SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BUYERS UNITED, INC.
(Name of Registrant as Specified in Its Charter)
Commission File Number: 0-26917
Not Applicable
(Name of Persons Filing Proxy Statement If Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:_____________
2) Aggregate number of securities to which transaction applies:________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):________________________________
4) Proposed maximum aggregate value of transaction:____________________________
5) Total fee paid:_______________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:__________________________________
2) Form, Schedule or Registration Statement No.:________________
3) Filing Party:________________________________________
4) Date Filed:__________________________________________
BUYERS UNITED, INC.
14870 Pony Express Road
Bluffdale, Utah 84065
ANNUAL MEETING OF STOCKHOLDERS
June 19, 2002
PROXY STATEMENT AND NOTICE
SOLICITATION OF PROXIES
The Annual Meeting of the Stockholders (the "Annual Meeting") of Buyers
United, Inc., a Delaware corporation (referred to herein sometimes as "Buyers
United" or "the Company"), will be held at 10:00 a.m., on June 19, 2002, at
14870 Pony Express Road, Bluffdale, Utah. The Board of Directors (the "board")
is soliciting the enclosed proxy through this proxy statement for use at the
Annual Meeting and at any adjournment thereof.
The purpose of the Annual Meeting is to propose and vote on the following
items:
(1) Election of Theodore Stern, Gary Smith, Edward Dallin Bagley and Steve
Barnett as Directors of Buyers United to serve for a term of one (1)
year and until their successors are duly elected and qualified;
(2) Ratify the appointment of Crowe, Chizek and Company LLP, as Buyers
United's independent public accountants for 2002; and
(3) Conduct all other business as may properly come before the Annual
Meeting or any adjournments thereof.
Please sign your name exactly as it appears on the proxy. If you receive
more than one proxy because of shares registered in different names or
addresses, you must complete and return each proxy in order to vote all shares
that you hold.
All proxies will be voted as specified. In the absence of specific
instructions, your proxy will be voted FOR proposals (1) and (2). Proxies will
be voted in the discretion of the proxy holder on any other business coming
before the Annual Meeting, including any stockholder proposal or other matter
not included in this proxy statement of which Buyers United did not receive
notice prior to February 28, 2002.
You may revoke your proxy by delivering a written notice of revocation to
Buyers United's corporate secretary at any time prior to the Annual Meeting, by
executing a later-dated proxy with respect to the same shares, or by attending
the Annual Meeting and voting in person.
Proxies will be solicited primarily by mail, but may also include
telephone, telegraph, or oral communication by officers or regular employees.
Officers and employees will receive no additional compensation for soliciting
proxies. All costs of soliciting proxies will be borne by Buyers United.
This Proxy Statement serves as notice of the Annual Meeting, a description
of the proposals to be addressed at the Annual Meeting, and a source of
information on Buyers United and its management. The approximate mailing date of
the Proxy Statement and Proxy to stockholders is May 10, 2002.
OUTSTANDING SHARES AND VOTING RIGHTS
Record Date. Stockholders of record at the close of business on May 1, 2002
("Record Date"), are entitled to notice of and to vote at the Annual Meeting or
any adjournment thereof.
Shares Outstanding. As of May 1, 2002, a total of 5,722,163 shares of
Buyers United's common stock were outstanding and entitled to vote at the Annual
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Meeting. As of the Record Date, Buyers United had two (2) classes of preferred
stock outstanding, Series A Convertible Preferred Stock and Series B convertible
Preferred Stock, that are not entitled to vote on any of the matters to be voted
upon by stockholders at the Annual Meeting.
Voting Rights and Procedures. Each outstanding share of common stock is
entitled to one vote on all matters submitted to the stockholders' vote. Buyers
United's Bylaws and Delaware law require the presence, in person or by proxy, of
a majority of the outstanding shares entitled to vote to constitute a quorum to
convene the Annual Meeting. Shares represented by proxies that reflect
abstentions or "broker non-votes" (i.e., shares held by a broker or nominee that
are represented at the meeting, but with respect to which such broker or nominee
is not empowered to vote on a particular proposal) will be counted as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum.
Stockholder Proposals for the 2003 Annual Meeting. Proposals from
stockholders intended to be included in this proxy statement for the Annual
Meeting in 2003 must be received by Buyers United's Secretary on or before
February 28, 2003, and may be omitted unless the submitting stockholder meets
certain requirements. It is suggested that the proposal be submitted by
certified mail, return-receipt requested.
