U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE
30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________
COMMISSION FILE NUMBER: 33-43621
INTERNET BUSINESS'S INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Nevada 33-0845463
(State or jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
4634 South Maryland Parkway, Suite 101, Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (702) 968-0008
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]. Not Applicable.
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of September 13, 2001: Common
Stock, par value $0.001 per share -- $2,827,360. As of September
13, 2001, the registrant had 282,736,029 shares of common stock
issued and outstanding.
TABLE OF CONTENTS
PART I PAGE
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 19
ITEM 3. LEGAL PROCEEDINGS 20
ITEM 4. SUBMISSION TO MATTERS TO VOTE OF SECURITY HOLDERS 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 20
ITEM 6. SELECTED FINANCIAL DATA 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 28
ITEM 11. EXECUTIVE COMPENSATION 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 31
PART IV
ITEM 14. EXHIBITS, REPORTS ON FORM 8-K, AND INDEX TO
FINANCIAL STATEMENTS 33
SIGNATURES 35
PART I.
ITEM 1. BUSINESS.
Introduction.
Internet Business's International, Inc. ("Registrant") is a
broad based Internet company that provides goods and services
over the Internet to businesses and consumers though four
operating divisions: (1) ISP (Internet Service Provider); (2) On-
line Lending; (3) Direct Marketing; and (4) eCommerce.
Our corporate mission is one of unification and synergy. We
accomplish this mission by empowering our operating divisions
with the benefits of top-notch administration and management, and
enabling economies of scale by aggregating many business
functions. The Registrant's vision is to build a word-class on-
line enterprise that is many times the sum of its parts.
History of the Business.
International Food and Beverage was listed for exchange on
the Over The Counter Bulletin Board in June 1988. This company
operated in the food services industry until late 1997, at which
time it ceased operations. This firm remained dormant until
December of 1998. At that time new management was put in place,
and a decision was made to move the Registrant's focus to the
Internet and change the Registrant's name to Internet Business's
International, Inc.
On January 1, 1999 the newly named company began to offer
goods and services over the Internet, starting with the
development of an on-line B2C (business to consumer) e-retail
site, AuctionWinner.com, The site was launched in April 1999. In
July 1999, the Registrant expanded their service offerings by
acquiring an ISP (Internet Service Provider) by the name of LA
Internet. The Registrant changed its domicile from Delaware to
Nevada in same year.
Current Operations.
The Registrant currently operates four reporting divisions:
(1) ISP (which includes a national dial-up ISP; a wireless high
speed ISP in Las Vegas, NV, Moreno Valley, CA and Woodland, CA;
and Internet web design and hosting businesses.)
(2) On-line Lending (which includes real estate loans and
equipment leasing.)
(3) Direct Marketing (which includes the direct marketing of
long distance phone services, computers with Internet access,
wireless high speed Internet access and bandwidth.)
(4) eCommerce (which includes auction sites, B2C and B2B
eCommerce, and reverse auction sites for Europe and the United
States), The Registrant has 7 offices in the US and 1 in Europe and more
than 60 employees.
Operating Divisions
(a) ISP.
The ISP division operates four businesses that serve three
distinct customer groups (dial-up ISP, wireless ISP, web site
design / hosting)
(1) LA Internet (www.lainternet.com) Los Angeles, California
LA Internet, Inc. (a wholly owned subsidiary of the
Registrant) is a full service dial-up ISP and web site hosting
business. LA Internet provides nationwide dial-up access for
consumers and businesses. This company also provides hosting and
co-location (server farm) services to individuals and businesses.
LA Internet employs state of the art equipment from Sun, Dell,
Cisco, and BreezeCom. T1 and T3 level bandwidth providers include
major national backbones such as ELI and MCI.
Revenue is generated though monthly fess charged for dial-up
Internet access and web site hosting. LA Internet currently has
10 employees.
(2) LA Internet Design (www.lainternetdesign.com)Los Angeles, California;
Sofia, Bulgaria
LA Internet Design (an operating division of LA Internet) is
full service web site design and development agency. This
company offers a full portfolio of offerings: strategic planning,
creative design, programming, and on-line marketing plans for
individuals, businesses, and government agencies.
In addition to offering professional services, LA Internet
Design retails a product called Site Creator - in strategic
partnership with Network Solutions. Site Creator allows
individuals or businesses to create their own web sites. These
sites are then hosted by LA Internet.
Revenue is generated though hourly or fixed price fees for
professional services, and though the retail sale of Site
Creator. LA Internet Design currently has 5 employees.
(3) BeyonDSL (www.beyondsl.com) Las Vegas, Nevada
BeyonDSL (an operating division of LA Internet) operates a
RF (Radio Frequency) type wireless ISP in several major west
coast geographies: Las Vegas, Nevada; Moreno Valley, California;
and Woodland, California. BeyonDSL provides Internet access to
individuals and businesses at speeds up to 3 MB (megabits) per second.
Revenue is generated though monthly fees charged for
wireless Internet access. BeyonDSL currently has 10 employees.
(4) Internet 2xtreme (www.2xtreme.net) Woodland, California
Internet 2xetreme (an operating division of LA Internet) is
a full service dial-up ISP and web site hosting business
operating in Woodland, California. Internet 2xtreme re-sells LA
Internet's dial-up services and BeyonDSL's wireless ISP services
to consumers and business in the Woodland area. This company
also provides hosting and co-location (server farm) services to
individuals and businesses. Internet 2xtreme maintains its own
hosting and co-location facilities in Woodland, California.
Revenue is generated though monthly fess charged for dial-up
and wireless Internet access and web site hosting. Internet
2xtreme currently has 9 employees.
(b) On-line Lending Division
(1) Guarantee Capital Group (www.net2loan.net) Irvine, California
Guarantee Capital Group* (a wholly owned subsidiary of the
Registrant) is a mortgage banking company that processes and
funds loans for homes. Guarantee's customers are primarily
consumers that are applying for a first mortgage on a qualifying
home. Guarantee generates qualified applicants though on-line
marketing campaigns and through their web site (www.net2loan.net).
Guarantee approves and funds loans according to Freddie Mac
and Fannie Mae conforming and non-conforming underwriting
criteria. Institutions such as RFC, Sun Trust and Interfirst, may
purchase "bulk" loans from Guarantee.
Revenue is generated through loan fees, processing fees, and
yields based upon interest earned over the life of the loan and
the cost of the funds. Guarantee Capital Group currently has 23
employees.
* In the first quarter of the current fiscal year ending June
30, 2002, management decided to expand the mortgage banking
operation into states other than California. Management decided
at that time to increase the company's funding line as well.
These two decisions precipitated the sale of the former mortgage
group - Atlas Capital and the creation of Guarantee Capital Group.
(2) Discount On-line Leasing (www.discountonlineleasing.com)
Laguna Hills, California
Discount On-line Leasing (an operating division of the
Registrant) markets equipment-leasing solutions to small
businesses. This company markets solutions for a wide range of
equipment assets, including agricultural, computing,
communications, office, machine tool, and manufacturing
equipment. Discount On-line Leasing provides equipment leases to
businesses the United States and Canada. The leases are funded
though a number of finance companies that specialize in capital
equipment funding.
Revenue is generated though commissions paid on the
successful acceptance of leases. Discount On-line Leasing
currently has 1 employee.
(c) Direct Marketing Division
1st2 Market, Inc. (www.1st2mart.com) Las Vegas, Nevada
1st2 Market* (a wholly owned subsidiary of the Registrant)
direct markets goods and services to individuals and businesses.
Types of offers that 1st2 Market represents are computers bundled
with Internet access, long distance offers, and cellular
telephone hardware and calling plans. 1st2 Market markets its
offers though print and on-line channels with a heavy emphasis on
leveraging other Internet Business' International web sites.
Revenue is generated by commissions paid on orders
processed. 1st2 Market currently has 3 employees.
* During the first quarter of the current fiscal year ending
June 30, 2002, it was decided that the current corporation
Allstates Communications, Inc. did not fit the Registrant's
current marketing plans; therefore it was decided to close
Allstates Communications and begin the new corporation 1st2
Market. The new corporation started operations in September 1,
2001. The new corporation will not market cellular phones; it
will only market the Registrant's products and services.
(d) eCommerce Division
The Registrant operates a several e-retail or ecommerce web
sites serving several different markets:
(1) Iauction (www.iauction.com) Hornlake, Mississippi
Iauction.com (an operating division of the Registrant) is an
on-line auction site. The site is a marketplace that allows
consumers and business to place their goods or services up for
sale by auction. The registration and interface is very much
like other popular Internet auction sites such as ebay.com.
The site and the programming are proprietary to
iauction.com. The site features an integrated accounting program
that allows iauction.com to view updated information about
revenues generated by the site from outside users in real-time.
Iauction.com has also implemented programs that allow the site to
be continuously updated with minimum cost and administrative
overhead. This company markets the auction site throughout the
Internet and leverages other Registrant sites.
Revenue is generated from transaction and listing fees
charged to buyers and sellers of products and services.
(2) Global Construction Buying Group (www.globalbuyinggroup.com)
Hornlake, Mississippi
Global Construction Buying Group (a wholly owned subsidiary
of the Registrant) is a B2B (business to business) reverse
auction web site. The web site uses a proprietary reverse auction
platform, developed by Global Construction Buying Group. The site
allows a business (purchasing party) the opportunity to place
RFPs (request for pricing) on-line. Interested vendors or
suppliers can bid on the RFP. The purchasing party has the
opportunity to select the lowest bid from all vendors. Global
Construction Buying Group has offices in Europe and the United
States. The company has an agreement with IBM in Europe to market
the reverse auction program.
Revenue is generated from transaction and listing fees
charged to buyers and sellers of products and services.
(3) BC Lenders (www.bclenders.net) Hornlake, Mississippi
BC Lenders (short for "bruised credit") is a reference and
referral site for consumers and business that have difficulty
being accepted by conventional financing groups because of a poor
credit history. The borrowers fill out an application and select
a lender from the list to submit the application to.
Revenue is generated though commissions paid by lenders for
referring accepted applicants to their businesses.
(4) Ace Optics (www.aceoptics.com) Hornlake, Mississippi
Ace Optics (an operating division of the Registrant) markets
and retails popular brands of visual aids and designer sunglasses
over the Internet. AceOptics sells to consumers over it's web
site www.aceoptics.com.
Revenue is generated by retail sales of products.
(5) Sport Stores (www.sport-stores.com) Hornlake, Mississippi
Sport Stores (an operating division of the Registrant),
markets and retails popular brands of sports gear and sports ware
over the Internet. Sport Stores sells to consumers over it's web
site www.sport-stores.com. Revenue is generated by retail sales
of product.
The entire eCommerce division shares 3 employees, the also rely
on technical services from LA Internet and LA Internet Design.
Corporate
Newport Beach, CA
The Registrant maintains an administration and support group
in Newport Beach, California. The group supports the operating
divisions and administrates the public filings and financial
statements. This office has 5 employees.
Market and Competition.
The market for Internet products and services is highly
competitive. Taking into consideration the advances Internet
technology and the ubiquity simple web site provide, there are no
substantial barriers to entry in this market, and management
expects that competition will continue to intensify. Negative
competitive developments could have a material adverse effect on
the Registrant's business and on the trading price of its stock.
The majority of our revenues come from on-line loans. The
Registrant competes with many Internet, and many non-Internet
companies that provide mortgages or equipment leasing. The
Registrant also competes with many other companies that offer the
same type of Internet-only services we offer - such as ISP
services. The Registrant competes with many eCommerce on-line
vendors of products that sell similar products that are offered
by its eCommerce division. The Registrant competes with its
direct marketing division with many other similar direct
marketing companies. As the Registrant expands the scope of its
Internet services, it will compete directly with a greater number
of Internet sites and other similar type of companies across a
wide range of different on-line and off-line services.
The Registrant also competes in vertical markets where
competitors may have advantages in expertise, brand recognition,
and other factors. Many companies offer directly competitive
products or services information and community services,
including, among others: America On-line; Yahoo; CNET; Excite;
InfoSeek Corporation; Lycos; Microsoft Corporation (msn.com); and
Netscape Communications Corporation (netcenter.com). In the past
several months, there have been a number of significant
acquisitions and strategic plans announced among and between
these companies. These include: The Walt Disney Registrant
acquiring a significant interest in InfoSeek; AOL acquiring Time
Warner and Netscape; @Home Networks, Inc., a provider of high
speed internet access serving the cable television infrastructure
and the largest shareholder of which is AT&T, acquiring Media One
and Excite. There has also been a contraction in the market place
due to recent failures of many dot com companies. These failures
also reduced the availability of expansion capital for many
Internet companies
The effect of completed and pending acquisitions on the
Registrant cannot be predicted with certainty, but all of these
competitors are aligned with companies that are significantly
larger or better established than the Registrant. As a result,
each of them will have access to significantly greater financial,
marketing and, in certain cases, technical resources than the Registrant.
These and other competitors are expected to continue to make
substantial marketing expenditures to promote their on-line
properties. The Registrant may be required to increase its sales
and marketing expenditures significantly in response to these
efforts, which may materially impair its operating results and
may not be success
Management believes that the principal competitive factors
in its markets are: brand recognition; ease of use;
comprehensiveness; personalization; independence; quality and
responsiveness of search results and other services; the
availability of high-quality, targeted content and focused value-
added products and services; access to end users; and with
respect to advertisers and sponsors, the number of users,
duration and frequency of visits, and user demographics.
Competition among current and future suppliers of Internet
information, communication, community and commerce services,
high-traffic web sites and ISPs, as well as competition with
other media for advertising placements, could result in
reductions revenues. (See chart below)
The following divisions have direct competition as follows;
Sector Subsidiary Competition
ISP
Dialup LA Internet ixpres.com
earthlink.com
Wireless BeyonDSL landwaves.net
Web design LA Internet Design ixpres.com
On-line Lending
Mortgages Guarantee Capital homeloan.com
dietech.com
Leasing Discount On-line leaseforce.com
Leasing
Direct Marketing 1st2 Market directoneusa.com
eCommerce
Auctions iauction.com bidbay.com, ubid.com,
ebay.com
Reverse Auction Global Construction sorcity.com
Sunglasses aceoptics.com sun sunglasshut.com
The Registrant also faces competition with respect to the
acquisition of strategic businesses and technologies. Many of
its existing competitors, as well as a number of potential new
competitors, have significantly greater financial, technical,
marketing and distribution resources than the Registrant does.
In addition, providers of Internet tools and services may be
acquired by, receive investments from, or enter into other
commercial relationships with larger, well-established and well-
financed companies, such as Microsoft and AOL. In addition, well-
established traditional media companies may acquire, invest or
otherwise establish commercial relationships with its
competitors. These larger companies may use their substantial
media resources to promote and enhance their own services.
Greater competition resulting from such relationships could have
a materially adverse effect on the Registrant's business.
Strategic Alliances and Agreements.
The recent alliances of the Registrant have increased the
companies and its subsidiaries' ability to market its products
and services; these alliances are as follows;
(a) Network Solutions.
The Registrant has entered into an agreement with Network
Solutions to co-market "Site Creator", Network Solutions' web
based Internet site development program to new clients that are
obtained by the Registrant. The Registrant will receive a
commission on each sale of Site Creator as well as the
opportunity to host Site Creator clients with LA Internet.
(b) IBM.
The Registrant has entered into an alliance with IBM and IBM
Solution Providers in Europe to offer the industry specific
reverse auction program of the Global Construction Buying Group, Inc.
Marketing Plans.
The Registrant competes with other on-line services, web
site operators and advertising networks, as well as traditional
off-line media such as television, radio and print to convey to
the consumer the services and products that are offered by the
Registrant. The Registrant has used Print, Radio, and Television
to inform the public and consumer of these products and services.
Accordingly, the Registrant may face increased pricing pressure
for the purchase of advertisement space. The Registrant
therefore has also developed alternative marketing plans that
uses direct marketing, cross promotion and bundling of services
and products to increase its client base
Proprietary Rights.
The Registrant regards its copyrights, trademarks, trade
dress, trade secrets, and similar intellectual property as
critical to its success. The Registrant relies upon trademark
and copyright law, trade secret protection and confidentiality or
license agreements with its employees, customers, partners and
others to protect its proprietary rights. Effective trademark,
copyright, and trade secret protection may not be available in
every country in which its products and media properties are
distributed or made available through the Internet. The
distinctive elements of the Registrant's web sites may not be
protected under copyright law. Management cannot guarantee that
the steps the Registrant has taken to protect its proprietary
rights will be adequate. Many parties are actively developing
communication, community, e-commerce, and other web-related
technologies. Management believes that such parties will
continue to take steps to protect these technologies, including
seeking patent protection. As a result, management believes that
disputes regarding the ownership of such technologies are likely
to arise in the future. For example, management is aware that a
number of patents have been issued in the areas of electronic
commerce, on-line auctions, web-based information, on-line direct
marketing, fantasy sports, common web graphics formats and
mapping technologies. Management anticipates that additional
third-party patents will be issued in the future. From time to
time these parties may assert patent infringement claims against
the Registrant. Management cannot guarantee that it would be
able to license such patents on reasonable terms. The Registrant
may incur expenses in defending against third-party patent claims
regardless of the merit of such claims. In the event that there
is a determination that the Registrant has infringed such third-
party patent rights, the Registrant could incur monetary
liability and be prevented from using the rights in the future.
Employees.
As of the date of this filing, the Registrant had over 60
employees. This is a reduction from the same time last year when
the company had 85 employees. The reduction of the employees was
due to the changes made September 1, 2001 with the mortgage
lending division and the direct marketing division. The
Registrant's future success is substantially dependent on the
performance of its senior management and key technical personnel,
and its continuing ability to attract and retain highly qualified
technical and managerial personnel.
Merger Transaction.
On June 4, 2001, Return Assured Incorporated, IBUI
Acquisition Corporation, a wholly owned subsidiary of Return
Assured, and the Registrant entered into an Agreement and Plan of
Merger and Share Exchange ("Merger Agreement"). The Merger
Agreement provides, among other things, for IBUI Acquisition
Corporation to be merged with and into the Registrant ("Merger")
and for a share exchange between the shareholders of the
Registrant and the Return Assured. Under the Merger Agreement,
each of the outstanding shares of the Registrant will be
converted into the right to receive 0.14 shares of the Return
Assured's common stock (Return Assured will adjust the exchange
ratio to reflect any reclassification, stock split, stock
dividend, reorganization or other similar change with respect to
Return Assured common stock or the Registrant common stock
occurring before the effective time of the Merger).
In connection with the Merger transaction, Return Assured
will conduct a 1:6 reverse split of its common stock. Upon the
completion of the transactions contemplated in the Merger
Agreement, the Registrant will become a wholly-owned subsidiary
of Return Assured and the current shareholders of the Registrant
will own approximately 90% of Return Assured. The Merger, a
purchase transaction, will be accounted for as a reverse merger
with the Registrant as the accounting acquirer.
No fractional merged Return Assured common stock will be
issued. Each of the Registrant's shareholder entitled to receive
a fractional share of 0.5 or greater shall receive a whole merged
company share and each of the Registrant shareholder's who would
otherwise be entitled to receive a fractional share of less than
0.5 shall not receive an additional whole share.
Following the adoption of the Merger Agreement and approval
of the Merger by the Registrant's stockholders and the
satisfaction or waiver of the other conditions to the Merger,
IBUI Acquisition Corp. will merge into the Registrant. The
Registrant will survive the Merger as a wholly owned subsidiary
of Return Assured; the separate existence of IBUI Acquisition
Corporation will cease.
If all conditions to the Merger are satisfied or waived, the
Merger will become effective at the time of the filing by the
surviving corporation of a duly executed certificate of merger
with the Secretary of State of the State of Delaware.
After the effective time of the Merger, Return Assured's
transfer agent will mail to each record holder of the
Registrant's common stock a letter of transmittal and
instructions for surrendering their certificates. Only those
holders who properly surrender their certificates in accordance
with the instructions will receive certificates representing
Return Assured common stock, cash in lieu of any fractional
Return Assured common stock and any dividends or distributions to
which they are entitled. The surrendered certificates
representing shares of the Registrant's common stock will be
cancelled. After the effective time of the Merger, each
certificate representing shares of the Registrant common stock
that has not been surrendered will only represent the right to
receive common stock of Return Assured. Following the effective
time of the Merger, the Registrant will not register any
transfers of the Registrant common stock on its stock transfer books.
If any the Registrant's common stock certificate is lost,
stolen or destroyed, an the Registrant stockholder must provide
an appropriate affidavit of that fact. Return Assured may
require an the Registrant's stockholders to deliver a bond as
indemnity against any claim that may be made against Return
Assured with respect to any lost, stolen or destroyed certificate.
Risk Factors.
In addition to the other information in this Report, the
following particular risk factors may be encountered in the
operation of the Registrant under its current plan of business:
(a) Limited Operating History.
The Registrant has only begun operations as an Internet
company since January 1, 1999. Therefore, the Registrant has a
limited operating history, and its prospects are subject to the
risks, expenses and uncertainties frequently encountered by young
companies that operate exclusively in the new and rapidly
evolving markets for Internet products and services.
Successfully achieving its growth plan depends on, among other
things, the Registrant's: ability to continue to develop and
extend its brand; ability to develop new web site properties;
ability to maintain and increase the levels of traffic on its
internet properties; development or acquisition of services or
products equal or superior to those of the Registrant's
competitors; ability to effectively generate revenues through
sponsored services and placements on the Registrant's internet
web site properties; ability to effectively integrate the
technology and operations of businesses or technologies which the
company may acquire; ability to successfully develop and offer
new personalized web-based services, such as e-mail services, to
consumers without errors or interruptions in service; and ability
to identify, attract, retain and motivate qualified personnel.
Furthermore, the success of the Registrant's growth plan depends
on factors outside its control including, among other things: the
adoption by the market of the web as an E-Commerce medium; the
successful sale of web-based services by the Registrant's sales
agents; and the relative price stability for web-based services
and products, despite competition and other factors that could
reduce market prices. The Registrant may not be successful in
implementing its growth plan or continuing to operate its
business as anticipated.
(b) Operating Results May Fluctuate.
The Registrant expects to derive the majority of its
revenues from a variety of revenue sources, which are difficult
to forecast accurately. As noted above, the Registrant expects
its operating expenses to increase significantly over the near
term. To the extent its expenses increase but its revenues do
not, its business, operating results, and financial condition
will be materially and adversely affected. Operating results may
fluctuate significantly in the future as a result of a variety of
factors, many of which are outside its control. These factors
include: the level of usage of the Registrant's Internet sites,
and the demand for the products and services that the Registrant
offers over the Internet, the amount and timing of capital
expenditures and other costs relating to the expansion of its
operations; the introduction of new products or services by the
Registrant or its competitors; pricing changes for internet-based
services, the timing of initial set-up, engineering or
development fees that may be paid in connection with larger area
distribution arrangements; technical difficulties with respect to
the online web site properties that the Registrant may develop;
costs incurred with respect to acquisitions; negative general
economic conditions and resulting effects on economic conditions
specific to the internet and online media.
A key element of the Registrant's strategy is to generate
revenues through services and products from its online media
properties and its direct marketing operations. In connection
with these, the Registrant will receive fees as well as a portion
of transaction revenues received by business that is originated
through the Registrant sites. This type of revenue generation
exposes the Registrant to potentially significant financial
risks, including: the risk that the Registrant fails to obtain
the minimum level of revenue required to maintain the operational
expenses of the Registrant.
(c) Dependence on Continued Growth in Use of the Internet;
Technological Change.
The Registrant's future success is dependent upon continued
growth in the use of the Internet and the web in order to support
the sale of its products and services and its online web site
properties. The Companies Internet businesses are relatively new,
and it is difficult to predict the extent of further growth, if
any, in from these sites. The Internet may not prove to be a
viable commercial marketplace for a number of reasons, including
lack of acceptable security technologies, potentially inadequate
development of the necessary infrastructure, or timely
development and commercialization of performance improvements.
To the extent that the Internet continues to experience
significant growth in the number of users and level of use, the
Internet infrastructure may not be able to support the demands
placed upon it by such growth and the performance or reliability
of the web may be adversely affected.
The market for Internet products and services is
characterized by rapid technological developments, evolving
industry standards and customer demands, and frequent new product
introductions and enhancements. To the extent that higher
bandwidth internet access becomes more widely available through
cable modems or other technologies, the Registrant may be
required to make significant changes to the design and content of
its online properties in order to compete effectively. Failure
to effectively adapt to these or any other technological
developments may adversely affect its business, operating
results, and financial condition.
The markets for the Registrant's products and services have
only recently begun to develop, are rapidly evolving, and are
increasingly competitive. Demand and market acceptance for
recently introduced products and services are subject to a high
level of uncertainty and risk. It is difficult for management to
predict whether, or how fast, these markets will grow. The
Registrant cannot guarantee either that the market for its
products and services will continue to develop or that demand for
its products and services will be sustainable. If the market
develops more slowly than expected or becomes saturated with
competitors, or if its products and services do not sustain
market acceptance, its business, operating results, and financial
condition may be materially and adversely affected.
(d) Risks Associated with Brand Development.
The Registrant believes that establishing and maintaining
its brand is a critical aspect of its efforts to attract and
expand its user base. Management also believes that the
importance of brand recognition will increase due to the growing
number of Internet sites and the relatively low barriers to
entry. Promotion and enhancement of the Registrant's brand will
depend largely on its success in providing high-quality products
and services. In order to attract and retain Internet users and
to promote and maintain its brand, the Registrant may find it
necessary to increase expenditures devoted to creating and
maintaining brand loyalty. In the event of any breach or alleged
breach of security or privacy involving its services, or if any
third party undertakes illegal or harmful actions utilizing its
community, communications or commerce services, the Registrant
could suffer substantial adverse publicity and impairment of its
brand and reputation. If the Registrant is unable to provide
high-quality products and services or otherwise fails to promote
and maintain its brand, or if it incurs excessive expenses in an
attempt to improve its products and services or promote and
maintain its brand, its business, operating results, and
financial condition may be materially and adversely affected.
(e) Possible Inability to Successfully Enhance or Develop Properties.
To remain competitive, the Registrant must continue to
enhance and improve the functionality, features, and content of
its web site properties. The Registrant may not be able to
successfully maintain competitive user response times or
implement new features and functions, which will involve the
development of increasingly complex technologies. Personalized
information services, such as its web-based email messaging
services, message boards, and other community features, require
significant expense. The Registrant cannot guarantee that
additional revenues from these services will offset this
additional expense.
A key element of its business strategy is the development
and introduction of new particular demographic characteristics,
and geographic areas. The Registrant may not be successful in
developing, introducing, and marketing such web site properties
and such properties may not achieve market acceptance, enhance
its brand name recognition, or increase user traffic.
Furthermore, enhancements of or improvements to the Registrant's
new properties may contain undetected errors that require
significant design modifications, resulting in a loss of customer
confidence and user support and a decrease in the value of its
brand name. Its ability to successfully develop additional
targeted media properties depends on use of the Registrant to
promote such properties. If use of the Registrant's web site
properties does not continue to grow, its ability to establish
other targeted properties would be adversely affected. If the
Registrant fails to effectively develop and introduce such new
properties, or such properties fail to achieve market acceptance,
its business, results of operations, and financial condition may
be adversely affected.
(f) Management of Potential Growth and Integration of Acquisitions.
The Registrant's growth may place substantial strains on its
financial systems and its systems to train and manage its
employee base. The process of managing large, high traffic web
sites is an increasingly important and complex task. This relies
on both internal and licensed third-party management and analysis
systems. To the extent that the Registrant does not have the
appropriate inventory or any extended failure of its management
system results "make good" obligations with its customers, which,
could defer revenues. Failure of its management systems to
effectively scale to higher levels of use or to effectively track
and provide accurate and timely E-Commerce reports and also could
negatively affect its relationships with its customers. The
Registrant's systems, procedures, or controls may not be adequate
to support its operations, particularly with regard to support
and service. Its management may not be able to achieve the rapid
execution necessary to fully exploit its market opportunity. Any
inability to effectively manage growth may have a materially
adverse effect on its business, operating results, and financial
condition.
As part of its business strategy, the Registrant may, from
time to time, make acquisitions or enter into other forms of
business combinations. These transactions are accompanied by a
number of risks, including: the difficulty of assimilating the
operations and personnel of the acquired companies; the potential
disruption of its ongoing business and distraction of management;
the difficulty of incorporating acquired technology or content
and rights into its products and media properties; the correct
assessment of the relative percentages of in-process research and
development expense which can be immediately written off as
compared to the amount which must be amortized over the
appropriate life of the asset; the failure to successfully
develop an acquired in-process technology could result in the
impairment of amounts currently capitalized as intangible assets;
unanticipated expenses related to technology integration; the
maintenance of uniform standards, controls, procedures and
policies; the impairment of relationships with employees and
customers as a result of any integration of new management
personnel; and the potential unknown liabilities associated with
acquired businesses. The Registrant may not be successful in
addressing these risks or any other problems encountered in
connection with such acquisitions.
(g) Risk of Capacity Constraints and Systems Failures.
The Registrant is dependent on its ability to effectively
withstand a high volume of use of its online web site properties.
Accordingly, the performance of its online web site properties is
critical to its reputation, its ability to attract advertisers to
its web sites, and to achieve market acceptance of its products
and web site properties. Any system failure that causes an
interruption or an increase in response time of its products and
media properties could result in less traffic to its web sites
and, if sustained or repeated, could reduce the attractiveness of
its products and media properties to advertisers and licensees.
An increase in the volume of queries conducted through its
products and media properties could strain the capacity of the
software or hardware the Registrant has deployed, which could
lead to slower response time or system failures. In addition, as
the number of web pages and users increase, its products and
media properties and infrastructure may not be able to scale
accordingly. Personalized information services, such as web-
based email-type messaging services and other community and
communication facilities, and the posting of photographs on its
auction properties, involve increasingly complex technical and
operational challenges that may strain its development and
operational resources. The Registrant may not be able to
successfully implement and scale such services to the extent
required by any growth in the number of users of such services.
Failure to do so may affect the goodwill of users of these
services, or negatively affect its brand and reputation.
The Registrant is dependent on third parties for much of its
technology and infrastructure. The Registrant's operations are
susceptible to outages due to fire, floods, power loss,
telecommunications failures, break-ins, and similar events. The
Registrant does have multiple site capacity, which would reduce
the impact in the event of any such occurrence. Despite its
implementation of network security measures, its servers are
vulnerable to computer viruses, break-ins, and similar
disruptions from unauthorized tampering with its computer
systems. The Registrant does not carry business interruption
insurance to compensate for losses that may occur as a result of
any of these events. Such events may have a materially adverse
effect on its business, operating results, and financial condition.
(h) Government Regulation and Legal Uncertainties.
There are currently few laws or regulations directly
applicable to Internet access or to commerce on the net. Due to
the increasing popularity and use of the internet, it is possible
that laws and regulations may be adopted, covering issues such as
user privacy, defamation, pricing, taxation, content regulation,
quality of products and services, and intellectual property
ownership and infringement. Such legislation could expose the
Registrant to substantial liability. Such legislation could also
dampen the growth in use of the web, decrease the acceptance of
the web as a communications and commercial medium, or require the
Registrant to incur significant expense in complying with any new
regulations. In addition, several telecommunications carriers,
including America's Carriers' Telecommunications Association, are
seeking to have telecommunications over the web regulated by the
Federal Communications Commission in the same manner as other
telecommunications services.
Because the growing popularity and use of the web has
burdened the existing telecommunications infrastructure and many
areas with high web use have begun to experience interruptions in
phone service, local telephone carriers, such as Pacific Bell,
have petitioned the FCC to regulate ISPs and Sops and to impose
access fees. Increased regulation or the imposition of access
fees could substantially increase the costs of communicating on
the web, potentially decreasing the demand for its products and
media properties. A number of proposals have been made at the
federal, state and local level that would impose additional taxes
on the sale of goods and services through the Internet. Such
proposals, if adopted, could substantially impair the growth of
electronic commerce, and could adversely affect the Registrant's
opportunity to derive financial benefit from such activities.
The Digital Millennium Copyright Act, which is intended to
reduce the liability of online service providers for listing or
linking to third-party web sites that include materials that
infringe copyrights. Also the Children's Online Protection Act
and the Children's Online Privacy Act, which will restrict the
distribution of certain materials deemed harmful to children and
impose additional restrictions on the ability of online services
to collect user information from minors. Further, Congress
recently passed (and the President has signed into law) the
Protection of Children from Sexual Predators Act, which mandates
that electronic communication service providers report facts or
circumstances from which a violation of child pornography laws is
apparent. The Registrant is currently reviewing these pieces of
legislation, and cannot currently predict the effect, if any,
that such legislation will have on its business. There can be no
assurance that such legislation will not impose significant
additional costs on its business or subject the Registrant to
additional liabilities.
In addition, a number of other countries have announced or
are considering additional regulation. For example, the European
Commission privacy directive restricts the use of personal
information without the consent of both the individual and that
individual's government. Such restrictions could jeopardize the
future of e-commerce in and with the European Union. In
addition, the European Commission is expected in the near future
to propose a directive concerning the liability of online service
providers for activities that take place using their services.
Such laws and regulations could fundamentally impair the
Registrant's ability to provide Internet services, or
substantially increase the cost of doing so. Moreover, the
applicability to the Internet of existing laws governing issues
such as property ownership, copyright, defamation, obscenity, and
personal privacy is uncertain. The Registrant may be subject to
claims that its services violate such laws. Any such new
legislation or regulation in the United States or abroad or the
application of existing laws and regulations to the Internet
could have a material adverse effect on its business, operating
results, and financial condition. Due to the global nature of
the web, it is possible that the governments of other states and
foreign countries might attempt to regulate its transmissions or
prosecute the Registrant for violations of their laws. The
Registrant might unintentionally violate such laws. Such laws
may be modified, or new laws enacted, in the future. Any such
developments may have a materially adverse effect on its
business, results of operations, and financial condition.
