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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1999
Commission file number 0-23903
TRANSFORMATION PROCESSING INC.
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(Name of small business issuer in its charter)
Nevada 95-4583945
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
365 Bay Street, Toronto, Ontario M5H 2V2
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (416) 414-9450
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Shares,
$.025 par value
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes /_/ No /X/
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /X/
The issuer's net sales for its most recent fiscal year were $954,874.
The aggregate market value of the 4,680,690 shares of voting stock
held by non-affiliates of the Registrant, as of April 14, 2000 when the closing
sale price was $5.50 per share, was $25,743,795 (assuming solely for purposes of
this calculation that all directors, officers and greater than 5% stockholders
of the Registrant are "affiliates").
The number of shares outstanding of the issuer's common stock, par
value $.025 per share, as of April 14, 2000, was 4,810,367.
Documents Incorporated by Reference: Not Applicable.
Exhibit Index is located on page 23
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
In April 1996, Messrs. Paul G. Mighton, Gary G. McCann and Vladimir
Stepanoff (the "Founders") caused Transformation Processing Inc. ("TPI-Ontario")
to be incorporated under the laws of the Province of Ontario, Canada. The
purpose of TPI-Ontario was to provide computer related services using computer
software that incorporated software technology previously developed by Mr.
Stepanoff. In July 1996, Mr. Stepanoff assigned his rights to a copyright
covering that software technology to TPI-Ontario in exchange for a one-third
interest in TPI-Ontario. The Company then acquired the software marketing rights
and recorded them at the fair value of the shares of Common Stock and notes
issued to unrelated third parties, in order to obtain those rights from these
parties.
On August 20, 1996 (the "Closing Date") the Founders, as holders of
all of the outstanding Common Stock of TPI-Ontario, entered into an agreement
with Samuel Hamann Graphix, Inc., a Nevada corporation ("SHG-Nevada"), whereby
the Founders exchanged their shares of TPI-Ontario for an aggregate of 9,442
shares of the Common Stock of SHG-Nevada. As a result of this transaction, which
was accounted for as a reverse acquisition (the "Reverse Acquisition"), TPI-
Ontario became a wholly owned subsidiary of SHG-Nevada and the Founders acquired
control of SHG-Nevada. On the date of the Reverse Acquisition, SHG-Nevada had
not conducted any business operations.
SHG-Nevada was incorporated on August 7,1996 and had been formed for
the purpose of merging with and into Samuel Hamann Graphix, Inc.
("SHG-California"), a California corporation with publicly traded shares, with
SHG-Nevada as the surviving entity, in order to change the domicile of
SHG-California from California to Nevada (the "Merger"). On the Closing Date the
Founders were informed, and subsequent inquiry revealed, that although
SHG-California and SHG-Nevada had entered into an agreement and plan of merger,
dated August 14, 1996 (the "Merger Agreement"). The Merger Agreement stipulated
that the Merger would not be effective until approval of the Merger Agreement by
the parties and the filing of articles of merger with the Secretary of State of
the State of Nevada. While the Merger Agreement had apparently been approved by
both parties, the articles of merger had not been filed with the State of Nevada
nor had articles of merger been filed with the State of California, as
stipulated by California law. In order to effect the merger of TPI- Ontario into
SHG-Nevada, the Merger had to be completed by making the required filings. Those
filings were made in July 1997.
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In March 1997, SHG-Nevada amended its articles of incorporation to
change its name to Transformation Processing Inc. ("TPI" or the "Company"). In
February 1998, TPI merged its wholly-owned subsidiary, TPI-Ontario, into TPI
with TPI as the surviving entity. In June 1998, TPI finalized the merger with
SHG-California, merging it into TPI with TPI as the surviving entity.
On August 23, 1999 the Company filed a Notice of Intent to seek
Reorganization under the Bankruptcy and Insolvency Act of Canada with the
Superior Court of Justice for the Province of Ontario. On November 25, 1999,
Transformation Processing Inc.'s Proposal in bankruptcy was approved by the
court. The Proposal was made only to the preferred and unsecured creditors. The
Proposal basically stipulates that a pool of funds up to $300,000 will be
available for distribution to the unsecured creditors, after deducting payments
to preferred creditors, consisting of crown claims, employee claims and
landlord's claim. Out of the remaining funds, the unsecured creditors will be
paid in full on the first $2,000 of their claims, CD$0.50 per CD$1.00 of their
claim between CD$2,001 and CD$5,000, and up to CD$0.10 per CD$1.00 of their
claim thereafter.
The Company anticipates successfully complying with the Proposal and
intends to file for a court order affirming the compliance in May or June 2000.
On February 18, 2000, the Company signed a letter of intent to
acquire the assets of eAutoclaims.com, Inc. ("eAuto"), a Delaware corporation,
headquartered in Palm Harbor, Florida. On April 24, 2000, the Company and
eAuto signed a Merger Agreement and Plan of Reorganization, pursuant to which
the Company will be acquired in a reverse merger by eAuto.
This Form 10-KSB contains certain forward-looking statements that are
subject to significant risks and uncertainties. There are a number of important
factors that could cause actual results to differ materially from historical
results and results anticipated by the forward looking statements contained in
the following discussion. Such factors and risks include, but are not limited
to, the Company's ability to complete the acquisition of eAuto, eAuto's ability
to operate as a public company, its ability to use the Internet, intense
competition, price cutting and profit margins, dependence on key personnel, the
economic environment, the ability to develop, market, support and acquire new
computer-related services and products and the ability of the Company to manage
its growth.
BUSINESS OF THE COMPANY
The business described herein is the historical business of the
Company. If the Company completes its asset acquisition of eAutoclaims.com,
Inc., it is envisioned that these businesses will be spun off from the Company
and the Company will no longer participate in these types of businesses. See
eAUTOCLAIMS.COM ACQUISITION AND BUSINESS.
CLIENT/SERVER MIGRATION SERVICES. The Company developed software for
the automatic migration of "legacy" computer application source code and data
used on past and current IBM "mid-range" computers (often referred to as
"minicomputers," as compared to desktop or microcomputers) to a format
compatible with a wide range of open "client/server" computing
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systems from various manufacturers. A client/server system is a network
consisting of a "server" computer and one or more "client" computers in which
processing, data storage and accessibility to data bases are shared among the
individual computers comprising the network. The Company provided transformation
services, utilizing the Company's migration software, and support services to
end-users seeking to transform their closed proprietary systems to open
client/server systems.
SERVICES OFFERED. The Company offered transformation services which
enabled companies to automatically migrate legacy application programs and data
to any open system environment, using technology which the Company believes to
be superior to that which is used in the emulation and conversion methods. The
Company's software disassembles existing application source code at the
operating system level, then automatically translates and reassembles the code
so as to be useable in an open system environment.
YEAR 2000 REMEDIATION SERVICES
The Company offered Year 2000 remediation consulting and training
services to commercial and industrial end-users of mainframe and mid-range
computing systems. The Company targeted manufacturing companies and companies in
the financial, insurance and healthcare industries.
SERVICES OFFERED. In March 1997, the Company decided to offer Year
2000 remediation services. The Company initially decided to offer "scan and
repair" services to companies requiring Year 2000 remediation services, as a
subcontractor to IT Vendors providing Year 2000 project management remediation
services. Such services were to be rendered commencing in September 1997 at a
scan and repair "factory" to be located at the Company's facility in
Mississauga, Ontario. The decision was also made not to develop a Year 2000
conversion toolset based on the Company's existing proprietary technology, but
to continuously search for, and seek to license, the best available Year 2000
software remediation tools. The Company observed that while there was no
shortage of Year 2000 software conversion tools, there was a significant demand
for the application of state-of-the-art project management methodologies that
permited Year 2000 conversion projects to be performed in the shortest possible
time, in some cases at a fixed cost, and with the least disruption to a
customer's continuing operations. Accordingly, the Company decided to offer a
full range of services, based largely on the project management methodology it
employed in providing client/server transformation services.
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GROUPWARE SERVICES
Groupware was a type of software designed to allow users on a
client/server network to use the same software and work on the same project at
the same time. Notes-Registered Trademark- ("Notes") was a groupware product of
Lotus Development Corporation, an IBM subsidiary ("Lotus"), that, among other
applications, allowed users to work on the same document and exchange electronic
mail. Notes permited the integration of information from desktop computer
applications, relational databases, legacy systems and the World Wide Web. Notes
contained an application development environment, a document database and
sophisticated messaging system which permited the development of custom
applications for improving business processes in areas such as product
development, customer service, sales and account management.
BUSINESS STRATEGY. As described in eAUTOCLAIMS.COM ACQUISITION AND
BUSINESS, the Company has entered into an agreement to acquire eAutoclaims.com,
Inc. ("eAuto"). In the event that the merger is effected, it is envisioned that
the Company will no longer participate in such businesses.
BACKLOG
Since the Company currently has no operations, it does not have a
backlog.
COMPETITION
Since the Company currently has no operations, it does not have any
competition.
INTELLECTUAL PROPERTY
In July 1996, TPI-Ontario acquired the intellectual property rights
for "IBM midrange migration tools" software from Vladimir Stepanoff, Vice
President-Technology and a director of the Company. All enhancements of such
software are wholly-owned by the Company.
Prior to April 1, 1996, the Company's date of incorporation, Mr.
Stepanoff entered into an agreement with Raconix Corporation ("Raconix")
pursuant to which he granted certain rights in such technology. To obtain clear
title to such technology, as of the Closing Date, the Company issued 18,200
shares of Common Stock to Jaford Holdings Ltd. and 4,000 shares of Common Stock
and a promissory note in the principal amount of $72,500 to Innovations Ontario
Corp. (which companies had liens on such marketing rights) and 6,000 shares of
Common Stock and a promissory note in the principal amount of $116,000 to Ronald
Content as successor in interest to Raconix.
The Company does not have any patents or registered copyrights to
protect its proprietary technology. In addition, none of the trade or service
marks utilized by the Company are registered with any United States or foreign
trademark registry. The Company employs various methods to
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protect its technology and the associated documentation including
confidentiality agreements with its employees and license agreements with its
customers and strategic partners. Such methods may not afford adequate
protection and there can be no assurance that others will not independently
develop such technology or software incorporating technology that significantly
out performs the Company's software.
EMPLOYEES
The Company has 1 employee, who is part-time, Paul Mighton, the
Company's President.
eAUTOCLAIMS.COM, INC. ACQUISITION AND BUSINESS
The Company has entered into an agreement to acquire eAutoclaims.com,
Inc. ("eAuto"). In the event that the merger is effected, it is envisioned that
the Company will no longer participate in the businesses described above. The
following is a description of the business of eAuto.
eAuto was formed in December 1999. eAuto is a business to business
e-commerce company that utilizes the Internet to lower the overall costs of
automotive repair paid by insurance companies. eAuto is creating an online
digital automotive maintenance organization industry in the $60 billion market
segment of non-standard auto collision repair. eAuto intends to establish itself
as a Application Service Provider ("ASP") for the automobile insurance industry,
providing a back end infrastructure that links to thousands of collision repair
shops and/or support facilities in a Preferred Provider Network ("PPN"). eAuto
offers a cost effective Bricks to Clicks(C) solution for the processing and
ultimate repair of damaged vehicles filed as insured auto claims. eAuto
generates revenue from administrative fees and rebates earned by processing
collision work through its system.
eAuto also participates in the corporate automobile fleet management
business. The fleet management business exists out of a desire of large
corporations to self insure their collision repair claims on their captive
automobile fleets. Large corporations have found that "middleman" insurance
companies charge premiums beyond the cost of self insurance. eAuto earns fees
and rebates on repairs done by affiliated collision shops. eAuto currently has
approximately 5,000 fleet vehicles under contract.
COMPETITION:
Competition comes from independent adjusters and fleet management
services. Although none of the competing companies offer the client a web based
product that is customized to appear as the clients own proprietary site. eAuto
is the only provider of this service who takes on the role of an Application
Service Provider.
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eAuto products perform in virtually all situations. eAuto believes
that the ability to lower paid claim costs with full capability on any form of
insurance claim is unique to eAuto's products. The ability to close the file
within a minimum number of working days is unique to this product, and research
indicates its performance is equivalent to anything else on the market today.
With the completion of the company's core web site, the company believes that
this turnaround time will be cut to a four-day average.
EMPLOYEES:
KEY EMPLOYEES:
ERIC SEIDEL, PRESIDENT/CEO
Prior to forming eAuto, Mr. Seidel served as co-founder of First American AMO
and developed the sales and marketing strategy for the company. Sold First
American AMO's service and developed the sales training program for all new
sales people.
Mr. Seidel's professional experience includes many different areas in the
Finance, Insurance and Sales Marketing industries. He serves as a Director of
the privately held International Training Corporation.
Mr. Seidel served as the National President of United States Junior Chamber of
Commerce, a 100,000+ member organization of young professionals aged 21-39.
JEFFREY D. DICKSON, DIRECTOR
Prior to joining eAuto, Mr. Dickson served as chief executive officer of First
American AMO.
Mr. Dickson's professional experience includes many different areas of the
Finance, Insurance, and Automotive Industries.
He has served as Executive Vice President of the American Bankers Insurance
Group, Miami, Florida; President of Insurance America; and President of Interloc
Corp. of Largo, Florida.
TERESA MCSHERRY, VICE PRESIDENT, SALES
Prior to joining eAuto, Miss McSherry has served as the Regional Vice President
for First American AMO in their Western Division for two years.
Miss McSherry was also responsible for all fleet sales. As Fleet Vice President,
Terri trained all sales people in the fleet market.
GAVER POWERS, VICE PRESIDENT, INFORMATION & TECHNOLOGY
Mr. Powers is overseeing and participating in the development of the new
applications used by eAuto.
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Mr. Powers has spent 21 years working on the NASA Space Shuttle Fleet for
Rockwell International; Lockheed Martin and the United Space Alliance, with his
most recent experience being in the area of Program Management where he served
as the Vehicle Operations Chief / Assistant Operations Chief for the orbiter
Discovery.
CRYSTAL BUTTERWORTH, OPERATIONS MANAGER
Ms. Butterworth has over 15 years of experience in the Insurance Industry, most
recently with the Hartford Insurance Company. She has been in the supervisory
management capacity for most of her career. She has an Adjusting License and
also holds a Senior Claims Law Associate designation (SCLA).
eAuto employs a total of 23 employees. eAuto believes that its
relations with its employees are good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently neither leases nor owns any properties.
ITEM 3: LEGAL PROCEEDINGS
On August 23, 1999 the Company filed a Notice of Intent to seek
Reorganization under the Bankruptcy and Insolvency Act of Canada with the
Superior Court of Justice for the Province of Ontario. On November 25, 1999,
Transformation Processing Inc.'s Proposal in bankruptcy was approved by the
court. The Proposal was made only to the preferred and unsecured creditors. The
Proposal basically stipulates that a pool of funds up to $300,000 will be
available for distribution to the unsecured creditors, after deducting payments
to preferred creditors, consisting of crown claims, employee claims and
landlord's claim. Out of the remaining funds, the unsecured creditors will be
paid in full on the first $2,000 of their claims, CD$0.50 per CD$1.00 of their
claim between CD$2,001 and CD$5,000, and up to CD$0.10 per CD$1.00 of their
claim thereafter.
The Company anticipates successfully complying with the Proposal and
intends to file for a court order affirming the compliance in May or June 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the OTCBB under the symbol
"TPII". The following table sets forth, the high and low bid prices of the
Common Stock for the periods shown as reported by the National Quotation Bureau.
The bid prices quoted on the OTCBB reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not represent actual transactions.
Except for the prices reflected for the second quarter of Fiscal 2000, November
1, 1999 to January 31, 2000, all prices reflect the prices before the 1 for 25
reverse stock split effected October 1999.
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<CAPTION>
HIGH BID LOW BID
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<S> <C> <C>
FISCAL YEAR ENDED JULY 31, 1998
First Quarter (August 1, 1997 to October 31, 1997) 0.75 0.30
Second Quarter (November 1, 1997 to January 31, 1998) 0.75 0.38
Third Quarter (February 1, 1998 to April 30, 1998) 2.19 0.28
Fourth Quarter (May 1, 1998 to July 31, 1998) 1.75 0.75
FISCAL YEAR ENDED JULY 31, 1999
First Quarter (August 1, 1998 to October 31, 1998) 0.78 0.63
Second Quarter (November 1, 1998 to January 31, 1999) 11.25 5.50
Third Quarter (February 1, 1999 to April 30, 1999) 7.75 2.25
Fourth Quarter (May 1, 1999 to July 31, 1999) 4.25 1.50
FISCAL YEAR ENDED JULY 31, 2000
First Quarter (August 1, 1999 to October 31, 1999) 4.12 0.22
Second Quarter (November 1, 1999 to January 31, 2000) 3.06 1.50
</TABLE>
On April 14, 2000, there were approximately 30 holders of record of
Common Stock.
Since the Company's inception it has not paid any dividends on its
Common Stock and does not anticipate paying such dividends in the foreseeable
future.
REVERSE STOCK SPLIT
On October 6, 1999, the Board of Directors of the Company authorized
a 1 for 25 reverse stock split for the Company's common stock. The split was
effected October 15, 1999, upon the filing of the amendment to the certificate
of incorporation with the State of Nevada.
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RECENT SALE OF UNREGISTERED SECURITIES.