You may present your own proposal at the Annual Meeting in 2003 without
including the proposals in the proxy statement. However, if the Company does not
receive notice of this proposal on or before February 28, 2003, any proxy
returned to Buyers United conferring discretionary authority to vote may be
voted at the proxy holder's discretion on your proposal.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
At the Annual Meeting, all Buyers United directors will be elected to serve
until the annual meeting of stockholders in the year 2003.
The board nominates for election as Directors:
Theodore Stern Edward Dallin Bagley
Gary Smith Steve Barnett
Set forth below under the caption "DIRECTORS AND EXECUTIVE OFFICERS," is
information on the age, presently held positions with Buyers United, principal
occupation now and for the past five years, other directorships in public
companies, and tenure of service with Buyers United as a director, for each of
the nominees.
Vote and Recommendation
Each director is elected by vote of a plurality of the shares of voting
stock present and entitled to vote, in person or by proxy, at the Annual
Meeting. Abstentions or broker non-votes as to the election of directors will
not affect the election of the candidates receiving the plurality of votes.
Unless instructed to the contrary, the shares represented by the proxies will be
voted FOR the election of the nominees named above as directors. Although it is
anticipated that each nominee will be able to serve as a director, should any
nominee become unavailable to serve, the proxies will be voted for such other
person or persons as may be designated by our board.
The Board Recommends a Vote "FOR" The Nominees
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL NO. 2)
The accounting firm of Crowe, Chizek and Company LLP, has been approved by
the board, upon recommendation by its Audit Committee, to serve as Buyers
United's independent public accountants for 2002, subject to approval by the
stockholders by an affirmative vote of a majority of the outstanding shares of
our common stock represented at the Annual Meeting. Crowe, Chizek and Company
has served as the Company's independent auditors since February 2002. The board
has been advised that neither Crowe, Chizek and Company nor any of its members
or associates has any relationship with the Company or any of its affiliates,
except in Crowe, Chizek and Company's capacity as independent public
accountants.
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Crowe, Chizek and Company audited Buyers United's consolidated financial
statements for the year ended December 31, 2001, but did not provide any
services to the Company during the year ended December 31, 2001. Consequently,
no fees were paid to Crowe, Chizek and Company for any services in 2001.
It is not expected that a representative of Crowe, Chizek and Company will
be present at the Annual Meeting to respond to questions from stockholders.
Vote and Recommendation
The affirmative vote of a majority of the shares of common stock
represented at the Annual Meeting in person or by proxy is required to approve
the selection of Crowe, Chizek and Company to serve as Buyers United's
independent auditors for 2002. Broker non-votes will be treated as unvoted for
purposes of determining approval of Proposal 2 and will not be counted as votes
for or against Proposal 2. Properly executed, unrevoked proxies will be voted
FOR Proposal 2 unless a vote against Proposal 2 or abstention is specifically
indicated in this proxy statement.
The Board Recommends a Vote "For" the Ratification of the Appointment of Crowe,
Chizek and Company.
Change in Certifying Accountant
On February 20, 2002, Buyers United dismissed Arthur Andersen LLP
("Andersen") as its independent certified public accountants. The change was
recommended by our Audit Committee and approved by the board.
Andersen performed audits of our financial statements for each of the years
ended December 31, 2000 and 1999. Their audit reports did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope, or accounting principles, except for paragraphs
emphasizing Buyers United's going concern contingencies.
During the three-year period ended December 31, 2001, and from that date
through February 20, 2002, there have been no disagreements between the Buyers
United and Andersen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which would have
caused Andersen to make reference to the subject matter of such disagreements in
connection with their reports. Andersen also has never advised Buyers United of
any reportable events as described in Item 304(a)(1)(iv)(B) of Regulation S-B.
On February 20, 2002, the board engaged Crowe, Chizek and Company LLP
("Crowe Chizek") as the Company's new independent certified public accountants.
Up to that date, neither Buyers United nor anyone on its behalf consulted Crowe
Chizek regarding the application of accounting principles to specific
transactions or the type of audit opinion that might be rendered on Buyers
United's financial statements.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of May 1, 2002, the number and
percentage of the outstanding shares of common stock and warrants and options
that, according to the information supplied to Buyers United, were beneficially
owned by (i) each person who is currently a director, (ii) each executive
officer, (iii) all current directors and executive officers as a group and (iv)
each person who, to the knowledge of Buyers United, is the beneficial owner of
more than 5% of the outstanding common stock. Except as otherwise indicated, the
persons named in the table have sole voting and dispositive power with respect
to all shares beneficially owned, subject to community property laws where
applicable.
