our first software product in
June 1997 and only began full commercial operations in May 1999. PACEL is
subject to all the risks inherent in any newly formed business including, the
following:
o the absence of a significant operating history;
o lack of market recognition; and
o limited banking and financial relationships.
In addition, our business plan and operating strategy involves expansion
into businesses and markets which are highly competitive and typified by well
established and better financed companies with a long established and highly
recognized market presence.
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<PAGE>
Investment in a small company such as ours involves a high degree of risk and
can result in loss of your entire investment.
We are a small company in the highly competitive computer software market.
If an industry leader like Microsoft were to bundle a competitive software
package as part of an integrated package, our sales could be adversely affected.
Also, because we have more limited product lines than many of our competitors,
we could be more vulnerable to economic downturns and may need substantial
additional capital to expand and compete. We may also experience substantial
variations in operating results. During recessionary economic periods, the
operating results of small companies like ours often are adversely affected.
Investment in small businesses therefore involves a high degree of business and
financial risk, which can result in substantial losses and accordingly should be
considered speculative.
Our success is highly dependent on the acceptance of our software products, the
growth of our Web design, development and hosting services, and on our ability
to expand our service and distribution channels.
Our success is highly dependent on the growth of our existing software
products and services, as well as the development of new products and services,
including computer hardware sales and Web design, development and hosting. We
expect to drive this internal growth by expanding and enhancing our product
service base with additional enhanced value Internet service capabilities and by
establishing further distribution capabilities. To a certain extent we may
develop these further product and distribution capabilities internally, but
expect that primarily we will look to formulate strategic relationships with
various vendors and distribution partners. Accordingly, it will be important
that we either develop these capabilities internally or identify suitable
potential product and service vendors and distributors with whom we are able to
complete agreements on acceptable terms. We expect that competition for
strategic relationships with key vendors and potential distributors could be
significant, and that we may have to compete with other companies with greater
financial and other resources to obtain these important relationships. We cannot
assure you that we will be able to identify suitable partnering candidates or be
able to complete agreements on acceptable terms with these parties.
We formed a strategic relationship with Child Watch of North America
pursuant to which they will distribute our ChildwatchTM software product, a
family friendly security program for home use allowing parents to control access
and viewing of Internet sites. The agreement is for an initial term of three
years. We expect a significant portion of our projected revenues will be derived
from the Child Watch of North America project in the form of monthly
subscriptions from consumers and families for monthly updates to our service. A
portion of these subscriptions will be paid to Child Watch of North America
under the terms of our agreement. While any revenue estimates are based on
conservative assumptions, there is no guarantee of any specific subscription
rate. We cannot guarantee that our current relationship with Child Watch of
North America will continue on the same terms beyond the initial three year
contract.
7
<PAGE>
We need to expand our sales and distribution channels, and, if we fail to do so,
our growth could be limited.
We will need to expand our direct and indirect sales operations in order to
increase market awareness of our products and services and to generate increased
revenue. We have recently expanded our direct sales force and plan to recruit
additional sales personnel. As of September 30, 1999, we employed three
individuals in our sales and marketing division. Currently, we believe we will
need to expand our sales division by more than 150% of its present size over the
next 18 months. New sales personnel will require training and take time to
achieve full productivity. There is strong competition for qualified sales
personnel in our business, and we may not be able to attract and retain
sufficient new sales personnel to expand our operations. In addition, we believe
that our future success is dependent upon expansion of our indirect distribution
channels, which consists of our relationships with a variety of distribution
partners such as computer resellers, value-added resellers, original equipment
manufacturers, independent software vendors, system integrators, Web designers
and advertising agencies. To date, we have relationships with only a limited
number of these partners. We cannot be certain that we will be able to establish
relationships with additional distribution partners on a timely basis, or at
all, or that these distribution partners will devote adequate resources to
promoting or selling our products. In addition, we may also face potential
conflicts between our direct sales force and third-party reselling efforts.
We rely on strategic relationships to implement and promote our software
products and, if these relationships fail, our business could be harmed.
We have entered into relationships with hardware platform and software
applications developers and service providers. We expect to derive a significant
portion of our revenues from customers that purchase products or services from
our partners. In most cases, the partner refers the customer to us, and we enter
into a software license agreement directly with the customer.
Future growth of our business could make it difficult to manage our resources.
We anticipate our business to grow rapidly through increased sales of our
off-the-shelf and custom developed software products and related services,
computer hardware sales and our systems integration and Web design, development
and hosting. This rapid growth will place a significant strain on our
managerial, operational, financial and information systems resources. In order
to manage our growth effectively, we must continue to implement and improve our
operational, financial and information systems, and expand, train and manage our
employee base. We expect that we will need to continue to hire and retain
management and sales and marketing personnel, and other employees. Expansion of
our information and network systems will also be required to accommodate this
growth. There can be no assurance that we will be able to effectively manage the
expansion of our operations, or that our facilities, systems, procedures or
control will be adequate to support our expanded operations. Our inability to
effectively manage our future growth would have a material adverse effect on our
business.
We believe that our ability to provide timely access for customers and
adequate customer and technical support largely will depend on our ability to
attract, identify, train, integrate and
8
<PAGE>
retain qualified personnel. Failure to provide adequate customer and technical
support services would adversely affect our ability to maintain and increase our
customer base, and could therefore have a material adverse effect on our
business.
We rely on the services of our founder and other key personnel, whose knowledge
of our business and technical expertise would be extremely difficult to replace.
Our future success depends, to a significant degree, on the continued
services of our founder, David E. Calkins, as well as other key management,
sales and technical personnel. The loss of services of any of these employees
for any reason could harm our business.
We may not be able to hire and retain highly skilled employees, which could
affect our ability to compete effectively.
To succeed, we must hire, train, motivate, retain and manage employees who
are highly skilled in software development, testing and training, as well as the
Internet and its rapidly changing technology. Because of the recent and rapid
growth in the high technology and Internet fields, individuals who have this
type of expertise and can perform the services we need are scarce. Competition
for these individuals, therefore, is intense. We may not be able to hire enough
of them or to train, motivate, retain and manage the employees we do hire. This
could hinder our ability to complete existing projects and bid for new projects.
In addition, because the competition for qualified employees in the high
technology and Internet industries is intense, hiring, training, motivating,
retaining and managing employees with the strategic, technical and creative
skills we need is both time consuming and expensive. These factors create
variations and uncertainties in our compensation expense and directly affect our
profits. If we fail to attract, train, and retain sufficient numbers of these
technically-skilled people, our business, financial condition, and results of
operations will be materially and adversely affected.
Because we currently expect the majority of our revenues to come from the sales
of our software products and related services, our business could be materially
harmed by factors that adversely affect the pricing and demand for these
products and services.
We anticipate that the majority of our revenues will be derived from the
sale of our software products and related services. As a result, factors
adversely affecting the pricing of or demand for our software products, such as
competition and technological changes, could materially harm our business.
Competition in our market areas is intense, and, if we are unable to compete
effectively, the demand for, or the prices of, our products and services may be
reduced.
We have specialized in the design, development, implementation, service and
support of custom software products for the energy and aerospace industries and
governmental agencies. We have also recently expanded our business activities to
include off-the-shelf software products for commercial and consumer use, custom
software development for small to mid-sized businesses, as well as computer
hardware sales, systems integration and Web-based services. Each of these
markets is extremely competitive and subject to rapid change. We compete with
9
<PAGE>
various software providers, including Adobe, ALTRIS, Conehead Software, INFO
ACCESS, Tropical Software and WinAbility. We also compete with numerous other
companies in our other market areas. We expect additional competition from other
established and emerging companies. Furthermore, our competitors may combine
with each other, and other companies may enter our markets by acquiring or
entering into strategic relationships with our competitors.
Most of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our present or future competitors may be able to develop products comparable
or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends or customer requirements, or devote
greater resources to the development, promotion and sale of their products than
we do. Accordingly, we may not be able to compete effectively in our markets,
competition may intensify and future competition may harm our business. See
"Business--Competition" for additional information relating to the competitive
disadvantages we face.
Changes in technology could adversely affect our business.
The markets for our software products and information technology services
change rapidly because of technological innovation, new product introductions,
changes in customer requirements, declining prices, and evolving industry
standards, among other factors. New products and new technology often render
existing software products, information services or technology infrastructure
obsolete, excessively costly, or otherwise unmarketable. As a result, our
success depends on our ability to timely innovate and integrate new technologies
into our software and service offerings. We cannot guarantee that we will be
successful at adopting and integrating new technologies into our software and
service offerings in a timely manner.
Advances in technology also require us to commit substantial resources to
acquiring and deploying new technologies for use in our operations. We must
continue to commit resources to train our personnel and our clients' personnel
in the use of these new technologies. We must continue to train personnel to
maintain the compatibility of existing hardware and software systems with these
new technologies. We cannot be sure that we will be able to continue to commit
the resources necessary to refresh our technology infrastructure at the rate
demanded by our markets.
Rapid technological changes in the Internet could cause some of our products to
become obsolete or require us to redesign some of our products.
The rapid evolution of the Internet and Internet-based applications and
standards, as well as general technology trends such as changes in or
introductions of operating systems, will require us to adapt our software
products to remain competitive. Some of our products could become obsolete and
unmarketable if we are unable to adapt to new technologies or standards.
Our current and future success is to some extent dependent upon hardware,
such as mobile computer processing units supporting the operation of our
software. The rate of improvement in capability of operating systems such as
Microsoft Windows NT, Novell Pro and
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<PAGE>
others and the introduction of new technologies on the Internet will require
continued upgrades and modifications for applications software such as ours to
continue to be compatible.
To be successful, we will need to develop and introduce new products and
product enhancements that respond to technological changes or evolving industry
standards in a timely manner and on a cost-effective basis. We cannot assure you
that we will successfully develop these types of products and product
enhancements or that our products will achieve broad market acceptance. Our
failure to respond in a timely and cost-effective manner to new and evolving
technologies could adversely impact our business. Furthermore, there can be no
assurance that competitors will not introduce products incorporating technology
as advanced or more advanced than ours, thereby rendering our products or
technologies noncompetitive or obsolete. Any significant delays in developing or
shipping new or enhanced products could adversely affect our operating results.
We will attempt to keep abreast, if not ahead, of new technologies and upgrades
in existing technologies. However, there is no assurance that we can do so, or
even if we can do so, that we can maintain our technological edge in an economic
fashion.
Our software products integrate with applications made by third parties, and, if
we lose access to the programming interfaces for these applications, or if we
are unable to modify our products or develop new products in response to changes
in these applications, our business could suffer.
Our software products use software components to communicate with our
customers' enterprise applications. Our ability to develop these software
components is largely dependent on our ability to gain access to the application
programming interfaces, or APIs, for the applications, and we may not have
access to necessary APIs in the future. APIs are written and controlled by the
application provider. Accordingly, if an application provider becomes a
competitor by entering into our market, it could restrict our access to its APIs
for competitive reasons. Our business could suffer if we are unable to gain
access to these APIs. Furthermore, we may need to modify our software products
or develop new software components in the future as new applications or newer
versions of existing applications are introduced. If we fail to continue to
develop software components or respond to new applications or newer versions of
existing applications, our business could suffer.
We rely in part on third parties to develop software components necessary for
the integration of applications using our software, and we cannot be certain
that these companies will continue to develop these software components or that
these software components will be free of defects.
A core element of our strategy is to enable third parties to develop
software components that operate with our software. If these third parties are
unable or unwilling to develop these software components, we may need to develop
them internally, which would require us to divert financial and technical
resources to these efforts. In addition, we cannot be certain that software
components developed by third parties will not contain undetected errors or
defects, which could harm our reputation, result in product liability or
decrease the market acceptance of our products.
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<PAGE>
Participants in some markets have adopted industry-specific technologies,
therefore, we may need to expend significant resources in order to address
specific markets.
Our strategy is to develop our software products to be broadly applicable
to many industries. However, some market participants have adopted core
technologies that are specific to their markets. In order to successfully sell
our products to companies in these markets, we may need to expand or enhance our
products to adapt to these industry-specific technologies, which could be costly
and require the diversion of engineering resources.
Our products incorporate technology licensed to us from third parties,
therefore, the loss of our right to use this licensed technology could harm our
business.
We license technology that is incorporated into our products from third
parties, including text control software from DBS GmbH and spreadsheet software
from FarPoint. Any significant interruption in the supply or support of any
licensed software could adversely affect our sales, unless and until we can
replace the functionality provided by this licensed software. Because our
products incorporate software developed and maintained by third parties, we
depend on these third parties to deliver and support reliable products, enhance
their current products, develop new products on a timely and cost-effective
basis and respond to emerging industry standards and other technological
changes. The failure of these third parties to meet these criteria could harm
our business.
Our intellectual property could be used by others without our consent because
protection of our intellectual property is limited.
We rely primarily on a combination of copyrights, trademarks, trade secret
laws and contractual obligations with employees and third parties to protect our
proprietary rights. We do not currently own any issued patents, and other
protection of our intellectual property is limited. Despite our efforts to
protect our proprietary rights, unauthorized parties may copy aspects of our
products and obtain and use information that we regard as proprietary. In
addition, other parties may breach confidentiality agreements or other
protective contracts we have entered into, and we may not be able to enforce our
rights in the event of these breaches. Furthermore, we expect that we will
increase our international operations in the future, and the laws of many
foreign countries do not protect our intellectual property rights to the same
extent as the laws of the United States. For more information regarding our
intellectual property, see "Business-Intellectual Property Rights."
Our products may infringe the intellectual property rights of others, and
resulting claims against us could be costly and require us to enter into
disadvantageous license or royalty arrangements.
The software industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent infringement
and the violation of other intellectual property rights. Although we attempt to
avoid infringing known proprietary rights of third parties in our product
development efforts, we expect that we may be subject to legal proceedings and
claims for alleged infringement by us or our licensees of third party
proprietary
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rights, such as patents, trademarks or copyrights, from time to time in the
ordinary course of business. Any claims relating to the infringement of third
party proprietary rights, even if not meritorious, could result in costly
litigation, divert management's attention and resources, or require us to enter
into royalty or license agreements which are not advantageous to us. In
addition, parties making these claims may be able to obtain an injunction, which
could prevent us from selling our products in the United States or abroad. Any
of these results could harm our business. We may increasingly be subject to
infringement claims as the number of products and competitors in our industry
grows and functionalities of products overlap. Furthermore, former employers of
our current and future employees may assert that our employees have improperly
disclosed confidential or proprietary information to us. For more information
concerning the risk of infringement, see "Business-Intellectual Property
Rights."
Our software products are complex and may contain unknown defects that could
harm our reputation, result in product liability or decrease market acceptance
of our products.
Our software products are complex and include source code that is
internally developed and licensed from third parties. These software products
may contain errors or defects, particularly when first introduced or when new
versions or enhancements are released. Although we have not experienced any
material software defects to date, these defects could cause our customers to
experience severe system failures. Any interruptions could:
o damage our reputation;
o increase our product development costs;
o divert our product development resources;
o cause us to lose sales; or
o delay market acceptance of our products.
Although we conduct extensive testing, we may not discover software defects
that affect our current or new products or enhancements until after they are
sold. Furthermore, because our software products are designed to work in
conjunction with a wide variety of applications, we are unable to test our
products with all of these applications.
We may not be able to provide adequate technical support services to our
customers.
We rely exclusively on our internal personnel to provide our customers with
technical support services. As our customer base grows we expect to contract
with outside technical support service providers to assist us with providing
technical support seven days a week, 24 hours a day. Should we fail to meet our
increasing demand for services or if we are unable to contract with outside
technical support service providers, the quality of support provided to our
customers may suffer which could have a negative impact on our future financial
results.
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<PAGE>
Our year 2000 compliance efforts could be costly and time-consuming, and our
business could suffer if we or our customers do not adequately address year 2000
risks.
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January 1,
2000, computer systems and software used by many companies and organizations in
a wide variety of industries, including technology, transportation, utilities,
finance and telecommunications, will produce erroneous results or fail unless
they have been modified or upgraded to process date information correctly.
Our software products could fail due to processing errors caused by
inaccurate calculations with respect to the year 2000. In addition, third party
hardware and software used with our software products could experience year 2000
compliance problems which are wrongly attributed to us, or our customers,
partners or suppliers could experience year 2000 compliance problems. The
occurrence of any of these events could result in delays or losses of revenues,
diversion of our resources, damage to our reputation, increased service and
warranty costs and litigation costs. For a further discussion of year 2000
issues, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Readiness Disclosure."
Our management has broad discretion over use of the proceeds from this offering
The net proceeds of this offering are estimated to be approximately $2.8
million after deducting the commissions, if any, and estimated offering
expenses. Our management will retain broad discretion as to the allocation of
the proceeds of this offering.
We need the proceeds of this offering to continue and expand our operations.
We are substantially dependent upon the proceeds of this offering to
provide financing to continue, and to expand the scope of, our present
operations. There is no minimum amount that must be sold in the offering. In the
event we sell less than the maximum number of shares offered by this document,
our operating capital will be correspondingly reduced, and we may be required to
seek additional sources of funding, the availability of which cannot be assured.
We intend to use the proceeds of this offering for:
o sales and marketing of existing products and services;
o research and development of new software products and improvements and
upgrades of existing products;
o general and administrative expenses;
o working capital; and
o offering expenses.
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<PAGE>
In addition, we expect to make significant capital expenditures in order to
compete and continue to meet the increasing demands for service quality,
availability and competitive pricing. We currently expect that our significant
capital expenditures will include the following:
o network equipment;
o network operating centers;
o network monitoring equipment;
o information technology systems;
o back-up power sources; and
o customer support systems.
We project that cash flow from operations and the capital raised through
this offering, based on a sale of the maximum number of shares offered by this
document, will be sufficient to support our anticipated capital expenditures and
working capital requirements through the end of 2001. However, any increases in
our anticipated growth rate, shortfalls in anticipated net proceeds from the
offering or in anticipated revenues, increases in anticipated expenses, or
significant acquisition opportunities in the United States or abroad could have
a material adverse effect on our liquidity and capital resources and could
require us to raise additional capital from public or private equity or debt
sources. In addition, we may need to raise additional funds to develop new
products or otherwise respond to changing business conditions or unanticipated
competitive pressures. There can be no assurance that we will be able to raise
any such capital on terms acceptable to us or at all should we need to do so. We
may be required to delay or abandon some of our planned future expansion or
expenditures if we fail to raise sufficient funds.
It is likely that we will need additional capital in the future to finance our
growth and capital expenditure requirements.
Even if all of the shares being offered are sold, of which there is no
guarantee, we may need to seek additional funds in the future. We must continue
to enhance and develop our product line in order to maintain our competitive
position and continue to meet the increasing demands for service, quality,
availability and competitive pricing. We may need to raise additional capital
from public or private equity or debt sources in order to
o fund growth, operating losses, increases in expenses or cash
requirements;
o to respond to technological and competitive developments and customer
needs;
o take advantage of unanticipated opportunities, such as major strategic
alliances or other special marketing opportunities, acquisitions of
complementary businesses or assets, or the development of new
products; and
15
<PAGE>
o otherwise respond to unanticipated developments or competitive
pressures.
There can be no assurance that we will be able to raise any such capital on
terms acceptable to us or at all. Such financing may be upon terms that are
dilutive or potentially dilutive to our stockholders. If alternative sources of
financing are required, but are insufficient or unavailable, we will be required
to modify our growth and operating plans in accordance with the extent of
available funding.
We have lost money in each quarter since our inception and could lose money in
the future.
Our financial results may fluctuate from quarter to quarter. In fact, we
have incurred net losses in each quarter since our inception. We incurred net
losses of $813,558 in 1998 and $892,618 in the nine months ended September 30,
1999, and as of September 30, 1999 we had stockholders' equity of approximately
$104,686. We cannot assure you that our revenues will grow or that we will
achieve or maintain profitability in the future. In addition, we intend to
significantly increase our future product development, operating hardware and
support services, sales and marketing, and administrative expenses over the next
18 months. Accordingly, we will need to significantly increase revenue to
achieve and maintain profitability.
Our operating results are subject to fluctuations and general business cycles
and, if we fail to meet the expectations of securities analysts or investors,
our stock price could decline significantly.
Our operating results are difficult to predict, and we believe that
period-to-period comparisons of our operating results will not necessarily be
meaningful. As a result, you should not rely upon them as an indication of
future performance. Our future quarterly operating results may fluctuate and may
not meet the expectations of securities analysts or investors. If this occurs,
the price of our common stock would likely decline. The factors that may cause
fluctuations of our operating results include the following:
o the size, timing and contractual terms of sales of our products and
services due to the long and unpredictable sales cycle for our
products;
o technical difficulties in our software that could delay product
shipments or increase the costs of introducing new products;
o introductions of new products or new versions of existing products by
us or our competitors;
o changes in the pricing of our products and services or those of our
competitors;
o our ability and the ability of our partners to implement electronic
business integration solutions for our customers;
o changes in our mix of revenues generated from product sales and
services;
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<PAGE>
o changes in our mix of sales channels through which our products and
services are sold; and
o the fixed nature of our operating expenses, such as base compensation
and rent.
One of our key software products, Visual Writer System, improves the
efficiency of procedure intensive companies and organizations. Many of these
organizations are large, requiring several layers of management approval and/or
a pilot implementation prior to purchase. Consequently the sales cycle for this
product may be longer than anticipated.
We cannot assure you that we will be profitable.
In order to achieve profitability, PACEL must develop and market products
and services which gain broad commercial acceptance. We cannot assure you that
we will ever achieve broad commercial acceptance or profitability. We cannot
assure you that we will ever achieve or sustain positive operating cash flow or
generate income in the future. It is possible that we may never achieve
profitability on a quarterly or annual basis.
We have short-term contracts that can be canceled without penalty. If clients
terminate contracts with us on short notice, our results of operations could
suffer.
Our contracts with clients are generally short-term. Also, most clients can
reduce or cancel their contracts for our services with little or no notice and
penalty. If a significant client or a number of small clients terminate,
significantly reduce or modify business relationships with us, our business,
financial condition and results of operations could be materially and adversely
affected. Consequently, you should not predict or anticipate our future revenue
based on the number of clients we have or the number and size of our existing
projects. When a client postpones, modifies or cancels a project, we have to
shift our employees to other projects and minimize the resulting adverse impact
on our operating results. In addition, our operating expenses are relatively
fixed and cannot be reduced on short notice.
We may be adversely affected by government regulations and legal uncertainties
associated with the Internet.
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent, but the legislative and
regulatory treatment of the Internet remains largely unsettled. The U.S.
Congress recently adopted Internet laws regarding copyrights, taxation and the
protection of children. In addition, a number of other legislative and
regulatory proposals under consideration by federal, state, local and foreign
governments could lead to additional laws and regulations affecting the right to
collect and use personally identifiable information, online content, user
privacy, taxation, access charges and liability for third-party activities,
among other things. For example, the growth and development of the market for
Internet commerce may prompt calls for more stringent consumer protection laws,
both in the United States and abroad, that may impose additional burdens on
companies conducting business over the Internet.
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<PAGE>
Although our transmissions originate from Virginia, the governments of
other states or foreign countries might attempt to regulate our transmissions or
levy sales or other taxes relating to our activities. Courts may seek to apply
existing laws not explicitly relating to the Internet in ways that could impact
the Internet, and it may take years to determine whether and how laws such as
those governing intellectual property, privacy, libel and taxation will affect
the Internet.
Existing or future laws or regulations affecting the Internet could lessen
the growth in use of the Internet generally and decrease the acceptance of the
Internet as a communications, commercial and advertising medium, and could
reduce the demand for our services or increase our cost of doing business, all
of which could cause our business, financial condition and results of operations
to be materially and adversely affected.