The following discussion includes certain information as to
transactions which occurred prior to the current Management's assumption of
control of the Registrant on the Closing Date and is based on information which
Management believes to be reasonably accurate, but not all of which does it have
direct knowledge. Notwithstanding the above, TPI is responsible for the
information contained in this Form 10-KSB. All share amounts are adjusted to
take into account the 1 for 25 reverse stock split that occurred in October
1999.
On August 20, 1996, the Closing Date, in satisfaction of gross
proceeds of $155,000 received by, and certain services rendered, to TPI-Ontario,
in the period April 11 to July 25, 1996, the Registrant issued 6,400 shares of
Common Stock to 15 investors (6,200 shares were issued for $25.00 per share and
200 shares were issued in exchange for consulting services and a technical
review of TPI-Ontario's conversion software). TPI-Ontario received such gross
proceeds pursuant to a private offering prior to the Closing Date. The 6,400
shares of Common Stock were issued in reliance on the exemption from
registration provided by Rule 504 of Regulation D promulgated under the Act.
On the Closing Date, Samuel Hamann Graphix Inc. ("SHGI") issued
197,442 shares of Common Stock to Joter and 38,600 shares of Common Stock to
DTL, in exchange for common shares of TPI-Ontario, which common shares were
issued as of April 1, 1996. Joter and DTL, which are controlled by Messrs.
Mighton, McCann and Stepanoff, executive officers and directors of the
Registrant, acquired the common shares of TPI-Ontario in consideration for
certain rights in technology transferred to, and certain services rendered to,
TPI-Ontario prior to the Closing Date, which shares, for accounting purposes are
deemed to have been issued in exchange for nominal consideration as "founder's
shares". Such shares were issued to management in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended
(the "Act").
Prior to the Closing Date, SHGI issued 29,619 shares of Common Stock,
which remain outstanding. The Registrant has no records concerning the
transactions in which such shares were issued or the consideration received by
the Company in respect of such issuances.
Prior to the Closing Date (from August 9 through August 19, 1996),
SHGI issued, pursuant to a private offering, an aggregate of 58,600 shares of
Common Stock in consideration for gross proceeds of $14,654 received by SHGI
from investors. These transactions were not disclosed to current management of
the Registrant prior to or on the Closing Date. Present management is not aware
of the exemption relied on for the issuance of such shares; however, Samuel
Hamann Graphix Inc. filed a Form D dated August 16, 1996 claiming exemption
under Rule 504. Management believes that SHGI relied on Rule 504 of Regulation D
under the Act in issuing such securities.
On the Closing Date, SHGI issued 75,520 shares of Common Stock to
certain consultants in consideration for certain services rendered in connection
with the reverse acquisition. Current management of the Registrant is uncertain
of the exemption relied on for the issuance of such shares,
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but believes prior management relied on the exemption from registration provided
by Section 4(2) of the Act.
On the Closing Date, SHGI issued 18,200 shares of Common Stock to
Jaford Holdings Ltd., 4,000 shares of Common Stock to Innovations Ontario Corp.
and 6,000 shares of Common Stock to Ronald Content, in consideration for the
release by such companies and individual of certain claims with respect to
marketing rights as to the technology previously transferred to the Registrant
by Vladimir Stepanoff, an executive officer and director of the Registrant.
Prior to the incorporation of TPI-Ontario, Mr. Stepanoff had granted marketing
rights with respect to such technology to Raconix, of which Mr. Content was the
sole shareholder. Ronald Content is a sophisticated investor, who was involved
in the operations of the Registrant and received the shares for investment. The
shares were issued in reliance on the exemption from registration provided by
Section 4(2) of the Act. See Item 1, "Description of Business -- Intellectual
Property."
On November 25, 1996, the Registrant issued options to purchase 600
shares of Common Stock at an exercise price of $49.75 expiring on November 27,
1997, to a public relations firm, in consideration for certain services. The
options were issued in reliance on the exemption from registration provided by
Section 4(2) of the Act. The holder of the option, as the Registrant's public
relations firm, was fully familiar with the Registrant's operations and is a
sophisticated investor.
On August 23, 1996, Registrant issued 20,000 units to Mayfair
Advisory Group Limited in consideration for gross proceeds of $500,000. Each
unit consisted of 1/25th share of Common Stock and a Common Stock purchase
warrant (the "Warrants"). When issued, the Warrants had a per share exercise
price of $25.00, were exercisable for a period of two years, commencing 30 days
after the closing of the offering, and were redeemable on 20 days prior written
notice at a redemption price of $.125 per Warrant. Pursuant to an amendment to
the terms of the Warrants dated August 26, 1998, the Warrants will not be
exercisable until a registration statement has become effective covering the
Common Stock issuable upon the exercise thereof; the term of such Warrants has
been extended through six months following the effective date of such
registration statement, and the exercise price has been reduced to $20.00 per
share of Common Stock, subject to certain adjustments in the event the market
for the Company's Common Stock is less than $20.00 at the time of the exercise,
but in no event shall the exercise price be reduced below $12.50 per share. The
Common Stock and the Warrants were issued in reliance on the exemption from
registration provided by Rule 504 of Regulation D under the Act.
On January 27, 1997, Registrant issued 8,333 shares of Common Stock
to Olive Investments, in consideration for gross proceeds of $150,000. These
shares were issued in reliance on the exemption from registration provided by
Rule 504 of Regulation D under the Act.
On March 6, 1997, Registrant issued 20,041 shares of Common Stock to
Thomson Kernaghan & Co., Ltd. ("Thomson Kernaghan") in consideration for gross
proceeds of $375,000. These shares were issued in reliance on the exemption from
registration provided by Rule 504 of Regulation D under the Act.
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On June 27, 1997, Registrant issued 4,000 units to Pinetree Capital
Corp. ("Pinetree") in consideration for gross proceeds of $70,000. The units
were issued to Pinetree pursuant to a Subscription Agreement by and between TPI
and Pinetree (the "Subscription Agreement") by which Pinetree subscribed for a
minimum of 28,000 units and a maximum of 40,000 units. The Subscription
Agreement was later amended to lower the minimum to 4,000 Units. Pinetree
purchased the foregoing securities for its own account. Each unit consisted of
one share of Common Stock and a common stock purchase warrant expiring two years
from the date of issuance, and exercisable at $25.00 per share during the first
year and $37.50 per share during the second year. These securities were issued
in reliance on the exemption from registration provided by Rule 506 of
Regulation D under the Act.
On August 1, 1997, Registrant sold to Thomson Kernaghan an 8%
convertible subordinated debenture due July 31, 1998 in the principal amount of
$108,750 the "Debenture" for a gross purchase price of $108,750. The Debenture
was converted, on August 28, 1997, into 7,920 shares of Common Stock at the
conversion rate of $13.75 per share. The Debenture was issued in reliance on the
exemption from registration provided by Rule 504 of Regulation D, under the Act
and the shares of Common Stock issued on conversion of the Debenture were issued
in reliance on the exemption from registration provided by Section 3(a)(9) of
the Act.
On September 4, 1997, Registrant issued 23,560 shares of Common Stock
to Thomson Kernaghan in consideration for gross proceeds of $125,000 ($5.25 a
share). These shares were issued in reliance on the exemption from registration
provided by Rule 504 of Regulation D under the Act.
On September 26, 1997, Registrant issued 16,000 shares of Common
Stock to Thomson Kernaghan in consideration for gross proceeds of $200,000
($12.50 a share). These shares were issued in reliance on the exemption from
registration provided by Rule 504 of Regulation D under the Act.
On October 23, 1997, Registrant issued 16,000 shares of Common Stock
to Thomson Kernaghan in consideration for gross proceeds of $200,000 ($12.50 a
share). These shares were issued in reliance on the exemption from registration
provided by Rule 504 of Regulation D under the Act.
On October 31, 1997, Registrant issued 4,000 shares of Common Stock
to Thomson Kernaghan in consideration for gross proceeds of $50,000 ($12.50 a
share). These shares were issued in reliance on the exemption from registration
provided by Rule 504 of Regulation D under the Act.
On December 10, 1997, Registrant issued 39,911 shares of Common Stock
to Thomson Kernaghan in consideration for gross proceeds of $220,000 ($5.50 a
share). These shares were
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issued in reliance on the exemption from registration provided by Rule 504 of
Regulation D under the Act.
On January 26, 1998, Registrant issued 17,778 shares of Common Stock
to Thomson Kernaghan in consideration for gross proceeds of $100,000 ($5.50 a
share). These shares were issued in reliance on the exemption from registration
provided by Rule 504 of Regulation D under the Act.
On April 14, 1998, the Registrant sold 6% Convertible Debentures, due
April, 2000, in the aggregate principal amount of $1,000,000 and issued warrants
to purchase 12,049 shares of Common Stock for gross proceeds of $1,000,000 (of
which $550,000 had a conversion rate of 70% of the 5-day average closing bid
price and $450,000 had a conversion rate of 80% of the 5-day average closing
asked price) as follows: Canadian Advantage LP ($275,000); Dominion Capital Fund
($275,000); Fetu Holdings ($250,000); and Livingstone Asset Management
($200,000). Each of the above claim the status as accredited investors as
organizations described in section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or partnership, not formed
for the specific purpose of acquiring the securities purchased, with total
assets in excess of $5,000,000. Each purchased its debentures and warrants for
investment. Canadian Advantage LP ("Canadian") was issued warrants to purchase
660 shares of Common Stock at $37.50 per share through April 14, 2000 and
warrants to purchase 2,654 shares of Common Stock at $11.40 per share through
April 14, 2000; Dominion Capital Fund ("Dominion") was issued a like number of
identical warrants; Fetu Holdings ("Fetu") was issued like warrants to purchase
600 shares at $37.50 and 2,412 shares at $11.40, and Livingstone Asset
Management ("Livingstone") was issued like warrants to purchase 480 shares at
$37.50 and 1,930 shares at $11.40. From May 14, 1998 through October 26, 1998,
the aggregate principal amount of $1,000,000 plus interest was converted into
77,409 shares of Common Stock as follows: Dominion and Canadian each converted
$275,000 plus interest of Debentures into 21,287 shares of Common Stock, Fetu
converted $250,000 plus interest into 19,352 shares of Common Stock and
Livingstone converted $200,000 plus interest into 15,482 shares of Common Stock.
On May 21, 1998, the Registrant sold to Canadian 6% convertible
debentures due May 21, 2000 in the aggregate principal amount of $500,000.
Warrants to purchase 2,008 shares of Common Stock exercisable at the price of
$49.75 through May 21, 2000, were also issued to Canadian. The debentures and
warrants were issued in reliance upon the exemption from registration provided
by Section 4(2) of the Securities Act and Rule 506 of Regulation D. On October
27, 1998 and October 29, 1998 an aggregate of $150,000 of debentures plus
interest was converted into 29,887 shares of Common Stock.
On July 10, 1998 the Registrant sold to each of Canadian and
Advantage (Bermuda) Fund 6% convertible debentures due July 9, 2000 in the
amount of $250,000 for an aggregate of $500,000. Warrants to purchase 1,366
shares of Common Stock exercisable at the price of $36.60 through July 9, 2000,
were also issued to each of Canadian and Advantage (Bermuda) Fund. The
debentures and
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<PAGE>
warrants were issued in reliance upon the exemption from registration provided
by Section 4(2) of the Act and Rule 506 of Regulation D.
On September 22, 1998 the Registrant sold to Fetu Holdings 6%
convertible debentures due September 22, 2000 in the aggregate principal amount
of $200,000. Warrants to purchase 3,509 shares of common stock exercisable at
the price of $11.40 through September 22, 2000, were also issued. The debentures
and warrants were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Act and Rule 506 of Regulation D.
On October 6, 1998, the Registrant sold 6% convertible debentures,
due October 6, 2000, in the aggregate principal amount of $100,000 and issued
warrants to purchase 2,222 shares of common stock for gross proceeds of $100,000
to: Canadian Advantage LP ($25,000); Dominion Capital Fund ($25,000); Fetu
Holdings ($25,000); and Advantage (Bermuda) Fund ($25,000). Each of the above
were also issued warrants to purchase 556 shares of common stock at $9.00 per
share through October 6, 2000. The debentures and warrants were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Act and Rule 506 of Regulation D.
On November 18, 1998, the Registrant sold 6% convertible debentures,
due November 18, 2000, in the aggregate principal amount of $200,000 and issued
warrants to purchase 4,040 shares of common stock for gross proceeds of $200,000
to: Canadian Advantage LP ($50,000); Dominion Capital Fund ($50,000); Fetu
Holdings ($50,000); and Advantage (Bermuda) Fund ($50,000). Each of the above
were also issued warrants to purchase 1,010 shares of common stock at $9.90 per
share through November 18, 2000. The debentures and warrants were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Act and Rule 506 of Regulation D.
On December 3, 1998, the Registrant sold 6% Convertible Debentures,
due December 2, 2000, in the aggregate principal amount of $250,000 and issued
warrants to purchase 3,390 shares of Common Stock for gross proceeds of $250,000
to: Advantage (Bermuda) Fund ($75,000); Canadian Advantage LP ($75,000); and
Dominion Capital Fund ($100,000). The above were also issued warrants in the
amounts of 1,017, 1,017 and 1,356, respectively, to purchase shares of Common
Stock at $14.75 per share through December 3, 2000. The debentures and warrants
were issued in reliance upon the exemption from registration provided by Section
4(2) of the Act and Rule 506 of Regulation D.
On January 13, 1999 the Registrant sold to Advantage (Bermuda) Fund
6% Convertible Debentures due January 14, 2001 in the aggregate principal amount
of $125,000. Warrants to purchase 3,125 shares of Common Stock exercisable at
the price of $8.00 through January 14, 2001, were also issued. The debentures
and warrants were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Act and Rule 506 of Regulation D.
On January 13, 1999 the Registrant sold to Dominion Capital Fund 6%
Convertible Debentures due January 13, 2001 in the aggregate principal amount of
$125,000. Warrants to purchase 3,125 shares of Common Stock exercisable at the
price of $8.00 through January 14, 2001,
-13-
<PAGE>
were also issued. The debentures and warrants were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Act and Rule 506 of
Regulation D.
Canadian Advantage Limited Partnership rescinded, and TPI accepted,
the conversion of an aggregate of $57,500 plus interest of debentures and
returned 8,069 shares of common stock. The debentures were converted in error
and were in excess of 4.9% of TPI's outstanding common stock, which violated the
terms of the debentures. Such transaction was effected in April 1999.
The Debentures, the warrants and the Common Stock issued on
conversion of the Debentures were issued in reliance upon the exemption set
forth in Sections 4(2) of the Act and Rule 506 thereunder. Such securities were
purchased for investment and not with a view to the public distribution thereof.
The Common Stock issued upon conversion of the Debentures were further issued in
reliance on Section 3(a)(9) of the Act. In both the issuance of the Debentures
and the Common Stock the certificates representing such securities bear a legend
preventing resale in the absence of registration with the Commission or an
exemption therefrom..
On October 6, 1999, the Board of Directors of the Company authorized
a 1 for 25 reverse stock split for the Company's common stock. The split was
effected October 15, 1999, upon the filing of the amendment to the certificate
of incorporation with the State of Nevada.
In connection with the merger and plan of reorganization with eAuto,
it is anticipated that the outstanding Debentures and warrants will be converted
into 4,100,000 shares of common stock of the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with the Company's audited financial statements as of July 31, 1999 and July 31,
1998 and the notes thereto, all of which financial statements are included
elsewhere in this Form 10-KSB.
RESULTS OF OPERATIONS
Results of Operations for the period April 1, 1996 (date of
incorporation) to July 31, 1996 were not material. Accordingly, the Company has
reported results of operations for the 16-month period from April 1, 1996 to
July 31, 1997 (the "1997 Fiscal Period"). Operations actually commenced in
October of 1996 when the Company moved into a permanent facility.
NET LOSSES
For the year ended July 31, 1999 (the "Fiscal 1999"), the Company
incurred a net loss of $2,657,900. For the 1998 Fiscal Period the Company
incurred a net loss of $4,300,553. Explanations of these results are set forth
below. The Company expects to continue to incur
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<PAGE>
operating losses until such time, if ever, as it generates substantial revenues
from the performance of its service offerings.
REVENUE
For Fiscal 1999 and the 1998 Fiscal Period the Company's revenue were
$954,874 and $877,198, respectively. During Fiscal 1999, the Company saw
continuing gains in the Groupware business and recording of its first Year 2000
revenue. Conversion Services, the Company's core business, accounted for
$238,398, or 25%, of gross revenue during Fiscal 1999, as compared to $96,492,
or 11%, for the 1998 Fiscal Period.
During the autumn of 1996, the Company positioned itself to market
transformation services utilizing the Company's client/server migration
software, targeting the IBM mid-range computer market. In this connection, the
Company planned to enhance its client/server migration software in the 1997
Fiscal Period. Such plan received less attention during such period as the
Company directed its attention to the opportunity presented by the demand for
the Year 2000 remediation services. Because of the scope of the Year 2000
problem and the significant dollar volumes which were expected to be expended by
users of information technology to remediate the problem, the Company shifted
its marketing and sales efforts to promoting Year 2000 remediation services. The
Company has negotiated relationships with a vendor of Year 2000 software
conversion tools and a company providing computer hardware assessment services
to support these efforts. By April 1997, the Company was offering Year 2000
remediation services. During Fiscal 1998, approximately $385,967, or 44%, of the
Company's revenues were derived from Year 2000 services.