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Common Percent
Name and Address Shares of Class (1)
---------------------------------------- --------- ------------
Principal stockholders
George Brimhall (2) 420,000 6.9%
9211 North Martingale Road
Paradise Valley, AZ 85253
Karl Malone (2) 1,313,172 19.1%
139 East South Temple Street, Suite #240
Salt Lake City, Utah 84111
Steve Scott (2) 535,000 8.6%
4525 S. Wasatch Blvd., Suite 302
Salt Lake City, UT 84124
Officers and Directors
Theodore Stern (3) 1,802,567 26.1%
2970 One PPG Place
Pittsburgh, PA 15222
Gary Smith (3)(4) 602,584 10.2%
14870 Pony Express Road
Bluffdale, Utah 84065
Edward Dallin Bagley (3) 947,161 15.2%
2350 Oakhill Drive
Salt Lake City, Utah 84121
Steve Barnett (3) 264,225 4.5%
666 Dundee Road, Suite 1704
Northbrook, IL 60062
G. Douglas Smith (3)(4) 688,768 10.9%
14870 Pony Express Road
Bluffdale, Utah 84065
Paul Jarman (3) 567,552 9.2%
14870 Pony Express Road
Bluffdale, Utah 84065
Kenneth D. Krogue (3) 250,519 4.2%
14870 Pony Express Road
Bluffdale, Utah 84065
All Executive officers and 5,123,376 56.4%
Directors as a Group (7 persons)
(1) These figures represent the percentage of ownership of the named
individuals assuming each of them alone has exercised his or her options or
conversion rights to purchase common shares, and percentage ownership of
all officers and directors as a group, assuming all purchase and conversion
rights held by such individuals are exercised.
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(2) George Brimhall is the holder of a promissory note in the principal amount
of $1,050,000, which is convertible to 420,000 shares of common stock. The
figure for Karl Malone includes Series B Preferred stock convertible to
500,000 shares of common stock, and warrants to purchase an additional
650,000 shares of common stock at an exercise price of $2.50 per share.
Steve Scott holds options to purchase 535,000 shares of common stock at
exercise prices ranging between $2.00 and $5.06 per share.
(3) These figures include: for Mr. Stern Series A and B Preferred Stock
convertible to 377,500 shares of common stock, warrants to purchase 680,000
shares of common stock at exercise prices ranging from $2.00 to $2.50 per
share, and options to purchase 132,500 shares of common stock at exercise
prices ranging from $2.50 to $5.06 per share; for Mr. Gary Smith options to
purchase 165,000 shares at prices ranging from $2.00 to $5.06 per share;
for Mr. Bagley Series A and B Preferred Stock convertible to 157,500 shares
of common stock, warrants to purchase 275,000 shares of common stock at
exercise prices ranging from $2.00 to $2.50 per share, and options to
purchase 87,500 shares of common stock at exercise prices ranging from
$2.50 to $5.06; for Mr. Barnett Series A Preferred Stock convertible to
20,000 shares of common stock and options to purchase 175,000 shares at
exercise prices ranging from $2.00 to $5.06 per share; for Mr. G. Douglas
Smith options to purchase 624,916 shares of common stock at exercise prices
ranging from $2.00 to $5.39 per share; for Mr. Jarman options to purchase
428,466 shares of common stock at exercise prices ranging from $2.00 to
$5.39 per share; and for Mr. Krogue options to purchase 232,929 common
stock at exercise prices ranging from $2.00 to $2.70 per share.
(4) Gary Smith is G. Douglas Smith's father.
DIRECTORS AND EXECUTIVE OFFICERS
Directors and Officers
The following table sets forth the names, ages, and positions with Buyers
United for each of the directors and officers.
Name Age Positions (1) Since
Theodore Stern 72 Chairman of the Board, Chief 1999
Executive Officer and Director
Gary Smith 67 Director 1999
Edward Dallin Bagley 63 Director 1999
Steve Barnett 60 Director 2000
G. Douglas Smith 32 Executive Vice President 1997
Paul Jarman 32 Treasurer, Secretary and Chief 1997
Operating Officer
Kenneth D. Krogue 36 Executive Vice President 2001
All directors hold office until the next annual meeting of stockholders and
until their successors are elected and qualify. Officers serve at the discretion
of our board.
The following is information on the business experience of each director
and officer.