The market for stocks of technology companies has experienced extreme price and
volume fluctuations; our stock price may be volatile, which could adversely
affect your investment.
The price of the common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. If you purchase shares
of common stock in this offering, you will pay a price that was arbitrarily
determined, based on our market share price as of the date of this document.
Many factors could cause the market price of our common stock to rise and fall.
Some of these factors are:
o variations in our quarterly results;
o announcements of technological innovations by us or by our
competitors;
o introductions of new products or new pricing policies by us or by our
competitors;
o acquisitions or strategic alliances by us or by our competitors;
o recruitment or departure of key personnel;
o the gain or loss of significant orders;
o changes in the estimates of our operating performance or changes in
recommendations by securities analysts; and
o market conditions in the industry and the economy as a whole.
In addition, the market for stocks of technology and Internet-related
companies has experienced extreme price and volume fluctuations that often have
been unrelated to these companies' operating performance. These fluctuations
could lower the market price of our common stock regardless of our actual
operating performance.
In the past, securities class action litigation has often been brought
against a company following a period of volatility in the market price of its
securities. We may in the future be the
18
<PAGE>
target of similar litigation. Securities litigation could result in substantial
costs and divert management's attention and resources, which could harm our
business.
To the extent our securities are subject to the "penny stock" rules, investors
in the offering may find it more difficult to sell their securities.
The SEC has adopted regulations which generally define a "penny stock" to
be an equity security that has a market price less than $5.00 or an exercise
price of less than $5.00 per share, subject to some exceptions. The securities
offered hereby will most likely be defined as "penny stock." The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about penny stocks and the risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in connection with the transaction, and the monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that is subject to the penny stock
rules. To the extent our securities are subject to the penny stock rules,
investors in the offering may find it more difficult to sell their securities.
Availability of significant amounts of common stock for sale could adversely
affect its market price.
Approximately 33,263,569 shares of our common stock will be outstanding
after consummation of this offering. The 20,000,000 shares of common stock being
offered hereby will be eligible for immediate resale in the public market
without restriction, unless we or one of our affiliates acquire any such shares.
The future sale of a substantial number of shares of common stock in the public
or private market following this offering, or the perception that such sales
could occur, could adversely affect the prevailing market price. See "Shares
Eligible For Future Sale." We have issued a number of options to purchase shares
of common stock to our directors, officers, employees and consultants prior to
this offering. Following this offering, we expect to continue to issue options
to these individuals and entities to reward performance and encourage retention.
The exercise of any options issued by us could adversely affect the prevailing
market price of the common stock.
Our officers, directors and affiliated entities own a large percentage of our
voting stock and could significantly influence the outcome of actions requiring
stockholder approval.
Upon completion of this offering, executive officers and directors, as well
as their respective affiliates, will beneficially own a total of approximately
14.2% of our outstanding common stock. As a result, these stockholders will be
able to exercise a substantial amount of control over matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may delay,
deter
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<PAGE>
or prevent transactions that would result in a change of control, which in turn
could reduce the market price of our common stock.
Our certificate of incorporation, bylaws and Virginia law contain provisions
that could discourage or prevent a takeover, even if an acquisition would be
beneficial to our stockholders.
Provisions of our articles of incorporation and by-laws and provisions of
applicable Virginia law may discourage, delay or prevent a merger or other
change of control that a stockholder may consider favorable. Our board of
directors has the authority to issue up to 5,000,000 shares of preferred stock
of PACEL and to determine the price and the terms, including preferences and
voting rights, of those shares without stockholder approval. Although we have no
current plans to issue additional shares of our preferred stock, any such
issuance could:
o have the effect of delaying, deferring or preventing a change in
control of our company;
o discourage bids for our common stock at a premium over the market
price; or
o adversely affect the market price of, and the voting and other rights
of the holders of, our common stock.
We are subject to certain Virginia laws that could have the effect of
delaying, deterring or preventing a change in control of our company. One of
these laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless approved by at least a majority of the
disinterested directors and two-thirds of the disinterested stockholders of
PACEL. Another statutory protection against takeovers is the Virginia control
share statute. The control share statute offers protection from unwanted
corporate takeovers by requiring an interested investor who acquires a threshold
percentage of stock in a target corporation to obtain the approval of
non-interested shareholders before it may exercise voting rights. In addition,
some of the provisions in our articles of incorporation, such as our classified
board, and the significant amount of common stock held by our executive
officers, directors and affiliates, could have the effect of discouraging
potential takeover attempts or making it more difficult for stockholders to
change management.
USE OF PROCEEDS
PACEL will receive proceeds of approximately $2.8 million from the sale of
the entire 20,000,000 shares of common stock it is offering, net of estimated
expenses and commissions, if any, and based on an assumed public offering price
of $0.15 per share.
PACEL currently intends to use the offering's net proceeds for working
capital and general corporate purposes. Specifically, we plan to increase
PACEL's, E-Business-Stor.Com's
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<PAGE>
and Fairfax Communication's marketing and sales activities and hire more
personnel in these functional areas. We also plan to expand our operations and
hire more software programers and Internet solutions professionals. We estimate
that we will use approximately $500,000 to pay off existing debt. PACEL may also
use a portion of the proceeds for acquisitions. From time to time, in the
ordinary course of business, PACEL evaluates potential acquisitions of
businesses, products or technologies. PACEL has no present understandings or
agreements with respect to any acquisition of businesses, products or
technologies.
Pending use of the net proceeds for the above purposes, PACEL intends to
invest such funds in short-term, interest-bearing, investment-grade securities.
In addition to the use of the net proceeds received by it from the offering,
PACEL also expects during the next 18 months to meet its working capital
requirements through existing cash and cash equivalents, investments, cash from
sales of services, its credit facility and possibly other borrowings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
PRICE RANGE OF COMMON STOCK
PACEL's common stock is quoted on the Over-the-Counter Electronic Bulletin
Board under the symbol "PLRP." The following table presents, for the periods
indicated, the high and low sales prices per share of our common stock as
reported on the Over-the-Counter Electronic Bulletin Board.
High Low
----- -----
1999:
First Quarter....................................... $0.60 $0.08
Second Quarter...................................... 1.44 0.24
Third Quarter....................................... 1.03 0.32
Fourth Quarter (through November 22, 1999).......... 0.30 0.06
1998:
First Quarter.......................................
Second Quarter......................................
Third Quarter.......................................
Fourth Quarter......................................
On November 22, 1999, the last reported sale price of our common stock on
the Over- the-Counter Electronic Bulletin Board was $0.1250. As of November 22,
1999, there were 66 holders of record of our common stock.
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DIVIDEND POLICY
PACEL has never declared or paid any cash dividends on its capital stock.
PACEL intends to retain future earnings, if any, to finance the expansion of its
business and does not expect to declare or pay any cash dividends in the
foreseeable future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
CAPITALIZATION
The following table presents our capitalization as of September 30, 1999 on
an actual basis and an adjusted basis. The adjusted basis presentation reflects
the sale of 20,000,000 shares of common stock in this offering at an assumed
offering price of $0.15 per share and application of the estimated net proceeds
of approximately $2.8 million.
The adjusted basis presentation does not include 1,638,200 shares of common
stock issuable upon exercise of stock options, convertible debentures and
convertible preferred stock outstanding as of September 30, 1999. You should
read this information together with the financial statements and notes to those
financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------------------
Actual Adjusted
--------------------- ----------------------
<S> <C> <C>
Stockholders' Equity:
Preferred stock, no par value: 5,000,000 shares authorized;
1,000,000 shares of 1997 Class A Convertible Preferred
Shares issued and outstanding (actual);
1,000,000 shares of 1997 Class A Convertible
Preferred Shares issued and outstanding (adjusted) ..................... $ 11,320 $ 11,320
Common stock, no par value: 40,000,000 shares authorized;
9,090,359 shares issued and outstanding (actual); 29,090,359 shares
issued and outstanding (adjusted)....................................... 2,101,592 4,926,592
Additional paid-in capital.............................................. --- ---
Retained deficit........................................................ (2,008,226) (2,008,226)
Comprehensive income.................................................... --- ---
Treasury stock.......................................................... --- ---
----------- -----------
Total stockholders' equity......................................... 104,686 2,929,686
=========== ===========
Total capitalization........................................... $ 104,686 $ 2,929,686
=========== ===========
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with "Selected
Consolidated Financial Data," and our consolidated financial statements and the
notes to those financial statements included elsewhere in this prospectus.
Results of Operations
The following table presents, for the periods indicated, the relative
composition of revenue and selected statements of operations data as a
percentage of revenue:
<TABLE>
<CAPTION>
At and For the Nine Months At and For the
Ended September 30, Years Ended December 31,
-----------------------------------------------------------------
1999 1998 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues......................................... 100.00% 100.00% 100.00% 100.00%
Operating expenses:
Research and development....................... 1462.18% 713.18% 1223.62% 482.47%
Depreciation................................... 14.80% 12.90% 19.71% 8.55%
Interest Expense............................... 0.00% 0.00% 11.17% 0.77%
Selling, general and administrative............ 974.79% 869.86% 396.70% 84.37%
Total operating costs and expenses........... 2451.78% 1595.94% 1651.20% 576.17%
Net (loss)................................ (2351.78)% (1495.94)% (1551.20)% (476.17)%
</TABLE>
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Revenues - Total revenues increased 30% to $37,955 for the nine months
ended September 30, 1999 from $29,093 for the nine months ended September 30,
1998. The increase is attributed to the completion of the WinSentryTM security
program released in 1999.
Research and development - Research and development increased 104% to
$554,972 for the nine months ended September 30, 1999 from $271,637 for the nine
months ended September 30, 1998. The increase is attributed primarily to the
development of CarmaSoftTM, a care and people management program, the completion
and upgrade of the WinSentryTM security program and the development of ZoomerTM.
The upgrades for the WinSentryTM program included code stabilization and feature
enhancements. In addition, 35% of the increase is attributed to the formation of
a subsidiary, E-Business-Stor.Com. E-Business-Stor.Com required the development
of an e-commerce web-site which offers one-stop shopping for hardware and
software products for traditional business and home business clients.
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<PAGE>
Selling, general and administrative expenses - Selling, general and
administrative expenses increased 95% to $369,982 for the nine months ended
September 30, 1999 from $188,917 for the nine months ended September 30, 1999
from $253,068 for the nine months ended September 30, 1998. The increase is
primarily attributed to the relocation of Company headquarters in February 1999,
and an increase in marketing and administrative personnel-related costs. The
marketing and administrative staff increased from two at September 30, 1998 to
nine at September 30, 1999.
Net (Loss) - Net (loss) for the nine months ended September 30, 1999 was
$892,618 compared to $435,214 for the nine months ended September 30, 1998, a
105% increase. The increase resulted from increased staffing during the 1999
period to develop and market our products and weaker than expected sales of The
Visual Writer System and the newly released WinSentryTM security program. The
lack of sales resulted from the lack of a distribution system, which has been
recently established through relationships with Tiger Direct and Digital River.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues - Total revenues decreased 7.6% to $52,447 for the year end
December 31, 1998 from $56,799 for the year ended December 31, 1997. The
decrease is attributed to resources being directed toward development and beta
testing of new products rather than marketing.
Research and Development - Research and development increased 24.3% to
$641,752 for the year ended December 31, 1998 from $274,040 for the year ended
December 31, 1997. The increase is primarily due to our efforts to continue
expanding our product line, resulting in higher labor costs necessary for the
development of products.
Selling, general and administrative expenses - Selling, general and
administrative expenses increased 434% to $208,057 for the year ended December
31, 1998 from $47,923 for the year ended December 31, 1997. The increase is
primarily due to compensation expense to officers totalling $105,000 in 1998 and
$0 in 1997.
Net (Loss) - Net (loss) increased 300% to $813,558 for the year ended
December 31, 1998 from $270,459 for the year ended December 31, 1997. The
increase in net (loss) was primarily a result of increased costs associated with
research and development to expand our product lines.
Liquidity and Capital Resources
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Net cash used for operating activities for the nine months ended September
30, 1999 and 1998 was $788,368 and $202,834, respectively. The use of cash in
operating activities for the nine months ended September 30, 1999 resulted
primarily from the net (loss) and the decrease in accounts payable.
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<PAGE>
Net cash used in investing activities for the nine months ended September
30, 1999 and 1998 was $10,298 and $0, respectively. The increase in cash used
was primarily attributable to the purchase of computer-related equipment.
Net cash provided by financing activities for the nine months ended
September 30, 1999 and 1998 was $895,724 and $241,113, respectively. The
increase in cash provided was primarily attributable to the sale of common
stock.
At September 30, 1999, we had $125,915 in cash and cash equivalents. We
have subsequently negotiated and utilized a $400,000 credit line convertible
into common stock, and we are currently negotiating the terms of a $500,000 line
of credit with a major shareholder.
We believe that cash flows from operations, together with funds from the
issuance of convertible debt and the anticipated line of credit will be
sufficient to finance PACEL's operations and meet its foreseeable cash
requirements for the short term. We will, however, require substantial
additional funds to finance our business activities on an ongoing basis and will
have a continuing long-term need to obtain additional financing.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
We have financed capital requirements with short-term debt converted to
equity. As of December 31, 1998 there was $35,000 short-term debt outstanding
and a $200,000 credit line convertible into common stock available as needed. We
continue to raise capital through private placement offerings and will need to
do so in the foreseeable future. Cash requirements have depended solely upon our
ability to continue to raise money through private placements. We believe that
we will meet our foreseeable cash requirements including planned capital
expenditures, through the next twelve months.
Net cash used for operating activities for the years ended December 31,
1998 and December 31, 1997 was $455,329 and $291,655, respectively. The use of
cash in operating activities in 1998 was primarily due to the net (loss) from
operations and the increase in other receivables partially offset by the
increase in accounts payable, accrued expenses and loans from
officers/stockholders.
Net cash used in investing activities was $126,000 in 1998 and $2,797 in
1997. The increase in cash used for investing activities in 1998 was
attributable to the purchase of office furniture, equipment and computers. Also
a loan for $75,000 was issued in connection with a partnering agreement.
Net cash provided from financing activities was $576,026 in 1998 and
$319,470 in 1997. The cash provided from financing activities was from the sale
of common stock and the issuance of debt convertible into common stock.
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<PAGE>
Year 2000 Readiness Disclosure
Background. Many computer systems and applications currently use two-digit
fields to designate a year. This inability to recognize, or properly treat, the
year 2000 may cause systems to process financial and operational information
incorrectly, resulting in system failures and other business problems.
Risk Factors. We may experience operations interruptions because of year
2000 problems. Also, we may experience operations difficulties caused by
undetected errors or defects in the technology we use in our internal systems.
We may become involved in disputes regarding year 2000 problems involving
software products and solutions we developed or implemented, or the interaction
of our products and solutions with other applications. Year 2000 problems could
require us to incur delays and unforeseen expenses. While it is difficult to
identify every conceivable issue related to the year 2000, we have formulated an
approach to address our exposure to these risk factors.
Approach. We have completed assessing the impact of the year 2000 issue on
our current products, internal information systems and non-information
technology systems. We have also completed our assessment of our suppliers and
distributors for year 2000 compliance and business continuity. Based on these
results, we believe that our products and information systems are year 2000
compliant and that our suppliers and distributors are year 2000 compliant in
regard to any products supplied to PACEL and its customers. However, as with all
computer software and hardware products, our products and services almost never
operate in isolation. To ensure an organization is fully year 2000 compliant
using our products, it is important for our customers to not only contact each
maker of their other system components, but to test for compliance on a
system-wide basis. Any year 2000 compliance problem of our products, systems or
those of our vendors, distributors, network service providers, resellers or
customers could have a material adverse effect on our business, results of
operations, and financial condition.
Status. We have completed the testing of our major infrastructure items,
hardware platforms and operating systems, as well as our software products, and
believe that these items are year 2000 compliant. PACEL's personal computers for
sale to the public are built using components of various manufacturers. We have
reviewed these manufacturers' year 2000 compliance statements ensuring that
these components are year 2000 compliant. We have also obtained year 2000
compliance statements from each of our material suppliers and distributors.
Furthermore, based on information provided by our building management, our
building management systems have been tested and are year 2000 compliant.
Cost. We are expensing all costs associated with required system changes as
they occur. To date, the total cost of our year 2000 certification process has
been approximately $12,000. We do not expect any significant additional year
2000 costs.
Contingency Plans. As mentioned above, PACEL believes that it has properly
reviewed, tested and remediated any foreseeable year 2000 problems related to
its internal operations, as well as to its products and services. PACEL has also
received assurances from its landlord,
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material suppliers, vendors and distributors as to their year 2000 readiness.
Nevertheless, as a precaution we have installed several uninterruptable power
supplies to ensure that our computer servers will continue operating for a short
period of time in the event of a power failure. We have also identified back-up
power sources should it be necessary to utilize alternative power sources on an
extended basis while waiting for our regular power to be restored.
BUSINESS
Overview
We are a software applications development company and systems integrator
located approximately 30 miles outside of Washington, D.C. in Manassas,
Virginia. We specialize in providing innovative software products for clients in
the commercial, industrial and government marketplace. We also offer a full line
of Internet services and provide information technology consulting services. We
were formed in 1994 by a group of individuals dedicated to setting the "Pace of
Excellence" in software production and services to our clients. Our motto, "Pace
of Excellence," set the standards for our commitment and performance, and is
reflected in our corporate name, PACEL (PAce of exCELlence) Corp. We also
provide services that encompass inter-related programs and functional
multi-disciplinary skills and experience.
Software Applications Development and Systems Integration
Off-the-Shelf Business Software Products. Despite a crowded field of
competitors of widely varying capabilities, the market still has unmet needs for
user-friendly, intuitive products that solve specific business problems in a
cost-effective way. We currently have several products being actively marketed,
both directly and through marketing and distribution agreements with Digital
River and Tiger Direct, in order to increase distribution of our software
products.
Visual Writer SystemTM. Visual Writer SystemTM provides users with the
ability to create, revise, review and run interactive, electronic
documents. Upon completion of the document, users may view and analyze
information collected during implementation. Interactive, electronic
documents are computerized documents that are created, viewed and
implemented on-screen. They may be used for a number of purposes including
training, data collection and inventory control. The documents can be
designed in a variety of fashions, from simple checklist to complex
multi-page procedures. Automated documents allow users to enter information
such as comments, numerical values, initials and electronic signatures.
ZoomerTM. Internet users, who currently number in the tens of millions
and are rapidly growing, enjoy viewing the wide range of images on the
countless numbers of accessible web pages. These users enjoy "capturing,"
saving and manipulating images. Unfortunately, the most common method of
accomplishing this task is through an acquisition program which usually
requires the launching of another program.
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ZoomerTM is a resident software program that allows users to magnify,
acquire and save any part of their computer screen. ZoomerTM utilizes click
and drag technology to allow the user to enlarge or reduce text or images
on the computer screen, save them as BMP files or paste them on the desktop
for further use in other software applications.
WinSentryTM. WinSentryTM provides workstation security ensuring that
the user's information is secure and protected from unwanted intrusions
when the computer is unattended. Most computer users produce and store
sensitive and valuable information on desktop systems at work, at home and
in the home office. An unattended computer represents a tremendous
liability in terms of both privacy and financial risk. While standard
operating systems provide some limited protection, even the most casual
computer user can circumvent these safeguards by accident or design.
WinSentryTM has proven to be invaluable for professionals in diverse fields
such as law, medicine, accounting and real estate; and anyone else who is
concerned with the security of confidential electronic documents.
WinSentryTM also keeps track of events such as users' log-ins and log-outs
as well as start-ups and shutdowns that occur while activated.
ChildWatchTM. A special version of WinSentryTM is being developed in
concert with ChildWatch of North America. ChildWatchTM allows parents to
connect to a database of family-unfriendly internet sites selected by a
committee of child experts from organizations such as ChildWatch of North
America and law enforcement agencies from across the United States. The
database is updated on a frequent basis and provides parents with the
ability to protect their children from unwanted web sites, by allowing them
to block inappropriate sites. The software gives parents this ability
without the necessity of finding the sites beforehand or relying on a
robotic search engine that can limit full utilization of the Internet. The
program also monitors and records all activities on the computer, allowing
parents to understand what children have been using the computer for. The
software product is being offered free to interested parties via Internet
download and ChildWatch of North America sponsor distribution. An add-on
service to allow parents to block non-family-friendly web sites is offered
by us for a monthly charge.
CarmaSoftTM. CarmaSoftTM is a Windows(R) application for companies and
facilities that must maintain documented information on the location of
personnel including employees, guests and extended visitors, as well as the
security levels of all individuals within the facility. CarmasoftTM will be
targeted to markets including law enforcement detention facilities (local,
county and state juvenile detention centers), medical support facilities,
such an nursing homes, assisted care facilities, senior citizen housing and
other Government or private industry facilities.
Custom Software Development. Unique industry or business-specific
requirements often require a custom system to provide a comprehensive solution.
This business may be relationship based or won on a competitive bid (Government)
basis.
We have recently made a move into the custom software development arena.
This move opens up a large marketplace for us. Often businesses require software
products that are tailored
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to their business practices and products, but do not feel that a full time
in-house programming staff is justifiable. For these business situations, custom
software contractors are required. The successful custom development contractor
must have programming experience, in-depth knowledge of the current techniques
and standards of the industry, expertise in software documentation and testing
and the ability to understand the client's needs and offer meaningful responses.
Our in-house programmers have extensive backgrounds and experience in the design
and development of software, from simple programs to complex multi-program
systems. Our programmers follow Microsoft standards in the development of all of
our programs, ensuring software quality. Additionally, we recognize the
necessity of considering human factors when creating software programs to
achieve a high level of user acceptance. Our software programs offer intuitive
user interfaces such as menus, and icons for ease of use.
Computer Hardware Sales. Computer hardware sales continue to grow as
businesses upgrade older technology and homes become multi-user sites. Declining
margins make "hardware only" sales less desirable than in the past, but failure
to offer hardware would limit our ability to be a total solution provider.
We are a hardware supplier of Great Lakes Electronics Distributing, a white
box computer manufacturer that will produce computers built to our
specifications, under our name brand and will provide a national warranty
program for the goods and services.
We also have the ability to distribute other name brand hardware and
software products as a reseller for Ingram Micro and MicroWarehouse. Technical
support and user training are also offered, as applicable.
Our technical support personnel augments our services through:
o Hardware upgrades;
o Hardware installation, set up, testing and user training;
o LAN troubleshooting and maintenance;
o Technical documentation library;
o Hardware user support;
o Configuration Management;
o Tracking of warranty repair; and
o Printer maintenance.
These services allow us to be a full service computer organization and
provide us with the ability to maintain our customer-focused business
philosophy.
Systems Integration/Service/Support. Business solutions nearly always
involve integration of disparate hardware (legacy and client/server), software
and network infrastructures. The ability to make all the sub-components work
seamlessly is critical to project and business success.
The complexity of operations, the need for timely dissemination of
operating experience and the constantly increasing cost of doing business have
forced an increased awareness of the
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need for timely information about an organization's operation and maintenance.
This concept requires an investment in the establishment and maintenance of
integrating the systems information resources, including the identification of
needed applications and the development of networks to provide wide
accessibility.
We provide services in all aspects of systems integration from requirements
analysis to information systems development and implementation including:
o Business system planning;
o Requirements definition and system specifications;
o Software engineering;
o System design and development;
o System interface functionality;
o Systems testing and implementation; and
o Prototyping
Our employees are well recognized within the systems development community
for their work in large scale configuration management, records management and
engineering data base applications.