EXPENSES
For Fiscal 1999 and the 1998 Fiscal Period, cost of consulting
services accounted for $836,202 and $1,314,356, respectively.
Cost of software transformation services accounted for $182,854 and
$1,107,208 of total expenses for Fiscal 1999 and the 1998 Fiscal Period,
respectively.
Software development costs accounted for $0 and $35,197 during Fiscal
1999 and the 1998 Fiscal Period, respectively. Software development costs
decreased during Fiscal 1999 due to the Company's shift in focus to the selling
and reselling of completed products.
General and administrative expense accounted for $2,031,598 of total
expenses for Fiscal 1999 compared to $1,871,105 for the 1998 Fiscal Period.
General and administrative expenses consisted primarily of salaries and
benefits, consulting fees, travel, investor and public relations, office and
equipment rents, professional services, office and telephone expenses. During
Fiscal 1999, the Company incurred significant costs related to the registration
of its Common Stock under Section 12 of the Securities Exchange Act of 1934, as
amended.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its activities during fiscal 1999 and 1998
primarily from the net proceeds of private placements of its securities and, to
a lesser extent, from cash flow from operations and the proceeds of two bank
loans. These loans were personally secured by certain shareholders and were
repaid by those shareholders subsequent to the Fiscal 1999 year end.
At July 31, 1999, the Company had total current assets of $33,949,
total liabilities of $2,749,266 and no available cash. During Fiscal 1998, the
Company issued convertible debentures with two private placement investors
sponsored by Thomson Kernaghan a registered broker dealer. The convertible debt
will require the issuance of common stock at date of conversion, not cash
resources of the Company.
On October 23, 1997, TPI made an offering of 16,000 shares of Common
Stock for $200,000 ($12.50 a share); on October 31, 1997, an offering of 4,000
Shares of Common Stock for $50,000 ($12.50 a share); on December 10, 1997, an
offering of 39,911 shares of Common Stock for $220,000 ($5.50 a share) and on
January 26, 1998, an offering of 17,778 shares of Common Stock for $100,000
($5.50 a share). The offerings were made in Canada pursuant to the claim of
exemption under Rule 504 under the Securities Act. The closing market for TPI
Common Stock on April 14, 2000 was $5.50. The potential contingent liability for
such sales is $570,000, however, to the extent that the sale price of the common
Stock remains in excess of the offering prices set forth above, there is no
ascertainable liability to the Company.
The Company has no current arrangements with respect to, or sources
of, additional financing, and it is not contemplated that its existing
stockholders will provide any portion of the Company's future financing
requirements. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all.
INFLATION
The Company believes that the impact of inflation and changing prices
on its operations since commencement of operations has been negligible.
SEASONALITY
The Company does not deem its revenues to be seasonal.
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<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements provided pursuant to this Item 7 begin on
page F-1 of this Report, following Part III hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The names, ages and respective positions of the Executive Officers
and Directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME Age Position
- ---- --- --------
<S> <C> <C>
Paul G. Mighton 45 Chairman of the Board of Directors and Chief
Executive Officer
Douglas Woolridge(1) 39 President and Chief Operating Officer
Gary G. McCann(2) 46 Executive President, Secretary and
Director
Vladimir Stepanoff(3) 56 Vice President - Technology and
Director
John G. McGee(4) 47 Vice President - Finance, Chief
Financial Officer and Director
Warren Strutt (5) 31 Chief Financial Officer and Director
</TABLE>
- ---------------------------
(1) Resigned in October 1998 as the Company's President and Chief Operating
Officer.
(2) Resigned in May 1999.
(3) Resigned in July 1999.
(4) Resigned in October 1998 as the Company's Vice President-Finance and
Chief Financial Officer and Director.
(5) Resigned in July 1999.
DIRECTORS AND EXECUTIVE OFFICERS
PAUL G. MIGHTON served as Chairman of the Board of Directors and
Chief Executive Officer of TPI-Ontario from its date of incorporation in April
1996 until TPI-Ontario was merged into the Company in February 1998 and has
served in the same positions with the Company since
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<PAGE>
August 1996. From February 1995 to June 1996, Mr. Mighton served as Executive
Vice President and Chief Operating Officer of Agensys Canada Limited ("ACL"), an
information technology ("IT") company. From April 1993 to February 1995, he
served as a Vice President of Co-Operators Data Services Canada Ltd., a provider
of IT services, in its Systems Services Division. From 1991 to April 1993, Mr.
Mighton was National Director of the Healthcare Systems Division of Information
Systems Management Corporation, a Canadian company and a provider of data
processing services to health care organizations.
DOUGLAS WOOLRIDGE served as President and Chief Operating Officer of
the Company from September 1997 to October 1998. From July 1994 to July 1997, he
served as Chief Information Officer for The R-M Trust Company, a Canadian
financial services provider. From August 1992 to June 1994, Mr. Woolridge served
as the director of IE Consulting Inc., an independent management consulting firm
("IE"). From August 1989 to August 1992, he served as a consulting manager for
the IT consulting practice of IE.
GARY G. MCCANN served as Executive Vice President of the Company
since September 1997, as Chief Financial Officer since October 1998 and as a
director since August 1996. From August 1996 to September 1997, he served as
President and Chief Operating Officer of the Company. From February 1996 to
August 1996, Mr. McCann was involved in the founding and organization of TPI-
Ontario. From July 1995 to February 1996, he served as President and a director
of the Canadian company Mantis Information Technology Ltd., a privately held
provider of IT consulting and support services. From December, 1994 to April
1996, Mr. McCann Served as Vice President, Technology and Business Development
of ACL. From July 1991 to December 1994, Mr. McCann served as a general manager
of Sykes Enterprises Inc. of Canada, the Toronto-based subsidiary of a United
States company engaged in providing computing systems integration services
("SEIC") and from July 1992 to December 1994, he also served as a Vice President
of Sykes Enterprises, Inc., the parent of SEIC. Mr. McCann holds a Bachelor of
Commerce degree in finance and accounting from the University of Windsor,
Ontario, Canada.
VLADIMIR STEPANOFF served as Vice President-Technology and a director
of the Company since August 1996 and held the same positions with TPI-Ontario
from April 1996 until it was merged into the Company in February 1998. From
April 1994 to August 1996, he served as President and director of Cyberplan
Inc., a Canadian-based company engaged in the development and licensing of
automatic transformation software. Mr. Stepanoff was the founder of Cyberplan,
Inc., which was the successor to Cyberplan Enrg., a firm of which Mr. Stepanoff
was the sole proprietor from 1984 to April 1994. Cyberplan Enrg. developed the
transformation software which Cyberplan Inc. continued to develop and license.
Mr. Stepanoff has a Bachelor of Science Degree (with Honors) in mathematics and
physics from the University of British Columbia.
JOHN G. MCGEE served as Vice President-Finance and Chief Financial
Officer of the Company from October 1996 until his resignation in October 1998
and a director from July 1, 1998 until his resignation in October 1998. From May
1991 to October 1996, he served as President and
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<PAGE>
Chief Executive officer and was the principal stockholder of Equitable Lease
Corporation, an Ontario, Canada equipment leasing company.
WARREN STRUTT served as Chief Financial Officer of the Company from
April 1999 until July 1999. From November 1998 until April 1999, he served as
Director of Finance for the Company. From January 1997 until November 1998, Mr.
Strutt served in the position of Controller for Alliance Cables Inc., a Canadian
distributor in the wireless communications industry. From May 1995 until January
1997, Mr. Strutt served as Accounting Manager for BGS Bearings and Equipment
Limited, a Canadian distributor in the motion control industry. From May 1992
until May 1995, he served as Senior Financial Accountant for Maritz Canada Inc.,
a Canadian subsidiary of Maritz Inc., a company in the service industry
providing performance improvement solutions for Fortune 500 companies. Mr.
Strutt holds a Certified Management Accountant degree issued in September 1995.
He graduated from Sheridan College of Applied Arts and Technology in June 1989
with a diploma in Business Administration - Accounting Major.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Exchange Act, the Company's Directors
and executive officers and beneficial owners of more than 10% of the Company's
common stock, par value $0.025 ("Common Stock"), are required to file certain
reports, within specified time periods, indicating their holdings of and
transactions in the Common Stock and derivative securities. Based solely on a
review of such reports provided to the Company and written representations from
such persons regarding the necessity to file such reports, the Company is not
aware of any failures to file reports or report transactions in a timely manner
during the Company's fiscal year ended July 31, 1999.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation
for the Company's Chief Executive Officer from August 7, 1996 (the date in which
TPI-Ontario merged into Samuel Hamann Graphix, Inc.) through the completion of
the fiscal year ended July 31, 1999. No other officer received reportable
remuneration.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------ --------------------------- ---------------------------
Long-Term
Other Restricted Securities Incentive All
Name of Individual Fiscal Annual Stock Underlying Plan Other
and Principal Position Year Salary($) Bonus($) Compensation($) Awards($) Options/SARS(#) Payouts($) Compensation($)
- --------------------------- ------- --------- -------- --------------- ---------- --------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PAUL G. MIGHTON 1999 $112,200 -0- -0- -0- -0- -0- $ --
CHAIRMAN OF THE BOARD 1998 $110,000 -0- -0- -0- -0- -0- $ --
AND CHIEF EXECUTIVE OFFICER 1997 $ 79,264 -0- -0- -0- -0- -0- $ --
</TABLE>
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<PAGE>
The cost to the Company of personal benefits, including premiums for
life insurance and any other perquisites, to such executive does not exceed 10%
of such executive's annual salary and bonus.
COMPENSATION OF DIRECTORS
No compensation is paid by the Company to any of its directors for
services in such capacity. Currently, all of the Company's directors are
executive officers of the Company.
EMPLOYMENT CONTRACTS
On January 1, 1997, the Company entered into employment agreements
with each of Messrs. Paul G. Mighton, Gary G. McCann, Vladimir Stepanoff and
John G. McGee, the Company's executive officers. Such agreements do not provide
for a fixed period of employment and provide that an employee's employment may
be terminated at any time, without notice, for "cause" (as defined in each
agreement), or at any time, upon at least 30 days prior notice, the Company or
the employee may terminate such employment, and, without notice upon payment of
six months base salary and certain other amounts to the employee, the Company
may terminate such employee's employment. The agreements provide for
participation in employee benefit programs, vacation and reimbursement of
expenses, including for use of the employee's vehicle. Each of the agreements
contains provisions prohibiting the employee from competing with the Company for
a period of six months following termination of employment and from disclosing
confidential information of the Company while employed by the Company and
thereafter.
Mr. Mighton's employment agreement provides that he will be paid an
annual salary of approximately $110,000; Mr. McCann's employment agreement
provided that he would be paid in annual salary of approximately $95,000; Mr.
Stepanoff's employment agreement provided that he would be paid an annual salary
of approximately $66,000; and Mr. McGee's employment agreement (prior to his
resignation) provided that he would be paid an annual salary of approximately
$88,000.
Douglas Woolridge, the Company's President and Chief Operating
Officer (prior to his resignation), entered into an agreement with the Company
pursuant to which he received an annual salary of approximately $62,000.
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<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options/SARs
Underlying Granted Exercise
Name of Options/SARs to Employees or Base Expiration
Individual Granted In Fiscal Year Price($/Share) Date
- ------------------ --------------------- --------------------- ------------------ --------------
<S> <C> <C> <C> <C>
NONE
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Options/SARs Options/SARs
Name of Acquired on Value at Fiscal Year End (#) at Fiscal Year End ($)
Individual Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------ --------------- --------------- -------------------------------- --------------------------------
<S> <C> <C> <C> <C>
NONE
</TABLE>
1998 STOCK OPTION PLAN
The Company has established the 1998 Stock Option Plan (the "1998
Plan"). The 1998 Plan is intended to provide the employees and directors of the
Company with an added incentive to continue their services to the Company and to
induce them to exert their maximum efforts toward the Company's success. The
1998 Plan provides for the grant of options to directors and employees
(including officers) of the Company to purchase up to an aggregate of twenty
percent (20%) of the number of shares of Common Stock in the capital of the
Company issued and outstanding from time to time less any shares of Common Stock
reserved, set aside and made available pursuant to the terms of the Company's
employee share purchase plan (the "Share Purchase Plan") and pursuant to any
options for services rendered to the Company. The number of shares of Common
Stock subject to options granted to any one person under the Plan, the Share
Purchase Plan and options for services rendered to the Company may not at any
time exceed five percent (5%) of the outstanding shares of Common Stock. The
1998 Plan is currently administered by the Board of Directors. The Board
determines, among other things, the persons to be granted options under the 1998
Plan, the number of shares subject to each option and the option price.
The 1998 Plan allows the Company to grant Non-Qualified Stock Options
("NQSOs") not intended to qualify under Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code"). The exercise price of NQSO's may not be
less than the fair market value of the Common Stock on the date of grant.
Options may not have a term exceeding ten years. Options are not transferable,
except upon the death of the optionee.
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<PAGE>
Since the 1998 Plan's adoption, NQSO's to purchase 112,000 shares of
Common Stock were granted and 108,000 were canceled as of July 31, 1998, leaving
4,000 post reverse stock split shares remaining.
On March 16, 1998, Paul G. Mighton was granted options to purchase
36,000 shares of Common Stock exercisable at $7.50 per share terminating on
March 15, 2008. All the options were canceled as of July 31, 1998.
On March 16, 1998, Gary McCann was granted options to purchase 36,000
shares of Common Stock exercisable at $7.50 per share terminating on March 15,
2008. All the options were canceled as of July 31, 1998.
On March 16, 1998, John McGee was granted options to purchase 36,000
shares of Common Stock exercisable at $7.50 per share terminating on March 15,
2008. All the options were canceled as of July 31, 1998.
On January 22, 1999, Warren Strutt was granted options to purchase
2,000 shares of Common Stock exercisable at $6.75 per share terminating November
29, 2009.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 14, 2000, certain
information concerning those persons known to the Company, based on information
obtained from such persons, with respect to the beneficial ownership (as such
term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of
shares of Common Stock, $.025 par value, of the Company by (i) each person known
by the Company to be the owner of more than 5% of the outstanding shares of
Common Stock, (ii) each director and executive officer of the Company and its
subsidiaries, (iii) each executive officer named in the Summary Compensation
Table and (iv) all directors and officers as a group:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner(1) Beneficial Ownership Percentage of Class (2)
- ------------------- -------------------- -----------------------
<S> <C> <C>
Vladimir Stepanoff 34,000 (2) *
Paul G. Mighton 16,500 (2) *
Gary G. McCann 42,000 (2) *
John G. McGee 35,177 (2) *
Douglas Woolridge -0- 0
All Directors and Officers as 129,677 (2) 2.6%
a Group (5 persons)
</TABLE>
* denotes less than 1%.
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<PAGE>
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them. Each such person is deemed to be the
beneficial owner of shares of Common Stock held by such person (but not held by
any other person) on April 14, 2000, and any shares of Common Stock which such
person has the right to acquire pursuant to securities exercisable or
exchangeable for, or convertible into, Common Stock, within 60 days from such
date. The address of each beneficial owner is in care of the Company, 365 Bay
Street, Toronto, Ontario, Canada.
(2) Based on 4,810,367 shares of Common Stock outstanding at the close of
business on April 14, 2000. The Company and its transfer agent have not been
able to reconcile the amount of outstanding shares. The transfer agent believes
that there are 31,103 more shares of common stock outstanding.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In consideration for the transfer to the Company of the ownership
interest in certain technology and certain services provided to the Company, the
Company issued 197,442 and 38,600 shares of Common Stock to Joter and DTL(1),
respectively, which hold such shares as nominees for the benefit of the
following executive officers and directors of the Company: Paul Mighton, Gary G.
McCann, Vladimir Stepanoff and John McGee. See "Security Ownership of Certain
Beneficial Owners and Management."
From August 1, 1996 through July 11, 1997, the Company made advances
to Messrs. Paul G. Mighton, Gary G. McCann and Vladimir Stepanoff, executive
officers, directors and principal stockholders of the Company aggregating
$115,227. On July 31, 1997, Messrs. Mighton, McCann and Stepanoff executed
demand promissory notes payable to the Company in the respective principal
amounts of $61,452; $37,829 and $15,946, representing the aggregate amounts
borrowed by such persons from the Company. The notes bear interest at the annual
rate of 4%. The advances made to Messrs. Mighton and McCann were subsequently
written off by the Company and were accounted for as an expense.
The Company has paid for the account of Mantis Information Technology
Ltd ("Mantis"), a corporation of which Gary G. McCann is the sole stockholder,
certain obligations for consulting services incurred by Mantis and has rendered
invoices to Mantis in the aggregate amount of approximately $12,000 for funds
advanced. As of the date hereof, such invoices remain outstanding. This amount
was never repaid and was written off.
Messrs. Mighton, McCann, Stepanoff and McGee have personally
guaranteed the payment to a bank of certain purchase money equipment loans made
to the Company by such bank. The outstanding principal balance of the loans is
currently approximately $9,928. The loans bear interest at 2.5% over the bank's
prime rate in effect from time to time (currently 7.5% per annum). See
"Management's Discussion and Analysis or Plan of Operations -- Liquidity and
Capital Resources."
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<PAGE>
(1) Such shares were issued in exchange for shares of TPI-Ontario on August 20,
1996.