Theodore Stern retired as senior executive vice president and member of the
board of Westinghouse Electric Corporation at the end of 1992, after 34 years of
service in a variety of positions with that company. After retiring from
Westinghouse Electric, Mr. Stern served as Vice Chairman of the board of
Superconductivity, Inc. of Madison, Wisconsin, a small technology company, until
it was acquired in April 1997. Mr. Stern currently is a member of the board of
Northern Power Systems of Waitsfield, Vermont, a manufacturer of renewable
generation systems. Mr. Stern is also self-employed as a consultant to
manufacturing companies.
6
Gary Smith was the founder, majority owner, and former President of
HealthRider, Inc., an exercise equipment company based in Salt Lake City, Utah.
From 1991 until the sale of the business in 1997, he managed and directed every
phase of business and sales operations at HealthRider. From 1997 to the present,
Mr. Smith has been self-employed as a business consultant and advisor.
Edward Dallin Bagley has been self-employed as an attorney and investor for
the past five years. For the past five years he has served as a director of
Tunex International, Inc., Clear One Communications, Inc., and NESCO Corp.
Steve Barnett has been self-employed for the past five years as a
consultant to manufacturing and distribution companies on improving operations
and business restructuring. He has continued to purchase and manage
privately-held manufacturing companies, as well as serving on the boards of
non-owned private companies in connection with his consulting services. Since
1990, Mr. Barnett has been a director of Chicago's Jewish Federation and Jewish
United Fund, and a Vice Chairman of the Board of Directors since 1997.
Currently, he is a member of the JF/JUF Executive and Overall Planning &
Allocations Committees.
G. Douglas Smith joined Buyers United in April 1997, and is responsible for
all aspects of marketing, including brand strategy, advertising, promotions, and
corporate communication. For six years prior to April 1997, Mr. Smith served
first as the Director of Media and then as Senior Vice President of HealthRider,
Inc. At HealthRider Mr. Smith was responsible for infomercial marketing, the
primary sales strategy for HealthRider products.
Paul Jarman became employed by Buyers United in April 1997, and is
responsible for all facets of operations. He also comes to Buyers United from
HealthRider, where he was employed from March 1994 to August 1996, first as
Texas Regional Manager for 15 retail locations, then as Western Area Manager in
charge of 95 retail locations, and finally as Acting Director of Retail
Operations managing 250 retail locations. In August 1996, Mr. Jarman moved to
HealthRider's marketing department as the Director of New Product Development
where he served until April 1997.
Kenneth D. Krogue started at Buyers United in April 1997, and is
responsible for all aspects of product development and vendor relations. Before
joining the Company he was with Franklin Covey from 1993 to 1997, where he was
the Director of Inside Sales over the Seminar Sales Call Center which he
founded. Prior to that he was the Director of Marketing for Infobases,
International Inc. He received his education at the United States Naval Academy
at Annapolis, Maryland, and the University of Utah.
Board Meetings and Committees/Compensation
The board met ten times during the year ended December 31, 2001. All
directors attended at least 75% of the meetings of the board. In April 2000, the
board formed the Compensation Committee, the members of which include Edward
Dallin Bagley (Chairman), Steve Barnett, and Gary Smith. The Compensation
Committee considers salary and benefit matters for the executive officers and
key personnel of the Company. The Compensation Committee met four times in 2001,
and all director members of the committee attended at least 75% of the meetings.
In April 2000, the board also formed the Audit Committee, the members of which
are Steve Barnett (Chairman) and Edward Dallin Bagley. The Audit Committee is
responsible for financial reporting matters, internal controls, and compliance
with the Company's financial polices, and meets with its auditors when
appropriate. The Audit Committee met twice in 2001, and all director members of
the committee attended the meetings.
In February 2001, the board granted to each of the directors options to
purchase 25,000 shares of common stock at an exercise price of $2.50 per share
exercisable over a term of five years. These options were issued in
consideration of services rendered and to be rendered during the year 2001.
Theodore Stern was granted an additional option to purchase 15,000 shares of
common stock at an exercise price of $2.50 per share exercisable over a term of
five years in consideration for services to be rendered as Chairman of the
Board. In March 2002, the board granted to the directors options to purchase of
common stock under identical terms with those granted during 2001. These options
were issued in consideration of services rendered and to be rendered during the
year 2002.
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Audit Committee Report
The board's Audit Committee assists in fulfilling its oversight
responsibilities with respect to the external reporting process and the adequacy
of Buyers United's internal financial controls. The Audit Committee is comprised
of two members who are independent directors under the rules adopted by the
National Association of Securities Dealers, Inc.
Management is responsible for Buyers United's internal controls and the
financial reporting process. Crowe, Chizek and Company, our independent public
accounting firm, is responsible for performing an independent audit of Buyers
United's consolidated financial statements in accordance with auditing standards
generally accepted in the United States and expressing an opinion on the
financial statements. The Audit Committee's responsibility is to monitor these
processes through review and discussion with management and representatives of
Crowe, Chizek and Company.