Internet Services
Traditional Web Development Services. Through our subsidiary,
E-Business-Stor.Com we offer a full line of traditional web development
services, including design, graphics creation and layout, development,
maintenance, search engine registration, domain registration and hosting. We
have developed sites for a diverse group of clients including retail stores, ISO
consultants, television personalities, dance performers and not-for-profit
organizations. We offer quality sites with state-of-the art technology at
affordable prices.
Additionally, we provide e-commerce capabilities including site design and
development, shopping cart setup, database creation and maintenance and
consulting services to assist clients in obtaining merchant accounts and
fulfillment house contracts. Our graphical capabilities include custom design,
site theme design, scanning and touch-up, as well as graphical layout and
animation. We provide database design, development and maintenance for customers
who require databased information. E-Business-Stor.Com offers a number of
standard development and hosting packages from which a customer may choose.
Custom development is also offered on a per hour basis or the customer can mix
and match packages and customization to meet their needs. E-mail capability can
be provided at the customer's request.
Web Partnering Services. We also enter into partnering associations with
qualified clients. These clients have included Morton Downey, Jr.,
E-PiggyBank.com and ISORegistered.com. Web partnering provides clients with the
ability to minimize their e- commerce development and set up costs. In these
agreements, we provide site development, hosting and consulting services at a
reduced fee. In return for the discount, the client agrees to pay a percentage
of their e-commerce sales to us for a predetermined period of time. These
agreements are designed to benefit us by providing an ongoing revenue stream.
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Hardware and Software Sales. We offer a number of software and hardware
products via our e-commerce site. The site has been designed to provide
businesses with a one-stop on-line site for their computer-related business
needs. Our e-commerce site is designed with an emphasis on the end-user shopping
interface. We strive to make product search and selection easy and quick,
providing a seamless on-line shopping experience for our customers. We have
developed relationships with manufacturers to provide us with preferential
pricing, allowing us to pass the savings on to our customers. In addition, we
offer specialty family-friendly products for our home based business clients.
All of our hardware comes with manufacturer's warranties.
Information Technology Consulting Services
In October 1999, we acquired Fairfax Communications Limited, located in
Plymouth, England. Fairfax Communications provides consulting services and
solutions to military and government clients worldwide. It also offers solutions
to year 2000 compliance problems and general consulting services in all areas of
information technology and systems integration to the general business
community.
Fairfax Communications has established a quality management program which
provides high quality products and services to its clients. The system is
structure to comply with the internationally recognized BS EN ISO 9001:1994
under the TickiT guidelines, for which the company has received registration.
Fairfax Communications is also a Microsoft Authorized Education Reseller
allowing customers to receive their academic software more quickly with the
knowledge that they are receiving legitimate Microsoft Academic Edition
products.
Fairfax Communications has an existing contract with NATO, and intends to
expand upon that existing blanket order. We further intend to expand, based on
the certifications and expertise discussed above, to enter into commercial
contracts, governments, regulatory agencies and military, both nationally and
internationally.
Personnel and Culture
As of September 30, 1999, PACEL had 20 employees. Of these, three are in
sales and marketing, nine are technical professionals and programmers, one is in
finance, three are in administrative support and four are in management.
PACEL believes that its ability to provide integrated business strategy,
technology and creative design services is dependent upon the continuation of
its culture of mutual respect among the three disciplines. As a result, PACEL's
employees and its culture are fundamental to the value proposition it offers
clients. PACEL's culture is predicated on personal integrity, open
communications, collaboration and professional development. PACEL fosters an
entrepreneurial spirit that attracts talented professionals, creates innovative
solutions and provides the opportunity for every individual to succeed.
None of PACEL's employees is represented by a labor union, nor has PACEL
ever experienced a work stoppage. PACEL believes its employee relations are
good.
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Competition
The market for PACEL's products and services is subject to rapid
technological change and increased competition from large existing players, new
entrants and internal information systems groups. Substantially larger companies
that have extensive research and development, marketing, financial and human
resources capable of maintaining a high level of competitiveness dominate the
industry. There are several companies with which PACEL competes in the software
and Internet services industry, all of whom have significantly greater assets
and longer operating histories. Some of these companies are extremely
aggressive. They dominate the marketplace by using costly and protective
pricing. If PACEL became a target of focused pricing and counter marketing, it
might not be able to afford to devote the resources, time, funding, or
management necessary to maintain profitability. In addition, there are other
smaller companies which provide software products and Internet services similar
to us, which companies may have substantially more resources (financial, human,
or equipment) than PACEL. Some competitors have developed name loyalty, and a
following that is international in scope. There is no assurance that PACEL can
penetrate this apparent market place dominance. Furthermore, PACEL expects
future consolidation in the Internet professional services market to create
larger, more viable competitors.
PACEL believes the principal competitive factors in the Internet
professional services market include Internet expertise and talent, quality,
pricing and speed of service delivery, client references, integrated strategy,
technology and creative design services and vertical industry knowledge. PACEL
believes it competes favorably with respect to these factors. PACEL believes it
is in a good position to attract talent with its growth and an entrepreneurial
culture. PACEL believes it offers its clients a unique combination of integrated
strategy, technology and creative design services. PACEL believes the market
will continue to offer significant opportunity for multiple players.
Intellectual Property Rights
PACEL's success is dependent, in part, upon its proprietary software
products, its solution components, and other intellectual property rights. We do
not have any patents or patent applications pending. PACEL relies on a
combination of trade secret, nondisclosure and other contractual agreements, and
copyright and trademark laws to protect its proprietary rights. Existing trade
secret and copyright laws afford us only limited protection. PACEL enters into
confidentiality agreements with its employees, generally requires that its
consultants and clients enter into such agreements, to the extent it deems
necessary, and limits access to and distribution of PACEL's proprietary
information. There can be no assurance that the steps PACEL has taken in this
regard will be adequate to deter misappropriation of its proprietary information
or that PACEL will be able to detect unauthorized use and take appropriate steps
to enforce its intellectual property rights.
PACEL's business involves the development of software applications for
specific client engagements. Ownership of such software is frequently assigned
to the client, with PACEL retaining a license or other contractual rights for
limited uses.
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Facilities
PACEL's headquarters and principal administrative, finance, legal, sales
and marketing operations are located in approximately 8,200 square feet of
leased office space in Manassas, Virginia. PACEL's lease is for a term of five
years and expires on March 1, 2004. PACEL expects that it will need additional
space as it expands its business and believes that it will be able to obtain
space as needed.
Legal Proceedings
PACEL is not a party to any material legal proceedings.
MANAGEMENT
Executive Officers and Directors
The following table presents information about each of PACEL's executive
officers and directors. All directors hold office until the next annual meeting
of stockholders or until their successors have been duly elected and qualified.
There are no arrangements or understandings between any director and any other
person pursuant to which he or she was selected as a director.
<TABLE>
<CAPTION>
Term as
Director
Name Age Position(s) with PACEL and its Subsidiaries Expires
- ----------------------------- ---------- ------------------------------------------------------------- --------------
<S> <C> <C> <C>
David E. Calkins 56 Chairman of the Board, President and Chief Executive 2000
Officer of PACEL and Fairfax Communications Limited;
Director of E-Business-Stor.Com
F. Kay Calkins 41 Director of PACEL; Director, President and Chief 2000
Executive Officer of E-Business-Stor.Com; Director of
Fairfax Communications Limited
Keith P. Hicks 77 Director of PACEL, E-Business-Stor.Com and Fairfax 2000
Communications Limited
Thomas N. Southerly 43 Director of PACEL, E-Business-Stor.Com and Fairfax 2000
Communications Limited
James D. Willett, Ph.D. 62 Director of PACEL, E-Business-Stor.Com and Fairfax 2000
Communications Limited
Kenneth J. Russman 36 Vice President, Chief Operating Officer, Treasurer and
Secretary of E-Business-Stor.Com
Michael J. Spiewakowski 51 Vice President of PACEL and Managing Director of
Fairfax Communications Limited
</TABLE>
Subsequent to September 30, 1999, Fairfax Communication Limited was acquired as
a wholly-owned subsidiary of PACEL. E-Business-Stor.Com is an 80 percent-owned
subsidiary of
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PACEL. David E. Calkins and F. Kay Calkins each own ten percent of
E-Business-Stor.Com individually.
David E. Calkins founded PACEL in 1994 and is its acting Chairman,
President and Chief Executive Officer. From 1992 until founding PACEL, Mr.
Calkins was the Regional Manager of three divisions of Pacific Nuclear (now
known as Vectra Technologies, Inc.), an engineering and information services
company and a Nasdaq Stock Market listed company. Vectra Technologies provides
power plant modifications, maintenance support and nuclear fuel handling to
utility companies and the United States Department of Energy (DOE). From 1987 to
1993, Mr. Calkins served as Project Manager, Program Director, Vice
President-Operations, and Executive Vice President Business Development for PRC
Inc., an information systems development and services company. PRC provides
support services to the Federal government and the utility industry. Mr. Calkins
served from 1981 to 1986 as Manager of Engineering and Construction for the Zack
Company, a Chicago, Illinois mechanical contractor to the utility industry. Mr.
Calkins was also a Manager of Quality Engineering, and Startup Engineer for
Westinghouse. From 1972 to 1981, Mr. Calkins served as an Executive Engineer and
Consultant for NUS Corporation, a consulting firm for domestic and international
utilities, The United States Nuclear Regulatory Commission (NRC) and Department
of Energy.
F. Kay Calkins is currently a Director of PACEL and was Chief Operating
Officer, Treasurer and Secretary until September 1, 1999, positions she held
since 1996. Ms. Calkins is also a Director and the President and Chief Executive
Officer of PACEL's 80 percent-owned subsidiary, E-Business-Stor.Com Prior
joining PACEL, Ms. Calkins was the President and Chief Executive Officer of CMC
Services, Inc., a consulting company offering technical support to industry and
8(a) firms from 1993 to 1996.
Keith P. Hicks is a retired Captain of the U.S. Army with over 20 active
years of service. Mr. Hicks served as an Ordinance Advisor to the British and
French Free Army during World War II. He was a Squadron Commander in Korea in
1955 and 1956, and served in the Executive Office to the Inspector General and
the Office of Special Investigations in 1960 and 1961. Upon retiring from the
military in 1961, Mr. Hicks started a private investigation business in the
Commonwealth of Virginia, which became one of the top investigative firms in the
state with over 60 agents. Mr. Hicks also served as the Chief Deputy Sheriff of
Fairfax County from 1962 to 1969. Mr. Hicks has owned and managed Hicks Cattle
Company since 1962, running over 200 head of beef cattle. In 1972 he formed and
continues to manage Hicks Bonding Company and has been the owner/operator of
Hick's Auctioning Company since 1991. Mr. Hicks is also a 25-year co-owner in a
successful real estate company, C&H Properties Investments. He has been on the
Board of Directors of Xybernaut, Inc. a high technology computer manufacturer of
body worn, voice activated computers since July 1994. He is a graduate of the
University of Denver (BA 1954) and LaSalle University School of Law (LL.B.
1969).
Thomas N. Southerly is a partner with Smithers & Southerly, Ltd., CPA's in
Fairfax, Virginia, a certified public accounting firm established in 1987. Prior
to 1987, the firm operated under the name of Murphy & Smithers, which was
established in 1976. Mr. Southerly was admitted to the firm as a partner in
1984. He has had more than 15 years of experience in public
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accounting and specializes in accounting, tax, management services and business
development. He graduated from the Virginia Polytechnic Institute and State
University in 1979.
James D. Willett, Ph.D. is a member of the faculty of George Mason
University's Institute for Biosciences, Bioinformatics and Biotechnology. Since
July 1989, in addition to teaching and research, Dr. Willett has held a variety
of administrative positions including Chairman of the Biology Department, Vice
Provost for Research & Graduate Studies, Acting Director of Computational
Sciences, Executive Director for Bioscience Development, Interim Director for
the Molecular Bioscience and Technology Institute and most recently, as Director
for the Cooperative Enterprise Board. From 1980 through 1989, Dr. Willett worked
for the National Institute of Health in Bethesda, Maryland holding various
positions including Health Science Administrator, Biomedical Research Model
Development, Animal Resource Program, and Chief of the Office of Program
Planning and Evaluation, National Center for Research Resources. Dr. Willett
taught chemistry and biochemistry at the University of Idaho from 1968 to 1981.
He has an extensive background in research, is an invited lecturer, and holds
patents in the United States and Europe. Dr. Willett has published 33 studies
and received numerous grants and scholarships. Dr. Willett received an A.B. in
Chemistry from the University of California at Berkeley in 1959 and a Ph.D. in
Organic Chemistry from the Massachusetts Institute of Technology in 1965.
Kenneth J. Russman was appointed Vice President, Chief Operating Officer,
Treasurer and Secretary of E-Business-Stor.Com, an 80%-owned subsidiary of
PACEL, in September 1999. Prior to his position with E-Business-Stor.Com, Mr.
Russman served as Technical Manager for PACEL from April 1998 to September 1999.
Mr. Russman was a software engineer for Interactive Media Corp., a
computer-based training firm located in McLean, Virginia, from November 1996
until April 1998. As a software engineer at Interactive Media Corp., his duties
included computer programming and project management responsibilities. Mr.
Russman also served as a research and design engineer for Analysis and
Technology, Inc., an engineering services firm located in Arlington, Virginia
from May 1993 to November 1996, where his responsibilities included the design,
development, implementation, management and documentation of logistics models
and information management systems for the Navy Logistics Office. From June 1985
to May 1993, Mr. Russman worked as a system test software engineer for Martin
Marietta Corporation in Orlando, Florida. His responsibilities at Martin
Marietta included coordinating the buildup, testing and evaluation of
electro-optical and servo systems and software testing. Mr. Russman received his
Bachelors of Science degree in Electrical Engineering from Michigan
Technological University in 1985, and his Masters of Science degree in
information systems from George Washington University in 1998.
Michael J. Spiewakowski was appointed Vice President of PACEL Corp. and
Managing Director of PACEL's wholly-owned subsidiary, Fairfax Communications
Limited, in October 1999. Prior to joining PACEL, Mr. Spiewakowski was a
Director of International Business Development at Advanced Communication
Systems, Inc., a defense services contractor located in Fairfax, Virginia. He
was employed at Advanced Communication Systems from July 1998 to September 1999,
during which time Mr. Spiewakowski was responsible for the development of
international business and the identification of strategic acquisitions for the
company. From 1996 through 1998, Mr. Spiewakowski was a Business Development
Manager of a subsidiary of HunterskilHoward Projects Limited, a defense services
contractor located in London, England.
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His responsibilities at HunterskilHoward Project Limited included managing new
and existing business relationships with the firms international clientele. Mr.
Spiewakowski served as a consultant to the Director of Security Service and to
the Minister of the Interior of Bahrain from 1992 until 1996, during which time
he was responsible for the management of technical intelligence operations and
information technology systems.
Board Committees
The audit committee reviews, acts on and reports to the board of directors
with respect to various auditing and accounting matters. These matters include
the selection of PACEL's auditors, the scope of the annual audits, fees to be
paid to the auditors, the performance of PACEL's independent auditors and
PACEL's accounting practices. The audit committee consists of Messrs. Hicks and
Willett.
The compensation committee determines the salaries and incentive
compensation of PACEL's officers and provides recommendations for the salaries
and incentive compensation of other employees and consultants. The compensation
committee also administers PACEL's various incentive compensation, stock and
benefit plans. The compensation committee consists of Messrs. Hicks, Southerly
and Willett.
Director Compensation
PACEL does not currently compensate its directors who are employees of
PACEL. Non- employee directors of PACEL were entitled to receive an annual
retainer of $3,600 for service on PACEL's Board of Directors during fiscal 1998,
payable quarterly in arrears. The annual retainer was increased to $5,400 for
fiscal 1999. As of the date hereof, our non-employee directors have not been
paid for their board service. We anticipate issuing restricted shares of PACEL
common stock equal to, and in lieu of, the amount of fees they are currently
owed.
Executive Compensation
Summary Compensation Table
The following table summarizes the compensation earned by PACEL's Chief
Executive Officer for services rendered in all capacities to PACEL for the year
ended December 31, 1998. Mr. Calkin's received perquisites and other personal
benefits in addition to salary during 1998. The aggregate amount of these
perquisites and other personal benefits, however, did not exceed the lesser of
$50,000 or 10% of the total of his annual salary and bonus and, therefore, has
been omitted as permitted by the rules of the SEC. We will use the term "named
executive officer" from time to time to refer to Mr. Calkins later in this
prospectus.
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<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------ ------------------
All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (#) ($)
- --------------------------------------- ----------- --------------- -------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
David E. Calkins 1998 84,000 --- --- ---
</TABLE>
Mr. Calkins only received $28,000 of the $84,000 reported in the foregoing
table as earned by him during 1998. The $56,000 balance owed to him was accrued
on our books as of the year ended December 31, 1998. In August 1999, Mr. Calkins
was granted an option to purchase 625,000 shares of PACEL common stock at an
exercise price of $.16 per share. The option was granted to Mr. Calkins in lieu
of $50,000 of salary owed to Mr. Calkins as compensation for fiscal 1998.
Employment Agreement
David Calkins, PACEL's Chairman, President and Chief Executive Officer has
an employment agreement with PACEL. The employment agreement is for an initial
term of two years, which commenced on August 1, 1999, with the right of the
parties to extend the agreement for two one-year periods by mutual consent of
the parties. Under his employment agreement, Mr Calkin is entitled to receive an
annual base salary of $125,000 per year and annual increases at least equal to
the increase in the cost of living index. In addition, following the termination
of his employment, the agreement provides for continuation of medical insurance
benefits for a period of ten years and the assignment of key man life insurance,
if any. The agreement also contains various provisions for the protection of
PACEL, including non-solicitation and non-competition provisions, and provides
for the grant of options for 625,000 shares of stock with an exercise price of
$.16 per share (in lieu of previous compensation owed to Mr. Calkins but not
paid).
Stock Plans
Key Employees Incentive Stock Plan. The Key Employees Incentive Stock Plan
provides for the grant of options to officers and employees of PACEL. There are
250,000 shares of common stock reserved for issuance under this plan, as
adjusted for prior stock dividends, splits and recapitalizations. As of
September 30, 1999 there were options to purchase 137,500 shares of common stock
outstanding at a weighted average exercise price of $.29 per share. Options
granted under this plan typically vest over time, subject to acceleration in the
event of the optionees termination of service with PACEL as a result of death or
retirement. No option may be granted under this plan after June 15, 2003, and no
option granted under this plan is exercisable after the tenth anniversary of the
option's grant. Each option award shall be on such terms and conditions,
consistent with the plan, as the committee administering the plan may determine.
Any shares subject to an option which expires or is terminated unexercised will
again be available for issuance under this plan or any other plan of PACEL or
its subsidiaries.
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<PAGE>
1999 Stock Option Plan. Our Board of Directors has adopted the 1999 Stock
Option Plan, subject to approval by our shareholders at PACEL's next annual
meeting of shareholders. This plan provides for awards in the form of stock
options and stock appreciation rights. There are 1,250,000 shares of common
stock reserved for issuance under this plan. To date, no awards have been
granted under this plan. Each award shall be on such terms and conditions,
consistent with the plan, as the committee administering the plan may determine.
We expect that options granted under this plan will typically vest over time,
subject to acceleration in the event of death, retirement or a change in control
of the company. Any and all such vesting requirements and acceleration
provisions are at the discretion of the committee administering the plan. The
1999 Stock Option Plan shall become effective upon its approval by our
shareholders. This plan shall continue in effect for a term of 15 years
thereafter unless sooner terminated under the provisions of the plan No option
granted under this plan is exercisable after the 15th anniversary of the
option's grant. Any shares subject to an award which expires or is terminated
unexercised will again be available for issuance under this plan or any other
plan of PACEL or its subsidiaries.
Limitation of Liability and Indemnification Matters
Limitation of Liability. Virginia, like many other jurisdictions, provides
limits on the extent to which directors and officers are exposed to personal
liability for claims for money damages. Virginia imposes a statutory cap on
money damages equal to the greater of $100,000 or the compensation received from
the corporation within the preceding twelve months. This limit can be reduced to
zero with the approval of the corporation's shareholders. The only exceptions to
this limit on liability are for the willful misconduct and knowing violations of
criminal law or federal or state securities laws. These exceptions are narrower
than those found in most other jurisdictions. As a result of this provision,
PACEL and its shareholders may be limited in the amount of money damages
obtainable from a director or officer for breach of his or her duty of care.
Indemnification. In addition, Virginia provides by statute for broad
indemnity of directors and officers and allows the scope of the indemnity to be
expanded significantly in the articles of incorporation or in shareholder
approved bylaws or resolutions. The only types of conduct that cannot be
indemnified against are willful misconduct and knowing violations of criminal
law. Our articles of incorporation contain provisions which provide for
indemnity of directors and officers except for willful misconduct or gross
negligence.
In order to induce and encourage highly experienced and capable persons to
serve as directors and officers of PACEL, we have entered into an indemnity
agreement with each of our current officers and directors. Pursuant to the terms
of the indemnity agreements, each of the directors and officers will be
indemnified by PACEL to the fullest extent permitted under Virginia law and its
articles of incorporation in the event the officer or director is made or
threatened to be made a party to a claim arising out of such person acting in
his or her capacity as an officer or director of PACEL.
Director and Officer Liability Insurance. Virginia law also permits a
corporation to obtain insurance on behalf of any of its directors and officers
against liabilities, whether or not the corporation would have the power to
indemnify such person against these liabilities under
38
<PAGE>
Virginia law. While we have not obtained directors' and officers' liability
insurance as of the date of this document, we anticipate obtaining such
insurance in the future to the extent such insurance is available at
commercially reasonable rates.
Effect of Limitation of Liability and Indemnification Provisions. We are
not aware of any pending or threatened litigation against PACEL, or its
directors or officers, that would result in any liability for which these
individuals would seek indemnification or similar protections. Because we do not
presently have directors' or officers' liability insurance and because there is
no assurance that we will procure such insurance or that if such insurance is
procured that it will provide sufficient coverage, we may be forced to bear a
portion or all of the cost of any directors' or officers' claims for
indemnification under such provisions. If we are forced to bear the costs for
indemnification, PACEL's business and the value of its stock may be adversely
affected. In the opinion of the SEC, indemnification for liabilities arising
under the Securities Act of 1933 is contrary to public policy and therefore is
unenforceable.
CERTAIN TRANSACTIONS
On August 1, 1999, the Board of Directors granted to Mr. Calkins an option
to purchase 625,000 of PACEL common stock at an exercise price of $.16 per
share. The number of shares subject to the option and the option exercise price
reflect the one-for-four reverse stock split declared by PACEL on October 6,
1999. The option is immediately exercisable and expires on August 1, 2009.
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of common stock, as of November 22, 1999 and as adjusted to reflect the sale of
20,000,000 shares of common stock in this offering, by:
o each person (or group of affiliated persons) who is the beneficial
owner of more than 5% of the outstanding common stock;
o the named executive officer of PACEL;
o each PACEL director; and
o all of the executive officers and directors of PACEL as a group.
The persons named in this table have sole voting power for all shares of
common stock shown as beneficially owned by them, subject to community property
laws where applicable and except as indicated in the footnotes to this table.
Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options,
convertible debentures and convertible preferred stock held by that person that
are currently exercisable or convertible, or exercisable or convertible within
60 days after November 22, 1999 are deemed outstanding. Such shares,
39
<PAGE>
however, are not deemed outstanding for the purpose of computing the percentage
ownership of any other person.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to the Offering After the Offering
-------------------------- Share to be --------------------------
Name Number Percentage Purchased Number Percentage
- ---- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
David E. Calkins (1) 2,250,000 16.1% --- 2,250,000 6.6%
9514 Vinnia Court
Manassas, VA 20110
F. Kay Calkins (1) 2,250,000 16.1% --- 2,250,000 6.6%
9514 Vinnia Court
Manassas, VA 20110
Keith P. Hicks 320,091 2.4% --- 320,091 1.0%
4121 Roberts Road
Fairfax, VA 22032
Thomas N. Southerly, CPA 25,000 0.2% --- 25,000 0.1%
3930 University Drive, Suite 200
Fairfax, VA 22030-2525
James D. Willett, Ph.D 25,000 0.2% --- 25,000 0.1%
14502 Faraday Drive
Rockville, MD 20853
All officers and directors as 4,945,091 33.3% --- 4,945,091 14.2%
a group (7 persons)
- -------------------
<FN>
(1) David E. Calkins and F. Kay Calkins are husband and wife. In the aggregate
they beneficially own 4,500,000 shares, or approximately 30%, of PACEL
common stock outstanding. Included in their individual amounts is the right
of each of Mr. and Ms. Calkins to acquire 125,000 shares of common stock
upon conversion of their 500,000 shares of 1997 Class A preferred stock and
the right to acquire 625,000 shares upon exercise of outstanding stock
options. See "Description of Capital Stock-Preferred Stock" below.
</FN>
</TABLE>
DESCRIPTION OF CAPITAL STOCK
General
PACEL's authorized capital stock consists of common stock and preferred
stock, each with no par value per share. The authorized classes of stock, and
the number of shares which are authorized and outstanding as of the date of this
document are as follows:
Security Authorized Outstanding
- --------------------------------------------------------------------------------
Common stock 40,000,000 13,263,569
Preferred stock 5,000,000 1,000,000
40
<PAGE>
Common Stock
As of November 22, 1999, there were 13,263,569 shares of common stock
outstanding and held of record by 66 stockholders. Based upon the number of
shares outstanding as of November 22, 1999 and giving effect to the issuance of
20,000,000 shares of common stock by PACEL in this offering, there will be
33,263,569 shares of common stock outstanding upon completion of this offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. They do not have cumulative voting
rights. As a result, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably,
dividends, if any, as the board of directors may declare out of funds legally
available, subject to any preferential dividend rights of any then-outstanding
preferred stock. Upon the liquidation, dissolution or winding up of PACEL, the
holders of common stock are entitled to receive ratably the net assets of PACEL
available after the payment of all debts and other liabilities and subject to
the prior rights of any then-outstanding preferred stock. Holders of the common
stock have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are, and the shares offered by PACEL in the
offering will be, when issued in consideration for payment, fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock which PACEL may designate and issue in
the future. See "-- Preferred Stock."
Preferred Stock
The board of directors is authorized, without further stockholder approval,
to issue from time to time up to an aggregate of 5,000,000 shares of preferred
stock in one or more series. The board of directors may fix or alter the
designations, preferences, rights and any qualification, limitations or
restrictions of the shares of any series, including the dividend rights,
dividend rates, conversion rights, voting rights, redemption terms and prices,
liquidation preferences and the numbers of shares constituting any series. One
million shares of preferred stock are currently outstanding. See "Certain
Transactions" above. Although the ability of the board of directors to designate
and issue preferred stock could provide flexibility in possible acquisitions or
other corporate purposes, issuance of preferred stock may have adverse effects
on the holders of common stock. The effects could include
o restrictions on dividends on the common stock if dividends on the
preferred stock have not been paid;
o dilution of voting power of the common stock to the extent the
preferred stock has voting rights; or
o deferral of participation in PACEL's assets upon liquidation until
satisfaction of any liquidation preference granted to holders of the
preferred stock.
41
<PAGE>
In addition, issuance of preferred stock could make it more difficult for a
third party to acquire a majority of the outstanding voting stock and
accordingly may be used as an "anti-takeover" device. The board of directors,
however, currently does not contemplate the issuance of any additional preferred
stock and is not aware of any pending transactions that would be affected by
such issuance.
To date, the Board of Directors has issued 1,000,000 shares of the 1997
Class A Preferred Stock to David E. Calkins and F. Kay Calkins, each of whom
owns 500,000 shares. Each share of the 1997 Class A Preferred Stock is
convertible into .25 of a share of PACEL common stock. The preferred stock is
convertible by the holders into common stock at any time and at no cost. The
preferred stock was issued to the Calkins by the Board of Directors in exchange
for the forgiven of approximately $11,320 owed to them by PACEL.
Transfer Agent
Olde Monmouth Stock Transfer Co., Inc. will act as PACEL'S transfer agent
and registrar for the common stock.
Listing
The common stock trades on the National Association of Securities' Dealers,
Inc. Over- the-Counter Electronic Bulletin Board under the symbol "PLRP."
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the common stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of the common stock in the
public market following the offering. The 20,000,000 shares being offered hereby
will be freely tradable unless held by affiliates of PACEL. In addition, a total
of 9,893,478 securities issued prior to the offering were sold pursuant Rule 504
of Regulation D and are freely tradable except to the extent held by affiliates.
Upon completion of the offering, executive officers and directors of PACEL will
own a total of:
o 3,370,091 shares of common stock;
o options to acquire 1,325,000 shares of common stock; and
o preferred stock convertible into 250,000 shares of common stock.
The shares of common stock held by directors and executive officers may be
sold in the public market only if registered or pursuant to Rule 144 of the
Securities Act. The provisions of Rules 144 provide that these securities will
be available for sale in the public market on the date which is one year from
the date they were issued, subject to the volume limitations and other
conditions of Rule 144.
42
<PAGE>
Rule 144
In general, under Rule 144, a person who has owned shares of our common
stock for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
o one percent of the number of shares of common stock then outstanding,
which will equal approximately 332,636 shares immediately after this
offering, assuming we sell all of the shares offered hereby; or
o the average weekly trading volume of the common stock on the National
Association of Securities' Dealers Over-the-Counter Electronic
Bulletin Board during the four calendar weeks preceding the filing of
a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
PACEL.
Rule 701
As of the date of this prospectus, a total of 1,575,000 shares of common
stock are issuable upon the exercise of options or convertible preferred stock.
All of these shares, subject to option vesting, will be eligible for sale in
reliance on Rule 701. In general, under Rule 701 as currently in effect, any of
our employees, consultants or advisors who have purchased shares from us in
connection with a compensatory plan or other agreement is eligible to resell
such shares in reliance on Rule 144, but without compliance with restrictions,
including the holding period, contained in Rule 144.
PLAN OF DISTRIBUTION
This offering of common stock is being made to members of the general
public. The offering is being made to provide financing to continue, and to
expand the scope of, our present operations. There is no minimum amount that
must be sold in the offering. The shares of common stock offered hereby will be
offered for sale by officers and directors of PACEL and its subsidiaries. It is
anticipated that our directors and officers may hold informational meetings to
review the prospectus with potential purchasers and to discuss the terms and
provisions of the common stock. PACEL will rely on Rule 3a4-1 of the Securities
Exchange Act of 1934, and sales of common stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers and directors to
participate in the sale of PACEL common stock. No officer or director of PACEL
or its subsidiaries will be compensated in connection with his or her
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in PACEL common stock. In addition,
PACEL may employ a broker/dealer who is a member of the National Association of
Securities Dealers, Inc. to sell the common stock offered hereby. Any
broker/dealer who sells the common stock of PACEL shall be paid a commission of
[__]%.
43
<PAGE>
The price at which the shares are offered hereby has been arbitrarily set
by PACEL's management, and has no relationship to the book value per share,
current earnings of PACEL, or other generally accepted measurement of value.
The subscriptions and completed agreements shall be sent directly to PACEL
payable to "PACEL Corp." for the sale of the common stock. Subscriptions shall
be received within three months from the effective date of this offering which
period may be extended up to an additional 90 days at the sole discretion of
PACEL.
The common stock is offered subject to prior sale and PACEL reserves the
right to reject any offer, in whole or in part, for any reason whatsoever and
may, in its sole discretion, elect to accept those subscriptions for a lesser
number of shares than is subscribed for by any person. We will notify
subscribers of the acceptance of their subscriptions within ten (10) days of
their acceptance. Common stock certificates will be delivered to investors by
mail or other delivery within thirty (30) days of acceptance of the subscription
by PACEL or the offering termination date set forth in the preceding paragraph,
whichever is later. We reserve the right to allocate the shares of common stock
in any manner as we, in our sole discretion, deem appropriate. If PACEL
terminates the offering in its entirety, all subscription funds will be refunded
in full without deduction. No interest will be paid on the subscription funds.
LEGAL MATTERS
The validity of the shares of common stock being offered hereby and other
legal matters will be passed upon for PACEL by Silver, Freedman & Taff, L.L.P.,
Washington, D.C.
EXPERTS
The financial statements as of September 30, 1999 and December 31, 1998 and
for each of the nine month periods ended September 30, 1999 and 1998, and the
two years in the period ended December 31, 1998 included in this prospectus have
been so included in reliance on the report of Peter C. Cosmas & Co., CPAs,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form SB-2. It
includes exhibits and schedules. This prospectus is part of the registration
statement. It does not contain all of the information that is in the
registration statement. The registration statement contains more information
about PACEL Corp. and the common stock. Statements contained in this prospectus
concerning the provisions of documents filed as exhibits to the registration
statement are necessarily summaries which disclose the material terms of such
documents. Each of these statements is qualified in its entirety by reference to
the copy of the applicable document filed with the SEC.
44
<PAGE>
You may read and copy all or any portion of the registration statement or
any reports, statements or other information PACEL files at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference room's operations. PACEL's SEC filings, including the
registration statement, are also available to you on the SEC's Web site
(http://www.sec.gov).
45
<PAGE>
PACEL CORP. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet at September 30, 1999 (unaudited) and
December 31, 1998 (audited).............................................. F-2
Consolidated Statements of Operations for the Nine Months
Ended September 30, 1999 and 1998....................................... F-3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998....................................... F-4
Notes to Consolidated Financial Statements for the Nine Months
Ended September 30, 1999 ............................................... F-5
Report of Independent Accountants......................................... F-6
Balance Sheets at December 31, 1998 and 1997.............................. F-7
Statements of Operations for the Years Ended December 31, 1998 and 1997... F-8
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997... F-9
Statements of Stockholders' Equity (Deficit)
for the Two Years Ended December 31, 1998...............................F-10
Notes to Consolidated Financial Statements for the
Years Ended December 31, 1998 and 1997..................................F-11
F - 1
<PAGE>
<TABLE>
<CAPTION>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1999 1998
Unaudited Audited
--------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 125,915 $ 28,857
Accounts receivable, net of allowance for doubtful accounts 16,444 5,034
Other receivables 5,000 60,350
Prepaid expenses 33,750 15,000
------ ------
Total current assets 181,109 109,241
Property and equipment, net 63,592 57,913
Non-current assets:
Note receivable 73,000 74,000
Other assets -- 1,100
Security deposits 6,055 5,483
----- -----
Total non-current assets 79,055 80,583
------ ------
Total assets $ 323,756 $ 247,737
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 17,160 $ 35,000
Accounts payable 201,910 357,834
------- -------
Total current liabilities 219,070 392,834
Commitments:
Stockholders' equity - (deficit)
Preferred stock, no par value,
no liquidation value, 5,000,000 shares
authorized, issued 1,000,000 shares
1997 class A convertible preferred stock 11,320 11,320
Common stock - no par value,
40,000,000 shares authorized, 9,090,359 and 5,200,730
shares issued and outstanding at September 30, 1999
and 1998 respectively 2,101,592 959,191
Deficit (2,008,226) (1,115,608)
----------- -----------
Total stockholders' equity (deficit) 104,686 (145,097)
------- ---------
Total liabilities and stockholders' equity $ 323,756 $ 247,737
=========== ===========
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
UNAUDITED
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
Net Sales $ 37,955 $ 29,093
----------- ----------
Operating costs and expenses:
Research and development 554,972 271,637
Depreciation 5,619 3,753
Selling, general and administrative 369,982 188,917
------- -------
Total operating costs and expenses 930,573 464,307
------- -------
Net (loss) $ (892,618) $ (435,214)
=========== ===========
Basic and diluted net (loss) per share (0.11) (0.09)
====== ======
Weighted average number of shares
outstanding - Basic and Diluted 8,083,629 4,878,937
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
PACEL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Nine Months Ended
September 30,
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net (loss) $ (892,618) $ (435,214)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation 5,619 1,284
Non cash item-stock issued for services 228,837 50,000
-issuance of options (100,000) --
Increase (Decrease) in Cash from changes in:
Accounts receivable (11,410) 22,710
Other receivables 55,350 (1,500)
Other assets 1,100 --
Prepaid expenses (18,750) --
Security deposits (572) (328)
Accounts payable and accrued expenses (55,924) 160,214
-------- -------
Net cash (used in) operating activities (788,368) (202,834)
Cash flows (used) in investing activities:
Purchase of property and equipment (11,298) --
Notes receivable 1,000 --
----- ---------
Net cash used in investing activities (10,298) --
-------- ---------
Cash flows from financing activities:
Proceeds from note payable 2,000 50,000
Payment of notes payable (19,840) --
Proceeds from sale of common stock 913,564 191,113
------- -------
Net cash provided by financing activities 895,724 241,113
------- -------
Net increase in cash 97,058 38,279
Cash and cash equivalents at beginning of period 28,857 34,160
------ ------
Cash and cash equivalents at end of period $ 125,915 $ 72,439
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest 1,583 --
Income taxes -- --
</TABLE>
F-4
<PAGE>
PACEL CORP. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to fairly present the Company's financial position and
its results of operations and cash flows as of the dates and for the periods
indicated.
Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These condensed consolidated financial statements should be
read in conjunction with the audited December 31, 1998 consolidated financial
statements and related notes included in the Company's year end certified
financial statements. The results of operations for the nine months are not
necessarily indicative of the operating results for the year.
Amounts for the nine months ended September 30, 1998 have been reclassified to
conform with the September 30, 1999 presentation.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all of its subsidiaries in which a controlling interest is maintained. All
significant intercompany accounts and transactions have been eliminated in
consolidation. For those consolidated subsidiaries where Company ownership is
less than 100%, the outside stockholders' interest are shown as minority
interest. Investments in affiliates over which the Company has significant
influence but not a controlling interest are carried on the equity basis.
In July 1999, the Company formed an eighty percent owned subsidiary, E-Business-
Store.Com for the purpose of expanding its Internet business. At September 30,
1999, there were no significant transactions in E-Business.
3. REVENUE RECOGNITION
The Company recognizes revenue from sales at the date the product is shipped and
as professional services are performed.
4. SUBSEQUENT EVENTS
On October 6, 1999 the Company had a 1 to 4 reverse split. The shares
outstanding at September 30, 1999 were 36,261,437 before the reversal and
9,090,359 after. The financial statements have been restated to reflect this
change.
F-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors
Pacel Corp.
We have audited the accompanying balance sheet of Pacel Corp. as of
December 31, 1998 and 1997 and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Pacel Corp. as of
December 31, 1998 and 1997, and results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1(i) to the
financial statements, the Company has had minimal revenues since inception and
requires additional capital to continue operations. These conditions raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1(i).
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Peter C. Cosmas Co., CPAs
370 Lexington Ave.
New York, NY 10017
August 7, 1999
(Except for Note 6, 8, 9, 10 and 13
which are as of October 6, 1999)
F-6
<PAGE>
<TABLE>
<CAPTION>
PACEL CORP.
BALANCE SHEETS
December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,857 $ 34,160
Accounts receivable, net of allowance for doubtful accounts
of $13,851 and -0- respectively 5,034 23,230
Other receivables 60,350 4,500
Inventories -- 976
Prepaid expenses 15,000 --
------ -------------
Total current assets 109,241 62,866
Property and equipment, net 57,913 16,249
Non-current assets:
Note receivable 74,000 --
Other assets 1,100 1,100
Security deposits 5,483 --
----- -----------
Total non-current assets 80,583 1,100
------ -----
Total assets $ 247,737 $ 80,215
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 35,000 $ --
Accounts payable 224,834 9,475
------- -----
Loans payable Officers - Stockholders 133,000 --
Total current liabilities 392,834 9,475
------- -----
Commitments:
Stockholders' equity - (deficit)
Preferred stock, no par value,
no liquidation value, 5,000,000 shares
authorized, issued 1,000,000 shares
1997 class A convertible preferred stock 11,320 11,320
Common stock - no par value,
40,000,000 and 20,000,000 shares authorized 1998 and 1997
respectively, 5,834,325 and 4,706,300 shares outstanding in
1998 and 1997 respectively 959,191 361,470
Deficit (1,115,608) (302,050)
----------- ---------
Total stockholders' equity (deficit) (145,097) 70,740
--------- ------
Total liabilities and stockholders' equity (deficit) $ 247,737 $ 80,215
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
PACEL CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
---- ----
Net Sales $ 52,447 $ 56,799
----------- -----------
Operating costs and expenses:
Research and development 641,752 274,040
Depreciation 10,336 4,858
Interest expense 5,860 437
Selling, general and administrative 208,057 47,923
------- -------
Total operating costs and expenses 866,005 327,258
------- -------
Net (loss) $ (813,558) $ (270,459)
============= =============
Net (loss) per common share
Basic (0.17) (0.06)
Diluted (0.17) (0.06)
Weighted average shares outstanding
Basic 4,877,247 4,476,000
Diluted 4,877,247 4,476,000
See accompanying notes to financial statements.
F-8
<PAGE>
PACEL CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
---- ----
Cash flows from operating activities:
Net (loss) $(813,558) $(270,459)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation 10,336 4,858
Provision for bad debts 13,851
Other non cash items 56,694
Increase (Decrease) in Cash from changes in:
Accounts receivable 4,346 (24,254)
Inventories 976 2,224
Other receivables (55,850) --
Prepaid expenses (15,000) --
Security deposits (5,483) --
Accounts payable and accrued expenses 215,359 (4,024)
Loans payable Officers-Stockholders 133,000 --
--------- --------
Net cash (used in) operating activities (455,329) (291,655)
Cash flows from investing activities:
Purchase of property and equipment (52,000) --
Notes receivable (74,000) (2,797)
-------- ---------
Net cash used in investing activities (126,000) (2,797)
-------- ---------
Cash flows from financing activities:
Notes payable 35,000 --
Proceeds from sale of common stock 541,026 319,470
-------- ---------
Net cash provided by financing activities 576,026 319,470
-------- ---------
Net increase in cash and cash equivalents (5,303) 25,018
Cash and cash equivalents at beginning of year 34,160 9,142
-------- ---------
Cash and cash equivalents at end of year $ 28,857 $ 34,160
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest 5,860 437
See accompanying notes to financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
PACEL CORP.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TWO YEARS ENDED DECEMBER 31, 1998
Total
Preferred Stock Common Stock Retained Stockkholders
----------------------- ----------------------- Earnings Equity
Shares Amount Shares Amount (Deficit) (Deficit)
------ ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 -- $ -- 12,000,000 $ 2,000 $(31,591.00) $ (29,591)
Issuance of common stock and warrants net
of expenses 6,825,200 359,470 -- 359,470
Issuance of 1,000,000 shares of convertible
preferred stock 1,000,000 11,320 11,320
Net loss (270,459) (270,459)
------------------------------------------------------------------------------
Balance, December 31, 1997 1,000,000 11,320 18,825,200 361,470 (302,050) 70,740
Issuance of common stock and warrants net
of expenses 2,902,448 541,027 541,027
Issuance of common stock for professional
services 1,609,650 56,694 56,694
Net loss (813,558) (813,558)
------------------------------------------------------------------------------
Balance, December 31, 1998 1,000,000 $ 11,320 23,337,298 $ 959,191 $(1,115,608) (145,097)
Reverse split, one-for-four -- -- (17,502,973) -- -- --
------------------------------------------------------------------------------
Balance, December 31, 1998, as adjusted
for one-for-four reverse split 1,000,000 $ 11,320 5,834,325 $ 959,191 $(1,115,608) (145,097)
==============================================================================
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
PACEL CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1) Summary of Significant Accounting Policies
a) Nature of the business
Pacel Corp. (the "Company") was incorporated on May 3, 1994 under the laws
of the State of Virginia. The Company was formed for the purpose of developing
and marketing its own computer software programs. To date, the Company has
developed and is marketing several versions of its interactive electronic
procedures software to be used with Microsoft Windows under the name Visual
Writer (the "Visual Writer System").
The Company has completed research and development and testing activities
on the Visual Writer system and has funded the development of the software
through management contributions of money, time and materials, investor
financing and limited sales of software. It has hired personnel and developed
consulting relationships.
b) Cash and cash equivalents.
Cash equivalents consist of liquid investments, with a maturity of three
months or less at the time of purchase. Cash equivalents are stated at cost
which approximate market value.
c) Inventories:
Inventories are stated at the lower of cost (first in, first out) or
market.
d) Property and Equipment:
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets ranging from 5 to 7 years using the
straight line method. Maintenance and repairs are charged against income and
betterments are capitalized.
e) Reclassification
Certain prior year amounts have been reclassified to conform to current
year's presentation.
f) Revenue recognition:
Revenue is recognized when products are shipped or services are rendered.
F-11
<PAGE>
g) Research and Development Expenses:
Costs incurred in the product development of new software products are
expensed as incurred until technological feasibility has been established. To
date, the establishment of technological feasibility of the Company's products
and general release substantially coincide. As a result, the Company has not
capitalized any software development costs.
h) Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Operating results in the future could vary from the amount derived from
management's estimates and assumptions.
i) Basis of Financial Statement Presentation:
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has generated
minimal revenues from inception to December 31, 1998. These factors indicate
that the Company's continuation, as a going concern is dependent upon its
ability to obtain adequate financing.
The Company is anticipating that with the completion of proposed private
placements of its securities, the Company will have sufficient funding to
increase sales of its software. The Company will require substantial additional
funds to finance its business activities on an ongoing basis and will have a
continuing long-term need to obtain additional financing. The Company's future
capital requirements will depend on numerous factors including, but not limited
to, continued progress developing its source code to complete proposed computer
programming assignments, development of a marketing program and signing clients
to use the Company's products. The Company plans to engage in such ongoing
financing efforts on a continuing basis.
j) Impact of Recently Issued Accounting Standards:
SFAS No. 133, " Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards for derivative
instruments. The Company has not in the past nor does it anticipate that it will
engage in transactions involving derivative instruments which will impact the
financial statements.
F-12
<PAGE>
Statement of Position 98-1, " Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", requires an entity to expense
all software development costs incurred in the preliminary project stage,
training costs and data conversion costs for fiscal years beginning after
December 15, 1998. The Company believes that this statement will not have a
material effect on the Company's accounting for computer software costs.
Statement of Position 98-5, " Accounting for Start-up Costs", requires an
entity to expense all start-up related costs as incurred for the fiscal years
beginning after December 15, 1998. The Company believes that this statement will
not have a material effect on the Company's accounting for start-up costs.
k) Impairment of Long-Lived Assets
Effective January 1, 1996, the Company adopted SFAS NO. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," SFAS No. 121 required the Company to review the recoverability of the
carrying amounts of its long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of the asset might not be
recoverable.
In the event that facts and circumstances indicate that the carrying
amounts of long-live assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to fair value is required.
Fair value may be determined by reference to discounted future cash flows over
the remaining useful life of the related asset. Such adoption did not have a
material effect on the Company's financial position or results of operations.
l) Fair Value Disclosures:
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, inventories, accounts payable and accrued
expenses, approximate fair value because of the immediate or short-term maturity
of these financial instruments.
m) Stock Options:
The Company accounts for its stock options in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the current market price
of the underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted the disclosure requirements of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-based Compensation. Had the
Company determined compensation cost based on fair value at the grant date for
stock options under SFAS No. 123 the effect would have been immaterial.