The officers of the Company have executed employment agreement with
the Company. See "Executive Compensation--Employment Contracts."
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. Description
- ----------- -----------
<S> <C>
3.1 Articles of Incorporation of Samuel Hamann Graphix, Inc. (Nevada) as amended.(1)
3.2 Articles of Merger between Samuel Hamann Graphix, Inc. (Nevada) and Samuel
Hamann Graphix, Inc. (California).(1)
3.3 By-laws of Transformation Processing Inc. (Nevada).(1)
3.4 Articles of Merger between of TPI (Ontario) and TPI (Nevada).(1)
5.1 Opinion of Snow Becker Krauss P.C.(1)
10.1 Employment Agreement between TPI and Gary McCann dated January 1,1997.(1)
10.2 Employment Agreement between TPI and John McGee dated January 1, 1997.(1)
10.3 Employment Agreement between TPI and Paul G. Mighton dated January 1,1997.(1)
10.4 Employment Agreement between TPI and Vladimir Stepanoff dated January 1,
1997.(1)
10.5 Letter Agreement dated September 29, 1997 as amended January 6, 1998 between
Douglas Woolridge and TPI.(1)
10.6 Real Estate Lease Agreement dated October 1, 1996 between TPI and Royal Trust
Corporation of Canada, and Landlord's release of Security Interest.(1)
10.7 Form of Software Conversion Agreement.(1)
10.8 Form of Professional Services Agreement.(1)
10.9 Form of Deployment Products License Agreement.(1)
10.10 Form of Software License Agreement.(1)
10.11 Business Development Agreement between Lotus Development Corporation and
TPI.(1)
10.12 Bill of Sale and Assignment of Copyright, dated July 17, 1996 between CyberPlan
Enrg. and TPI as amended as of March 10, 1998.(1)
10.13 Referral Program Agreement dated November 18, 1997 between Y2K Plus and
TPI.(1)
10.14 Referral Program Agreement dated November 12, 1997 between MCW Business
Systems Ltd. and TPI.(1)
10.15 Teaming Agreement dated April 21, 1997 between SHL Systemhouse Inc. and
TPI.(1)
10.16 Software License Agreement, Value Added Reseller Agreement and addendum dated April
23, 1997 between IntellAgent Control Corporation and TPI.(1)
</TABLE>
-24-
<PAGE>
<TABLE>
<S> <C>
10.17 Professional Services Subcontract Agreement dated May 15, 1997 between GE IT
Solutions/Universal Data Consultants and TPI.(1)
10.18 Settlement Agreement and Release, among Ronald A. Content, Raconix
Corporation, Raconix Europe Limited and TPI each dated June 16, 1997.(1)
10.19 Demand Promissory Notes dated July 31, 1997, payable to TPI made by Gary G.
McCann, Paul Mighton and Vladimir Stepanoff.(1)
10.20 Customer Agreements and Small Business Loan Registrations, between the Bank of Nova
Scotia and TPI pertaining to purchase money bank loans.(1)
10.21 Guarantees of Bank loans, dated January 30, 1997 and November 27, 1997 by Gary
G. McCann, Paul Mighton, Vladimir Stepanoff and John McGee in favor of the Bank
of Nova Scotia..(1)
10.22 Program Product License Agreement, dated October 21, 1997, between Allegient
Legacy Solutions, Inc. and TPI.(1)
10.23 The Company's 1998 Stock Option Plan.(2)
10.24 Real Estate Sublease Agreement dated June 29, 1998, between TPI and Origin
Technology In Business Inc.(2)
*10.25 Merger Agreement and Plan of Reorganization by and among Transformation
Processing, Inc. and eAutoclaims.com, Inc., dated April , 2000
21.1 Subsidiaries of the Registrant.(2)
</TABLE>
(1) Incorporated by reference from the Form 10-SB filed by the company on
March 12, 1998 and amended on August 31, 1998 and October 22, 1998.
Incorporated by reference from the Form 10-KSB of the Company for the
fiscal year ended July 31, 1998.
* denotes filed herewith
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the last quarter of the fiscal
year ended July 31, 1999.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March , 2000 TRANSFORMATION PROCESSING INC.
By: /s/Paul Mighton By: /s/ Paul G. Mighton
----------------------------- --------------------------
Paul Mighton Paul G. Mighton,
Chief Financial Officer and Chief Executive Officer
Accounting Officer
In accordance with the Exchange Act, this Report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Paul G. Mighton Chairman of the Board of Directors March __, 1999
- ------------------------------------ and Chief Executive Officer
Paul G. Mighton (Principal Executive Officer)
</TABLE>
-26-
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
FINANCIAL STATEMENTS
JULY 31, 1999
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
INDEX TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Deficiency F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7 - F-16
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Transformation Processing Inc.
(debtor-in-possession)
We have audited the accompanying balance sheet of Transformation Processing Inc.
(debtor-in-possession) as of July 31, 1999, and the related statements of
operations, stockholders' deficiency, and cash flows for each of the two years
in the period ended July 31, 1999. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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 Transformation Processing Inc.
(debtor-in-possession) as of July 31, 1999, and the results of its operations
and its cash flows for each of the two years in the period ended July 31, 1999,
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 to the
financial statements, Transformation Processing Inc. filed a petition for
reorganization under Section 69 of the Bankruptcy and Insolvency Act of Canada.
The Company has continued as Debtor-in-Possession under Section 69 and is
subject to the jurisdiction of the Superior Court of Justice for the Province of
Ontario. Continuation of the Company as a going concern and realization of its
assets and the liquidation of its liabilities are dependent upon, among other
things, the formulation of a confirmed Plan of Reorganization, which may result
in significant adjustments and reclassifications in the amounts reflected as
assets, liabilities and stockholders' deficiency in the accompanying financial
statements, and the ability of the Company to maintain adequate financing. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
/s/ Goldstein Golub Kessler LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
December 3, 1999, except for Note 10, as
to which the date is February 18, 2000
F-2
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
BALANCE SHEET
================================================================================
<TABLE>
<CAPTION>
JULY 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current Asset - accounts receivable $ 33,949
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSET 33,949
Deferred Debt Cost, net 30,470
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 64,419
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Liabilities subject to compromise - accounts payable and accrued expenses $ 1,023,029
Current maturities of long-term debt 9,927
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,032,956
Long-term Debt, net of current maturities 1,716,310
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,749,266
- -----------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Deficiency:
Preferred stock - $.001 par value; authorized 5,000,000 shares, none issued --
Common stock - $.025 par value; authorized 50,000,000 shares, issued
and outstanding 710,367 shares 17,759
Additional paid-in capital 7,040,383
Accumulated deficit (9,742,989)
- -----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIENCY (2,684,847)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 64,419
===================================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-3
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
STATEMENT OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue - consulting services $ 954,874 $ 877,198
- -----------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of consulting services 836,202 1,314,356
Cost of software transformation services 182,854 1,107,208
Software development -- 35,197
General and administrative 2,031,598 1,871,105
- -----------------------------------------------------------------------------------------------------------------------------------
3,050,654 4,327,866
- -----------------------------------------------------------------------------------------------------------------------------------
Loss from operations (2,095,780) (3,450,668)
Interest expense, net of interest income of $1,208 and $9,749,
respectively (562,120) (849,885)
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss $(2,657,900) $(4,300,553)
===================================================================================================================================
Basic net loss per common share $ (3.81) $ (7.39)
===================================================================================================================================
Weighted-average number of common shares
outstanding 697,697 581,693
===================================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-4
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
================================================================================
<TABLE>
<CAPTION>
YEARS ENDED JULY 31, 1999 AND 1998
- ------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
OTHER COM- STOCK- COMPRE-
ADDITIONAL PREHENSIVE HOLDERS' HENSIVE
COMMON STOCK PAID-IN ACCUMULATED INCOME EQUITY INCOME
SHARES AMOUNT CAPITAL DEFICIT (LOSS) (DEFICIENCY) (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 1, 1997 486,771 $12,169 $3,358,020 $(2,784,536) $ 22,855 $ 608,508 --
Issuance of common stock
for cash 124,369 3,110 1,003,336 -- -- 1,006,446 --
Issuance of common stock
upon conversion of
convertible debentures 36,325 908 706,387 -- -- 707,295 --
Recognition of beneficial
conversion feature of
convertible debt -- -- 650,026 -- -- 650,026 --
Warrants to purchase
common stock issued
with convertible debentures -- -- 527,000 -- -- 527,000 --
Cumulative foreign currency
translation adjustment -- -- -- -- (56,706) (56,706) $ (56,706)
Options to purchase common
stock issued for services -- -- 21,950 -- -- 21,950 --
Net loss -- -- -- (4,300,553) -- (4,300,553) (4,300,553)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss -- -- -- -- -- -- (4,357,259)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1998 647,465 16,187 6,266,719 (7,085,089) (33,851) (836,034)
Issuance of common stock
upon conversion of convertible
debentures 62,902 1,572 390,928 -- -- 392,500 --
Recognition of beneficial
conversion feature of
convertible debentures -- -- 240,999 -- -- 240,999 --
Warrants to purchase common
stock issued with convertible
debentures -- -- 141,737 -- -- 141,737 --
Cumulative foreign currency
translation adjustments -- -- -- -- 33,851 33,851 33,851
Net loss -- -- -- (2,657,900) -- (2,657,900) (2,657,900)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss -- -- -- -- -- -- (2,624,049)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1999 710,367 $17,759 $7,040,383 $(9,742,989) $ - 0 - $(2,684,847) --
====================================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-5
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
STATEMENT OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Year ended July 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,657,900) $(4,300,553)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 145,258 617,451
Issuance of options and warrants to purchase common
stock for services -- 181,317
Recognition of beneficial conversion feature 239,427 631,281
Provision for doubtful accounts (34,946) 34,325
Write-off of amounts due from/to related parties (11,208) 96,020
Write-off of fixed assets 192,166 --
Amortization of discounts 176,683 187,793
Interest expense converted to stock -- 7,085
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 419,933 (462,787)
(Increase) decrease in prepaid expenses and other current assets 4,715 (4,639)
Increase in deferred debt costs -- (60,263)
(Increase) decrease in other assets 30,379 (26,411)
Increase in time deposits -- 22,600
Increase in accounts payable and accrued expenses 441,937 506,281
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,053,556) (2,570,500)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activity - purchase of property and equipment (60,471) (122,601)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from loan payable - bank -- 50,160
Repayments of loan payable - bank (38,134) (49,312)
Repayment of note payable - stockholder -- (83,300)
Net proceeds from issuance of common stock -- 987,484
Net proceeds from issuance of convertible debentures 1,001,572 1,903,688
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 963,438 2,808,720
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (98) 18,637
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (150,687) 134,256
Cash at beginning of year 150,687 16,431
- ------------------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ - 0 - $ 150,687
====================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ - 0 - $ 58,264
====================================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITY:
Conversion of long-term debt to common stock $ 392,500 $ 707,295
====================================================================================================================================
Beneficial conversion feature $ 240,999 $ 650,026
====================================================================================================================================
Issuance of warrants to purchase common stock $ 141,737 $ 527,000
====================================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-6
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
1. BASIS OF On August 23, 1999, Transformation Processing Inc. (debtor-in-possession)
PRESENTATION: (the "Company") filed a Notice of Intent to seek reorganization under the
Bankruptcy and Insolvency Act of Canada (the "Bankruptcy Act") with the
Superior Court of Justice for the Province of Ontario. Under the
Bankruptcy Act, certain claims against the Company in existence prior to
the filing of the notice are stayed while the Company continues business
operations as debtor-in-possession. These claims are reflected in the July
31, 1999 balance sheet as "liabilities subject to compromise." Additional
claims (liabilities subject to compromise) may arise subsequent to the
filing date resulting from the rejection of executory contracts, including
leases, and from the determination by the court (or agreed to by parties
in interest) of allowed claims for contingencies and other disputed
amounts. Upon filing under the Bankruptcy Act, the Company's principal
business activities ceased.
On November 25, 1999, the Company's proposal in bankruptcy was approved by
the court. The proposal was made only to the preferred and unsecured
creditors. The proposal basically stipulates that a pool of funds, up to
$300,000, will be available for distribution to the unsecured creditors,
after deducting payments to preferred creditors, consisting of crown
claims, employee claims and landlord's claim. Out of the remaining funds,
the unsecured creditors will be paid in full on the first $2,000 of their
claims, $0.50 per $1.00 of their claim between $2,001 and $5,000, and up
to $0.10 per $1.00 of their claim thereafter. These amounts are in
Canadian dollars.
The Company anticipates successfully complying with the proposal and
intends to file for a court order affirming compliance with the proposal
in May or June 2000.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Continuation of the Company as a
going concern and realization of its assets and liquidation of its
liabilities are dependent upon, among other things, the formulation of a
confirmed plan of reorganization, which may result in significant
adjustments and reclassifications in the amounts reflected as assets,
liabilities and stockholders' deficiency in the accompanying financial
statements, and the ability to maintain adequate financing.
2. PRINCIPAL BUSINESS The Company operated as an information technology company that developed
ACTIVITY AND and marketed software and services that enabled companies worldwide to
SIGNIFICANT ACCOUNTING automatically migrate their application programs and data from legacy
POLICIES: systems to open systems and client/server environments. The Company
expanded its operations from providing legacy code migration services to
three lines of business; client/server migration, year 2000 and groupware
services. For the periods ended July 31, 1999 and 1998, all operations of
the Company were conducted in Canada. At July 31, 1999, all of the
Company's assets are located in Canada.
The Company was considered to be in the development stage through July 31,
1998 because it had been devoting substantially all of its efforts toward
establishing its business.
</TABLE>
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
Revenue from fixed-price contracts was recognized ratably over the period
of performance in accordance with the American Institute of Certified
Public Accountants' Statement of Position 91-1, SOFTWARE REVENUE
RECOGNITION. Revenue from customer training, technical support and other
services was recognized as the service was performed. The Company provided
technical support at no charge for the first 90 days and, under certain
circumstances, at no charge if certain other fees were current. Revenue
from the sale of deployment product licenses was recognized after
installation of the product.
Property and equipment was recorded at cost. Depreciation was provided for
by the straight-line method over the estimated useful lives of the related
assets.
The cost of software marketing rights of approximately $780,000 (which
included approximately $207,000 of notes payable plus approximately
$573,000 in common stock issued) was being amortized by the straight-line
method over four years. At each balance sheet date, the Company evaluated
the period of amortization of intangible assets. The factors used in
evaluating the period of amortization included: (i) current operating
results; (ii) projected future operating results; and (iii) any other
material factors that affected the continuity of the business. The Company
elected to write off the unamortized balance of the intangible asset
(software marketing rights) because future cash flows generated from this
asset could not be determined at that time. The impairment loss of
approximately $372,000 is included in the cost of transformation services
in the accompanying statement of operations for the year ended July 31,
1998.
Costs associated with the issuance of the 6% convertible debentures are
being amortized on the straight-line method over the term of the
debentures. Upon conversion, debt issue costs will be charged to
operations. For the years ended July 31, 1999 and 1998, debt issue costs
of $70,046 and $61,396, respectively, have been charged to operations and
included in interest expense in the accompanying statement of operations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates by management
affecting reported amounts of assets and liabilities and revenue and
expenses and the disclosure of contingent assets and liabilities. Actual
results could differ from these estimates.
Basic loss per share is based on the weighted-average number of shares of
common stock outstanding during the periods. Fully diluted per share
amounts are not presented because the effect would be antidilutive. The
prior-year loss per share was unaffected by the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE.
On October 6, 1999, the Company's board of directors authorized a
1-for-25 reverse stock split to stockholders of
record as of October 15, 1999. All references to number of shares
and per share amounts in the accompanying financial statements
have been retroactively restated to reflect this split.
Management does not believe that any recently issued, but not yet
effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
</TABLE>
F-8
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
For the year ended July 31, 1999, the Company adopted SFAS No. 130,
REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components; however,
the adoption of this statement had no impact on the Company's net loss or
stockholders' deficiency. SFAS No. 130 requires foreign currency
translation adjustments to be included in other comprehensive loss. Prior
to the adoption of SFAS No. 130, these items were reported separately in
stockholders' deficiency. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
Due to the nature of the Company, the convertibility feature, interest
rates and repayment terms, the estimated fair value of the Company's
long-term debt approximates its carrying amount.
</TABLE>
<TABLE>
<S> <C> <C>
3. ACCOUNTS Accounts payable and accrued expenses consist of the following:
PAYABLE AND
ACCRUED Accrued professional fees $ 91,020
EXPENSES: Accrued wages 29,088
Accrued vacation wages 24,968
Accrued rent on abandoned property 185,892
Accrued damages on convertible debentures 350,000
Other (all amounts are less than 5% of current liabilities) 342,061
-----------------------------------------------------------------------------------------------------
$1,023,029
=====================================================================================================
4. LONG-TERM
DEBT: Long-term debt consists of the following:
Installment loans $ 9,927
6% convertible debentures 1,716,310
-----------------------------------------------------------------------------------------------------
1,726,237
Less current portion 9,927
-----------------------------------------------------------------------------------------------------
LONG-TERM PORTION $1,716,310
=====================================================================================================
</TABLE>
<TABLE>
<S> <C>
In connection with the Company's bankruptcy filing, long-term debt is not
subject to compromise.