(i) Liability for the Registrant's Services.
The Registrant hosts a wide variety of information,
community, communications and commerce services that enable
individuals to exchange information, generate content, conduct
business and engage in various online activities. The laws
relating to the liability of providers of these online services
for activities of their users are currently unsettled. Claims
could be made against the Registrant for defamation, negligence,
copyright or trademark infringement, personal injury or other
theories based on the nature and content of information that may
be posted online by its users. Such claims have been brought,
and sometimes successfully pressed, against online service
providers in the past. In addition, the Registrant could be
exposed to liability through content and materials that may be
posted by users in auctions, message boards, clubs, chat rooms,
or other interactive community-building services. Such claims
might include, among others, that by providing hypertext links to
web sites operated by third parties, the Registrant is liable for
copyright or trademark infringement or other wrongful actions by
such third parties through such web sites, or that the Registrant
is responsible for legal injury caused by statements made to,
actions taken by or content generated by, participants in its
message board services, clubs, or other community building
services. It is also possible that if any information that may,
in the future, be provided through its services, such as stock
quotes, analyst estimates or other trading information contains
errors, third parties could make claims against the Registrant
for losses incurred in detrimental reliance on such information.
The Registrant offers web-based e-mail type messaging services,
which expose it to potential risks, such as liabilities or claims
resulting from lost or misdirected messages, illegal or
fraudulent use of messages, or interruptions or delays in
messaging services. Investigating and defending such claims are
expensive, even to the extent such claims do not result in liability.
The Registrant may also, from time to time, enter into
arrangements to offer third-party products and services under the
Registrant's brand or via distribution on its properties. While
its agreements with these parties would provide that the
Registrant would be indemnified against liabilities, such
indemnification may not be adequate. The Registrant may be
subject to claims concerning such services or content by virtue
of its involvement in marketing, branding or providing access to
such services. Any such claims may have a materially adverse
effect on its business, results of operations, and financial condition.
(j) Potential Commerce-Related Liabilities and Expenses.
As part of its business, the Registrant enters into
agreements with businesses, sponsors, content providers, service
providers, and merchants under which the Registrant is entitled
to receive a share of revenue from the purchase of goods and
services by users of its web site properties. Such arrangements
may expose the Registrant to additional legal risks and
uncertainties, including potential liabilities to consumers of
such products and services. These activities expose the
Registrant to a number of additional risks and uncertainties,
including: potential liabilities for illegal activities that may
be conducted by participating merchants; products liability or
other tort claims relating to goods or services sold through
hosted commerce sites; consumer fraud and false or deceptive
advertising or sales practices; breach of contract claims
relating to merchant transactions; claims that materials included
in merchant sites or sold by merchants through these sites
infringe third-party patents, copyrights, trademarks or other
intellectual property rights, or are libelous, defamatory or in
breach of third-party confidentiality or privacy rights; claims
relating to any failure of merchants to appropriately collect and
remit sales or other taxes arising from e-commerce transactions;
and claims that may be brought by merchants as a result of their
exclusion from its commerce services or losses resulting from any
downtime or other performance failures in its hosting services.
In January of 2001, the Registrant launched IAuction.com, a
service that hosts online auctions for a wide variety of goods
and services. Auction services expose the Registrant to a number
of significant additional risks. For example, the Registrant does
not pre-screen the types of goods offered on its auctions, it is
aware that certain goods, such as alcohol, tobacco, firearms,
adult material and other goods that may be subject to regulation
by local, state or federal authorities may be traded on the
auction web site. The Registrant might not be able to prevent
the unlawful exchange of goods on its service, and may be subject
to civil or criminal liability for unlawful activities carried
out by users through its service. In addition, while the
Registrant takes no responsibility for delivery of payment or
goods to any user of its auctions, the Registrant anticipates
that users who did not receive the purchase price or the goods
that were to have been exchanged may register complaints with the
Registrant or seek to hold the Registrant liable. The Registrant
also anticipates that it will receive complaints from buyers as
to the quality of the goods purchased through its auctions, as
well as complaints alleging that comments posted by participants
of the service concerning other participants are unfair or
defamatory. Any claims or litigation arising from the
Registrant's auction activities could be costly. Any negative
publicity generated as a result of fraudulent or deceptive
conduct by users of these auctions could damage its reputation
and diminish the value of its brand name. In addition, the
Registrant anticipates that it will receive in the future,
communications alleging that certain items sold through its
auctions, or text and images posted by users in auction listings,
infringe third-party copyrights, trademarks or other intellectual
property rights. While its user policies prohibit the sale of
goods and posting of materials, which may infringe third-party
intellectual property rights, an allegation of infringement may
result in costly litigation.
ITEM 2. PROPERTIES.
The consolidated Registrant has over $1,800,000 in equipment
and furniture at a variety of co-locations for Internet wireless,
and server equipment plus the following office locations;
Internet Business's International, Inc.
Corporate Headquarters
4634 S. Maryland Pky, Suite 107
Las Vegas, Nev. 89119
West Coast Headquarters
3900 Birch Street, Suite 103
Newport Beach, Ca. 92660
International Headquarters
3 Boicho Voivoda str., 1024
Sofia, Bulgaria
Subsidiaries of Internet Business's International, Inc. (current
as of September 10, 2001)
1 st 2 Market, Inc.
4634 S. Maryland Pky, Suite107
Las Vegas, Nev. 89119
Guarantee Capital Group, a Corp.
18004 SkyPark Ci. Suite 170,
Irvine, Ca. 92614
Global Construction Buying Group, Inc.
1077 Goodman Rd., Hornlake, Mississippi 38654
LA Internet, Inc.
11500 Olympic Blvd, Suite 441, LA. Ca. 90064
1059 Court St. Suite 123, Woodland, Ca. 95695
4634 S. Maryland Pky, Suite 107, Las Vegas, Nev. 89119
Iauction.com Inc.
1077 Goodman Rd., Hornlake, Mississippi 38637
ITEM 3. LEGAL PROCEEDINGS.
Other than as set forth below, the Registrant is not a party
to any material pending legal proceedings other than ordinary
routine litigation incidental to the business and, to the best of
its knowledge, no such action by or against the Registrant has
been threatened.
The Registrant on March 2, 2001 filed an action in the
United States District Court, Central District of California
against Ronald Friedman, and The Ronald Friedman 1997 Grantor
Retained Annuity Trust (Case Number SA CV 01-268 DOC (Eex)) for
rescission of the purchase of the PMCC stock and return of the
$1,006,857. On August 16, 2001 Ronald Friedman, Robert Friedman,
and The Ronald Friedman 1997 Grantor Retained Annuity Trust filed
an action in the United States District Court, Southern District
of New York against the company (Case Number CV 01-7637), for the
balance of the contract in the amount of $2,191,143. Each side
has filed an answer to the complaints. The Registrant intends to
contest this matter vigorously. Management cannot take any
position at this time as to the likely outcome of the matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Registrant's
stockholders during the fourth quarter of the fiscal year covered
by this report.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information.
The common stock of the Registrant is traded on the Over the
Counter Bulletin Board under the symbol "IBUI" and the range of
closing bid prices shown below is as reported by the this market
place. The quotations shown reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
For the Fiscal Year Ended June 30, Per Share Common Stock Bid
Prices by Quarter
2000 2001
High Low High Low
1st Quarter 9-30 0.16 0.04 0.3125 0.1562
2nd Quarter 12-31 0.35 0.017 0.125 0.0625
3rd Quarter 3-31 2.00 0.0275 0.0781 0.0469
4th Quarter 6-30 0.74 0.20 0.05 0.03
Holders of Common Equity
As of September 10, 2001 there were 631 shareholders of
record of the Registrant's Common Stock.
Dividends
The Registrant has not declared or paid a cash dividend to
stockholders since it was organized. The Board of Directors
presently intends to retain any earnings to finance Registrant
operations and does not expect to authorize cash dividends in the
foreseeable future. Any payment of cash dividends in the future
will depend upon the Registrant's earnings, capital requirements
and other factors.
Equity Securities Sold Without Registration.
The Registrant made the following sales of unregistered
securities during the fiscal year ended December 31, 2000:
(a) During the quarter ended December 31, 2000, the Registrant
issued the following shares fo common stock: (a) 500,000 shares
of restricted 144 stock for the acquisition of Sonic Auction.Com;
and (2) 7,140,406 common stock were issued pursuant to the
agreement with the conversion rights of the preferred stock
issued December 15, 1998, upon the 10 day average of the closing
bid price prior to the to the conversion date.
(b) During the quarter ended March 31, 2001, the Registrant
issued the following shares of common stock: 18,981,080 on
conversion of additional preferred stock that was originally
issued December 15, 1998 (as discussed in subparagraph (a) above).
(c) During the quarter ended June 30, 2001, the Registrant
issued the following shares of common stock: 19,499,430 on
conversion of additional preferred stock that was originally
issued December 15, 1998 (as discussed in subparagraph (a) above).
No commissions or fees were paid in connection with these
sales. All of the above sales were undertaken pursuant to the
limited offering exemption from registration under the Securities
Act of 1933 as provided under Rule 506 of Regulation D by the fact that:
the sales were made to sophisticated investors as defined in Rule 502;
the information specified in paragraph (b)2(ii)(B) and
paragraph (b)(2)(ii)(C) of this section was provided to each investor;
the Registrant gave each purchaser the opportunity to ask
questions and receive answers concerning the terms and
conditions of the offering and to obtain any additional
information which the Registrant possessed or could acquire
without unreasonable effort or expense that is necessary to
verify the accuracy of information furnished;
at a reasonable time prior to the sale of securities, the
Registrant advised the purchasers of the limitations on
resale in the manner contained in paragraph Rule 502(d)2 of this section;
neither the Registrant nor any person acting on its behalf
sold the securities by any form of general solicitation or
general advertising; and
the company exercised reasonable care to assure that the
purchasers of the securities are not underwriters within the
meaning of section 2(11) of the Securities Act of 1933 in
compliance with Rule 502(d).
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for the years ended June 30,
2001, 2000, 1999, 1998, and 1997, are derived from the audited
financial statements of the Registrant and should be read in
conjunction with the audited financial statements included herein.
Statement of Operations Data:
(in thousands) Year End June 30
2001 2000 1999 1998 1997
Revenues $49,500 $10,169 $ 141 $ 2,378 $7,358
Cost of revenues 42,459 8,849 23 2,248 5,847
Gross profit (loss) 7,041 1,320 118 130 1,511
Sales & distribution exp. 4,090 375 43 525 1,512
General and admin exp. 2,702 2,822 157 366 529
Net operating income (loss) 107 (2,665) (82) (1,160) (530)
Net other income and expense 687 44 2,250 0 0
Net income (loss) 794 (2,596) 2,168 (1,160) (530)
Per common share net nil nil 0.01 nil nil
Weighted average 250,907 189,580 164,550 158,060 154,763
shares outstanding
Balance Sheet Data:
(in thousands)
Year End June 30
2001 2000 1999 1998 1997
Current assets 7,661 4,826 395 1 711
Fixed assets 4,413 3,459 0 0 800
Total assets 12,074 8,932 4,015 1,102 1,511
Current liabilities 6,902 3,602 30 1,819 1,947
Long-term debt 1,168 204 0 455 677
Shareholders' equity
(deficiency) 4,004 5,139 3,985 (2,273) (1,113)
The Registrant has not paid dividends in any of the periods presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with
the financial statements of the Registrant and notes thereto
contained elsewhere in this report.
Results of Operations.
(a) Comparison by Segment
The Registrant is a broadly based Internet company that
supports many operating divisions. Taking into consideration the
growth of many of our business in the last fiscal year,
management has begun to segment the company's businesses into
four operating divisions. These are as follows: (1) ISP, (2) On-
line Lending, (3) Direct Marketing, (4) eCommerce. The four
operating divisions are the level at which executive management
reviews the results of operations in order to make decisions
regarding performance assessments and resource allocations.
Certain general expenses related to advertising and marketing;
information systems; and finance and administrative groups are
not allocated to the operating segments and are included in the
"Other" section of the reconciliation of operating income reported below.
Information on reportable segments is as follows:
Twelve Months Ended
June 30 June 30
2001 2000
Full-service ISP
Net sales $ 4,912,285 $1,577,971
Operating income 2,037,932 (348,367)
Mortgage loan originations
Net sales 43,366,519 8,264,071
Operating income (83,571) (386,682)
E-Commerce (B2BC)
Net sales 278,668 47,002
Operating income (156,187) (164,341)
Marketing (B2BC)
Net sales 495,251 160,380
Operating income (825,858) (180,986)
Other income
Net income 447,316 119,666
Operating income (178,799) (1,584,293)
Total
Net sales 49,500,039 10,169,000
Operating income 793,517 (2,596,000)
(b) Comparison of Year to Year.
(1) Fiscal 2001 Compared to Fiscal 2000
Revenues for the twelve-month period ended June 30, 2001 of
$49,500,039 increased approximately 487% when compared with
revenues of $10,169,000 in the prior year. This revenue increase
is primarily due to the company's increase in mortgage loan
originations. Interest rates for mortgage loans since March of
2001 have remained in the range of 6% to 7% though the beginning
of September 2001 and it is expected that rates will remain in
this range throughout the end of 2001 - although it must be noted
that prime interest rates are beyond the company's control. It
is widely acknowledged that low rates encourage consumers to take
out mortgages for the purchase of homes and this condition has
impacted our business favorably. Aside from lower interest rates,
several other factors contributed to the increase in mortgage loans:
(A) The on-line lending division increased their amount of
Internet marketing over last year. This change contributed to a
lower cost of sales and increased the total audience that viewed their ads.
(B) The online lending division incorporated new Loan
Application Management software to automate loan applications.
The result was higher productivity per customer sales
representative and faster loan approval / decline times.
(C) The online lending division employed a Direct Underwriting
System. The division enjoyed quicker approval times due to this system.
Other factors that contributed to the increase in revenue include:
(A) Our ISP division began operations of BeyonDSL in April 2000.
We began to reach a critical mass of customers in this fiscal
year's reporting period.
(B) LA Internet integrated an automated billing system into
their operations. This allowed us more timely and comprehensive statements.
(C) Our eCommerce division added a number of high-ticket
products and sales were better than expected.
(D) Our Direct Marketing division began marketing an additional
offer our long distance savings product.
The gross profit of $7.041 million for the twelve months
ended June 30, 2001 is an increase of 533% when compared to the
gross profit for the prior twelve months of $1.32 million.
Profits increased as a result of revenues. Margins increased due
to a number of operating efficiencies implemented in the last
year and switching key suppliers. Some of the key factors include:
(A) Our On-line Lending division began marketing "bulk" loans to
financial institutions. The resulted in higher margins due to a
lower cost of sale per loan.
(B) Our ISP division switched backbone suppliers and reduced our
bandwidth costs.
(C) Our ISP division integrated an automated billing system into
their operations. This allowed us to bill more accurately.
(D) Our eCommerce division increased the number of high-ticket
products they retailed. We realized higher margins on these sales.
Selling, general and administrative expenses for the 2001
fiscal year of $5,921,184 were an increase of approximately 190% over the
$3,107,140 for the previous fiscal year 2000. The Registrant
invested in a number of infrastructure and systems upgrades in
order to automate key business functions. The upgrades came at
substantial costs but were off set by the increase in revenues.
The resulting profit for the twelve-month period ended June 30,
2001 of $793,516 was an increase of approximately 130% when compared to the
loss of $2,596,444 reported for the year ended June 30, 2000.
(2) Fiscal 2000 Compared to Fiscal 1999
Revenues for the twelve-month period ended June 30, 2000 of
$10,169,000 increased approximately 720% when compared with
revenues of $140,641 in the prior year. This revenue increase
is due to the acquisitions made by the Registrant since the end
of its last fiscal year.
The gross profit margin of 13% for the twelve months ended
June 30, 2000 is a significant decrease from the gross margin of
84% reported for twelve months ended June 30, 1999. Current
year margins in the past twelve months reflect the reopening of
the business as an Internet company after November 1998.
Selling general and administrative expenses for the 2000 fiscal year
of $3,107,140 were approximately 378% greater then those of fiscal year 1999
of $199,753 due to the increase of operations of the Registrant.
The resulting net loss after taxes for the twelve-month
period ended June 30, 2000 was $2,596,444 versus a reported loss
for the year ended June 30, 1999 of $81,836. This loss primarily
resulted from the acquisitions and investments made in the fourth
quarter of this fiscal year.
(3) Fiscal 1999 Compared To Fiscal 1998
Revenues for the twelve-month period ended June 30, 1999 of
$140,641 decreased approximately 94% when compared with revenues
of $2,378,000 in the prior year. This revenue decrease in due to
the shut down of Registrant operations and closing of the
business on January 18, 1998, and the reopening of the business
after the acquisition of the Registrant by the current control
group in November 1998.
The gross profit margin of 84% for the twelve months ended
June 30, 1999 is a significant increase from the gross margin of
1.3% reported for twelve months ended June 30, 1998. Current
year margins in the past twelve months reflect the reopening of
the business as an Internet company after November 1998.
Selling, general and administrative expenses for the 1999
fiscal year were approximately 25% those of fiscal year 1998 due
to the slowdown of operations of the Registrant approaching the
close of operations as of January 1, 1998 and the subsequent
reopening of the company in another industry.
The resulting loss for the twelve-month period ended June
30, 1999 was $81,836 versus a reported loss for the year ended
June 30, 1998 of $1,160,542.
Inflation.
The moderate rate of inflation over the past few years has
had an insignificant impact on the Registrant's sales and results
of operations during the period.
Liquidity and Capital Resources.
Net cash provided by operation of $258,019 for twelve-month
period ended June 30, 2001 was a significant reduction in cash
when compared to the cash balance of $1,661,693 for the twelve-
month period ended June 30, 2000. The company is currently cash
flow positive and is investing currently over $40,000 a week with
expanding its wireless Internet interstructure adding additional
clients. If the U.S. economy slows down significantly the plans
for the expansion of the wireless Internet will impacted and
possibly stopped.
Capital Expenditures.
There were several capital expenditures during the 2001
fiscal year, which includes purchase of additional servers and
wireless Internet equipment purchased for LA Internet.
Net Operating Loss Carry forwards.
For the fiscal year ended June 30, 2000, the Registrant had
net operating loss carry forwards for federal and state purposes
of approximately $2,596,444 and $1,340,297 respectively. These
carry forwards begin to expire in 2012 and 2002, respectively.
Forward Looking Statements.
The foregoing Management's Discussion and Analysis of
Financial Condition and Results of Operations contains "forward
looking statements" within the meaning of Rule 175 under the
Securities Act of 1933, as amended, and Rule 3b-6 under the
Securities Act of 1934, as amended, including statements
regarding, among other items, the Registrant's business
strategies, continued growth in the Registrant's markets,
projections, and anticipated trends in the Registrant's business
and the industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and
similar expressions identify forward-looking statements. These
forward-looking statements are based largely on the Registrant's
expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the Registrant's
control. The Registrant cautions that these statements are
further qualified by important factors that could cause actual
results to differ materially from those in the forward looking
statements, including, among others, the following: reduced or
lack of increase in demand for the Registrant's products,
competitive pricing pressures, changes in the market price of
ingredients used in the Registrant's products and the level of
expenses incurred in the Registrant's operations. In light of
these risks and uncertainties, there can be no assurance that the
forward-looking information contained herein will in fact
transpire or prove to be accurate. The Registrant disclaims any
intent or obligation to update "forward looking statements."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements as of and for the fiscal years ended
June 30, 2001, 2000, and 1999 are presented in a separate section
of this report following Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The names, ages, and respective positions of the directors
and executive officers of the Registrant are set forth below.
The Directors named below will serve until the next annual
meeting of the Registrant's stockholders or until their
successors are duly elected and have qualified. Directors are
elected for a one-year term at the annual stockholders' meeting.
Officers will hold their positions at the will of the board of
directors, absent any employment agreement, of which none
currently exist or are contemplated. There are no
arrangements, agreements or understandings between non-
management shareholders and management under which non-
management shareholders may directly or indirectly
participate in or influence the management of the Registrant's
affairs. There are no legal proceedings involving the officers
and directors of the Registrant.
Directors and Executive Officers.
(a) Louis Cherry, President/Chairman of the Board.
Mr. Cherry, age 74, was appointed Chairman of the Board, and
President of the Registrant in October of 1999. From 1995 to
1998, he was self-employed as a consultant and food broker. For
the period of 1993 to 1994, Mr. Cherry served as Chairman of the
Board for two automobile dealerships, University Oldsmobile &
Pontiac of Costa Mesa, California, and San Clemente Chrysler,
Jeep & Eagle of San Clemente, California. Previously, Mr. Cherry
was Chariman of the Board of a national bank and president of an
investment firm. Mr. Cherry has attended the University of
California at Los Angeles.
(b) Albert R. Reda, Chief Executive Officer/Secretary/Director.
Mr. Reda, age 55, was appointed a Director, Chief Executive
Officer, and Secretary of the Registrant in November 1998. From
1996 to 1998, he was employed with CRT Corporation as Vice
President in charge of production for manufacturing frozen food
products. For the period of 1994 to 1995, Mr. Reda was self-
employed in the financial lending area, buying and selling loans
between individuals and institutions. Mr. Reda received his
Bachelor of Science Degree from California State University, Long
Beach, with a major in engineering.
(c) Wade H. Whitely, III, Director.
Mr. Whitely, age 39, has been self-employed for the past
five years as a marketing and design consultant for several
mortgage companies, including Marina Mortgage Corp., Ocwen
Mortgage Inc., Community Mortgage Corp. and Western Thrift &
Loan. For approximately 2 and one-half years prior to that, he
was employed as an acting manager of Northwest Mortgage Corp. Mr.
Whitely has also recently designed and implemented e-commerce for
Sunglass Central, Optical Brigade, Net2 Loan, and Site- Creator.
Mr. Whitely earned his Bachelor of Science degree in finance from
Memphis State University.
Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 does
not apply to the Registrant since it is a reporting company under
Section 15(d) under that Act.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
Annual compensation Long-term
compensation
Awards Payouts
Other Securi All
Annual ties other
Name and Fiscal compen Restrict under compen
Principal Year Salary Bonus sation stock lying LTIP sation
Position (1) award options payouts
SARs
($) ($) ($) ($) (#) ($) ($)
Louis
Cherry,
President/
Treasurer 2001 $240,000 0 $ 9,600 0 0 0 0
2000 $160,000 0 1,260,000 0 0 0 0
1999 0 0 0 0 0 0 0
Albert
Reda,
Chief
Executive
Officer/
Secretary 2001 $240,000 0 $ 9,600 0 0 0 0
2000 $160,000 0 1,260,000 0 0 0 0
1999 0 0 0 0 0 0 0
Wade
Whitely,
III,
Executive
Vice
President 2001 $ 96,000 0 0 0 0 0 0
2000 0 0 0 0 0 0 0
1999 0 0 0 0 0 0 0
(1) On April 4, 2000, the Registrant issued 10,000,000 shares of
restricted common stock of the Registrant each to Mr. Cherry and
Mr. Reda. These shares are intended to compensate these
Directors for their services to the Registrant for the period of
November 1998 through October 1999, during which period neither
person received any compensation from the Registrant. Pursuant
to Item 402(b)(2)(iii) of Regulation S-K, these shares are valued
at the fair market value at the end of each calendar month during
that period when such compensation was earned.
Effective July 2000, Mr. Cherry and Mr. Reda receive car
allowances of $800.00 per month. On August 15, 2001, the
Registrant issued 7,750,000 shares of restricted common stock of
the Registrant each to Mr. Cherry and Mr. Reda (these issuances
are not shown in the chart above since they occurred after the
end of the 2001 fiscal year). These shares are issued as part of
their employment contracts. These shares were valued at $131,750.
Pursuant to Item 402(b)(2)(iii) of Regulation SK, these shares
were valued at the fair market value at the time they were
issued.
There are no annuity, pension or retirement benefits
proposed to be paid to officers, directors, or employees of the
Registrant in the event of retirement at normal retirement date,
as there is no existing plan provided for or contributed to by
the Registrant.
No remuneration is proposed to be paid in the future
directly or indirectly by the Registrant to any officer or
director since there is no existing plan that provides for such
payment, including a stock option plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the
beneficial ownership of shares of the Registrant's common stock
as of September 13, 2001, 282,736,029 shares were issued and
outstanding, of which 126,027,324 are restricted by (i) all
stockholders known to the Registrant to be beneficial owners of
more than 5% of the outstanding Common Stock; (ii) each director;
and (iii) all directors and executive officers of the Registrant
individually and as a group (each person has sole voting power
and sole dispositive power as to all of the shares shown as
beneficially owned by them):
Title of Name and Address Amount of Percent of
Class of Beneficial Owner Beneficial Class
Ownership
Common
Stock Reda Family Trust (1)
3338 Punta Alta, #1E
Laguna Hills, California 92653 29,600,000 10.47%
Common
Stock Cherry Family Trust (2)
29245 Pompano Way
Laguna Niguel, California 92677 15,916,086 5.63%
Common
Stock Romis Corp. (3)
P.O. Box 4321,
Mission Viejo, California 92690 17,750,000 6.27%
Common
Stock Albert Reda Corp. (4)
3900 Birch Street, Suite 103
Newport Beach, California 92660 17,750,000 6.27%
Common
Stock Wade Whitely, III
3900 Birch Street, Suite 103
Newport Beach, California 92660 2,000,000 0.71%
Common
Stock Albert R. Reda
3900 Birch Street, Suite 103
Newport Beach, California 92660 1,566,086 0.55%
Common
Stock Louis Cherry
3900 Birch Street, Suite 103
Newport Beach, California 92660 0 0.00%
Common
Stock Shares of all directors and
executive officers as a
group (3 persons) 84,582,172 33.45%
(1) Reda Family Trust is a trust created by Albert Reda for
shares obtained upon the change in control of the Registrant in
November 1998.
(2) Cherry Family Trust is a trust created by Louis Cherry for
shares obtained upon the change in control of the Registrant in
November 1998.
(3) Romis Corp. is a corporation controlled by Louis Cherry,
which holds shares issued as compensation for services performed
by Mr. Cherry for the Registrant.
(4) Albert Reda Corp. is a corporation controlled by Albert
Reda, which holds shares issued as compensation for services
performed by Mr. Reda for the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as set forth below, during the past two years,
there have not been any transaction that have occurred between
the Registrant and its officers, directors, and five percent or
greater shareholders.
(a) On August 27, 1999 the Registrant entered into an agreement
with Lifestyle Mortgage Partners for the acquisition of Mortgage
Loans Home, also know as "Lifestyle Mortgage Partners", page
online processing. Mr. Whitely, who became a director of the
Registrant on September 27, 2000, was a general partner of
Lifestyle. Under this agreement, the Registrant agreed to pay
this partnership a monthly fee of $5,000.00 as a monthly fee
(this was never paid since the acquisition did not realize
anticipated revenues). The Registrant did, however, issue a
total of 5,000,000 shares of restricted common stock under the
agreement.
(b) On November 1, 1999, the Registrant entered into an
agreement with Mr. Whitely for the acquisition of the Optical
Brigade.com website, and all of sunglasscentral and aces
marketing URL's. Under this agreement, the Registrant agreed to
pay Mr. Whitely a monthly fee of $500.00 from the revenue
generated by the website to maintain and upgrade the internet
search engine activities to the sites (this fee was paid for a
total of four months after the acquisition). In addition, the
Registrant issued a total of 400,000 shares of restricted common
stock under the agreement.
The purchase included all inventory and shipping supplies
as of the date of closing, and the following:
(1) all the contracts with the suppliers and contact information;
(2) the customer client base and contact information;
(3) product ordering procedures and forms;
(4) Virtual Cart Shopping Cart , Virtual Credit Card
Processing Terminal, Authorize.Net (American Express,
MasterCard, Visa, Discover/Novus and on line checks);
(5) invoicing and shipping procedures;
(6) procedure manual for operations; and
(7) source codes for operations;
(c) On January 1, 2000, Mr. Reda entered into an employment
agreement with the Registrant for the position of Chief
Executive Officer. The following are the material terms of this agreement:
(1) A salary of $180,000.00, payable in semi-monthly
installments in accordance with the Registrant's practices, less
normal payroll deductions. On the anniversary date of each year
through the fourth year, the salary each be increased by $1,000 per month.
(2) In addition to this compensation, the Registrant will
periodically review Mr. Reda's performance and services rendered
with a view to paying discretionary bonuses based upon above-
average or outstanding performance for a prior period. Any such
bonuses approved by the Registrant will be paid to Mr. Reda within
30 days of the grant thereof. The following performance
milestones shall justify the particular restricted stock bonuses,
to be issued by the company, as set forth below:
(A) At $2 million in sales, 500,000 shares of common stock.
(B) At $3 million in sales, 800,000 shares of common stock.
(C) At $5 million in sales, 1,000,000 shares of common stock.
(D) At $8 million in sales, 2,000,000 shares of common stock.
(E) At $10 million in sales, 2,500,000 shares of common stock.
(F) At $12 million in sales, 3,000,000 shares of restricted
common stock.
To date, the Registrant has paid a total of 7,750,000 shares of
common stock as a bonus under this agreement.
(3) In addition to the salary and bonuses stated above, Mr.
Reda will be eligible to participate in a health insurance plan,
including dependent coverage, supplied by the Registrant. Mr.
Reda will also be entitled to participate in any and all group
life, workers' compensation, health plan or accidental insurance
plans which are adopted by the Registrant for the benefit of
executive officers or employees. Mr. Reda will also be entitled
to such sick leave and paid holidays and to such other perquisites
of employment, as customarily are extended by the Registrant to
executive officers or employees. In addition, Reda will also be
entitled to vacation benefits.
(d) On January 1, 2000, Mr. Cherry entered into an employment
agreement with the Registrant for the position of President.
The following are the material terms of this agreement:
(1) A salary of $180,000.00, payable in semi-monthly
installments in accordance with the Registrant's practices, less
normal payroll deductions. On the first anniversary date of the
agreement, the salary will increase to $20,000 per month, and
$25,000 per month on the second anniversary date and thereafter.
(2) In addition to this compensation, the Registrant will
periodically review Mr. Cherry's performance and services rendered
with a view to paying discretionary bonuses based upon above-
average or outstanding performance for a prior period in the same
manner as Mr. Reda. To date, the Registrant has paid a total of
7,750,000 shares of common stock as a bonus under this agreement.
(3) In addition to the salary and bonuses stated above, Mr.
Cherry will be eligible to participate in other benefits as
outlined above for Mr. Reda.
PART IV.
ITEM 14. EXHIBITS, REPORTS ON FORM 8-K, AND INDEX TO FINANCIAL
STATEMENTS.
Exhibits.
Exhibits included or incorporated by reference in this
document are set forth in the Exhibit Index.
Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of
the fiscal year covered by this report.
Index to Financial Statements Page
Report of Independent Accountant 36
Consolidated Balance Sheets as of
June 30, 2001 and June 30, 2000 37
Consolidated Statements of Operations for the years ended
June 30, 2001, June 30, 2000, and June 30, 1999 38
Consolidated Statement of Stockholders' Equity
for the years ended June 30, 2001, June 30, 2000, and June 30, 1999 39
Consolidated Statements of Cash Flows for the years ended
June 30, 2001, June 30, 2000, and June 30, 1999 40
Notes to Consolidated Financial Statements 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Internet Business's International, Inc.
Dated: September 27, 2001 By: /s/ Albert R. Reda
Albert R. Reda
Chief Executive Officer, Secretary
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the date indicated.
Signature Title Date
/s/ Albert R. Reda
Albert R. Reda Chief Executive Officer, September 27, 2001
Secretary, and Director
/s/ Louis Cherry
Louis Cherry Chairman of the Board, September 27, 2001
President, and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Wade Whitely
Wade Whitely Director September 27, 2001
REPORT OF INDEPENDENT ACCOUNTANT
To the Board of Directors and Stockholders of
Internet Business's International, Inc.
We have audited the accompanying consolidated balance sheets of
Internet Business's International, Inc. and Subsidiaries as of
June 30, 2001 and 2000, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of
the three fiscal years ended June 30, 2001, 2000 and 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 consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Internet Business's International, Inc.
and Subsidiaries as of June 30, 2001 and 2000 and the results of
their operations and their cash flows for each of the three
fiscal years ended June 30, 2001, 2000 and 1999 in conformity
with generally accepted accounting principles.
/s/ Henry Schiffer C.P.A., a P.C.
Henry Schiffer C.P.A., a P.C.
