Rule 424(b)(3)
File No. 333-114302
Prospectus
BUYERS UNITED, INC.
COMMON STOCK
This prospectus covers 5,504,671 shares of the common stock of Buyers
United, Inc., that may be sold from time to time by the persons listed under the
caption "Selling Security Holders," beginning on page 10. The 5,504,671 shares
consist of 4,532,000 shares issued in a private placement that closed in March
2004, 808,546 shares issued as dividends and on conversion in March 2004 of
previously outstanding preferred stock, and 164,125 shares issuable on exercise
of a warrant at an exercise price of $2.76 per share.
Buyers United will receive the proceeds from exercise of the warrant,
but will not receive any proceeds or benefit from the resale of the shares by
the selling security holders.
Quotations for our common stock are reported on the OTC Bulletin Board
under the symbol "BYRS." On April 7, 2004, the closing bid price for our common
stock was $2.86 per share.
A copy of our annual report on Form 10-KSB for the year ended December
31, 2003 accompanies this prospectus. The mailing address and telephone number
of our executive office are:
Buyers United, Inc.
14870 Pony Express Road, Bluffdale, Utah 84065
Telephone (801) 320-3300
See "Risk Factors" beginning on page 5 for information you should
consider before you purchase shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is April 22, 2004.
You should rely only on the information contained in this document,
incorporated by reference herein, or to which we refer you. We have not
authorized anyone to provide you with information that is different. This
document may be used only where it is legal to sell these securities. The
information in this document is accurate only as of the date of this document,
regardless of the time of the delivery of this prospectus or of any sale of our
common stock.
TABLE OF CONTENTS
Page
Forward-Looking Statements 2
Summary 3
Risk Factors 5
Information About Buyers United 9
Incorporation By Reference 9
Selling Security Holders 10
Plan of Distribution 12
Description of Capital Stock 14
Indemnification 17
Legal Matters 17
Experts 17
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus, or incorporated by
reference into this prospectus, contains forward-looking statements that involve
substantial risks and uncertainties. Any statement in this prospectus that is
not a statement of an historical fact constitutes a "forward-looking statement."
Further, when we use the words "may," "expect," "anticipate," "plan," "believe,"
"seek," "estimate," "internal," and similar words, we intend to identify
statements and expressions that may be forward-looking statements. We believe it
is important to communicate certain of our expectations to our investors.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions that could cause our future results
to differ materially from those expressed in any forward-looking statements.
Many factors are beyond our ability to control or predict. You are accordingly
cautioned not to place undue reliance on such forward-looking statements. We
have no obligation or intent to update publicly any forward-looking statements
whether in response to new information, future events or otherwise.
2
SUMMARY
Our company
Buyers United, Inc. is a telecommunications company that offers a wide
range of long distance, toll free, data transmission, and related communication
service options at competitive prices, and provides to its customers a standard
of service it believes is comparable to other industry participants. The
telecommunications services we offer include the following:
o Switched long distance services to business and residential
customers
o Dedicated access long distance service
o Toll-free 800/888/877/866 services
o Dedicated data transmission
o Private line data services
o Calling card services
o Conference calling
o Automatic call distribution
o Interactive voice response
o Outbound dialing and voice message broadcasting
o Fax to email
o Voice mail
o Real time account management
These services can be offered individually, or in a suite of services
tailored to a customer's needs. During 2003 we acquired and integrated into our
operations a voice over Internet protocol network (VoIP Network) that enables us
to offer a number of services in the form of software solutions that are
delivered through our VoIP Network.
For the past eight years Buyers United has been engaged in the business
of reselling telecommunication services provided by others to Buyers United at
wholesale rates. Domestic long distance services make up a major portion of our
sales with the other services listed above making smaller contributions to our
sales mix.
Buyers United now services approximately 150,000 business and
residential consumers across America. We have refined our business model over
the past several years to address specific niche opportunities in the vast
communications industry. Our brand, United Carrier Networks (UCN), was adopted
in the last quarter of 2001 for providing our services to business customers. We
previously used the brand name BuyersOnline to service residential customers.
Buyers United is now marketing its services primarily through
independent agents to business customers. Our UCN web site supports the
marketing effort of our agents by providing a resource for exploring and
selecting the specialized services and options we offer business customers.
During the past year we acquired both business and residential customers by
purchase from other providers and may consider opportunities for additional
purchases in the future, although at the present time we are not considering any
purchase opportunities.
Buyers United was originally formed as a Utah corporation in 1994. In
March 1999, Buyers United changed its corporate domicile from Utah to Delaware
through a merger with a Delaware corporation formed for that purpose. When we
changed the corporate domicile our name became BUI, Inc., and we effected a
1-for-4 reverse split in the issued and outstanding common stock. On April 20,
2000, we changed our name to BuyersOnline.com, Inc., and on November 20, 2001,
our name was changed again to Buyers United, Inc.