The Company is obligated under an installment loan with a bank payable in
monthly installments aggregating $4,505 plus interest through December 31,
1999. The loan bears interest at the bank's prime rate (8.75 at July 31,
1999) plus 2.5%. The loan is collateralized by substantially all of the
Company's assets.
On April 14, 1998, the Company issued two $500,000 6% convertible
debentures totaling $1,000,000 for cash, due April 14, 2000. Of the
$1,000,000 convertible debentures, $550,000 are convertible into common
stock at 70% of the five-day average bid price immediately preceding the
date of conversion and $450,000 of the debentures are convertible into
common stock at 80% of the five-day average closing ask price immediately
preceding the date of conversion. In May 1998,
</TABLE>
F-10
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
$300,000 of 6% convertible debentures were converted into 10,644 shares of
common stock and in July 1998, $400,000 of 6% convertible debentures were
converted into 25,681 shares of common stock. In August 1998, $37,500 of
6% convertible debentures were converted into 3,267 shares of common
stock; in September 1998, $57,500 of 6% convertible debentures were
converted into 6,270 shares of common stock, and in October 1998, $84,000
of 6% convertible debentures were converted into 17,563 shares of common
stock. In connection with the issuance of debentures, the Company issued
warrants to purchase 12,049 shares of common stock. The fair value of
$251,000 allocated to the warrants is being amortized over the term of the
debentures. For the years ended July 31, 1999 and 1998, amortization of
$60,115 and $181,927, respectively, has been charged to operations and
included in interest expense in the accompanying statement of operations.
The unamortized portion is shown as a reduction in the carrying value of
the debentures as of July 31, 1999.
On May 21, 1998, the Company issued two $250,000 6% convertible debentures
totaling $500,000 for cash, due May 21, 2000. These debentures are
convertible into common stock at 80% of the five-day average ask price
immediately preceding the date of conversion. In September of 1998,
$67,500 of 6% convertible debentures were converted into 6,696 shares of
common stock. In connection with the issuance of debentures, the Company
issued warrants to purchase 2,008 shares of common stock. The fair value
of $52,500 allocated to the warrants is being amortized over the term of
the debentures. For the years ended July 31, 1999 and 1998, amortization
of $29,863 and $5,311, respectively, has been charged to operations and
included in interest expense in the accompanying statement of operations.
The unamortized portion is shown as a reduction in the carrying value of
the debentures as of July 31, 1999.
On July 10, 1998, the Company issued two $250,000 6% convertible
debentures totaling $500,000 for cash, due July 10, 2000. These debentures
are convertible into common stock at 80% of the five-day average ask price
immediately preceding the date of conversion. In October of 1998, $146,000
of 6% convertible debentures were converted into 29,106 shares of common
stock. In connection with the issuance of debentures, the Company issued
warrants to purchase 2,732 shares of common stock. The fair value of
$58,500 allocated to the warrants is being amortized over the term of the
debentures. For the years ended July 31, 1999 and 1998, amortization of
$37,655 and $1,183, respectively, has been charged to operations and
included in interest expense in the accompanying statement of operations.
The unamortized portion is shown as a reduction in the carrying value of
the debentures as of July 31, 1999.
On September 23, 1998, the Company issued a 200,000 6% convertible
debenture for cash, due September 22, 2000. This debenture is convertible
into common stock at 80% of the five-day average ask price immediately
preceding the date of conversion. In connection with the issuance of the
debenture, the Company issued warrants to purchase 3,509 shares of common
stock. The fair value of $28,249 allocated to the warrants is being
amortized over the term of the debenture. For the year ended July 31,
1999, amortization of $12,327 has been charged to operations and included
in interest expense in the accompanying statement of operations. The
unamortized portion is shown as a reduction in the carrying value of the
debentures as of July 31, 1999.
</TABLE>
F-10
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
On October 9, 1998, the Company issued a $100,000 6% convertible debenture
for cash, due October 6, 2000. This debenture is convertible into common
stock at 80% of the five-day average ask price immediately preceding the
date of conversion. In connection with the issuance of the debenture, the
Company issued warrants to purchase 2,222 shares of common stock. The fair
value of $15,094 allocated to the warrants is being amortized over the
term of the debentures. For the year ended July 31, 1999 amortization of
$5,960 has been charged to operations and included in interest expense in
the accompanying statement of operations. The unamortized portion is shown
as a reduction in the carrying value of the debentures as of July 31,
1999.
On November 19, 1998, the Company issued a $200,000 6% convertible
debenture for cash, due November 18, 2000. This debenture is convertible
into common stock at 80% of the five-day average ask price immediately
preceding the date of conversion. In connection with the issuance of the
debenture, the Company issued warrants to purchase 4,040 shares of common
stock. The fair value of $27,827 allocated to the warrants is being
amortized over the term of the debenture. For the year ended July 31, 1999
amortization of $9,830 has been charged to operations and included in
interest expense in the accompanying statement of operations. The
unamortized portion is shown as a reduction in the carrying value of the
debentures as of July 31, 1999.
On December 4, 1998, the Company issued a $250,000 6% convertible
debenture for cash, due December 4, 2000. This debenture is convertible
into common stock at 80% of the five-day average ask price immediately
preceding the date of conversion. In connection with the issuance of the
debenture, the Company issued warrants to purchase 3,390 shares of common
stock. The fair value of $35,621 allocated to the warrants is being
amortized over the term of the debenture. For the year ended July 31,
1999, amortization of $11,104 has been charged to operations and included
in interest expense in the accompanying statement of operations. The
unamortized portion is shown as a reduction in the carrying value of the
debentures as of July 31, 1999.
On January 14, 1999, the Company issued a $250,000 6% convertible
debenture for cash, due January 14, 2001. This debenture is convertible
into common stock at 80% of the five-day average ask price immediately
preceding the date of conversion. In connection with the issuance of the
debenture, the Company issued warrants to purchase 6,250 shares of common
stock. The fair value of $34,946 allocated to the warrants is being
amortized over the term of the debentures. For the year ended July 31,
1999, amortization of $9,440, has been charged to operations and included
in interest expense in the accompanying statement of operations. The
unamortized portion is shown as a reduction in the carrying value of the
debentures as of July 31, 1999.
On the date of issuance of each convertible debenture, the Company
allocated a portion of the proceeds to the beneficial conversion feature
of the debenture which represented the intrinsic value of that feature.
That amount is calculated as the difference between the conversion price
and the fair value of the common stock into which the debentures are
convertible, multiplied by the number of shares into which the debentures
are convertible. The amount attributable to the beneficial conversion
feature, for the years ended July 31, 1999 and 1998, aggregating $240,999
and $650,026, respectively, is included in interest expense
</TABLE>
F-11
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
in the accompanying statement of operations as the debentures became
convertible into common stock on issuance.
Each debenture provides the holder with certain registration rights that
require the Company to register the common shares underlying each
convertible debenture within 90 days following the closing date of the
issuance. As of July 31, 1999, the Company was not in compliance with this
requirement. If the common shares are not registered, the Company shall
pay the debenture holders damages in the amount of 2% of the amount of
outstanding debentures every 30 days. The amount of damages accrued and
charged to operations at July 31, 1999 was estimated to be $350,000 and is
included in accounts payable and accrued expenses in the accompanying
balance sheet.
The fair value of each warrant is estimated on the date of issuance using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the year ended July 31, 1999: expected volatility of
1.93%; risk-free interest rate of 5.6%; and expected lives of two years.
Aggregate maturities of long-term debt are as follows:
</TABLE>
<TABLE>
<CAPTION>
Year ending July 31,
<S> <C>
1999 $ 9,927
2000 1,716,310
---------------------------------------------------------------------------
$1,726,237
===========================================================================
</TABLE>
<TABLE>
<S> <C>
5. COMMITMENTS AND In conjunction with the Company's filing for bankruptcy (see Note 1), it
CONTINGENCIES: has abandoned its operating lease. Accordingly, the Company has charged
operations for the future minimum payments and the liability of
approximately $185,000 is included in accounts payable and accrued
expenses in the accompanying balance sheet.
The leases are subject to escalation for the Company's proportionate share
of increases in real estate taxes and other operating expenses. Rent
expense for the years ended July 31, 1999 and 1998 amounted to $204,586
and $33,378, respectively.
The Company entered into an agreement with an entity whereby the entity
will provide the Company with public and investor relations services.
Under the terms of the agreement, the Company will issue 6,000 shares of
common stock of the Company as compensation for services. At July 31,
1999, those services had not yet been provided.
6. STOCKHOLDERS' The Company is authorized to issue 5,000,000 shares of preferred stock
DEFICIENCY: with rights and preferences to be determined by the Company's board of
directors. As of July 31, 1999, no shares of preferred stock have been
issued.
On August 20, 1996, the Company issued 88,235 shares of common stock to
the stockholders of Samuel Hamann Graphix, Inc. in a transaction accounted
for as
</TABLE>
F-12
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
a reverse acquisition. As part of the reverse acquisition the Company
issued 75,520 shares of common stock to certain consultants for services.
These shares have been valued at the fair value at the date of issuance
($20.25 per common share). Accordingly, the Company recorded a charge to
operations at the time of issuance of $1,536,341. Certain share issuances
prior to the reverse acquisition were made by Samuel Hamann Graphix, Inc.
and the details of consideration for the issuances were not known by the
Company. The Company has addressed the situation by conducting an audit of
issued and outstanding shares of common stock. The Company is auditing
records received from prior management reflecting shares issued,
transferred or sold, apparently without fair consideration to the Company.
The Company issued stop transfer instructions as of November 18, 1997
concerning approximately 73,760 shares of common stock and had outstanding
stop transfer instructions as of October 31, 1998 concerning approximately
42,200 shares of common stock. These shares are part of the 75,520 shares
of common stock issued to the consultants discussed in the preceding
paragraph. The stop order transfers remain in effect until the holders of
the shares of common stock are able to satisfy the Company's concerns
and/or demonstrate that the current holders are holders in due course at
which time the stop orders are lifted on an individual basis.
On October 23, 1997, the Company made an offering of 16,000 shares of
common stock for $200,000; on October 31, 1997, an offering of 4,000
shares of common stock for $50,000; on December 10, 1997, an offering of
39,911 shares of common stock for $225,000; and on January 26, 1998, an
offering of 17,778 shares of common stock for $99,629. These offerings
were made pursuant to the claim of exemption under rule 504 under the
Securities Act of 1934. These offerings appear to exceed the limitation of
rule 504 of a maximum of $1,000,000 in any one-year period. The Company
intends to file a registration statement offering rescission to the
purchasers of these offerings.
At January 26, 1999, the stockholder that purchased these shares no longer
had the right to rescind that purchase.
7. STOCK OPTIONS AND The Company has outstanding warrants permitting the holders to purchase
STOCK WARRANTS: 16,789 shares of its common stock at prices ranging from $11.50 to $49.75
per share. These warrants were issued during the year ended July 31, 1998.
The warrants have varying expiration dates to January 14, 2001. Warrants
to purchase 56,202 common shares were outstanding at July 31, 1999. During
the year ended July 31, 1998, warrants to purchase 20,000 shares of common
stock, which were to expire, were extended. The extended warrants provide
for exercise prices ranging from $12.50 to $20.00 per share. The warrants
were determined to have a fair market value of approximately $165,000,
which was charged to operations during the year ended July 31, 1998.
During the year ended July 31, 1999, warrants to purchase 19,413 common
shares were issued at prices ranging from $8.00 to $14.75 per share.
During the year ended July 31, 1998, the Company adopted an incentive
stock option plan under which options to purchase shares of common stock
may be granted to certain key employees. The exercise price is based on
the fair market
</TABLE>
F-13
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
value of such shares as determined by the board of directors at the date
of the grant of such options.
In January 1999, the Company issued options to an employee to purchase
2,000 shares of common stock at an exercise price of $6.75 per share.
These options are exercisable for a ten-year period beginning November 30,
1999.
A summary of the status of the Company's options as of July 31, 1999 and
1998 is presented below:
</TABLE>
<TABLE>
<CAPTION>
July 31, 1999 1998
------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 4,000 $12.50 -- --
Granted 2,000 6.75 4,000 $12.50
------------------------------------------------------------------------------------------------------
OUTSTANDING AT END OF YEAR 6,000 $10.58 4,000 $12.50
======================================================================================================
Options exercisable at year-end 4,000 $12.50 4,000 $12.50
======================================================================================================
Weighted-average fair value of
options granted during the year -- $ 6.75 -- $11.00
======================================================================================================
</TABLE>
<TABLE>
<S> <C>
The following table summarizes information about fixed stock options
outstanding at July 31, 1999:
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ---------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12.50 4,000 8.8 $12.50 4,000 $12.50
$ 6.75 2,000 10.0 6.75 -- --
======================================================================================================
</TABLE>
F-14
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
<TABLE>
===================================================================================================================================
<S> <C>
The Company has elected to apply Accounting Principles Board Opinion No.
25 and related interpretations in accounting for its stock options and has
adopted the disclosure-only provisions of SFAS No. 123. Had the Company
elected to recognize compensation cost based on the fair value of the
options granted at the grant date as prescribed by SFAS No. 123, the
Company's net loss and loss per common share for the years ended July 31,
1999 and 1998 would have been as follows:
</TABLE>
<TABLE>
<CAPTION>
Year ended July 31, 1999 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss - as reported $(2,657,900) $(4,300,553)
======================================================================================================
Net loss - pro forma $(2,671,376) $(4,321,869)
======================================================================================================
Loss per share - as reported $ (3.81) $ (7.39)
======================================================================================================
Loss per share - pro forma $ (3.83) $ (7.43)
======================================================================================================
</TABLE>
<TABLE>
<S> <C>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for the year ended July 31, 1999:
expected volatility of 1.93%; risk-free interest rate of 5.7%; expected
lives of 10 years; and no payment of dividends expected.
8. INCOME TAXES: The Company recorded a deferred income tax asset for the tax effect of net
operating loss carryforwards and the temporary difference between the
carrying amount and tax bases of certain intangible assets, aggregating
approximately $3,500,000. In recognition of the uncertainty regarding the
ultimate amount of income tax benefits to be derived, the Company has
recorded a valuation allowance of $3,500,000 at July 31, 1999.
The Company has a net operating loss carryforward of approximately
$6,700,000 available to offset taxable income through the year 2014.
9. ADDITIONAL The Company's records and the records of its transfer agent differ with
INFORMATION: respect to the number of outstanding shares of the Company's common stock.
According to the transfer agent, the number of shares of common stock
outstanding is approximately 31,000 shares greater than the 710,367
indicated by the Company's records. The Company believes that its records
are correct and is in the process of resolving this difference. The number
of shares outstanding reflected in the Company's financial statements does
not include these shares or any adjustment which might be necessary to
resolve this difference.
</TABLE>
F-15
<PAGE>
TRANSFORMATION PROCESSING INC.
(DEBTOR-IN-POSSESSION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
10. SUBSEQUENT On February 18, 2000, the Company signed a letter of intent to be acquired
EVENTS: by eAutoclaims.com, Inc. in a transaction to be accounted for as a reverse
acquisition. The definitive terms, price and conditions of the proposed
acquisition have yet to be determined.
</TABLE>
F-16
<PAGE>
Exhibit 10.25
MERGER AGREEMENT AND PLAN OF
REORGANIZATION
BY AND AMONG
TRANSFORMATION PROCESSING, INC.
AND
eAUTOCLAIMS.COM, INC.
Dated April 24, 2000
<PAGE>
EXHIBITS
--------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
5.10 Form of Affiliate Agreement
6.2(c) Form of Opinion of Johnson, Blakely, Pope, Bokor, Ruppel
& Burns P.A.
6.3(c) Form of Opinion of Snow Becker Krauss P.C.
-i-
<PAGE>
SCHEDULES
NUMBER DESCRIPTION
- ------ -----------
Schedule 1.6(d)(iii) Options Issued and Outstanding under the Employee Stock
Option Plan of Transformation Processing, Inc. ("TPI")
Schedule 2.3 Options, Warrants, etc. Issued and Outstanding of
eAutoclaims.com, Inc. (the "Company")
Schedule 2.4 Subsidiaries of Company
Schedule 2.6 Outstanding Taxes, Assessments and Levies of Company
Schedule 2.7 Litigation and Proceedings Against Company
Schedule 2.8 Conflicts, Required Filings and Consents of Company
Schedule 3.4 Subsidiaries of TPI
Schedule 3.6 Outstanding Taxes, Assessments and Levies of TPI
Schedule 3.8 Conflicts, Required Filings and Consents of TPI
Schedule 5.6 List of Affiliates
-ii-
<PAGE>
SCHEDULE 1.6(d)(III) Options Issued and Outstanding under Employee
Stock Option Plan of Transformation Processing, Inc.
Warren Strutt 2,000 at $6.75
Martin Foest 2,000 at $12.50
30
<PAGE>
SCHEDULE 2.3 COMPANY OPTIONS, WARRANTS, ETC. ISSUED AND OUTSTANDING
------------------------------------------------------
The number of authorized shares of Company Common Stock will be increased to
12,555,000 prior to Closing.
11,980,000 shares of Company Common Stock will be issued and outstanding as of
Closing.
575,000 shares of Company Common Stock are reserved for employee stock options.