The Audit Committee has discussed with Crowe, Chizek and Company the
overall scope of the independent audit. Management represented to the Audit
Committee that Buyers United's consolidated financial statements were prepared
in accordance with accounting principles generally accepted in the United
States. Discussions about the audited financial statements included Crowe,
Chizek and Company's judgments about the quality and acceptability of the
accounting principles, the reasonableness of significant judgments, and the
accuracy and adequacy of disclosures in the financial statements. The Audit
Committee also discussed with the auditors other matters required by Statement
on Auditing Standards No. 61, Communications with Audit Committees, as amended
by SAS No. 90, Audit Committee Communications.
Crowe, Chizek and Company provided to the Audit Committee the written
disclosures required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. The Audit Committee discussed
Crowe, Chizek and Company's independence with management and representatives of
Crowe, Chizek and Company, and has satisfied itself as to the independence of
Crowe, Chizek and Company.
Based on the Audit Committee's discussions with management and
representatives of Crowe, Chizek and Company and the Audit Committee's review of
the representations of management and the report of Crowe, Chizek and Company,
the Audit Committee recommended to the board that the audited consolidated
financial statements be included in Buyers United's Annual Report on Form 10-KSB
for the year ended December 31, 2001, filed with the Securities and Exchange
Commission.
AUDIT COMMITTEE
Steve Barnett, Chairman
Edward Dallin Bagley
Section 16(a) Filing Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires officers and
directors of Buyers United and persons who own more than ten percent (10%) of a
registered class of its equity securities to file reports of ownership and
changes in their ownership on Forms 3, 4, and 5 with the Securities and Exchange
Commission, and forward copies of such filings to Buyers United. Based on the
copies of filings received by Buyers United, during the most recent fiscal year
the directors, officers, and beneficial owners of more than ten percent (10%) of
the equity securities of Buyers United registered pursuant to Section 12 of the
Exchange Act have filed on a timely basis all required Forms 3, 4, and 5 and any
amendments thereto, except for Gary Smith who filed two Forms 4 late, and Karl
Malone who filed one Form 4 late.
EXECUTIVE COMPENSATION
Annual Compensation
The table on the following page sets forth certain information regarding
the annual and long-term compensation for services in all capacities to Buyers
United for the prior fiscal years ended December 31, 2001, 2000, and 1999, of
those persons who were either (i) the chief executive officer during the last
completed fiscal year or (ii) one of the other four most highly compensated
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executive officers as of the end of the last completed fiscal year whose annual
salary and bonuses exceeded $100,000 (collectively, the "Named Executive
Officers").
Annual Long Term
Compensation Compensation
------------ ------------
Securities
Underlying All Other
Name and Principal Year Salary ($) Options/SARs Compensation
Position (#) ($)
------------------ ---- ---------- ------------ ------------
Theodore Stern 2001 -0- 40,000 70,000
Chairman, Chief 2000 -0- 52,500 22,400
Executive Officer 1999 -0- -0- -0-
G. Douglas Smith 2001 124,405 178,334 -0-
Executive Vice 2000 113,215 200,000 -0-
President 1999 72,725 81,320 -0-
Paul Jarman 2001 122,710 -0- 57,067
Chief Operating 2000 113,215 200,000 -0-
Officer 1999 77,327 -0- -0-
Kenneth D. Krogue 2001 109,851 40,000 13,866
Executive Vice 2000 99,000 -0- -0-
President 1999 61,526 -0- -0-
Stock Options
The following table sets forth certain information with respect to grants
of stock options during 2001 to the Named Executive Officers.
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Name and Principal Options Employees in Base Price Expiration
Position Granted Fiscal Year ($/Sh) Date
------------------ ---------- ------------ ----------- ----------
Theodore Stern 40,000 7% $2.50 2/08/06
Chairman, Chief
Executive Officer
G. Douglas Smith 178,334 32% $2.50 12/13/06
Executive Vice
President
Paul Jarman -0- n/a n/a n/a
Chief Operating Officer
Kenneth D. Krogue 40,000 7% $2.50 5/02/06
Executive Vice
President
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers. No outstanding options
held by the Named Executive Officers were exercised in 2001.