Beverly Hills, California
September 10, 2001
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
June 30 June 30
2001 2000
Assets
Cash and cash equivalents $ 258,019 $ 1,661,963
Accounts receivable, net 200,968 128,389
Inventories 166,307 0
Mortgage notes held for sale 6,929,724 2,907,741
Prepaid expenses and other 106,092 127,905
Total current assets 7,661,110 4,825,998
Property and equipment, net 1,869,781 575,061
Intangible assets, net 2,543,697 2,884,174
Note receivable 0 654,009
$12,074,588 $ 8,939,242
Liabilities and Stockholders' Equity
Accounts payable $ 559,292 $ 317,998
Accrued liabilities 40,963 48,900
Revolving line of credit 6,230,678 2,958,563
Current portion of long-term debt 14,048 29,165
Deferred revenues 56,966 247,090
Other current liabilities 0 0
Total current liabilities 6,901,947 3,601,716
Long-term debt 1,168,453 203,931
Minority interest in subsidiaries 0 (5,868)
Stockholders' equity (deficit):
Preferred stock, par value $100.00 per share;
1,000,000 shares authorized; 0 and 23,900 issued
and outstanding at June 30, 2001 and 2000,
respectively. 0 2,390,000
Common stock, par value $0.01 per share;
349,000,000 shares authorized;267,236,029 and
221,115,113 shares shares issued and outstanding
at June 30, 2001 and 2000, respectively 2,672,360 2,211,151
Additional paid-in capital 3,669,490 3,669,490
Accumulated deficit (2,337,662) (3,131,178)
Total stockholders' equity 4,004,188 5,139,463
Total liabilities and stockholders' equity $12,074,588 $ 8,939,242
The accompanying notes are an integral part of these financial statements
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999
June 30 June 30 June 30
2001 2000 1999
Revenues $49,500,039 $10,169,090 $ 140,641
Costs and expenses:
Cost of revenues 42,458,697 8,848,582 22,724
Interest expense 142,406 86,611 0
Selling, general and administration 5,921,184 3,107,140 199,753
Depreciation and amortization 870,844 791,426 0
Total costs and expenses 49,393,131 12,833,759 222,477
Loss from operations 106,908 (2,664,669) (81,836)
Other income (expense) 686,608 44,157 0
Income (loss) before income taxes and
minority interest 793,517 (2,620,512) (81,836)
Income taxes (benefit) 0 8,800 0
Income (loss) before extraordinary
income and minority interest 0 (2,629,312) (81,836)
Forgiveness of debt 0 0 2,249,644
(Loss) income before minority interest 793,517 (2,629,312) 2,167,808
Minority interest in loss of subsidiaries 0 (32,868) 0
Net income (loss) 793,517 (2,596,444) 2,167,808
Net loss (income) per common share nil nil 0.01
Weighted average number of common shares
Outstanding 250,907,333 189,571,337 164,550,320
The accompanying notes are an integral part of these financial statements
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999
June 30 June 30 June 30
2001 2000 1999
Preferred stock:
Balance, beginning of year $ 0 $ 2,390,000 $ 0
Preferred stock issued 0 0 2,390,000
Balance, end of year 0 2,390,000 2,390,000
Common stock:
Balance, beginning of year 2,211,151 1,773,030 428,000
Common stock issued 461,209 438,121 1,345,030
Balance, end of year 2,672,360 2,211,151 1,773,030
Additional paid-in capital:
Balance, beginning of year 3,669,490 356,930 1,000
Common stock issued 0 3,312,560 355,930
Balance, end of year 3,669,490 3,669,490 356,930
Retained earnings (deficit):
Balance, beginning of year (3,131,178) (534,734) (2,702,542)
Net (loss) income for the year 793,516 (2,596,444) 2,167,808
Balance, end of year (2,337,662) (3,131,178) (534,734)
Total stockholders' equity 4,004,188 5,139,463 3,985,226
The accompanying notes are an integral part of these financial statements
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999
June 30 June 30 June 30
2001 2000 1999
Cash Flows From Operating Activities:
Net (loss) income $ 793,516 $(2,596,444) $ 2,167,808
Adjustment to reconcile net (loss)
income to net cash used by operating
activities:
Depreciation and amortization 870,844 830,736 0
Reserve for loss on accounts and notes
Receivable 119,372 150,000 0
Reserve for loss on mortgage loans
Receivable 100,000 100,000 0
Minority interest 0 (32,868) 0
Changes in operating assets and liabilities:
Accounts receivable (200,986) (148,813) (4,576)
Inventories (166,307) 0 0
Mortgage loans receivable net (699,046) 82,259 0
Prepaid expenses and other 106,092 271,900 (308,120)
Accounts payable 559,292 (278,617) (1,791,397)
Accrued liabilities 40,963 48,900 0
Deferred revenues 56,966 247,090 0
Other current liabilities (14,048) (1,800) 0
Net cash used in operating activities 1,566,658 (1,327,657) 63,715
Cash Flows From Investing Activities:
Purchases of property and equipment (1,713,601) (755,952) 0
Businesses acquired in purchase
transactions, net of cash paid (26,250) (104,865) 0
Purchases of intangible assets (85,506) (286,372) (1,120,000)
Net cash used in investing activities (1,825,357) (1,147,189) (1,120,000)
Cash Flows From Financing Activities:
Net repayments under revolving line of
Credits (125,116) (89,437) 0
Repayment of short-term borrowings 0 0 (453,200)
Net issuance of long-term debt 964,522 (61,887) 0
Repayment of notes payable (709,869) (181,832) 0
Collection of notes receivable 654,009 1,080,991 0
Investment by minority interest 0 27,000 0
Preferred Stock (2,390,000)
Issuance of common stock 461,209 3,279,397 0
Net cash provided by financing activities (1,145,245) 4,054,232 1,137,760
Net increase (decrease) in cash (1,403,944) 1,579,386 81,475
Cash, beginning of year 1,661,693 82,577 1,102
Cash, end of year 258,019 1,661,963 82,577
Interest paid 142,406 86,611 0
Acquisition of Businesses:
Fair value of:
Assets acquired 31,250 4,640,167
Liabilities assumed 0 (4,064,018)
Stock issued (5,000) (471,284)
Net cash paid for acquisitions 26,250 104,865
The accompanying notes are an integral part of these financial statements
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND CHANGE IN CONTROL
Prior to December 31, 1997, Internet Business's International,
Inc. (the "Company") was in the food product manufacturing
business formerly known as "International Food and Beverage,
Inc.". In November 1998, new stockholders bought majority
control from the previous Chief Executive Officer through a
private transaction. Immediately thereafter, the former CEO
resigned and the new stockholders assumed the executive
management positions. In December 31, 1998, after new management
was in place, a decision was made to change the Company's
principal line of business from a manufacturing business to a
high technology company. In connection with the change in
business, the Company changed its name from International Food &
Beverage, Inc. to Internet Business's International, Inc., and
reincorporated the Company on December 8, 1998 in the state of
Nevada. The Company, after January 1, 1999 began plans to offer
Internet based e-commerce services. In April of 1999, the Company
announce it's first e-commerce site and was engaged in the
development, operation and marketing of a number of commercial
The Company currently has operates four reporting divisions made
up of subsidiaries and or divisions of the Company. The four
division are as follows: Lending on Line (which includes real
estate loans and equipment leasing), Internet Service Provider
(which includes a national Internet access dial-up service,
wireless high speed Internet access in Las Vegas, Nevada and
Woodland, California, and Internet web design and hosting), E-
commerce (which includes auction sites, B2C and B2B Internet
transaction, and reverse auction sites for Europe and the United
States), Direct Marketing (which includes the direct marketing of
long distance phone services, computers with Internet access,
wireless high speed Internet access and bandwidth), and Internet
web design hosting). The Company has 7 offices in the US and 1 in
Europe and more than 60 employees.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Significant
intercompany balances and transactions are eliminated in
consolidation. Affiliated companies in which the Company does not
have a controlling interest are accounted for using the equity method.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant estimates include allowances doubtful
accounts and notes receivable and for mortgage loans receivable.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year classification.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid investments
with an original maturity date of three months or less to be cash
equivalents.
Mortgage Loans Held for Sale
Mortgage loans held for sale, are carried at the lower of cost or
market value as determined by outstanding commitments from
investors. The market value of the loans is based on the note
rate and the daily loans yield spread pricing from the bank that
is buying the loans. When a loan rate is locked then a
corresponding price or yield is calculated.
Example: note rate of $100,000 with a 7% locked rate from the
bank paying a yield premium of 101.00%. The value of the note
would then be $101,000. A note rate at 6.875% purchased by the
same bank could be valued at par and therefore the market value
is $100,000.
Mortgage loans held for sale are secured by the borrower's
mortgaged property. Revenues resulting from the sale of
mortgages are recognized as of the date the loans are sold to investors.
Property and Equipment
Property and equipment is stated at cost and depreciated or
amortized on a straight-line basis over the estimated useful
lives of the assets or the lease term, whichever is shorter.
Estimated useful lives range from 3 to 7 years.
Capitalized Computer Software
Capitalized computer software included in intangible and other
assets, reflects costs related to purchased Internet websites and
related software that are capitalized and amortized on a
straight-line basis over periods not exceeding five years. Costs
incurred to acquire or upgrade websites and other internal
software is capitalized in accordance with Statement of Position
98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Amortization expense for fiscal 2001
and fiscal 2000 was $ and, $324,910 respectively.
Intangible Assets
The Company has accounted for acquisitions of businesses under
the purchase method, and the excess of the purchase price over
the fair value of the net assets acquired is allocated to
subscriber member bases and customer lists, existing technology,
work force in place, trade names and residual goodwill, which are
being amortized on the straight-line basis over 5 years.
Long-Lived Assets
The Company periodically reviews the values assigned to long-
lived assets and intangible assets, such as property and
equipment, capitalized computer software, goodwill and other
intangibles assets, to determine whether any impairments are
other than temporary. Management reviews the undiscounted
projected cash flows related to such assets and compares them to
the carrying value of the assets to determine if impairment has
occurred. If an asset is deemed to be impaired, the Company
records the difference between the projected cash flows on a
discounted basis or the fair market value (whichever is more
appropriate) and the carrying value as an asset impairment charge
in the period incurred. There were no such impairments in the
periods presented. Management believes that the long-lived
assets and intangible assets in the accompanying balance sheets
are appropriately valued.
Additional Paid In Capital
By the end of March 2000, the Registrant issued an additional
7,000,000 shares of the Registrant's common stock, in a private
placement to a qualified investor which provided to the
Registrant $3,382,560.
There was no additional paid in capital during this fiscal year
ending June 30, 2001.
Revenue Recognition
Revenue is recognized for each of the division as follows:
ISP; for services provided fees paid are recognized as revenue.
For design work fees are paid after the work is completed at
which time it is reported as revenue. If the work is complete and
has not been paid it is a receivable. For services revenue is
recognized when paid for the time frame the services are
contracted for. If the company hosts or provide internet access
on a monthly bases then the revenue is booked as received which
is paid in advance of the service actually being rendered. During
fiscal 2001, the company recorded deferred revenues totaling $56,966.
E-commerce; for Auctions normal or reverse fees are paid upon the
completion of the auction and the product is either bought or
sold, revenue is reported only upon receipt of funds. For
services revenue is recognized when paid for the time frame the
services are contracted for. If we list the company in the
directory on monthly bases then we book the revenue as received,
which is paid in advance of the service actually being rendered.
For products purchased we report the revenue upon receipt of it
for products shipped. If the product is not shipped for any
reason then the funds are returned to the buyer and there is no
reporting of the funds as revenue.
Lending on line; for the real estate loans revenue is booked
according to the loans funded, revenue from fees for loans not
funded by the company (brokered loans) are booked upon receipt
thereof. For the on line leasing, revenue is booked upon receipt
of payment for advertising the web site on the net.
Direct Marketing; for products and or services sold revenue due
is either reported as account receivable or as revenue upon
receipt of the funds. During this fiscal year
Advertising Expense
All advertising costs are expensed when incurred.
Concentration of Credit Risk
The Company is subject to credit risk through trade receivables.
Monthly Internet access fees and web hosting are generally billed
to the customer's credit card, thus reducing the credit risk.
The Company routinely assesses the financial strength of
significant customers and this assessment, combined with the
large number and geographic diversity of its customers, limits
the Company's concentration of risk with respect to trade
accounts receivable.
Income Taxes
The Company accounts for income taxes under the asset and
liability approach where deferred income tax assets and
liabilities reflect the future tax consequences, based on enacted
tax laws, of the temporary differences between financial and tax
reporting at the balance sheet date.
Earnings per Share
Basic earnings per share are computed by dividing net income
(loss) by the weighted average of common shares outstanding for
the period. Diluted earnings per share are computed by adjusting
the weighted average number of shares outstanding during the
period for all potentially dilutive shares outstanding during the period.
New Accounting Pronouncement
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an
entity recognizes all derivatives as either assets or liabilities
in the statement of financial position and measures these
instruments at fair value. SFAS No. 133 is effective for the
Company in the third quarter of fiscal 2002. The Company is
currently evaluating what impact, if any, SFAS No. 133 may have
on its financial statements.
3. ACQUISITIONS AND SERVICE AGREEMENTS
The following notes refer to the Companies acquisitions and
service agreements after July 1, 1999, with the exception of the
listing of the LA Internet acquisition, which occurred in the
prior fiscal year ending June 30, 1999.
In June 1999, the Company acquired the assets of L.A. Internet, a
southern California-based Internet Service Provider, which
included customer accounts, trade name, websites, etc. for
$545,000 in exchange for a reduction of the Note Receivable from
Iron Horse Holdings, Inc. (see Preferred Stock Note 8).
Proforma information (unaudited) for the year ended June 30, 2000:*
LA Internet
Revenues $ 2,500,000
Cost of Operations & Expense $(1,920,000)
Net income (loss) $ 580,000
Income or (loss) per share $ nil
July 1999 MBM Capital Group was acquired for $72,000 and 112,667
shares (@ $.01 per share valued at $1,127) the company was sold
during the fiscal year of acquisition for a $150,000 note. After
the sale MBM ceased operations and the Company considers the note valueless.
In August 1999 and November 1999, the Company purchased Net 2
Loan, an on-line loan processing website and Optical Brigade, an
on-line sunglass distribution website from the same outside
party, respectively. The total purchase price was 5,050,000 (@
$.01 per share valued at is $50,500) and 400,000 shares (@ $.01
per share valued at $4,000) of restricted company stock, respectively.
Proforma information (unaudited) for the year ended June 30, 2000:*
Net 2Loan Optical Brigade
Revenues $ 630,000 $ 360,000
Cost of Operations & Expense $(310,000) $ (150,000)
Net income (loss) $ 320,000 $ 210,000
Income or (loss) per share $ nil $ nil
In December of 1999 the company entered into a service agreement
to market the Company services on the Internet for 6,000,000
shares (@ $.01 per share valued at $60,000).
In February 2000, the Company acquired the assets and assumed
certain liabilities of Direct Communications, Inc., a wireless
communications company. In addition to assuming certain
liabilities, the Company paid cash of $80,000 and issued 30,000
shares (@$.01 per share valued at $300) of restricted company
stock. Intangible assets purchased totaled $265,000, consisting
of customers lists, website and workforce-in-place and is being
amortized over 5 years.
Proforma information (unaudited) for the year ended June 30, 2000:*
Allstates Communications
Revenues $ 1,200,000
Cost of Operations & Expense $ (900,000)
Net income (loss) $ 300,000
Income or (loss) per share $ nil
In March 2000, the Company acquired the assets and assumed
certain liabilities of Internet 2xtreme, and Internet Service
Provider based in northern California. The total purchase price
was $735,000, which consisted of cash of $17,635, restricted
company stock amounting to $186,884 (the company issued 124,589
shares based the current upon a share value of $1.50 per share)
and assumption of certain liabilities. In connection with the
acquisition, the Company recorded intangible assets of
approximately $666,000, which consisted of approximately 4,800
customer accounts, website and workforce-in-place, and are being
amortized over 5 years.
Proforma information (unaudited) for the year ended June 30, 2000:*
2xtreme
Revenues $ 720,000
Cost of Operations & Expense $(600,000)
Net income (loss) $ 120,000
Income or (loss) per share $ nil
Also in March 2000, the Company acquired 80% of the outstanding
shares of Global GPP for $500,000. Global GPP owns a business-
to-business website and has strategic agreements with IBM Hungary
to market business-to-business services in Eastern Europe.
Proforma information (unaudited) for the year ended June 30, 2000:*
Global GPP
Revenues $ 11,253,224
Cost of Operations & Expense $ (5,444,994)
Net income (loss) $ 5,808,230
Income or (loss) per share $ nil
During this quarter an additional 4,113,871 shares (@. 01 per
share valued at $41,139) for services.
In April 2000, the Company acquired all of the outstanding stock
of Atlas Capital Corporation, a mortgage-banking company, for
600,000 (@ $.01 per share equals $6,000) shares of Company stock.
In connection with the acquisition, the Company acquired assets
of approximately $3,183,000 and assuming liabilities of
approximately $3,179,000. The difference of $260,000 was
recorded as intangible assets related to acquisition of trade
names, websites, workforce-in-place and is being amortized over 5 years.
Proforma information (unaudited) for the year ended June 30, 2000:*
Atlas Capital
Revenues $ 37,349,000
Cost of Operations & Expense $ (2,651,000)
Net loss $ (2,498,000)
Loss per share $ (nil)
Other acquisitions occurred during the year ended June 30, 2000
that were not deemed to be material transactions. All
acquisitions are accounted for under the purchase method of
accounting and accordingly, the operations and net assets have
been included in the Company's consolidated financial statements
from the date of acquisition.
*The unaudited Proforma information has been prepared assuming
that material acquisitions during the year ended June 30, 2000
have taken place at the beginning of the respective period
presented. The pro forma information is not necessarily
indicative of the combined results that would have occurred had
the acquisitions taken place at the beginning of the period, nor
is it necessarily indicative of the result that may occur in the
future. The pro forma for immaterial transactions are not
included in the pro forma information.
In October 5, 2000 the Company acquired the auction web site
Sonic Auction. for 500,000 (@$.01 per share equals $5,000) shares
of restricted stock as per rule 144. The site primarily was a
database and a functioning web auction site. Since the web site
did not generate revenue at the time of acquisition but did
provide an additional database that the Company could use to
cross-market other Company products to, therefore a Performa was
not developed for this acquisition.
4. CERTAIN FINANCIAL STATEMENT INFORMATION
June 30 June 30
2001 2000
Accounts receivable:
Accounts receivable $ 396,977 $ 303,924
Less: allowance for doubtful accounts (196,009) (175,535)
Accounts receivable, net $ 200,968 $ 128,389
Mortgage loans held for sale:
Mortgage loans held for sale $ 7,049,096 $ 3,013,203
Less: allowance for loan losses (119,372) (105,462)
Mortgage loans held for sale, net $ 6,929,724 $ 2,907,741
Property and equipment:
Office furniture and equipment $ 47,155 $ 74,051
Machinery and computer equipment 2,239,781 824,234
Leasehold improvements 1,726 2,182
Less: accumulated depreciation (418,881) (325,406)
Property and equipment, net $ 1,869,781 $ 575,061
Intangible assets:
Capitalized software costs, including websites $ 1,270,156 $ 1,653,872
Subscriber member bases 1,302,118 1,190,632
Others, including customer lists, existing
technology, trade names 423,386 545,000
Less: accumulated amortization (451,963) (505,330)
Intangible assets, net $ 2,543,697 $ 2,884,174
5. Revolving Lines of Credit
The Company has a master mortgage loan warehousing agreement
(credit facility) with a lender that provides a maximum of
$5,000,000 under specified conditions to fund residential
mortgages to customers. The residential loans serve as
collateral, and funds are advanced up to 98% of the unpaid
principal amount of the qualified mortgage loan granted to the
customer. The credit facility bears interest at the Prime Rate
(9.5% at June 30, 2000) plus 1.0% for loans outstanding for 60
days or less. The interest rate increases to Prime Rate plus
4.0% for loans outstanding between 60 and 120 days, and increases
to Prime Rate plus 6.0% for amounts outstanding over 120 days.
At June 30, 2001 and 2000, amounts outstanding under the credit
facility were $0 and $2,579,346, respectively. Subsequent to
June 30, 2000, the credit facility was amended to reduce the
maximum available facility to $3,500,000, and the Company did not
renew the line when it came up for renewal during the fiscal year
ending June 30, 2001.
On February 1, 2000, the Company entered into a Master Repurchase
Agreement that provides the Company with a warehouse facility
through IMPAC Warehouse Lending Group ("IMPAC"). The IMPAC line
provides the Company with an open warehouse credit line (as set
forth by IMPAC) for the Company's mortgage originations only.
Under the terms of the agreement, the Company must repay the
funded amount within 30 days of the date the funds were disbursed
with interest at the Prime Rate plus 1.0%. If the funds are not
repaid within 30 days, the interest rate increases to Prime Rate
plus 3.0% until repaid, and IMPAC reserves the right to sell the
loan and any shortfall remains the liability of the Company. The
IMPAC line is secured by the mortgage loans funded with the
proceeds of such borrowings. The IMPAC line does not have a
stated expiration date but is terminable by either party upon
written notice. Amounts outstanding under the IMPAC line at June
30, 2001 and 2000 were $ 6183,228 and $ 254,217, respectively.
On March of 2001, the Company entered into a Master Repurchase
Agreement that provides the Company with a warehouse facility
through Imperial Warehouse Lending Group ("Imperial"). The
Imperial line provides the Company with an open warehouse credit
line (as set forth by Imperial) for the Company's mortgage
originations only. Under the terms of the agreement, the Company
must repay the funded amount within 30 days of the date the funds
were disbursed with interest at the Prime Rate plus 1.0%. If the
funds are not repaid within 30 days, the interest rate increases
to Prime Rate plus 3.0% until repaid, and Imperial reserves the
right to sell the loan and any shortfall remains the liability of
the Company. The Imperial line is secured by the mortgage loans
funded with the proceeds of such borrowings. The Imperial line
does not have a stated expiration date but is terminable by
either party upon written notice. Amounts outstanding under the
IMPAC line at June 30, 2001 and 2000 were $ 865,468 and $ 0, respectively.
The effective interest rate for the credit lines listed above
were as follows per quarter, the interest charge is deducted from
the sale proceeds of the funded loans and is booked as a cost of revenue:
Quarter Prime Rate Impac Imperial* Number of Loans
Held over 30 Days
Sept. 30 2000 9.50% 10.5% N/A 0
Dec. 31, 2000 9.50% 10.5% N/A 0
March 31, 2001 8.0% 9.0% 9.0% 0
June 30, 2001 6.75% 7.75% 7.75% 0
* Imperial line not in use prior to March 2001
In addition, the Company has a bank line of credit that provides
for maximum borrowings up to $125,000. The line of credit is
personally secured by certain officers of the Company, and
currently bears interest at 11.5% at June 30, 2000 and is due on
August 31, 2000. The outstanding balance against the line of
credit as of June 30, 2001 and 2000 were $ 0 and $125,000,
respectively. The Company paid off the line of credit line during
the fiscal year ending June 30, 2001, because it was no longer required.
All credit facilities and bank line of credit require the Company
to maintain certain financial ratios and adhere to specific non-
financial requirements. At June 30, 2001, the company was in
compliance with the various covenants contained in the above agreements.
6. Long-Term Debt
Long-term debt at June 30, 2001 consists of the following:
Current
Portion Long-term Total
Note payable to secured by certain
Company assets, requiring monthly
payments of $6,494, including
interest at 12.25%, due May 5, 2007 $ 40,506 $ 283,014 $323,520
During the fiscal year certain real estate loans defaulted. The
Companies subsidiary is making payment to the lender that
purchased the defaulted loans. These payments are made at the
note rate for each loan. The Company has filed claims with the
Companies E&O Insurance carriers. and until the claims are either
denied or paid the company lists these debts as long-term debt.
These notes total $844,933. Effective September 1, 2001 the
Company sold the subsidiary Atlas Capital and these liabilities
are included in the sale.
7. Extraordinary Item
After review by legal counsel about the predecessor company's
(see Note 1) unsecured prior debts, it was determined by legal
counsel the Company was no longer liable for certain of the
predecessor company's unsecured debt and management elected to
write-off the debts during the fiscal year ended June 30, 1999
and is included as an extraordinary item as forgiveness of debt income.
8. Stockholders' Equity
Authorized Shares
During November 2000, the board of directors of the Company
amended the articles of incorporation to increase the number of
authorized shares of common stock to 349,000,000 shares.
Stock Issuance
The Company had and issued and outstanding 221,115,113 by the end
of the previous fiscal year ending June 30, 2000. During this
fiscal year there were 46,120,916 additional shares issued for a
total of 267,236,029 issued and outstanding.
During the Quarter ending December 31, 2000; the following shares
were issued 1. 500,000 shares of restricted 144 stock for the
acquisition of Sonic Auction.Com and 2. 7,140,406 common stock
were issued pursuant to the agreement with the conversion rights
of the Preferred Stock issued December 15, 1998, upon the 10 day
average of the closing bid price prior to the to the conversion date.
During the Quarter ending March 31, 2001 the following shares
were issued; 18,981,080 in exchange for Preferred Stock that was
originally issued December 15, 1998.
During the Quarter ending June 30, 2001 the following shares were
issued: 19,499,430 additional for the conversion of the Preferred
Stock (that were originally issued December 15, 1998) into common stock.
After the Quarter ending June 30, 2001, the following shares were
issued: 15,500,000 as per employment contract.
After the end of the fiscal year an additional 15,500,000 shares
were issued bring the total number to 282,736,029 common snares
issued and outstanding of which 134,495,037 are restricted.
During March 2000, the Company issued 7,000,000 shares of common
stock through a private placement transaction, resulting in net
proceeds to the Company of $3,382,560.
The Company also issued 6,422,667 and 8,000,000 shares of Company
stock in connection with the acquisition of business's or net
assets during the fiscal years ended June 30, 2000 and 1999,
respectively. The Company also issued 30,389,449 and 11,242,790
shares of Company stock in connection with services provided or
rendered during the fiscal years ended June 30, 2000 and 1999,
respectively.
Preferred Stock
On December 15, 1998, the Company entered into an agreement with
Iron Horse Holdings, Inc. ("IHHI"), a privately held company that
in which officers or family members of the officers of the
Company have minority stock ownership, for IHHI to purchase
23,900 shares of the Company's preferred stock with a par value
of $100.00 per share, in exchange for a promissory note
receivable from IHHI in the amount of $2,500,000. The difference
between the par value of the shares and the purchase price is
treated as additional paid-in-capital. Shares purchased under
the agreement are to be issued to IHHI or its designee. The
promissory note receivable bear interest at 9% per annum, and is
secured by a blanket security agreement executed by IHHI and
perfected by filings as specified by law. Until such note is
paid in full, IHHI shall pay the 3% coupon on such shares as are
issued under the agreement directly to the shareholder(s) of
record at the time such payment is due. During the fiscal year
ending June 30, 2001, the company-received payment in full on the
note executed by IHHI, also during this fiscal year IHHI
converted the preferred into common stock. There are no preferred
shares issued and or outstanding as of this date.
During Fiscal June 30, 2000 the Company received the following
payments on the note executed by IHHI,
Date Balance Payment Interest Paid
June 30, 1999 $1,735,000
Sept. 30, 1999 $1,464,754 $270,246 $39,037
Dec. 31, 2000 $1,194,508 $270,246 $32,957
March 31, 2000 $ 924,262 $270,246 $26,876
June 30, 2000 $ 654,009 $270,253 $20,796
Total $ 654,009 $1,080,991 $119,666
During Fiscal June 30, 2001 the Company received the following
payments on the note executed by IHHI,
Date Balance Payment Interest Paid
June 30, 2000 $ 654,009
Sept. 30, 2000 $ 490,509 $163,500 $14,715
Dec. 31, 2000 $ 327,009 $163,500 $11,036
March 31, 2001 $ 163,509 $163,500 $ 7,357
June 30, 2001 $ 0 $163,509 $ 3,679
Total $ 0 $654,009 $36,787
9. Income Taxes
The provision for income taxes for the years ended June 30, 2001
and 2000 consist of the following (there were no provision for
income taxes on the financials due to the net loss carry forward
from the previous years operations):
June 30 June 30
2001 2000
Current income tax expense:
Federal $ 269,795 $ 5,600
State 0 3,200
269,795 8,800
Deferred income tax expense:
Federal 0 0
State 0 0
0 0
$ 0 $ 8,800
Amounts for deferred income tax assets and liabilities as follows:
Assets $ 269,795 $ 485,500
Valuation allowance (269,795) (485,500)
0 0
Liabilities 0 0
Net tax asset or liability $ 0 $ 0
Deferred income tax assets consist primarily of net operating
loss carry forwards. The Company has provided for a full
valuation allowance on the deferred income tax assets as the
realization of such benefits are uncertain. Such carry forwards
begin to expire beginning in 2004.
For the year ended June 30, 1999, the Company excluded the
forgiveness of debt income from taxable income pursuant to
Internal Revenue Code Section 108(A)(1)(B) and 108(B).
10. Commitments
The Company leases certain of its office facilities and certain
equipment under the terms of noncancellable operating leases,
which expire through May 2003. Lease payments under these
agreements totaled $ 176,095 and $138,276 for the years ended
June 30, 2001 and 2000.
The future minimum rental commitments at June 30, 2001 under
these leases are as follows:
Year Ending June 30,
June 30, 2002 133,632
June 30, 2003 80,503
$214,135
11. Segment Information
In accordance with SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," management has determined
that there are four reportable segments based on the customers
served by each segment: Full service internet service provider
(ISP), mortgage banking business, and business-to-business
("B2B") provider and business-to-consumer ("B2C") provider. Such
determination was based on the level at which executive
management reviews the results of operations in order to make
decisions regarding performance assessment and resource allocation.
Full service Internet service provider serves customers requiring
Internet access in the western United States through dial-up, and
high-speed wireless; web hosting and web design. Mortgage
banking business includes online mortgage loan origination,
processing, servicing and resales. Business-to-business provider
primarily provides reverse auction services to foreign companies
wishing to purchase materials and supplies in the United States.
Business-to-consumer provider primarily consists of cellular
phone service origination fees and sales.
Certain general expenses related to advertising and marketing,
information systems, finance and administrative groups are not
allocated to the operating segments and are included in "other"
in the reconciliation of operating income reported below. The
accounting policies of the segments are the same as those
described in the summary of significant accounting policies (see
Note 2). Information on reportable segments is as follows:
June 30 June 30
Fiscal Year Ended 2001 2000
Full-service ISP
Net sale $ 4,912,285 $ 1,577,971
Operating income.................. 2,037,932 (348,367)
Mortgage loan originations held for resale
Net sales 43,366,519 8,264,071
Operating income (83,571) (386,682)
E Commerce (B-to-b/c)
Net sales 278,668 47,002
Operating income (156,187) (164,341)
Marketing (B-to-b/c)
Net sales 495,251 160,380
Operating income (825,858) (180,986)
Other
Net income 447,316 119,666
Unallocated expenses (178,799) (1,584,293)
Total
Net sales 49,500,039 10,169,090
Operating income 793,517 (2,664,669)
12. Other Events
a. PMCC
On August 2, 2000, the Company announced that it has entered into
an agreement whereby the Company would purchase 2,460,000 share
of PMCC Financial Corp. ("PMCC"), a full-service mortgage banking
company, common stock from PMCC's former chairman of the board,
Ronald Friedman, and The Ronald Friedman 1997 Grantor Retained
Annuity Trust Ronald Friedman, which represents 66.36% of the
3,707,000 PMCC shares outstanding. The aggregate purchase price
of $3,198,000 is to be paid in cash to the seller by the Company
as follows: $700,000 at date of closing; $306,857 for each of the
seven installment payments to be paid on the 30th, 60th, 90th,
120th, 150th, 180th and 210th days following the close; $175,000 on
each of the 240th and 270th day after the date of the closing.
Shares of PMCC, a listed AMEX company, were not trading at the
time of the agreement. In the event that three months after
closing, if PMCC's shares are not actively trading on the AMEX or
NASDQ exchanges and the Company has not merged PMCC with the
Company or any of the Company's subsidiaries, the purchase price
shall be reduced by the amount of the final two $175,000 payments.
Also on July 28, 2000, in a separate transaction, the Company
entered into a stock purchase agreement with an unrelated
individual whereby the Company would sell up to 370,000 of PMCC
shares that the Company either owns or will eventually own, for
total consideration of $1,387,500. Shares of PMCC stock sold by
the Company will be released to the buyer in proportion to
payments received.
The Company on March 2, 2001 filed an action against Ronald
Friedman, and The Ronald Friedman 1997 Grantor Retained Annuity
Trust (Case Number SA CV 01-268 DOC (Eex)) for recession of the
purchase of the PMCC stock and return of the $1,006,857 on August
16, 2001 Ronald Friedman, Robert Friedman, and The Ronald
Friedman 1997 Grantor Retained Annuity Trust filed an action
against the company (Case Number 01CV 7637), for the balance of
the contract in the amount of $2,191,143. The company action was
filed in Orange County; CA. and Mr. Friedman's complaint was
filed in Southern District, New York. The company feels that it
will prevail in both actions.
As of December 31, 2000, the Company received payments of
$559,812 and the Company released 149,283 shares of PMCC stock
that it owned. If PMCC is not actively trading within six months
of the agreement, the Company will issue to the Buyer the
equivalent number of shares of stock of the Company. PMCC has
been actively trading as of January 19, 2001, and the gain on the
sale of the PMCC stock of $410,529 has been included in revenues
for the period ending December 31,2000.
In January 2001, the PMCC was delisted from the American Stock
Exchange and began trading on the Pink Sheets under the symbol of
"PMCF"; this met the trading requirement as per the stock sale
agreement the Company had entered into with an unrelated
individual during the first quarter of this fiscal year.
b. IBC
On August 11, 2000, the Company entered into an agreement to
acquire all of the outstanding shares of International Business
Co., a software developer that streamlines B2B e-commerce, in
exchange for 2,000,000 shares of restricted Company shares to be
held in escrow. Between the periods from September 1, 2000
through March 1, 2001, the Company can unilaterally cancel the
contract if dissatisfied with the seller's performance. The
Company canceled the purchase during the cancellation period
agreed in the escrow.
c. Auction-Sales.Com, Inc.
On October 19, 2000, the Registrant entered into a Stock
Purchase Agreement with Auction-Sales.Com, Inc. and its majority
shareholder, Zahid Rafiq (collectively, "Seller"), for the
purchase by the Registrant of 96.62% of the outstanding and
treasury shares of common stock of Auction-Sales.Com, Inc., a
Delaware corporation (see Exhibit 10.15 of this Form 10-Q). In
exchange for the shares, the Registrant will pay, under the terms
of this agreement, the following:
(a) 11,000,000 shares of Registrant's restricted common
stock to Seller for all of Seller's Shares, as follows:
(i) 5,500,000 restricted shares will be issued to
current shareholders, identified on the list attached
to the Agreement.