3
Recent developments
In March 2004 Buyers United sold 3,782,000 shares of common stock at
$2.30 per share, or a total of approximately $8.7 million, in a private
placement to institutional and accredited investors. Net proceeds of the
offering after placement fees and expenses were approximately $8.1 million. The
net proceeds of the private placement are intended to be used for various
corporate purposes, including sales and marketing related programs, funding
further development of our VoIP Network, reducing debt, and for working capital
and other general corporate purposes. Buyers United agreed to file the
registration statement of which this prospectus is a part under the Securities
Act of 1933 to permit resale of the shares sold in the offering. In the private
placement Roth Capital Partners, LLC, acted as our placement agent. As partial
compensation for its services, we issued to Roth Capital Partners a warrant to
purchase up to 164,125 shares of our common stock at an exercise price of $2.76
per share, representing 120 percent of the purchase price paid by investors in
the private placement, which is exercisable during the period beginning
September 15, 2004 and ending March 15, 2007.
In December 2002, Buyers United entered into an agreement to purchase
assets of Acceris Communications Inc. (formerly I-Link, Inc.) and its
subsidiary, I-Link Communications, Inc., and license in perpetuity software
developed by Acceris, all of which comprise the VoIP Network we now own and
operate. The transaction was closed in May 2003, with several outstanding
accounts to reconcile. The assets acquired include dedicated equipment required
for operating the VoIP Network, customers of I-Link Communications serviced
through the network, carrier identification codes, and certain trademarks. In
consideration for the assets and software license, Buyers United issued to
Acceris 300,000 shares of Series B Convertible Preferred Stock. This preferred
stock was converted to 1,500,000 common shares in March 2004 pursuant to an
agreement with Acceris that resolved the open account issues, allowed Acceris to
sell 750,000 of the converted common shares to the same investors that purchased
Buyers United common stock in March 2004, and granted to Acceris the right to
include its common stock in the registration statement of which this prospectus
is a part.
Buyers United entered into an agreement to purchase 37 dedicated long
distance customers from Source Communications, LLC for $750,000 in February
2004. Closing of the acquisition was subject to complying with applicable
federal and state regulation pertaining to transfer of the customers. All of the
regulatory requirements were satisfied and the acquisition of the customers is
completed.
The offering
Maximum shares that may be offered
by selling security holders 5,504,671
Proceeds to Buyers United assuming
the warrant covering shares that
may be offered by a selling security
holder is exercised $452,985
Use of proceeds from exercise of warrant Proceeds will be used
for working capital
Buyers United may issue up to 7,461,083 additional common shares on
exercise or conversion of outstanding warrants, options, and convertible notes
that are registered for sale under a registration statement filed with the
Securities and Exchange Commission for persons other than the selling security
holders listed in the prospectus, up to 2,053,344 shares underlying other
warrants and options, up to 150,000 shares reserved for issuance on conversion
of other outstanding notes, and up to 3,929,000 shares issuable on conversion of
outstanding preferred stock.
4
RISK FACTORS
An investment in Buyers United involves a high degree of risk and
common stock should not be purchased by anyone who cannot afford the loss of his
or her entire investment. You should carefully consider all of the following
risk factors discussed below as well as other information in the prospectus
before purchasing the common stock. The risks described below are not all of the
risks facing us. Additional risks, including those that are currently not known
to us or that we currently deem immaterial, may also impair our business
operations.
Our revenues and operating results may be negatively impacted by the pricing
decisions of our competitors and our providers.
Our revenues from period to period depend on the pricing for long
distance service we can obtain from the wholesale providers of these services.
We also must price our services at levels that are competitive in the
marketplace. This industry has a history of downward pressure on long distance
service rates as a result of competition among providers. To acquire and retain
customers we offer these services at prices that are perceived as competitive in
conjunction with the other benefits we provide. Consequently, falling prices
will likely result in lowering our rates to customers, which will reduce
revenues. On the other hand, higher prices charged by our providers will cut
into gross profit margins unless we raise prices to our customers, which may be
difficult for us to do if our competitors are not subject to the same upward
pricing pressures or chose not to increase prices notwithstanding such pressure.
To make up for potential reductions in either revenues or profits, it would be
necessary for us to continue to make significant increases in our customer base
from period to period, and there is no assurance that that we will be successful
in doing so.
Our substantial debt adversely affects our operations and financial condition.
At December 31, 2003 borrowings and long term debt included $3.5
million of notes payable to certain of our directors that pay interest at 12
percent per annum, $4.2 million of obligations related to the purchase or
acquisition of customer accounts, and $4.1 million of borrowings under our line
of credit. A substantial amount of our cash flow from operations is used to
service our debt rather than to promote and expand our business, which adversely
affects results of operations. In March 2004, we completed a $8.7 million
private equity investment in Buyers United and will use approximately $3 million
for reduction of debt. Nevertheless, we expect that servicing the remaining debt
through the end of 2004 will continue to be a use of free cash flow that could
be used to develop our business.
Disruptions in the operation of our technology could adversely affect our
operations.
We are dependent on our computer databases, billing and account
computer programs, Internet protocol network, and computer hardware that houses
these systems to effectively operate our business and market our services. Our
customers and providers may become dissatisfied by any system failures that
interrupt our ability to provide our service to them. Substantial or repeated
system failures would significantly reduce the attractiveness of our services.