F-13
<PAGE>
2) Property and Equipment:
Property and equipment consist of the following:
December 31,
1998 1997
---- -----
Office Equipment $77,684 $25,684
Less accumulated depreciation 19,771 9,435
------- -------
$57,913 $16,249
------- -------
3) Notes Receivable
The company extended a long term note to CTM Automated Systems, Inc. in
the amount of $75,000 at an interest rate of 5.25% payable monthly with a
balloon payment October, 2002. The loan is collateralized by 1,000 shares of CTM
stock. The balance of the loan at December 31, 1998 was $74,000.
4) Short-Term Debt
Short-term debt consists of notes payable of $35,000 and -0- at December
31, 1998 and 1997 respectively. The notes bear an interest rate of 11%. In
conjunction with the notes the Company issued Common Stock purchase warrants to
the lenders in consideration for execution of the financing agreements.
Under the term of the warrant agreements, the exercise price of the
warrants and the number of shares purchasable with each warrant are adjusted
whenever common stock is issued at a share price below the current market value.
5) Income Taxes
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any, represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of December 31, 1998 and 1997, the
Company had no material current tax liability, deferred tax assets, or
liabilities respectively. The Company has available a net operating loss carry
F-14
<PAGE>
forward of approximately $1,115,608 for tax purposes to offset future taxable
income. The net operating loss carryforwards expires in 2011-2018.
6) Earnings (Loss) Per Share:
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards ("SFAS") No. 128. "Earnings Per
Share" applicable for financial statements issued for periods ending after
December 15, 1997. As required the Company adopted "SFAS" No. 128 for the year
ended December 31, 1997 and restated all prior period earnings per share
figures. The Company has presented basic earnings per share. Basic earnings per
share excludes potential dilution and is calculated by dividing income available
to common stockholders by the weighted average number of outstanding common
shares. Diluted earnings per share incorporates the potential dilutions from all
potentially dilutive securities that would have reduced earnings per share.
Since the potential issuance of additional shares would reduce loss per share
they are considered anti-dilutive and are excluded from the calculation.
The weighted average number of shares used to compute basic earnings
(loss) per share was 4,877,247 and 4,476,000 at December 31, 1998 and 1997
respectively.
7) Commitments and Contingencies:
a) Operating Leases
1999 $ 56,304
2000 65,461
2001 66,368
2002 65,572
2003 67,539
After 2003 11,311
--------
Total minimum lease payments $332,555
Rent expenses for December 31, 1998 and 1997 was $14,400 and $13,200
respectively.
8) Stockholders' Equity:
a) Preferred Stock:
The Company's Amended Certificate of Incorporation authorizes 5,000,000
shares of no par, no liquidating value preferred stock, of which 1,000,000
shares have been designated the 1997 Class A Convertible Preferred Stock. The
number of shares of the 1997 Class A shall be limited to 1,000,000. The Board of
Directors of the Company has the authority to establish and designate any shares
F-15
<PAGE>
of stock in series or classes and to fix any variations in the designations,
relative rights, preferences and limitations between series as it deems
appropriate, by a majority vote.
The shares of the 1997 Class A Convertible Preferred Stock shall have no
liquidation value, and shall be entitled to receive, out of any funds of the
Company at the time legally available for the declaration of dividends, a per
share participating dividend equivalent to that declared and or paid with
respect to a share of Common Stock. The 1997 Class A Convertible Preferred Stock
shall not have voting rights, and are convertible at anytime into an equal
number of shares of Common Stock.
b) Common Stock:
The authorized common stock of the Company consists of 40,000,000 and
20,000,000 shares at December 31, 1998 and 1997 respectively without par value.
In April of 1998 the Company effected a forward recapitalization of the number
of shares of common stock outstanding in a ratio of 4 to 1 restating the number
of shares of common stock outstanding from 4,410,000 to 18,825,200 shares of
common stock without par value. In May, 1997 the Company effected a forward
recapitalization of the number of shares of common stock outstanding in a ratio
of 30,000 to 1 restating the number of shares of common stock outstanding from
147 shares, $1.00 par value per share to 4,410,000 shares of common stock
without par value. In October 1999, the Company effected a one-for-four
reverse split restating the number of common shares as of December 31, 1998 from
23,337,298 to 5,834,325.
9) Common Stock Purchase Warrants:
The Company authorized one hundred thousand common stock purchase
warrants. Each common stock purchase warrant authorizes the holder to purchase
one share of common stock, subject to anti-dilution protection. The price of the
shares shall be the lesser of: (a) two dollars and fifty cents ($2.50) per
share; (b) the opening bid price for the Company's common stock upon the
commencement of trading; and (c) fifty percent (50%) of the average closing bid
price for the five (5) days immediately preceding exercise. The warrants expire
on April 30, 2000. The above warrants were exercised by the holder subsequent
to December 31, 1998.
10) Related Party Transactions:
a) Issuance of Common Stock:
The Company sold an aggregate of 100 shares to David and F. Kay Calkins
for $2,000. After stock splits and reverse stock splits declared and paid by
the Company, the 100 common shares owned by David and F. Kay Calkins has been
restated to 3,000,000 shares.
F-16
<PAGE>
b) Officers Loans:
The Company borrowed an aggregate of $11,320 from David and F. Kay
Calkins. The loan was payable on demand with interest at 9%. As of March 31,
1997, they each received 500,000 shares of Class "A" Preferred Stock in
consideration of the cancellation of the indebtedness of $11,320.
In 1998 the Company recorded a liability to David and F. Kay Calkins in
the amount of $119,000 for accrued payroll.
c) Employment Agreements:
In 1998 the Company entered into employment agreements with David and F.
Kay Calkins respectively. Each will receive a base salary of $84,000 per year
and be eligible for retroactive increases based on earnings per share of the
Company.
11) Business and Credit Concentrations:
The amount reported in the financial statements for cash, trade accounts
receivable and investments approximates fair market value. Because the
difference between cost and the lower of cost or market is immaterial, no
adjustment has been recognized and investments are recorded at cost.
Financial instruments that potentially subject the company to credit risk
consist principally of trade receivables. Collateral is generally not required.
12) Comprehensive Income
At December 31, 1998 and 1997 net income and comprehensive income were the
same.
13) Stock Option Plan:
a. Nonstatutory Stock Option Plan
In May 1997, the Company adopted the Fiscal 1997 Nonstatutory Stock Option
Plan (the "Plan"). 1,000,000 Common Shares were reserved under the Plan. The
Plan is administered by the Board of Directors. 500,000 options have been issued
under the Plan exercisable at $1.25 for a period of three years. An aggregate of
300,000 of those options were issued to F. Kay and David Calkins.
Stock options under the Plan may be granted to employees, officers,
directors, consultants of the Company or any other parties who have made a
significant contribution to the business and success of the Company. The
exercise price under the Plan may be more, equal to or less than the then
current market price of the Common Shares as deemed to be appropriate.
F-17
<PAGE>
<TABLE>
<CAPTION>
============================================================== ======================================================
<S> <C>
You may rely on the information contained in this
prospectus. No dealer, salesperson or other person has
been authorized to give any information or to make
any representation other than as contained in this
prospectus in connection with the offering made
hereby, and, if given or made, such other information
or representation must not be relied upon as having
been authorized by PACEL Corp. When you make a UP TO
decision about whether to invest in our common 20,000,000 SHARES
stock, you should not rely upon any information other
than the information in this prospectus. This
prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities
offered hereby to any person in any jurisdiction in
which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is
not qualified to do so, or to any person to whom it is [PACEL Logo]
unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this prospectus
nor sale of common stock means that information PACEL Corp.
contained in this prospectus is correct after the date of
this prospectus.
--------------
TABLE OF CONTENTS
Page
----
Summary........................................ 2
Risk Factors................................... 6
Use of Proceeds................................ 20
Price Range of Common Stock.................... 21 COMMON STOCK
Dividend Policy................................ 22
Capitalization................................. 22
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.................... 23 --------------------
Business....................................... 27
Management .................................... 33 PROSPECTUS
Certain Transactions........................... 39 --------------------
Principal Stockholders......................... 39
Description of Capital Stock................... 40
Shares Eligible for Future Sale................ 42
Plan of Distribution........................... 43
Legal Matters.................................. 44
Experts........................................ 44 [NAMES OF UNDERWRITERS]
Where You Can Find More Information............ 44
Index to Consolidated Financial Statements..... F-1
Dealer Prospectus Delivery Obligation:
Until__________, 2000 (25 days after the commencement of this
offering) all dealers that buy, sell or trade these shares of
common stock, whether or not participating in this offering, may ____________, 1999
be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
============================================================== ======================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
- -------- -----------------------------------------
Article 10 of the Virginia Stock Corporation Act provides, in general,
that Virginia corporations shall have the power, under specified circumstances,
to indemnify their directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against expenses incurred in any such
action, suit or proceeding. The Virginia Stock Corporation Act also provides
that Virginia corporations may purchase insurance on behalf of any such
director, officer, employee or agent.
Pacel's Articles of Incorporation provide, in general, for mandatory
indemnification of its directors and officers (including former directors and
officers and persons serving at the request of Pacel as directors and officers
of another corporation, partnership, joint venture, trust or other enterprise
against liability incurred by them in proceedings by third parties, or by or on
behalf of Pacel, by reason of the fact that such person is, or was, a director
or officer of Pacel, or is, or was, serving at the request of Pacel as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise. Such indemnity shall only be provided after Pacel determines
that the director or officer was not guilty of gross negligence or willful
misconduct.
In addition, Pacel's Articles of Incorporation provide that Pacel may
purchase insurance to cover any losses sustained as a result of providing
indemnification to the aforementioned persons.
Item 25. Other Expenses of Issuance and Distribution
- -------- -------------------------------------------
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance of the shares. All amounts shown are estimates except for the SEC
registration fee.
SEC registration fee $ 843
Blue Sky fees and expenses *
Counsel fees and expenses (including Blue Sky legal fees) *
Accounting fees and expenses *
Printing, postage and mailing *
Stock Transfer Agent and Certificates *
Other expenses(1) *
-----------
TOTAL $ *
===========
- --------------------
* To be provided by amendment.
Item 26. Recent Sales of Unregistered Securities
- -------- ---------------------------------------
The following is a summary of the transactions involving the issuance
of PACEL securities during the past three years without registering the
securities under the Securities Act of 1933. The number of securities issued set
forth below have been adjusted for all stock splits and dividends, and reverse
stock splits and dividends declared and paid by PACEL as of the date hereof.
<PAGE>
On March 31, 1997, David E. Calkins and F. Kay Calkins each received
500,000 shares of PACEL's 1997 Class A convertible preferred stock in exchange
for the forgiveness of $11,320 of personal loans owed to them. Each share of
preferred stock is convertible into one share of PACEL common stock at any time
and at no cost to the Calkins. The transaction was a private placement and
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
From June 1997 through December 1997, PACEL issued 296,800 shares of
common stock to various individuals for an aggregate purchase price of $211,470.
The transaction was a private placement and exempt from registration under Rule
504 of Regulation D of the Securities Act of 1933.
During 1998, PACEL issued 452,463 shares of common stock to various
individuals in exchange for professional and consulting services valued at
approximately $45,982. The transactions were private placements and exempt from
registration pursuant to Rule 504 of the Securities Act of 1933.
In April 1998, Kenneth Russman received an option to purchase 50,000
shares of common stock at an exercise price of $.20 per share, the market value
of the common stock as of the date of grant. The transaction was a private
placement and exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
From June 1998 through September 1998, PACEL sold 39,946 shares of
common stock to various individuals for an aggregate purchase price of $54,000.
The transaction was a private placement and exempt from registration under Rule
504 of Regulation D of the Securities Act of 1933.
From September 1998 through April 1999, PACEL sold 1,910,416 shares of
common stock to various individuals for an aggregate purchase price of $556,000.
The transaction was a private placement and exempt from registration under Rule
504 of Regulation D of the Securities Act of 1933.
Between January 26, 1999 and February 25, 1999, PACEL issued 287,707
shares of common stock to Augustine Fund in exchange for the forgiveness of a
$50,000 loan. The transaction was a private placement and exempt from
registration pursuant to Rule 504 of the Securities Act of 1933.
From January 1999 through September 1999, PACEL issued 3,952,051 shares
of common stock to various individuals in exchange for professional and
consulting services valued at approximately $193,268. The transactions were
private placements and exempt from registration pursuant to Rule 504 of the
Securities Act of 1933.
In April 1999, Kenneth Russman received an option to purchase 25,000
shares of common stock at an exercise price of $.20 per share. The transaction
was a private placement and exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.
From September 1999 through November 1999, PACEL issued $457,840 of
debt convertible into 4,309,259 shares of common stock. The transaction was a
private placement and exempt from registration under Rule 504 of Regulation D of
the Securities Act of 1933.
On September 30, 1999, David E. Calkins and F. Kay Calkins each
received an option to purchase 625,000 shares of common stock at an exercise
price of $.16 per share, the market value of the common stock as of the date of
grant, in exchange for $50,000 of compensation owed to each of them by PACEL.
The transactions were private placements and exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933.
Item 27. Exhibits
- -------- --------
See the Index to Exhibits filed as part of this Registration Statement.
<PAGE>
Item 28. Undertakings
- -------- ------------
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the Prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
Registration Statement; and
(iii) Include any additional or changed material information on the plan
of distribution.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Manassas, Commonwealth of Virginia, on November 24, 1999.
PACEL CORP.
By: /s/ David E. Calkins
--------------------------------------------
David E. Calkins
Chairman of the Board, President and
Chief Executive Officer
(DULY AUTHORIZED REPRESENTATIVE)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David E. Calkins and F. Kay Calkins, and each of
them, his or her true and lawful attorney-in-fact and agent, with full power of
substitution and re-substitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to file the same,
with all exhibits thereto, and all other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-facts and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all said
attorney-in-facts and agents or their substitutes or substitute may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ David E. Calkins /s/ F. Kay Calkins
- -------------------------------- -------------------------------------
David E. Calkins F. Kay Calkins
Chairman of the Board, President Director, Secretary and Treasurer
and Chief Executive Officer
(PRINCIPAL EXECUTIVE AND
FINANCIAL OFFICER)
Date: November 24, 1999 Date: November 24, 1999
/s/ Keith P. Hicks /s/ James D. Willet
- -------------------------------- -------------------------------------
Keith P. Hicks James D. Willet, Ph.D.
Director Director
Date: November 24, 1999 Date: November 24, 1999
/s/ Thomas Southerly /s/ Jeanette N. Taylor
- -------------------------------- -------------------------------------
Thomas Southerly Jeanette N. Taylor
Director Accounting Manager
(PRINCIPAL ACCOUNTING OFFICER)
Date: November 24, 1999 Date: November 24, 1999
<PAGE>
EXHIBIT INDEX
Exhibits:
3.1 Articles of Incorporation, as amended and currently in effect
3.2 Articles of Amendment to fix the Preferences, Limitations and
Relative Rights of the 1997-Class A Convertible Preferred Stock
3.3 Bylaws, as currently in effect
4 Form of Pacel Corp. stock certificate
5 Opinion with respect to legality of stock**
10.1 Employment Agreement by and between Pacel Corp. and David E. Calkins
10.2 Key Employees Incentive Stock Plan
10.3 Class A Convertible Preferred Stock Agreement with David A. Calkins
21 Subsidiaries of Pacel Corp.
23.1 Consent of Expert (see Exhibit 5)**
23.2 Consent of Peter C. Cosmas Co.
24 Power of Attorney (set forth on signature page)
27 Financial Data Schedule
99 Stock Order Form and Order Form Instructions**
- ------------------------------
** To be filed supplementally or by amendment.
ARTICLES OF AMENDMENT
OF
PACEL CORP.
Pursuant to Section 13.1-710 of the Code of Virginia the Articles of
Incorporation of PACEL CORP. are hereby amended. The amendment which follows was
adopted on May 27,1998 . The amendment was proposed by the Board of Directors
and submitted to the stockholders in accordance with law. There were 5,006,800
share of common stock outstanding and entitled to be cast by stockholders.
3,924,800 undisputed votes were cast in favor of the amendment, 0 votes were
cast against the amendment. There were no disputed votes. The number of votes of
common stock cast for the amendment was sufficient for approval by the
shareholders of the corporation.
I. Paragraph 3, of the Articles of Incorporation of PACEL Corp. is amended
to increase the common stock of the corporation to forty million shares and
shall read as follows:
Paragraph 3.
(A). The aggregate number of shares which the Corporation is authorized to issue
is as follows:
Class Number of Shares Par Value
Common 40,000,000 no par value
Preferred 5,000,000 no par value
(B). The Board of Directors of the Corporation ("the Board of Directors") may,
by amending these Articles of Incorporation ("the Articles") by filing Articles
of Amendment with the Virginia State Corporation Commission, fix in whole or in
part the preferences, limitations and rights, within the limits set by law of :
(i) any class of shares, before the issuance of any shares of that class,
or
(ii) one or more series within a class, before the issuance of any shares
within that series.
(C). The preferred stock (including any shares of preferred stock restored to
the status of authorized but unissued preferred stock undesignated as to series
pursuant to this Paragraph (3.C)) may be divided into one or more series and
issued from time to time with such preference, privileges, limitations and
relative rights as shall be fixed and determined by the Board of Directors.
Without limiting the generality of the foregoing, the Board of Directors is
expressly authorized to the fullest extent permitted from time to time by law to
fix:
<PAGE>
(i). the distinctive serial designations and the division of shares of
preferred stock into one or more series and the number of shares of a
particular series, which may be increased or decreased (but not below the
number of shares thereof then outstanding):
(ii). the rate or amount (or the method of determining the rate or amount)
and times at which the form in which, and the preferences and conditions
under which dividends shall be payable on shares of a particular series,
the status of such dividends as cumulative, partially cumulative, or
noncumulative, the date or dates from which dividends, if cumulative,
shall accumulate, and the status of such series as participating or
nonparticipating with shares of other classes or series;
(iii). the price or prices at which, the consideration for which, the
period or periods within which and the terms and conditions, if any, upon
which the shares of a particular series may be redeemed, in whole or in
part, at the option of the Corporation or otherwise;
(iv). the amount or amounts and rights and preferences, if any, to which
the Holders of shares of a particular series are entitled or shall have
upon any involuntary or voluntary liquidation, dissolution or winding up
of the Corporation;
(v). the rights and preferences over or otherwise in relation to any other
class or series (including other series of preferred stock) as to the
right to receive dividends and/or the right to receive payments out of the
net assets of the Corporation upon any involuntary or voluntary
liquidation, dissolution or winding up of the Corporation;
(vi). the right, if any, of the Holders of a particular series, the
Corporation or another person to convert, or cause conversion of shares of
such series into shares of other classes or series or into other
securities, cash, indebtedness or other property or to exchange or cause
exchange of such shares for shares, classes or series or other securities,
cash, indebtedness or other property and the terns and conditions, if any,
including the price or prices or the rate or rates of conversion and
exchange and the terms and conditions of adjustments, if any, at which
such conversion or exchange may be made or caused.
(vii). the obligation, if any, of the Corporation to redeem, purchase or
otherwise acquire, in whole or in part, shares of a particular series for
a sinking fund or otherwise, the terms and conditions thereof, if any,
including the price or prices and the nature of the consideration payable
for such shares so redeemed, purchase or otherwise acquired.
2
<PAGE>
(viii). the voting rights, if any, including special conditional or
limited voting rights of the shares of a particular series in addition to
those required by law, including the number of votes per shares and any
requirement for the approval by the Holders of shares of all series of
preferred stock, or of the shares of one or more series thereof, or of
both, in any amount greater than a majority up to such amount as in
accordance with applicable law or these Articles, as a condition to
specified corporation action or amendments to the Articles.
(D). Shares of preferred stock shall rank prior or superior to the common stock
in respect of the right to receive dividends and/or the right to receive payment
out of the net assets of the Corporation upon any involuntary or voluntary
liquidation, dissolution or winding up of the Corporation. All shares of
preferred stock redeemed, purchased or otherwise acquired by the Corporation
(including shares surrendered for conversion or exchange) shall be canceled and
thereupon restored to the status of authorized but unissued shares of preferred
stock undesignated as to series.
(E). The Holders of common stock, to the exclusion of any other class of stock
of the Corporation, have sole power to vote for the election of directors except
as:
(i). otherwise expressly provided in the serial designation of any series
of preferred stock
(ii). otherwise expressly provided in these Articles and
(iii) otherwise expressly provided by the then existing laws of the
Commonwealth of Virginia.
(F). The Holders of common stock will have one vote for each share of common
stock held by them.
(G). No Holder of shares of stock of any class of the Corporation will have any
preemptive or preferential rights of subscription to any shares of any class of
stock of the Corporation, whether now or hereafter authorized or to any
obligations of the Corporation convertible into stock of the Corporation, issued
or sold, nor any right of subscription to any thereof.
All other provisions of the Articles of Incorporation as previously amended
shall remain in effect .
WITNESS the signatures below:
/s/ David Calkins
-------------------------------------
David Calkins, Director; Shareholder
/s/ F. Kay Calkins
-------------------------------------
F. Kay Calkins, Director; Shareholder
3
<PAGE>
ARTICLES OF AMENDMENT
OF
PACEL CORP.
Pursuant to Section 13.1-710 of the Code of Virginia the Articles of
Incorporation of PACEL CORP. are hereby amended. The amendments which follow
were adopted by the unanimous consent of the corporate shareholders of the
corporation.
I. Paragraphs 3, 8, 9 & 10 of the Articles of Incorporation of PACEL CORP. are
deleted in their entirety and substituted in their place is the following:
Paragraph 3.
(A). The aggregate number of shares which the Corporation is authorized to issue
is as follows:
Class Number of Shares Par Value
Common 20,000,000 no par value
Preferred 5,000,000 no par value
(B). The Board of Directors of the Corporation ("the Board of Directors") may,
by amending these Articles of Incorporation ("the Articles") by filing Articles
of Amendment with the Virginia State Corporation Commission, fix in whole or in
part the preferences, limitations and rights, within the limits set by law of :
(i) any class of shares, before the issuance of any shares of that class,
or
(ii) one or more series within a class, before the issuance of any shares
within that series.
(C). The preferred stock (including any shares of preferred stock restored to
the status of authorized but unissued preferred stock undesignated as to series
pursuant to this Paragraph (3.C)) may be divided into one or more series and
issued from time to time with such preference, privileges, limitations and
relative rights as shall be fixed and determined by the Board of Directors.
Without limiting the generality of the foregoing, the Board of Directors is
expressly authorized to the fullest extent permitted from time to time by law to
fix:
(i). the distinctive serial designations and the division of shares of
preferred stock into one or more series and the number of shares of a particular
series, which may be increased or decreased (but not below the number of shares
thereof then outstanding):
(ii). the rate or amount (or the method of determining the rate or amount)
and times at which the form in which, and the preferences and conditions under
which dividends shall be payable on shares of a particular series, the status of
such dividends as cumulative, partially cumulative, or noncumulative, the date
or dates from which dividends, if cumulative, shall accumulate, and the status
of such series as participating or nonparticipating with shares of other classes
or series;
<PAGE>
(iii). the price or prices at which, the consideration for which, the
period or periods within which and the terms and conditions, if any, upon which
the shares of a particular series may be redeemed, in whole or in part, at the
option of the Corporation or otherwise;
(iv). the amount or amounts and rights and preferences, if any, to which
the Holders of shares of a particular series are entitled or shall have upon any
involuntary or voluntary liquidation, dissolution or winding up of the
Corporation;
(v). the rights and preferences over or otherwise in relation to any other
class or series (including other series of preferred stock) as to the right to
receive dividends and/or the right to receive payments out of the net assets of
the Corporation upon any involuntary or voluntary liquidation, dissolution or
winding up of the Corporation;
(vi). the right, if any, of the Holders of a particular series, the
Corporation or another person to convert, or cause conversion of shares of such
series into shares of other classes or series or into other securities, cash,
indebtedness or other property or to exchange or cause exchange of such shares
for shares, classes or series or other securities, cash, indebtedness or other
property and the terns and conditions, if any, including the price or prices or
the rate or rates of conversion and exchange and the terms and conditions of
adjustments, if any, at which such conversion or exchange may be made or caused.