(ii) 2,500,000 restricted shares will be paid to
certain creditors of the Registrant identified in an
attachment to the Agreement. Seller represents that
all of these creditors are unsecured. Seller shall
procure signed consents from each creditor confirming
the agreement to accept restricted shares in proportion
to their claims within 60 days of closing of the
transaction. Failure to procure signed consents will
justify rescission of this Agreement at the option of
the Registrant, such that each party shall restore to
the other the consideration which each placed into the Agreement.
(iii) 3,000,000 restricted shares of the
purchase price will be paid to outside consultants for
work performed for facilitating the transaction.
(b) Earn out for the "Seller": The Seller shall be paid up
to an additional $3,000,000 based upon earnings over the next 3
years through additional restricted stock. The earn out will be
based on a 10% growth per year over the previous years revenue.
The $3,000,000 will be distributed equally over the subsequent 3
year i.e. $1,000,000 per year, and can be cumulative. This earn
out is further defined as follows:
(i) The initial base Year ends on September 30, 2000.
The subsequent year base will be the previous revenue.
(ii) The stock will be issued per quarter upon reaching
the Goal per quarter for that portion of the annualized growth of 10%
over the previous year.
(c) The Registrant may invest up to $2,000,000 in Auction-
Sales.Com, Inc., at a rate not to exceed $500,000 per quarter,
based on performance on Auction-Sales.Com as a function of gross
revenues and based on a budget, which is pre-approved by the Registrant.
Auction-Sales.Com is an e-commerce pricing application
service provider. Auction-Sales.Com has developed a proprietary
state of the art hybrid auction platform that address the
combined needs of the B2C, B2B and C2C markets. This is
accomplished by providing a single integrated marketplace and
portal technology that empowers all parties, including
manufacturers, distributors, resellers and consumers. The
Auction-Sales.Com platform provides supply chain integration and
economies of scale in connection with dynamic pricing application
targeting businesses and /or consumers.
This acquisition was rescinded in December 2000 and the
necessary documents were filed with the SEC. The site was
retained until the funds invested into Auction-Sales.Com are
returned which at this time management has very low expectations
of occurring.
13. Other Agreements
a. Washington State Hotel and Motel Association.
The agreement, entered into in the ordinary course of
business, with the Washington State Hotel and Motel Association,
dated October 4, 2000, provides the use of the GGPP reverse
auction site as a platform for hotel association members
purchasing products needed for their different hotel properties.
This method of purchasing allows the suppliers of products the
chance to sell products to the buyers in competition with one
another; the net effect is that the buyers would select the
supplier with the lowest per unit cost. This reduces the cost of
supplies and thereby should increase their potential of profit.
This agreement covers the modification of the GGPP website for
use by the Association, and does not involve any payment by the
Registrant.
b. JWC Construction
The agreement, entered into in the ordinary course of
business, with the JWC Construction Company of Poland, dated
March 9, 2001 which will enable companies to list their
purchasing requirements on projects using the reverse auction
platform. This method of purchasing allows the suppliers of
products the chance to sell products to the buyers in
competition with one another; the net effect is that the buyers
would select the supplier with the lowest per unit cost. This
reduces the cost of supplies and thereby should increase their
potential of profit. This agreement covers the modification of
the Construction Buying Group website for use by the Construction
industry, and does not involve any payment by the Registrant.
EXHIBIT INDEX
Number Description
2.1 Agreement and Plan of Merger between the Registrant and
Internet Business's International, Inc., a Delaware
corporation, dated July 1, 1999 (incorporated by
reference to Exhibit 2 to the Form 8-K/A filed on
November 22, 1999)
2.2 Agreement and Plan of Merger and Share Exchange among
the Registrant, Return Assured Incorporated, and IBUI
Acquisition Corporation, dated June 4, 2001 (see below).
3.1 Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Form 10-Q filed on December 1, 1999).
3.2 Certificate of Amendment of Articles of Incorporation
(incorporated by reference to Exhibit 3.2 to the Form
10-Q filed on December 1, 1999).
3.3 Certificate of Amendment of Articles of Incorporation
(incorporated by reference to Exhibit 3.3 of the Form
10-Q filed on May 22, 2000).
3.4 Certificate of Amendment of Articles of Incorporation
(incorporated by reference to Exhibit 3.4 of the Form
10-Q filed on May 22, 2000).
3.5 Bylaws (incorporated by reference to Exhibit 3.3 to the
Form 10-Q filed on December 1, 1999).
4.1 Retainer Stock Plan for Non-Employee Directors and
Consultants, dated October 1, 1999 (incorporated by
reference to Exhibit 4.1 to Form S-8 filed on October
8, 1999)
4.2 Consulting Agreement between the Registrant and Mark
Crist, dated October 5, 1999 (incorporated by reference
to Exhibit 4.2 to Form S-8 filed on October 8, 1999)
10.1 Purchase Agreement (LA Internet) between the Registrant
and Iron Horse Holdings, Incorporated, dated June 10,
1999 (incorporated by reference to Exhibit 10.2 to the
Form 10-Q filed on December 1, 1999).
10.2 Purchase Agreement between the Registrant and the
Stockholders of MBM Capital Group Inc., dated July 1,
1999 (incorporated by reference to Exhibit 10.3 to the
Form 10-Q filed on December 1, 1999).
10.3 Acquisition Agreement (Net 2 Loan) between the
Registrant and Lifestyle Mortgage Partners, dated
September 15, 1999 (incorporated by reference to
Exhibit 10.4 to the Form 10-Q filed on February 22, 2000).
10.4 Purchase Agreement (license) between the Registrant and
Stockholders of California Land & Home Sale, Inc.,
dated October 1, 1999 (incorporated by reference to
Exhibit 10.5 to the Form 10-Q filed on February 22, 2000).
10.5 Acquisition Agreement (Optical Brigade) between the
Registrant and Wade Whitley, dated November 1, 1999
(incorporated by reference to Exhibit 10.6 to the Form
10-Q filed on February 22, 2000).
10.6 Employment Agreement between the Registrant and Al
Reda, dated January 1, 2000 (see below).
10.7 Employment Agreement between the Registrant and Louis
Cherry, dated January 1, 2000 (see below).
10.8 Agreement for Acquisition between the Registrant and
Direct Communications, Inc., dated February 25, 2000
(incorporated by reference to Exhibit 10.6 of the Form
10-Q filed on May 22, 2000).
10.9 Agreement between the Registrant and Internet 2xtreme,
dated March 6, 2000 (incorporated by reference to
Exhibit 10.7 of the Form 10-Q filed on May 22, 2000).
10.10 Agreement between the Registrant, Roanoke Technology
Corp., and Global GPP Corp., dated March 21, 2000
(incorporated by reference to Exhibit 10.8 of the Form
10-Q filed on May 22, 2000).
10.11 Agreement between GPP Hungary Kft and Haitec
Magyarorazagi Kft, dated March 30, 2000 (incorporated
by reference to Exhibit 10.9 of the Form 10-Q filed on
May 22, 2000).
10.12 Stock Purchase Agreement between the Registrant and
Atlas Capital Corporation, dated April 1, 2000
(incorporated by reference to Exhibit 10.10 to the Form
10-K filed on September 27, 2000).
10.13 Stock Purchase Agreement between the Registrant and
Ronald Friedman, Robert Friedman, and The Ronald
Friedman 1997 Grantor Retained Annuity Trust, dated
July 28, 2000 (incorporated by reference to Exhibit
10.11 of the Form 10-Q filed on November 16, 2000).
10.14 Stock Sales Agreement between the Registrant and a
buyer, dated July 28, 2000 (incorporated by reference
to Exhibit 10.12 of the Form 10-Q filed on November 16, 2000).
10.15 Stock Purchase Agreement between the Registrant,
International Business Company, Dennis B. Ginther,
Clifford J. Roebuck, Jadwiga L. Ginther, and Bogumila
E. Basu , dated August 19, 2000 (incorporated by
reference to Exhibit 10.13 of the Form 10-Q filed on
November 16, 2000).
10.16 Stock Purchase Agreement between the Registrant, Sonic
Auction.com, Inc., and Brian Pruett, dated October 5,
2000 (incorporated by reference to Exhibit 10.14 of the
Form 10-Q filed on February 15, 2001).
10.17 Stock Purchase Agreement between the Registrant,
Auction-Sales.Com, Inc., and Zahid Rafiq, dated October
19, 2000 (incorporated by reference to Exhibit 10.15 of
the Form 10-Q filed on February 15, 2001).
21 Subsidiaries of the Registrant (see below).
EX-2.2
AGREEMENT AND PLAN OF MERGER AND SHARE EXCHANGE
NOTE TO WORD PROCESSOR OPERATORS: This document does NOT use the
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AGREEMENT AND PLAN OF MERGER AND SHARE EXCHANGE
THIS AGREEMENT AND PLAN OF MERGER AND SHARE EXCHANGE is made
as of June 4, 2001 by and among Return Assured Incorporated, a
Delaware corporation ("RAI"), IBUI Acquisition Corp., a Nevada
corporation (the "Merger Subsidiary" and together with RAI, the
"RAI Parties"), and Internet Business's International, Inc., a
Nevada corporation ("IBUI"). RAI, the Merger Subsidiary and IBUI
are individually referred to as a "Party" and collectively
referred to herein as the "Parties". Certain other terms are
used herein as defined below in Article I or elsewhere in this Agreement.
BACKGROUND
This Agreement sets forth the terms and conditions under
which (i) the Merger Subsidiary, which is a Wholly-Owned
Subsidiary of RAI, will merge with and into IBUI (the "Merger and
Share Exchange"). The Parties intend that upon completion of the
Merger and Share Exchange, IBUI will be a Wholly-Owned Subsidiary
of RAI.
The Merger Subsidiary is a Wholly-Owned Subsidiary of RAI
and has been formed solely to facilitate the Merger and Share
Exchange and has conducted and will conduct no business or
activity other than in connection with the Merger and Share
Exchange.
NOW, THEREFORE, in consideration of the respective covenants
contained herein and intending to be legally bound hereby, the
Parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
For convenience, certain terms used in more than one part of
this Agreement are listed in alphabetical order and defined or
referred to below (such terms as well as any other terms defined
elsewhere in this Agreement shall be equally applicable to both
the singular and plural forms of the terms defined).
"Acquisition Proposal" is defined in Section 8.2(a).
"Affiliate" means, with respect to any Person, any other Person
that directly or indirectly controls or is controlled by or under
common control with such Person. For the purposes of this
definition, "control" when used with respect to any Person, means
the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by
contract or otherwise; and the terms of "affiliated,"
"controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement" means this Agreement and the Exhibits and Disclosure
Schedules hereto.
"Articles of Merger and Share Exchange" is defined in Section 2.2.
"Assets" means, with respect to RAI, the Merger Subsidiary or
IBUI, as shown by the context in which used, all of the assets,
properties, goodwill and rights of every kind and description,
real and personal, tangible and intangible, wherever situated and
whether or not reflected in such Party's most recent financial
statements, that are owned or possessed by such Party and its
Subsidiaries, taken as a whole.
"Assumed IBUI Option" is defined in Section 2.10(b).
"IBUI" means The Internet Business's International, Inc., a
Nevada corporation.
"IBUI Assets" means the Assets of IBUI.
"IBUI Balance Sheet" is defined in Section 6.7.
"IBUI Balance Sheet Date" is defined in Section 6.7.
"IBUI Benefit Plan" is defined in Section 6.15.
"IBUI Business" means the Business of IBUI.
"IBUI Common Stock" means the common stock, par value $0.001 per
share, of IBUI.
"IBUI Companies" means IBUI and any IBUI subsidiaries.
"IBUI Disclosure Schedule" means the Disclosure Schedule
containing information relating to IBUI pursuant to Article V and
other provisions hereof that has been provided to the other
Parties on the date hereof.
"IBUI Financial Statements" means the financial statements of
IBUI.
"IBUI Indemnified Loss" is defined in Section 16.2.
"IBUI Indemnified Party" means IBUI and its Affiliates and each
of their respective officers, directors, employees, agents and
counsel; provided, however, that no Person who indemnifies IBUI
Indemnified Parties in this Agreement in his capacity as a
Stockholder will be an IBUI Indemnified Party for purposes of
this Agreement, notwithstanding that the Person is an IBUI
Indemnified Party for purposes of one or more of the other
Agreements.
"IBUI's knowledge" or "knowledge of IBUI" with reference to any
item means that which an executive officer of IBUI actually knows.
"IBUI Required Consents" is defined in Section 15.4.
"IBUI Shareholder" means a recordholder, as of the Effective Date
of an outstanding certificate or certificates that immediately
prior to the Effective Date represented IBUI Shares.
"IBUI Shareholder Meeting" is defined in Section 10.2.
"IBUI Subsidiary" means any Subsidiary of IBUI.
"IBUI Warrants" means any warrants to purchase IBUI Common Stock
that are outstanding immediately prior to the Closing.
"IBUI Welfare Plan" is defined in Section 6.15(f).
"Benefit Plan" means all employee benefit, health, welfare,
supplemental unemployment benefit, bonus, pension, profit
sharing, deferred compensation, severance, incentive, stock
compensation, stock purchase, retirement, hospitalization
insurance, medical, dental, legal, disability, fringe benefit and
similar plans, programs, arrangements or practices, including,
without limitation, each "employee benefit plan" as defined in
Section 3(3) of ERISA.
"Business" means with respect to RAI, or IBUI, as shown by the
context in which used, the entire business and operations of such
Party and its Subsidiaries, taken as a whole.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking
institutions in the state of New York generally are authorized or
required by law or other government actions to close.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of
securities, articles of organization, general or limited
partnership agreement, certificate of limited partnership, joint
venture agreement or similar document governing the entity.
"Closing" is defined in Section 4.1.
"Closing Date" is defined in Section 4.1.
"Code" means the Internal Revenue Code of 1986, as amended. All
citations to provisions of the Code, or to the Treasury
Regulations promulgated thereunder, shall include any amendments
thereto and any substitute or successor provisions thereto.
"Commission" means the Securities and Exchange Commission.
"Confidentiality Agreement" is defined in Section 8.4(b).
"Contract" means any written or oral contract, agreement, letter
of intent, agreement in principle, lease, instrument or other
commitment that is binding on any Person or its property under
applicable Law.
"Copyrights" means registered copyrights, copyright applications
and unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or
ruling of any federal, state, local or foreign court or
governmental or regulatory body or authority, or any arbitrator
that is binding on any Person or its property under applicable Law.
"Default" means (i) a breach, default or violation, (ii) the
occurrence of an event that with or without the passage of time
or the giving of notice, or both, would constitute a breach,
default or violation or (iii) with respect to any Contract, the
occurrence of an event that with or without the passage of time
or the giving of notice, or both, would give rise to a right of
termination, renegotiation or acceleration or a right to receive
damages or a payment of penalties.
"DGCL" means the Delaware General Corporation Law, as amended.
"Effective Date" shall mean the time that the Articles of Merger
and Share Exchange are filed with the Nevada Secretary of State.
"Effectiveness Period" shall have the meaning set forth in
Section 7.2(a).
"Encumbrances" means any lien, mortgage, security interest,
pledge, restriction on transferability, defect of title or other
claim, charge or encumbrance of any nature whatsoever on any
property or property interest.
"Environmental Condition" means any condition or circumstance,
including the presence of Hazardous Substances which does or
would (i) require assessment, investigation, abatement,
correction, removal or remediation under any Environmental Law,
(ii) give rise to any civil or criminal Liability under any
Environmental Law, (iii) create or constitute a public or private
nuisance or (iv) constitute a violation of or non-compliance with
any Environmental Law.
"Environmental Law" means all Laws, Court Orders, principles of
common law, and permits, licenses, registrations, approvals or
other authorizations of any Governmental Authority relating to
Hazardous Substances, pollution, protection of the environment or
human health.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" is defined in Section 2.6(a).
"Execution Date" means June [date], 2001
"Existing IBUI Option" is defined in Section 2.10(a).
"GAAP" means United States generally accepted accounting
principles as in effect on the Issue Date, including those set
forth: (a) in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other
statements by such other entity as approved by a significant
segment of the accounting profession, and (d) the rules and
regulations of the Commission governing the inclusion of
financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13
of the Exchange Act, including opinions and pronouncements in
staff accounting bulletins and similar written statements from
the accounting staff of the Commission.
"Governmental Authority" means any federal, state, local,
municipal or foreign or other government or governmental agency
or body.
"Governmental Permit" is defined in Section 5.12(c).
"Hazardous Substances" means any material, waste or substance
(including, without limitation, any product) that may or could
pose a hazard to the environment or human health or safety
including, without limitation, (i) any "hazardous substances" as
defined by the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. 9601 et seq. and its implementing
regulations, (ii) any "extremely hazardous substance," "hazardous
chemical" or "toxic chemical" as those terms are defined by the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C.
11001 et seq. and its implementing regulations, (iii) any
"hazardous waste," as defined under the Solid Waste Disposal Act,
as amended by the Resource Conservation and Recovery Act, 42
U.S.C. 6901 et seq. and its implementing regulations (iv) any
"pollutant," as defined under the Water Pollution Control Act, 33
U.S.C. 1251 et seq. and its implementing regulations as any of
such Laws in clauses (i) through (iv) may be amended from time to
time, and (v) any material, substance or waste regulated under
any Laws or Court Orders that currently exist or that may be
enacted, promulgated or issued in the future by any Governmental
Authority concerning protection of the environment, pollution,
health or safety or the public welfare.
"Intellectual Property" means any Copyrights, Patents,
Trademarks, technology, licenses, trade secrets, computer
software and other intellectual property.
"Law" means any statute, law, ordinance, regulation, order, rule,
common law principles or consent agreements of any Governmental
Authority, including, without limitation, those covering
environmental, energy, safety, health, transportation, bribery,
record keeping, zoning, antidiscrimination, antitrust, wage and
hour, and price and wage control matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or
endorsement of or by any Person.
"Litigation" means any lawsuit, action, arbitration,
administrative or other proceeding, criminal prosecution or
governmental investigation or inquiry.
"Material Adverse Effect" means a fact or event which has had or
is reasonably likely to have a material adverse effect on the
Assets, Business, financial condition or results of operations of
RAI, either as a corporate entity or with its Subsidiaries taken
as a whole, or IBUI, as indicated by the context in which used,
and when used with respect to representations, warranties,
conditions, covenants or other provisions hereof means the
individual effect of the situation to which it relates and also
the aggregate effect of all similar situations unless the context
indicates otherwise.
"Merger and Share Exchange" is defined in Section 2.1.
"Merger Subsidiary" is defined above in the Preamble.
"Nevada Law" means the Nevada Revised Statues.
"Party Representatives" is defined in Section 8.4(b).
"Patents" means patents, patent applications, reissue patents,
patents of addition, divisions, renewals, continuations,
continuations-in-part, substitutions, additions and extensions of
any of the foregoing.
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an
agency or political subdivision thereof) or other entity of any kind.
"Post-Signing Returns" is defined in Section 9.7.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or
partial proceeding, such as a deposition), whether commenced or
threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that
includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended
or supplemented by any prospectus supplement, with respect to the
terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other
amendments and supplements to the Prospectus, including post-
effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
"Proxy Statement" is defined in Section 8.1(a).
"RAI" is defined above in the Preamble.
"RAI Assets" means the Assets of RAI.
"RAI Balance Sheet" is defined in Section 5.7.
"RAI Balance Sheet Date" is defined in Section 5.7.
"RAI Benefit Plan" is defined in Section 5.16(a).
"RAI Business" means the Business of RAI.
"RAI Common Shares" is defined in Section 2.6(a).
"RAI Companies" means RAI and any RAI Subsidiaries.
"RAI Disclosure Schedule" means the Disclosure Schedule
containing information relating to RAI pursuant to Article V and
other provisions hereof that has been provided to the other
Parties on the date hereof.
"RAI Holder" means a recordholder, as of the Effective Date, of
an outstanding certificate or certificates that immediately prior
to the Effective Date represented RAI Shares.
"RAI's knowledge" or "knowledge of RAI" with reference to any
item means that which an executive officer of RAI actually knows.
"RAI Personnel" is defined in Section 5.21(a).
"RAI Required Consents" is defined in Section 14.4.
"RAI SEC Reports" is defined in Section 5.7.
"RAI Shares" is defined in Section 2.5(a).
"RAI Stockholder" means a recordholder, as of the Effective Date,
or an outstanding Certificate or Certificates that immediately
prior to the Effective Date represented RAI Shares.
"RAI Stockholder Indemnified Party" means (a) each Stockholder
and each of that Stockholder's Affiliates (other than the Company
or, following the Closing, the Surviving Corporation or IBUI or
any of its Subsidiaries, if the Stockholder is an Affiliate of
IBUI), and each of their respective officers, directors,
employees, agents and counsel and (b) prior to the Closing, the
Company and each of its officers, directors, employees, agents
and counsel who are not Stockholder Indemnified Parties within
the meaning of clause (a) of this definition.
"RAI Stockholder Meeting" is defined in Section 9.2.
"RAI Subsidiary" means any Subsidiary of RAI.
"RAI 10-KSB" is defined in Section 5.9.
"RAI Warrants" means any warrants to purchase Merged Company
Common Stock that are outstanding immediately prior to the Closing.
"RAI Welfare Plan" is defined in Section 5.16(f).
"Registration Indemnified Party" shall have the meaning set forth
in Section 7.6(c).
"Registration Indemnifying Party" shall have the meaning set
forth in Section 7.6(c).
"Registration Statement" means the registration statement,
contemplated by Section 7.1, including the Prospectus, amendments
and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to
be incorporated by reference in such registration statement.
"Regulation" means any federal, state, local or foreign rule or
regulation.
"Rule 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"Rule 145" means Rule 145 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means any corporation or other legal entity of which
RAI or IBUI, as the case may be (either above or through or
together with any other Subsidiary) owns, directly or indirectly,
more than 50% of the stock or other equity interests the holders
of which are generally entitled to vote for the election of
directors or other governing body of such corporation or other entity.
"Tax Return" means any report, return, election, notice,
estimate, declaration, information statement and other forms and
documents (including all schedules, exhibits and other
attachments thereto) relating to and filed or required to be
filed with a taxing authority in connection with any Taxes
(including, without limitation, estimated Taxes).
"Taxes" means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties,
impositions, levies and liabilities, including, without
limitation, taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad
valorem, transfer, gains, franchise, withholding, payroll,
recapture, employment, excise, unemployment, insurance, social
security, business license, occupation, business organization,
stamp, environmental and property taxes, together with all
interest, penalties and additions imposed with respect to such
amounts. For purposes of this Agreement, "Taxes" also includes
any obligations under any agreements or arrangements with any
Person with respect to the liability for, or sharing of, Taxes
(including pursuant to Treas. Reg. Section 1.1502-6 or comparable
provisions of state, local or foreign Tax Law) and including any
liability for Taxes as a transferee or successor, by Contract or
otherwise.
"Termination Date" means September 30, 2001
"Trademarks" means registered trademarks, registered service
marks, trademark and service mark applications and unregistered
trademarks and service marks.
"Transaction Documents" means this Agreement and the Employment
Agreements.
"Transactions" means the Merger and Share Exchange, the exchange
of the IBUI Shares for RAI Shares, the assumption by RAI of the
Existing IBUI Options, the exchange of the IBUI Warrants for RAI
Warrants, and the other transactions contemplated by the
Transaction Documents.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary in
which all of the stock or other equity interests is owned,
directly or indirectly, by such Person.
ARTICLE 2
PLAN OF MERGER AND SHARE EXCHANGE
2.1 THE MERGER AND SHARE EXCHANGE
Upon the terms and subject to the conditions hereof, and in
accordance with the relevant provisions of the DGCL and Nevada
Law, the Merger Subsidiary shall be merged with and into IBUI
(the "Merger and Share Exchange"). Following the Merger and Share
Exchange, IBUI shall continue as the surviving corporation (the
"Surviving Corporation") and shall continue its existence under
Nevada Law, and the separate corporate existence of the Merger
Subsidiary shall cease.
2.2 EFFECTIVE DATE
As soon as practicable, but in any event within one business
day after the satisfaction or waiver of all conditions to the
Merger and Share Exchange, the Parties shall file with the
Secretary of State of Nevada the Articles of Merger and Share
Exchange (the "Articles of Merger and Share Exchange") in such
form as is required by Nevada Law. The Merger and Share Exchange
shall become effective at the Effective Date.
2.3 CERTIFICATE OF INCORPORATION AND BYLAWS
The Certificate of Incorporation of IBUI as in effect
immediately prior to the Effective Date shall be the initial
Certificate of Incorporation of the Surviving Corporation. The
bylaws of IBUI as in effect immediately prior to the Effective
Date shall be the initial bylaws of the Surviving Corporation.
2.4 DIRECTORS
The initial directors of the Surviving Corporation shall be
[Names]. Such persons shall hold such positions until their
successors are elected or appointed in accordance with the
Certificate of Incorporation and the bylaws of the Surviving Corporation.
2.5 EXCHANGE OF SHARES
On the Effective Date the shares of the IBUI Common Stock
shall be converted and exchanged into shares of RAI common stock,
par value $0.001 per share , (the "Merged Company Common Stock")
and warrants exercisable with respect to shares of RAI Common
Stock shall become exercisable with respect to shares of Merged
Company Common Stock in the following manner:
(a) Each issued and outstanding share of the IBUI Common
Stock shall, by virtue of the Merger and Share Exchange and
without any action on the part of the holder thereof, be
converted and exchanged into 0.14 shares of Merged Company
Common Stock, provided however, that to the extent any
holder of the IBUI Common Stock shall be entitled, as a
result of the foregoing conversion and exchange, to receive
less than a whole share of Merged Company Common Stock, then
and in any such event:
(i) no fractional share and/or fractional interest in
a whole share shall be issued; and
(ii) the fractional interest of such holder shall be
liquidated for cash equivalent calculated on the basis
of the closing sales price of Merged Company Common
Stock on the Effective Date or on the first day
thereafter that such price is available.
(b) Anything in this Section 4 to the contrary
notwithstanding, any and all issued shares of the IBUI
Common Stock owned by IBUI and held as treasury stock shall
be cancelled and retired and no shares of RAI Common Stock
shall be issued with respect thereto.
2.6 APPOINTMENT OF EXCHANGE AGENT
Prior to the Effective Date RAI shall, subject to the
provisions of Paragraph 8 hereof:
(a) Designate Continental Stock Transfer and Trust (the
"Exchange Agent") to implement the exchange (subsequent to
the Effective Date) of certificates representing shares of
the IBUI Common Stock (the "Old Certificates") for
certificates representing shares of RAI Common Stock (the
"New Certificates");
(b) engage the Exchange Agent for a period of the lesser of
(i) 12 consecutive months following the Effective Date and
(ii) the date on which all of the Old Certificates held by
the IBUI Stockholders have been surrendered for the New
Certificates; and
(c) provide to the Exchange Agent sufficient supplies of
New Certificates so as to enable a holder of an Old
Certificate(s) to surrender such Certificate(s) and receive
New Certificate(s).
2.7 CERTIFICATE EXCHANGE
Subsequent to the Effective Date the issuance and distribution
of New Certificates in exchange for Old Certificates shall be
implemented as follows:
(a) As promptly after the Effective Date as shall be
reasonably possible, the Exchange Agent shall be directed
to, and shall, notify (the "Notification") each holder of an
Old Certificate of the consummation of the Merger and Share
Exchange, the availability of New Certificates and a
description of the procedure to be followed (and documents
to be executed and submitted) in connection with the
surrender of the Old Certificate and the issuance of the New
Certificate. Upon compliance by a holder thereof with the
requirements for the certificate surrender and issuance
specified in the Notification, the Exchange Agent shall be
directed to, and shall, issue and transmit to such holder
New Certificates (representing that number of shares of RAI
Common Stock to which such holder shall be entitled as
herein provided). Until surrendered and replaced as
aforesaid:
(i) each Old Certificate shall, and be deemed to,
represent and evidence (for all corporate purposes
other than the payment of dividends and other
distributions) that number of shares of RAI Common
Stock into which the shares of the IBUI Common Stock
therein referred to are convertible and exchangeable as
herein provided and
(ii) each Old Certificate shall not be transferable on the books and records
of IBUI and/or RAI.
(b) From and after the Effective Date any and all
dividends and/or distributions of every kind, nature or
description declared and payable by RAI on, or with respect
to, RAI Common Stock to any holder of an Old Certificate
(collectively "Distributions") shall be paid, retained,
invested and paid over as follows:
(i) Until such time as the Old Certificate is
surrendered for replacement by a New Certificate(s) as
herein provided, no Distribution shall be paid over by
RAI and/or the Exchange Agent to such holder on, or
with respect to, the shares of RAI Common Stock
evidenced by such Old Certificate;
(ii) All Distributions payable on, or with respect
to, shares of RAI Common Stock represented by Old
Certificates shall be paid over by RAI to the Exchange
Agent and dealt in and with by the Exchange Agent as
follows:
(A) All Distributions in cash shall be
deposited by the Exchange Agent in an interest
bearing account (the "Distribution Account") and
retained and disposed of as hereinbelow provided;
(B) Upon surrender by, or on behalf of, a
holder of an Old Certificate for surrender and
replacement as hereinabove provided (or
satisfactory proof of loss and an indemnity in
favor of, and acceptable to, RAI and the Exchange
Agent), the Exchange Agent shall pay over and/or
deliver to such holder (in addition to the New
Certificate(s) to which such holder shall be
entitled) (y) the principal amount of any cash
dividends and any property (other than shares of
RAI Common Stock) previously received by the
Exchange Agent with respect to the shares of RAI
Common Stock evidenced by such Old Certificate and
(z) a certificate representing any shares of RAI
Common Stock forming part of any Distribution made
prior to the date of any such surrender; and
(C) Any and all interest earned and/or
credited on, or with respect to, Distributions
shall be applied by the Exchange Agent to the
payment of its fees and disbursements and the
remainder, if any, paid over to RAI upon the
termination of the engagement of the Exchange
Agent.
(c) From and after the Effective Date the sole rights
of the holders of Old Certificates (except as otherwise
provided by law) shall be those to which they are entitled
as owners of RAI Common Stock into which the shares of the
IBUI Common Stock evidenced by such Old Certificates shall
have been converted as herein provided.
2.8 TRANSFERS
If the holder of any Old Certificate desires that the New
Certificate to be issued in replacement therefore (as hereinabove
provided) is to be issued in a name other than that on the Old
Certificate which it replaces, any such issuance shall be subject
to and conditioned upon:
(a) Delivery to the Exchange Agent of the Old
Certificate duly endorsed in blank or accompanied by a duly
executed stock assignment power and otherwise in form for
transfer acceptable to the Exchange Agent; and
(b) Payment to RAI or the Exchange Agent of any and
all transfer and/or other taxes payable, in the opinion of
the Exchange Agent, by reason of the issuance and/or
transfer of such New Certificate and/or the shares of RAI
Common Stock evidenced thereby.
2.9 TERMINATION OF EXCHANGE AGENT
Upon the termination of the Exchange Agent's engagement as
hereinabove provided, the Exchange Agent shall deliver to RAI the
then balance of the Distribution Account and, upon such delivery,
the Exchange Agent shall have no further duties or obligations as
exchange agent to RAI, The Merger Subsidiary, IBUI or their
respective stockholders. Thereafter, the duties to be performed
by the Exchange Agent as described in Sections 6 and 7 hereof
shall be performed by RAI in lieu of, and instead of, the
Exchange Agent. All blank stock certificates evidencing RAI
Common Stock shall be retained by the Exchange Agent for
utilization by it in the performance of its duties as transfer
agent for, and with respect to, RAI Common Stock.
2.10 OPTIONS AND WARRANTS
(a) At the Effective Date, RAI shall assume
IBUI's rights and obligations under each of the outstanding
stock options previously granted by IBUI to certain of its
employees, directors and consultants that are outstanding
immediately prior to the Effective Date (each such stock
option existing immediately prior to the Effective Date is
referred to herein as an "Existing IBUI Option" and each
such assumed stock option existing immediately after the
Effective Date is referred to herein as an "Assumed IBUI
Option"). Under each Assumed IBUI Option, the optionee shall
have the right to receive from RAI, in accordance with the
terms and subject to the conditions of the Existing IBUI
Option, the Merger Consideration that such optionee would
have been entitled to receive had the optionee exercised his
or her Existing IBUI Option immediately prior to the
Effective Date, but only in accordance with the terms and
conditions of the Existing IBUI Option (including payment of
the aggregate exercise price thereof). Except as provided in
this Section 2.10(a), the Assumed IBUI Option shall not give
the optionee any additional benefits that the holder thereof
did not have under the Existing IBUI Option; provided,
however, that the terms of such Existing IBUI Options shall
govern the vesting thereof, including, if applicable, any
vesting of Existing IBUI Options as a result of the Merger
and Share Exchange. Each Assumed IBUI Option shall
constitute a continuation of the Existing IBUI Option,
substituting RAI for IBUI.
(b) Each IBUI Warrant that is outstanding
immediately prior to the Effective Date and that does not
expire at the Effective Date by the terms thereof shall, by
virtue of the Merger and Share Exchange and pursuant to the
terms of the IBUI Warrant or with the consent of the
majority of the holders thereof, be converted into and
exchanged for a Merged Company Warrant exercisable for the
[Conversion Number] of Merged Company Shares for each share
of Merged Company Common Stock for which the IBUI Warrant is
exercisable immediately prior to the Effective Date, at an
exercise price per Merged Company Share that has been
adjusted in accordance with the terms of the IBUI Warrant
converted hereunder as a result of the Merger and Share
Exchange. The IBUI Warrants shall have the terms and
conditions of the IBUI Warrants converted hereunder. At the
Effective Date, RAI shall make available to any holders of
IBUI Warrants converted hereunder a new warrant evidencing
RAI Warrant.