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Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options At Fiscal Year End ($)
at Fiscal Year End (#) (1)
Exercisable/ Exercisable/
Name and Principal Position Unexercisable Unexercisable
--------------------------- ---------------------- ----------------------
Theodore Stern 92,500 / -0- -0- / -0-
Chairman, Chief
Executive Officer
G. Douglas Smith 517,248 / 100,000 -0- / -0-
Executive Vice President
Paul Jarman 316,798 / 100,000 -0- / -0-
Chief Operating Officer
Kenneth D. Krogue 227,031 / -0- -0- / -0-
Executive Vice President
-------------------------------------------
(1) This value is determined on the basis of the difference between the fair
market value of the securities underlying the options and the exercise price at
December 31, 2001. The fair market value of Buyers United's common stock at
December 31, 2001, is determined by the last sale price on that date, which was
$1.01 per share.
Description of Long Term Stock Incentive Plan
The purpose of the Long Term Stock Incentive Plan (the "Plan") is to
provide directors, officers, employees, and consultants with additional
incentives by increasing their ownership interests in Buyers United. Directors,
officers, and other employees of Buyers United and its subsidiaries are eligible
to participate in the Plan. In addition, awards may be granted to consultants
providing valuable services to Buyers United. As of March 31, 2002, Buyers
United and its affiliates employed approximately 70 individuals who are eligible
to participate in the Plan. The board grants awards under the Plan. Awards may
include incentive stock options, non-qualified stock options, stock appreciation
rights, stock units, restricted stock, restricted stock units, performance
shares, performance units, or cash awards.
The board has discretion to determine the terms of an award under the Plan,
including the type of award, number of shares or units covered by the award,
option price, term, vesting schedule, and post-termination exercise period or
payment. Notwithstanding this discretion: (i) the number of shares subject to an
award granted to any individual in any calendar year may not exceed 100,000
shares; (ii) the option price per share of common stock may not be less than 100
percent of the fair market value of such share at the time of grant or less than
110% of the fair market value of such shares if the option is an incentive stock
option granted to a stockholder owning more than 10% of the combined voting
power of all classes of the stock of Buyers United (a "10% stockholder"); and
(iii) the term of any incentive stock option may not exceed 10 years, or five
years if the option is granted to a 10% stockholder. As of March 31, 2002,
awards in the form of qualified incentive stock options to purchase a total of
256,499 shares were outstanding under the Plan.
A maximum of 1,200,000 shares of common stock may be subject to outstanding
awards, determined immediately after the grant of any award under the Plan.
Shares of common stock, which are attributable to awards that have expired,
terminated, or been canceled or forfeited during any calendar year, are
available for issuance or use in connection with future awards.
The Plan was effective March 11, 1999, and is not limited in duration. No
incentive stock option may be granted more than 10 years after the effective
date. The Plan may be amended by the board without the consent of the
stockholders, except that stockholder approval is required for any amendment
that materially increases the aggregate number of shares of stock that may be
issued under the plan or materially modifies the requirements as to eligibility
for participation in the Plan.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following discussion includes certain relationships and related
transactions that occurred during Buyers United's fiscal years ended December
31, 2001 and 2000.
In October 2000, the board approved a consulting agreement with Theodore
Stern, Chairman of the Board. Under the agreement Mr. Stern receives a monthly
fee of $6,000 in connection with duties performed as the Company's Chief
Executive Officer. The board also approved a consulting arrangement with Gary
Smith, also a member of the board. No fees were actually paid to these
individuals during 2000, and through the date of this proxy statement Messrs.
Stern and Smith, respectively, were paid, $110,400 and $93,750 in fees earned
during 2000, 2001, and 2002.
Prior to becoming a director, Steve Barnett was providing consulting
services to Buyers United under an agreement pursuant to which he received
options to purchase 100,000 shares of our common stock at a price of $2.00 per
share exercisable through August 11, 2004, and a cash fee of $200 per hour.
During the first part of 2000, Buyers United incurred $24,500 in fees billed by
Mr. Barnett, of which $8,300 remained unpaid at December 31, 2000 and 2001.
From May through August 2000, directors Theodore Stern and Edward Dallin
Bagley loaned funds to Buyers United as bridge financing for working capital
needs. In consideration for making the loans, Buyers United issued to these
directors warrants to purchase common stock at an exercise price of $2.50,
exercisable for a term of five years. All of theses loans were subsequently
exchanged in October 2000, for Series B Convertible Preferred Stock and
additional common stock purchase warrants of Buyers United. Mr. Stern received
42,500 shares of Series B Convertible Preferred Stock and 212,500 warrants to
purchase common stock at a price of $2.50 per share that expire December 31,
2002. Mr. Bagley received 27,500 shares of Series B Convertible Preferred Stock
and warrants to purchase 137,500 shares of common stock at an exercise price of
$2.50 per share that expire December 31, 2002.