Significant disruption in the operation of these systems would adversely affect
our business and results of operations.
5
Our enhanced services are dependent on leased telecommunications lines, and a
significant disruption or change in these services could adversely affect our
business.
The enhanced services we offer, such as automatic call distribution,
fax to email, real time account management, and the inNetwork(TM) family of
products, are provided to customers through a dedicated network of equipment we
own connected through leased telecommunications lines with capacity dedicated to
us that is based on Internet protocol, which means the communication initiated
by the customer is converted to data packs that are transmitted through the
dedicated network and managed by our software that resides on our equipment
attached to the network. We also move a portion of our voice long distance
service over this dedicated network, because it lowers our cost of providing the
service from the cost of using traditional transmission methods.
We lease telecommunication lines and space at co-location facilities
for our equipment, which represents the backbone of our dedicated network, from
third party suppliers. If any of these suppliers is unable or unwilling to
provide or expand their current levels of service to us that enable us to serve
our customers, the services we offer would be adversely affected. Although we
believe leased telecommunications lines and co-location facilities are available
from alternative suppliers, we might not be able to obtain substitute services
from other providers at reasonable or comparable prices or in a timely fashion.
Any resulting disruptions in the services we offer that are provided over our
dedicated network would likely result in customer dissatisfaction and adversely
affect our operations. Furthermore, pricing increases by any of the suppliers we
rely on for the dedicated network could adversely affect our results of
operations if we are unable to pass pricing increases through to our customers.
Our business could be materially harmed if our computer systems were damaged.
Substantially all of our dedicated network systems are located at four
locations in Los Angeles, Salt Lake City, Dallas, and New York. Our customer
service, billing, and service management systems are located at out offices in
Bluffdale and Draper, Utah. Fires, floods, earthquakes, power losses,
telecommunications failures, break-ins and similar events could damage these
systems. Computer viruses, electronic break-ins, human error, or other similar
disruptive problems could also adversely affect our systems. We do not carry
business interruption insurance. Accordingly, any significant systems disruption
could have a material adverse effect on our business, financial condition, and
results of operations.
We use the Internet in various aspects of our business. The viability of the
Internet as an information medium and commercial marketplace will depend in
large part upon the stability and maintenance of the infrastructure for
providing Internet access and carrying Internet traffic.
Historically we have relied on the Internet for customer service and
billing. Failure to develop a reliable network system or timely development and
acceptance of complementary products, such as high-speed access systems, could
materially harm our business. In addition, the Internet could lose its viability
due to delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity or due to increased
government regulation. If the Internet does not remain a viable conduit for data
and transactional traffic or the manner in which it now operates changes
significantly, then our business and results of operations could be adversely
affected.
6
A fundamental requirement for online communications is the secure transmission
of confidential information over public networks. Our failure to protect this
confidential information could result in liability.
If third parties succeed in penetrating our network security or
otherwise misappropriate our customer information, we could be subject to
liability. Our liability could include claims for unauthorized purchases with
credit card or banking information, impersonation or other similar fraud claims,
as well as for other misuses of personal information, including for unauthorized
marketing purposes. These claims could result in litigation and adverse
publicity, which could have a material adverse effect on our reputation,
business, and results of operations.
Our growth and results of operations are not predictable, which means an
investment in us has greater risk.
Buyers United experienced significant growth in 2003, primarily through
internal growth and the purchase of customer accounts. Recent acquisitions of
assets and customers have substantially increased our operations. We have no
other customer base acquisitions under consideration and cannot predict if or
when another such acquisition opportunity may present itself. Consequently, it
is not possible to predict with any certainty the growth of our business over
the next year, whether internally or through acquisitions. Our ability to
continue our growth and profitability will depend on a number of factors,
including our ability to maintain and expand our independent agent network, the
availability of capital to fund purchases of customers or acquisitions, existing
and emerging competition, and our ability to maintain sufficient profit margins
despite pricing pressures. Furthermore, the growth and development of our
business may be harmed if we are unable to adapt and expand our systems,
procedures, and controls to support and manage our growth. All of these factors
indicate there could be fluctuations in our results of operations and volatility
in our stock price that could expose an investor to greater risk.
Our inability to promote our name and service could adversely affect the
development of our business.
Building recognition of our brand name, "UCN", is beneficial to
attracting additional customers, obtaining favorable reseller agreements with
providers of long distance, and establishing strategic relationships with
independent agents and businesses that can facilitate or enhance our service
offerings and marketing efforts. In January 2004 we filed an application with
the U.S. Patent and Trademark Office to register the mark, but have yet to
receive any response on the application. If we fail to obtain registration of
UCN, we may consider adopting new marks for promotion, so we would gain little
from promoting UCN. Even if we are successful in registering the mark, our
failure to promote and maintain our brand name successfully may result in slowed
growth, loss of customers, loss of market share, and loss of strategic
relationships. We cannot assure you that we will be able to promote our brand
names as fully as we would like, or that promoting our brand name will enable us
to be competitive or improve our results of operations.
Our development of enhanced services could subject us to claims of patent
infringement that would adversely affect our results of operations.