2.11 [Intentionally Omitted]
2.12 MERGER SUBSIDIARY CAPITAL STOCK
Each share of capital stock of the Merger Subsidiary issued
and outstanding immediately prior to the Effective Date shall be
converted, by virtue of the Merger and Share Exchange, into one
share of common stock of the Surviving Corporation.
2.13 NO FURTHER TRANSFER OF SHARES
After the Effective Date, there shall be no transfers of IBUI
Shares that were outstanding immediately prior to the Effective
Date on the stock transfer books of the Surviving Corporation.
If, after the Effective Date, Certificates are presented to the
Surviving Corporation for transfer, they shall be canceled and
exchanged for the Merger Consideration as provided in this
Article II.
ARTICLE 3
RESCISSION RIGHTS
3.1 GENERAL
Each of the RAI Parties and IBUI acknowledge and agree that
the obligations of the RAI Parties and IBUI are unique and
personal to the RAI Parties and IBUI, respectively, and may be
discharged only by the RAI Parties and IBUI, respectively. The
RAI Parties and IBUI further acknowledge and agree that if the
RAI Parties or IBUI were to fail to observe or to perform any of
certain provisions of this Agreement, including in particular
those set forth in this Article III, the award of damages arising
from such breach would be difficult, and perhaps impossible, to
ascertain in money or money's worth, and therefore, damages would
not be an adequate remedy. Therefore the Parties agree that each
of the RAI Parties and IBUI shall have rescission rights as set
forth in this Article III.
3.2 RESCISSION RIGHTS OF RAI STOCKHOLDERS
If any representation or warranty of IBUI contained in this
Agreement or any covenant of IBUI contained in this Agreement
shall be materially breached, then, at any time for twelve (12)
months after the Effective Date, the majority in interest of the
RAI Stockholders may rescind the Merger and Share Exchange by
signing RAI notice of the right to rescind the Merger and Share
Exchange. RAI shall then promptly give notice of the RAI
Stockholders notice of rescission to the IBUI Shareholders and
the IBUI Shareholders shall have thirty (30) days from the date
of the RAI Stockholders notice to cure such breach if such breach
is capable of being cured. If the breach is not cured within the
applicable period or not capable of being cured, then all of the
shares of the Surviving Corporation shall be put back to the RAI
Stockholders in accordance with Section 3.4.
3.3 RESCISSION RIGHTS OF IBUI SHAREHOLDERS
If any representation or warranty of the RAI Parties contained
in this Agreement or any covenant of IBUI contained in this
Agreement shall be materially breached then, at any time twelve
(12) months after the Effective Date, then the majority in
interest of the IBUI Shareholders may rescind the Merger and
Share Exchange by signing RAI notice of the right to rescind the
Merger and Share Exchange. RAI shall then promptly give notice
of the IBUI Shareholders notice of rescission to the RAI
Stockholders and the RAI Stockholders shall have thirty (30) days
from the date of the IBUI Shareholders notice to cure such breach
if each breach is capable of being cured. If the breach is not
cured within the applicable period or not capable of being cured,
then all of the shares of the Surviving Corporation shall be put
back to the IBUI Shareholders in accordance with Section 3.4.
3.4 APPLICABLE PROVISIONS TO ARTICLE III
In the event of rescission under Sections 3.2 or 3.3, the
following shall apply:
(a) All assets held by IBUI at the Effective Date
shall be held by IBUI when returned to the IBUI
Shareholders, upon the closing of the rescission; and
(b) New assets acquired by the Surviving
Corporation after the Effective Date and held by IBUI on the
closing of the rescission, to the extent not offset by new
liabilities of IBUI on the closing of the rescission shall
be equitably divided between RAI and IBUI, and, to the
extent that the Parties can not agree upon an equitable
division, such new assets shall be sold and the net proceeds
of sale shall be evenly divided between RAI and IBUI.
3.5 MODIFICATION
Any provision under this Article III may be modified or waived
only by the written consents of the majority in interest or the
IBUI Shareholders and the RAI Stockholders.
ARTICLE 4
THE CLOSING
4.1 THE CLOSING
The closing of the transactions contemplated by this Agreement
shall take place on such date, at such place and at such time
within five business days after the satisfaction or waiver of the
last of the conditions set forth in Article XII, XIII, XIV and XV
hereof. The closing of such transactions shall be referred to
herein as the "Closing;" the date of the Closing shall be
referred to herein as the "Closing Date".
4.2 DELIVERIES
At the Closing,
(a) IBUI, the Merger Subsidiary and RAI shall deliver
or cause to be delivered to the Secretary of State of the
State of Nevada a duly executed Articles of Merger and Share
Exchange as required under Nevada Law and the Parties shall
take all such other and further actions as may be required
by Nevada Law and any other applicable Law to make the
Merger and Share Exchange effective upon the terms and
subject to the conditions hereof; and
(b) The Parties shall also deliver to each other
the respective agreements and other documents and
instruments specified with respect to them in Articles XII,
XIII, XIV and XV.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF RAI
RAI hereby represents and warrants to IBUI as follows, except as
otherwise set forth in the RAI Disclosure Schedule (items
disclosed in one Section of such Schedule shall apply to all
other Sections unless specified otherwise):
5.1 CORPORATE
Each RAI Company is a corporation duly organized, validly
existing and in good standing under the Laws under which it was
incorporated. Each RAI Company is qualified to do business as a
foreign corporation in any jurisdiction where it is required to
be so qualified, except where the failure to so qualify would not
have a Material Adverse Effect. The Charter Documents and bylaws
of each RAI Company (all of which have been delivered or made
available to IBUI) have been duly adopted and are current,
correct and complete. Each RAI Company has all necessary
corporate power and authority to own, lease and operate its part
of the RAI Assets and to carry on its part of the RAI Business as
it is now being conducted.
5.2 AUTHORIZATION
Each RAI Company has the requisite corporate power and
authority to execute and deliver the Transaction Documents to
which it is a party and to perform the Transactions to be
performed by it. Such execution, delivery and performance by each
RAI Company has been duly authorized by all necessary corporate
action, other than the approval of this Agreement and
consummation of the Merger and Share Exchange, which is subject
to the approval of the holders of a majority of the outstanding
RAI Common Shares, and are the only consents or approvals of
holders of RAI capital stock required for the consummation of the
Transactions. Each Transaction Document executed and delivered
by each RAI Company as of the date hereof has been duly executed
and delivered by such RAI Company and constitutes a valid and
binding obligation of such RAI Company enforceable against such
RAI Company in accordance with its terms. Any Transaction
Document executed and delivered by each RAI Company after the
date hereof will be duly executed and delivered by such RAI
Company and will constitute a valid and binding obligation of
such RAI Company, enforceable against such RAI Company in
accordance with its terms, except as otherwise limited by
bankruptcy, insolvency, reorganization and other laws affecting
creditors rights generally, and except that the remedy of
specific performance or other equitable relief is available only
at the discretion of the court before which enforcement is sought.
5.3 VALIDITY OF CONTEMPLATED TRANSACTIONS
Except for compliance with (i) the Securities Act and the
Exchange Act and (ii) the filing of the Articles of Merger and
Share Exchange with the Secretary of State of the State of
Nevada, neither the execution and delivery by each RAI Company of
the respective Transaction Documents to which it is or will be a
party, nor the performance of the Transactions to be performed by
it, will require any filing, consent or approval under or
constitute a Default, or result in a loss of material benefit
under, (a) any Law or Court Order to which any RAI Company is
subject, (b) the Charter Documents or bylaws of any RAI Company,
or (c) any Contracts to which any RAI Company is a party or by
which any of the RAI Assets may be subject, except for Defaults
which would not have a Material Adverse Effect.
5.4 CAPITALIZATION AND STOCK OWNERSHIP
The total authorized capital stock of RAI consists of (a)
50,000,000 shares of Merged Company Common Stock, and (b)
1,000,000 shares of Series A Preferred Stock, par value $0.001
per share (the "Preferred Stock"). Of such authorized capital
stock, the only issued and outstanding shares on the date hereof
are [ ] RAI Common Shares. Except as set forth in the RAI
Disclosure Schedule, there are no existing options, warrants,
calls, commitments or other rights of any character (including
conversion or preemptive rights) relating to the acquisition of
any issued or unissued capital stock or other securities of RAI.
The RAI Disclosure Schedule sets forth, as of the date hereof, as
to each option or warrant, the holder, date of grant, exercise
price and number of shares subject thereto. All of the issued and
outstanding RAI Common Shares are validly issued fully paid and
non-assessable. Following the Effective Date, no options,
warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) will entitle any
Person to acquire any securities of the Surviving Corporation or
any subsidiary thereof.
5.5 LISTING
RAI Common Stock is listed for quotation on the NASDAQ Small
Cap Market under the symbol "RTRN". RAI has received a letter
from NASDAQ indicating that it has not met the ongoing listing
requirements in that RAI's common stock has traded below $1.00
for more than 30 trading days. The Company's shares now must
close above $1.00 for 10 consecutive trading days by June 4,
2001. After June 4, 2001, RAI may request a meeting with NASDAQ
to address this issue.
5.6 REGISTRATION STATEMENT; CONSENT SOLICITATION STATEMENT; PROSPECTUS
None of the information supplied or to be supplied by or on
behalf of any RAI Company specifically for inclusion in the
Registration Statement (as defined in Section 7.1) will (except
to the extent revised or superseded by amendments or supplements
contemplated hereby), at the time of distribution to the IBUI
Shareholders, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of
the information supplied or to be supplied by or on behalf of any
RAI Company specifically for inclusion or incorporation by
reference in the Consent Solicitation Statement/Prospectus (as
defined in Section 7.1) will (except to the extent revised or
superseded by amendments or supplements contemplated hereby), at
the date it (or any such amendment or supplement) is mailed to
the stockholders of RAI and at the time of the RAI Stockholder
Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The
Registration Statement and the Consent Solicitation
Statement/Prospectus (except for information relating solely to
IBUI) will comply in all material respects with the requirements
of the Securities Act and the Exchange Act and the Regulations
promulgated thereunder.
5.7 RAI SEC REPORTS; FINANCIAL STATEMENTS
RAI has filed all required forms, reports, statements,
schedules and other documents with the SEC since January 1, 1997,
including its (a) Annual Reports on Form 10-KSB for the fiscal
years ended August 30, 2000, 1999 and 1998, (b) all proxy
statements relating to RAI's meetings of stockholders (whether
annual or special) held since January 1, 1997, and (c) all other
reports or registration statements filed by RAI with the SEC
since January 1, 1997 (collectively, the "RAI SEC Reports"). Each
of such RAI SEC Reports, at the time it was filed, complied in
all material respects with all applicable requirements of the
Securities Act and the Exchange Act, and with the forms and
Regulations of the SEC promulgated thereunder, and did not
contain at the time filed any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The
financial statements, including all related notes and schedules,
contained in the RAI SEC Reports (or incorporated by reference
therein) fairly present the consolidated financial position of
RAI as at the respective dates thereof and the consolidated
results of operations and cash flows of RAI for the periods
indicated in accordance with GAAP applied on a consistent basis
throughout the periods involved (except for changes in accounting
principles disclosed in the notes thereto) and subject in the
case of interim financial statements to normal year-end
adjustments and the absence of notes. For purposes of this
Agreement, the balance sheet of RAI as of August 30, 2000 is
referred to as the "RAI Balance Sheet" and the date thereof is
referred to as the "RAI Balance Sheet Date."
5.8 TAXES
(a) Each RAI Company has (i) filed (or, in the
case of Tax Returns not yet due, will file) with the
appropriate governmental agencies all material Tax Returns
required to be filed on or before the Effective Date and all
such Tax Returns filed were true, correct and complete in
all material respects, and (ii) paid (or, in the case of
Taxes not yet due, will pay), all Taxes shown on such Tax Returns.
(b) Each RAI Company has (i) duly paid or caused
to be paid all material Taxes and all Taxes shown on Tax
Returns that are or were due, except to the extent that a
sufficient reserve for Taxes has been reflected on the RAI
Balance Sheet and (ii) provided a sufficient reserve on the
RAI Balance Sheet for the payment of all Taxes not yet due
and payable.
(c) No deficiency in respect of any Taxes which
has been assessed against an RAI Company remains unpaid,
except for Taxes being contested in good faith, and RAI has
no knowledge of any unassessed Tax deficiencies or of any
audits or investigations pending or threatened against an
RAI Company with respect to any Taxes.
(d) No RAI Company has extended or waived the
application of any applicable statute of limitations of any
jurisdiction regarding the assessment or collection of any
Tax or any Tax Return.
(e) There are no liens for Taxes upon any assets
of any RAI Company except for liens for current Taxes not yet due.
(f) Each RAI Company has to its knowledge (i)
complied with all material provisions of the Code relating
to the withholding and payment of Taxes and (ii) has made
all deposits required by applicable Law to be made with
respect to employees' withholding and other payroll,
employment or other withholding or related Taxes.
(g) No RAI Company is a party to any contract,
agreement, plan or arrangement that, individually or in the
aggregate, or when taken together with any payment that may
be made under this Agreement or any agreements contemplated
hereby, could give rise to the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(h) No RAI Company is a party to any agreement
relating to the allocating or sharing of the payment of, or
liability for, Taxes for any period (or portion thereof).
(i) To RAI's knowledge, except for the group
of which RAI is presently the ultimate parent, no RAI
Company has ever been a member of an affiliated group
of corporations (within the meaning of Section 1504 of the Code).
5.9 TITLE TO ASSETS AND RELATED MATTERS
Each RAI Company has good and marketable title to its part of
the RAI Assets, free from any Encumbrances except (a) any
Encumbrance in favor of any RAI Company, (b) items described in
any notes to the consolidated financial statements of RAI
contained in RAI's Annual Report on Form 10-KSB for the fiscal
year ended August 31, 2000 (the "RAI 10-KSB") included in the
RAI SEC Reports, (c) minor matters that would not have a Material
Adverse Effect, (d) constitutional and statutory liens arising
from the obligation to pay for the provision of materials or
services not yet in Default and Taxes not yet due and (e) RAI
Assets transferred among the RAI Companies.
5.10 REAL PROPERTY
All material real estate leased by any RAI Company as of the
date hereof and used in the operation of the RAI Business are
disclosed in the RAI SEC Reports. As of the date hereof, none of
the RAI Companies owns any real property.
5.11 SUBSIDIARIES
As of the date hereof none of the RAI Companies owns, directly
or indirectly, any interest or investment (whether equity or
debt) in any corporation, partnership, limited liability company,
business trust, joint venture or other legal entity. RAI (or
another RAI Company) owns all of the issued and outstanding
shares of capital stock of each RAI Subsidiary. There are no
existing options, warrants, calls, commitments or other rights of
any character (including conversion or preemptive rights)
relating to the acquisition or voting of any issued or unissued
capital stock or other securities of any RAI Subsidiary. All of
the shares of capital stock of each RAI Subsidiary are duly and
validly authorized and issued, fully paid and non-assessable.
5.12 LEGAL PROCEEDINGS; COMPLIANCE WITH LAW; GOVERNMENTAL PERMITS
(a) There is no Litigation that is pending or, to
RAI's knowledge, threatened against any RAI Company that
would have a Material Adverse Effect. RAI is and has been in
compliance with all applicable Laws, including Environmental
Law, except where the failure to be in compliance would not
have a Material Adverse Effect. There has been no Default
under any Laws applicable to any RAI Company, including
Environmental Laws, except for any Defaults that would not
have a Material Adverse Effect. There has been no Default
with respect to any Court Order applicable to any RAI
Company. No RAI Company has received any written notice and,
to the knowledge of RAI, no other communication has been
received to the effect that it is not in compliance with any
applicable Laws, and RAI has no reason to believe that any
presently existing circumstances are likely to result in
violations of any applicable Laws, except to the extent that
such failures to comply or violations would not have a
Material Adverse Effect.
(b) To RAI's knowledge, there is no Environmental
Condition at any property presently or formerly owned or
leased by an RAI Company which is reasonably likely to have
a Material Adverse Effect.
(c) The RAI Companies have all material consents,
permits, franchises, licenses, concessions, registrations,
certificates of occupancy, approvals and other
authorizations of Governmental Authorities (collectively,
the "Governmental Permits") required in connection with the
operation of their respective businesses as now being
conducted, all of which are in full force and effect, except
where the failure to obtain any such Governmental Permit or
of any such Governmental Permit to be in full force and
effect, would not have a Material Adverse Effect. Each RAI
Company has complied, in all material respects, with all of
its Governmental Permits, except where the failure to so
comply would not have a Material Adverse Effect.
5.13 CONTRACTS AND COMMITMENTS
The RAI Disclosure Schedule describes:
(a) Contracts (excluding letters of intent and
agreements in principle) involving any RAI Company in
amounts in excess of $100,000.
(b) All employment, consulting, management, severance
or agency Contracts providing for annual payments of at
least $100,000 (y) with any executive officers or directors
of RAI, or (z) allowing the other party to terminate and
receive payment based on the execution of this Agreement and
consummation of the Transactions.
(c) Any employment agreements with any Person to whom
any RAI Company makes annual salary payments in excess of $100,000.
(d) All Contracts limiting the freedom of any RAI
Company to compete in any line of business, or with any
Person, or in any geographic area or market.
Each Contract providing for payments in excess of $100,000 to
which any RAI Company is a party (i) is legal, valid, binding and
enforceable against RAI or the applicable Subsidiary except as
otherwise limited by bankruptcy, insolvency, reorganization and
other laws affecting creditors' rights generally, and except that
the remedy of specific performance or other equitable relief is
available only at the discretion of the court before which
enforcement is sought, and (ii) neither RAI nor the applicable
Subsidiary, nor to RAI's knowledge, any other party, is in
Default under any such Contract, other than in the case of (i)
and (ii) above where the failure to be so would not have a
Material Adverse Effect.
5.14 EMPLOYEE RELATIONS
No RAI Company is (a) a party to, involved in or, to RAI's
knowledge, threatened by, any labor dispute or unfair labor
practice charge, or (b) currently negotiating any collective
bargaining agreement, and no RAI Company has experienced any work
stoppage during the last three years.
5.15 ERISA
(a) The RAI Disclosure Schedule contains a
complete list of all Benefit Plans sponsored or maintained
by any RAI Company or under which any RAI Company may be
obligated for its employees, directors or independent
contractors ("RAI Benefit Plans"). RAI has delivered or made
available to IBUI (i) accurate and complete copies of all
RAI Benefit Plan documents and of any summary plan
descriptions, summary annual reports and insurance contracts
relating thereto, (ii) accurate and complete detailed
summaries of all unwritten RAI Benefit Plans, (iii) accurate
and complete copies of the most recent financial statements
and actuarial reports with respect to all RAI Benefit Plans
for which financial statements or actuarial reports are
required or have been prepared and (iv) accurate and
complete copies of all annual reports for all RAI Benefit
Plans (for which annual reports are required) prepared
within the last two years.
(b) All RAI Benefit Plans conform in all material
respects to, and are being administered and operated in
material compliance with, the requirements of ERISA, the
Code and all other applicable Laws, including applicable
Laws of foreign jurisdictions. There have not been any
"prohibited transactions," as such term is defined in
Section 4975 of the Code or Section 406 of ERISA involving
any of the RAI Benefit Plans, that could subject any RAI
Company to any material penalty or tax imposed under the
Code or ERISA.
(c) Any RAI Benefit Plan that is intended to be
qualified under Section 401(a) of the Code and exempt from
tax under Section 501(a) of the Code has been determined by
the Internal Revenue Service to be so qualified, and such
determination remains in effect and has not been revoked.
Nothing has occurred since the date of any such
determination that is reasonably likely to affect adversely
such qualification or exemption, or result in the imposition
of excise taxes or income taxes on unrelated business income
under the Code or ERISA with respect to any RAI Benefit Plan.
(d) No RAI Company has a current or contingent
obligation to contribute to any multiemployer plan (as
defined in Section 3(37) of ERISA) and (ii) no RAI Company,
nor any entity that has been treated as a single employer
with any RAI Company under Sections 414(b), (c), (m) or (o)
of the Code, has any liability, contingent or otherwise,
under Title IV of ERISA or Section 412 of the Code.
(e) There are no pending or, to the knowledge of
RAI, threatened claims by or on behalf of any RAI Benefit
Plans, or by or on behalf of any individual participants or
beneficiaries of any RAI Benefit Plans, alleging any breach
of fiduciary duty on the part of any RAI Company or any of
the officers, directors or employees of any RAI Company
under ERISA or any other applicable Regulations, or claiming
benefit payments other than those made in the ordinary
operation of such plans, or alleging any violation of any
other applicable Laws. To RAI's knowledge, the RAI Benefit
Plans are not the subject of any investigation, audit or
action by the Internal Revenue Service, the Department of
Labor or the Pension Benefit Guaranty Corporation ("PBGC").
Each RAI Company has made all required contributions under
the RAI Benefit Plans including the payment of any premiums
payable to the PBGC and other insurance premiums.
(f) With respect to any RAI Benefit Plan that is
an employee welfare benefit plan (within the meaning of
Section 3(1) of ERISA) (an "RAI Welfare Plan"), (i) each RAI
Welfare Plan for which contributions are claimed as
deductions under any provision of the Code is in material
compliance with all applicable requirements pertaining to
such deduction, (ii) with respect to any welfare benefit
fund (within the meaning of Section 419 of the Code) related
to an RAI Welfare Plan, there is no disqualified benefit
(within the meaning of Section 4976(b) of the Code) that
would result in the imposition of a tax under Section
4976(a) of the Code, and (iii) any RAI Benefit Plan that is
a group health plan (within the meaning of Section
4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the material requirements of
Section 4980B of the Code, ERISA, Title XXII of the Public
Health Service Act and the applicable provisions of the
Social Security Act.
(g) The execution of this Agreement and the
performance of the Transactions will not (either alone or in
combination with the occurrence of any additional or
subsequent events) constitute an event under any RAI Benefit
Plan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any current or
former employee, director or consultant of any RAI Company.
5.16 PATENTS, TRADEMARKS, ETC.
To RAI's knowledge, no RAI Company infringes upon or unlawfully
or wrongfully uses any Intellectual Property owned or claimed by
another Person and no Person infringes on or wrongfully uses any
Intellectual Property owned or claimed by RAI, except for those
situations that would not have a Material Adverse Effect. To
RAI's knowledge, the RAI Companies own or have valid rights to
use all Intellectual Property used in the conduct of their
business except where the failure to have valid rights to use
such Intellectual Property will not have a Material Adverse
Effect, free and clear of all Encumbrances, other than
Encumbrances which would not have a Material Adverse Effect.
5.17 ABSENCE OF CERTAIN CHANGES
Since the RAI Balance Sheet Date, the RAI Companies have
conducted the RAI Business in the ordinary course, as of the date
hereof, there has not been:
(a) any Material Adverse Effect on the RAI
Business or, in the aggregate, Liabilities of the RAI Companies;
(b) any distribution or payment declared or made
in respect of RAI's capital stock by way of dividends,
purchase or redemption of shares or otherwise;
(c) any increase in the compensation payable or
to become payable to any current director or officer of any
RAI Company, except for merit and seniority increases for
employees made in the ordinary course of business, nor any
material change in any existing employment, severance,
consulting arrangements or any RAI Benefit Plan;
(d) any sale, assignment or transfer of any RAI
Assets, or any additions to or transactions involving any
RAI Assets, other than those made in the ordinary course of
business or those solely involving the RAI Companies;
(e) other than in the ordinary course of
business, any waiver or release of any material claim or
right or cancellation of any material debt held by any RAI Company;
(f) any change in practice with respect to Taxes,
or any election, change of any election, or revocation of
any election with respect to Taxes, or any settlement or
compromise of any dispute involving a Tax liability;
(g) (i) any creation, assumption or maintenance
of any long-term debt or any short-term debt for borrowed
money other than under existing notes payable, lines of
credit or other credit facility or in the ordinary course of
business or with respect to its Wholly-Owned Subsidiaries;
(ii) any assumption, granting of guarantees, endorsements or
otherwise becoming liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other
Person except its Wholly-Owned Subsidiaries; or (iii) any
loans, advances or capital contributions to, or investments
in, any other Person except its Wholly-Owned Subsidiaries;
(h) any material agreement, commitment or
contract, except agreements, commitments or contracts for
the purchase, sale or lease of goods or services in the
ordinary course of business;
(i) other than in the ordinary course of
business, any authorization, recommendation, proposal or
announcement of an intention to authorize, recommend or
propose, or enter into any Contract with respect to, any (i)
plan of liquidation or dissolution, (ii) acquisition of a
material amount of assets or securities, (iii) disposition
or Encumbrance of a material amount of assets or securities,
(iv) merger or consolidation or (v) material change in its
capitalization; or
(j) any change in accounting or Tax procedure or practice.
5.18 CORPORATE RECORDS
The minute books of each RAI Company contain accurate,
complete and current copies of all Charter Documents and of all
minutes of meetings, resolutions and other proceedings of its
Board of Directors and stockholders.
5.19 FINDER'S FEES
No Person is or will be entitled to any commission, finder's
fee or other payment in connection with the Transactions based on
arrangements made by or on behalf of RAI.
5.20 REORGANIZATION
No RAI Company has or, as of the Closing Date, will have taken
any action or failed to take any action which action or failure
would result in the failure of the Merger and Share Exchange to
qualify as a reorganization within the meaning of Code Section
368(a). RAI has no knowledge of any fact or circumstance that is
reasonably likely to prevent the Merger and Share Exchange from
qualifying as a reorganization within the meaning of Code Section 368(a).
5.21 OWNERSHIP OF MERGER SUBSIDIARY; NO PRIOR ACTIVITIES
The Merger Subsidiary is a Wholly-Owned Subsidiary of RAI
created solely for the purpose of effecting the Merger and Share
Exchange. As of the date hereof and the Effective Date, except
for Liabilities incurred in connection with its incorporation or
organization and the Transactions and except for this Agreement
and the other Transaction Documents, neither RAI or the Merger
Subsidiary has, nor will have, directly or indirectly, through
any Subsidiary or Affiliate of RAI, any material Liabilities,
engaged in any material business activities of any type or kind
whatsoever or entered into any agreements or arrangements with
any Person.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF IBUI
IBUI hereby represents and warrants to RAI as follows, except as
otherwise set forth in the IBUI Disclosure Schedule (items
disclosed in one Section of such Schedule shall apply to all
other Sections unless specified otherwise):
6.1 CORPORATE
Each IBUI Company is a corporation duly organized, validly
existing and in good standing under the Laws under which it was
incorporated. Each IBUI Company is qualified to do business as a
foreign corporation in any jurisdiction where it is required to
be so qualified, except where the failure to so qualify would not
have a Material Adverse Effect. The Charter Documents and bylaws
of each IBUI Company (all of which have been delivered or made
available to RAI) have been duly adopted and are current, correct
and complete. Each IBUI Company has all necessary corporate
power and authority to own, lease and operate its part of the
IBUI Assets and to carry on its part of the IBUI Business as it
is now being conducted.
6.2 AUTHORIZATION
Each IBUI Company has the requisite corporate power and
authority to execute and deliver the Transaction Documents to
which it is a party and to perform the Transactions to be
performed by it. Such execution, delivery and performance by each
IBUI Company has been duly authorized by all necessary corporate
action, other than the approval of this Agreement and
consummation of the Merger and Share Exchange, which is subject
to the approval of the holders of a majority of the outstanding
IBUI Common Stock, and are the only consents or approvals of
holders of IBUI capital stock required for the consummation of
the Transactions. Each Transaction Document executed and
delivered by each IBUI Company as of the date hereof has been
duly executed and delivered by such IBUI Company and constitutes
a valid and binding obligation of such IBUI Company, enforceable
against such IBUI Company in accordance with its terms. Any
Transaction Document executed and delivered by each IBUI Company
after the date hereof will be duly executed and delivered by such
IBUI Company and will constitute a valid and binding obligation
of such IBUI Company , enforceable against such IBUI Company in
accordance with its terms, except as otherwise limited by
bankruptcy, insolvency reorganization and other laws affecting
creditors rights generally, and except that the remedy of
specified performance or other equitable relief is available only
at the discretion of the court before which enforcement is sought.
6.3 VALIDITY OF CONTEMPLATED TRANSACTIONS
Except for compliance with (i) the Securities Act and the
Exchange Act and (ii) the filing of the Articles of Merger and
Share Exchange with the Secretary of State of the State of
Nevada, neither the execution and delivery by each IBUI Company
of the respective Transaction Documents to which it is or will be
a party, nor the performance of the Transactions to be performed
by it, will require any filing, consent or approval under or
constitute a Default, or result in a loss of material benefit
under, (a) any Law or Court Order to which any IBUI Company is
subject, (b) the Charter Documents or bylaws of any IBUI Company,
(c) any other Contracts to which any IBUI Company is a party or
by which any of the IBUI Assets may be subject, except for
Defaults which would not have a Material Adverse Effect.
6.4 CAPITALIZATION AND STOCK OWNERSHIP
The total authorized capital stock of IBUI consists of
349,000,000 shares of IBUI Common Stock, par value $0.001 per
share and 1,000,000 shares of preferred stock, par value $100.00
per share. Of such authorized capital stock, the only issued and
outstanding shares on the date hereof are 267,236,029 shares of
IBUI Common Stock and 10,000 shares of preferred stock. There
are no existing options, warrants, calls, commitments or other
rights of any character (including conversion or preemptive
rights) relating to the acquisition of any issued or unissued
capital stock or other securities of IBUI. The IBUI Disclosure
Schedule sets forth, as of the date hereof, as to each option or
warrant, the holder, date of grant, exercise price and number of
shares subject thereto. All of the shares of issued and
outstanding shares of IBUI Common Stock are validly issued, fully
paid and non-assessable.
6.5 [Intentionally Omitted]
6.6 REGISTRATION STATEMENT; CONSENT SOLICITATION STATEMENT; PROSPECTUS
None of the information supplied or to be supplied by or on
behalf of any IBUI Company specifically for inclusion in the
Registration Statement will (except to the extent revised or
superseded by amendments or supplements contemplated hereby), at
the time of distribution to the IBUI Shareholders, contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading. None of the information supplied
or to be supplied by or on behalf of any IBUI Company
specifically for inclusion or incorporation by reference in the
Consent Solicitation Statement/Prospectus (as defined in Section
7.1) will (except to the extent revised or superseded by
amendments or supplements contemplated hereby), at the date it
(or any such amendment or supplement) is mailed to the
stockholders of RAI and at the time of the RAI Stockholder
Statement Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
6.7 IBUI SEC REPORTS; FINANCIAL STATEMENTS
IBUI has filed all required forms, reports, statements,
schedules and other documents with the SEC since March 31, 1998,
including its (a) Annual Reports on Form 10-KSB for the fiscal
years ended June 30, 2000, 1999 and 1998, (b) all proxy
statements relating to IBUI's meetings of stockholders (whether
annual or special) held since July 1999, and (c) all other
reports or registration statements filed by IBUI with the SEC
since March 31, 1998 (collectively, the "IBUI SEC Reports").
Each of such IBUI SEC Reports, at the time it was filed, complied
in all material respects with all applicable requirements of the
Securities Act and the Exchange Act, and with the forms and
Regulations of the SEC promulgated thereunder, and did not
contain at the time filed any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The
financial statements, including all related notes and schedules,
contained in the IBUI SEC Reports (or incorporated by reference
therein) fairly present the consolidated financial position of
IBUI as at the respective dates thereof and the consolidated
results of operations and cash flows of IBUI for the periods
indicated in accordance with GAAP applied on a consistent basis
throughout the periods involved (except for changes in accounting
principles disclosed in the notes thereto) and subject in the
case of interim financial statements to normal year-end
adjustments and the absence of notes. For purposes of this
Agreement, the balance sheet of IBUI as of June 30, 2000 is
referred to as the "IBUI Balance Sheet" and the date thereof is
referred to as the "IBUI Balance Sheet Date."
6.8 TAXES
(a) Each IBUI Company (i) has filed (or, in the
case of Tax Returns not yet due, will file) with the
appropriate governmental agencies all material Tax Returns
required to be filed on or before the Effective Date and all
such Tax Returns filed were true, correct and complete in
all material respects, and (ii) has paid (or, in the case of
Taxes not yet due, will pay), all Taxes shown on such Tax Returns.
(b) Each IBUI Company has (i) duly paid or caused
to be paid all material Taxes and all Taxes shown on Tax
Returns that are or were due, except to the extent that a
sufficient reserve for Taxes has been reflected on the IBUI
Balance Sheet and (ii) provided a sufficient reserve on the
IBUI Balance Sheet for the payment of all Taxes not yet due
and payable.
(c) No deficiency in respect of any Taxes which
has been assessed against any IBUI Company remains unpaid,
except for Taxes being contested in good faith, and IBUI has
no knowledge of any unassessed Tax deficiencies or of any
audits or investigations pending or threatened against IBUI
with respect to any Taxes.
(d) No IBUI Company has extended or waived the
application of any applicable statute of limitations of any
jurisdiction regarding the assessment or collection of any
Tax or any Tax Return.
(e) There are no liens for Taxes upon any assets
of any IBUI Company except for liens for current Taxes not yet due.
(f) Each IBUI Company has to its knowledge (i)
complied with all material provisions of the Code relating
to the withholding and payment of Taxes and (ii) has made
all deposits required by applicable Law to be made with
respect to employees' withholding and other payroll,
employment or other withholding or related Taxes.