31
<PAGE>
SCHEDULE 2.4 SUBSIDIARIES OF COMPANY
-----------------------
The Company has subscription rights to 50% of the authorized shares of
SalvageConnection.com, Inc., a Delaware corporation, none of which shares have
as yet been issued.
32
<PAGE>
SCHEDULE 2.6 OUTSTANDING TAXES, ASSESSMENTS AND LEVIES OF COMPANY
----------------------------------------------------
No exceptions.
33
<PAGE>
SCHEDULE 2.7 LITIGATION AND PROCEEDINGS AGAINST COMPANY
------------------------------------------
No exceptions.
34
<PAGE>
SCHEDULE 2.8 CONFLICTS, REQUIRED FILINGS AND CONSENTS OF COMPANY
---------------------------------------------------
The Company has numerous contracts with other parties, including approximately
1,700 contracts with repair shops. It appears that the Surviving Corporation
will automatically be the successor to the Company's interests under these
contracts as a result of the Merger without the need for execution of any
assignment documents.
The Company is currently negotiating an Asset Purchase/Software Development
Agreement with Offshore Websites, Inc. The terms of this agreement will provide
that a successor in interest to the Company will acquire all of the rights and
obligations of the Company under the agreement.
35
<PAGE>
SCHEDULE 3.4 Subsidiaries of TPI
None
36
<PAGE>
SCHEDULE 3.6 Outstanding Taxes, Assessments and Levies of TPI
None
37
<PAGE>
SCHEDULE 3.8 Conflicts, Required Filings and Consents of TPI
None
38
<PAGE>
MERGER AGREEMENT AND PLAN OF REORGANIZATION
This MERGER AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made and entered into as of April 24, 2000, by and among Transformation
Processing, Inc., a Nevada corporation ("TPI"), eAutoclaims.com, Inc., a
Delaware corporation (the "Company") and the shareholders of the Company listed
on the signature page hereto (the "Shareholders").
RECITALS
A. The Boards of Directors of each of the Company and TPI believe it is
in the best interests of each company and their respective stockholders that TPI
acquire the Company through the statutory merger of the Company with and into
TPI (the "Merger") and, in furtherance thereof, have approved the Merger and the
transactions contemplated hereby upon the terms and subject to the conditions
set forth herein.
B. Pursuant to the Merger and subject to the terms and conditions of
this Agreement, TPI shall acquire, at the Effective Time (as defined below) from
the Shareholders all of the then issued and outstanding shares of capital stock
and derivative securities of the Company (the "Company Securities") in exchange
for shares of common stock of TPI.
C. The Company and TPI desire to make certain representations and
warranties and other agreements in connection with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations and warranties set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby, the parties agree as
follows:
ARTICLE 1 - THE MERGER
1.1 THE MERGER.
-----------
At the Effective Time (as defined in Section 1.2), and subject to and
upon the terms and conditions of this Agreement and the applicable provisions of
the Delaware General Corporation Law ("Delaware Law") and the Nevada General
Corporation Law ("Nevada Law"), the Company shall be merged with and into TPI,
the separate corporate existence of the Company shall cease and TPI shall
continue as the surviving corporation. TPI, as the surviving corporation with
the operating business of the Company after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation."
<PAGE>
1.2 CLOSING DATE; EFFECTIVE TIME.
-----------------------------
Unless this Agreement is earlier terminated pursuant to Section 7.1,
the closing of the Merger (the "Closing") will take place as promptly as
practicable, but no later than five (5) business days, following satisfaction or
waiver of the conditions set forth in Article 6, which shall be at the offices
of Snow Becker Krauss P.C., 605 Third Avenue, New York, New York 10158-0125,
unless another place or time is agreed to by TPI and the Company. The date upon
which the Closing actually occurs is herein referred to as the "Closing Date".
As promptly as practicable following the Closing Date, the parties
hereto shall cause the Merger to be consummated by filing the Certificate of
Merger (or like instrument) with the Secretary of State of the State of Delaware
(the "Certificate of Merger"), in accordance with the relevant provisions of
applicable law and such other certificates of merger or other documents as shall
be necessary to file in the State of Nevada by the Company (the time of
acceptance by the Secretary of State of the State of Delaware of such filing
being referred to herein as the "Effective Time").
1.3 EFFECT OF THE MERGER
--------------------
At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of Delaware Law and Nevada Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of the Company and TPI shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and TPI shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
------------------------------------
(a) The Certificate of Incorporation of TPI, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Certificate of Incorporation.
(b) The By-laws of TPI, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter amended
as provided by law and such By-laws.
1.5 DIRECTORS AND OFFICERS: SURVIVING CORPORATION. The initial
directors of the Surviving Corporation will be Jeffrey Dickson (Chairman), Eric
Seidel, Chris Korge, Nick Trovich and an
2
<PAGE>
appointee of Thompson Kernaghan, each to hold office until replaced or otherwise
in accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation. The officers of the Company immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, each to hold office until
replaced or otherwise in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation. At the Closing, each of the initial
directors (listed above) of the Surviving Corporation shall receive, pursuant to
the terms of a written option agreement, options to purchase 2,000 shares of
TPI's Common Stock at $2.00 per share.
1.6 CONVERSION OF SHARES.
---------------------
At the Effective Time, by virtue of the Merger, or otherwise at such
time and subject to such conditions as are set forth herein, and without any
action on the part of TPI, the Company or any holder of any Company Securities:
(a) All of the shares of common stock of the Company (including
options to purchase Common Stock, which, for such purposes, shall be treated
on an as exercised basis), after recapitalization as set forth in Section
2.3, will be exchanged for an aggregate of 5,980,000 shares of TPI's Common
Stock, $.001 par value. The common share exchange ratio shall be one (1)
shares of the Company's common stock (including options to purchase common
stock) for one (1) share of TPI Common Stock.
1.7 DISSENTING SHARES.
------------------
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Securities held by a holder who has demanded and perfected
appraisal or dissenters' rights for such shares in accordance with Delaware Law
and who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal or dissenters' rights ("Dissenting Shares"), shall not be exchanged
for TPI Securities pursuant to Section 1.6, but the holder thereof shall only be
entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection 1.7(a), if any holder
of shares of Company Securities who demands appraisal of such shares under
Delaware Law shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall automatically be,
pursuant to the Merger, exchanged for TPI Securities and cash in lieu of
fractional shares as provided in Section 1.6, without interest thereon, upon
surrender of the certificate representing such shares pursuant to Section 1.8.
(c) The Company shall give TPI (i) prompt notice of any written demands
for appraisal of any shares of Company Common Stock, withdrawals of such
demands, and any other instruments
3
<PAGE>
served pursuant to Delaware Law and received by the Company in connection
therewith, and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under Delaware Law.
1.8 SURRENDER OF CERTIFICATES.
--------------------------
(a) EXCHANGE AGENT. Prior to the Effective Time, TPI shall designate a
bank or trust company reasonably acceptable to the Company to act as exchange
agent (the "Exchange Agent") in the Merger. TPI shall pay all charges and
expenses of Exchange Agent. The Exchange Agent will be entrusted with exchanging
the Company Common Stock with the TPI Common Stock, as detailed below.
(b) TPI TO PROVIDE TPI SECURITIES. As of the Effective Time, TPI shall
deposit into an escrow account with the Exchange Agent for the benefit of the
Company's shareholders the aggregate number of shares of Common Stock issuable
pursuant to Section 1.6 in exchange for the outstanding shares of Company Common
Stock.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
certificates representing the Company Common Stock (the "Certificates" or,
individually, "Certificate") will be surrendered to the Exchange Agent. Upon
surrender of a Certificate to the Exchange Agent or to such other agent or
agents as may be appointed by TPI, the holder of such Certificate shall be
entitled to certificates representing the number of whole shares of Common Stock
and the Certificate so surrendered shall forthwith be owned in the name of TPI.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Company Common Stock will be deemed from and after
the Effective Time, for all corporate purposes, to represent solely ownership of
the number of full shares of TPI Securities into which such Company Stock shall
have been so exchanged.
(d) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.8, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of TPI Securities or Company Securities for
any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK.
----------------------------------------------------
All shares of Common Stock issued pursuant to the Merger in exchange
for shares of Company Common Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock.
4
<PAGE>
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES.
---------------------------------------
In the event any certificates evidencing shares of Company Common Stock
shall have been lost, stolen or destroyed, the Company shall issue in exchange
for such lost, stolen or destroyed certificates, upon receiving notice from the
holder thereof at least five (5) days before the Effective Time and upon the
making of an affidavit in such form as is acceptable to the Company and the
Exchange Agent of that fact by such holder, new shares of Company Common Stock;
provided, however, that Company, as a condition precedent to the issuance
thereof, shall require the owner of such lost, stolen or destroyed certificates
to deliver a bond in such sum as it may reasonably direct as indemnity against
any claim that may be made with respect to the certificates alleged to have been
lost, stolen or destroyed. Subsequent to the issuance of new shares of Company
Common Stock, such shares shall be surrendered to the Exchange Agent in
accordance with Section 1.8.
1.11 TAX AND ACCOUNTING CONSEQUENCES.
--------------------------------
It is intended by the parties hereto that the Merger shall constitute a
tax-free reorganization within the meaning of Section 368(a)(1)(B) the Code.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION.
-------------------------------------------
If, at any time after the Effective Time, any such further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and TPI, the
officers and directors of the Company and TPI are fully authorized in the name
of their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SHAREHOLDERS
The Company hereby represents and warrants, jointly and severally with
the Shareholders, to TPI, as follows:
2.1 ORGANIZATION, STANDING AND POWER.
---------------------------------
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company has the
corporate power to own its properties and to carry on its business as now being
conducted. The Company has made available true and correct copy of its Articles
of Incorporation and Bylaws, each as amended to date, to TPI.
5
<PAGE>
2.2 AUTHORITY.
----------
The Company has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the approval of the
Merger and this Agreement by the Company's shareholders. The Company's Board of
Directors has unanimously approved the Merger and this Agreement. This Agreement
has been duly executed and delivered by the Company and constitutes the valid
and binding obligation of the Company, enforceable in accordance with its terms
except (a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, and (b) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.
2.3 COMPANY CAPITAL STRUCTURE.
--------------------------
The authorized securities of the Company consists of 10,000,000 shares
of Company Common Stock, $0.0001 par value and no shares of Preferred Stock. As
of February 7, 2000, 9,750,000 shares of Company Common Stock have been issued
and are outstanding. No shares of Company Common Stock are subject to
outstanding convertible debt securities. The Company will recapitalize its
common stock to convert it outstanding shares of Common Stock into 5,980,000
shares of Common Stock prior to the Effective Date. All outstanding shares of
Company Common Stock are duly authorized, validly issued, fully paid and
non-assessable and are not subject to preemptive rights created by statute, the
Articles of Incorporation or By-laws of the Company or any agreement to which
the Company is a party or by which it is bound. Other than as set forth on
SCHEDULE 2.3 hereto, there are no options, warrants, calls, rights, commitments
or agreements of any character to which the Company is a party or by which it is
bound, obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company to grant, extend or enter
into any such option, warrant, call, right, commitment or agreement.
2.4 SUBSIDIARIES.
-------------
Except as set forth on SCHEDULE 2.4 hereto, the Company does not have
and has never had any subsidiaries or affiliated companies and does not
otherwise own and has never otherwise owned any shares of capital stock or any
interest in, or control, directly or indirectly, any other corporation,
partnership, association, joint venture or other business entity.
6
<PAGE>
2.5 COMPANY FINANCIAL STATEMENTS.
-----------------------------
As soon as practicable following the date of this Agreement, the
Company shall cause to be delivered to TPI the Company's audited balance sheet
as of December 31, 1999, and the related unaudited statements of operations and
cash flows for January and February 2000 (collectively, the "Company
Financials"). At such time as the Company Financials are delivered, the Company
will represent and warrant to TPI that the Company Financials are correct in all
material respects and have been prepared in accordance with GAAP applied on a
basis consistent throughout the periods indicated and consistent with each
other. The Company Financials will present fairly the financial condition and
operating results of the Company as of the date and during the period indicated
therein.
2.6 TAXES.
------
All federal, state and other returns and reports required to be filed
by the Company have been duly filed by the Company and except as set forth on
SCHEDULE 2.6 hereto, all material taxes and other assessments and levies
(including all interest and penalties) including, without limitation, income,
franchise, real estate, sales, gross receipts, use and services taxes, and
employment and employee withholding taxes, owed by the Company have been paid in
full by the Company unless being contested in good faith. Except as set forth on
SCHEDULE 2.6, all such taxes and other assessments and levies which the Company
is required by law to have withheld, collected or deposited have been duly
withheld and collected and deposited with the proper governmental authorities or
segregated and set aside for such payment, and if so segregated and set aside,
shall be so paid by the Company as required by law.
2.7 LITIGATION.
-----------
Except as set forth on in SCHEDULE 2.7 hereto, there is no material
action, suit or proceeding of any nature pending or to the best of the Company's
knowledge threatened against the Company, its properties or any of its officers
or directors, in their respective capacities as such.
2.8 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
-------------------------------------------
(a) Except as set forth on SCHEDULE 2.8 hereto, the execution and
delivery of this Agreement by the Company does not, and the performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not, (i) conflict with or violate the Articles of
Incorporation or By-laws of the Company, (ii) conflict with or violate any
federal, foreign, state or provincial law, rule, regulation, order, judgment or
decree (collectively, "Laws") applicable to the Company or any of its
subsidiaries or by which its or any of their respective properties are bound or
affected, or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
impair the Company's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under,
7
<PAGE>
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien on any of the properties or
assets of the Company or any of its subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties are bound or affected, except in the case of clauses
(ii) and (iii) for any such conflicts, violations, breaches, defaults or other
occurrences that do not have a Material Adverse Effect, as defined in Section
6.2(a) below.
(b) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with notification to,
any domestic or foreign governmental or regulatory authority except (i) for the
applicable requirements, if any, of the Securities Act of 1933, as amended (the
"Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
state securities laws ("Blue Sky Laws"), the pre-merger notification
requirements of the Hart-Scott Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the legal requirements of any foreign jurisdiction
requiring notification in connection with the Merger and the transactions
contemplated hereby and the filing and recordation of appropriate merger or
other documents as required by Delaware Law and Nevada Law, and (ii) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, either (A) would not prevent or materially
delay consummation of the Merger or otherwise prevent or materially delay the
Company from performing its obligations under this Agreement, or (B) do not have
a Material Adverse Effect.
2.9 YEAR 2000 COMPLIANCE.
---------------------
The Company has taken reasonable steps to ensure that the Company's
primary computing system and software (i) will operate without substantial
errors relating to date data, including any error relating to, or the product
of, date data which represents or references different centuries or more than
one century; (ii) will be capable of correctly processing, providing, receiving,
and displaying accurate date data, and exchanging accurate date data with all
products with which it is currently exchanging date data; (iii) will not
abnormally end, corrupt data, or produce incorrect or invalid results as a
result of date data, including date data which represents or references
different centuries or more than one century or as a result of multi-century
date calculations, sequencing, or comparisons; (iv) will be capable of date data
century recognition and calculations which accommodate same century and
multi-century formulas and date values and date data interface values that
reflect the century; (v) will correctly recognize leap years, including the year
2000, and will handle all dates in leap years appropriately; and (vi) will
properly interpret, as to century, all date data currently stored or accessible
to it.
8
<PAGE>
2.10 STATUS OF MATERIAL CONTRACTS
----------------------------
The Company is not in default of, nor is in anticipatory breach of any
of its material contracts with third parties, nor does the Company have any
reason to believe that it will be so in the future.
2.11 OWNERSHIP OF PROPERTY, INDEMNIFICATION
--------------------------------------
The Company owns, and at the Closing shall have, good, valid and
marketable title or valid license to any property, including intellectual
property, that it uses in the operation of its business, free any clear of all
mortgages, liens, pledges, charges or encumbrances, except (i) the lien of
current taxes no yet due and payable and (ii) such imperfections of title, liens
and easements as do not and would not reasonably be expected to have a Material
Adverse Effect on the Company. With regard to any licenses to use property,
including intellectual property, the Company has valid and enforceable license
agreements with the third party owners of the property, and none of such
intellectual property infringes upon the proprietary rights of any third party.
In this regard, the Company agrees to indemnify and hold harmless TPI and the
Surviving Corporation from any liabilities, damages or expenses (including
attorneys' fees) that it might incur by reason of a breach of this warranty.
2.12 ERISA PLANS
-----------
The Company does not have any plans that would be covered by the
federal ERISA law.
2.13 RESTRICTIONS ON BUSINESS ACTIVITIES
-----------------------------------
To the Company's knowledge, there is no agreement, judgment,
injunction, order or decree binding upon the Company which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of the Company to compete with any other
person or the conduct of business by the Company as currently conducted or as
proposed to be conducted by the Company.
2.14 BROKERS' AND FINDER' FEES.
--------------------------
The Company has not incurred, nor will the Company incur, directly or
indirectly, any liability for brokerage or finders' fees or agent's commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
9
<PAGE>
2.15 GOVERNMENTAL AUTHORIZATION; COMPLIANCE WITH LAWS
------------------------------------------------
The Company has obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of any
applicable governmental entity or other regulatory agency, (i) pursuant to which
the Company currently operates or holds any interest in any of its properties or
(ii) that is required for the operation of the Company's business or the holding
of any such interest ((i) and (ii) herein collectively referred to as the
"Company Authorizations"), and all of such Company Authorizations are in full
force and effect, except where the failure to obtain or have any such Company
Authorizations could not reasonably be expected to have a Material Adverse
Effect on the Company. The Company is in material compliance with all applicable
laws, statutes, orders, rules and regulations of any applicable governmental
entity or other regulatory agency relating to the Company except where the
failure to do so would not have a Material Adverse Effect and the Company has
not received notice of any violations of any of the above.