We offer enhanced services through our dedicated network, such as fax
to email. This, and other enhanced services, has been the subject of claims by
certain patent holders that providing the enhanced services violates existing
patent rights covering the manner and method by which the services are
performed. We have not received any notice or claim from any party that any
service we offer violates any such rights. Should we receive such a notice, we
expect that the patent holder would seek a licensing arrangement in which we
would be required to pay a license fee to continue to offer the service, and may
7
seek license payment for past sales of the service using the alleged patented
technology. Payment of any such license fees would have an adverse impact on the
net revenue generated from sales of the enhanced services.
Regulation of IP telephony services is unclear, so the imposition of significant
regulation in the future could adversely affect our operations.
We deliver our enhanced services and move other long distance service
through our VoIP Network. At both the Federal and state level, proceedings and
investigations are pending with respect to whether IP-enabled voice
communications are telecommunications services subject to Federal and state
regulation. A determination that such services are subject to regulation would
likely increase the cost of services we provide, which would adversely affect
our results of operations. Even if a determination is made that our IP delivered
services are not subject to current regulation, there is no assurance that
Federal or state governments will not impose regulation on IP-enabled
communications in the future that would add substantially to our costs of doing
business.
Future sales or the potential for sale of a substantial number of shares of our
common stock could cause the trading price of our common stock to decline and
could impair our ability to raise capital through subsequent equity offerings.
As of April 7, 2004, we have 13,154,579 shares of common stock
outstanding, of which 4,608,739 shares are freely tradable, 3,205,294 shares may
be sold subject to the volume, timing, and other conditions of Rule 144 adopted
under the Securities Act of 1933, 808,546 shares may be sold subject to the
volume, timing, and other conditions of Rule 144 beginning May 1, 2004 and the
remaining 4,532,000 shares may be sold subject to the volume, timing, and other
conditions of Rule 144 beginning March 15, 2005. We agreed with the holders of
5,340,546 restricted shares to file a registration statement with the Securities
and Exchange Commission in April 2004 for the purpose of registering resale of
their shares.
In addition, we have outstanding warrants, options and convertible
notes to acquire 7,461,083 additional shares that are registered for sale by the
holders in the public market under a registration statement filed with the
Securities and Exchange Commission in September 2003, which has been temporarily
suspended until we file an amendment updating the registration statement with
our financial statements for 2003 and other information. Assuming all these
warrants and options are exercised, there would be 20,615,662 shares of common
stock issued and outstanding. We have also reserved for future issuance
6,296,469 additional shares of common stock as follows:
o 3,929,000 shares issuable on conversion of outstanding
preferred stock;
o Up to 2,006,351 shares underlying other warrants and options
that were granted and remained outstanding as of the date of
this filing;
o Up to 211,118 shares reserved for issuance under our stock
plans; and
o Up to 150,000 shares reserved for issuance on conversion of
outstanding notes.
Of the 3,929,000 shares of common stock issuable on conversion of
outstanding preferred stock, 3,374,000 may be sold without limitation under Rule
144(k).
Sales of a substantial number of shares of our common stock in the
public markets, or the perception that these sales may occur, could cause the
market price of our stock to decline, which could adversely affect an investment
in our stock and could materially impair our ability to raise capital through
the sale of additional equity securities. The holders of these outstanding
warrants, options, and
8
convertible securities have the opportunity to profit from a rise in the value
or market price of our common stock and to exercise purchase or conversion
rights when we could obtain equity capital on more favorable terms than those
contained in these securities.
INFORMATION ABOUT BUYERS UNITED
We currently file periodic reports pursuant to the Securities Exchange
Act of 1934. All of our reports, such as annual and quarterly reports, and other
information, such as proxy statements, are filed electronically with the
Securities and Exchange Commission (SEC). Copies of the reports, proxy
statements, and other information may be read and copied at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of such documents by writing to the SEC and paying a fee for the
copying cost. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web
site at (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC.
This prospectus is part of a Registration Statement on Form S-2 that we
filed with the SEC. Certain information in the Registration Statement has been
omitted from this prospectus in accordance with the rules and regulations of the
SEC. We have also filed exhibits and schedules with the Registration Statement
that are excluded from this prospectus. For further information you may:
o Read a copy of the Registration Statement, including the
exhibits and schedules, without charge at the SEC's Public
Reference Room; or
o Obtain a copy from the SEC upon payment of the fees prescribed
by the SEC
Our corporate website is http://www.buyersonline.com. We make available
on this website, free of charge, access to our Annual Report on Form 10-KSB,
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K, Proxy Statement
on Schedule 14A and amendments to those materials filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after we electronically submit such material to the SEC.
INCORPORATION BY REFERENCE
The Securities and Exchange Commission allows us to incorporate by
reference certain of our publicly filed documents into this prospectus, which
means that information included in those documents is considered part of this
prospectus. We incorporate by reference into this prospectus our annual report
on Form 10-KSB for the fiscal year ended December 31, 2003 filed with the
Securities and Exchange Commission on March 30, 2004, a copy of which is being
provided to you with this prospectus, and current report on Form 8-K filed with
the Securities and Exchange Commission on March 17, 2004.