(g) No IBUI Company is a party to any contract,
agreement, plan or arrangement that, individually or in the
aggregate, or when taken together with any payment that may
be made under this Agreement or any agreements contemplated
hereby, could give rise to the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
(h) No IBUI Company is a party to any agreement
relating to the allocating or sharing of the payment of, or
liability for, Taxes for any period (or portion thereof).
(i) To IBUI's knowledge, no IBUI Company has ever
been a member of an affiliated group of corporations (within
the meaning of Section 1504 of the Code).
6.9 TITLE TO ASSETS AND RELATED MATTERS
Each IBUI Company has good and marketable title to its part of
the IBUI Assets, free from any Encumbrances except (a) any
Encumbrance in favor of IBUI, (b) items described in any notes to
the consolidated financial statements of IBUI contained in IBUI's
Annual Report on Form 10-KSB included in the IBUI SEC Reports,
(c) minor matters that would not have a Material Adverse Effect,
(d) constitutional and statutory liens arising from the
obligation to pay for the provision of materials or services not
yet in Default and Taxes not yet due and (e) IBUI Assets
transferred among the IBUI Companies.
6.10 REAL PROPERTY
All material real estate leased by any IBUI Company as of the
date hereof and used in the operation of the IBUI Business are
disclosed in the IBUI Financial Statements. As of the date
hereof, none of the IBUI Companies owns any real property.
6.11 SUBSIDIARIES
As of the date hereof none of the IBUI Companies owns,
directly or indirectly, any interest or investment (whether
equity or debt) in any corporation, partnership, limited
liability company, business trust, joint venture or other legal
entity. IBUI (or another IBUI Company) owns all of the issued and
outstanding shares of capital stock of each IBUI Subsidiary,
except that Global GPP Corp. is eighty percent (80%) owned by
IBUI. There are no existing options, warrants, calls, commitments
or other rights of any character (including conversion or
preemptive rights) relating to the acquisition or voting of any
issued or unissued capital stock or other securities of any IBUI
Subsidiary. All of the shares of capital stock of each IBUI
Subsidiary are duly and validly authorized and issued, fully paid
and non-assessable.
6.12 LEGAL PROCEEDINGS; COMPLIANCE WITH LAW; GOVERNMENTAL PERMITS
(a) There is no Litigation that is pending or, to
IBUI's knowledge, threatened against any IBUI Company that
would have a Material Adverse Effect. Each IBUI Company is
and has been in compliance with all applicable Laws,
including Environmental Laws, except where the failure to be
in compliance would not have a Material Adverse Effect.
There has been no Default under any Laws applicable to any
IBUI Company, including Environmental Laws, except for any
Defaults that would not have a Material Adverse Effect.
There has been no Default with respect to any Court Order
applicable to any IBUI Company. No IBUI Company has
received any written notice and, to the knowledge of IBUI,
no other communication has been received to the effect that
it is not in compliance with any applicable Laws, and IBUI
has no reason to believe that any presently existing
circumstances are likely to result in violations of any
applicable Laws, except to the extent that such failures to
comply or violations would not have a Material Adverse Effect.
(b) To IBUI's knowledge, there is no
Environmental Condition at any property presently or
formerly owned or leased by an IBUI Company which is
reasonably likely to have a Material Adverse Effect.
(c) The IBUI Companies have all Governmental
Permits required in connection with the operation of their
respective businesses as now being conducted, all of which
are in full force and effect, except where the failure to
obtain any such Governmental Permit or of any such
Governmental Permit to be in full force and effect, would
not have a Material Adverse Effect. Each IBUI Company has
complied, in all material respects, with all of its
Governmental Permits, except where the failure to so comply
would not have a Material Adverse Effect
6.13 CONTRACTS AND COMMITMENTS
The IBUI Disclosure Schedule describes:
(a) Contracts (excluding letters of intent and
agreements in principle) involving IBUI in amounts in excess of $100,000.
(b) All employment, consulting, management, severance
or agency Contracts providing for annual payments of at
least $100,000 (y) with any executive officers or directors
of IBUI, or (z) allowing the other party to terminate and
receive payment based on the execution of this Agreement and
consummation of the Transactions, and (ii) any employment
agreements with any Person to whom IBUI makes annual salary
payments in excess of $100,000.
(c) All Contracts limiting the freedom of IBUI to
compete in any line of business, or with any Person, or in
any geographic area or market.
Each Contract providing for payments in excess of $100,000 to
which IBUI is a party (i) is legal, valid, binding and
enforceable against IBUI except as otherwise limited by
bankruptcy, insolvency, reorganization and other laws affecting
creditors' rights generally, and except that the remedy of
specific performance or other equitable relief is available only
at the discretion of the court before which enforcement is
sought, and (ii) IBUI, and to IBUI's knowledge, any other party,
is not in Default under any such Contract, other than in the case
of (i) and (ii) above where the failure to be so would not have a
Material Adverse Effect.
6.14 INITIAL LISTING REQUIREMENT
IBUI exceeds the Initial Listing Requirements for the NASDAQ
Small Cap Market, as defined in the listing requirements for the
NASDAQ SmallCap Market, except for the minimum required bid price
for its common stock.
6.15 EMPLOYEE RELATIONS
No IBUI Company is (a) a party to, involved in or, to IBUI's
knowledge, threatened by, any labor dispute or unfair labor
practice charge, or (b) currently negotiating any collective
bargaining agreement, and IBUI has not experienced any work
stoppage during the last three years.
6.16 ERISA
(a) The IBUI Disclosure Schedule contains a
complete list of all Benefit Plans sponsored or maintained
by any IBUI Company or under which any IBUI Company may be
obligated for its employees, directors or independent
contractors ("IBUI Benefit Plans"). IBUI has delivered or
made available to RAI (i) accurate and complete copies of
all IBUI Benefit Plan documents and of any summary plan
descriptions, summary annual reports and insurance contracts
relating thereto, (ii) accurate and complete detailed
summaries of all unwritten IBUI Benefit Plans, (iii)
accurate and complete copies of the most recent financial
statements and actuarial reports with respect to all IBUI
Benefit Plans for which financial statements or actuarial
reports are required or have been prepared and (iv) accurate
and complete copies of all annual reports for all IBUI
Benefit Plans (for which annual reports are required)
prepared within the last two years.
(b) All IBUI Benefit Plans conform in all
material respects to, and are being administered and
operated in material compliance with, the requirements of
ERISA, the Code and all other applicable Laws, including
applicable Laws of foreign jurisdictions. There have not
been any "prohibited transactions," as such term is defined
in Section 4975 of the Code or Section 406 of ERISA
involving any of the IBUI Benefit Plans, that could subject
IBUI to any material penalty or tax imposed under the Code or ERISA.
(c) Any IBUI Benefit Plan that is intended to be
qualified under Section 401(a) of the Code and exempt from
tax under Section 501(a) of the Code has been determined by
the Internal Revenue Service to be so qualified, and such
determination remains in effect and has not been revoked.
Nothing has occurred since the date of any such
determination that is reasonably likely to affect adversely
such qualification or exemption, or result in the imposition
of excise taxes or income taxes on unrelated business income
under the Code or ERISA with respect to any IBUI Benefit Plan.
(d) (i) No IBUI Company has current or contingent
obligation to contribute to any multiemployer plan (as
defined in Section 3(37) of ERISA) and (ii) no IBUI Company
nor any entity that has been treated as a single employer
with any IBUI Company under Sections 414(b), (c), (m) or (o)
of the Code, has any liability, contingent or otherwise,
under Title IV of ERISA or Section 412 of the Code.
(e) There are no pending or, to the knowledge of
IBUI, threatened claims by or on behalf of any IBUI Benefit
Plans, or by or on behalf of any individual participants or
beneficiaries of any IBUI Benefit Plans, alleging any breach
of fiduciary duty on the part of any IBUI Company or any of
the officers, directors or employees of any IBUI Company
under ERISA or any other applicable Regulations, or claiming
benefit payments other than those made in the ordinary
operation of such plans, or alleging any violation of any
other applicable Laws. To IBUI's knowledge, the IBUI Benefit
Plans are not the subject of any investigation, audit or
action by the Internal Revenue Service, the Department of
Labor or the Pension Benefit Guaranty Corporation ("PBGC").
Each IBUI Company has made all required contributions under
the IBUI Benefit Plans including the payment of any premiums
payable to the PBGC and other insurance premiums.
(f) With respect to any IBUI Benefit Plan that is
an employee welfare benefit plan (within the meaning of
Section 3(1) of ERISA) (an "IBUI Welfare Plan"), (i) each
IBUI Welfare Plan for which contributions are claimed as
deductions under any provision of the Code is in material
compliance with all applicable requirements pertaining to
such deduction, (ii) with respect to any welfare benefit
fund (within the meaning of Section 419 of the Code) related
to an IBUI Welfare Plan, there is no disqualified benefit
(within the meaning of Section 4976(b) of the Code) that
would result in the imposition of a tax under Section
4976(a) of the Code, and (iii) any IBUI Benefit Plan that is
a group health plan (within the meaning of Section
4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the material requirements of
Section 4980B of the Code, ERISA, Title XXII of the Public
Health Service Act and the applicable provisions of the
Social Security Act.
(g) The execution of this Agreement and the
performance of the Transactions will not (either alone or in
combination with the occurrence of any additional or
subsequent events) constitute an event under any IBUI
Benefit Plan that will or may result in any payment (whether
of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any current or
former employee, director or consultant of any IBUI Company.
6.17 PATENTS, TRADEMARKS, ETC.
To IBUI's knowledge, no IBUI Company infringes upon or
unlawfully or wrongfully use any Intellectual Property owned or
claimed by another Person and no Person infringes on or
wrongfully uses any Intellectual Property owned or claimed by any
IBUI Company, except for those situations that would not have a
Material Adverse Effect. The IBUI Companies own or have valid
rights to use all Intellectual Property used in the conduct of
their business except where the failure to have valid rights to
use such Intellectual Property will not have a Material Adverse
Effect, free and clear of all Encumbrances, other than
Encumbrances which would not have a Material Adverse Effect.
6.18 ABSENCE OF CERTAIN CHANGES
Since the IBUI Balance Sheet Date, the IBUI Companies have
conducted the IBUI Business in the ordinary course, as of the
date hereof, there has not been:
(a) any Material Adverse Effect on the IBUI
Business or, in the aggregate, Liabilities of the IBUI Companies;
(b) any distribution or payment declared or made
in respect of IBUI's capital stock by way of dividends,
purchase or redemption of shares or otherwise;
(c) any increase in the compensation payable or
to become payable to any current director or officer of any
IBUI Company, except for merit and seniority increases for
employees made in the ordinary course of business, nor any
material change in any existing employment, severance,
consulting arrangements or any IBUI Benefit Plan;
(d) any sale, assignment or transfer of any IBUI
Assets, or any additions to or transactions involving any
IBUI Assets, other than those made in the ordinary course of
business or those solely involving the IBUI Companies;
(e) other than in the ordinary course of
business, any waiver or release of any material claim or
right or cancellation of any material debt held by any IBUI Company;
(f) any change in practice with respect to Taxes,
or any election, change of any election, or revocation of
any election with respect to Taxes, or any settlement or
compromise of any dispute involving a Tax liability;
(g) (i) any creation, assumption or maintenance
of any long-term debt or any short-term debt for borrowed
money other than under existing notes payable, lines of
credit or other credit facility or in the ordinary course of
business (ii) any assumption, granting of guarantees,
endorsements or otherwise becoming liable or responsible
(whether directly, contingently or otherwise) for the
obligations of any other Person or (iii) any loans, advances
or capital contributions to, or investments in, any other
Person except its Wholly-Owned Subsidiaries;
(h) any material agreement, commitment or
contract, except agreements, commitments or contracts for
the purchase, sale or lease of goods or services in the
ordinary course of business;
(i) other than in the ordinary course of
business, any authorization, recommendation, proposal or
announcement of an intention to authorize, recommend or
propose, or enter into any Contract with respect to, any (i)
plan of liquidation or dissolution, (ii) acquisition of a
material amount of assets or securities, (iii) disposition
or Encumbrance of a material amount of assets or securities,
(iv) merger or consolidation or (v) material change in its
capitalization; or
(j) any change in accounting or Tax procedure or practice.
6.19 CORPORATE RECORDS
The minute books of each IBUI Company contain accurate,
complete and current copies of all Charter Documents and of all
minutes of meetings, resolutions and other proceedings of its
Board of Directors and stockholders.
6.20 FINDER'S FEES
No Person is or will be entitled to any commission, finder's
fee or other payment in connection with the Transactions based on
arrangements made by or on behalf of IBUI.
6.21 REORGANIZATION
No IBUI Company has not or, as of the Closing Date, will have
not taken any action or failed to take any action which action or
failure would result in the failure of the Merger and Share
Exchange to qualify as a reorganization within the meaning of
Code Section 368(a). IBUI has no knowledge of any fact or
circumstance that is reasonably likely to prevent the Merger and
Share Exchange from qualifying as a reorganization within the
meaning of Code Section 368(a).
ARTICLE 7
REGISTRATION STATEMENT AND CONSENT SOLICITATION STATEMENT
7.1 REGISTRATION STATEMENT AND CONSENT SOLICITATION STATEMENT
In connection with the subject Merger and Share Exchange and
the solicitation of stockholder consents thereto and pursuant to
Rule 145, RAI shall file a Registration Statement on Form S-4
(the "Registration Statement"), with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), the Registration Statement to
include as Part I thereof the prospectus and consent solicitation
statement to be transmitted to the IBUI Stockholders (such
prospectus and consent solicitation statement, as from time to
time amended and/or supplemented, hereinafter referred to as the
"Consent Solicitation Statement/Prospectus") (a) with respect to
the solicitation of consents from the IBUI Stockholders to the
subject merger and share exchange pursuant to Section 92A.120 of
the Nevada Law and Section 14(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and (b) with respect to
the distribution of the shares of RAI Common Stock to the IBUI
Stockholders in exchange for their shares of the IBUI Common
Stock pursuant to the terms of this Agreement, the subject Merger
and Share Exchange, the Securities Act and the rules and
regulations promulgated thereunder. In connection with the
preparation, utilization and/or distribution of the Consent
Solicitation Statement/Prospectus to be issued and distributed to
the IBUI Stockholders in connection with the Merger and Share
Exchange and the preparation and utilization of the Registration
Statement of which the Consent Solicitation Statement/Prospectus
constitutes Part I thereof, the parties shall follow the
procedures as provided in this Section 7.
(a) The parties hereto shall cooperate in the
preparation thereof consistent with the applicable
requirements of Nevada Law, the Securities Act and the
Exchange Act and the rules and regulations promulgated under
the Securities Act and the Exchange Act by the SEC; and,
without limiting the generality of the foregoing, each of
RAI and IBUI shall promptly supply to the other any and all
information and material (relating to itself and/or the
subject transaction) as may be requested or required in
connection with the preparation and filing of the
Registration Statement, including, without limitation, all
information concerning their respective officers, directors
and principal stockholders that is reasonably requested for
inclusion in the Consent Solicitation Statement/Prospectus;
and each shall take and perform such other and further acts
and actions as shall be necessary or appropriate to cause
the prompt preparation, completion, filing, review,
finalization and clearance of the Registration Statement.
(b) Subject to the Registration Statement being
declared effective by the SEC, the Consent Solicitation
Statement/Prospectus, and any other communication required
by the Exchange Act or the rules and regulations promulgated
thereunder or reasonably requested by RAI, shall be mailed
by IBUI or its transfer agent to the IBUI Stockholders as
soon after such effective date as is reasonably possible.
Subsequent thereto, IBUI shall transmit to the IBUI
Stockholders such amended and/or supplemental consent
solicitation materials as may be necessary, in light of
subsequent developments or otherwise, to render the Consent
Solicitation Statement/Prospectus, as so amended or
supplemented, not false or misleading with respect to any
material fact and so as not to omit to state any information
necessary to make the statements made, within the context
made, not misleading. Prior to the Effective Date (or
earlier termination of this Agreement) neither party hereto
shall distribute any material (other than the Consent
Solicitation Statement/Prospectus as herein provided) which
might constitute, or be deemed to constitute, a "prospectus"
relating to the Merger and Share Exchange within the meaning
of the Securities Act without the prior written consent of
all of the parties hereto in each instance.
(c) IBUI hereby authorizes the utilization by RAI
in the Registration Statement, or in any filing with a state
securities administrator, of all information concerning IBUI
either provided to RAI by IBUI in connection with or
contained in the Consent Solicitation Statement/Prospectus
and/or contained in any filings heretofore made by IBUI
pursuant to the Securities Act and/or the Exchange Act.
IBUI shall promptly advise RAI if at any time any of such
information or material is or becomes incorrect, inaccurate
or incomplete in any material respect and, in connection
therewith, IBUI shall provide RAI with such information and
material as shall be needed to correct any such inaccuracy
or omission. RAI shall promptly advise IBUI if at any time
any of the information or material contained in the
Registration Statement and supplied by RAI is or becomes
incorrect, inaccurate or incomplete in any material respect.
RAI shall cause the preparation, review, clearance, approval
and distribution of such amended or supplemented material as
shall be necessary to correct or eliminate any such
inaccuracies and/or omissions as provided in this Section 12.
(d) Each of RAI and IBUI covenants and warrants
to the other that any and all information and/or material
supplied by it to the other and/or in connection with the
Registration Statement and/or the within transactions (i)
will, at the time made and at each Relevant Date (as
hereinafter defined), be true and correct in all material
respects; (ii) will comply in all material respects with the
requirements of the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder by the SEC;
and (iii) will not contain any statement which, at the time,
and at each Relevant Date and in light of the circumstances
under which it is made, is false or misleading with respect
to any material fact, or which omits to state any material
fact necessary in order to make the statements therein made
not false or misleading. For the purposes of this
Agreement, the term "Relevant Date" shall be and mean each
of (x) the effective date of the Registration Statement, (y)
the mailing date of the Consent Solicitation
Statement/Prospectus and (z) the Effective Date. Each of
RAI and IBUI specifically agrees to indemnify and hold
harmless the other (and their respective officers,
directors, employees, agents and representatives) from and
against any and all costs, expenses, losses, demands, claims
and liabilities of every kind, nature and description
(including reasonable attorneys' fees) arising out of, or
relating to any breach or anticipatory breach by it of its
duties and obligations pursuant to this Section 12(d) hereof.
7.2 REGISTRATION EXPENSES
(a) All fees and expenses incident to the
performance of or compliance with this Agreement by RAI
shall be borne by RAI whether or not the Registration
Statement is filed or becomes effective and whether or not
any Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to
in the foregoing sentence shall include, without limitation,
(i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings
required to be made with the Nasdaq Stock Market and (B) in
compliance with state securities or Blue Sky laws (ii)
printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities and of
printing prospectuses if the printing of prospectuses is
requested by the Majority Holders) (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements
of counsel for RAI and, (v) fees and disbursements of all
independent certified public accountants, (vi) Securities
Act liability insurance, if RAI so desires such insurance,
and (vii) fees and expenses of all other Persons retained by
RAI in connection with the consummation of the transactions
contemplated by this Article VII. In addition, RAI shall be
responsible for all of its internal expenses incurred in
connection with the consummation of the transactions
contemplated by this Agreement (including, without
limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the
expense of any annual audit and, the fees and expenses
incurred in connection with the listing of the Registrable
Securities on any securities exchange or market on which
similar securities issued by RAI are then listed.
(b) Notwithstanding anything to the contrary
herein, IBUI shall be responsible for the cost of the fees
and expenses of its attorneys and accountants.
7.3 INDEMNIFICATION
(a) RAI shall, notwithstanding termination of
this Agreement and without limitation as to time, indemnify
and hold harmless IBUI and each of its officers and
directors and employees, each Person who controls IBUI
(within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors,
agents and employees of each such controlling Person, to the
fullest extent permitted by applicable law, from and against
any and all losses, claims, damages, liabilities, costs
(including, without limitation, costs of preparation and
attorneys' and expert fees) and expenses (collectively,
"Losses"), as incurred, arising out of or relating to any
breach of any warranty or representation contained herein,
any untrue or alleged untrue statement of a material fact
contained in the Registration Statement or the Consent
Solicitation Statement/Prospectus or arising out of or
relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading,
except solely to the extent that (i) such untrue statements
or omissions are based solely upon information regarding
IBUI furnished in writing to RAI by or on behalf of IBUI
expressly for use therein, which information was relied on
by RAI for use therein or (ii) such information relates to
IBUI or IBUI's proposed method of distribution of
Registrable Securities and was furnished in writing to RAI
by or on behalf of IBUI expressly for use therein. RAI
shall notify the IBUI promptly of the institution, threat or
assertion of any Proceeding of which RAI is aware in
connection with the transactions contemplated by this Agreement.
(b) In connection with the Registration
Statement, IBUI shall furnish to RAI in writing such
information as RAI reasonably requests for use in connection
with the Registration Statement or any Prospectus and agrees
to indemnify and hold harmless RAI, their directors,
officers, agents and employees, each Person who controls RAI
(within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling Persons,
to the fullest extent permitted by applicable law, from and
against all Losses (as determined by a court of competent
jurisdiction in a final judgment not subject to appeal or
review) arising solely out of or based solely upon any
untrue statement of a material fact contained in the
information provided to RAI as provided for hereinabove, and
only to the extent, that (i) such untrue statement or
omission is contained in any information furnished in
writing by IBUI to RAI specifically for inclusion in the
Registration Statement or such Prospectus and such
information was relied upon by RAI for use in the
Registration Statement, such Prospectus or such form of
prospectus or (ii) such information relates to IBUI or
IBUI's proposed method of distribution of Registrable
Securities and was furnished in writing by or on behalf of
IBUI to RAI specifically for inclusion in the Registration
Statement or such Prospectus and such information was relied
upon by RAI for use in the Registration Statement, such
Prospectus or such form of prospectus.
(c) If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder
(a "Registration Indemnified Party"), such Registration
Indemnified Party promptly shall notify the Person from whom
indemnity is sought (the "Registration Indemnifying Party")
in writing, and the Registration Indemnifying Party shall
assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Registration
Indemnified Party and the payment of all fees and expenses
incurred in connection with defense thereof; provided, that
the failure of any Registration Indemnified Party to give
such notice shall not relieve the Registration Indemnifying
Party of its obligations or liabilities pursuant to this
Article VII, except (and only) to the extent that it shall
be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further
review) that such failure shall have proximately and
materially adversely prejudiced the Registration Indemnifying Party.
A Registration Indemnified Party shall have the right to
employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such
Registration Indemnified Party or Parties unless: (1) the
Registration Indemnifying Party has agreed to pay such fees
and expenses; or (2) the Registration Indemnifying Party
shall have failed promptly to assume the defense of such
Proceeding and to employ counsel reasonably satisfactory to
such Registration Indemnified Party in any such Proceeding;
or (3) the named parties to any such Proceeding (including
any impleaded parties) include both such Registration
Indemnified Party and the Registration Indemnifying Party,
and such Registration Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such
Registration Indemnified Party and the Registration
Indemnifying Party (in which case, if such Registration
Indemnified Party notifies the Registration Indemnifying
Party in writing that it elects to employ separate counsel
at the expense of the Registration Indemnifying Party, the
Registration Indemnifying Party shall not have the right to
assume the defense thereof and such counsel shall be at the
expense of the Registration Indemnifying Party). The
Registration Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its
written consent, which consent shall not be unreasonably
withheld. No Registration Indemnifying Party shall, without
the prior written consent of the Registration Indemnified
Party, effect any settlement of any pending Proceeding in
respect of which any Registration Indemnified Party is a
party, unless such settlement includes an unconditional
release of such Registration Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Registration Indemnified Party
to which the Registration Indemnified Party is entitled
hereunder (including reasonable fees and expenses to the
extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the
Registration Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Registration
Indemnifying Party.
(d) If a claim for indemnification under Section
7.3(a) or 7.3(b) is unavailable to a Registration
Indemnified Party or is insufficient to hold such
Registration Indemnified Party harmless for any Losses in
respect of which this would apply by its terms (other than
by reason of exceptions provided in this Section 7.3(d),
then each Registration Indemnifying Party, in lieu of
indemnifying such Registration Indemnified Party, shall
contribute to the amount paid or payable by such
Registration Indemnified Party as a result of such Losses,
(i) in such proportion as is appropriate to reflect the
relative benefits received by the Registration Indemnifying
Party on the one hand and the Registration Indemnified Party
on the other from the distribution of the Registrable
Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault
of the Registration Indemnifying Party and Registration
Indemnified Party in connection with the actions, statements
or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault
of such Registration Indemnifying Party and Registration
Indemnified Party shall be determined by reference to, among
other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or
omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by,
such Registration Indemnifying Party or Registration
Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct
or prevent such action, statement or omission. The amount
paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth
in Section 7.3(c), any attorneys' or other fees or expenses
incurred by such party in connection with any Proceeding to
the extent such party would have been indemnified for such
fees or expenses if the indemnification provided for in this
Section was available to such party.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7.3(d)
were determined by pro rata allocation or by any other
method of allocation that does not take into account the
equitable considerations referred to in the immediately
preceding paragraph. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
(e) No Holder shall be required to contribute, in
the aggregate, any amount in excess of the amount by which
the proceeds actually received by such Holder from the sale
of the Registrable Securities subject to the Proceeding
exceeds the amount of any damages that any person has
otherwise been required to pay by reason of such Holder's
untrue or alleged untrue statement or omission or alleged omission.
(f) The indemnity and contribution agreements
contained in this Section are in addition to any liability
that the Indemnifying Parties may have to the Indemnified Parties.
7.4 RULE 144
RAI shall file the reports required to be filed by it under
the Securities Act and the Exchange Act in a timely manner and,
if at any time RAI is not required to file such reports, they
will, upon the request of any Holder, make publicly available
other information so long as necessary to permit sales of its
securities pursuant to Rule 144. RAI further covenants that it
will take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable
such Holder to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions
provided by Rule 144. Upon the request of any Holder, RAI shall
deliver to such Holder a written certification of a duly
authorized officer as to whether it has complied with such requirements.
ARTICLE 8
COVENANTS OF THE PARTIES
8.1 PROXY STATEMENT
RAI and IBUI will each prepare and file with the SEC as soon
as reasonably practicable after the date hereof a proxy statement
to be filed under the Exchange Act by such Party and to be
distributed by such Party in connection with such Party's
Stockholder Meeting (each, a "Proxy Statement, and together, the
"Proxy Statements"). Each Party shall allow the other Party the
opportunity to review and comment on the Proxy Statement prior to
filing with the SEC. Each Party will furnish to the other Party
all information concerning itself and its Subsidiaries as the
other Party or its counsel may reasonably request and that is
required or customary for inclusion in the such Proxy Statement.
Notwithstanding anything to the contrary contained in this
Agreement, IBUI shall bear all expenses incurred by RAI in the
preparation, filing and distribution of the Proxy Statement.
8.2 NO SOLICITATION
(a) From and after the date hereof, RAI, without
the prior written consent of IBUI, will not, and will not
authorize or permit any of its Subsidiaries or its Party
Representatives to, directly or indirectly, solicit,
initiate or encourage (including by way of furnishing
information) or take any other action to facilitate
knowingly any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined below) from any Person, or
engage in any discussion or negotiations relating thereto or
accept any Acquisition Proposal; provided, however, that
notwithstanding any other provision hereof, RAI may at any
time prior to the time RAI's stockholders shall have voted
to approve this Agreement, engage in discussions or
negotiations with a third party who (without any
solicitation, initiation, encouragement, discussion or
negotiation, directly or indirectly, by or with any RAI
Company or its Party Representatives after the date hereof)
seeks to initiate such discussions or negotiations and may
furnish such third party information concerning RAI and its
Business and Assets if, and only to the extent that, (i)(x)
the third party has first made an Acquisition Proposal that
is (as determined in good faith by the RAI Board of
Directors after consultation with its legal and financial
advisor) financially superior to the Transactions and has
demonstrated that the funds necessary for the Acquisition
Proposal are reasonably likely to be available and the
Acquisition Proposal is reasonably capable of consummation
in accordance with its terms (as determined in good faith in
each case by RAI's Board of Directors after consultation
with its legal and financial advisors) and (y) RAI's Board
of Directors shall conclude in good faith, after considering
applicable provisions of applicable Law, on the basis of
advice of its counsel, that such action is necessary for the
Board of Directors to act in a manner consistent with its
fiduciary duties under applicable Law and (ii) prior to
furnishing such information to or entering into discussions
or negotiations with such Person, RAI (x) provides prompt
notice to IBUI to the effect that it is furnishing
information to or entering into discussions or negotiations
with such Person and (y) receives from such Person an
executed confidentiality agreement in reasonably customary
form. RAI shall immediately cease and terminate any
existing solicitation, initiation, encouragement, activity,
discussion or negotiation with any Persons conducted
heretofore by RAI or its Party Representatives with respect
to the foregoing. RAI shall not release any third party
from, or waive any provision of, any standstill agreement to
which it is a party or any confidentiality agreement between
it and another Person who has made an Acquisition Proposal,
unless such Person has made an Acquisition Proposal meeting
the criteria set forth in clause (a)(i)(x) above and RAI's
Board of Directors shall conclude in good faith, after
considering applicable provisions of applicable Law, on the
basis of advice of its counsel, that such action is
necessary for the Board of Directors to act in a manner
consistent with its fiduciary duties under applicable Law.
RAI shall immediately notify IBUI orally (with a prompt
written confirmation) of any such inquiries, offers or
proposals (including the terms and conditions of any such
proposal and the identity of the Person making it and shall
provide copies of any such written inquiries, offers or
proposals), shall keep IBUI informed of the status and
details of any such inquiry, offer or proposal (and agrees
that any material modification of the terms of an inquiry or
proposal shall constitute a new inquiry or proposal), and
shall give IBUI two (2) business days' advance notice of any
agreement to be entered into with, or any information to be
supplied to, any Person making such inquiry, offer or
proposal (no such agreement, other than a confidentiality
agreement as set forth in this Section, to be executed or
agreed prior to the termination of this Agreement in
accordance with its terms). As used herein, "Acquisition
Proposal" shall mean a bona fide proposal or offer (other
than by IBUI) for a tender or exchange offer, merger,
consolidation or other business combination involving RAI or
any Subsidiary thereof, of any proposal to acquire in any
manner a substantial equity interest in, or a substantial
amount of the assets of, RAI or any such Subsidiary.
(b) From and after the date hereof, IBUI, without
the prior written consent of RAI, will not, and will not
authorize or permit any of its Subsidiaries or its Party
Representatives to, directly or indirectly, solicit,
initiate or encourage (including by way of furnishing
information) or take any other action to facilitate
knowingly any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined above) from any Person, or
engage in any discussion or negotiations relating thereto or
accept any Acquisition Proposal; provided, however, that
notwithstanding any other provision hereof, IBUI may at any
time prior to the time the Shareholders shall have voted to
approve this Agreement, engage in discussions or
negotiations with a third party who (without any
solicitation, initiation, encouragement, discussion or
negotiation, directly or indirectly, by or with IBUI or its
Party Representatives after the date hereof) seeks to
initiate such discussions or negotiations and may furnish
such third party information concerning IBUI and its
Business and Assets if, and only to the extent that, (i)(x)
the third party has first made an Acquisition Proposal that
is (as determined in good faith by the IBUI Board of
Directors after consultation with its legal and financial
advisor) financially superior to the Transactions and has
demonstrated that the funds necessary for the Acquisition
Proposal are reasonably likely to be available and the
Acquisition Proposal is reasonably capable of consummation
in accordance with its terms (as determined in good faith in
each case by IBUI's Board of Directors after consultation
with its legal and financial advisors) and (y) IBUI's Board
of Directors shall conclude in good faith, after considering
applicable provisions of applicable Law, on the basis of
advice of its counsel, that such action is necessary for the
Board of Directors to act in a manner consistent with its
fiduciary duties under applicable Law and (ii) prior to
furnishing such information to or entering into discussions
or negotiations with such Person, IBUI (x) provides prompt
notice to RAI to the effect that it is furnishing
information to or entering into discussions or negotiations
with such Person and (y) receives from such Person an
executed confidentiality agreement in reasonably customary
form. IBUI shall immediately cease and terminate any
existing solicitation, initiation, encouragement, activity,
discussion or negotiation with any Persons conducted
heretofore by IBUI or its Party Representatives with respect
to the foregoing. IBUI shall not release any third party
from, or waive any provision of, any standstill agreement to
which it is a party or any confidentiality agreement between
it and another Person who has made an Acquisition Proposal,
unless such Person has made an Acquisition Proposal meeting
the criteria set forth in clause (a)(i)(x) above and IBUI's
Board of Directors shall conclude in good faith, after
considering applicable provisions of applicable Law, on the
basis of advice of its counsel, that such action is
necessary for the Board of Directors to act in a manner
consistent with its fiduciary duties under applicable Law.
IBUI shall immediately notify RAI orally (with a prompt
written confirmation) of any such inquiries, offers or
proposals (including the terms and conditions of any such
proposal and the identity of the Person making it and shall
provide copies of any such written inquiries, offers or
proposals), shall keep RAI informed of the status and
details of any such inquiry, offer or proposal (and agrees
that any material modification of the terms of an inquiry or
proposal shall constitute a new inquiry or proposal) , and
shall give RAI two (2) business days' advance notice of any
agreement to be entered into with, or any information to be
supplied to, any Person making such inquiry, offer or
proposal (no such agreement, other than a confidentiality
agreement as set forth in this Section, to be executed or
agreed prior to the termination of this Agreement in
accordance with its terms).