Mr. Stern also loaned Buyers United $100,000 in December 2000. The Company
issued a promissory note payable on demand accruing interest at 12 percent
secured by our accounts receivable. If the note was not paid by February 1,
2001, 10,000 shares of common stock were to be issued in consideration of the
non-payment. The note was not repaid at that time, the 10,000 shares were issued
to Mr. Stern, and the note remains an outstanding obligation.
On January 4, 2001, the Company issued 20,000 shares to Mr. Stern in
consideration of a note payable in the amount of $180,000. The value of the
shares was recorded at that day's market trading price of $1.125 per share, or
$22,500. On January 19, 2001, the Company issued 10,000 shares to Mr. Stern in
consideration of a note payable in the amount of $100,000. The value of the
shares was recorded at that day's market trading price of $1.5625 per share, or
$22,500. On February 15, 2001, the Company issued 1,000 shares to Mr. Stern in
consideration of a note payable in the amount of $10,000. The value of the
shares was recorded at that day's market trading price of $1.50 per share, or
$1,500.
On March 12, 2001, the Company entered into three-year marketing contracts
with Karl and Kay Malone, two of its Series B Preferred stockholders. Under the
terms of the contracts, 100,000 shares of common stock were issued. The value of
the shares was recorded at that day's market trading price of $1.25, or
$125,000. Consideration granted under the contracts' terms also included options
to purchase up to 150,000 additional shares of common stock at $2.50 per share.
On March 26, 2001, the Company issued 10,000 shares to Mr. Stern in
consideration of a note payable in the amount of $100,000. The value of the
shares was recorded at that day's market trading price of $1.0312 per share, or
$10,312.
On May 2, 2001, the Company issued 100,000 shares of common stock to Gary
Smith, a member of the board. The value of the shares was recorded at that day's
market trading price of $1.45, or $145,000. The shares were issued in
consideration of Mr. Smith encumbering certain real property to provide
collateral for a promissory note to George Brimhall, an unrelated party.
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On June 5, 2001, the Company issued 50,000 shares to Mr. Stern in
consideration of a note payable in the amount of $500,000. The value of the
shares was recorded at that day's market trading price of $1.20, or $60,000. On
June 15, 2001, the Company issued 15,000 shares to Mr. Stern in consideration of
a note payable in the amount of $150,000. The value of the shares was recorded
at that day's market trading price of $1.25, or $18,750. On June 21, 2001, the
Company issued 10,000 shares to Mr. Stern in consideration of a note payable in
the amount of $100,000. The value of the shares was recorded at that day's
market trading price of $1.25 per share, or $12,500. On June 26, 2001, the
Company issued 5,000 shares to Mr. Stern in consideration of a note payable in
the amount of $50,000. The value of the shares was recorded at that day's market
trading price of $1.25 per share, or $6,250. On July 6, 2001, the Company issued
10,000 shares to Mr. Stern in consideration of a note payable in the amount of
$100,000. The value of the shares was recorded at that day's market trading
price of $1.10 per share, or $11,000. On July 18, 2001, the Company issued
15,000 shares to Mr. Stern in consideration of a note payable in the amount of
$150,000. The value of the shares was recorded at that day's market trading
price of $0.85 per share, or $12,750.
On July 18, 2001, Mr. Stern loaned $400,000 to Buyers United. In lieu of
regular interest or shares of stock, we agreed to pay to Mr. Stern a monthly fee
equaling two percent of the monthly billings of two of the Company's wholesale
telecommunications carriers. The loan was needed at a time when the Company was
in the process of negotiating lower rates with the carriers in anticipation of
higher monthly services obtained for resell purposes.
On August 7, 2001, the Company issued 10,500 shares to Mr. Stern in
consideration of Mr. Stern providing a guaranty to RFC Capital Corporation. The
guaranty relates to potential additional liability due the Federal Franchise Tax
Board ("FTB") in connection with excise tax assessments owing during 2000 and
paid earlier this year. As of the date of this proxy statement, we have not
received notification from the FTB regarding any additional liability.
On August 30, 2001, the Company issued 27,500 shares to Mr. Stern in
consideration of a note payable in the amount of $275,000. The value of the
shares was recorded at that day's market trading price of $0.80 per share, or
$22,000. On September 5, 2001, the Company issued 10,000 shares to Mr. Stern in
consideration of a note payable in the amount of $100,000. The value of the
shares was recorded at that day's market trading price of $0.85 per share, or
$8,500.