(vii). the obligation, if any, of the Corporation to redeem, purchase or
otherwise acquire, in whole or in part, shares of a particular series for a
sinking fund or otherwise, the terms and conditions thereof, if any, including
the price or prices and the nature of the consideration payable for such shares
so redeemed, purchase or otherwise acquired.
(viii). the voting rights, if any, including special conditional or
limited voting rights of the shares of a particular series in addition to those
required by law, including the number of votes per shares and any requirement
for the approval by the Holders of shares of all series of preferred stock, or
of the shares of one or more series thereof, or of both, in any amount greater
than a majority up to such amount as in accordance with applicable law or these
Articles, as a condition to specified corporation action or amendments to the
Articles.
(D). Shares of preferred stock shall rank prior or superior to the common stock
in respect of the right to receive dividends and/or the right to receive payment
out of the net assets of the Corporation upon any involuntary or voluntary
liquidation, dissolution or winding up of the Corporation. All shares of
preferred stock redeemed, purchased or otherwise acquired by the Corporation
(including shares surrendered for conversion or exchange) shall be canceled and
thereupon restored to the status of authorized but unissued shares of preferred
stock undesignated as to series.
2
<PAGE>
(E). The Holders of common stock, to the exclusion of any other class of stock
of the Corporation, have sole power to vote for the election of directors except
as:
(i). otherwise expressly provided in the serial designation of any series
of preferred stock
(ii). otherwise expressly provided in these Articles and
(iii). otherwise expressly provided by the then existing laws of the
Commonwealth of Virginia.
(F). The Holders of common stock will have one vote for each share of common
stock held by them.
(G). No Holder of shares of stock of any class of the Corporation will have any
preemptive or preferential rights of subscription to any shares of any class of
stock of the Corporation, whether now or hereafter authorized or to any
obligations of the Corporation convertible into stock of the Corporation, issued
or sold, nor any right of subscription to any thereof.
II. Paragraph 11 is renumbered as paragraph 8 and amended as follows:
"The Corporation reserves to right to amend the Articles of Incorporation
in any manner, now or hereinafter permitted by law." The remaining provisions of
Paragraph 11 starting with the words "except no amendment..." are hereby
deleted.
WITNESS the signatures below:
/s/ David Calkins
------------------------------
David Calkins,
Director; Shareholder
/s/ F. Kay Calkins
------------------------------
F. Kay Calkins,
Director; Shareholder
3
<PAGE>
ARTICLES OF INCORPORATION
OF
PACEL CORP.
1) The name of the Corporation is: PACEL CORP.
2) The purpose of the Corporation is to provide interactive software
application products to government, commercial and utility companies, to support
their need to reduce costs, improve productivity, enhance the quality and
reliability of acquiring and analyzing data as well as to provide allied and
incidental products and services. In addition, the Corporation shall have the
power to transact any lawful business not required to be specifically stated in
the Articles of Incorporation for which corporations may be incorporated.
3) The Corporation shall have authority to issue One Thousand (1,000)
shares of common stock of the par value of One Dollar ($1.00) each.
4) The initial Registered Office of the Corporation shall be located at
10561 Crestwood Drive, Manassas, VA 22110, in the County of Prince William,
Virginia. The initial Registered Agent shall be Alan Shachter, who is a member
of the Virginia State Bar and is a resident of City of Manassas, Virginia. The
address of the Registered Office and the address of the business office of the
Registered Agent are identical.
5) The number of directors shall be two. The initial directors are:
David E. Calkins 9514 Vinnia Court
Manassas, VA 22110
Richard Postin 2740 Highland Ridge Court
Cummings, GA 30131
6a) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
<PAGE>
(including an action or suit by or in the right of the Corporation to procure a
judgment in its favor) by reason of the fact that he is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against judgments, fines, amounts paid in
settlement, and expenses (including attorney's fees) actually and reasonably
incurred by him in connection with such action, suit or proceeding except only
in relation to any claim, issue or matter as to which such person shall have
been finally adjudged to be liable for his gross negligence or willful
misconduct. Each such indemnity shall inure to the benefit of the heirs,
executors and administrators of such person.
6b) Any indemnity under subsection a) above shall (unless authorized by a
court) be made by the Corporation only as authorized in the specific case upon a
determination that the director or officer was not guilty of gross negligence or
willful misconduct in the performance of his duty and, in case of a settlement,
that such settlement was, or if still to be made is, consistent with such
indemnity and the best interests of the Corporation. Such determination shall be
made i) by the Board of Directors by a majority of a quorum consisting of
directors who were not parties is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or ii) by the shareholders. If the determination is to be made
by the Board of Directors, it may rely, as to all questions of law, on the
advice of independent counsel.
6c) Expenses incurred in defending an action, suit or proceeding, whether
civil, administrative or investigative, may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by vote of the persons provided in subsection b) of this section,
upon receipt of an undertaking by or on behalf of the director or officer to
2
<PAGE>
repay such amount unless it shall ultimately be determined that he is entitled
to be indemnified by the Corporation as authorized in this section.
6d) The right of indemnification provided by this section shall not be
exclusive of any other rights to which any director or officer may be entitled,
including any right under policies of insurance that may be purchased and
maintained by the Corporation or others, even as to claims, issues or matters in
relation to which the Corporation would not have the power to indemnify such
director or officer under the provision of this section.
6e) The Corporation may purchase and maintain at its sole expense
insurance against all liabilities or losses it may sustain in consequence of the
indemnification provided for in this section, in such amounts and on such terms
and conditions as the Board of Directors may deem reasonable.
7) The Board of Directors subject to any specific written limitation or
restrictions imposed by law or by these Articles of Incorporation shall direct
the carrying out of the purposes and exercise the powers of the Corporation
without previous authorization or subsequent approval by the shareholders of the
Corporation.
8) At each election for directors, every holder of the capital stock shall
have the right to vote, in person or by proxy, the number of shares registered
in his or her name for as many persons as there are directors to be elected and
for whose election he or she has the right to vote, or to cumulate his or her
votes by giving one candidate as many votes as the number of such directors
multiplied by the number of his or her shares shall equal, or by distributing
such votes on the same principal among any number of such candidates.
9) The shares of the corporation are not to be divided into classes and
the Corporation is not authorized to issue shares in series.
3
<PAGE>
10) The registered holders of the shares of capital stock shall have a
preemptive right as set forth in this paragraph to purchase at such respective
equitable prices, terms and conditions as shall be fixed by the Board of
Directors, such of the shares of capital stock of the Corporation or securities
convertible into or carrying options or warrants to purchase such shares of
capital stock as may be issued for money from time to time, after the issue of
the first ten (10) shares, of capital stock. Such preemptive right shall apply
to all shares issued after the first ten (10) shares whether the additional
shares constitute a part of the shares held in the treasury of the Corporation.
No shares shall be issued for money to directors, officers or employees of the
Corporation or to directors, officers or employees of any subsidiary Corporation
as such unless first offered to the holders of the capital stock in accordance
with their preemptive right.
11) The Corporation reserves the right to amend the Articles of
Incorporation in any manner now or hereafter permitted by law except no
amendment shall be made to Sections 8 and 10 of these Articles of Incorporation
without the written consent or affirmative vote of holders of eighty percent
(80%) of the issued and outstanding shares of capital stock.
Dated: April 29, 1994 /s/ Alan Shachter
-------------------------------
ALAN SHACHTER
INCORPORATOR
4
PACEL CORP.
Certificate of Designation, Powers, Preferences and Rights
Of the
1997-CLASS A Series of Convertible Preferred stock
(No Par Value)
---------------
Pursuant to Section 13.1-638 of the
Code of Virginia
-------------
The undersigned, President of Pacel Corp., a Virginia Corporation (hereinafter
called the "Company") does hereby certify as required by 13.1.638 that the
following resolution has been duly adopted by the Board of Directors of the
Company
RESOLVED, that pursuant to authority expressly granted to and vested in the
Board of Directors of the Company (the "Board of Directors") by the provisions
of the Certificate of Incorporation, as amended (hereinafter the "Certificate of
Incorporation") of the preferred stock of the Company authorized in Articles I &
II of its Certificate of Incorporation (the "Preferred Stock"), a series of
l,000,000 shares, which series shall have the following designations, powers,
preferences, rights, qualifications, limitations and restrictions (in addition
to the designations, powers, preferences, rights, qualifications, limitations
and restrictions set forth in the Certificate of Incorporation of the Company
which are applicable to the Preferred Stock):
1. DESIGNATION.
The designation of the said series of the Preferred Stock shall be the
"The 1997-CLASS A Series of Convertible Preferred Stock: (the "1997-CLASS
A Series").
2. NUMBER OF SHARES; PAR VALUE.
The number of shares of the 1997-CLASS A Series shall be limited to
l,000,000. The shares of the 1997-CLASS A Series shall be issued as full
shares without par value.
3. DIVIDENDS.
The holders of the 1997-CLASS A Series of Convertible Preferred Stock
shall be entitled to receive, out of any funds of the Company at the time
legally available for the declaration of dividends, a per share
participating dividend equivalent to that declared and/or paid with
respect to a share of Common Stock.
4. LIQUIDATION.
The shares of the 1997-CLASS A Series of Convertible Preferred Stock shall
have no liquidation value. In the event of a liquidation, dissolution, or
winding up of the Company, whether voluntary or involuntary, the holders
of shares of the 1997-CLASS A Series of Convertible Preferred Stock shall
not be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus of any nature, any liquidation price,
distribution or payment.
<PAGE>
5. REDEMPTION
(a) At any time after June 30, 2000, the Company, at the option of the
Board of Directors, CLASS A Series of Convertible Preferred Stock on any
dividend date by paying in cash therefor $.001 per share and, in addition
to such amount, an amount in cash equal to all dividends on the 1997-CLASS
A Series of Convertible Preferred Stock declared but may redeem the whole
of, or from time to time may redeem any part of, the 1997-unpaid and
accumulated up to and including the date fixed for redemption.
(b) In case of the redemption of a part only of the outstanding shares of
the 1997-CLASS A Series of Convertible Preferred Stock, the Company shall
designate by lot, in such manner as the Board of Directors may determine,
the shares to be redeemed, or shall effect such redemption pro rata. Less
than all of the shares of the 1997-CLASS A Series of Convertible Preferred
Stock at any time outstanding may not be redeemed until al dividends
declared, accrued and in arrears upon all of the shares of the 1997-CLASS
A Series of convertible Preferred Stock outstanding shall have been paid
for all past dividend periods on all shares of the 1997-CLASS A Series of
Convertible Preferred Stock then outstanding, other than the shares to be
redeemed, shall have been paid for all past dividend periods, and until
full dividends, if any, for the then current dividend period on all shares
of the 1997-CLASS A Series of Convertible Preferred Stock then
outstanding, other than the shares to be redeemed, shall have been paid or
declared and the full amount thereof set apart for payment. At least 30
days' previous notice by mail, postage prepaid, shall be given to the
holders of record of the shares to be redeemed.
6. VOTING.
The 1997-CLASS A Series of Convertible Preferred Stock shall not have
voting rights.
7. CONVERSION.
a) Subject to the provisions of sub-paragraph (b) below, the shares of the
1997-CLASS A Series of Convertible Preferred Stock shall, at the option of
the respective holders thereof, be convertible into fully paid and
nonassessable Common Shares of the Company, at any time and from time to
time, except that any of such 1997-CLASS A shares which have been called
for redemption shall be convertible up to and including, but not after,
the close of business on the tenth (10) day prior to the redemption date.
(i) In order to exercise the conversion privilege, the holder of any
of the shares of the 1997- CLASS A Series to be converted shall
surrender the certificate or certificates therefor to any
transfer agent of the Company for such shares, duly endorsed in
blank for transfer with the signature Medallion guaranteed,
accompanied by written notice of election to convert such shares
or a portion thereof executed on the form set forth on such
certificates or on such other form as may be provided from time
to time by the Company.
As soon as practicable after the surrender of such certificates
as provided above, the Company shall cause to be issued and
delivered, at the office of such transfer agent, to or on the
order of the holder of the certificates thus surrendered, a
certificate or certificates for the number of full shares of
Common Stock issuable hereunder upon the conversion of such
shares of the 1997-CLASS A Series. Such conversion shall be
deemed to have been effected on the date on which the
certificates for such shares of the 1997-CLASS A Series have been
surrendered as provided above, and the person in whose name any
certificate or certificates for Common Stock are issuable upon
conversion shall be deemed to have become on such date the holder
of record of the shares represented thereby.
(ii) The shares of 1997-CLASS A Series of Convertible Preferred Stock
shall be convertible into Common Shares of the Company on a
one-for-one basis; i.e., one share of 1997-CLASS A Series shall
convert into one share of Common Stock.
2
<PAGE>
(iii) Earned and declared but unpaid and accrued or accumulated
dividends on the 1997-CLASS A Series of Convertible Preferred
Stock shall be payable in cash and shall not entitle the holder
to any additional shares of Common Stock or any further
conversion right with respect to such dividends.
(iv) In case of the voluntary dissolution, liquidation, or winding up
of the Company, all conversion rights of the holders of shares of
1997-CLASS A Series of Convertible Preferred Stock shall
terminate on a date fixed by the Board of Directors, but not more
than thirty (30) days prior to the record date for determining
the holders of the Common Shares entitled to receive any
distribution upon such dissolution, liquidation or winding up.
The Company shall cause notice of the proposed action, and of the
date of termination of conversion rights, to be mailed to the
holders of record of shares of the 1997-CLASS A Series not later
than thirty (30) days prior to the date of such termination, and
shall promptly give similar notice to each transfer agent for
such Preferred Stock and for the Common Stock.
(v) No fractional share of Common Stock shall be issued upon
conversion of any share of the 1997-CLASS A Series; furthermore,
no scrip or cash balance shall be paid.
(vi) As long as any of the shares of the 1997-CLASS A Series remain
outstanding, the Company shall take all steps necessary to
reserve and keep available a number of its authorized but
unissued shares of Common Stock sufficient for issuance upon
conversion of all such outstanding shares of the 1997-CLASS A
Series.
(vii) All certificates for the shares of the 1977-CLASS A Series
surrendered for conversation as provided herein shall be
cancelled and retired, and no further shares of the 1997-CLASS A
Series shall be issued in lieu thereof.
(viii)The exercise of the conversion privilege shall be subject to
such regulations, not inconsistent with the foregoing provisions
of this paragraph, as may from time to time be adopted by the
Board of Directors of the Company.
(ix) All shares of Common Stock issued upon the conversation of the
shares of the 1997-CLASS A Series shall be validly issued and
outstanding, and fully paid and nonassessable.
b) In the event that prior to the conversion of any outstanding shares of
the 1997-CLASS A Series, the COMPANY shall:
(i) Issue any of its Common Shares as a share dividend or subdivide
the number of outstanding Common Shares into a greater number of
shares, then, in either of such cases, the conversion price of
the Common Shares in effect at the time of such action shall be
proportionately reduced and the number of shares at the time
purchasable shall be proportionately reduced and the number of
shares at the time purchasable shall be proportionately
increased; and conversely, in the event the COMPANY shall
contract the number of outstanding Common Shares by combining
such shares into a smaller number of shares, then, in such case,
the conversion price per share of the Common Shares in effect at
the time of such action shall be proportionately decreased. If
the COMPANY shall, prior to the conversion date declare a
dividend payable in cash on its Common Shares and shall at
substantially the same time offer to its shareholders a right to
purchase new Common Shares from the proceeds of such dividend or
for an amount substantially equal to the dividend, all Common
Shares so issued shall, for the purposes of this provision, be
deemed to have been issued as a share dividend. Any dividend paid
3
<PAGE>
or distributed upon the Common Shares in shares of any other
class or securities convertible into Common Shares shall be
treated as a dividend paid in Common Shares to the extent that
Common Shares are issuable upon the conversion thereof. Or
(ii) be recapitalized, or the COMPANY or a SUCCESSOR corporation shall
consolidate or merge with or convey all or substantially all of
its or of any successor corporation's property and assets to any
other corporation, the registered Holders of any of the shares of
the 1997-CLASS A Series shall thereafter have the right to
convert such shares upon a basis adjusted for such
recapitalization or consolidation or merger or conveyance. Or
(iii) take a record of the holders of its Common Shares for the purpose
of entitling them to receive a dividend payable otherwise than in
cash, or any other distribution in respect of the Common Shares
(including cash), pursuant to, without limitation, any spin-off,
split-off, or distribution of the COMPANY'S assets; or for the
purpose of entitling them to subscribe for or purchase any shares
of any class or to receive any other rights; or of any
classification, reclassification, or other reorganization of the
shares which the COMPANY is authorized to issue, consolidation or
merger of the COMPANY with or into another corporation, or
conveyance of all or substantially all of the assets of the
COMPANY; then, and in any such case, the COMPANY shall mail to
the registered Holders of the outstanding shares of the
1997-CLASS A Series, at least 21 days prior thereto, a notice
stating the date or expected date on which a record is to be
taken for the purpose of such dividend, distribution, or rights,
or the date on which such classification, reclassification,
reorganization, consolidation or merger, conveyance, is to take
place, as the case may be. Such notice shall also specify the
date or expected date, if any is to be fixed, as of which
registered holders of Common Shares of record shall be entitled
to participate in such dividend, distribution, or rights, or
shall be entitled to exchange their Common Shares for securities
or other property deliverable upon such classification,
reclassification, reorganization, consolidation, merger or
conveyance, as the case may be.
8. NO PREEMPTIVE RIGHTS.
(1)No holder of any shares of the 1997-CLASS A Series of Convertible
Preferred Stock, as such, shall be entitled as a matter of right to
subscribe for or purchase any part of any new or additional issue of
shares of any class or series, junior or senior thereto, or securities
convertible into, exchangeable for, or exercisable for the purchase of,
shares of any class or series, junior or senior, whether now or hereafter
authorized, and whether issued for cash, property, services, by way of
dividends, or otherwise.
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly
executed on its behalf by its undersigned President and attested to by its
Secretary this 29th day of January, 1998.
PACEL CORP.
By: /s/ David E. Calkins
---------------------------
David E. Calkins, President
ATTEST:
(Corporate Seal)
/s/ F. Kay Calkins
- --------------------------
F. Kay Calkins, Secretary
4
BY-LAWS
OF
PACEL CORP.
ARTICLE I - OFFICES
The office of the Corporation shall be located in the City and State designated
in the Articles of Incorporation. The Corporation may also maintain offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
SECTION 1 - ANNUAL MEETINGS:
The annual meeting of the shareholders of the Corporation shall be held within
five months after the close of the fiscal year of the Corporation, for the
purpose of electing directors, and transacting such other business as may
properly come before the meeting.
SECTION 2 - SPECIAL MEETINGS:
Special meetings of the shareholders may be called at any time by the Board of
Directors or by the President, and shall be called by the President or the
Secretary at the written request of the holders of ten per cent (10%) of the
shares then outstanding and entitled to vote thereat, or as otherwise required
under the provisions of the law of the Commonwealth of Virginia
("Corporation Law").
SECTION 3 - PLACE OF MEETINGS:
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
SECTION 4 - NOTICE OF MEETINGS:
(a) Written notice of each meeting of shareholders, whether annual or special,
stating the time when and place where it is to be held, shall be served either
personally or by mail, not less than ten or more than fifty days before the
meeting, upon each shareholder of record entitled to vote at such meeting, and
to any other shareholder to whom the giving of notice may be required by law.
Notice of a special meeting shall also state the purpose or purposes for which
the meeting is called, and shall indicate that it is being issued by, or at the
direction of, the person or persons calling the meeting. If, at any meeting,
action is proposed to be taken that would, if taken, entitle shareholders to
receive payment for their shares pursuant to the Business Corporation Act, the
notice of such meeting shall include a statement of that purpose and to that
<PAGE>
effect. If mailed, such notice shall be directed to each such shareholder at his
address, as it appears on the records of the shareholders of the Corporation,
unless he shall have previously filed with the Secretary of the Corporation a
written request that notices intended for him be mailed to some other address,
in which case, it shall be mailed to the address designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
SECTION 5 - QUORUM:
(a) Except as otherwise provided herein, or by statute, or in the Articles of
Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Articles of Incorporation"), at all meetings of
shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record a majority of
the total number of shares of the Corporation then issued and outstanding and
entitled to vote, shall be necessary and sufficient to constitute a quorum for
the transaction of any business. The withdrawal of any shareholder after the
commencement of a meeting shall have no effect on the existence of a quorum,
after a quorum has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called if a quorum
had been present.
SECTION 6 - VOTING:
(a) Except as otherwise provided by statute or by the Articles of Incorporation,
any corporate action, other than the election of directors to be taken by vote
of the shareholders, shall be authorized by a majority of votes cast at a
meeting of shareholders by the holders of shares entitled to vote thereon.
(b) Except as otherwise provided by statute or by the Articles of Incorporation,
at each meeting of shareholders, each holder of record of shares of the
Corporation entitled to vote thereat, shall be entitled to one vote for each
share registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact thereunto duly authorized in writing. No
proxy shall be valid after the expiration of eleven months from the
2
<PAGE>
date of its execution, unless the persons executing it shall have specified
therein the length of time it is to continue in force. Such instrument shall be
exhibited to the Secretary at the meeting and shall be filed with the records of
the Corporation.
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1 - NUMBER, ELECTION AND TERM OF OFFICE:
(a) The number of the directors of the Corporation shall be three (3), unless
and until otherwise determined by vote of a majority of the entire Board of
Directors. The number of directors shall not be less than three, unless all of
the outstanding shares are owned beneficially and of record by less than three
shareholders, in which event the number of directors shall not be less than the
number of shareholders.
(b) Except as may otherwise be provided herein or in the Articles of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares entitled to vote in the
election.
(c) Each director shall hold office until the annual meeting of the shareholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
SECTION 2 - DUTIES AND POWERS:
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Articles of Incorporation or by
statute expressly conferred upon or reserved to the shareholders.
SECTION 3 - ANNUAL AND REGULAR MEETINGS; NOTICE:
(a) A regular annual meeting of the Board of Directors shall be held immediately
following the annual meeting of the shareholders at the place of such annual
meeting of shareholders.
(b) The Board of Directors, from time to time, may provide by resolution for the
holding of other regular meetings of the Board of Directors, and may fix the
time and place thereof.
3
<PAGE>
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) of Section 4 of this Article III, with respect to special
meetings, unless such notice shall be waived in the manner set forth in
paragraph (c) of such Section 4.
SECTION 4 - SPECIAL MEETINGS; NOTICE:
(a) Special meetings of the Board of Directors shall be held whenever called by
the President or by one of the directors, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
(b) Notice of special meetings shall be mailed directly to each director,
addressed to him at his residence or usual place of business, at least two (2)
days before the day on which the meeting is to be held, or shall be sent to him
at such place by telegram, radio or cable, or shall be delivered to him
personally or given to him orally, not later than the day before the day on
which the meeting is to be held. A notice, or waiver of notice, except as
required by Section 8 of this Article III, need not specify the purpose of the
meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
SECTION 5 - CHAIRMAN:
At all meetings of the Board of Directors the Chairman of the Board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
directors shall preside.