8.3 NOTIFICATION OF CERTAIN MATTERS
Each of RAI and IBUI shall give prompt notice to each other of
the following:
(a) the occurrence or nonoccurrence of any event
whose occurrence or nonoccurrence would be likely to cause
either (i) any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Effective Date, or
(ii) directly or indirectly, any Material Adverse Effect;
(b) any material failure of such Party, or any
officer, director, employee or agent of any thereof, to
comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; and
(c) any facts relating to such Party which would
make it necessary or advisable to amend the Proxy Statement
in order to make the statements therein not misleading or to
comply with applicable Law; provided, however, that the
delivery of any notice pursuant to this Section 8.3 shall
not limit or otherwise affect the remedies available
hereunder to the Party receiving such notice.
8.4 ACCESS TO INFORMATION
(a) From the date hereof to the Effective Date,
RAI and IBUI shall, and shall cause its respective
Subsidiaries, and its officers, directors, employees,
auditors, counsel and agents to afford the officers,
employees, auditors, counsel, financial advisors and agents
of the other Party complete access at all reasonable times
to such Party's and its Subsidiaries' officers, employees,
auditors, counsel, agents, properties, offices and other
facilities and to all of their respective books and records,
and shall furnish the other with all financial, operating
and other data and information as such other Party may
reasonably request.
(b) All information so received from the other
Party shall be deemed received pursuant to the
confidentiality agreement provisions in the Letter of Intent
dated May 10, 2001 heretofore executed and delivered by IBUI
and RAI (the "Confidentiality Agreement"), and each such
Party shall, and shall cause its Subsidiaries and each of
its and their respective officers, directors, employees,
auditors, counsel, financial advisors and agents ("Party
Representatives"), to comply with the provisions of the
Confidentiality Agreement with respect to such information.
The provisions of the Confidentiality Agreement are hereby
incorporated herein by reference with the same effect as if
fully set forth herein.
8.5 PUBLIC ANNOUNCEMENTS
RAI and IBUI (a) shall use all reasonable efforts to develop a
joint communications plan and each Party shall use all reasonable
efforts to ensure that all press releases and other public
statements with respect to the Transactions shall be consistent
with such joint communications plan or, to the extent
inconsistent therewith, shall have received the prior written
approval of the other and (b) before issuing any press release or
otherwise making any public statements with respect to the
Transactions, will consult with each other as to its form and
substance and shall not issue any such press release or make any
such public statement prior to such consultation, except for each
of (a) and (b) above as may be required by Law (it being agreed
that the Parties hereto are entitled to disclose all requisite
information concerning the Transactions in any filings required
with the SEC) or the rules and regulations of the Nasdaq Stock
Market, Inc.
8.6 COOPERATION
Upon the terms and subject to the conditions hereof, each of
the Parties shall use its commercially reasonable efforts to take
or cause to be taken all actions and to do or cause to be done
all things necessary, proper or advisable to consummate as
promptly as practicable the Transactions and shall use its
commercially reasonable efforts to obtain all RAI Required
Consents and IBUI Required Consents, and to effect all necessary
filings under the Securities Act and the Exchange Act. Without
limiting the generality of the foregoing, each Party shall use
all commercially reasonable efforts to take, or cause to be
taken, all other actions and to do, or cause to be done, all
other things necessary, proper or advisable to fulfill the
conditions herein to the extent that the fulfillment thereof is
within a Party's control.
8.7 REORGANIZATION
From and after the date hereof and until the Effective Date,
neither RAI or IBUI, nor any of their respective Subsidiaries
shall knowingly take any action, or knowingly fail to take any
action, that would jeopardize qualification of the Merger and
Share Exchange as a reorganization within the meaning of Section
368(a) of the Code. Notwithstanding that there is no guaranty of
qualification, the Parties agree that the Merger and Share
Exchange is intended to be a tax-free reorganization under
Section 368 of the Code, and this Agreement is intended to be a
"plan of reorganization" within the meaning of the regulations
promulgated under such section of the Code.
ARTICLE 9
COVENANTS OF RAI
9.1 OPERATION OF THE BUSINESS
Except as contemplated by this Agreement or as expressly
agreed to in writing by IBUI, during the period from the date of
this Agreement to the Effective Date, RAI and its Subsidiaries
will conduct their operations only in the ordinary course of
business consistent with sound financial, operational and
regulatory practice, and will take no action which would
materially adversely affect their ability to consummate the
Transactions. Without limiting the generality of the foregoing,
except as otherwise expressly provided in this Agreement or
except as disclosed in the RAI Disclosure Schedule, prior to the
Effective Date, neither RAI nor any of its Subsidiaries will,
without the prior written consent of IBUI:
(a) amend its Charter Documents or bylaws (or
similar organizational documents);
(b) authorize for issuance, issue, sell, deliver,
grant any options for, or otherwise agree or commit to
issue, sell or deliver any shares of its capital stock or
any other securities, other than pursuant to and in
accordance with the terms of any existing RAI options or
warrants listed on the RAI Disclosure Schedule;
(c) recapitalize, split, combine or reclassify
any shares of its capital stock; declare, set aside or pay
any dividend or other distribution (whether in cash, stock
or property or any combination thereof) in respect of its
capital stock; or purchase, redeem or otherwise acquire any
of its or its Subsidiaries' securities or modify any of the
terms of any such securities, except for the Reverse Stock
Split as defined in Section 9.8 hereof.
(d) (i) create, incur, assume or permit to exist
any long-term debt or any short-term debt for borrowed money
other than under existing notes payable, lines of credit or
other credit facilities or in the ordinary course of
business, or with respect to its Wholly-Owned Subsidiaries
in the ordinary course of business, or with respect to its
Wholly-Owned Subsidiaries; (ii) assume, guarantee, endorse
or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other
Person except its Wholly-Owned Subsidiaries in the ordinary
course of business or as otherwise may be contractually
required and disclosed in the RAI Disclosure Schedule; or
(iii) make any loans, advances or capital contributions to,
or investments in, any other Person except its Wholly-Owned
Subsidiaries;
(e) (i) amend any RAI Benefit Plan or (ii) except
in the ordinary course of business consistent with usual
practice or established policy (a) increase in any manner
the rate of compensation of any of its directors, officers
or other employees everywhere, except for increases in the
ordinary course of business; (b) pay or agree to pay any
bonus, pension, retirement allowance, severance or other
employee benefit except as required under currently existing
RAI Benefit Plans disclosed in the RAI Disclosure Schedule
or in the ordinary course of business; or (c) amend,
terminate or enter into any employment, consulting,
severance, change in control or similar agreements or
arrangements with any of its directors, officers or other employees;
(f) enter into any material agreement, commitment
or contract, except agreements, commitments or contracts for
the purchase, sale or lease of goods or services in the
ordinary course of business;
(g) other than in the ordinary course of
business, authorize, recommend, propose or announce an
intention to authorize, recommend or propose, or enter into
any Contract with respect to, any (i) plan of liquidation or
dissolution, (ii) acquisition of a material amount of assets
or securities, (iii) disposition or Encumbrance of a
material amount of assets or securities, (iv) merger or
consolidation or (v) material change in its capitalization;
(h) change any material accounting or Tax procedure or practice;
(i) take any action the taking of which, or
knowingly omit to take any action the omission of which,
would cause any of the representations and warranties herein
to fail to be true and correct in all material respects as
of the date of such action or omission as though made at and
as of the date of such action or omission;
(j) compromise, settle or otherwise modify any
material claim or litigation not identified in the RAI
Disclosure Schedule; or
(k) commit or agree to do any of the foregoing.
9.2 RAI STOCKHOLDER MEETING
RAI shall cause a meeting of its stockholders (the "RAI
Stockholder Meeting") to be duly called and held as soon as
reasonably practicable for the purpose of voting on the adoption
of this Agreement and the Merger and Share Exchange as required
by the DGCL and the Nasdaq Stock Market. Subject to their
fiduciary duties, the directors of RAI shall recommend such
adoption of this Agreement and the Merger and Share Exchange by
RAI's stockholders and the other matters to be voted upon. In
connection with such meeting, RAI (a) will mail to its
stockholders as promptly as practicable the Proxy Statement and
all other proxy materials for such meeting, (b) will use all
reasonable efforts to obtain the necessary approvals by its
stockholders of this Agreement and the Transactions, and (c) will
otherwise comply with all legal requirements applicable to such meeting.
9.3 MAINTENANCE OF THE ASSETS
RAI shall, and shall cause each other RAI Company to, use its
reasonable best efforts to continue to maintain and service the
RAI Assets consistent with past practice. RAI shall not, and
shall cause each other RAI Company not to, directly or
indirectly, sell or encumber all or any part of the RAI Assets,
other than sales in the ordinary course of business or sales to
or Encumbrances in favor of any other RAI Company, or initiate or
participate in any discussions or negotiations or enter into any
agreement to do any of the foregoing.
9.4 EMPLOYEES AND BUSINESS RELATIONS
RAI shall, and shall cause each other RAI Company to, use
commercially reasonable efforts to keep available the services of
its current employees and agents and to maintain its relations
and goodwill with its suppliers, customers, distributors and any
others having business relations with it.
9.5 CERTAIN TAX MATTERS
From the date hereof until the Effective Date, (a) RAI and
each of its Subsidiaries will prepare and file, in the manner
required by applicable Law, all Tax Returns (the "Post-Signing
Returns") required to be filed under applicable Law; (b) RAI and
each of its Subsidiaries will timely pay all Taxes shown as due
and payable on such Post-Signing Returns that are so filed; (c)
RAI and each of its Subsidiaries will make provision for all
Taxes payable by RAI and/or any such Subsidiary under applicable
Law for which no Post-Signing Return is due prior to the
Effective Date; and (d) RAI will promptly notify IBUI in writing
of any action, suit, proceeding, claim or audit pending against
or with respect to RAI or any of its Subsidiaries in respect of
any Tax that is not disclosed on the RAI Disclosure Schedule.
9.6 MAINTENANCE OF LISTING
RAI will use its best efforts to maintain the listing of
Merged Company Common Stock on the Nasdaq Small Cap Market and to
keep current its filings with the SEC as required under Section
13 of the Exchange Act. RAI shall immediately notify IBUI of,
and provide IBUI a copy of, any notice or correspondence from the
Nasdaq Stock Market Inc.
9.7 STATE ANTI-TAKEOVER LAW
If any "business combination," "moratorium," "control share,"
"fair price," "interested shareholder," "affiliated transaction"
or other anti-takeover statute or regulation under the DGCL or
Nevada Law (i) prohibits or restricts RAI's ability to perform
its obligations under this Agreement or any party's ability to
consummate the Merger and Share Exchange or the other
transactions contemplated hereby or thereby, or (ii) would have
the effect of invalidating or voiding this Agreement or any
provision hereof, then RAI shall use its best efforts to obtain
any necessary consents or approvals so that the foregoing shall not apply.
9.8 REVERSE STOCK SPLIT
Prior to the Closing Date, RAI shall have conducted a reverse
split of its Common Stock on a 1:6 basis (the "Reverse Stock Split").
ARTICLE 10
COVENANTS OF IBUI
10.1 OPERATION OF THE BUSINESS
Except as contemplated by this Agreement or as expressly
agreed to in writing by RAI, during the period from the date of
this Agreement to the Effective Date, IBUI and its subsidiaries
will conduct its operations only in the ordinary course of
business consistent with sound financial, operational and
regulatory practice, and will take no action which would
materially adversely affect its ability to consummate the
Transactions. Without limiting the generality of the foregoing,
except as otherwise expressly provided in this Agreement or
except as disclosed in the IBUI Disclosure Schedule, prior to the
Effective Date, IBUI will not, without the prior written consent of RAI:
(a) amend its Charter Documents or bylaws (or
similar organizational documents);
(b) authorize for issuance, issue, sell, deliver,
grant any options for, or otherwise agree or commit to
issue, sell or deliver any shares of its capital stock or
any other securities, other than pursuant to and in
accordance with the terms of any Existing Options or IBUI
Warrants listed on the IBUI Disclosure Schedule;
(c) recapitalize, split, combine or reclassify
any shares of its capital stock; declare, set aside or pay
any dividend or other distribution (whether in cash, stock
or property or any combination thereof) in respect of its
capital stock; or purchase, redeem or otherwise acquire any
of its securities or modify any of the terms of any such
securities;
(d) (i) create, incur, assume or permit to exist
any long-term debt or any short-term debt for borrowed money
other than under existing notes payable, lines of credit or
other credit facilities or in the ordinary course of
business, or with respect to its Wholly-Owned Subsidiaries ;
(ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise)
for the obligations of any other Person except its Wholly-
Owned Subsidiaries in the ordinary course of business or as
otherwise may be contractually required and disclosed in the
IBUI Disclosure Schedule; or (iii) make any loans, advances
or capital contributions to, or investments in, any other Person;
(e) (i) amend any IBUI Benefit Plan or (ii)
except in the ordinary course of business consistent with
usual practice or established policy (a) increase in any
manner the rate of compensation of any of its directors,
officers or other employees everywhere, except for increases
in the ordinary course of business; (b) pay or agree to pay
any bonus, pension, retirement allowance, severance or other
employee benefit except as required under currently existing
IBUI Benefit Plans disclosed in the IBUI Disclosure Schedule
or in the ordinary course of business; or (c) amend,
terminate or enter into any employment, consulting,
severance, change in control or similar agreements or
arrangements with any of its directors, officers or other employees;
(f) enter into any material agreement, commitment
or contract, except agreements, commitments or contracts for
the purchase, sale or lease of goods or services in the
ordinary course of business;
(g) other than in the ordinary course of
business, authorize, recommend, propose or announce an
intention to authorize, recommend or propose, or enter into
any Contract with respect to, any (i) plan of liquidation or
dissolution, (ii) acquisition of a material amount of assets
or securities, (iii) disposition or Encumbrance of a
material amount of assets or securities, (iv) merger or
consolidation or (v) material change in its capitalization;
(h) change any material accounting or Tax procedure or practice;
(i) take any action the taking of which, or
knowingly omit to take any action the omission of which,
would cause any of the representations and warranties herein
to fail to be true and correct in all material respects as
of the date of such action or omission as though made at and
as of the date of such action or omission;
(j) compromise, settle or otherwise modify any
material claim or litigation not identified in the IBUI
Disclosure Schedule; or
(k) commit or agree to do any of the foregoing.
10.2 IBUI SHAREHOLDER MEETING
IBUI shall cause a meeting of the IBUI Shareholders (the "IBUI
Shareholder Meeting") to be duly called and held as soon as
reasonably practicable for the purpose of voting on the adoption
of this Agreement and the Merger and Share Exchange as required
by Nevada Law. Subject to their fiduciary duties, the directors
of IBUI shall recommend such adoption of this Agreement and the
Merger and Share Exchange by IBUI's stockholders. In connection
with such meeting, IBUI (a) will mail to its stockholders as
promptly as practicable all required materials for such meeting,
(b) will use all reasonable efforts to obtain the necessary
approvals by its stockholders of this Agreement and the
Transactions, and (c) will otherwise comply with all legal
requirements applicable to such meeting.
10.3 MAINTENANCE OF THE ASSETS
IBUI shall, and shall cause each other IBUI Company to, use
its reasonable best efforts to continue to maintain and service
the IBUI Assets consistent with past practice. IBUI shall not,
and shall cause each other RAI Company not to, use its
indirectly, sell or encumber all or any part of the IBUI Assets,
other than sales in the ordinary course of business or initiate
or participate in any discussions or negotiations or enter into
any agreement to do any of the foregoing.
10.4 EMPLOYEES AND BUSINESS RELATIONS
IBUI shall, and shall cause each other IBUI Company to use
commercially reasonable efforts to keep available the services of
its current employees and agents and to maintain its relations
and goodwill with its suppliers, customers, distributors and any
others having business relations with it.
10.5 ASSUMPTION OF LIABILITIES
IBUI shall assume 100% of RAI's current liabilities, as listed
on Schedule 10.5 hereto, not to exceed $900,000.
10.6 EXPENSES
IBUI shall pay all of the legal, accounting and other expenses
incurred by each RAI Company and IBUI in connection with the Transactions.
10.7 CERTAIN TAX MATTERS
From the date hereof until the Effective Date, (a) IBUI will
prepare and file, in the manner required by applicable Law, all
Post-Signing Returns required to be filed under applicable Law;
(b) IBUI and each of its Subsidiaries will timely pay all Taxes
shown as due and payable on such Post-Signing Returns that are so
filed; (c) IBUI and each of its Subsidiaries will make provision
for all Taxes payable by IBUI under applicable Law for which no
Post-Signing Return is due prior to the Effective Date; and (d)
IBUI will promptly notify RAI in writing of any action, suit,
proceeding, claim or audit pending against or with respect to
IBUI or any of Subsidiaries in respect of any Tax that is not
disclosed on the IBUI Disclosure Schedule.
10.8 STATE ANTI-TAKEOVER LAW
If any "business combination," "moratorium," "control share,"
"fair price," "interested shareholder," "affiliated transaction"
or other anti-takeover statute or regulation under Nevada Law (i)
prohibits or restricts IBUI's ability to perform its obligations
under this Agreement or any party's ability to consummate the
IBUI Merger and Share Exchange or the other transactions
contemplated hereby or thereby, or (ii) would have the effect of
invalidating or voiding this Agreement or any provision hereof or
thereof, then IBUI shall use its best efforts to obtain any
necessary consents or approvals so that the foregoing shall not apply.
ARTICLE 11
POST-CLOSING COVENANTS
11.1 APPOINTMENT TO THE BOARD OF DIRECTORS OF RAI
At the Effective Date, the size of RAI Board of Directors
shall be seven (7) and RAI Board of Directors shall be as set
forth on Exhibit 11.1.
11.2 EMPLOYMENT AGREEMENTS
RAI shall execute and deliver employment agreements to [names]
and [names] shall execute and deliver said employment agreements
in the form annexed hereto as Exhibit 11.2.
11.3 INDEMNIFICATION, DIRECTORS' AND OFFICERS' INSURANCE
For a period of two (2) years after the Effective Date, RAI
shall (a) maintain in effect the current provisions regarding
indemnification of officers and directors contained in the
Charter Documents and bylaws of RAI, and (b) indemnify the
directors and officers of RAI to the fullest extent to which RAI
is permitted to indemnify such officers and directors under its
Charter Documents and bylaws and applicable Law as in effect
immediately prior to the Effective Date. For a period of two (2)
years after the Effective Date, RAI shall maintain in effect the
current policies of directors' and officers' liability insurance
and fiduciary liability insurance maintained by RAI (provided
that RAI may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are,
in the aggregate, no less advantageous to the insured in any
material respect) with respect to claims arising from facts or
events which occurred on or before the Effective Date.
ARTICLE 12
CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES
The respective obligations of each Party to consummate the Merger
and Share Exchange and the other Transactions shall be subject to
the fulfillment at or prior to the Effective Date of the
following conditions:
12.1 LEGALITY
All required governmental approvals shall have been obtained
and any applicable waiting periods, shall have expired. No Law or
Court Order shall have been enacted, entered, promulgated or
enforced by any court or governmental entity that is in effect
and that has the effect of making the Merger and Share Exchange
illegal or otherwise prohibiting the consummation of the Merger
and Share Exchange and no legal action shall be pending or
threatened which is reasonably likely to have a Material Adverse
Effect on Party.
12.2 FAIRNESS OPINION
An investment banking firm reasonably acceptable to the
Parties will have delivered to RAI's Board of Directors and
IBUI's Board of Directors its opinion to the effect that on the
date of the opinion the (i) the Merger and Share Exchange and the
other Transactions contemplated herein, as a whole, is fair from
a financial point of view to the RAI Stockholders, (ii) the
Merger and Share Exchange and the other Transactions contemplated
herein, as a whole, is fair from a financial point of view to the
IBUI Shareholders, and (iii) the Merger Consideration is fair to
the IBUI Shareholders from a financial point of view.
12.3 APPROVAL BY IBUI SHAREHOLDERS AND RAI STOCKHOLDERS
This Agreement shall have been approved and adopted by the
stockholders of RAI in accordance with the DGCL and its Charter
Documents, and by the stockholders of IBUI in accordance with
Nevada Law and its Charter Documents. No shareholder of IBUI
will have exercised any appraisal rights such shareholder may
have under applicable Law.
ARTICLE 13
CONDITIONS CONCURRENT TO OBLIGATIONS OF ALL PARTIES
The respective obligations of each Party to consummate the Merger
and Share Exchange and the Transactions shall be subject to the
fulfillment, concurrent with the Closing, of each of the
following conditions:
13.1 [Intentionally Omitted]
ARTICLE 14
CONDITIONS PRECEDENT TO OBLIGATIONS OF IBUI
The obligations of IBUI to consummate the Merger and Share
Exchange and the Transactions shall be subject to the
satisfaction or waiver, on or before the Effective Date, of each
of the following conditions:
14.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the RAI Parties
contained in this Agreement shall be true and correct on the date
hereof and (except to the extent such representations and
warranties speak as of an earlier date) shall also be true and
correct on and as of the Closing Date, except for changes
contemplated by this Agreement, with the same force and effect as
if made on and as of the Closing Date.
14.2 AGREEMENTS, CONDITIONS AND COVENANTS
The RAI Parties shall have performed or complied in all
material respects with all agreements, conditions and covenants
required by this Agreement to be performed or complied with by
them on or before the Effective Date.
14.3 CERTIFICATES
IBUI shall have received a certificate of an executive officer
of RAI to the effect set forth in Sections 14.1, 14.2 , 14.4 and 14.5.
14.4 REQUIRED CONSENTS
RAI sure shall have obtained all consents ("RAI Required
Consents") from third parties the absence of which would result
in a Material Adverse Effect on the RAI Companies.
14.5 MATERIAL ADVERSE EFFECT
There shall have been no Material Adverse Effect on the RAI
Companies taken as a whole or the RAI Companies taken as a whole.
14.6 ANCILLARY DOCUMENTS
Each RAI Party shall have tendered executed copies of the
respective Transaction Documents to which it is intended to be a party.
14.7 BOARD RECOMMENDATION
The Board of Directors of IBUI will have (a) approved and
adopted this Agreement, including the Merger and Share Exchange
and the other Transactions, and determined that the Merger and
Share Exchange is fair to the stockholders of IBUI, and (b)
subject to fiduciary obligations of the IBUI Board of Directors,
resolved to recommend approval and adoption of this Agreement,
including the Merger and Share Exchange and the other
Transactions, by the IBUI Shareholders.
14.8 LEGAL OPINION
IBUI shall have received an opinion of counsel, reasonably
acceptable to IBUI, it being understood that Kaplan Gottbetter &
Levenson, LLP is acceptable to IBUI, that:
(a) Each of the RAI Companies is a corporation,
duly chartered, validly existing and in good standing under
the laws of it state of incorporation, with the requisite
corporate power and authority to own and use its properties
and assets and to carry on its business as currently
conducted. Each of the RAI Companies is duly qualified to
do business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in
good standing, as the case may be, would not individually or
in the aggregate have a Material Adverse Effect.
(b) Each of the RAI Companies has the requisite
corporate power and authority to enter into and to
consummate the transactions contemplated by the Merger and
Share Exchange Agreement and to otherwise carry out their
respective obligations thereunder. The execution and
delivery of the Merger and Share Exchange Agreement by the
RAI Companies and the consummation by them of the
transactions contemplated thereby, including the issuance of
the shares thereunder have been duly authorized by all
necessary action on the part of each of the RAI Companies,
including without limitation approval by the shareholders of
each of the RAI Companies if required by applicable Law. The
Merger and Share Exchange Agreement has been duly executed
and delivered by the RAI Companies and constitutes the valid
and binding obligation of the RAI Companies enforceable
against the RAI Companies in accordance with its terms.
(c) The shares of RAI to be issued to the
shareholders of IBUI pursuant to the Merger and Share
Exchange, have been duly authorized, and assuming without
independent investigation that the shares of capital stock
of IBUI outstanding on the date of effectiveness of the
Merger and Share Exchange are duly authorized, validly
issued, fully paid and nonassessable, when (a) the Merger
and Share Exchange has become effective and (b) the shares
of capital stock of IBUI have been duly delivered pursuant
to the terms of the Merger and Share Exchange Agreement,
such shares of RAI will be validly issued, fully paid and
non-assessable.
(d) No shares of the capital stock of RAI are
entitled to preemptive or similar rights. There are no
outstanding options, warrants, script rights to subscribe
to, registration rights, calls or commitments of any
character whatsoever relating to, or, securities, rights or
obligations convertible into or exchangeable for, or giving
any person any right to subscribe for or acquire, any shares
of capital stock, or contracts, commitments, understandings,
or arrangements by which RAI is or may become bound to issue
additional shares of capital stock, or securities or rights
convertible or exchangeable into shares of capital stock.
ARTICLE 15
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE RAI PARTIES
The obligations of the RAI Parties to consummate the Merger and
Share Exchange and the Transactions and the obligations of the
RAI Parties to consummate the IBUI Merger and Share Exchange and
the Transactions shall be subject to the satisfaction or waiver,
on or before the Effective Date, of each of the following conditions:
15.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of IBUI contained in this
Agreement shall be true and correct on the date hereof and
(except to the extent such representations and warranties speak
as of an earlier date) shall also be true and correct on and as
of the Closing Date, except for changes contemplated by this
Agreement, with the same force and effect as if made on and as of
the Closing Date.
15.2 AGREEMENTS, CONDITIONS AND COVENANTS
IBUI shall have performed or complied in all material respects
with all agreements, conditions and covenants required by this
Agreement to be performed or complied with by it on or before the
Effective Date.
15.3 CERTIFICATES
RAI shall have received a certificate of an executive officer
of IBUI to the effect set forth in Sections 15.1, 15.2, 15.4 and
15.5, respectively.
15.4 REQUIRED CONSENTS
IBUI shall have obtained all consents ("IBUI Required
Consents") from third parties the absence of which would result
in a Material Adverse Effect on IBUI.
15.5 MATERIAL ADVERSE EFFECT
There shall have been no Material Adverse Effect on IBUI taken
as a whole.
15.6 ANCILLARY DOCUMENTS
IBUI shall have tendered executed copies of the Transaction
Documents to which it is intended to be a party.
15.7 BOARD RECOMMENDATION
The Board of Directors of RAI will have approved and adopted
this Agreement, including the RAI Merger and Share Exchange, the
IBUI Merger and Share Exchange and the other Transactions, and
determined that each of the RAI Merger and Share Exchange and
IBUI Merger and Share Exchange is fair to RAI.
15.8 LEGAL OPINION
RAI shall have received an opinion of counsel, reasonably
acceptable to RAI, it being understood that Brian F. Faulkner,
Esq. is acceptable to RAI, that:
(a) Each of the IBUI companies is a corporation,
duly chartered, validly existing and in good standing under
the laws of it state of incorporation, with the requisite
corporate power and authority to own and use its properties
and assets and to carry on its business as currently
conducted. Each of the IBUI Companies is duly qualified to
do business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in
good standing, as the case may be, would not individually or
in the aggregate have a Material Adverse Effect.
(b) Each of the IBUI Companies has the requisite
corporate power and authority to enter into and to
consummate the transactions contemplated by the Merger and
Share Exchange Agreement and to otherwise carry out their
respective obligations thereunder. The execution and
delivery of the Merger and Share Exchange Agreement by the
IBUI Companies and the consummation by them of the
transactions contemplated thereby, including the issuance of
the shares thereunder have been duly authorized by all
necessary action on the part of each IBUI Company, including
without limitation approval by the shareholders of each of
the IBUI Companies, if required by applicable Law. The
Merger and Share Exchange Agreement has been duly executed
and delivered by the IBUI Companies, and constitutes the
valid and binding obligation of the IBUI Companies,
enforceable against the IBUI Companies in accordance with its terms.
(c) No shares of the capital stock of IBUI are
entitled to preemptive or similar rights. There are no
outstanding options, warrants, script rights to subscribe
to, registration rights, calls or commitments of any
character whatsoever relating to, or, securities, rights or
obligations convertible into or exchangeable for, or giving
any person any right to subscribe for or acquire, any shares
of capital stock, or contracts, commitments, understandings,
or arrangements by which IBUI is or may become bound to
issue additional shares of capital stock, or securities or
rights convertible or exchangeable into shares of capital stock.
15.9 LINE OF CREDIT
IBUI Shall have obtained a line of credit which is
substantially similar in all material respects with the Form of
Equity Line Agreement attached hereto as Exhibit 15.9.
ARTICLE 16
INDEMNIFICATION
16.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All of the representations and warranties set forth in
Articles V and VI in this Agreement, notwithstanding any
investigation at any time made by or on behalf of any party
hereto, and in any certificate delivered in connection herewith
with respect to any of those representations and warranties, will
terminate on the Effective Date.
16.2 INDEMNIFICATION OF IBUI INDEMNIFIED PARTIES
RAI covenants and agrees that it will indemnify each IBUI
Indemnified Party against, and hold each IBUI Indemnified Party
harmless from and in respect of, all claims that arise from, are
based on, arise out of, or are attributable to (i) any breach of
the representations and warranties of the RAI Companies or in
certificates delivered in connection herewith; (ii) the
nonfulfillment of any covenant or agreement on the part of the
RAI Companies under this Agreement to be performed prior to the
Closing or (iii) any liability under the Securities Act, the
Exchange Act or other applicable Law which arises out of or is
based on (A) any untrue statement or alleged untrue statement of
a material fact relating to RAI and its Subsidiaries, or any of
them, which is provided to IBUI or its counsel in writing by the
RAI or (B) any omission or alleged omission to state therein a
material fact relating to RAI and its Subsidiaries, or any of
them, required to be stated therein or necessary to make the
statements therein not misleading, and not provided to IBUI or
its counsel by RAI after a written request therefor (each damage
claim described in Section 16.2 being an "IBUI Indemnified
Loss"). Once the occurrence of a breach of any representations
or warranties has been established, damages shall be calculated
without regard to whether such breach caused a Material Adverse Effect.
16.3 INDEMNIFICATION OF RAI INDEMNIFIED PARTIES
IBUI covenants and agrees that it will indemnify each RAI
Indemnified Party against, and hold each RAI Indemnified Party
harmless from and in respect of, all claims that arise from, are
based on, arise out of, or are attributable to (i) any breach of
the representations and warranties of the IBUI Companies or in
certificates delivered in connection herewith; (ii) the
nonfulfillment of any covenant or agreement on the part of the
IBUI Companies under this Agreement to be performed prior to the
Closing or (iii) any liability under the Securities Act, the
Exchange Act or other applicable Law which arises out of or is
based on (A) any untrue statement or alleged untrue statement of
a material fact relating to IBUI and its Subsidiaries, or any of
them, which is provided to RAI or its counsel in writing by the
IBUI Companies or (B) any omission or alleged omission to state
therein a material fact relating to IBUI and its Subsidiaries, or
any of them, required to be stated therein or necessary to make
the statements therein not misleading, and not provided to RAI or
its counsel by IBUI after a written request therefor (each damage
claim described in Section 16.3 being a "RAI Indemnified Loss").
Once the occurrence of a breach of any representations or
warranties has been established, damages shall be calculated
without regard to whether such breach caused a Material Adverse Effect.
16.4 CONDITIONS OF INDEMNIFICATION
(a) All claims for indemnification under this
Agreement (except Article VII) shall be asserted and
resolved as follows in this Section 16.4. The provisions of
Article XVI shall be the sole manner by which the
Indemnified Party shall assert any claim against the
Indemnifying Party that does not involve a Third Party
Claim, including without limitation any claim for breach of
this Agreement.
(b) A party claiming indemnification under this
Agreement (an "Indemnified Party") shall promptly (i) notify
the party from whom indemnification is sought (the
"Indemnifying Party") of any third-party claim or claims
asserted against the Indemnified Party ("Third Party Claim")
that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a
written notice ("Claim Notice") describing in reasonable
detail the nature of the Third Party Claim, a copy of all
papers served with respect to that claim (if any), an
estimate of the amount of damages attributable to the Third
Party Claim to the extent feasible (which estimate shall not
be conclusive of the final amount of such claim) and the
basis for the Indemnified Party's request for
indemnification under this Agreement. Except as set forth in
Section 16.1, the failure to promptly deliver a Claim Notice
shall not relieve the Indemnifying Party of its obligations
to the Indemnified Party with respect to the related Third
Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of that claim. Within
15 days after receipt of any Claim Notice (the "Election
Period"), the Indemnifying Party shall notify the
Indemnified Party (i) whether the Indemnifying Party
disputes its potential liability to the Indemnified Party
under this Article XVI with respect to that Third Party
Claim and (ii) if the Indemnifying Party does not dispute
its potential liability to the Indemnified Party with
respect to that Third Party Claim, whether the Indemnifying
Party desires, at the sole cost and expense of the
Indemnifying Party, to defend the Indemnified Party against
that Third Party Claim.
(c) If the Indemnifying Party does not dispute
its potential liability to the Indemnified Party and
notifies the Indemnified Party within the Election Period
that the Indemnifying Party elects to assume the defense of
the Third Party Claim, then the Indemnifying Party shall
have the right to defend, at its sole cost and expense, that
Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the
discretion of the Indemnifying Party in accordance with this
Section 16.4(c) and the Indemnified Party will furnish the
Indemnifying Party with all information in its possession,
subject to a confidentiality agreement, with respect to that
Third Party Claim and otherwise cooperate with the
Indemnifying Party in the defense of that Third Party Claim;
provided, however, that the Indemnifying Party shall not
enter into any settlement with respect to any Third Party
Claim that (i) purports to limit the activities of, or
otherwise restrict in any way, any Indemnified Party or any
Affiliate of any Indemnified Party, (ii) involves a guilty
plea to any crime or (iii) involves a fine or penalty,
whether or not paid by the Indemnifying Party, without the
prior consent of that Indemnified Party (which consent may
be withheld in the sole discretion of that Indemnified
Party). The Indemnified Party is hereby authorized, at the
sole cost and expense of the Indemnifying Party, to file,
during the Election Period, any motion, answer or other
pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the
Indemnifying Party. The Indemnified Party may participate
in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to
this Section 16.4(c) and will bear its own costs and
expenses with respect to that participation; provided,
however, that if the named parties to any such action
(including any impleaded parties) include both the
Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may
be one or more legal defenses available to it which are
different from or additional to those available to the
Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party
(provided that such expenses are reasonable), and, on its
written notification of that employment, the Indemnifying
Party shall not have the right to assume or continue the
defense of such action on behalf of the Indemnified Party.