In September 2001, the Company agreed to issue 25,000 shares to Mr. Stern
upon Mr. Stern's providing a guaranty to Global Crossing Communications, Inc.
The guaranty relates to a transaction between Buyers United and Global Crossing,
whereby, upon Mr. Stern's execution and delivery of the guaranty, Global
Crossing agreed to provide telecommunication services to us, for resell purposes
at a lower, more competitive rate.
On September 19, 2001, the Company agreed to issue 10,000 shares to Mr.
Stern in consideration of a note payable in the amount of $100,000. The value of
the shares was recorded at that day's market trading price of $0.68 per share,
or $6,800. On October 15, 2001, the Company agreed to issue 10,000 shares to Mr.
Stern in consideration of a note payable in the amount of $50,000. The value of
the shares was recorded at that day's market trading price of $0.61 per share,
or $6,100.
On November 28, 2001, the Company agreed to issue 50,000 shares to Mr.
Stern in consideration of extending the maturity date of a $500,000 note payable
to July 5, 2003. The value of the shares was recorded at that day's market
trading price of $0.63 per share, or $31,500. On December 4, 2001, the Company
agreed to issue 156,500 shares to Mr. Stern in consideration of extending the
maturity date of $1,565,000 in notes payable to July 5, 2003. The value of the
shares was recorded at that day's market trading price of $0.60 per share, or
$93,900.
On December 12, 2001, the Company agreed to issue 10,000 shares to Mr.
Stern in consideration of a note payable in the amount of $100,000. The value of
the shares was recorded at that day's market trading price of $0.64 per share,
or $6,400.
On December 13, 2001, the Company issued 89,167 and 21,666 shares to Paul
Jarman and Kenneth Krogue, respectively, in exchange for services. The value of
the shares was recorded at that day's market trading price of $0.64 per share,
or $70,933.
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FORM 10-KSB
Upon written request, the Company will provide to stockholders, without charge,
a copy of the Company's Annual Report on Form 10-KSB for the year ended December
31, 2001, as filed with the Securities and Exchange Commission. Requests should
be directed to Paul Jarman, Chief Operating Officer, Secretary and Treasurer,
Buyers United, Inc., 14870 Pony Express Road, Bluffdale, Utah 84065. This Report
is also available from the Securities and Exchange Commission's Internet web
site, http://www.sec.gov.
OTHER MATTERS
As of the date of this Proxy Statement, the board knows of no other matters
that may come before the Annual Meeting. However, if any matters other than
those referred to herein should be presented properly for consideration and
action at the Annual Meeting, or any adjournment or postponement thereof, the
proxies will be voted with respect thereto in accordance with the best judgment
and in the discretion of the proxy holders.
Please sign the enclosed proxy and return it in the enclosed return
envelope.
Dated: May 10, 2002
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[Form of Proxy]
BUYERS UNITED, INC.
14870 Pony Express Road
Bluffdale, Utah 84065
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Theodore Stern and Paul Jarman as Proxies,
each with the power to appoint his substitute, and hereby authorizes each of
them to represent and to vote, as designated below, all the shares of Common
Stock of Buyers United, Inc. (the "Company") held of record by the undersigned
on May 1, 2002, at the Annual Meeting of Stockholders to be held on June 19,
2002, and at any adjournment or postponement thereof.
Proposal No. 1: The election of each of the following persons as directors of
the Company.
(1) Theodore Stern (2) Gary Smith (3) Edward Dallin Bagley (4) Steve
Barnett
[ ] For all nominees
[ ] Withhold all nominees
[ ] Withhold authority to vote for any individual nominee. Write
number(s) of nominee(s) ______________
Proposal No. 2: Ratification of the appointment of Crowe, Chizek and Company LLP
as independent public accountants.
[ ] For [ ] Against [ ] Abstain
Note: The proxies are authorized to vote in accordance with their judgment on
any matters other than those referred to herein that are properly presented for
consideration and action at the Annual Meeting.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is given, this proxy will be
voted for Proposal No.'s 1 and 2.
All other proxies heretofore given by the undersigned to vote shares of stock of
the Company, which the undersigned would be entitled to vote if personally
present at the Annual Meeting or any adjournment or postponement thereof, are
hereby expressly revoked.
Dated:_______________________, 2002 __________________________________________
__________________________________________
Please sign it exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation or
partnership, please sign in full corporate or partnership name by an authorized
officer or person.
Please mark, sign, date and promptly return the proxy card using the enclosed
envelope. If your address is incorrectly shown, please print changes.
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