ARTICLE 3 - REPRESENTATIONS AND
WARRANTIES OF TPI
TPI hereby represents and warrants to the Company and the Shareholders
as follows:
3.1 ORGANIZATION, STANDING AND POWER.
---------------------------------
TPI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. TPI has the corporate power to
own its properties and to carry on its business as now being conducted. TPI has
made available true and correct copies of its Certificates of Incorporation and
By-Laws, each as amended, to the Company.
3.2 AUTHORITY.
----------
Subject only to the requisite stockholders' approval of (a) the
amendment of the Certificate of Incorporation changing the name of TPI, (b) the
election of directors and officers of TPI and Surviving Corporation as outlined
in Section 1.5 hereof, immediately prior to the Effective Time, (c) the Merger
and (d) this Agreement, TPI has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of TPI, subject only to the approval of the Merger
and this Agreement by TPI's stockholders. TPI's Board of Directors has
unanimously approved the Merger and this Agreement. This Agreement has been duly
executed and delivered by TPI and constitutes the valid and binding obligations
of TPI, enforceable in accordance with its terms except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, and
(b) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
10
<PAGE>
3.3 TPI CAPITAL STRUCTURE.
----------------------
(a) The authorized stock of TPI consists of 50,000,000 shares of TPI
Common Stock, $.001 par value and 5,000,000, shares of Preferred Stock, $.001
par value. As of the date of this Agreement, approximately 4,241,470 shares of
TPI Common Stock and no shares of Preferred Stock are issued and outstanding.
All such shares of stock have been duly authorized and have been validly issued
and are fully paid and non-assessable. No shares of TPI Securities are subject
to outstanding convertible debt securities, other than debentures with a face
amount of $1,907,500 and 905,018 warrants. It is anticipated that, as a part of
the reorganization, these debentures and warrants will be converted into an
aggregate of 4,100,000 shares of TPI Common Stock. Other than as set forth in
this Section 3.3, there are no options, warrants, calls, rights, commitments or
agreements of any character to which TPI is a party or by which it is bound,
obligating TPI to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of TPI or obligating TPI to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement.
(b) The TPI Common Stock, when issued in accordance with the terms and
provisions of this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable.
3.4 SUBSIDIARIES.
-------------
Except as set forth on SCHEDULE 3.4 hereto, TPI does not have and has
never had any subsidiaries or affiliated companies and does not otherwise own
and has never otherwise owned any shares of capital stock or any interest in, or
control, directly or indirectly, any other corporation, partnership,
association, joint venture or other business entity.
3.5 TAXES.
------
All federal, state and other returns and reports required to be filed
by TPI have been duly filed by TPI and except as set forth on SCHEDULE 3.6
hereto, all material taxes and other assessments and levies (including all
interest and penalties) including, without limitation, income, franchise, real
estate, sales, gross receipts, use and services taxes, and employment and
employee withholding taxes, owed by TPI have been paid in full by TPI unless
being contested in good faith. Except as set forth on SCHEDULE 3.6, all such
taxes and other assessments and levies which TPI is required by law to have
withheld, collected or deposited have been duly withheld and collected and
deposited with the proper governmental authorities or segregated and set aside
for such payment, and if so segregated and set aside, shall be so paid by TPI as
required by law.
11
<PAGE>
3.6 LITIGATION.
-----------
There is no action, suit or proceeding of any nature pending or to the
best of TPI's knowledge threatened against TPI or any of its subsidiaries, their
respective properties or any of their respective officers or directors, in their
respective capacities as such.
3.7 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
-------------------------------------------
(a) Except as set forth on SCHEDULE 3.8 hereto, the execution and
delivery of this Agreement by TPI and Merger Sub does not, and the performance
of this Agreement by TPI and the consummation by TPI of the transactions
contemplated hereby will not, (i) conflict with or violate the Certificate of
Incorporation or By-laws of TPI, (ii) conflict with or violate any Laws
applicable to TPI or any of its subsidiaries or by which they or any of their
respective properties are bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair TPI's or any of its subsidiaries'
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien on any of the properties or assets of TPI or
any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which TPI or any of its subsidiaries is a party or by which TPI or
any of its subsidiaries or its or any of their respective properties are bound
or affected, except in the case of clauses (ii) and (iii) for any such
conflicts, violations, breaches, defaults or other occurrences that do not have
a Material Adverse Effect, as defined in Section 6.2 below.
(b) The execution and delivery of this Agreement and the consummation
of the Merger contemplated thereby, by TPI and Merger Sub do not, and the
performance of this Agreement by TPI will not, require any consent, approval,
authorization or permit of, or filing with notification to, any domestic or
foreign governmental or regulatory authority except (i) for the applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws,
the pre-merger notification requirements of the HSR Act, the legal requirements
of any foreign jurisdiction requiring notification in connection with the Merger
and the transactions contemplated hereby and the filing and recordation of
appropriate merger or other documents as required by the laws of the states of
Delaware and Nevada, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
either (A) would not prevent or materially delay consummation of the Merger or
otherwise prevent or materially delay TPI from performing its obligations under
this Agreement, or (B) do not have a Material Adverse Effect (as defined below).
12
<PAGE>
3.8 YEAR 2000 COMPLIANCE.
---------------------
TPI has taken reasonable steps to ensure that TPI's primary computing
system and software (i) will operate without substantial errors relating to date
data, including any error relating to, or the product of, date data which
represents or references different centuries or more than one century; (ii) will
be capable of correctly processing, providing, receiving, and displaying
accurate date data, and exchanging accurate date data with all products with
which it is currently exchanging date data; (iii) will not abnormally end,
corrupt data, or produce incorrect or invalid results as a result of date data,
including date data which represents or references different centuries or more
than one century or as a result of multi-century date calculations, sequencing,
or comparisons; (iv) will be capable of date data century recognition and
calculations which accommodate same century and multi-century formulas and date
values and date data interface values that reflect the century; (v) will
correctly recognize leap years, including the year 2000, and will handle all
dates in leap years appropriately; and (vi) will properly interpret, as to
century, all date data currently stored or accessible to it.
3.9 STATUS OF MATERIAL CONTRACTS
----------------------------
TPI is not in default of, nor is in anticipatory breach of any of its
material contracts with third parties, not has any reason to believe that it
will be so in the future.
3.10 OWNERSHIP OF PROPERTY, INDEMNIFICATION
--------------------------------------
TPI owns, and at the Closing shall have, good, valid and marketable
title, or valid license, to any property, including intellectual property, that
it uses in the operation of its business, free any clear of all mortgages,
liens, pledges, charges or encumbrances, except (i) the lien of current taxes no
yet due and payable and (ii) such imperfections of title, liens and easements as
do not and would not reasonably be expected to have a Material Adverse Effect on
TPI. With regard to any licenses to use property, including intellectual
property, TPI has valid and enforceable license agreements with the third party
owners of the property and none of such intellectual property infringes upon the
proprietary rights of any third party. In this regard, TPI agrees to indemnify
and hold harmless the Company, the Shareholders and the Surviving Corporation
from any liabilities, damages or expenses (including attorney's fees) that it
might incur by reason of a breach of this warranty.
3.11 ERISA PLANS
-----------
TPI does not have any plans that would be covered by the federal ERISA
law.
3.12 RESTRICTIONS ON BUSINESS ACTIVITIES
-----------------------------------
To TPI's knowledge, there is no agreement, judgment, injunction, order
or decree binding upon TPI which has or could reasonably be expected to have the
effect of prohibiting or materially
13
<PAGE>
impairing any current or future business practice of TPI to compete with any
other person or the conduct of business by TPI as currently conducted or as
proposed to be conducted by TPI.
3.13 BROKERS' AND FINDER' FEES.
--------------------------
TPI has not incurred, nor will TPI incur, directly or indirectly, any
liability for brokerage or finders' fees or agent's commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.14 GOVERNMENTAL AUTHORIZATION; COMPLIANCE WITH LAWS
------------------------------------------------
TPI has obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of any
applicable governmental entity or other regulatory agency, (i) pursuant to which
TPI currently operates or holds any interest in any of its properties or (ii)
that is required for the operation of TPI's business or the holding of any such
interest ((i) and (ii) herein collectively referred to as the "TPI
Authorizations"), and all of such TPI Authorizations are in full force and
effect, except where the failure to obtain or have any such TPI Authorizations
could not reasonably be expected to have a Material Adverse Effect on TPI. TPI
is in material compliance with all applicable laws, statutes, orders, rules and
regulations of any applicable governmental entity or other regulatory agency
relating to TPI except where the failure to do so would not have a Material
Adverse Effect and TPI has not received notice of any violations of any of the
above.
ARTICLE 4 - CONDUCT OF BUSINESS PENDING THE APPROVAL DATE
4.1 CONDUCT OF BUSINESS BY THE COMPANY AND TPI PENDING THE APPROVAL
DATE.
----------------------------------------------------------------
Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Approval Date or earlier termination of this Agreement,
unless the parties shall otherwise agree in writing, the Company and TPI shall
each:
(a) conduct its business in the ordinary and usual course of business
and consistent with past practice;
(b) not (i) amend or propose to amend its Certificate of Incorporation
or By-laws, (ii) split, combine or reclassify its outstanding capital stock or
declare, set aside or pay any dividend or distribution payable in cash, stock,
property or otherwise, (iii) spin-off any assets or businesses, (iv) engage in
any transaction for the purpose of effecting a recapitalization of any party or
subsidiary, or (v) engage in any transaction or series of related transactions
which has a similar effect to any of the foregoing;
14
<PAGE>
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of capital stock of any class or any
debt or equity securities convertible into or exchangeable for such capital
stock or amend or modify the terms and conditions of any of the foregoing;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money, except in the ordinary course of business, (ii)
redeem, purchase, acquire or offer to purchase or acquire any shares of its
capital stock, other than as required by the governing terms of such securities,
(iii) take or fail to take any action which action or failure to take action
would cause the Company or its shareholders (except to the extent that any
shareholders receive cash in lieu of fractional shares) to recognize gain or
loss for federal income tax purposes as a result of the consummation of the
Merger, (iv) make any acquisition of any assets (except in the ordinary course
of business) or businesses, (v) sell any assets (except in the ordinary course
of business) or businesses, or (vi) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact its business
organization and goodwill, keep available the services of its present officers
and key employees, and preserve the goodwill and business relationships with
suppliers, distributors, customers, and others having business relationships
with the Company or TPI and not engage in any action, directly or indirectly,
with the intent to impact adversely the transactions contemplated by this
Agreement;
(f) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors or officers;
(g) not increase the rate of remuneration payable to any of its
directors or officers, except in the customary and usual course of business and
consistent with past practices, or agree to do so;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except in the
ordinary and usual course of business, consistent with past practices or as
required to comply with changes in applicable law;
(i) file with the SEC all forms, statements, reports and documents
(including all exhibits, amendments and supplements thereto) required to be
filed by it pursuant to the Exchange Act; and
15
<PAGE>
(j) maintain with financially responsible insurance companies insurance
on its tangible assets and its businesses in such amounts and against such risks
and losses as are consistent with past practice.
4.2 CERTAIN ACTIONS.
----------------
Except with respect to this Agreement and the transactions contemplated
hereby and the discussions with an automobile glass repair network vendor, the
Company and TPI shall not, directly or indirectly, solicit any Acquisition
Proposal. "ACQUISITION PROPOSAL" shall mean any tender offer or exchange offer
or any proposal for a merger, acquisition of all of the stock or assets of, or
other business combination involving the acquisition of, such party or any of
its subsidiaries, or the acquisition of a substantial equity interest in, or a
substantial portion of the assets of, such party or any of its subsidiaries. The
Company and TPI shall not, directly or indirectly, furnish to any third party
any non-public information that it is not legally obligated to furnish,
negotiate with respect to, or enter into any agreement with respect to, any
Acquisition Proposal, but may communicate information about such an Acquisition
Proposal to its stockholders if and to the extent that it is required to do so
in order to comply with its legal obligations. The Company and TPI, as
applicable, shall promptly advise the other parties hereto following the receipt
of any Acquisition Proposal and the details thereof, and advise such other
parties hereto of any developments with respect to such Acquisition Proposal
promptly upon the occurrence thereof. The Company and TPI shall (a) immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any person or entity conducted heretofore with respect to any
of the foregoing, and (b) direct and use its reasonable efforts to cause all of
its investment bankers, financial advisors, attorneys, accountants, consultants
or other representatives not to engage in any of the foregoing.
ARTICLE 5 - ADDITIONAL AGREEMENTS
5.1 STOCKHOLDERS' MEETINGS.
-----------------------
Subject to applicable law, each of the Company and TPI, through its
respective Boards of Directors, shall, in accordance with applicable law and
subject to the fiduciary duties of their respective Boards of Directors under
applicable law as determined by such directors in good faith after consultation
with and based upon the advice of outside counsel obtain the consents and
approvals of their respective Boards of Directors and/or shareholders as
required by law to effect this Merger.
5.2 ACCESS TO TPI/COMPANY INFORMATION.
----------------------------------
Subject to any applicable contractual confidentiality obligations
(which the Company and TPI shall use their best efforts to cause to be waived),
Company and TPI shall afford each other and their
16
<PAGE>
respective accountants, counsel and other representatives, reasonable access
during normal business hours during the period prior to the Effective Time to
(a) all of their respective properties, books, contracts, agreements and
records, and (b) all other information concerning the business, properties and
personnel (subject to restrictions imposed by applicable law) of Company and
TPI, as applicable, as may be reasonably requested.
5.3 PUBLIC DISCLOSURE
-----------------
No disclosure (whether or not in response to an inquiry) of the
existence or nature of this Agreement shall be made by any party hereto unless
approved in writing by duly authorized officers of both TPI and the Company, or
of any third parties identified in such disclosure, prior to release, provided
that such approval shall not be unreasonably withheld and subject in any event
to Company's and TPI's obligations to comply with applicable securities laws and
NASDAQ or such other stock market regulations as applicable, in order to satisfy
the listing and disclosure requirements of all such exchanges or markets where
TPI's securities are listed.
5.4 REASONABLE EFFORTS/CONSENTS.
----------------------------
Subject to the terms and conditions provided in this Agreement, each of
the parties hereto shall use its reasonable efforts to take promptly, or cause
to be taken, all actions, and to do promptly, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby to obtain all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to the
parties hereto the benefits contemplated by this Agreement.
5.5 NOTIFICATION OF CERTAIN MATTERS.
--------------------------------
The Company shall give prompt notice to TPI, and TPI shall give prompt
notice to the Company, of (a) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which is likely to cause any representation or
warranty of the Company or TPI respectively, contained in this Agreement to be
untrue or inaccurate in any material respect at or prior to the Effective Time
except as contemplated by this Agreement (including the schedules of the Company
attached hereto), and (b) any failure of the Company or TPI, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.5 shall not limit or otherwise affect any
remedies available to the party receiving such notice.
17
<PAGE>
5.6 AFFILIATE AGREEMENT.
--------------------
SCHEDULE 5.6 hereto sets forth those persons who, in the Company's
reasonable judgment, are "affiliates" of the Company within the meaning of Rule
145 (each such person an "Affiliate") promulgated under the Act ("Rule 145").
The Company shall provide TPI such information and documents as TPI shall
reasonably request for purposes of reviewing such list. The Company has
delivered or shall cause to be delivered to TPI prior to the Approval Date from
the Company's Affiliates an executed affiliate agreement substantially in the
form attached hereto as EXHIBIT 5.6 (the "Affiliate Agreement"). TPI shall be
entitled to place appropriate legends on the certificates evidencing any TPI
Common Stock to be received by Affiliates of the Company pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for TPI Common Stock and TPI Securities consistent with the terms
of such Affiliate Agreement.
5.7 BLUE SKY LAWS.
-------------
TPI shall take such steps as may be necessary to comply with the
securities and Blue Sky Laws of all jurisdictions which are applicable to the
issuance of the TPI Securities pursuant hereto. The Company shall use its best
efforts to assist TPI as may be necessary to comply with the securities and Blue
Sky Laws of all jurisdictions which are applicable in connection with the
issuance of TPI Securities pursuant hereto.
5.8 INDEMNIFICATION AND INSURANCE.
------------------------------
(a) TPI and the Company agree that all rights to indemnification
existing in favor of the present or former directors, officers and employees of
the Company (as such) or any of its subsidiaries or present or former directors
of the Company or any of its subsidiaries serving or who served at the Company's
or any of its subsidiaries' request as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, as provided in the Company's Articles of Incorporation or
By-laws, or the Certificate of Incorporation or By-laws (or similar governing
documents) of any of the Company's subsidiaries and any indemnification
agreements as in effect as of the date hereof with respect to matters occurring
at or prior to the Effective Time shall survive the Merger and shall continue in
full force and effect and without modification (other than modifications which
would enlarge the indemnification rights) for a period of not less than the
statute of limitations applicable to such matters, and the Surviving Corporation
shall comply fully with its obligations hereunder and thereunder.