(d) If the Indemnifying Party (i) within the
Election Period (A) disputes its potential liability to the
Indemnified Party under this Article XVI, (B) elects not to
defend the Indemnified Party pursuant to Section 16.4(c) or
(C) fails to notify the Indemnified Party that the
Indemnifying Party elects to defend the Indemnified Party
pursuant to Section 16.4(c) or (ii) elects to defend the
Indemnified Party pursuant to Section 16.4(c) but fails
diligently and promptly to prosecute or settle the Third
Party Claim, then the Indemnified Party shall have the right
to defend, at the sole cost and expense of the Indemnifying
Party (provided that such expenses are reasonable) (if the
Indemnified Party is entitled to indemnification hereunder),
the Third Party Claim by all appropriate proceedings, which
proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The
Indemnified Party shall have full control of such defense
and proceedings. Notwithstanding the foregoing, if the
Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party
disputes its potential liability to the Indemnified Party
under this Article XVI and if such dispute is resolved in
favor of the Indemnifying Party, the Indemnifying Party
shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section 16.4 or
of the Indemnifying Party's participation therein at the
Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all reasonable
costs and expenses of such litigation. The Indemnifying
Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to
this Section 16.4(d), and the Indemnifying Party shall bear
its own costs and expenses with respect to such participation.
(e) In the event any Indemnified Party should
have a claim against any Indemnifying Party hereunder that
does not involve a Third Party Claim, the Indemnified Party
shall transmit to the Indemnifying Party a written notice
(the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages
attributable to that claim to the extent feasible (which
estimate shall not be conclusive of the final amount of such
claim) and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying
Party does not notify the Indemnified Party within 15 days
from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified
by the Indemnified Party in the Indemnity Notice shall be
deemed a liability of the Indemnifying Party hereunder. If
the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by
proceedings in an appropriate court of competent
jurisdiction if the parties do not reach a settlement of
such dispute within 30 days after notice of a dispute is given.
(f) Payments of all amounts owing by an
Indemnifying Party pursuant to this Article XVI relating to
a Third Party Claim shall be made within 30 days after the
latest of (i) the settlement of that Third Party Claim, (ii)
the expiration of the period for appeal of a final
adjudication of that Third Party Claim or (iii) the
expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified
Party under this Agreement. Payments of all amounts owing by
an Indemnifying Party pursuant to Section 16.4(e) shall be
made within 30 days after the later of (i) the expiration of
the 30-day Indemnity Notice period or (ii) the expiration of
the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party
under this Agreement.
16.5 REMEDIES NOT EXCLUSIVE
The remedies provided in this Agreement shall not be exclusive
of any other rights or remedies available to one party against
the other, either at law or in equity.
ARTICLE 17
TERMINATION
17.1 GROUNDS FOR TERMINATION
This Agreement may be terminated at any time before the
Effective Date, in each case as authorized by the respective
Boards of Directors of the Parties:
(a) By mutual written consent of each of RAI and IBUI;
(b) By RAI or IBUI if the Merger and Share
Exchange shall not have been consummated on or before the
Termination Date; provided, however, that the right to
terminate this Agreement under this Section 17.1(b) shall
not be available to any Party whose failure to fulfill any
obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Date to occur on
or before the Termination Date;
(c) By RAI or IBUI if a court of competent
jurisdiction or governmental, regulatory or administrative
agency or commission shall have issued a Court Order (which
Court Order the Parties shall use commercially reasonable
efforts to lift) that permanently restrains, enjoins or
otherwise prohibits the Transactions, and such Court Order
shall have become final and nonappealable;
(d) By IBUI if RAI shall have breached, or failed
to comply with, in any material respect, any of its
obligations under this Agreement or any representation or
warranty made by RAI shall have been incorrect in any
material respect when made, and such breach, failure or
misrepresentation is not cured within 20 days after notice
thereof, and in either case, any such breaches, failures or
misrepresentations, individually or in the aggregate,
results or would reasonably be expected to result in a
failure to satisfy a condition to RAI's obligations to
consummate the transactions contemplated hereby;
(e) By RAI if IBUI shall have breached, or failed
to comply with, in any material respect, any of its
obligations under this Agreement or any representation or
warranty made by it shall have been incorrect in any
material respect when made, and such breach, failure or
misrepresentation is not cured within 20 days after notice
thereof, and in either case, any such breaches, failures or
misrepresentations, individually or in the aggregate,
results or would reasonably be expected to result in a
failure to satisfy a condition to IBUI's obligations to
consummate the transactions contemplated hereby;
(f) By RAI if at the RAI Stockholder Meeting
(including any adjournment thereof) this Agreement and the
Merger and Share Exchange shall fail to be approved and
adopted by the affirmative vote of the stockholders of RAI
as required under the DGCL;
(g) By IBUI if at the IBUI Shareholder Meeting
(including any adjournment thereof) this Agreement and the
Merger and Share Exchange shall fail to be approved and
adopted by the affirmative vote of the stockholders of IBUI
as required under Nevada law;
(h) By RAI, prior to the approval of this
Agreement by the stockholders of RAI, upon five days notice
to IBUI, if, as a result of an Acquisition Proposal received
by RAI from a Person other than a Party to this Agreement or
any of its Affiliates, the Board of Directors of RAI
determines in good faith that its fiduciary obligations
under applicable Law require that such Acquisition Proposal
be accepted; provided, however, that (i) immediately
following such termination RAI executes with such third
party a definitive agreement to implement such Acquisition
Proposal, (ii) the Board of Directors of RAI shall have
concluded in good faith, after considering applicable
provisions of applicable Law and after giving effect to all
concessions which may be offered by IBUI pursuant to clause
(iii) below, on the basis of advice of counsel, that such
action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties under applicable
Law, and (iii) prior to any such termination, (x) RAI shall
have provided IBUI with five days' notice of the terms of
the proposal and otherwise complied with Section 8.2(a)
hereof (including making the finding contemplated by Section
8.2(a)(x) hereof) and (y) RAI shall, and shall cause its
financial and legal advisors to, negotiate with IBUI to make
such adjustments in the terms and conditions of this
Agreement as would enable RAI to proceed with the Transactions;
(i) By IBUI, prior to the approval of this
Agreement by the stockholders of IBUI, upon five days notice
to RAI, if, as a result of an Acquisition Proposal received
by IBUI from a Person other than a Party to this Agreement
or any of its Affiliates, the Board of Directors of IBUI
determines in good faith that its fiduciary obligations
under applicable Law require that such Acquisition Proposal
be accepted; provided, however, that (i) immediately
following such termination IBUI executes with such third
party a definitive agreement to implement such Acquisition
Proposal, (ii) the Board of Directors of IBUI shall have
concluded in good faith, after considering applicable
provisions of applicable Law and after giving effect to all
concessions which may be offered by RAI pursuant to clause
(iii) below, on the basis of advice of counsel, that such
action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties under applicable
Law, and (iii) prior to any such termination, (x) IBUI shall
have provided RAI with five days' notice of the terms of the
proposal and otherwise complied with Section 8.2(b) hereof
(including making the finding contemplated by Section
8.2(b)(i)(x) hereof) and (y) IBUI shall, and shall cause its
financial and legal advisors to, negotiate with RAI to make
such adjustments in the terms and conditions of this
Agreement as would enable IBUI to proceed with the Transactions.
(j) By RAI if the Board of Directors of IBUI
shall withdraw, modify or change its recommendation of this
Agreement or the Merger and Share Exchange or shall have
failed to reaffirm its recommendation within five business
days of RAI's request that it do so or shall have
recommended or issued a neutral recommendation (or taken no
position) with respect to any Acquisition Proposal.
(k) By IBUI if the Board of Directors of RAI
shall withdraw, modify or change its recommendation of this
Agreement or the Merger and Share Exchange or shall have
failed to reaffirm its recommendation within five business
days of IBUI's request that it do so or shall have
recommended or issued a neutral recommendation (or taken no
position) with respect to any Acquisition Proposal.
(l) By IBUI if RAI is not listed for trading on the
NASDAQ Smallcap Market on the Effective Date.
17.2 EFFECT OF TERMINATION
(a) If this Agreement is terminated pursuant to
Section 17.1(a), (b), or (l), this Agreement shall be
terminated and there shall be no liability on the part of
any of the Parties; notwithstanding the foregoing, nothing
herein shall relieve any Party from liability for any
willful breach hereof; provided that the provisions of
Sections 8.3, 8.4(b), 9.6, 10.6, 11.2 and this Section 17.2
shall survive the termination hereof.
(b) If this Agreement is terminated by IBUI
pursuant to Section 17.1(d) or (k) or by RAI pursuant to
Section 17.1(f) or (h), then RAI shall pay IBUI liquidated
damages in the amount of US$500,000.
(c) If this Agreement is terminated by RAI
pursuant to Section 17.1(e) or (j) or by IBUI pursuant to
Section 17.1(g) or (i) , then IBUI shall pay RAI liquidated
damages in the amount of US$500,000.
ARTICLE 18
GENERAL MATTERS
18.1 [Intentionally Omitted]
18.2 CONTENTS OF AGREEMENT
This Agreement, together with the other Transaction Documents,
set forth the entire understanding of the Parties hereto with
respect to the Transactions and supersede all prior agreements or
understandings among the Parties regarding those matters.
18.3 AMENDMENT, PARTIES IN INTEREST, ASSIGNMENT, ETC.
This Agreement may be amended, modified or supplemented only by
a written instrument duly executed by each of the Parties hereto.
If any provision of this Agreement shall for any reason be held
to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provision hereof, and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never
been contained herein. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective
heirs, legal representatives, successors and permitted assigns of
the Parties hereto. No Party hereto shall assign this Agreement
or any right, benefit or obligation hereunder. Any term or
provision of this Agreement may be waived at any time by the
Party entitled to the benefit thereof by a written instrument
duly executed by such Party. The Parties hereto shall execute and
deliver any and all documents and take any and all other actions
that may be deemed reasonably necessary by their respective
counsel to complete the Transactions. Nothing in this Agreement
is intended or will be construed to confer on any Person other
than the Parties hereto any rights or benefits hereunder.
18.4 INTERPRETATION
Unless the context of this Agreement clearly requires
otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) references to any
gender include all genders, (c) "or" has the inclusive meaning
frequently identified with the phrase "and/or," (d) "including,"
"includes" or similar words has the inclusive meaning frequently
identified with the phrase "but not limited to" and (e)
references to "hereunder" or "herein" relate to this Agreement.
The section and other headings contained in this Agreement are
for reference purposes only and shall not control or affect the
construction of this Agreement or the interpretation thereof in
any respect. Section, subsection, Disclosure Schedule and Exhibit
references are to this Agreement unless otherwise specified. The
Exhibits and Schedules referred to in this Agreement will be
deemed to be a part of this Agreement. Each accounting term used
herein that is not specifically defined herein shall have the
meaning given to it under GAAP.
18.5 NOTICES
All notices that are required or permitted hereunder shall be
in writing and shall be sufficient if personally delivered or
sent by a nationally recognized overnight courier upon proof of
delivery. Any notices shall be deemed given upon receipt at the
address set forth below, unless such address is changed by notice
to the other Party hereto:
If to RAI:
Return Assured Incorporated
885 West Georgia, Suite 2240
Vancouver, BC V6C 3E8
Attn: Matthew Sebal
with a required copy to:
Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, New York 10017
Attn: Adam S. Gottbetter, Esq.
If to IBUI:
Internet Business's International, Inc.
3900 Birch Street
Suite 103
New Port Beach, CA 32826
Attn: Albert R. Reda
with a required copy to:
Brian F. Faulkner, Esq.
3900 Birch Street
Suite 113
Newport Beach, CA 32826
18.6 GOVERNING LAW AND VENUE
This Agreement shall be construed and interpreted in
accordance with the Laws of the State of New York without regard
to its provisions concerning conflict of laws. Any dispute or
controversy concerning or relating to this Agreement shall be
exclusively resolved in the federal or state courts located in
the State of New York, New York County.
18.7 COUNTERPARTS
This Agreement may be executed in two or more counterparts,
each of which shall be binding as of the date first written
above, and all of which shall constitute one and the same
instrument. Each such copy shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
18.8 WAIVERS
Compliance with the provisions of this Agreement may be waived
only by a written instrument specifically referring to this
Agreement and signed by the Party waiving compliance. No course
of dealing, nor any failure or delay in exercising any right,
will be construed as a waiver, and no single or partial exercise
of a right will preclude any other or further exercise of that or
any other right.
18.9 MODIFICATION
No supplement, modification or amendment of this Agreement
will be binding unless made in a written instrument that is
signed by all of the Parties hereto and that specifically refers
to this Agreement.
18.10 ENFORCEMENT OF AGREEMENT
The parties hereto agree that irreparable damage would occur
in the event that any of the provisions of this Agreement was not
performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be
entitled to an injunction to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in
any court of competent jurisdiction, this being in addition to
any other remedy to which they are entitled at law or equity.
18.11 WAIVER OF JURY TRIAL
Each party acknowledges and agrees that any controversy which
may arise under this Agreement is likely to involve complicated
and difficult issues, and therefore each such party hereby
irrevocably and unconditionally waives any right such party may
have to a trial by jury in respect of any litigation directly or
indirectly arising out of or relating to this Agreement, or the
Transactions contemplated by this Agreement. Each party certifies
and acknowledges that (i) no representative, agent or attorney of
any other party has represented, expressly or otherwise, that
such other party would not, in the event of litigation, seek to
enforce the foregoing waiver, (ii) each party understands and has
considered the implications of this waiver, (iii) each party
makes this waiver voluntarily, and (iv) each party has been
induced to enter into this Agreement by, among other things, the
mutual waivers and certifications in this Section 18.11.
18.12 SEVERABILITY
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect.
Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as
possible to the fullest extent permitted by applicable Law in an
acceptable manner to the end that the Transactions are fulfilled
to the extent possible.
IN WITNESS WHEREOF, this Agreement has been executed by the
Parties hereto as of the day and year first written above.
INTERNET BUSINESS'S INTERNATIONAL, INC.
By:/s/ Albert Reda
Albert Reda
Chief Executive Officer
RETURN ASSURED INCORPORATED
By:/s/ Matthew J. Sebal
Matthew J. Sebal
President
IBUI ACQUISITION CORPORATION
By:/s/ Matthew J. Sebal
Matthew J. Sebal
President
EX-10.6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made, entered
into, and effective as of January 1, 2000 ("Effective Date"), by
and between Internet Business' International, a Nevada corporation
(the "Company") and Al Reda ("Reda").
RECITALS
WHEREAS, COMPANY desires to benefit from Reda's expertise and
employ Reda as Chief Executive Officer ("C.E.O.") and Reda is
willing to accept such employment.
NOW, THEREFORE,in consideration of the mutual covenants and
conditions contained herein, the parties hereto hereby agree as follows:
AGREEMENT
ARTICLE I
Term and Duties
The Company hereby employs Reda as C.E.O. as of the Effective
Date and Reda agrees to enter into and remain in the employ of the
Company until five years from the date of this Agreement unless
(i) this Agreement is terminated as provided hereinbelow; or (ii)
this Agreement is extended by mutual agreement of the parties.
Reda shall faithfully and diligently perform all professional
duties and acts as C.E.O. as may be reasonably requested of Reda
by the Company or its officers consistent with the function of a
C.E.O. of a comparable business holding company.
ARTICLE II
Duties
2.1 Reda agrees to perform Reda's services to the best of
his ability. Reda agrees throughout the term of this Agreement to
devote sufficient time, energy and skill to the business of the
Company and to the promotion of the best interests of the Company.
The Company understands and agrees that Reda may from time to time
undertake business opportunities so long as they do not conflict
with his duties to the Company and hereby waives any claim it may
have with respect to Reda's undertaking such opportunities.
ARTICLE III
Compensation
3.1 Subject to the termination of this Agreement as
provided herein, the Company shall compensate Reda for his
services hereunder at an annual salary ("Salary") of One Hundred
Eighty Thousand Dollars ($180,000.00) payable in semi-monthly
installments in accordance with the Company's practices, less
normal payroll deductions.
3.2 In addition to the Salary as defined above, the Company
agrees to the following schedule:
a. On the first year's anniversary of this Agreement,
Reda's salary shall be $16,000 per month
b. On the second year's anniversary of this Agreement,
Reda's salary shall be $17,000 per month.
c. On the third year's anniversary of this Agreement,
Reda's salary shall be $18,000 per month.
d. On the fourth year's anniversary of this Agreement,
Reda's salary shall be $19,000 per month.
3.3 In addition to the compensation set forth above, the
Company shall periodically review Reda's performance and services
rendered with a view to paying discretionary bonuses based upon
above-average or outstanding performance for a prior period. Any
such bonuses approved by the Company shall be paid to Reda within
30 days of the grant thereof. The following performance
milestones shall justify the particular stock bonuses, to be
issued by the company, as set forth below:
a. At $ 2 million in sales, 500,000 shares of IBI stock.
b. At $ 3 million in sales, 800,000 shares of IBI stock.
c. At $ 5 million in sales, 1,000,000 shares of IBI stock.
d. At $ 8 million in sales, 2,000,000 shares of IBI stock.
e. At $ 10 million in sales, 2,500,000 shares of IBI stock.
f. At $ 12 million in sales, 3,000,000 shares of IBI stock.
3.4 In addition to the Salary and bonuses stated above,
commencing with the Effective Date, Reda shall be eligible to
participate in a health insurance plan, including dependent
coverage, supplied by the Company. Reda shall be entitled to
participate in any and all group life, workers' compensation,
health plan or accidental insurance plans which are adopted by the
Company for the benefit of executive officers or employees. Reda
shall be entitled to such sick leave and paid holidays and to such
other perquisites of employment, as customarily are extended by
the Company to executive officers or employees. In addition, Reda
shall be entitled to such other benefits as the Company may elect
to provide generally, from time to time, to executive officers or
employees. Reda shall be entitled to the following vacation benefits:
i. 4 weeks on first year anniversary
ii. 5 weeks on second year anniversary
iii. 6 weeks on third year anniversary and thereafter.
3.5 If for any reason, including malfeasance, misfeasance,
and/or nonfeasance, the Company decides to terminate Reda, then
Reda shall still be entitled to all benefits under this Agreement.
ARTICLE IV
Expenses
The Company shall reimburse Reda for all reasonable business
related expenses incurred by Reda in the course of his normal
duties on behalf of the company. In reimbursing Reda for
expenses, the ordinary and usual business guidelines and
documentation requirements shall be adhered to by the Company and Reda.
ARTICLE V
Binding Effect
This Agreement shall be binding upon and inure to the benefit
of the parties hereto their respective devisees, legatees, heirs,
legal representatives, successors, and permitted assigns. The
preceding sentence shall not affect any restriction on assignment
set forth elsewhere in this Agreement.
ARTICLE VI
Arbitration
If a dispute or claim shall arise between the parties with
respect to any of the terms or provisions of this Agreement, or
with respect to the performance by any of the parties under this
Agreement, then the parties agree that the dispute shall be
arbitrated in Orange County, California before a single
arbitrator, in accordance with the rules of Judicial Arbitration
and Mediation Services, Inc./Endispute ("JAMS/Endispute").
ARTICLE VII
Notices
Any notice, request, demand, or other communication given
pursuant to the terms of this Agreement shall be deemed given upon
delivery, if hand delivered or delivered via facsimile, or Forty-
Eight (48) hours after deposit in the United States mail, postage
prepaid, and sent certified or registered mail, return receipt
requested, correctly addressed to the addresses of the parties
indicated below or at such other address as such party shall in
writing have advised the other party.
If to the Company:
3900 Birch Street, #113
Newport Beach, CA 92660
If to Reda:
2557 Oxford Lane
Costa Mesa, CA 92626
ARTICLE VIII
Assignment
Subject to all other provisions of this Agreement, any
attempt to assign or transfer this Agreement or any of the rights
conferred hereby, by judicial process or otherwise, to any person,
firm, company, or corporation without the prior written consent of
the party, shall be invalid, and may, at the option of such other
party, result in an incurable event of default resulting in
termination of this Agreement and all rights hereby conferred.
ARTICLE IX
Choice of Law
This Agreement and the rights of the parties hereunder shall
be governed by and constructed in accordance with the laws of the
Sate of California including all matters of construction,
validity, performance, and enforcement and without giving effect
to the principles of conflict of laws.
ARTICLE X
Jurisdiction
The parties submit to the jurisdiction of the Courts of the
State of California or a Federal Court empaneled in the State of
California for the resolution of all legal disputes arising under
the terms of this Agreement, including, but not limited to,
enforcement of arbitration award.
ARTICLE XI
Entire Agreement
Except as provided herein, this Agreement contains the entire
agreement of the parties, and supersedes all existing
negotiations, representations, or agreements and all other oral,
written, or other communications between them concerning the
subject matter of this Agreement. There are no representations,
agreements, arrangements, or understandings, oral or written,
between and among the parties hereto relating to the subject
matter of this Agreement that are not fully expressed herein.
ARTICLE XII
Severability
If any provision of this Agreement is unenforceable, invalid,
or violates applicable law, such provision, or unenforceable
portion of such provision, shall be deemed stricken and shall not
affect the enforceability of any other provisions of this Agreement.
ARTICLE XIII
Captions
The captions in this Agreement are inserted only as a matter
of convenience and for reference and shall not be deemed to
define, limit, enlarge, or describe the scope of this Agreement or
the relationship of the parties, and shall not affect this
Agreement or the construction of any provisions herein.
ARTICLE XIV
Counterparts
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
ARTICLE XV
Modification
No change, modification, addition, or amendment to this
Agreement shall be valid unless in writing and signed by all parties hereto.
ARTICLE XVI
Waiver
No waiver of any breach, covenant, representation, warranty,
or default of this Agreement by any party shall be considered to
be a waiver of any other breach, covenant representation warranty
or default of this Agreement.
ARTICLE XVII
Interpretation
The terms and conditions of this Agreement shall be deemed to
have been prepared jointly by all of the Parties hereto. Any
ambiguity or uncertainty existing hereunder shall not be construed
against any one of the drafting parties, but shall be resolved by
reference to the other rules of interpretation of contracts as
they apply in the State of California.
ARTICLE XVIII
Attorneys' Fees
Except as otherwise provided herein, if a dispute should
arise between the parties including, but not limited to
arbitration, the prevailing party shall be reimbursed by the non-
prevailing party for all reasonable expenses incurred in resolving
such dispute, including reasonable attorneys' fees.
ARTICLE XIX
Taxes
Any income taxes required to be paid in connection with the
payments due hereunder, shall be borne by the party required to
make such payment. Any withholding taxes in the nature of a tax
on income shall be deducted from payments due, and the party
required to withhold such tax shall furnish to the party receiving
such payment all documentation necessary to prove the proper
amount to withhold of such taxes and to prove payment to the tax
authority of such required withholding.
ARTICLE XX
Not for the Benefit of Creditors of Third Parties
The provisions of this Agreement are intended only for the
regulation of relations among the parties. This Agreement is not
intended for the benefit of creditors of the parties or other
third parties and no rights are granted to creditors of the
parties or other third parties under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the Effective Date.
"Company" "Reda"
Internet Business's International
By:/s/ Louis Cherry By:/s/ Albert Reda
Louis Cherry, President Albert Reda
EX-10.7
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made, entered
into, and effective as of January 1, 2000 ("Effective Date"), by
and between Internet Business' International, a Nevada corporation
(the "Company") and Louis Cherry ("Cherry").
RECITALS
WHEREAS, COMPANY desires to benefit from Cherry's expertise
and employ Cherry as President and Cherry is willing to accept
such employment.
NOW, THEREFORE,in consideration of the mutual covenants and
conditions contained herein, the parties hereto hereby agree as follows:
AGREEMENT
ARTICLE I
Term and Duties
The Company hereby employs Cherry as President as of the
Effective Date and Cherry agrees to enter into and remain in the
employ of the Company until five years from the date of this
Agreement unless (i) this Agreement is terminated as provided
hereinbelow; or (ii) this Agreement is extended by mutual
agreement of the parties. Cherry shall faithfully and diligently
perform all professional duties and acts as President as may be
reasonably requested of Cherry by the Company or its officers
consistent with the function of a President of a comparable
business holding company.
ARTICLE II
Duties
2.1 Cherry agrees to perform Cherry's services to the best
of his ability. Cherry agrees throughout the term of this
Agreement to devote sufficient time, energy and skill to the
business of the Company and to the promotion of the best interests
of the Company. The Company understands and agrees that Cherry
may from time to time undertake business opportunities so long as
they do not conflict with his duties to the Company and hereby
waives any claim it may have with respect to Cherry's undertaking
such opportunities.
ARTICLE III
Compensation
3.1 Subject to the termination of this Agreement as
provided herein, the Company shall compensate Cherry for his
services hereunder at an annual salary ("Salary") of One Hundred
Eighty Thousand Dollars ($180,000.00) payable in semi-monthly
installments in accordance with the Company's practices, less
normal payroll deductions.
3.2 In addition to the Salary as defined above, the Company
agrees to the following schedule:
a. On the first year's anniversary of this Agreement,
Cherry's salary shall be $20,000 per month
b. On the second year's anniversary of this Agreement,
Cherry's salary shall be $25,000 per month and continue on thereafter.
3.3 In addition to the compensation set forth above, the
Company shall periodically review Cherry's performance and
services rendered with a view to paying discretionary bonuses
based upon above-average or outstanding performance for a prior
period. Any such bonuses approved by the Company shall be paid to
Cherry within 30 days of the grant thereof. The following
performance milestones shall justify the particular stock bonuses,
in unrestricted stock, which are cumulative, to be issued by the
Company, as below:
a. At $ 2 million in sales, 500,000 shares of IBI stock.
b. At $ 3 million in sales, 800,000 shares of IBI stock.
c. At $ 5 million in sales, 1,000,000 shares of IBI stock.
d. At $ 8 million in sales, 2,000,000 shares of IBI stock.
e. At $ 10 million in sales, 2,500,000 shares of IBI stock.
f. At $ 12 million in sales, 3,000,000 shares of IBI stock.
3.4 In addition to the Salary and bonuses stated above,
commencing with the Effective Date, Cherry shall be eligible to
participate in a health insurance plan, including dependent
coverage, supplied by the Company. Cherry shall be entitled to
participate in any and all group life, workers' compensation,
health plan or accidental insurance plans which are adopted by the
Company for the benefit of executive officers or employees.
Cherry shall be entitled to such sick leave and paid holidays and
to such other perquisites of employment, as customarily are
extended by the Company to executive officers or employees. In
addition, Cherry shall be entitled to such other benefits as the
Company may elect to provide generally, from time to time, to
executive officers or employees. Cherry shall be entitled to the
following vacation benefits:
i. 4 weeks on first year anniversary
ii. 5 weeks on second year anniversary
iii. 6 weeks on third year anniversary and thereafter.
3.5 If for any reason, including but not limited to
malfeasance, misfeasance, and/or nonfeasance, or layoff, the
Company decides to terminate Cherry, then the Company shall
immediately pay, meaning within five (5) calendar days, the
following: The sum of $500,000 plus all of the stock set forth in
paragraph 3.3, above.
3.7 If for any reason Reda wishes to retire, becomes
incapacitated, or is otherwise unable to continue employment with
the Company, he shall continue receiving compensation at the
current rate for the next three years.
ARTICLE IV
Expenses
The Company shall reimburse Cherry for all reasonable
business related expenses incurred by Cherry in the course of his
normal duties on behalf of the company. In reimbursing Cherry for
expenses, the ordinary and usual business guidelines and
documentation requirements shall be adhered to by the Company and
Cherry. Cherry shall receive a car allowance of $400 per month.
ARTICLE V
Binding Effect
This Agreement shall be binding upon and inure to the benefit
of the parties hereto their respective devisees, legatees, heirs,
legal representatives, successors, and permitted assigns. The
preceding sentence shall not affect any restriction on assignment
set forth elsewhere in this Agreement.
ARTICLE VI
Arbitration
If a dispute or claim shall arise between the parties with
respect to any of the terms or provisions of this Agreement, or
with respect to the performance by any of the parties under this
Agreement, then the parties agree that the dispute shall be
arbitrated in Orange County, California before a single
arbitrator, in accordance with the rules of Judicial Arbitration
and Mediation Services, Inc./Endispute ("JAMS/Endispute").
ARTICLE VII
Notices
Any notice, request, demand, or other communication given
pursuant to the terms of this Agreement shall be deemed given upon
delivery, if hand delivered or delivered via facsimile, or Forty-
Eight (48) hours after deposit in the United States mail, postage
prepaid, and sent certified or registered mail, return receipt
requested, correctly addressed to the addresses of the parties
indicated below or at such other address as such party shall in
writing have advised the other party.
If to the Company:
3900 Birch Street, #113
Newport Beach, CA 92660
If to Cherry:
27786 Hidden Trail Road
Laguna Hills, CA 92660
ARTICLE VIII
Assignment
Subject to all other provisions of this Agreement, any
attempt to assign or transfer this Agreement or any of the rights
conferred hereby, by judicial process or otherwise, to any person,
firm, company, or corporation without the prior written consent of
the party, shall be invalid, and may, at the option of such other
party, result in an incurable event of default resulting in
termination of this Agreement and all rights hereby conferred.
ARTICLE IX
Choice of Law
This Agreement and the rights of the parties hereunder shall
be governed by and constructed in accordance with the laws of the
Sate of California including all matters of construction,
validity, performance, and enforcement and without giving effect
to the principles of conflict of laws.
ARTICLE X
Jurisdiction
The parties submit to the jurisdiction of the Courts of the
State of California or a Federal Court empaneled in the State of
California for the resolution of all legal disputes arising under
the terms of this Agreement, including, but not limited to,
enforcement of arbitration award.
ARTICLE XI
Entire Agreement
Except as provided herein, this Agreement contains the entire
agreement of the parties, and supersedes all existing
negotiations, representations, or agreements and all other oral,
written, or other communications between them concerning the
subject matter of this Agreement. There are no representations,
agreements, arrangements, or understandings, oral or written,
between and among the parties hereto relating to the subject
matter of this Agreement that are not fully expressed herein.
ARTICLE XII
Severability
If any provision of this Agreement is unenforceable, invalid,
or violates applicable law, such provision, or unenforceable
portion of such provision, shall be deemed stricken and shall not
affect the enforceability of any other provisions of this Agreement.
ARTICLE XIII
Captions
The captions in this Agreement are inserted only as a matter
of convenience and for reference and shall not be deemed to
define, limit, enlarge, or describe the scope of this Agreement or
the relationship of the parties, and shall not affect this
Agreement or the construction of any provisions herein.
ARTICLE XIV
Counterparts
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
ARTICLE XV
Modification
No change, modification, addition, or amendment to this
Agreement shall be valid unless in writing and signed by all
parties hereto.
ARTICLE XVI
Waiver
No waiver of any breach, covenant, representation, warranty,
or default of this Agreement by any party shall be considered to
be a waiver of any other breach, covenant representation warranty
or default of this Agreement.
ARTICLE XVII
Interpretation
The terms and conditions of this Agreement shall be deemed to
have been prepared jointly by all of the Parties hereto. Any
ambiguity or uncertainty existing hereunder shall not be construed
against any one of the drafting parties, but shall be resolved by
reference to the other rules of interpretation of contracts as
they apply in the State of California.
ARTICLE XVIII
Attorneys' Fees
Except as otherwise provided herein, if a dispute should
arise between the parties including, but not limited to
arbitration, the prevailing party shall be reimbursed by the non-
prevailing party for all reasonable expenses incurred in resolving
such dispute, including reasonable attorneys' fees.
ARTICLE XIX
Taxes
Any income taxes required to be paid in connection with the
payments due hereunder, shall be borne by the party required to
make such payment. Any withholding taxes in the nature of a tax
on income shall be deducted from payments due, and the party
required to withhold such tax shall furnish to the party receiving
such payment all documentation necessary to prove the proper
amount to withhold of such taxes and to prove payment to the tax
authority of such required withholding.
ARTICLE XX
Not for the Benefit of Creditors of Third Parties
The provisions of this Agreement are intended only for the
regulation of relations among the parties. This Agreement is not
intended for the benefit of creditors of the parties or other
third parties and no rights are granted to creditors of the
parties or other third parties under this Agreement.
ARTICLE XXI
Defense and Indemnity
Should Cherry be sued and/or prosecuted with respect to any
act performed as part of his duties of office or any failure to
act, then the Company shall defend, indemnify, retain legal
counsel and otherwise hold him harmless for costs of defense,
settlements, sanctions or awards.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the Effective Date.
"Company" "Cherry"
Internet Business's International
By: /s/ Al Reda /s/ Louis Cherry
Al Reda, CEO Louis Cherry
EX-21
SUBSIDIARIES OF THE REGISTRANT
LA Internet, Inc., a California corporation
MBM Capital Group, Inc., a Nevada corporation
Allstates Communication, Inc., a Nevada corporation
Global GPP Corp. (80%), a North Carolina corporation (100% owned
subsidiary: GPP Hungary Kft, a Hungary corporation)
Guarantee Capital Group, a California corporation
1st2Market, Inc., a Nevada corporation
Global Construction Buying Group, a Nevada corporation