Upon a written or oral request, we will provide to you free of charge a
copy of any or all of such documents incorporated by reference, other than
exhibits to such documents unless the exhibits are specifically incorporated by
reference in those documents. You should direct any requests for documents to:
Kimm Partridge, Secretary
Buyers United, Inc.
14870 Pony Express Road
Bluffdale, Utah 84065
Telephone (801) 320-3300
9
SELLING SECURITY HOLDERS
The following table sets forth as of April 7, 2004 the name of each of
the selling security holders, the number of shares of common stock that each
selling security holder owns, the number of shares of common stock owned by each
selling security holder that may be offered for sale from time to time by this
prospectus, and the percent of our outstanding common stock each selling
security holder will continue hold assuming the sale of all the common stock
offered.
Some of the selling security holders may distribute their shares, from
time to time, to their limited and/or general partners and members, who may sell
shares pursuant to this prospectus. Each selling security holder may also
transfer shares owned by him by gift, and upon any such transfer the donee would
have the same right of sale as the selling security holder. Except as described
in the notes to the table, none of the selling security holders has had a
material relationship with us within the past three years other than as a result
of the ownership of our common stock. We may amend or supplement this prospectus
from time to time to update the disclosure set forth herein.
We are registering 5,504,671 shares of common stock, par value of
$0.001 per share, on behalf of the selling security holders. Of these shares,
4,532,000 shares were acquired in a private placement in March 2004, 808,546
shares represent common stock issued as dividends and on conversion of Series B
Preferred Stock, and 164,125 shares are issuable on exercise of a warrant. All
of the foregoing securities were issued pursuant to exemptions from the
registration requirements of the Securities Act of 1933 provided by Section 4(2)
thereof.
The registration agreement we made with the purchase agreement used in
connection with the private placement provides that no later than 30 days
following the closing we will file a registration statement on Form S-2 to
enable the resale of the shares purchased by the selling security holders in the
private placement, and that we will use all commercially reasonable efforts to
cause the registration statement to be declared effective as promptly as
possible after filing. In the event the registration statement is not declared
effective within 90 days following the closing, then we may be required to pay a
fee to the selling security holders equal to one percent of the total purchase
price of the shares purchased in the private placement on the expiration of the
90-day period plus two percent of that amount per month for each subsequent 30
day period that the registration statement has not been declared effective up to
a maximum aggregate amount of 15 percent of the total purchase price of the
shares purchased. Buyers United will receive no proceeds from this offering,
other than through the possible exercise of the warrant held by Roth Capital
Partners for 164,125 shares at $2.76 per share, or a total of $452,985.
Number Number Of Percentage
Of Shares Shares Owned
Selling Security Holder Owned (1) Offered After
----------------------- --------- ------- -----
033 Growth Partners I, L.P. (2) 585,231 585,231 -0-
033 Growth Partners II, LP (2) 183,123 183,123 -0-
Oyster Pond Partners, LP (2) 134,953 134,953 -0-
033 Growth International Fund Ltd. (2) 291,693 291,693 -0-
Lagunitas Partners LP (3) 521,740 521,740 -0-
Gruber & McBaine International (3) 130,870 130,870 -0-
J Patterson McBaine (3) 76,086 76,086 -0-
Jon D. Gruber & Linda W. Gruber (3) 76,086 76,086 -0-
Firefly Partners LP (3) 65,218 65,218 -0-
Shannon River Partners, LP (4) 241,129 241,129 -0-
Shannon River Partners II, LP (4) 333,871 333,871 -0-
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Wynnefield Partners Small Cap Value, LP I (4) 77,000 77,000 -0-
Wynnefield Partners Small Cap Value, LP (4) 71,000 71,000 -0-
Wynnefield Small Cap Value Offshore Fund, Ltd. (4) 52,000 52,000 -0-
MicroCapital Fund LP 280,000 280,000 -0-
MicroCapital Fund Ltd. 150,000 150,000 -0-
The Pinnacle Fund, L.P. 422,000 422,000 -0-
Westpark Capital, L.P. 350,000 350,000 -0-
Proximity Partners L.P. 150,000 150,000 -0-
Proximity Fund L.P. 125,000 125,000 -0-
Topaz Partners 100,000 100,000 -0-
Graham Partners, L.P. 80,000 80,000 -0-
Incline Capital, L.P. 35,000 35,000 -0-
Acceris Communications Inc. (5) 808,546 808,546 -0-
Roth Capital Partners, LLC (6) 164,125 164,125 -0-
---------------------
(1) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and
the information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rule, beneficial ownership includes
any shares as to which the individual has sole or shared voting power
or investment power and also any shares that the individual has the
right to acquire within 60 days of the date of this prospectus through
the exercise of any stock option or other right. Unless otherwise
indicated in the footnotes, each person has sole voting and investment
power (or shares such powers with his or her spouse) with respect to
the shares shown as beneficially owned. Percentage of beneficial
ownership is based on 13,154,579 shares of common stock outstanding as
of April 7, 2004.