SECTION 6 - QUORUM AND ADJOURNMENTS:
(a) At all meetings of the Board of Directors, the presence of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, except as otherwise provided by law, by the Articles of
Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
4
<PAGE>
SECTION 7 - MANNER OF ACTING:
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Articles of Incorporation,
or these By-Laws, the action of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors.
Any action authorized in writing, by all of the directors entitled to vote
thereon and filed with the minutes of the Corporation shall be the act of the
Board of Directors with the same force and effect as if the same had been passed
by unanimous vote at a duly called meeting of the Board.
SECTION 8 - VACANCIES:
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
SECTION 9 - RESIGNATION:
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 10 - REMOVAL:
Any director may be removed with or without cause at any time by the
shareholders, at a special meeting of the shareholders called for that purpose,
and may be removed for cause by action of the Board.
SECTION 11 - SALARY:
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
5
<PAGE>
SECTION 12 - CONTRACTS:
(a) No contract or other transaction between this Corporation and any other
corporation shall be impaired, affected or invalidated nor shall any director be
liable in any way by reason of the fact that any one or more of the directors of
this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of a
majority of a quorum, notwithstanding the presence of any such director at the
meeting at which such action is taken. Such director or directors may be counted
in determining the presence of a quorum at such meeting. This Section shall not
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
SECTION 13 - COMMITTEES:
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
SECTION 1 - NUMBER, QUALIFICATIONS, ELECTION
AND TERM OF OFFICE:
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board of
Directors may be, but is not required to be, a director of the Corporation. Any
two or more offices may be held by the same person, except the offices of
President and Secretary.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
6
<PAGE>
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
SECTION 2 - RESIGNATION:
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
SECTION 3 - REMOVAL:
Any officer may be removed, either with or without cause, and a successor
elected by the Board at any time.
SECTION 4 - VACANCIES:
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 5 - DUTIES OF OFFICERS:
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these By-Laws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the chief executive officer of
the Corporation.
SECTION 6 - SURETIES AND BONDS:
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
SECTION 7 - SHARES OF OTHER CORPORATIONS:
Whenever the Corporation is the holder of shares of any other corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders'
7
<PAGE>
meetings and execution of waivers, consents, proxies or other instruments) may
be exercised on behalf of the Corporation by the President, any Vice President,
or such other person as the Board of Directors may authorize.
ARTICLE V - SHARES OF STOCK
SECTION 1 - CERTIFICATE OF STOCK:
(a) The certificates representing shares of the Corporation shall be in such
form as shall be adopted by the Board of Directors, and shall be numbered and
registered in the order issued. They shall bear the holder's name and the number
of shares, and shall be signed by (i) the Chairman of the Board or the President
or a Vice President, and (ii) the Secretary or any Assistant Secretary, and may
bear the corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) The Board of Directors may authorize the issuance of certificates for
fractions of a share which shall entitle the holder to exercise voting rights,
receive dividends and participate in liquidating distributions, in proportion to
the fractional holdings; or it may authorize the payment in cash of the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined; or it may authorize the issuance, subject to such
conditions as may be permitted by law, of scrip in registered or bearer form
over the signature of an officer or agent of the Corporation, exchangeable as
therein provided for full shares, but such scrip shall not entitle the holder to
any rights of a shareholder, except as therein provided.
SECTION 2 - LOST OR DESTROYED CERTIFICATES:
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representative, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
8
<PAGE>
SECTION 3 - TRANSFERS OF SHARES:
(a) Transfers of shares of the Corporation shall be made on the share records of
the Corporation only by the holder of record thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith, duly executed, with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
SECTION 4 - RECORD DATE:
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, nor less than ten days, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the directors relating thereto is adopted. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders has
been made as provided for herein, such determination shall apply to any
adjournment thereof, unless the directors fix a new record date for the
adjourned meeting.
ARTICLE VI - DIVIDENDS
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
9
<PAGE>
ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
SECTION 1 - BY SHAREHOLDERS:
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by a majority vote of the shareholders at the time entitled
to vote in the election of directors.
SECTION 2 - BY DIRECTORS:
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article IX
above-provided may alter, amend or repeal by-laws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meetings of shareholders or of the Board of Directors, or to change
any provisions of the by-laws with respect to the removal of directors or the
filling of vacancies in the Board resulting from the removal by the
shareholders. If any by-law regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors,
the by-law so adopted, amended or repealed, together with a concise statement of
the changes made.
10
[FRONT OF SAMPLE STOCK CERTIFICATE]
NUMBER SHARES
RS
PACEL CORP.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF VIRGINIA
SEE REVERSE FOR CERTAIN DEFINITIONS
COMMON STOCK CUSIP 69372L 30 6
THIS CERTIFIES THAT:
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF NO PAR VALUE EACH OF
PACEL CORP.
transferable on the books of the Corporation in person or by attorney upon
surrender of this cetificate duly endorsed or assigned. This certificate and the
shares represented hereby are subject to the laws of the Commonwealth of
Virginia and to the Articles of Incorporation and Bylaws of the Corporation, as
now or hereafter amended. This certificate is not valid until countersigned by
the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED: COUNTERSIGNED:
OLDE MONMOUTH STOCK TRANSFER CO., INC.
77 MEMORIAL PARKWAY, ATLANTIC HIGHLANDS, NJ 07716
BY:
AUTHORIZED SIGNATURE
[CORPORATION SEAL]
/s/ F. Kay Calkins /s/ David E. Calkins
SECRETARY PRESIDENT
<PAGE>
[BACK OF SAMPLE STOCK CERTIFICATE]
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT ......Custodian......
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants
in common Act.............
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _____________________________
---------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THIS CERTIFICATE IN EVERY PARTIUCLAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST
COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR OTHER RECOGNIZED STOCK
EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE MEDALLION PROGRAM
- --------------------------------------------------------------------------------
NUMBER SHARES
RS
PACEL CORP.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF VIRGINIA
SEE REVERSE FOR CERTAIN DEFINITIONS
COMMON STOCK CUSIP 69372L 30 6
THIS CERTIFIES THAT:
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF NO PAR VALUE EACH OF
PACEL CORP.
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the Commonwealth of
Virginia, and to the Articles of Incorporation and Bylaws of the Corporation, as
now or hereafter amended. This certificate is not valid until countersigned by
the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED: COUNTERSIGNED:
OLDE MONMOUTH STOCK TRANSFER CO., INC.
77 MEMORIAL PARKWAY, ATLANTIC HIGHLANDS, NJ 07716
TRANSFER AGENT
BY:
AUTHORIZED SIGNATURE
[CORPORATION SEAL]
/s/ F. Kay Calkins /s/ David E. Calkins
SECRETARY PRESIDENT
<PAGE>
[BACK OF SAMPLE STOCK CERTIFICATE]
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT ......Custodian......
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants
in common Act.............
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _____________________________
---------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.
THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THIS CERTIFICATE IN EVERY PARTIUCLAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST
COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR OTHER RECOGNIZED STOCK
EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE MEDALLION PROGRAM
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT
AMENDMENT I
THIS EMPLOYMENT AGREEMENT, made as of this 1st day of August, 1999, by and
between:
PACEL CORP. a Virginia corporation having its executive office at 8870
Rixlew Lane, Suite 201, Manassas, Virginia 20109 (hereinafter referred to as
"PACEL")
AND
DAVID E. CALKINS, an adult individual residing at 9514 Vinnia Court,
Manassas, Virginia 20110 (hereinafter "CALKINS")
WITNESSETH THAT:
WHEREAS, CALKINS is a founder of PACEL and has been employed by PACEL
since its organization, and the parties desire to replace the original written
agreement with an amended employment agreement so as to assure potential
investors of the continuity of his employment and PACEL" continuing access to
his experience, background, know-how and contacts which will continue to be
useful and helpful to PACEL in its business;
WHEREAS, the parties have agreed upon the terms of such employment, based
upon the preceding agreement, and desire a modified, formal contract to evidence
their agreements;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
forbearances contained herein, and intending to be legally bound, the parties
have agreed as follows:
1. EMPLOYMENT. For the term provided in Paragraph 2, PACEL hereby employs
CALKINS, and CALKINS hereby accepts that employment, upon the terms
and conditions hereinafter set forth.
2. TERM.
(a) This Agreement shall become effective as of August 1, 1999.
<PAGE>
(b) This Agreement, subject to the provisions of Paragraphs 16 and 17
below, shall continue and exist for an initial period from such
effective date for a period of twenty-four (24) months, i.e.,
until July 31, 2001 (initial term).
(c) If, four (4) months prior to the expiration date of the initial
term, neither party is then in default under this Agreement,
PACEL may request that EMPLOYEE agree to extend the term of this
Agreement for an additional one (1) year period. Such request
shall be transmitted by PACEL to CALKINS, in writing, on or
before three (3) months prior to the expiration date of the
initial term, of its intention to so extend the Agreement.
CALKINS shall accept or reject such requested extension within
thirty (30) days after receipt of PACEL's request; if CALKINS
shall not respond within such thirty days, the request shall be
deemed denied. If PACEL shall not give notice of its desire to
renew this Agreement on or before the three months prior to the
expiration date of the initial term, this Agreement shall
terminate as provided.
(d) This Agreement shall be subject to a further one (1) year
extension under the procedure provided in subparagraph (C),
provided that at May 30 of the then existing extension year
neither party is then in default under this Agreement.
(e) Notwithstanding the foregoing, the term of this Agreement is
otherwise subject to the various termination provisions contained
hereafter.
3. COMPENSATION-BASE. (a) For all services rendered under this Agreement,
CALKINS shall be paid, as base compensation, such annual salary as
shall be determined by PACEL's Board of Directors from time to time,
but in no event shall such compensation be at a rate of less than One
Hundred Twenty-five Thousand Dollars ($125,000) per year. Such base
compensation shall be subject to a Cost-of-Living Adjustment (COLA)
annually based upon the percentage increase in the cost-of-Living
Index, All commodities, for the Washington, D.C. area (if available,
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otherwise the New York City area). Such base compensation is to be
payable in equal installments at intervals no longer than monthly.
Such base compensation shall be in addition to such incentive
compensation, fringe benefits and bonuses as provided elsewhere
herein.
(b) At the end of each calendar year, PACEL's Board of Directors
shall review the performance of CALKINS for such year and, based
upon such evaluation, establish any increase in the base
compensation payable to CALKINS for the succeeding calendar year,
as adjusted by subparagraph (a) above. PACEL shall not be
obligated to provide any increase, in excess of the increase in
the cost-of-living Index, All Commodities, for the Washington,
D.C. area (if available, otherwise the New York City area) during
the prior calendar year.
(c) In recognition of previous compensations owed to CALKINS but not
taken, the company has agreed to offset that debt by providing a
one time stock option for two and a half million shares (2.5) of
PACEL CORP common stock at Four Cents ($.04) a share option
price.
4. COMPENSATION-INCENTIVE. (a) The base compensation for each year of
this Agreement, including any extensions to this Agreement, shall be
subject to an additional increase, based upon performance as
determined by the Board of Directors. This additional increase, if any
should occur, is not a bonus but a merit adjustment to the base
compensation.
(b) COMPENSATION - STOCK INCENTIVE: Pacel desires to recognize the
importance of attaining certain milestones for the company's
continued operation and success. Accordingly, the following
stock-option incentives have been allocated pending achievement
of these goals: (not in any particular order)
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o Registration of the Company with NASDAQ in accordance with
requirements specified as of June 30, 1999
...................................................... 10% of
outstanding shares.
o Full listing of the Company's stock on the NASDAQ Board for
trading (not OTC BB) ................... 10% of outstanding
shares.
o Achieving profitability for the Company during the term of
this contract ..................................... 10% of
outstanding shares.
o The salary shall be grossed up to cover tax liability.
5. COMPENSATION-FRINGE BENEFITS. CALKINS shall receive at least the
following additional benefits, which may be extended or increased, but
not reduced, by PACEL:
(a) Vacation - CALKINS shall be entitled to paid vacation of four (4)
weeks during the initial term and any extension of this
Agreement. Unused vacation time may be accumulated from year to
year if unused. CALKINS shall not be compensated for any unused
vacation time.
(b) Medical Insurance - CALKINS shall receive such medical, surgical,
dental and/or hospitalization insurance as PACEL shall provide,
consistent with that provided by PACEL under the preceding oral
Employment Agreement.
(c) Other - CALKINS shall receive such other fringe benefits as are
available to any other officers/employees/consultants. Nothing
contained in this Agreement shall be in lieu of any rights,
benefits and privileges to which CALKINS may be entitled under
any 401(k) , retirement, pension, profit-sharing, insurance,
ESOT/ESOP, hospitalization, medical, surgical, dental, legal or
other plans which may now be in effect or which may hereafter be
adopted, either by PACEL or any subsidiary or affiliate of PACEL.
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CALKINS shall have the same rights and privileges to participate
in such plans and benefits as any other employee during his
period of employment and CALKINS shall be entitled to participate
on a parity with executives of equal rank.
6. COMPENSATION-BONUS. After the end of each calendar year, Pacel's Board
of Directors shall determine the net profits before taxes of PACEL for
such prior year and shall determine any bonus for such year payable to
CALKINS. PACEL shall not be obligated to provide any bonus. Any bonus
awarded shall be paid at such time or times, in such amounts or
installments, as PACEL's Board of Directors may determine.
7. COMPENSATION-DEFERRED. (a) PACEL desires to recognize the
contributions of CALKINS from the date of incorporation to the date of
this Agreement, particularly the performance of services as little or
no compensation during the formative years. Accordingly, the following
deferred benefits have been granted in consideration of such prior
services and are not dependent upon completion of the terms of this
Agreement.
(b) Following termination of CALKINS' employment hereunder, whether
early or upon completion of the term hereof, and whether early
termination is for cause, without cause, or for reasons of
disability, PACEL shall provide CALKINS with the following
benefits:
i. PACEL, at PACEL's cost and expense, shall continue CALKINS
medical, surgical, dental and hospitalization insurance
coverage, as in effect on the date of termination, for a
period of ten (10) years following the date of termination.
Thereafter, CALKINS shall have the option to continue such
insurance coverage at his expense. And
ii.If, during the term of CALKINS' employment PACEL shall have
obtained insurance on CALKINS' life for a specific business
purpose (e.g., collateralization of institutional financing or
key man replacement insurance) and such insurance shall no
longer be needed for that purpose (e.g., upon repayment of the
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loan collateralized or upon termination of CALKINS' position
as a key employee), then PACEL, at its cost and expense, shall
continue such insurance in force for the benefit of one or
more beneficiaries designated from time to time by CALKINS,
for a period of up to ten (10) years following the date of
termination. It is the intent of the parties that this
provision shall apply to any insurance obtained during
CALKINS, employment. In such event the period of continued
coverage would be from the date the insurance need is obviated
to a date ten (10) years from the date of termination of
CALKINS' employment. Thereafter, CALKINS shall have the option
to continue such insurance coverage at his expense.
8. DUTIES. (a) CALKINS is engaged as the President and Chief Executive
Officer of PACEL. CALKINS shall perform all usual and customary
services as such an executive, including but not limited to those set
forth on Exhibit A, attached hereto and made a part hereof. CALKINS'
performance shall be subject to the supervision of PACEL's President
and Board of Directors, provided, however, that any definition,
interpretation, curtailment, or extension is consistent with the
status of, and/or educational experience required for, the
responsibilities for which CALKINS has been initially engaged
hereunder. It is the intent of this provision to provide PACEL with
flexibility in assigning responsibilities to CALKINS and/or promoting
CALKINS and this provision shall not be used to discipline, embarrass,
humiliate or harass CALKINS.
(b) In addition, CALKINS agrees to serve as a director of PACEL so
long as so elected by PACEL's shareholders.
9. EXTENT AND PLACE OF SERVICES. CALKINS agrees that this employment
constitutes his primary employment and understands that his primary
loyalty and responsibility is to PACEL. Accordingly, CALKINS shall
devote such adequate, reasonable, and proper time, attention, and
energies to the business of PACEL as shall be necessary or consistent
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with such understanding and CALKINS shall not, during the term of this
Agreement be engaged in any other business activity (whether or not
such business activity is pursued for gain, profit, or other pecuniary
advantage), which conflicts with CALKINS' employment responsibilities
hereunder, without prior, written authorization of PACEL's Board of
Directors. However, nothing contained herein shall be construed as
preventing CALKINS from investing his assets in such form or manner as
CALKINS may select, whether or not such investment will require any
services on CALKINS' part in the operation of the affairs of the
companies in which such investments are made.
10. WORKING FACILITIES. CALKINS shall be furnished, at PACEL's expense,
with all necessary working facilities, including but not limited to an
equipped office, clerical help, and telephone/facsimile/copying
services, suitable to his position and adequate for the performance of
his duties.
11. EXPENSES. CALKINS is not authorized to incur expenses on behalf of, or
chargeable to, PACEL, with respect to his business travel, including
transportation, lodging, food, entertainment, etc. except within such
guidelines as may be established from time to time by PACEL's
Management. PACEL shall reimburse CALKINS for authorized expense
within such guidelines upon presentation by CALKINS from time to time,
of an itemized account of such expenditures in such form as PACEL may
require , together with receipts or other proofs of the expenditures
as may be required.
12. NON-DISCLOSURE OF INFORMATION. (a) CALKINS recognizes and acknowledges
that, during the course of his employment, he will have access to
valuable "Proprietary Information" as defined in subparagraph (b)
below, including, but not limited to Inventions, Work Product and/or
Trade Secrets, contractual arrangements and compensation arrangements
with suppliers, manufacturers, sub-contractors and customers of PACEL;
compensation arrangements with sub-contractors, vendors, and outside
personnel; costing, pricing and bidding methods, procedures, and
amounts; management and operating procedures and software; management
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information systems, etc.; marketing plans and strategy; personnel
policies and contractual arrangements, including job assignments and
compensation; and that such information constitutes unique assets of
the business of PACEL and of which PACEL is the sole and exclusive
owner. CALKINS will treat such Proprietary Information on a
confidential basis and will not, during or after his employment,
personally use or disclose all, or any part of, such Proprietary
Information to any person, firm, corporation, association, agency, or
other entity except as properly required in the conduct of the
business of PACEL, or except as authorized in writing by PACEL,
publish, disclose or authorize anyone else to publish or disclose, any
Proprietary Information of PACEL with which CALKINS' service may in
any way acquaint CALKINS. CALKINS shall surrender possession of all
Proprietary Information, including especially all Trade Secrets, to
PACEL upon any suspension or termination of CALKINS' employment with
PACEL. In the event of a breach, or threatened breach, by CALKINS, of
the provisions of this paragraph, PACEL shall be entitled to a
preliminary, temporary and permanent injunction restraining CALKINS
from disclosing in whole or in part, any such Proprietary Information
and/or from rendering any services to any person, firm, corporation,
association, agency, or other entity to whom such information, in
whole or in part, has been disclosed or is threatened to be disclosed.
Furthermore, nothing herein shall be construed as prohibiting PACEL
from pursuing any other equitable or legal remedies available to it
for such breach or threatened breach, including the recovery from
CALKINS.
(b) For purposes hereof, "Proprietary Information" shall not include
information which (i) is publicly available from a source other
than CALKINS or can be lawfully obtained from a third party or
parties in lawful possession thereof, or (ii) is publicly
released in writing by PACEL, or (iii) is required to be
disclosed pursuant to the authority of any court or public
agency.
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(c) Nothing contained herein shall prohibit CALKINS form continuing
to use information known to CALKINS prior to the execution of
this Agreement; however, CALKINS shall not publish or disclose
any such information which as a result of CALKINS' services
hereunder shall have become Proprietary Information of PACEL.
(d) The parties recognize that the Proprietary Information of PACEL
most probably derives from the services of CALKINS. Nothing
contained herein shall prohibit CALKINS from continuing to use
information developed by CALKINS during the term of this
Agreement, provided that such information is not used by CALKINS
for competitive purposes; however, CALKINS shall not publish or
disclose any such information which as a result of CALKINS'
services hereunder shall have become Proprietary Information of
PACEL.
13. RESTRICTIVE CONVENANT. (a) During the term of this Agreement and for a
period of twelve (12) months after the termination/of this Agreement
and any extension thereof, CALKINS will not, within the United States
or any other area of the world in which PACEL is then operating,
directly, compete with, own, manage, operate, control, be employed by,
consult for, participate in, perform services for, or be connected in
any manner with the ownership, management, operation or control of any
business engaged in development and sales of LAN interactive
electronic document and data acquisition and management software
programs. Nothing contained herein shall prohibit CALKINS from
engaging in the management, operation, control, employment by,
consultation for, participation in, performance of services for, or
connection with a software development and sales entity which is not
in competition with the specific programs of PACEL.
(b) CALKINS agrees that the "time", "geographic area", and "Scope of
Business" provisions of this restrictive covenant are reasonable
and proper and have been negotiated in connection with his
employment hereunder.
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(c) PACEL and CALKINS agree, that if any court of competent
jurisdiction shall, for any reason, conclude that any portion of
this covenant shall be too restrictive, the court shall determine
that some such restrictions shall be applicable for the
protection of PACEL and its shareholders.
14. OWNERSHIP OF WORK PERFORMED. CALKINS hereby grants, bargains, sells,
conveys, transfers and delivers and agrees to grant, bargain, sell,
convey, transfer and deliver, without further consideration other than
the base compensation provided above, to PACEL, all right, title and
interest in and to all work performed, underlying programs (including
but not limited to HTML, C++, Visual Basic, and any and all other
codes and source codes) and documentation for same which shall be
and/or have been performed by him. CALKINS hereby acknowledges that
PACEL is and shall be entitled to secure any and all patents,
copyrights, and trademarks with respect to all of such work, work
product, programs, etc. and CALKINS covenants, warrants and represents
that he shall execute all assignments, documents, filings,
acknowledgements and other papers which may be required to assure,
establish, confirm, and document PACEL's sole and exclusive ownership
to all of such (including HTML, C++, Visual Basic, and any and all
other codes and source codes) and documentation for same and the Work
Product. "Work Product" shall mean all documentation, software,
programs, systems, source codes, Hardware Signatures, know-how and
information created, in whole or in part, by CALKINS during the
performance of his services hereunder whether or not copyrightable or
otherwise protectable. CALKINS, for himself, his successors and
assigns, covenants and agrees with PACEL to warrant and defend title
to the property hereby sold to PACEL, its successors and assigns
against all and every person and persons whomsoever.
15. NONSOLICITATION COVENANT. (a) For a period of twelve (12) months after
the termination of this Agreement (including any extension thereof)
(the "Post Termination Period") CALKINS shall not, solicit, directly
or indirectly, by any means, any of the clients, customers, accounts,
employees or "leads" of PACEL during the Post Termination Period.
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(b) PACEL and CALKINS agree, that if any court of competent
jurisdiction shall, for any reason conclude that any portion of
this covenant shall be too restrictive, the court shall determine
and apply lesser restrictions, it being the intent of the parties
that some such restrictions shall be applicable for the
protection of PACEL and its shareholders.
16. OWNERSHIP OF INVENTIONS AND DEVELOPMENTS. (a) For purposes of this
Agreement, the following definitions shall apply:
"Inventions" shall mean:
A. All inventions, improvements, modifications, and enhancements,
whether or not patentable, made by CALKINS during CALKINS'
employment by PACEL; and
B. All inventions, improvements, modifications and enhancements
made by CALKINS, during a period of six (6) months after any
suspension or termination of CALKINS' employment by PACEL,
which relate, directly or indirectly, to the products of
PACEL.
i. "Work Product" shall mean all documentation, software,
programs, systems, source codes, Hardware Signatures, know-how
and information created, in whole or in part, by CALKINS
during CALKINS' employment by PACEL, whether or not
copyrightable or otherwise protectable, excluding inventions.
ii."Trade Secrets" shall means all documentation, software, and
information relating to the functionality of the products of
PACEL or any plans therefor, or relating to the business of a
third party or plans therefor that are disclosed to PACEL,
which PACEL does not disclose to third parties without
restrictions on use or further disclosure.