(b) The officers and directors of TPI and the Surviving Corporation
promptly after such person is elected as an officer or director shall amend the
TPI's liability insurance to include the officers and directors of TPI and
Surviving Corporation set forth on SCHEDULE 5.8 hereto.
18
<PAGE>
(c) In the event the Surviving Corporation or TPI or any of their
respective successors or assigns (i) consolidates with or merges into any other
entity and is not the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers all or substantially all of its
properties and assets to any person or entity, proper provisions shall be made
so that the successors and assigns of the Surviving Corporation or TPI, as
appropriate, assume the obligations set forth in this Section 5.8.
ARTICLE 6 - CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
-------------------------------------------------------------
The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of the following conditions, any of which may be deferred, in writing by
both parties and/or waived:
(a) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect;
(b) REGULATORY APPROVALS AND THIRD PARTY CONSENTS. All governmental and
third party consents, orders and approvals legally required for the consummation
of the Merger and the transactions contemplated hereby; and
(c) AUDITED FINANCIAL STATEMENTS. The parties shall have completed and
received audited financial statements of the other party for the period, for the
Company, ending December 31, 1999 and, for TPI the fiscal years ended July 31,
1998 and 1999.
6.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF TPI.
------------------------------------------------
The obligations of TPI to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Effective Time of each of the following conditions, any of which may be
waived, in writing, exclusively by TPI:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects on and as of the date made and the Closing Date, except for
changes contemplated by this Agreement (including the schedules of the Company)
and except for those representations and warranties which address matters only
as of a particular date (which shall remain true and correct as of such date),
with the same force and effect as if made on and as of the Effective Time,
except, in all such cases, for such breaches, inaccuracies or omissions of such
representations and warranties which have neither had nor
19
<PAGE>
reasonably would be expected to have a Material Adverse Effect on the Company or
TPI; and TPI shall have received a certificate to such effect signed on behalf
of the Company by the President of the Company. "MATERIAL ADVERSE EFFECT" on a
party shall mean an event, change or occurrence which, individually or together
with any other event, change or occurrence, has a material adverse impact on (i)
the financial position, business, or results of operations of such party and its
subsidiaries, taken as a whole, or (ii) the ability of such party to perform its
obligations under this Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement, provided that "Material Adverse
Effect" shall not be deemed to include the impact of (1) changes in laws of
general applicability or interpretations thereof by courts or governmental
authorities, (2) changes in GAAP, (3) actions and omissions of a party (or any
of its subsidiaries) taken with the prior written consent of the other party in
contemplation of the transactions contemplated hereby, and (4) the direct
effects of compliance with this Agreement on the operating performance of the
parties, including expenses incurred by the parties in consummating the
transactions contemplated by this Agreement;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and TPI shall have received a certificate to such effect signed
by the President of the Company;
(c) LEGAL OPINION. TPI shall have received a legal opinion from
Johnson, Blakely, Pope, Bokor, Ruppel & Burns P.A., legal counsel to the
Company, in substantially the form attached hereto as EXHIBIT 6.2(C);
(d) MATERIAL ADVERSE CHANGE. Since December 30, 1999, no event shall
have occurred that would constitute a Material Adverse Effect to the Company;
(e) DUE DILIGENCE. TPI shall have conducted its due diligence of
Company with results, in the sole discretion of the Board of Directors of TPI,
satisfactory to it;
(f) ADDITIONAL CERTIFICATES. The Company shall have furnished to TPI
such additional certificates, opinions and other documents as TPI may have
reasonably requested as to any of the conditions set forth in this Section 6.2;
(g) REVIEW OF FINANCIAL STATEMENTS. TPI and its accountants shall have
completed a review of the audited financial statements of the Company and
believe them to be, in the reasonable opinion of TPI's accountants, to have been
prepared in accordance with generally accepted accounting principles and
suitable or readily adaptable for incorporation in the registrations statements,
prospectuses and annual reports to be filed by TPI with the Securities and
Exchange Commission; and
20
<PAGE>
(h) COMPANY STOCKHOLDER APPROVAL. The Stockholders' approval of the
Company shall have been obtained.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS.
The obligations of the Company to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing, or such time as specified herein, of each of the
following conditions, any of which may be waived, in writing, exclusively by the
Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of contained in this Agreement shall be true and correct in all material
respects on and as of the date made and the Effective Time, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Effective Time, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on TPI; and the Company shall have received a certificate to such effect
signed on behalf of TPI by the Chief Executive Officer or President of TPI;
(b) AGREEMENTS AND COVENANTS. TPI shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Effective
Time, and the Company shall have received a certificate to such effect signed by
the Chief Executive Officer or President of TPI;
(c) LEGAL OPINION. The Company shall have received a legal opinion from
Snow Becker Krauss P.C., counsel to TPI and Merger Sub, in substantially the
form attached hereto as EXHIBIT 6.3(C);
(d) MATERIAL ADVERSE CHANGE. Since December 31, 1999, no event shall
have occurred that would constitute a Material Adverse Effect to TPI;
(e) SEC DOCUMENTS. TPI shall have filed with the SEC all documents
required to be filed under the Securities Exchange Act of 1934 in the
appropriate form and with the appropriate information as required under that Act
and such documents shall not have any omissions or misrepresentations of any
material fact contained therein.
(f) DUE DILIGENCE. The Company shall have conducted its due diligence
of TPI and its subsidiaries with results, in the sole discretion of the Board of
Directors of the Company, satisfactory to it; and
21
<PAGE>
(g) ADDITIONAL CERTIFICATES. TPI shall have furnished to the Company
such additional certificates, opinions and other documents as the Company may
have reasonably requested as to any of the conditions set forth in this Section
6.3.
(h) BANKRUPTCY PROCEEDINGS. All bankruptcy proceedings involving TPI
under the Bankruptcy and Insolvency Act of Canada shall have been completed,
including, without limitation, that the appeal period for the order approving
TPI's Proposal under the said act shall have expired with no appeal having been
filed, or any appeal therefrom shall have been dismissed and such dismissal
shall have become final, and all payments to creditors under the said Proposal
shall have been made in full as set forth in said Proposal. In addition, TPI
shall have furnished a copy of the court order and an opinion from its Canadian
counsel confirming the foregoing.
6.4. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO BE COMPLETED PRIOR TO
OR UPON THE APPROVAL DATE.
(a) AFFILIATE AGREEMENTS. Each of the parties identified by the Company
as being one of its Affiliates shall have delivered an executed Affiliate
Agreement which shall be in full force and effect.
(b) TPI SHAREHOLDER APPROVAL. TPI Stockholder Approval of the TPI's
Shareholders shall have been obtained.
(c) WAIVER. Notwithstanding anything to the contrary herein, any party
may waive compliance of the other party to any condition contained in this
Section 6.4, if such waiver is made by a writing executed by the party and
delivered to the other parties hereto, provided, however, a single or partial
waiver of any condition will not be deemed a waiver of any other part of such
condition or any other condition.
ARTICLE 7 - TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION.
------------
This Agreement may be terminated and the Merger abandoned at any time
prior to the Approval Date:
(a) by mutual consent of the Company and TPI;
(b) by TPI or the Company if (i) the Effective Time has not occurred by
____________, 2000; (ii) there shall be a final nonappealable order of a federal
or state court in effect preventing consummation of the Merger; (iii) there
shall be any statute, rule, regulation or order enacted,
22
<PAGE>
promulgated or issued or deemed applicable to the Merger by any governmental
entity that would make consummation of the Merger illegal; or (iv) if any of the
conditions precedent to Closing set forth in this Agreement have not been met
and have not been waived in writing by the party whose consent is required.
(c) by TPI or the Company if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any governmental entity, which would: (i) prohibit
TPI's or the Company's ownership or operation of any material portion of the
business of the Company or TPI; or (ii) compel TPI or the Company to dispose of
or hold separate, as a result of the Merger, any material portion of the
business or assets of the Company or TPI;
(d) by TPI if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and as a result of such breach the conditions set forth in Section
6.2(a) or Section 6.2(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by the Company within ten (10)
days after the giving of written notice by TPI of such breach through the
exercise of the Company's reasonable best efforts, then for so long as the
Company continues to exercise such reasonable best efforts TPI may not terminate
this Agreement under this Section 7.1 (d) unless such breach is not cured within
ten (10) days (but no cure period shall be required for a breach which by its
nature cannot be cured);
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of TPI
or Merger Sub and as a result of such breach the conditions set forth in Section
6.3(a) or Section 6.3(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by TPI or Merger Sub within
ten (10) days after the giving of written notice by the Company of such breach
through the exercise of TPI's or Merger Sub's reasonable best efforts, then for
so long as TPI or Merger Sub continues to exercise such reasonable best efforts
the Company may not terminate this Agreement under this Section 7. 1 (e) unless
such breach is not cured within ten (10) days (but no cure period shall be
required for a breach which by its nature cannot be cured);
(f) by TPI if the Company fails to obtain the consent required by law
of the Company's shareholders approving the transactions contemplated by this
Agreement,
(g) by the Company if TPI fails to recommend to its stockholders
through its Board of Directors the approval of the transactions contemplated by
this Agreement, or withdraws such recommendation, or if the required approvals
of the stockholders of TPI contemplated by this
23
<PAGE>
Agreement shall not have been obtained by reason of the failure to obtain the
required vote upon a vote taken at a meeting of stockholders duly convened
therefor or at any adjournment thereof,
(h) By TPI or the Company, if it is not in initial breach of its
obligations under this Agreement and any of the conditions set forth in Section
6.4 have not been satisfied, or
Where action is taken to terminate this Agreement pursuant to this
Section 7.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
7.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 7.1, this Agreement shall forthwith become void and,
except as set forth herein, there shall be no liability or obligation on the
part of TPI, or the Company, or their respective officers, directors or
stockholders, provided that each party shall remain liable for any breaches of
this Agreement prior to its termination; and provided further that, the
provisions of this Section 7.2 and Sections 5.3, 5.5 and 5.9 and Article 8 of
this Agreement shall remain in full force and effect and survive any termination
of this Agreement.
7.3 AMENDMENT. Except as is otherwise required by applicable law, this
Agreement may be amended by the parties hereto at any time only by execution of
an instrument in writing signed on behalf of each of the parties hereto.
7.4 EXTENSION, WAIVER.
-----------------
At any time prior to the Effective Time, TPI, on the one hand, and the
Company, on the other, may, to the extent legally allowed, (a) extend the time
for the performance of any of the obligations of the other party hereto, (b)
waive any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto, and (c) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
of such party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term in this
Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
24
<PAGE>
ARTICLE 8 - GENERAL PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
-------------------------------------------
The representations and warranties set forth in Article 2 and Article 3
shall survive for a period of one year beyond the Effective Time. This Section
8.1 shall not limit any covenant or agreement of the parties hereto which by its
terms contemplates performance after the Effective Time.
8.2 NOTICES.
-------
All notices and other communications hereunder shall be in writing,
shall be effective when received, and shall in any event be deemed to have been
received (a) when delivered, if delivered personally or by commercial delivery
service, (b) five (5) business days after deposit with U.S. Mail, if mailed by
registered or certified mail (return receipt requested), (c) one (1) business
day after the business day of deposit with Federal Express or similar nationally
recognized overnight courier for next day delivery (or, two (2) business days
after such deposit if deposited for second business day delivery), if delivered
by such means, or (d) one (1) business day after delivery by facsimile
transmission with copy by U.S. Mail, if sent via facsimile plus mail copy (with
acknowledgment of complete transmission), to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
if to the Company, to:
eAutoclaims.com, Inc.
2708 Alt. 19 N., Suite 604
Palm Harbor, FL 34683
Attention: Eric Seidel, President
Telephone: (727) 781-0414
Facsimile No.: (727) 781-8425
with a copy to:
Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A.
911 Chesnut Street
Clearwater, Florida 33756
Attn.: Michael T. Cronin, Esq.
Telephone: (727) 461-1818
Facsimile No.: (727) 441-8617
25
<PAGE>
if to TPI, to:
Transformation Processing, Inc.
c/o Thompson Kernaghan
365 Bay Street
Toronto, Ontario M5H 2V2
Attention: Gregg Badger
Telephone No.: (416) 860-7683
Facsimile No.: (416) 860-6352
with a copy to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158
Attention: Mark Rossow, Esq.
Telephone No.: (212) 455-0476
Facsimile No.: (212) 949-7052
8.3 INTERPRETATION.
---------------
The words "include," "includes" and "including" when used herein shall
be deemed in each case to be followed by the words "without limitation." The
word "agreement" when used herein shall be deemed in each case to mean any
contract, commitment or other agreement, whether oral or written, that is
legally binding. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "the business
of" an entity, such reference shall be deemed to include the business of all
direct and indirect subsidiaries of such entity. Reference to the subsidiaries
of an entity shall be deemed to include all direct and indirect subsidiaries of
such entity.
8.4 COUNTERPARTS.
-------------
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other party, it being understood that all parties need not sign
the same counterpart.
8.5 ENTIRE AGREEMENT.
-----------------
This Agreement, the Schedules and Exhibits hereto, and the documents
and instruments and other agreements among the parties hereto referenced herein:
(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) are not intended to confer upon any other person any rights or
remedies hereunder.
26
<PAGE>
8.6 SEVERABILITY.
-------------
In the event that any provision of this Agreement or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
8.7 OTHER REMEDIES.
---------------
Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
8.8 SPECIFIC PERFORMANCE.
---------------------
The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
8.9 GOVERNING LAW.
--------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof, provided that
issues involving the corporate governance of any of the parties hereto shall be
governed by their respective jurisdictions of incorporation. Each of the parties
hereto agrees that process may be served upon them in any manner authorized by
the laws of the State of New York, and that such process may be served outside
the state of New York, for such persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such jurisdiction and
such process.
27
<PAGE>
8.10 RULES OF CONSTRUCTION.
----------------------
The parties hereto agree that they have been represented by counsel
during the negotiation and execution of this Agreement and, therefore, waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
8.11 ASSIGNMENT.
-----------
No party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the
other parties hereto. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.12 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS.
-----------------------------------------
No provisions of this Agreement are intended, nor shall be interpreted,
to provide or create any third party beneficiary rights or any other rights of
any kind in any client, customer, affiliate, partner of any party hereto or any
other person or entity unless specifically provided otherwise herein.
8.13 MEDIATION AND ARBITRATION.
--------------------------
If any dispute, controversy or claim arises in connection with the
performance or breach of this Agreement between the parties, a party hereto may,
upon written notice to the other parties, request facilitated negotiations. Such
negotiations shall be assisted by a neutral facilitator acceptable to all
parties and shall require the best efforts of the parties to discuss with each
other in good faith their respective positions and, respecting their different
interests, to finally resolve such dispute.
A party may disclose any facts to the other parties or to the
facilitator which such party believes, in good faith, to be necessary to resolve
the dispute. All such disclosures shall be deemed in furtherance of settlement
efforts and thus confidential. Except as agreed to by all parties, the
facilitator shall keep confidential all information disclosed during the
negotiations. The facilitator shall not act as a witness for either party in any
subsequent arbitration between the parties. Such facilitated negotiations shall
conclude within sixty days from receipt of the written notice, unless extended
by mutual consent of the parties. The costs incurred by each party in such
negotiations shall be borne by it. Any fees or expenses of the facilitator shall
be borne equally by all parties.
If any dispute, controversy or claim arises in connection with the
performance or breach of this Agreement which cannot be resolved by facilitated
negotiations, then such dispute, controversy or claim shall be settled by
arbitration in accordance with the laws of the State of New York and the then
current Commercial Arbitration Rules of the American Arbitration Association,
except that no
28
<PAGE>
pre-hearing discovery will be permitted unless specifically authorized by the
arbitration panel. The confidentiality provisions applicable to facilitated
negotiations shall also apply to arbitration.
The award issued by the arbitration panel may be confirmed in a
judgment by any federal or state court of competent jurisdiction. All reasonable
costs of both parties, as determined by the arbitration panel, including (i) the
fees and expenses of the American Arbitration Association and of the arbitration
panel, and (ii) the costs, including reasonable attorneys' fees, incurred to
confirm the award in court, shall be borne entirely by the non-prevailing party
(to be designated by the arbitration panel in the award) and may not be
allocated between the parties by the arbitration panel.
8.14 DISCLOSURE.
-----------
Disclosure on one schedule, attachment or document provided pursuant to
any paragraph or subparagraph of this Agreement shall be deemed disclosure under
any other applicable paragraph or subparagraph of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Merger
Agreement and Plan of Reorganization to be signed by their duly authorized
respective officers, all as of the date first written above.
eAUTOCLAIMS.COM, INC.
By: /s/ERIC SEIDEL
---------------------
Eric Seidel
President
TRANSFORMATION PROCESSING, INC.
By: /s/PAUL MIGHTON
---------------------
Paul Mighton
President
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet and Statement of Operations filed as part of the report on Form 10-QSB for
the quarter ended October 31, 1999 and is qualified in its entirety by reference
to such report on Form 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,181
<CURRENT-LIABILITIES> 905,326
<BONDS> 1,951,954
0
0
<COMMON> 17,759
<OTHER-SE> (2,843,858)
<TOTAL-LIABILITY-AND-EQUITY> 31,181
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 141,252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (141,252)
<INCOME-TAX> 0
<INCOME-CONTINUING> (141,252)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (141,252)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