(2) As reported in a Schedule 13G filed with the Securities and Exchange
Commission, 033 Asset Management, LLC, may be deemed to hold an
indirect beneficial interest in the shares held by these funds because
of its status as investment manager for the funds, but 033 Asset
Management, LLC, also reported that it disclaims and economic interest
or beneficial ownership of the shares.
(3) Jon D. Gruber and J. Patterson McBaine are the direct beneficial
holders of a total of 152,172 shares of common stock. Messrs. Gruber
and McBaine are two of the three portfolio managers of Gruber McBaine
Capital Management, LLC . Gruber McBaine Capital Management is the
general partner of Lagunitas Partners LP and Firefly Partners LP.
Further, Gruber McBaine Capital Management is the investment advisor of
Gruber & McBaine International, with full voting and investment
discretion. As a result of these relationships, Messrs. Gruber and
McBaine may be deemed to have an indirect beneficial interest in a
total of 717,828 shares held by Lagunitas Partners LP, Firefly Partners
LP and Gruber & McBaine International.
(4) As reported in a Schedule 13G filed with the Securities and Exchange
Commission, Shannon River Capital Management, LLC may be deemed to hold
an indirect beneficial interest in the shares held by Shannon River
Partners, L.P. and Shannon River Partners II, L.P. Furthermore, Shannon
River Partners, L.P. and Shannon River Partners II, L.P. may be deemed
to hold an indirect beneficial interest in the shares held by
Wynnefield Partners Small Cap Value, LP I, Wynnefield Partners Small
Cap Value, LP, and Wynnefield Small Cap Value Offshore Fund, Ltd.
because of their status as portfolio managers for the funds, which
means Shannon River Capital Management, LLC may also be deemed to hold
an indirect beneficial interest in those shares.
(Notes continued on next page.)
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(5) In December 2002, Buyers United entered into an agreement to purchase
assets of Acceris Communications Inc. (formerly I-Link, Inc.) and its
subsidiary, I-Link Communications, Inc., and license in perpetuity
software developed by Acceris, all of which comprise the VoIP Network
we now own and operate. As a result of the transaction, Acceris
Communications acquired 300,000 shares of Series B Convertible
Preferred Stock and became a principal stockholder of Buyers United.
This preferred stock was converted to 1,500,000 common shares in March
2004 pursuant to an agreement with Acceris that resolved the open
account issues, allowed Acceris to sell 750,000 of the converted common
shares to the same investors that purchased Buyers United common stock
in March 2004, and granted to Acceris the right to include its common
stock in the registration statement of which this prospectus is a part.
(6) This figure represents the shares of common stock issuable upon
exercise of a warrant issued to Roth Capital Partners, LLC as partial
compensation for its services as placement agent in connection with the
private placement we closed in March 2004. Roth Capital Partners is a
registered broker-dealer.
PLAN OF DISTRIBUTION
The selling security holders and any of their pledgees, donees,
assignees and successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling security holders may use any one or more
of the following methods when selling shares:
o Ordinary brokerage transactions and transactions in which the
broker-dealer solicits investors;
o Block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o Purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o An exchange distribution in accordance with the rules of the
applicable exchange;
o Privately negotiated transactions;
o To cover short sales made after the date that the registration
statement of which this prospectus is a part is declared
effective by the Securities and Exchange Commission;
o Broker-dealers may agree with the selling security holders to
sell a specified number of such shares at a stipulated price
per share;
o A combination of any such methods of sale; and
o Any other method permitted pursuant to applicable law.
The selling security holders may also sell shares under Rule 144 under
the Securities Act of 1933, if available, rather than under this prospectus.
Broker-dealers engaged by the selling security holders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling security holders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts
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to be negotiated. The selling security holders do not expect these commissions
and discounts to exceed what is customary in the types of transactions involved.
The selling security holders may from time to time pledge or grant a
security interest in some or all of the shares owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell shares of common stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list of
selling stockholders to include the pledgee, transferee or other successors in
interest as selling stockholders under this prospectus.
Upon Buyers United being notified in writing by a selling security
holder that any material arrangement has been entered into with a broker-dealer
for the sale of common stock through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplement to this prospectus will be filed, if required, pursuant to Rule
424(b) under the Securities Act of 1933, disclosing (i) the name of each such
selling security holder and of the participating broker-dealer(s), (ii) the
number of shares involved, (iii) the price at which such the shares of common
stock were sold, (iv) the commissions paid or discounts or concessions allowed
to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did
not conduct any investigation to verify the information set out or incorporated
by reference in this prospectus, and (vi) other facts material to the
transaction. In addition, upon Buyers United being notified in writing by a
selling security holder that a donee or pledge intends to sell more than 500
shares of common stock, a supplement to this prospectus will be filed if then
required in accordance with applicable securities law.
The selling security holders also may transfer the shares of common
stock in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
The selling security holders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933. Discounts,
concessions, commissions and similar selling expenses, if any, that can be
attributed to the sale of securities will be paid by the selling security holder
and/or the purchasers. Each selling security holder has represented and
warranted to Buyers United that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the common stock.