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(b) CALKINS shall promptly disclose to PACEL all Inventions and keep
accurate records relating to the conception and reduction to
practice of all Inventions. Such records shall be the sole and
exclusive property of PACEL, and CALKINS shall surrender
possession of such records to PACEL upon any suspension or
termination of CALKINS' employment with PACEL.
(c) CALKINS hereby assigns to PACEL, without further consideration to
CALKINS, the entire right, title and interest in and to the
Inventions and Work Product and in and to all proprietary rights
therein or based thereon. CALKINS agrees that the Work Product
shall be deemed to be a "work made for hire". CALKINS shall
execute all such assignments, oaths, declarations and other
documents as may be prepared by PACEL to effect the foregoing.
(d) CALKINS shall provide PACEL with all information, documentation,
and assistance PACEL may request to perfect, enforce, or defend
the proprietary rights in or based on the Inventions, Work
Product or Trade Secrets. PACEL, in its sole discretion, shall
determine the exact extent of the proprietary rights, if any, to
be protected in or based on the Inventions and Work Product. All
such information, documentation and assistance shall be provided
at no additional expense or cost to PACEL, except for
out-of-pocket expenses which CALKINS incurs at PACEL's request.
17. DISABILITY. (a) PACEL desires to recognize the contributions of
CALKINS during the period from incorporation to the date of this
Agreement. Accordingly, if CALKINS is unable to perform his services
by reason of illness or incapacity for a period of up to six (6)
months, PACEL shall continue CALKINS' full compensation. If CALKINS is
unable to perform his services after such six (6) months, PACEL shall
continue to compensate CALKINS during the period of such illness or
incapacity but such compensation may, at the option of PACEL, be
reduced by twenty-five percent (25%). If such illness or incapacity
shall continue for a period of twelve (12) months, payment of
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compensation thereafter may, at the option of PACEL, be stopped
altogether. The full compensation shall be reinstated upon CALKINS'
return to service and the discharge of his full duties hereunder.
Notwithstanding anything herein to the contrary, PACEL may, at its
option, terminate this Agreement at any time after CALKINS shall be
absent from his employment, for whatever cause, for a continuous
period of more than eighteen (18) months, and all obligations of PACEL
hereunder shall cease upon any such termination.
(b) PACEL may elect to continue the payment of full compensation
notwithstanding the foregoing. Such payments shall be in the sole
discretion of PACEL, may be discontinued at any time, and if
initiated shall not thereby become a requirement.
18. TERMINATION OF EMPLOYMENT. (a) PACEL can terminate CALKINS' employment
at any time for good cause. Without intending to limit the definition
of good cause hereby, good cause will include:
(1) CALKINS' death;
(2) The occurrence of one of the following events:
(i) CALKINS is convicted of a felony or any crime involving
moral turpitude or unethical conduct which in the good
faith opinion of PACEL could impair his ability to
perform his duties; or
(ii) CALKINS commits an act, or fails to take action in bad
faith and to the detriment of PACEL
(b) The termination of CALKINS' services shall not constitute a
termination of the restrictive obligations and duties under
Paragraphs 11, 12, 13, 14 and 15.
(c) In the event of the bankruptcy (Chapter 7), reorganization
(Chapter 11) or other termination of the business of PACEL, the
provisions of Paragraph 12 shall continue in full force and
effect only so long as full base compensation by PACEL shall
continue.
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19. ARBITRATION. Any controversy or claim arising out of, or relating to
this Agreement, or the breach thereof, shall be settled by arbitration
in Manassas, Virginia in accordance with the rules then pertaining of
the American Arbitration Association, but with all rights of discovery
provided by the Virginia Rules of Civil Procedure, and judgment upon
the award rendered may be entered in any court having jurisdiction
thereof. Cost of the arbitration shall be borne by PACEL, regardless
of who initiates the proceeding. The losing party shall reimburse the
reasonable attorney's fees of the prevailing party.
20. WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by such other party.
The failure of a party to exercise any rights or privileges under this
Agreement shall not be deemed to be a waiver or extinguishment of such
rights or privileges, all of which shall continue to be exercisable.
21. BENEFIT. The rights and obligations of PACEL under this Agreement
shall inure to the benefit of, and shall be binding upon, its
successors and assigns. The protection of Paragraphs 11, 12, 13, 14
and 15 shall inure to the benefit of PACEL and any successors and
assigns. The rights and obligations of CALKINS under this Agreement
shall inure to the benefit of, and shall be binding upon, his heirs,
administrators, executors, successors and assigns.
22. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if either personally
delivered or sent by certified mail, to his residence in the case of
CALKINS, or to its principal office in the case of PACEL.
23. LIFE INSURANCE. PACEL and/or one or more of it subsidiaries may, in
its discretion at any time after the execution of this Agreement,
apply for and procure, as owner and for its own benefit, insurance on
the life of CALKINS, in such amounts and in such forms as PACEL may
choose. PACEL shall not be required to give CALKINS any interest
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whatsoever in any such policy or policies, (although nothing contained
herein shall be deemed to prohibit any such arrangement) but CALKINS
shall, at the request of PACEL, subject himself to such medical
examination, supply such information, and execute such information
releases and documents as may be required by the insurance company or
companies to whom PACEL has applied for such insurance.
24. ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties and may be modified only by agreement in writing signed by the
party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
25. APPLICABLE LAW. This Agreement shall be governed for all purposes by
the laws of the State of Virginia. If any provision of this Agreement
is declared void, such provision shall be deemed severed from this
Agreement, which shall otherwise remain in full force and effect.
26. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, including facsimile counterparts, any one of which shall
be deemed to be an original.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto set their hands and seals as of the day and year herein above
written.
PACEL CORP.
ATTEST:
By: /s/ David E. Calkins
-----------------------
President
/s/ F. Kay Calkins
-----------------------
Secretary
WITNESS: CALKINS
/s/ Karen E. Corl /s/ David E. Calkins
- ------------------------- ---------------------------
DAVID E. CALKINS
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PACEL CORP.
KEY EMPLOYEES INCENTIVE STOCK
1. Purpose. The purpose of the Plan is to secure for the Corporation and its
stockholders the benefits which flow from providing corporate officers,
executives, managerial employees, and executive-level consultants (key
employees) with the incentive inherent in common stock ownership. It is
generally recognized that stock option plans aid in retaining competent
executives and furnish a device to attract executives of exceptional ability to
the Corporation because of the opportunity offered to acquire a proprietary
interest in the business. The stock options granted under the Plan are intended
to qualify as incentive stock options within the meaning of Internal Revenue
Code Section 422A.
2. Amount of stock. The total number of shares of Common Stock to be subject to
options granted on and after June 22, 1998 pursuant to this Plan shall not
exceed 1,000,000 shares of the Corporations Common Stock. This total number of
shares shall be subject to appropriate increase or decrease in the event of a
stock dividend upon, or a subdivision, split-up, combination or reclassification
of, the shares purchasable under such options. In the event that options granted
under this Plan shall lapse without being exercised in whole or in part, other
options may be granted covering the shares not purchased under such lapsed
options.
3. Stock option committee. The Board of Directors may, from time to time,
appoint a Stock option committee (hereinafter called the "committee"), to serve
under this Plan. The Committee shall consist of three or more directors. In the
absence of such a committee, the entire Board of Directors shall serve as the
Stock option committee.
4. Eligibility and participation. Options may be granted pursuant to the Plan to
corporate officers, executives, and managerial employees of, and key consultants
to, the principal manufacturing, sales, and administrative, and staff
departments of the Corporation and its subsidiaries (hereinafter called
"employees/consultants"). From time to time the Committee shall select the
employees/consultants to whom options may be granted by the Board of Directors
and shall determine the number of shares to be covered by each option so
granted. Future as well as present employees/consultants (including officers,
executives, managerial employees/consultants (including officers, executives,
managerial employees and key consultants who are directors) shall be eligible to
participate in the Plan. Directors who are not officers, executives, managerial
employees of, or key consultants to, the executives, managerial employees of, or
key consultants to, the Corporation or a subsidiary are not eligible to
participate in the Plan. No option may be granted under the Plan after June 15,
2003.
5. Option agreement. The terms and provisions of options granted pursuant to the
Plan shall be set forth in an agreement, herein called Option Agreement, between
the Corporation and the Employee/consultant receiving the same. The Option may
be in such form, not inconsistent with the terms of this Plan, as shall be
approved by the Board of Directors.
<PAGE>
6. Price. The purchase price per share of common stock purchasable under options
granted pursuant to the Plan shall not be less than 100 percent of the fair
market value at the time the options are granted. The purchase price per share
of common stock purchasable under options granted pursuant to this Plan to a
person who owns more than 10 percent of the voting power of the Corporations
voting stock shall not be less than 110 percent of the fair market value of such
shares, at the time the options are granted. For the purposes of the preceding
sentence (a) the employee/consultant shall be considered as owning the stock
owned directly or indirectly by or for himself, the stock which the
employee/consultant may purchase under outstanding options and the stock owned,
directly or indirectly, by or for his brothers and sisters (whether of the whole
or half blood), spouse, ancestors, and lineal descendants and (b) stock owned
directly or indirectly, by or for a corporation, partnership, estate, or trust
shall be considered as being owned proportionately by or for its shareholders,
partners, or beneficiaries. For all purposes of this Plan, the fair market value
of the common stock of the Corporation shall be determined in good faith at the
time of the grant of any option b decision of the Stock Option Committee. In
making such determination, the Stock Option Committee shall not take into
account the effect of any restrictions on the common stock other than
restrictions which, by their terms, will never lapse. The full purchase price of
shares purchased shall be paid upon exercise of the option. Under certain
circumstances such purchase price per share shall be subject to adjustment as
referred to in Section 10 of this Plan.
7. Option period. No option granted pursuant to this Plan shall be exercisable
after the expiration of five (5) years from the date the option is vested. The
expiration date stated in the Option Agreement is hereinafter called the
Expiration Date.
(a) Vesting period. Options are vested pursuant to this plan at 20% of total
option per year when so specified.
8. Termination of employment. The Option Agreement shall provide that:
(a) If prior to the Expiration Date the employee/consultant shall for any
reason whatever, other than (1) his authorized retirement as defined in (b)
below, or (2) his death, cease to be employed by the Corporation or a
subsidiary, any unexercised portions of the option granted shall
automatically terminate;
(b) If prior to the Expiration Date the employee/consultant shall (1) retire
upon or after reaching the age which at the time of retirement is
established as the normal retirement age for employees of the Corporation
(such normal retirement age now being 65 years) or (2) with the written
consent of the Corporation retire prior to such age on account of physical
or mental disability (such retirement pursuant to (1) or (2) being deemed
an authorized retirement) any unexercised portion of the option shall
expire at the end of three (3) months after such authorized retirement, and
during such three months period the employee/consultant may exercise all or
any part of the then unexercised portion of the option; and
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(c) If prior to the Expiration Date the employee/consultant shall die (at a
time when he is an officer, executive, managerial employee of or key
consultant to the Corporation or a subsidiary or within three months after
his authorized retirement), the legal representatives of his estate or a
legatee or legatees shall have the privilege, for a period of six (6)
months after his death, of exercising all or any part of the then
unexercised portion of the option.
Nothing in (b) or (c) shall extend the time for exercising any option granted
pursuant to the Plan beyond the Expiration Date.
9. Assignability. The Option Agreement shall provide that the option granted
thereby shall not be transferable or assignable by the employee/consultant
otherwise than by will or by the laws of descent and distribution and ruing the
lifetime of the employee/consultant shall be exercisable only by him.
10. Adjustment in case of stock splits, stock dividends, etc. The Option
Agreement may contain such provisions as the Board of Directors may approve as
equitable concerning the effect upon the option granted thereby and upon the per
share or per unit option price, of (a) stock dividends upon, or subdivisions,
split-ups, combinations or reclassifications of, the securities purchasable
under the option, or (b) proposals to merge or consolidate the corporation or to
sell all or substantially all of its assets, or to liquidate or dissolve the
Corporation.
11. Stock for investment. The Option Agreement shall provide that the
employee/consultant shall upon each exercise of a part of all of the option
granted represent and warrant that his purchase of stock pursuant to such option
is for investment only, and not with a view to distribution involving a public
offering. At any time the Board of Directors of the Corporation may waive the
requirement of such a provision in any Option Agreement entered into under any
stock option plan of the Corporation.
12. Stock for investment. The Option Agreement shall provide that the
employee/consultant shall upon each exercise of a part of all of the option
granted represent and warrant that his purchase of stock pursuant to such option
is for investment only, and not with a view to distribution involving a public
offering. At any time the Board of Directors of the Corporation may waive the
requirement of such a provision in any Option Agreement entered into under any
stock option plan of the Corporation.
13. Amendment of the Plan. The Board of Directors of the Corporation may form
time to time alter, amend, suspend or discontinue the Plan and make rules for
its administration, except that the Board of Directors shall not amend the Plan
in any manner which would have the effect of preventing options issued under the
Plan from being "incentive stock options" as defined in Section 422A of the
Internal Revenue Code of 1986.
3
<PAGE>
14. Options discretionary. The granting of options under the Plan shall be
entirely discretionary with the Stock Option Committee and nothing in the Plan
shall be deemed to give any officer or managerial employee any right to
participate in the Plan or to receive options.
15. Stockholder approval. The Plan will be submitted to the common stockholders
of the Corporation at the next meeting of stockholders, for approval by the
holders of a majority of the outstanding shares of common stock of the
Corporation. If the Plan is not approved by the holders of a majority of the
outstanding shares of common stock of the Corporation by June 15, 1999 then the
Plan shall terminate and any options granted hereunder shall be void and of no
further force or effect.
4
PACEL CORP.
Class "A" Convertible
Preferred Stock
AGREEMENT
AGREEMENT made this 1st day of September, 1998, between Pacel Corp., a
Virginia corporation, hereinafter called the Corporation, and
David E. Calkins, an employee of the Corporation hereinafter called the
Employee.
The Corporation desires, by providing the Employee Class "A" Series of
Convertible Preferred Stock, with no par value, hereinafter called the stock, as
hereinafter provided, as compensation for the 1997 outstanding debt owed by
Pacel Corp. to the employee.
Now, therefore, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. Grant of stock. The Corporation hereby irrevocably grants to the Employee
the right and stock, hereinafter called the stock, an aggregate of 500,000
preferred shares (such number being subject to adjustment as provided in
paragraph (3 hereof) of on the terms and conditions herein set forth.
2. Conversion.
(a) Subject to the provisions of sub-paragraph (b) below, the shares of
the 1997-CLASS A Series of Convertible Preferred Stock shall, at the option
of the respective holders thereof, be convertible into fully paid and
nonassessable Common Shares of the Company, at any time and from time to
time, except that any of such 1997-CLASS A shares which have been called for
redemption shall be convertible up to and including, but not after, the
close of business on the tenth (10) day prior to the redemption date.
(i) In order to exercise the conversation privilege, the holder of any
of the shares of the 1997 -CLASS A Series to be converted shall
surrender the certificate or certificates therefor to any transfer
agent of the Company for such shares, duly endorsed in blank for
transfer with the signature Medallion guaranteed, accompanied by
written notice of election to convert such shares or a portion thereof
executed on the form set forth on such certificates or on such other
form as may be provided from time to time by the Company.
As soon as practicable after the surrender of such certificates as
provided above, the Company shall cause to be issued and delivered, at
the office of such transfer agent, to or on the order of the holder of
the certificates thus surrendered, a certificate or certificates for
the number of full shares of Common Stock issuable hereunder upon the
conversation of such shares of the 1997-CLASS A Series. Such conversion
shall be deemed to have been affected on the date on which the
certificates for such shares of the 1997-CLASS A Series have been
surrendered as provided above, and the person on whose name any
certificate or certificates for Common Stock are issuable upon
conversion shall be deemed to have become on such date the holder of
record of the shares represented thereby.
<PAGE>
(ii) The shares of 1997-CLASS A Series of Convertible Preferred Stock
shall be convertible into Common Shares of the Company on a one-for-one
basis; i.e., one share of 1997-CLASS A Series shall convert into one
share of Common Stock.
(iii) Earned and declared but unpaid and accrued or accumulated
dividends on the 1997-CLASS A Series of Convertible Preferred Stock
shall be payable in cash and shall not entitle the holder to any
additional shares of Common Stock or any further conversion right with
respect to such dividends.
(iv) In case of the voluntary dissolution, liquidation, or winding up
of the Company, all conversion rights of the holders of shares of
1997-CLASS A series of Convertible Preferred Stock shall terminate on a
date fixed by the Board of Directors, but not more than thirty (30)
days prior to the record date for determining the holders of the Common
Shares entitled to receive any distribution upon such dissolution,
liquidation or winding up. The Company shall cause notice of the
proposed action, and of the date of termination of conversion rights,
to be mailed to the holders of record of shares of the 1997-CLASS A
Series not later than thirty (30) days prior to the date of such
termination, and shall promptly give similar notice to each transfer
agent for such Preferred Stock and for the Common Stock.
(v) No fractional share of Common Stock shall be issued upon conversion
of any share of the 1997-CLASS A Series; furthermore, no scrip or cash
balance shall be paid.
(vi) As long as any of the shares of the 1997-CLASS A Series remain
outstanding, the Company shall take all steps necessary to reserve and
keep available a number of its authorized but unissued shares of Common
Stock sufficient for issuance upon conversion of all such outstanding
shares of the 1997-CLASS A Series.
(viii) All certificates for the shares of the 1997-CLASS A Series
surrendered for conversion as provided herein shall be cancelled and
retired, and no further shares of the 1997-CLASS A Series shall be
issued in lieu thereof.
(ix) The exercise of the conversion privilege shall be subject to such
regulations, not inconsistent with the foregoing provisions of this
paragraph, as may from time to time be adopted by the Board of
Directors of the Company.
(x) All shares of Common Stock issued upon the conversion of the shares
of the 1997-CLASS A Series shall be validly issued and outstanding, and
fully paid and nonassessable.
(b) In the event that prior to the conversion of any outstanding shares
of the 1997-CLASS A Series, the COMPANY shall:
(i) Issue any of its Common Shares as a share dividend or subdivide the
number of outstanding Common Shares into a greater number of shares,
then, in either of such cases, the conversion price of the Common
Shares in effect at the time of such action shall be proportionately
reduced and the number of shares at the time purchasable shall be
proportionately reduced and the number of shares at the time
purchasable shall be proportionately increased; and conversely, in the
event the COMPANY shall contract the number of outstanding Common
Shares by combining such shares into a smaller number of shares, then,
in such case, the conversion price per share of the Common Shares in
effect at the time of such action shall be proportionately decreased.
If the COMPANY shall, prior to the conversion date declare a dividend
payable in cash on its Common Shares and shall at substantially the
same time offer to its shareholders a right to purchase new Common
Shares from the proceeds of such dividend or for an amount
substantially equal to the dividend, all Common Shares so issued shall,
2
<PAGE>
for the purposes of this provision, be deemed to have been issued as a
share dividend. Any dividend paid or distributed upon the Common Shares
in shares of any other class or securities convertible into Common
Shares shall be treated as a dividend paid in Common Shares to the
extent that Common Shares are issuable upon the conversion thereof.
Or
(ii) be recapitalized, or the COMPANY or a SUCCESSOR corporation shall
consolidate or merge with or convey all or substantially all of its or
of any successor corporation's property and assets to any other
corporation, the registered Holders of any of the shares of the
1997-CLASS A Series shall thereafter have the right to convert such
shares upon a basis adjusted for such recapitalization or consolidation
or merger or conveyance.
Or
(iii) take a record of the holders of its Common Shares for the purpose
of entitling them to receive a dividend payable otherwise than in case,
or any other distribution in respect of the Common Shares (including
cash), pursuant to, without limitation, any spin-off, split-off, or
distribution of the COMPANY'S assets; or for the purpose of entitling
them to subscribe for or purchase any shares of any class or to receive
any other rights; or of any classification, reclassification, or other
reorganization of the shares which the COMPANY is authorized to issue,
consolidation or merger of the COMPANY with or into another
corporation, or conveyance of all or substantially all of the assets of
the COMPANY; then, and in any such case, the COMPANY shall mail to the
registered Holders of the outstanding shares of the 1997-CLASS A
Series, at least 21 days prior thereto, a notice stating the date or
expected date on which a record is to be taken for the purpose of such
dividend, distribution, or rights, or the date on which such
classification, reclassification, reorganization, consolidation or
merger, conveyance, is to take place, as the case may be. Such notice
shall also specify the date or expected date, if any is to be fixed, as
of which registered holders of Common Shares of record shall be
entitled to participate in such dividend, distribution, or rights, or
shall be entitled to exchange their Common Shares for securities or
other property deliverable upon such classification, reclassification,
reorganization, consolidation, merger or conveyance, as the case may
be.
3. NO PREEMPTIVE RIGHTS. No holder of any shares of the 1997-CLASS A Series of
Convertible Preferred Stock, as such, shall be entitled as a matter of right to
subscribe for or purchase any part of any new or additional issue of shares of
any class or series, junior or senior thereto, or securities convertible into,
exchangeable for, or exercisable for the purchase of, shares of any class or
series, junior or senior, whether now or hereafter authorized, and whether
issued for cash, property, services, by way of dividends, or otherwise.
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly executed
on its behalf by its undersigned President and attested to by its Secretary this
2nd day of September, 1998.
ATTEST: PACEL CORP.
(Corporate Seal)
By:/s/ David E. Calkins
---------------------------
David E. Calkins, President
/s/ F. Kay Calkins
- ----------------------------
F. Kay Calkins, Secretary
3
SUBSIDIARIES OF THE REGISTRANT
STATE OF
PERCENTAGE INCORPORATION OR
PARENT SUBSIDIARY OWNERSHIP ORGANIZATION
- ------ ---------- --------- ----------------
PACEL Corp. Fairfax Communications Limited(1) 100% Virginia
PACEL Corp. E.Business-stor.com(2) 80% Virginia
- ------------------------
(1) Also conducts business under the name "FCL"
(2) Also conducts business under the name "EBStor.com"
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to use in this Registration Statement of Pacel Corp. on Form SB-2 of
our report dated August 7, 1999 (except for Note 6, 8, 9 10, and 13 which are as
of October 6, 1999) on the combined financial statements of Pacel Corp. and its
subsidiaries appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Prospectus.
/s/ Peter C. Cosmas Co., CPAs
PETER C. COSMAS CO., CPAs
New York, New York
November 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED 9/30/99 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<CASH> 125,915 28,857
<SECURITIES> 0 0
<RECEIVABLES> 30,295 18,885
<ALLOWANCES> 13,851 13,851
<INVENTORY> 0 0
<CURRENT-ASSETS> 181,109 109,241
<PP&E> 88,982 77,684
<DEPRECIATION> 25,390 19,771
<TOTAL-ASSETS> 323,756 247,737
<CURRENT-LIABILITIES> 219,070 392,834
<BONDS> 0 0
0 0
11,320 11,320
<COMMON> 2,101,592 959,191
<OTHER-SE> (2,008,226) (1,115,608)
<TOTAL-LIABILITY-AND-EQUITY> 323,756 247,737
<SALES> 37,955 52,447
<TOTAL-REVENUES> 37,955 52,447
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 928,990 846,294
<LOSS-PROVISION> 0 13,851
<INTEREST-EXPENSE> 1,583 5,860
<INCOME-PRETAX> (892,618) (813,558)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (892,618) (813,558)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (892,618) (813,558)
<EPS-BASIC> (0.11) (0.17)
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