Buyers United has advised each selling security holder that it may not
use shares registered on the registration statement of which this prospectus
forms a part to cover short sales of common stock made prior to the date on
which the registration statement is declared effective by the Securities and
Exchange Commission. If a selling security holder uses this prospectus for any
sale of the common stock, it will be subject to the prospectus delivery
requirements of the Securities Act of 1933. The selling security holders will be
responsible to comply with the applicable provisions of the Securities Act of
1933 and the Securities Exchange Act of 1934, and the rules and regulations
there under promulgated, including, without limitation, Regulation M, as
applicable to such selling security holders in connection with resales of their
respective shares under the registration statement of which this prospectus is a
part.
Buyers United is required to pay all fees and expenses incident to the
registration of the shares, but it will not receive any proceeds from the resale
of the common stock. Buyers United has agreed to indemnify the selling security
holders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act of 1933. If the selling security holders
use this prospectus for any sale
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of the common stock, they will be subject to the prospectus delivery
requirements of the Securities Act of 1933.
DESCRIPTION OF CAPITAL STOCK
Buyers United's charter authorizes it to issue up to: (i) 100,000,000
shares of common stock, $0.0001 par value per share; and (ii) 15,000,000 shares
of preferred stock, $0.0001 par value per share. As of the date of this
Prospectus, there are 13,154,579 shares of common stock outstanding, and
1,827,500 shares of Series A Convertible Preferred Stock and 420,300 shares of
Series B Convertible Preferred Stock outstanding. In addition, there are
outstanding options, warrants and convertible notes to acquire up to an
additional 9,617,434 shares of common stock.
Common stock
Holders of the common stock are entitled to one vote per share on all
matters submitted to the stockholders for a vote. There are no cumulative voting
rights in the election of directors. The shares of common stock are entitled to
receive such dividends as may be declared and paid by the board of directors out
of funds legally available there for and to share, ratably, in the net assets,
if any, of Buyers United upon liquidation. The stockholders have no preemptive
rights to purchase any shares of our capital stock.
Preferred stock
General. The board of directors, without further action by the holders
of the common stock, is authorized to classify any shares of our authorized but
unissued preferred stock as preferred stock in one or more series. With respect
to each series, the board of directors may determine:
o The number of shares which shall constitute such series;
o The rate of dividend, if any, payable on shares of such
series;
o Whether the shares of such series shall be cumulative,
non-cumulative or partially cumulative as to dividends, and
the dates from which any cumulative dividends are to
accumulate;
o Whether the shares of such series may be redeemed, and, if so,
the price or prices at which and the terms and conditions on
which shares of such series may be redeemed;
o The amount payable upon shares of such series in the event of
the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of Buyers United;
o The sinking fund provisions, if any, for the redemption of
shares of such series;
o The voting rights, if any, of the shares of such series;
o The terms and conditions, if any, on which shares of such
series may be converted into shares of capital stock of Buyers
United of any other class or series;
o Whether the shares of such series are to be preferred over
shares of capital stock of Buyers United of any other class or
series as to dividends, or upon the voluntary or
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involuntary dissolution, liquidation, or winding up of the
affairs of Buyers United, or otherwise; and
o Any other characteristics, preferences, limitations, rights,
privileges, immunities or terms not inconsistent with the
provisions of the Charter.
The availability of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of discouraging takeover proposals, and the
issuance of preferred stock could have the effect of delaying or preventing a
change in control of Buyers United not approved by the board of directors.
Series A Convertible Preferred Stock. Buyers United has outstanding
1,827,500 shares of Series A Convertible Preferred Stock. The Series A Stock is
senior to the common stock with respect to payment of dividends and
distributions in liquidation. Holders of the Series A Stock are entitled to
receive dividends payable semi-annually equal to 8 percent of the liquidation
preference value of the Series A Stock, which is $2.00 per share or a total of
$3,655,000. No dividends or distributions may be made with respect to the common
stock unless all dividend payments on the Series A Stock are current. Each share
of Series A Stock is convertible at the election of the holder to one share of
common stock, subject to adjustment in certain circumstances to prevent dilution
of the equity interest of the holders of the Series A Stock. Buyers United may
convert the Series A Stock to common stock when the market price of our common
stock is $4.00 or more during 30 consecutive trading days. We may redeem the
Series A Stock at the liquidation preference value after January 1, 2005. The
Series A Stock does not have voting rights.
Series B Convertible Preferred Stock. Buyers United has outstanding
420,300 shares of Series B Convertible Preferred Stock. The Series B Stock is
senior to the common stock with respect to payment of dividends and
distributions in liquidation. Holders of the Series B Stock are entitled to
receive dividends payable semi-annually equal to 8 percent of the liquidation
preference value of the Series B Stock, which is $10.00 per share or a total of
$4,203,000. No dividends or distributions may be made with respect to the common
stock unless all dividend payments on the Series B Stock are current. Each share
of Series B Stock is convertible at the election of the holder to five shares of
common stock, subject to adjustment in certain circumstances to prevent dilution
of the equity interest of the holders of the Series B Stock. Buyers United may
convert the Series B Stock to common stock when the market price of our common
stock is $4.00 or more during 30 consecutive trading days. We may redeem the
Series B Stock at the liquidation preference value after January 1, 2005. The
Series B Stock does not have voting rights.
Statutory business combinations provision
Buyers United is subject to the provisions of Section 203 of the
Delaware General Corporation Law. Section 203 provides, with certain exceptions,
that a Delaware corporation may not engage in any of a broad range of business
combinations with a person or an affiliate, or associate of such person, who is
an "interested stockholder" for a period of three years from the date that such
person becomes an interested stockholder unless: (i) the transaction resulting
in a person becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquired 85 percent
or more of the outstanding voting stock of the corporation in the same
transaction that makes such person an interested stockholder (excluding shares
owned by persons who are both officers and directors of the corporation, and
shares held by certain employee stock ownership plans); or (iii) on or after the
date the person becomes an interested stockholder, the business combination is
approved at an annual or special meeting by the corporation's board of directors
and by the holders of at least 66 2/3 percent of the corporation's outstanding
voting stock, excluding shares owned by the interested stockholder. Under
Section 203, an
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"interested stockholder" is defined as any person who is: (i) the owner of 15
percent or more of the outstanding voting stock of the corporation; or (ii) an
affiliate or associate of the corporation and who was the owner of 15 percent or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, through
action of its stockholders, to exempt itself from coverage, provided that such
bylaw or certificate of incorporation amendment shall not become effective until
12 months after the date it is adopted. Buyers United has not adopted such an
amendment to its certificate of incorporation or bylaws.
Limitation on directors' liabilities
Pursuant to the certificate of incorporation and under Delaware law,
directors and executive officers are not liable to Buyers United or its
stockholders for monetary damages for breach of fiduciary duty, except liability
in connection with a breach of duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
dividend payments or stock repurchases illegal under Delaware law, or any
transaction in which a director has derived an improper personal benefit.
Our certificate of incorporation and bylaws provide that we will
indemnify our directors and officers to the fullest extent permitted by law
against liabilities and expenses incurred in connection with litigation in which
these persons may be involved because of their offices with us if they acted in
good faith or in a manner reasonably believed to be in or not opposed to our
best interests. However, nothing in the certificate of incorporation and bylaws
protects or indemnifies a director, officer, employee, or agent against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. To the extent that a director or officer
has been successful in defense of any proceeding, our bylaws provides that he
shall be indemnified against reasonable expenses incurred in connection
therewith.
Penny stock rules
It is likely public transactions in our stock will be covered by the
Penny Stock rules, which impose significant restrictions on broker-dealers and
may affect the resale of our stock. A penny stock is generally a stock that
o Is not listed on a national securities exchange or Nasdaq,
o Is listed in "pink sheets" or on the NASD OTC Bulletin Board,
o Has a price per share of less than $5.00 and
o Is issued by a company with net tangible assets less than $5
million.
The penny stock trading rules impose additional duties and
responsibilities upon broker-dealers and salespersons effecting purchase and
sale transactions in common stock and other equity securities, including
o Determination of the purchaser's investment suitability,
o Delivery of certain information and disclosures to the
purchaser, and
o Receipt of a specific purchase agreement from the purchaser
prior to effecting the purchase transaction.
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Many broker-dealers will not effect transactions in penny stocks,
except on an unsolicited basis, in order to avoid compliance with the penny
stock trading rules. It is likely our common stock will be covered by the penny
stock trading rules. Therefore, such rules may materially limit or restrict a
holder's ability to resell our common stock, and the liquidity typically
associated with other publicly traded equity securities may not exist.
Transfer agent
The transfer agent for the common stock is Atlas Stock Transfer
Company, Salt Lake City, Utah.
INDEMNIFICATION
Under the certificate of incorporation and bylaws of Buyers United, the
board of directors has the authority to indemnify officers and directors to the
fullest extent permitted by Delaware law. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to our
directors, officers, and controlling persons, or to the extent any of the
selling security holders are entitled to indemnification under their agreements
with us, we have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
LEGAL MATTERS
Certain legal matters relating to the validity of the securities
offered by this prospectus will be passed upon for Buyers United by Cohne,
Rappaport & Segal, P.C., Salt Lake City, Utah.
EXPERTS
The financial statements incorporated in this registration statement by
reference from Buyers United, Inc.'s annual report on Form 10-KSB for the year
ended December 31, 2003 have been audited by Crowe Chizek and Company LLC,
independent auditors, as stated in their report, which is incorporated herein by
reference, and has been so incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
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Prospective investors may rely only on the information contained in this
prospectus. Neither Buyers United nor any selling security holder has authorized
anyone to provide prospective investors with information different from that
contained in this prospectus. This prospectus is not an offer to sell nor is it
seeking an offer to buy the shares in any jurisdiction where the offer or sale
is not permitted. The information contained in this prospectus is correct only
as of the date of this prospectus, regardless of the time of the delivery of
this prospectus or any sale of the shares.
BUYERS UNITED, INC.
5,504,671 Shares
Common Stock
_______________
PROSPECTUS
_______________
April 22, 2004